In re Irmen

• Decision Date: 07 December 2007
• Docket Number: Adversary No. 07 A 00404.,Bankruptcy No. 07 B 03103.
• Parties: In re Walter IRMEN, Debtor. Kenneth M. Neiman, individually and as assignee of Mercantile Holdings, Inc., Plaintiff, v. Walter Irmen, Defendant.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

379 B.R. 299

In re Walter IRMEN, Debtor Kenneth M. Neiman, individually and as assignee of Mercantile Holdings, Inc., Plaintiff, v. Walter Irmen, Defendant.

Bankruptcy No. 07 B 03103.

Adversary No. 07 A 00404.

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

December 7, 2007.

Kenneth M. Neiman, pro se.

Jeffrey Strange, Jeffrey Strange & Associates, Wilmette, IL, for Defendant.

AMENDED MEMORANDUM OPINION REGARDING DEFENDANT WALTER IRMEN'S MOTION TO DISMISS PLAINTIFF KENNETH M. NEIMAN'S ADVERSARY COMPLAINT PURSUANT TO FRCP 12(b)(6) (Bankruptcy Rule 7012)

JACK B. SCHMETTERER, Bankruptcy Judge.

Defendant Walter Irmen ("Irmen," "Defendant," or "Debtor") filed his Chapter 7 bankruptcy case on February 22, 2007. Plaintiff Kenneth M. Neiman ("Neiman" or "Plaintiff") filed this related Adversary Complaint against Irmen. Plaintiff filed in his individual capacity and as assignee of Mercantile Holdings, Inc., an Illinois corporation. The Complaint objects to Irmen's discharge under 11 U.S.C. § 727 and to dischargeability of certain alleged debt under 11 U.S.C. § 523. Irmen has moved to dismiss Neiman's Complaint pursuant to Rule 12(b)(6) Fed.R.Civ.P. made applicable by Rule 7012 Fed. R. Bankr.P. For reasons set forth below, Irmen's Motion to Dismiss Plaintiff's Adversary Complaint was granted in part and denied in part.

MATTERS ALLEGED IN COMPLAINT

Prior to filing his Chapter 7 bankruptcy case, Irmen was president of three affiliated companies, Auxano, Inc., Auxano Services, Inc., and Auxano Wireless, Inc. (collectively referred to as "Auxano"). All were closely held corporations registered in Illinois with shares held by Irmen and/or his wife. Auxano was in the business of acting as a general contractor for several construction projects in Illinois and various other states, for clients including BP Corporation North America ("BP") and Millenium Venture Group, Inc. ("MVG"). Disputes arose between Auxano and several of its clients resulting in litigation in various states with several judgments entered against Auxano and Irmen. All Auxano affiliated businesses have since dissolved.

Neiman is the president of Mercantile Holdings, Inc. ("Mercantile"), an Illinois corporation. On March 12, 2005, while Auxano was still operating, Mercantile entered into an agreement, titled "Agreement For Assignment of Claim & Mechanics Lien" ("Agreement"), with Irmen and Auxano wherein Irmen caused Auxano to assign to Mercantile any causes of action Auxano held against BP, MVG, and various other of Auxano's clients. The Agreement acknowledged that those clients failed to pay for services provided by Auxano and that Auxano did not have the resources to pursue claims against them. The Agreement further stated that Irmen would cooperate with Mercantile's efforts to enforce these claims. Additionally, the Agreement stated that Neiman is a third party beneficiary of the contract between the parties. Irmen personally guaranteed this contract.

After the Agreement was executed, several of Auxano's clients, including MVG and BP, sued Auxano and Irmen for breach of contract, resulting in several judgments against Irmen. Irmen subsequently filed for Chapter 7 relief wherein Neiman and Mercantile were listed as creditors with "unknown" claims. On March 1, 2007, Neiman, in his capacity as president of Mercantile, caused Mercantile to assign all causes of action against Irmen and Auxano to himself. Shortly after Irmen filed his bankruptcy case, Neiman, acting pro se in the bankruptcy case, sent Irmen several document requests. About the same time, Mercantile, represented by its own attorney, sought leave to conduct an examination of Irmen pursuant to Fed. R. Bankr.P. 2004. Neiman attempted to join in that motion. Mercantile was granted leave to conduct the Rule 2004 examination of Irmen, but Neiman was denied leave to conduct his own examination as part of Mercantile's examination. Neiman then filed this Adversary Complaint pro se as assignee of Mercantile, objecting to Irmen's discharge and the dischargeability of certain alleged debt.

Although "Count I" and "Count II" are referred to in the Complaint, those parts of the pleading are part of each substantive Count and do not purport to state separate causes of action. The eight substantive Counts allege false oaths on schedules (Count III), failure to maintain or produce documents (Count IV), failure to explain significant monetary transactions (Count V), action for declaration of non-dischargeability against Irmen relating to MVG and BP (Counts VI and VII), action for declaration of non-dischargeability against Irmen pursuant to 11 U.S.C. § 523(a)(6) (Count VIII), action to declare judgment non-dischargeable pursuant to 11 U.S.C. §§ 523(a)(4) & (a)(6) (Counts IX and X).

