In re Grabill Corp.

Citation121 BR 983
Decision Date14 December 1990
Docket NumberAdv. No. 90 A 0370.,Bankruptcy No. 89 B 01639-89 B 01643
PartiesIn re the GRABILL CORP., an Illinois corporation, F.E.I.N. XX-XXXXXXX, Windsor-Hamilton, Ltd., an Illinois corporation, F.E.I.N. XX-XXXXXXX, Foxxford Group, Ltd., an Illinois corporation F.E.I.N. XX-XXXXXXX, Camdon Companies, Inc., an Illinois corporation, F.E.I.N. XX-XXXXXXX, the Techna Group, Ltd., an Illinois corporation, F.E.I.N. XX-XXXXXXX, Debtors. (Jointly Administered Cases). HERITAGE BANK TINLEY PARK f/k/a Heritage Bremen Bank & Trust Company, Plaintiff, v. Jay STEINBERG, not Individually but as Trustee of the Estate in Bankruptcy of the Grabill Corporation, Defendant.
CourtUnited States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

COPYRIGHT MATERIAL OMITTED

Alexander Terras, LeAnn Pedersen Pope, Burke, Wilson & McIlvaine, Chicago, Ill., for Heritage Bank Tinley Park f/k/a Heritage Bremen Bank & Trust Co.

Matthew J. Botica, Michael A. Ficaro, Nancy Townsend Beggs, Hopkins & Sutter, Chicago, Ill., for Jay Steinberg, Trustee.

MEMORANDUM OPINION

JOHN H. SQUIRES, Bankruptcy Judge.

This matter comes before the Court on the motions of Heritage Bank Tinley Park ("Heritage Bank") for summary judgment pursuant to Federal Rule of Civil Procedure 56, incorporated by reference in Federal Rule of Bankruptcy Procedure 7056, and to dismiss the counterclaims filed by Jay A. Steinberg as trustee (the "Trustee") of the estate of The Grabill Corporation ("Grabill"), pursuant to Bankruptcy Rule 7012. For the reasons set forth herein, the Court, having reviewed the pleadings, the exhibits and affidavits attached thereto, hereby denies the motion for summary judgment and the motion to dismiss.

I. JURISDICTION AND PROCEDURE

The Court has jurisdiction to entertain these motions pursuant to 28 U.S.C. § 1334 and General Rule 2.33(a) of the United States District Court for the Northern District of Illinois. These matters constitute core proceedings under 28 U.S.C. § 157(b)(2)(A), (F) and (O).

II. FACTS AND BACKGROUND
A. THE CONTENTIONS OF THE PARTIES

The facts that give rise to the instant adversary proceeding, filed on May 9, 1990, surround the transfers of the beneficial interests in two Illinois land trusts by William J. Stoecker ("Stoecker"), president, chairman of the board and sole shareholder of Grabill.1 The cause of action is based on various promissory notes secured by trust deeds, security agreements, assignments of rents and other documents, some of which were purportedly executed by Stoecker. These documents are referenced as Exhibits A-F and attached to the complaint.

The complaint seeks a determination as to the perfection and validity of Heritage Bank's security interests upon the proceeds of the sale of the res of the land trusts. The complaint also seeks allowance and payment of Heritage Bank's pre-petition and post-petition interest and attorneys' fees pursuant to 11 U.S.C. § 506(b). Heritage Bank alleges that its receipt of several payments has reduced the debt owed by Stoecker to $770,800.07, as of January 2, 1990, plus interest in the amount of $164.09, which continues to accrue daily, plus attorneys' fees and costs. Heritage Bank seeks a judgment in its favor in the amount of $803,289.89 plus interest after July 19, 1990, in the amount of $164.09 per day, plus attorneys' fees and costs.

In his amended answer, the Trustee denies many of the substantive allegations contained in the complaint. In particular, the Trustee denies that the underlying promissory notes were executed by Stoecker and that the copies attached as exhibits to the complaint are true and correct. The Trustee disputes that Stoecker's outstanding debt to Heritage Bank is $770,800.07, due to an erroneous principal calculation. Similarly, the Trustee denies that the Heritage Bank debt is secured by mortgages upon the res of the land trusts, by collateral assignments of the beneficial interests in the referenced land trusts, and that the copies attached as additional exhibits to the complaint are true and correct.

