In re Grocerland Coop., Inc.

• Decision Date: 02 August 1983
• Docket Number: Bankruptcy No. 78 B 2644.
• Citation: 32 BR 427
• Parties: In re GROCERLAND COOPERATIVE, INC., an Illinois Corporation, Bankrupt.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

32 B.R. 427 (1983)

In re GROCERLAND COOPERATIVE, INC., an Illinois Corporation, Bankrupt.

Bankruptcy No. 78 B 2644.

United States Bankruptcy Court, N.D. Illinois, E.D.

August 2, 1983.

Paul Fox, Holleb & Coff, Ltd., Chicago, Ill., for petitioner.

Mark Fine, Baum, Glick & Wertheimer, Chicago, Ill., for respondent.

MEMORANDUM OPINION

FREDERICK J. HERTZ, Bankruptcy Judge.

This cause of action involves the validity of a claim filed against Grocerland Cooperative, Inc. (hereinafter referred to as debtor). The debtor was a purchasing cooperative incorporated under the laws of Illinois. Its members consisted of retail grocery stores not affiliated with a national supermarket chain.

The corporate purpose of the debtor was to purchase grocery goods in bulk amounts. The discounts obtained from the bulk purchases were to be passed along to the member grocery stores in the form of lower prices for grocery goods. Consequently, it was hoped that this arrangement would enable the smaller grocery stores to compete more effectively with the larger supermarket chains.

The debtor's operations were primarily based from a warehouse located at 3636 West 51st Street, Chicago, Illinois. The warehouse formed the corpus of a land trust (No. 17576) held by LaSalle National Bank and Trust Company (hereinafter referred to as "LNB"). The debtor signed a 30 year lease with LNB, as trustee, to use the warehouse for the sale and distribution of grocery goods. The lease commenced on December 1, 1959.

LNB's authority to act as lessor was conferred under the terms of the land trust. The land trust agreement specifically designated LNB as both the legal and equitable title holder of the warehouse. The land trust agreement contained the customary Illinois land trust provisions concerning the respective rights and duties of the trustee and beneficiaries.¹ Eighty-four different entities and participants were beneficiaries of land trust No. 17576. The largest interest in the trust was held by the debtor. The debtor held approximately a 14% beneficial interest in the land trust.

The lease agreement was honored without major difficulties until some time in 1977. At that point, the debtor began to encounter financial difficulties. On April 6, 1978, an involuntary petition in bankruptcy was filed against the debtor by three petitioning creditors. On May 15, 1978, the debtor was adjudicated a bankrupt.

The first meeting of creditors was held on June 6, 1978. Unsecured claims involving over 500 creditors were scheduled by the debtor. The scheduled unsecured claims alone represented liabilities in excess of $2,000,000.00. Frank Del Medico (hereinafter referred to as trustee) was elected as trustee on November 19, 1980.

Zack Ritsos (hereinafter referred to as Ritsos), a beneficial holder of a 6.87% interest in the land trust, filed a timely proof of claim against the debtor for $653,986.88.² Ritsos' interest in the land trust was held in joint tenancy with his wife. The amount claimed purportedly represented unpaid present and future obligations of the debtor due under terms of the lease. Of that amount, $300,000.00 was listed as damages suffered by the trust for failure of the debtor to maintain the warehouse premises. No further specification was provided in the proof of claim as to how the $300,000.00 figure was arrived at.

The balance of the claim is based upon alleged unpaid rent and real estate taxes. This court notes that the warehouse was sold in the early part of 1979. The beneficiaries of the land trust have already received a cash distribution from the proceeds of the sale of the warehouse. The sale price of the warehouse was $732,550.00, only $80,000.00 more than the total amount sought in the claim filed by Ritsos.

In his proof of claim, Ritsos listed himself as beneficial owner of land trust No. 17576. He further represented that he was filing the claim on behalf of all the beneficiaries of the land trust. The portion of the proof of claim form which inquires whether an individual is acting as agent in filing the claim was carefully scratched out. There is no other evidence, other than Ritsos' own representation, that he was acting as the duly authorized agent of the beneficiaries of land trust No. 17576. It might also be noted that Ritsos was an officer and director of the debtor. It is further noted that Ritsos was an attorney and thus should have had knowledge of the requisite requirements for filing a claim as the representative of a class.

Subsequent to the filing of the proof of claim, Ritsos died. His brother, Peter Ritsos, also an attorney, has attempted to substitute himself as the purported class representative of the beneficiaries. The trustee has objected to the proof of claim, contesting the standing of either Zack or Peter Ritsos to act as a class representative absent proof of authority. Furthermore, the trustee contends that the purported claim is illusory and should accordingly be denied. Consequently, this court must determine to what extent, if at all, the individual claim of Zack Ritsos should be allowed.

