In re Fliss
| Decision Date | 03 December 2019 |
| Docket Number | Case No. 15 B 29567 |
| Citation | 609 B.R. 775 |
| Parties | IN RE: John W. FLISS, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Joel A Schechter, Law Offices Of Joel Schechter, Attorneys for Debtor
John Sheldon, Elliot S. Wiczer, Wiczer & Sheldon, LLC, Attorneys for Creditor
Opinion Sustaining Claim Objection
Federal district courts have original and exclusive jurisdiction of all cases under title 11, the Bankruptcy Code (the "Code"). 28 U.S.C. § 1334(a). The federal district courts also have original but not exclusive jurisdiction of all civil proceedings arising under, arising in or related to bankruptcy cases. District courts are allowed to refer their bankruptcy cases to the bankruptcy judges for their districts. The District Court for the Northern District of Illinois has referred its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. Internal Operating Procedure 15(a).
Bankruptcy judges may hear and determine all cases under the Code and all core proceedings arising under the Code, or arising in or related to a case under the Code, once referred, and may enter appropriate orders and judgments, subject to review under section 158 of the Judicial Code. 28 U.S.C. § 157(b)(1) This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(B) - an action to determine the allowance or disallowance of claims against the bankruptcy estate.
On July 24, 2016, the Debtor filed an Objection to the Claim of creditor Generation Capital I, LLC ("Generation Capital I"). Docket 61.
In response to a motion to disallow the claim as a sanction because the creditor did not make adequate court-ordered disclosures, Docket 88, the court, on January 5, 2017, disallowed Generation Capital I's claim. Docket 97.
The District Court vacated the January 5, 2017 disallowance order because it was entered without a finding that the creditor had acted wilfully in failing to produce information. The District Court also vacated a January 9, 2017 order that confirmed the Debtor's plan. The claim objection and the motion to disallow are before the court for ruling.
After the District Court remand, an evidentiary hearing was held on Thursday, October 31, 2019. A motion for sanctions, filed post-appeal on July 19, 2018, was withdrawn on May 31, 2019. Dockets 150, 223.
On April 22, 2009, borrowers Duraguard Services, LLC ("Duraguard") and Polymeric Solutions, LLC ("Polymeric") executed a promissory note in favor of lender Barrington Bank and Trust Company, N.A. ("Barrington") to obtain a loan in the principal amount of $200,000.
Debtor John Fliss, Mark E. Barr, Lawrence E. Wojciak ("Wojciak") and The Sherry R. Wojciak Revocable Trust dated February 16, 1999 ("the Trust") personally guaranteed the note. Each guarantor executed a commercial guaranty ("Commercial Guaranty") dated on or about April 22, 2009. Joint Stipulated Facts ("Joint Stip."), Docket 222, ¶ 2; Claimant Ex. 3. Duraguard and Polymeric executed business loan and commercial security agreements. Joint Stip. ¶ 3; Claimant Ex. 4.
Change in term agreements were executed by Duraguard and Polymeric on April 22, 2010 and June 22, 2010. Joint Stip. ¶ 4.
The parties defaulted on the loan. On May 16, 2011, Barrington filed a Verified Complaint and Confession of Judgment ("Barrington Complaint") in the Circuit Court of Cook County, Illinois (the "State Court Litigation"). The Barrington Complaint asserted claims against the Debtor and the other defendants, including Lawrence E. Wojciak. Joint Stip. ¶ 5.
On May 23, 2011, a week after the case was filed, the Circuit Court entered a judgment in favor of Barrington in the amount of $208,639.95 (including costs and attorney's fees) and against the Debtor and co-defendants Mark E. Barr, Lawrence E. Wojciak and the Trust, jointly and severally. Joint Stip. ¶ 6.
On February 24, 2012, Barrington and Generation Capital I entered into a Note Sale and Assignment Agreement ("Note Agreement"), pursuant to which all of Barrington's right, title and interest to the State Court Litigation and the loan documents that Barrington and the Debtor were party to, including the State Court Judgment, were assigned, sold and transferred to Generation Capital I. Joint Stip. ¶ 7. The Note Agreement provides that in exchange for a $240,000 payment to Barrington, in the form of a cashiers check or wire transfer, Barrington would assign to Generation Capital I all of its rights in the loan documents and the State Court Judgment. Joint Stip. ¶ 8.
Two days later, on or about February 26, 2012, a settlement agreement was entered into by and between Barrington, Lawrence Wojciak and the Trust settling the state court judgment. Joint Stip. ¶ 9. Paragraph 2 of that agreement provides that in consideration of the $240,000 payment by Wojciak and/or the Trust to Barrington the state court judgment would be settled. Joint Stip. ¶ 10. Pursuant to ¶¶ 5 and 6 of the agreement Wojciak and the Trust released Barrington from any claims and pursuant to ¶ 7, Barrington released Wojciak and the Trust from any claims. Joint Stip. ¶ 11. Paragraph 3 provided that upon receipt of the settlement amount Barrington would assign the loan documents to Generation Capital, LLC (not Generation Capital I, the plaintiff in the state court case). Joint Stip. ¶ 12.
