In re Kimball Hill, Inc.

• Decision Date: 03 January 2019
• Docket Number: Case No. 08bk10095
• Citation: 595 B.R. 84
• Parties: IN RE KIMBALL HILL, INC., et al., Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

595 B.R. 84

IN RE KIMBALL HILL, INC., et al., Debtors.

Case No. 08bk10095

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

Signed January 3, 2019

Attorneys for TRG Venture Two, LLC: Douglas J. Lipke and William W. Thorsness, Vedder Price P.C., Chicago, IL, Edward B. Ruff, III, and Michael P. Turiello, Pretzel & Stouffer, Chartered, Chicago, IL

Attorneys for Fidelity and Deposit Company of Maryland: Cornelius F. Riordan, Schuyler, Roche & Crisham, P.C., Chicago, IL, Alan I. Moldoff, Eckert Seamans Cherin & Mellott, LLC, Philadelphia, PA

Attorney for KHI Post-Confirmation Trust: Mark L. Radtke, Fox Rothschild LLP, Chicago, IL

MEMORANDUM DECISION

TIMOTHY A. BARNES, Judge.

This matter comes on for continued consideration on the Purchaser's Motion for Entry of an Order (I) Enforcing Confirmation Order; (II) Directing Dismissal of State Court Claims; (III) Awarding Damages; and (IV) Granting Related Relief [Dkt. No. 3969] (the "Motion") brought by TRG Venture Two, LLC ("TRG"), the successor owner of assets from the above-captioned bankruptcy cases. The Motion is opposed by Fidelity and Deposit Company of Maryland ("F & D"), a surety on projects relating to those assets and a creditor of the bankruptcy estate.

The court has previously found that F & D's pursuit of TRG violated the confirmation order in this case. See In re Kimball Hill, Inc. , 565 B.R. 878 (Bankr. N.D. Ill. 2017) (Barnes, J.) (the " Violation Decision"). In the Violation Decision, the court deferred ruling on whether and to what extent damages may be appropriate in light of F & D's violation. The court thereafter conducted a trial on damages and this memorandum decision constitutes the court's determination of the issues at trial, and thereby is the final determination of issues reserved in the Violation Decision.

For the reasons set forth below, the court finds that TRG has suffered damages as a result of F & D's pursuit of litigation that violated orders entered by this court. The court awards TRG damages based on legal costs, consulting costs and project management costs, as well as reduced property value, which are to be paid by F & D. The court declines to award punitive damages as TRG has not demonstrated that the court has the authority to do so. By the award of the amounts set forth herein, the Motion is fully resolved and the previous interim stay of all directives that F & D must dismiss claims against TRG is removed.

JURISDICTION

The federal district courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the "Bankruptcy Code"). 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under the Bankruptcy Code, or arising in or related to cases under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Bankruptcy judges must therefore determine, on motion or sua sponte , whether a proceeding is a core proceeding or is otherwise related to a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the court may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1), (c). Instead, the bankruptcy court must "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1).

In addition to the foregoing considerations, a bankruptcy judge must also have constitutional authority to hear and determine a matter. Stern v. Marshall, 564 U.S. 462, 464, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Constitutional authority exists when a matter originates under the Bankruptcy Code or, in noncore matters, where the matter is either one that falls within the public rights exception, id. , or where the parties have consented, either expressly or impliedly, to the bankruptcy court hearing and determining the matter. See, e.g. , Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1939, 191 L.Ed.2d 911 (2015) (parties may consent to a bankruptcy court's jurisdiction); Richer v. Morehead , 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough").

Each of the foregoing has been previously addressed by the court in the Violation Decision. 565 B.R. at 888-91. In sum, the court has jurisdiction and statutory authority to hear and determine the Motion as it is a request to enforce an injunction extant in an order confirming a liquidating chapter 11 plan. That jurisdiction is not, however, exclusive. Id. at 891.

The court also has constitutional authority to enter a final order with respect to the Motion because both parties have consented to this court's hearing and determining the issues therein—TRG by filing the Motion and F & D by filing its claim and by its participation in this case. More importantly, no party has contested the jurisdiction or authority of this court in this matter.

Accordingly, the court has the jurisdiction, statutory authority and constitutional authority to hear and determine the Motion.

BACKGROUND

Before the court determines the final stage of the Motion, it is helpful to consider the history of the proceedings before the court, as well as the scope of the Violation Decision.

A. Violation Decision

The Motion was filed on July 18, 2016. In addressing the Motion, the parties agreed to first take up whether a violation of the court's confirmation order in this case had occurred. The parties thus briefed the Motion, limited to this issue, in September and October 2016. The court delivered its ruling on those issues, the Violation Decision, orally to the parties on December 14, 2016 and memorialized it in writing on March 20, 2017. In the Violation Decision, the court determined that "the claims asserted by F & D in the State Court Lawsuits were released and enjoined under the Plan and Confirmation Order. As such, in bringing the claims against TRG in the State Court Lawsuits, F & D has violated the terms of the Plan Injunction, and in so doing, has subjected itself to further order of this court and civil contempt damages." Violation Decision, 565 B.R. at 902. The Violation Decision directed F & D to dismiss its claims against TRG in the state court and scheduled a status hearing to address damages. Id.

B. Motion to Alter

At that status hearing the parties informed the court that they had agreed that a damages determination prior to an appeal, if any, was the appropriate next step. The court therefore set a deadline for TRG to file a statement of damages and continued the status hearing to shortly after that deadline. On April 3, 2017, before the deadline for TRG to file its statement of damages, however, F & D filed the Motion of Fidelity and Deposit Company of Maryland to Alter and/or Amend the March 20, 2017 Memorandum Decision and Order [Dkt. No. 4068] (the "Motion to Alter").

F & D argued in the Motion to Alter that the court should reconsider its ultimate conclusion in the Violation Decision, asserting many of the same arguments it had raised in its previous briefing on the Motion. F & D also asked that the court clarify whether F & D could pursue TRG based on assignments F & D had received from municipalities and that the court authorize it to stay its state court efforts against TRG rather than dismiss the suits, pending the ultimate resolution of the Motion. The parties briefed the Motion to Alter and the court ruled on the issues therein, denying the Motion to Alter in all respects but one. On that one remaining issue, that the court's directive that F & D dismiss its state court efforts against TRG should be stayed pending full resolution of the Motion, the Motion to Alter was granted. See Order Denying, In Part, and Granting, in Part, Motion of Fidelity and Deposit Company of Maryland to Alter and/or Amend the March 20, 2017 Memorandum Decision and Order [Dkt. No. 4187].

C. Equitable Defenses

The court then set a further briefing schedule on damages. TRG filed a statement of damages to which F & D responded and TRG replied in support thereof. In the briefing, F & D argued that it needed more time to conduct discovery and that certain additional legal issues would be more efficiently addressed before a determination of damages. TRG did not agree. Ultimately, the court allowed briefing on F & D's assertion of equitable "defenses" that it alleged would prevent any damages award and thus would moot the need for discovery and evidence of damages.

The parties briefed these alleged equitable defenses and, on November 1, 2017, presented oral argument before the court. The court orally ruled on January 24, 2018 that F & D's laches defense was not well taken as it was already resolved against F & D in the Violation Decision, see Tr. at p. 32, Jan. 24, 2018 [Dkt. No. 4228], but that mitigation was a defense that could be addressed only after receiving evidence on the damages themselves. Id. at pp. 36-37.

The court then continued the Motion for parties to discuss whether discovery was needed and possible trial dates. On February 6, 2018, F & D again requested that the court revisit...