In re Fultz

• Decision Date: 30 March 1999
• Docket Number: Bankruptcy No. 98 B 00187,Adversary No. 98 A 00777.
• Citation: 232 BR 709
• Parties: In re James R. FULTZ, Debtor. Federal Sign, a division of Federal Signal Corporation, Plaintiff, v. James R. Fultz, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

232 B.R. 709 (1999)

In re James R. FULTZ, Debtor Federal Sign, a division of Federal Signal Corporation, Plaintiff, v. James R. Fultz, Defendant.

Bankruptcy No. 98 B 00187, Adversary No. 98 A 00777.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

March 30, 1999.

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Anthony C. Valilulis, Scott N. Schreiber, Anne L. Sarkinen, Much, Shelist Freed Denenberg Ament Bell & Rubenstein, P.C., Chicago, IL, for Plaintiff.

Robert R. Benjamin, Beverly A. Berneman, Benjamin & Berneman, Ltd., Chicago, IL, for Defendant.

David R. Brown, Roselle, IL, trustee.

MEMORANDUM OPINION

JOHN H. SQUIRES, Bankruptcy Judge.

This matter comes before the Court on the complaint of Federal Sign, a division of Federal Signal Corporation ("Federal Sign"), to determine dischargeability of a debt under § 523(a)(2)(a) of the Bankruptcy Code, 11 U.S.C. § 101 et seq. The Debtor, James R. Fultz ("Fultz"), has moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c), incorporated by reference in Federal Rule of Bankruptcy Procedure 7012. The Plaintiff has moved for summary judgment pursuant to Federal Rule of Civil Procedure 56(a), incorporated by reference in Federal Rule of Bankruptcy Procedure 7056. For the reasons set forth herein, the Court hereby grants the Debtor's Motion for Judgment on the Pleadings. Accordingly, the Court denies the Plaintiff's Motion for Summary Judgment.

I. JURISDICTION AND PROCEDURE

The Court has the power to entertain this matter pursuant to 28 U.S.C. § 1334 and Local General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(I).

II. FACTS AND BACKGROUND

This matter is the latest in a series of lawsuits between the parties, arising out of Fultz's former employment with Federal Sign. Fultz admits he was a Federal Sign employee from February 1987 until June 1992. (Answer ¶ 5; Plaintiff's 12(M) Statement ¶ 3).

Sometime in the fall of 1990, Fultz expressed an interest in earning a Master's of Business Administration ("MBA") degree from Northwestern University ("Northwestern"). Federal Sign agreed to sponsor him. (Answer ¶ 8; Plaintiff's 12(M) Statement, Exhibit D). In a letter agreement (the "Letter Agreement") addressed to Fultz, dated November 15, 1990 (Complaint Group Exhibit B; Plaintiff's 12(M) Statement, Exhibit D), Federal Sign set forth the terms of its agreement with Fultz. The Letter Agreement provides in pertinent part:

Federal Sign will grant you an educational loan payable jointly to James Fultz and Northwestern University upon signing a promissory note ... provided you meet certain conditions. The amount of the loan shall not exceed $17,400 (principal) plus interest as evidenced by such Promissory Note. The granting of said loan requires that: You are enrolled in, attending and receiving passing grades in courses contributing towards your MBA from Northwestern University, you continue to be an employee of Federal Sign

....

You should be aware that you are considered an "at will" employee of Federal Sign. This means your employment may be terminated at any time with or without cause by Federal Sign or yourself. If you are still employed by Federal Sign at the completion of your first year classes which are required for graduation with a Masters (sic) of Business Administration from Northwestern University, Federal Sign will forgive one-half of the principal sum and interest on the promissory note. Assuming that you are still employed by Federal Sign on January 15, 1993, Federal Sign will forgive one-half of the remaining principal sum and interest outstanding on the promissory note. On January 15, 1994, the principal sum and interest outstanding will be forgiven if you are still employed by Federal Sign.

Should you terminate your employment by resignation prior to full forgiveness of the educational loan evidenced by your Promissory Note to Federal Sign, you will be responsible for payment of the principal amount outstanding plus interest accrued thereon within a reasonable period of time (not exceed one year) following your termination of employment. If your employment is terminated without cause, where "cause" shall be defined and given the same meaning as "misconduct" as defined in § 602 of the Illinois Unemployment Insurance Act ... then you would be immediately released from such Promissory Note.

The promissory note (the "Note") provided in pertinent part in subparagraph "a" that Fultz would default on the loan by "making false representations for purposes of obtaining the loan" (See Complaint, Group Exhibit B Bates Stamp No. 000003 & 000004; Plaintiff's 12(M) Statement, Exhibit D) or in subparagraph "f" by "making any representations that are false in any material respect...." Id.

Federal Sign paid Fultz's first year tuition in the amount of $17,400 (Answer ¶ 9; Plaintiff's 12(M) Statement ¶ 6, Exhibit A ¶ 9, Exhibit D) and Fultz commenced his studies in January 1991. However, the parties did not actually execute the Letter Agreement and the Note until June 4, 1992. (Answer ¶ 14; Plaintiff's 12(M) Statement ¶ 8, Exhibit D).