The wire transfer to Barrington of the $240,000 settlement amount pursuant to the settlement agreement was authorized by Sherry Wojciak from an account owned by Generation Capital II, LLC and for the beneficiaries Duraguard and Polymeric. Joint Stip. ¶ 13.
In contrast, however, in the complaint he filed seeking contribution, Lawrence Wojciak stated that he "Plaintiff has paid more than his respective and just proportion of the joint indebtedness to the Bank." Fliss Exhibit 4, Second Amended Verified Complaint, 11 CH 10253, ¶ 22. This court finds that he was correct when he said that he paid the $240,000, not Generation Capital I. He used the LLCs as masks to assume a different identity to pursue the Debtor for the entire debt, not just a contribution share.
The claimant argued at some point that the statements made by Lawrence Wojciak in the 11 CH 10253 pleading are not relevant or admissible. This court disagrees and does not recall being asked to enter a protective order prohibiting the consideration of such herein. What he says about the transactions in issue is relevant and reliable.
The state court ruled in 2015, however, that the settlement agreement was never satisfied, that the matter was resolved pursuant to the Note Agreement wherein Generation Capital I became the plaintiff in the state court litigation:
It follows that, as of February 27, 2012, when Barrington received $240,000 from Plaintiff, Plaintiff stepped into Barrington's shoes and has a live cause of action against John W. Fliss, Mark E. Barr, Lawrence E. Wojciak and The Sherry R. Wojciak Revocable Trust Dated 2/16/99 for an outstanding judgment in the amount of $204,797.70.
Claimant's Exhibit 13, March 12, 2015 Order, p. 4.
Sherry Wojciak executed a letter of authorization dated February 24, 2012 to start the wire transfer of the settlement amount to Barrington from an account at Schwab in the name of Generation Capital II. Joint Stip. ¶ 14. Generation Capital I borrowed the funds from Generation Capital II; Generation Capital I signed a note in favor of Generation Capital II for the funds paid to Barrington. Joint Stip. ¶ 26.
A court order was entered in the state court litigation pursuant to which Generation Capital I was substituted in Barrington's place as the plaintiff. Joint Stip. Facts ¶ 15.
On October 24, 2012, Lawrence Wojciak filed a Second Amended Verified Complaint against the Debtor and others seeking equitable contribution. Joint Stip. ¶ 16. Lawrence sued Mark Barr, John Fliss, Duraguard, Polymeric and Autohouse Garage in that action. He did not sue co-obligor The Sherry R. Wojciak Trust. Fliss Exhibit 4. This failure to sue highlights this court's finding that the merger doctrine applies to extinguish the debt.
In 2011, an operating agreement was prepared for Generation Capital I whose members and percentage interests consisted of Larry Wojciak, Trustee of the Lawrence E. Wojciak Restatement of Trust (98%), Sherry R. Wojciak, Trustee of the Sherry R. Wojciak Restatement of Trust (1%) and Matthew Wojciak (1%). Joint Stip. ¶ 17.
In 2011, an operating agreement was prepared for Generation Capital II whose members and percentage interests consisted of Sherry R. Wojciak, Trustee of the Sherry R. Wojciak Restatement of Trust (98%) and Matthew Wojciak (2%). Joint Stip. ¶ 18.
Generation Capital I was formed as a limited liability company and registered in Delaware on March 30, 2011. Joint Stip. ¶ 19. Generation Capital II was formed as a limited liability company and registered in Delaware on March 30, 2011. Joint Stip. ¶ 20.
On March 1, 2011, Sherry R. Wojciak executed a Restatement of The Sherry R. Wojciak Trust. Sherry stipulates that she signed the document creating the original Trust in 1999. Sherry also stipulates that she signed the Restatement notwithstanding that the signature page bears the signature of Lawrence Wojciak and refers to the Lawrence Wojciak Restatement of Trust. Joint Stip. ¶ 21. That her husband signed this document when she should have supports this court's conclusion that the Generation Capital I and Generation Capital II entities, and the trusts, along with Lawrence Wojciak and Sherry R. Wojciak, do not operate independently of one another and are generally interchangeable in a way that supports this court's findings that the merger doctrine has extinguished the debt in issue.
According to Sherry R. Wojciak's December 30, 2016 affidavit, the Sherry R. Wojciak Restatement of Trust and Generation Capital II were set up for estate planning purposes and that neither that Trust nor Generation Capital II filed tax returns as the profit...
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Fliss v. Generation Capital I, LLC
...Debtor's claim objection, which denied Generation Capital I's claim in its entirety; R. 1-4; see also In re Fliss (Bankruptcy Opinion), 609 B.R. 775 (Bankr. N.D.Ill. 2019); (ii) on the same day, the Bankruptcy Court entered a short-form order doing the same; R. 1-5; (iii) on December 4, 201......