In re Kimball Hill, Inc.

• Citation: 620 B.R. 894
• Decision Date: 30 September 2020
• Docket Number: Case No. 08bk10095
• Parties: IN RE: KIMBALL HILL, INC., et al., Debtors.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

620 B.R. 894

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

Case No. 08bk10095

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

Signed September 30, 2020

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: Margaret Anderson and Maryland: David Koropp, Fox, Swibel Levin & Carroll LLP., Chicago, IL. Attorney for KHI Post-Confirmation Trust: Mark L. Radtke, Cozen O'Connor, Chicago, IL.

MEMORANDUM DECISION

Timothy A. Barnes, United States Bankruptcy Judge The matter before the court comes on for consideration following the vacating, in part, and remand of this court's determination of 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") filed by TRG Venture Two, LLC ("TRG") by the District Court for the Northern District of Illinois (the "District Court"). The District Court has asked this court on remand to determine whether this court's prior determination of contempt and damages stands in light of the standards espoused in the subsequently issued opinion of the United States Supreme Court in Taggart v. Lorenzen , ––– U.S. ––––, 139 S. Ct. 1795, 204 L.Ed.2d 129 (2019) (" Taggart ").

In the Motion, TRG alleges that the court should find Fidelity and Deposit Company of Maryland ("F&D") in contempt for violation of the court's confirmation order in this case. Findings of Fact, Conclusions of Law, and Order Confirming Joint Plan of Kimball Hill, Inc. and its Debtor Subsidiaries Pursuant to Chapter 11 of the United States Bankruptcy Code [Dkt. No. 1118] (the "Confirmation Order").

The court has issued two opinions in this case concerning the Motion. The first found that F&D violated the injunction in the Confirmation Order when it filed state court lawsuits against TRG, seeking to have the state courts hold that TRG was liable to F&D for costs it incurred as an indemnity of the Kimball Hill Debtors [Dkt. No. 4051]. In re Kimball Hill, Inc ., 565 B.R. 878 (Bankr. N.D. Ill. 2017) (" Kimball I"). The second, entered after a trial, found that F&D's violations of the Confirmation Order were grounds for an award of contempt damages in favor of TRG [Dkt. No. 4292]. In re Kimball Hill, Inc ., 595 B.R. 84 (Bankr. N.D. Ill. 2019) (" Kimball II"). F&D appealed both Kimball I and Kimball II.

In the Memorandum Opinion and Order [Dkt. No. 4350], Fid. & Deposit Co. of Maryland v. TRG Venture Two, LLC , Case No. 19 C 389, 2019 WL 5208853 (N.D. Ill. Oct. 16, 2019) (the " Appellate Opinion"), remanding the matter, Judge Gúzman of the District Court held that this court was correct in Kimball I in determining that the bankruptcy court had subject-matter jurisdiction to determine the Motion and that it was correct for this court not to abstain from such determination. Appellate Opinion, 2019 WL 5208853, at *2–3. The District Court further held that, "[b]ased on the Bankruptcy Court's informed and considered rulings as stated above, the [District] Court cannot find that [the bankruptcy court] abused its discretion in interpreting the Plan to include TRG as a successor under the Plan" and in interpreting that F&D's claims were released under the Plan. Id. at *4–5.

The District Court, however, remanded the matter to the bankruptcy court, asking this court to determine whether contempt was appropriate under the standards set forth in Taggart , which was determined by the Supreme Court after Kimball II was entered. Specifically, the Appellate Opinion provides, "[i]t is not clear whether the standard articulated in Taggart would alter the Bankruptcy Court's decision that F&D acted in contempt of its order. Thus, because the Bankruptcy Court did not expressly consider whether there was a ‘fair ground of doubt’ as to whether F&D's conduct might be lawful, its order granting [the Motion] is vacated and remanded for a determination of contempt under the standard articulated in Taggart. " Appellate Opinion, 2019 WL 5208853, at *6.¹

On remand, the bankruptcy court entered a scheduling order for TRG and F&D to brief two, distinct issues under the Appellate Opinion:

a. Given the evidence in this case, including that upheld in the Appellate [Opinion], is the standard set forth in Taggart satisfied (and if so, how); and

b. If the evidence in this case does not satisfy such standard, can or should the bankruptcy court reopen evidence in order for the parties to address such standard (and if so, how).

Scheduling Order [Dkt. No. 4358] (the "Scheduling Order").

Both parties have complied with the court's Scheduling Order and argued their positions on the Motion in light of the Appellate Opinion in a hearing held on April 20, 2020 (the "Hearing").

For the reasons set forth below, the court finds that the evidence in this case is sufficient to allow the court to determine whether F&D's violation of the Confirmation Order satisfies the standards for contempt set forth by the Supreme Court in Taggart . The court, therefore, finds no cause to reopen evidence in this case in order to determine the Motion under the Taggart standard. Further, the court finds that F&D's violation of the injunction set forth in the Joint Plan of Reorganization of Kimball Hill, Inc. and Its Debtor Subsidiaries Pursuant to Chapter 11 of the Bankruptcy Code [Dkt. No. 814, as amended] (the "Plan") and memorialized in the Confirmation Order satisfies that standard. As a result, the damages set forth in Kimball II remain the proper determination of the damages stemming from F&D's contempt. This resolves fully the issue on remand and concludes the matter before the court.

For the sake of brevity, the court incorporates all findings of Kimball I and II and the Appellate Opinion in this court's decision of the Motion on remand.

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 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 has statutory authority to 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 bankruptcy 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). Absent consent, 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, 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 , 575 U.S. 665, 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").

In this court's initial determinations of the Motion, F&D argued that the bankruptcy court does not have jurisdiction or should have abstained from adjudicating the Motion. The court rejected those arguments, finding instead in both Kimball I and II that it possesses the jurisdiction and statutory and constitutional authority to determine the Motion, Kimball I, 565 B.R. at 882, 888-91 ; Kimball II, 595 B.R. at 89–90, and that abstention was not appropriate. Kimball I, 565 B.R. at 891–92. The District Court affirmed the bankruptcy court's findings regarding its authority and abstention. Appellate Opinion, 2019 WL 5208853, at *2–3. That determination is the law of this case.

While F&D originally made no mention of the court's authority to determine the Motion on remand, new counsel² for F&D has mentioned in recent hearings, most notably the hearing on the motion of the liquidating trust administrator under the confirmed Plan (the "Plan Administrator") for a final decree in this case, that the court may not have jurisdiction to consider the Motion. To the extent that F&D's attempts to assert again that this court may not determine the Motion based on jurisdiction, statutory or constitutional authority or abstention theories, such an argument is not appropriate on remand. United States v. Husband , 312 F.3d 247, 251 ...