Other background facts alleged are referred to in the discussion below.

JURISDICTION AND VENUE

The issues arise under 28 U.S.C. § 157, and are referred to this Court under Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A). Subject matter jurisdiction arises under 28 U.S.C. § 1334(b). Venue is proper under 28 U.S.C. § 1409.

NEIMAN'S ABILITY TO PROCEED WITHOUT COUNSEL

Neiman is not authorized nor has ever been authorized to practice law in Illinois. Irmen first argues that Neiman's entire suit should be dismissed because he is engaged in an unauthorized practice of law by bringing this suit pro se as assignee of all claims held by Mercantile. In Illinois, a corporation cannot file a complaint unless through a licensed attorney. Berg v. Mid-America Industrial, Inc., 293 Ill. App.3d 731, 228 Ill.Dec. 1, 688 N.E.2d 699, 701 (1997). Any action filed by a corporation without an attorney is "null and void ab initio." Id. Neiman has made clear that he does not intend to employ an attorney to pursue his Complaint.

Defendant relies on Biggs v. Schwalge, 341 Ill.App. 268, 93 N.E.2d 87 (1950). In Biggs, the president of a corporation attempted to avoid the rule requiring a corporation be represented by an attorney in any legal proceeding. He did so by assigning claims of the company to himself and filing the claims pro se. His case was dismissed after he was ordered to obtain an attorney and refused to do so. The Biggs plaintiff argued that, as an assignee, he was the legal holder of the claim and therefore entitled to pursue the claim pro se. This argument was rejected as an attempt by a non-lawyer to avoid the requirement that a corporation be represented by an attorney and held "an assignment cannot be used as a subterfuge to enable plaintiff to indulge his overwhelming desire to practice law, without complying with the requirements for admission to the bar." Id., at 88.

Neiman filed this action both individually and as assignee of Mercantile's claims against Irmen. Under authority cited in Biggs, Neiman is indeed precluded from representing Mercantile pro se. Neiman's act as president of Mercantile to assign Mercantile's claims to himself does not allow him to proceed in this action to pursue Mercantile's claims without an attorney.

Neiman contends that Biggs is inapplicable because he is also a third party beneficiary under the Agreement. He seeks to proceed pro se because he is representing his own interest as beneficiary under that contract. Neiman relies on language in paragraph twenty six of the Agreement: "It is expressly understood that while Kenneth M. Neiman is not a party or otherwise obligated under this agreement, Kenneth M. Neiman is a third party beneficiary under this agreement."

It is therefore necessary to consider Illinois third party beneficiary law. In this state, where a contract is executed for direct benefit of a third party, that party may sue for a breach of that contract in his or her own right, "even where the third person is a stranger to the contract and the consideration." Olson v. Etheridge, 177 Ill.2d 396, 226 Ill.Dec. 780, 686 N.E.2d 563, 566 (1997). It is manifestly practical to allow a third party beneficiary to sue the promisor directly. This rule promotes judicial efficiency by omitting the privity requirement, "under which the beneficiary must sue the promisee, who then must sue the promisor." Moreover, the promisor can raise any defense against the third party beneficiary that it could raise against the promisee. Id.

To have a valid third party beneficiary contract, "the promisor's intention must be evidenced by an express provision in the contract identifying the third party beneficiary." McCoy v. Illinois Int'l Port Dist., 334 Ill.App.3d 462, 268 Ill.Dec. 439, 778 N.E.2d 705, 712 (2002) (quoting A.J. Maggio Co. v. Willis, 316 Ill.App.3d 1043, 250 Ill.Dec. 376, 738 N.E.2d 592, 599 (2000)). Whether a party is a third party beneficiary is examined on a case-by-case basis by looking at the intent of the parties. "In making this determination, it must appear from the language of the contract when properly construed that the contract was made for the direct benefit of the third person and that the benefit was not merely `incidental.'" Id. (quoting Midwest Concrete Products Co. v. LaSalle National Bank, 94 Ill.App.3d 394, 49 Ill. Dec. 968, 418 N.E.2d 988, 990 (1981)). The general presumption is that the parties intend that the contract only applies to the original parties and not others. For a third party to have standing to sue under a contract, the contract must make clear the intention that the contract was undertaken for the third party's direct benefit. Id.

Applying the foregoing principles, it is clear Neiman is a third party beneficiary under the Agreement. Paragraph twenty six expressly states that Neiman is a third party beneficiary to the Agreement assigning Auxano's claims to Mercantile. The Agreement, by that express provision, evidences a clear intent that the Agreement was made for benefit of Neiman. Since Neiman is third party...