I. THE INDIVIDUAL CLAIM OF ZACK RITSOS

In that numerous questions of law and fact have been raised by the parties, this court will first address the issue of whether the beneficial owner of a land trust can bring a claim for damages suffered by the trust. If this answer turns out to be negative, the issue of class representation will be mooted.

The pre-Code Act is applicable to this proceeding by virtue of the filing date of the involuntary petition, which occurred while the Act was still in force. Bankruptcy Rule 302 provides that ". . . a claim must be filed within six months after the first meeting of creditors . . ." in order for a creditor to share in the distribution of any proceeds from a bankrupt's estate. See In re Ebeling, 123 F.2d 520, 521 (7th Cir., 1941) (a claim shall not be proved against a bankrupt estate subsequent to the six month bar date of Section 57(N)); See also Matter of Evanston Motor, Inc., 26 B.R. 998, 1003 (D.C.N.D.Ill., 1983). (The District Court cited Hoos & Co. v. Dynamics Corp., 570 F.2d 433, 437-39 (2d Cir., 1978) for the proposition that a bankruptcy court should not use its equitable powers to extend the six month filing date).

In the case at bar, a proof of claim was filed within the requisite time period. However, the trustee alleges that Ritsos was not authorized to file the claim. Consequently the trustee contends that absent proof of authority to act as a class representative, Ritsos' claim should be denied.

Bankruptcy Rule 301(a) provides in relevant part that ". . . a proof of claim shall consist of a statement in writing setting forth a creditor's claim and . . . with certain exceptions not applicable to this proceeding . . . shall be executed by the creditor or by his authorized agent . . ." The Act defined creditor to include "anyone who owns a debt, demand, or claim provable in bankruptcy, and may include his duly authorized agent, attorney, or proxy." 11 U.S.C. § 1(11) (1976), repealed by Bankruptcy Reform Act (November 6, 1978). See generally 1 Collier on Bankruptcy, ¶ 1.12, at 76-84.1 (14th Ed. 1981). Prior to determining whether Ritsos was a creditor within the meaning of Section 1(11), this court must first determine whether federal or state law should be applied.

The Supreme Court in Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938) held that: "Except in matters governed by the Federal Constitution or by acts of Congress, the law to be applied in any case is the law of the state." The bankruptcy courts fall squarely within the above exception to the general rule that state law applies. Their jurisdiction is granted by an Act of Congress. Section 2(2) of the Act provided that the bankruptcy court was invested with such jurisdiction as to enable them to exercise original jurisdiction to allow or disallow claims against the estate. 11 U.S.C. § 11(2) 1976), repealed by Bankruptcy Reform Act (November 6, 1978).

However, cognizant of the above principles, this court notes the importance of state law in determining the origin and existence of claims against a bankrupt's estate. See In re Spanish Trails Lanes, Inc., 16 B.R. 304, 306 (Bkrtcy.D.Ariz.1981) (bankruptcy courts in determining which claims are allowable should look to state law in determining origin and existence of claim; however after this initial determination is made, state law is no longer controlling and the court is free to use its equitable powers in allowing or disallowing a claim); See also Matter of Zienel Furniture, Inc., 13 B.R. 264, 265 (Bkrtcy.E.D.Wis., 1981) (rights of parties to real estate are governed by state law unless there are contrary provisions in the Bankruptcy Code).

Thus, this court will apply a two-pronged analysis to resolve the issue before the court. First, the court must analyze Illinois law to determine the nature of the ownership interest one has as a beneficiary of an Illinois land trust. Second, the purpose and language of Bankruptcy Rules 301 and 302 must be analyzed to determine whether the beneficiary of a land trust is to be considered a proper claimant. See In re Romano, 426 F.Supp. 1123, 1127 (N.D.Ill., 1977), appeal disposed of as moot, 618 F.2d 109 (7th Cir., 1980) (district court employed two prong analysis in determining whether the beneficiary of a land trust could qualify as a debtor under Chapter XII).

In order to determine what the rights and interests of a beneficiary to a land trust are, it is a prerequisite to understand what a land trust is. A land trust is typically:

created by execution of a deed in trust transferring all legal and equitable title to a trustee. The deed specifically provides that one dealing with the trustee need not inquire about the trust agreement and stipulates that the interest of the beneficiary is personal property. The deed is recorded. A second document, the trust

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