Fultz withdrew from the MBA program in December 1991. (Answer ¶ 11; Plaintiff's 12(M) Statement, Exhibit A ¶ 11). He had passed several courses, but received one grade of "unsatisfactory" and two "incompletes." (Complaint, Exhibit A p. 8; Plaintiff's 12(M) Statement, Exhibit B p. 8-9). He planned to audit a first-year class in the spring of 1992, but failed to complete it. (Answer ¶ 12; Plaintiff's 12(M) Statement, Exhibit A ¶ 12).

At the June 4, 1992 meeting held to execute the Letter Agreement and the Note, Fultz submitted to Federal Sign an Addendum to Promissory Note (the "Addendum") (Answer ¶ 14; Plaintiff's 12(M) Statement ¶ 11, Exhibit D). The Addendum provided that Fultz had successfully completed his first year in the MBA program. (Complaint, Group Exhibit B, Bates Stamp No. 000005; Plaintiff's 12(M) Statement ¶ 10, Exhibit D). The Addendum further provided that Federal Sign thus forgave one half of the loan. Id.

Federal Sign executed the Addendum on June 4, 1992. Federal Sign terminated Fultz's employment on June 26, 1992. (Complaint Exhibit A p. 4; Plaintiff's 12(M) Statement, Exhibit B p. 4).

In 1993, Federal Sign filed a complaint against Fultz in the Circuit Court of Cook County, Illinois ("Circuit Court") (Answer ¶ 7; Plaintiff's 12(M) Statement, Exhibit A ¶ 7), seeking reimbursement for the entire educational loan. (Complaint, Exhibit A p. 1; Plaintiff's 12(M) Statement, Exhibit B p. 1). After the Circuit Court ruled in favor of Fultz, Federal Sign appealed to the Appellate Court of Illinois, First District ("Appellate Court"), which ruled in favor of Federal Sign on June 28, 1996. (Answer ¶ 7; Plaintiff's 12(M) Statement, Exhibit A ¶ 7, Exhibit B). The Appellate Court found that "the evidence presented overwhelmingly shows that, in June 1992, Fultz was not entitled to any forgiveness of one-half of his indebtedness to Federal Sign because he had not successfully completed the first year of the MBA program." (Complaint, Exhibit A p. 15; Plaintiff's 12(M) Statement, Exhibit B p. 15). The Appellate Court further found that Fultz misrepresented that he had successfully completed the first year of his MBA program (Complaint, Exhibit A pp. 15 & 17; Plaintiff's 12(M) Statement, Exhibit B pp. 15 & 17) and that by making such misrepresentations, Fultz "clearly breached the default provisions of the loan agreement." (Complaint, Exhibit A p. 15; Plaintiff's 12(M) Statement, Exhibit B p. 15). Thus, the Appellate Court decided that the full amount of the loan became due and payable on June 4, 1992. (Complaint, Exhibit A p. 6; Plaintiff's 12(M) Statement, Exhibit B p. 6). The Appellate Court remanded the matter to the Circuit Court with directions to enter judgment in favor of Federal Sign. (Complaint, Exhibit A p. 17; Plaintiff's 12(M) Statement, Exhibit B p. 17).

On April 23, 1997, the Circuit Court entered judgment in favor of Federal Sign and against Fultz in the amount of $22,395.86. (Answer ¶ 22; Plaintiff's 12(M) Statement, Exhibit A ¶ 22). On June 23, 1997, Federal Sign filed a motion in Circuit Court seeking fees and costs in the amount of $56,945. (Answer ¶ 23; Plaintiff's 12(M) Statement, Exhibit A ¶ 23).

In the meanwhile, Fultz sued Federal Sign in the United States District Court for the Northern District of Illinois, alleging that Federal Sign discriminated against him. He appealed this case to the Seventh Circuit Court of Appeals. (Debtor's Motion for Judgment on the Pleadings and Memorandum in Support Thereof p. 2).

On August 26, 1997, Fultz and Federal Sign executed a Settlement Agreement and Release ("Settlement Agreement") (Debtor's Motion for Judgment on the Pleadings, Exhibit A). Both parties denied any wrongdoing (Debtor's Motion for Judgment on the Pleadings, Exhibit A p. 1) and the Settlement Agreement provides that it "shall not be construed as an admission by any party of any wrongdoing or liability in connection with the Lawsuits or any other aspect of their relationship." (Debtor's Motion for Judgment on the Pleadings, Exhibit A p. 2 ¶ 2). Among other terms of the Settlement Agreement, Fultz agreed to pay $15,500 to Federal Sign at execution and to make monthly payments of $1,000 each to Federal Sign for a ten-month period beginning October 1, 1997. (Debtor's Motion for Judgment on the Pleadings, Exhibit A p. 2 ¶ 6). Federal Sign agreed to give Fultz a Satisfaction of Judgment if and when Fultz completed making the required payments. (Debtor's Motion for Judgment on the Pleadings, Exhibit A p. 4 ¶ 7). If Fultz failed to make a payment when due and within fourteen days after written notice from Federal Sign, he would be in default under the Settlement Agreement. (Debtor's Motion for Judgment on the Pleadings, Exhibit A p. 4 ¶ 9)...