In addition, the Trustee pleads several affirmative defenses, including that the alleged transfers to Heritage Bank were fraudulent pursuant to 11 U.S.C. § 548(a)(2) and voidable under the Illinois Fraudulent Conveyance Act, and hence, avoidable pursuant to Section 544(b) of the Bankruptcy Code. The Trustee further asserts estoppel and lack of authority in Stoecker to secure the loans. Moreover, the Trustee brings separate counterclaims against Heritage Bank for breach of fiduciary duty and for a declaratory judgment that the line of credit mortgage is void.2 The Trustee's first counterclaim seems to relate to some of the same documentation concerning the land trusts referenced in the complaint because some, but not all, of the exhibits referred to in the counterclaims are attached to the complaint.3 The thrust of the remaining counterclaim appears to be that Stoecker converted Grabill's property to his own use by utilizing that corporation's beneficial interests in the subject land trusts, without proper authorization from Grabill, to secure his personal loans from Heritage Bank, and that Heritage Bank knew of and permitted same, thereby violating its fiduciary duties as the trustee under both land trusts.4

The Trustee asserts that the Grabill estate should recover actual damages of $1.55 million regarding the Westbank land trust, actual damages in the amount of the Grabill land trust assets not to exceed the amount allegedly due Heritage Bank totalling $3 million, and also treble damages as an award of punitive damages against Heritage Bank for its claimed willful and wanton conduct in so breaching its fiduciary duties as alleged by the Trustee. The pleadings allege additional history concerning the two land trusts which provides helpful background to the dispute at bar.

B. THE WESTBANK TRUST BACKGROUND

The pleadings contend that on September 24, 1985, an Illinois land trust described as Land Trust No. 85-2606 (the "Westbank Trust") naming Grabill and/or Stoecker as beneficiary and Heritage Bank as trustee was created. On February 5, 1987, Stoecker allegedly executed an Assignment of Beneficial Interest in the Westbank Trust ("Assignment of the Westbank Trust") to his wife, Grace Stoecker. The Assignment of the Westbank Trust to Grace Stoecker was claimed to have been exempt from taxation under Section 4(e) of the Illinois Real Estate Transfer Act, Ill.Rev.Stat. ch. 120, para. 1004(e) (1987).5 On June 16, 1987, Heritage Bank approved the Assignment of the Westbank Trust to Grace Stoecker upon the sole direction of Stoecker.

Thereafter, on June 22, 1988, Grace Stoecker purportedly reassigned the beneficial interest in the Westbank Trust to Stoecker as a gift to him with no consideration to Grabill. Heritage Bank, as trustee of the Westbank Trust, accepted the Assignment of the Westbank Trust to Stoecker on December 29, 1988. All of these transfers between the Stoeckers were supposedly made without the consent of Grabill and without any consideration paid it. Subsequently, on December 30, 1988, Stoecker executed an Assignment Under Land Trust ("Second Assignment of the Westbank Trust") by which Stoecker and Grabill purported to collaterally assign to Westbank a security interest in the Westbank Trust. Heritage Bank, as trustee of the Westbank Trust, allegedly accepted the Second Assignment of the Westbank Trust on January 3, 1989. The collateral Assignment of the Westbank Trust was executed as security for a $2.5 million loan from Westbank to Stoecker. These transfers are evidenced by Exhibits 4-10 attached to the judge's copy of the original counterclaims.

C. THE GRABILL TRUST BACKGROUND

The pleadings further contend that on February 10, 1986, an Illinois land trust described as Land Trust No. 86-2676 (the "Grabill Trust") naming Patricia M. Gilbert Enterprises, Ltd., ("Gilbert") as sole beneficiary and Heritage Bank as trustee was created (Trustee's Exhibit 1). Thereafter, on February 14, 1986, Gilbert purportedly assigned all of its rights, powers, privileges and beneficial interest in the Grabill Trust to Grabill (Trustee's Exhibit 2). On July 23, 1987, Stoecker executed a Land Trust Security Agreement (the "First Assignment") by which Stoecker purported to assign to Heritage Bank a security interest in Stoecker's beneficial interest in the Grabill Trust (Complaint Exhibit D, p. 1). The First Assignment was supposedly executed as security for a $2.5 million loan from Heritage Bank to Stoecker, individually, for the stated purpose of acquiring "working capital". Stoecker executed a promissory note evidencing the loan on July 23, 1987, in the principal amount of $2.5 million in favor of Heritage Bank (Complaint Exhibit A). In addition, on July 23, 1987, Heritage Bank as trustee under the Grabill Trust executed a Trust Deed6 (Complaint Exhibit C) in the amount of $2.5 million and an Assignment of Rents7 (Complaint Exhibit E) by which Heritage Bank, as land trustee, purported to grant Heritage Bank, as lender, a security interest in the properties which were the res of the Grabill Trust as security for the $2.5 million note.

Subsequently, on July 24, 1987, Stoecker, as president and chairman of the board of Grabill, executed a hypothecation agreement entitled "Owner's Consent" (Complaint Exhibit F). This hypothecation agreement authorized Stoecker to "deliver, pledge, assign and transfer to Heritage Bank all or any part of the Collateral Assignment of Beneficial Interest in the Grabill Trust belonging to Grabill under the Grabill Trust. The hypothecation agreement was executed by Grabill "in consideration of any loan or other financial accommodation . . . at any time made or granted to William J. Stoecker". Same was executed as part of the loan transaction involving the $2.5 million note.

On December 19, 1988, Stoecker executed a Land Trust Security Agreement (the "Second Assignment") by which Stoecker purported to...

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