In re Kimball Hill, Inc.

Citation565 B.R. 878
Decision Date20 March 2017
Docket NumberCase No. 08bk10095
Parties IN RE KIMBALL HILL, INC., et. al., Debtors.
CourtUnited States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

Attorneys for TRG Venture Two, LLC: Douglas J. Lipke and William W. Thorsness, Vedder Price P.C., Chicago, Illinois

Attorneys for Fidelity and Deposit Company of Cornelius F. Riordan, Brandon G. Hummel Maryland: and Alison M. Finn, Riordan McKee & Piper, LLC, Chicago, Illinois

Attorney for KHI Post–Confirmation Trust: Mark L. Radtke, Shaw Fishman Glantz & Towbin LLC, Chicago, Illinois

MEMORANDUM DECISION

Timothy A. Barnes, United States Bankruptcy Judge

This matter comes on for 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 to a purchaser of assets from the above-captioned bankruptcy case. 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.

For the reasons more fully set forth below, upon review of the parties' respective filings and after conducting a hearing on the matter, the court finds that TRG has established that the claims brought against it by F & D in the state court actions are precluded by the confirmation order entered in this case. The motion will be, therefore, by separate order concurrent herewith, GRANTED in the manner described herein. A separate hearing on damages will follow.

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 core 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) ; In re Radco Merch. Servs., Inc. , 111 B.R. 684, 686 (N.D. Ill. 1990). 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).

While the court presumes at this point both jurisdiction and constitutional authority to hear and determine this matter under the foregoing, this matter will be revisited below.

PROCEDURAL HISTORY

In taking up the Motion, the court has considered the arguments of the parties at the October 19, 2016 and December 14, 2016 hearings on the Motion (the "Hearings"), and has reviewed and considered the following filed documents relating to the Motion:

(1) Response of Fidelity and Deposit Company of Maryland in Opposition to TRG Joint Venture, LLC's Motion for Entry of Order (I) Enforcing Confirmation Order; (II) Directing Dismissal of State Court Claims; (III) Awarding Damages and (IV) Granting Related Relief [Dkt. No. 3994] (the "Response");
(2) Amended Response of Fidelity and Deposit Company of Maryland in Opposition to TRG Joint Venture, LLC's Motion for Entry of Order (I) Enforcing Confirmation Order; (II) Directing Dismissal of State Court Claims; (III) Awarding Damages and (IV) Granting Related Relief [Dkt. No. 3998] (the "Amended Response"); and
(3) Purchaser's Reply in Support of Motion for Entry of Order (I) Enforcing Confirmation Order; (II) Directing Dismissal of State Court Claims; (III) Awarding Damages and (IV) Granting Related Relief [Dkt. No. 4002] (the "Reply").

The court has also taken into consideration any and all exhibits submitted in conjunction with the Motion and the foregoing. Though these items do not constitute an exhaustive list of the filings in the above-captioned bankruptcy case, the court has taken judicial notice of the contents of the docket in this matter. See Levine v. Egidi , Case No. 93C188, 1993 WL 69146, at *2 (N.D. Ill. Mar. 8, 1993) (authorizing a bankruptcy court to take judicial notice of its own docket); In re Brent , 458 B.R. 444, 455 n.5 (Bankr. N.D. Ill. 2011) (Goldgar, J.) (recognizing same). The court has also considered the procedural history and previous court filings in this case, as is discussed below in detail.

BACKGROUND

The history of this matter is largely undisputed. Prior to petitioning for bankruptcy relief, Kimball Hill, Inc. ("Kimball Hill" and together with its affiliates, "KHI"), was a residential construction business with operations across the United States. In that capacity, KHI was party to numerous subdivision construction projects in the State of Illinois and elsewhere. Included in the Illinois construction projects are those at issue here, located in Elgin, Montgomery, Sugar Grove, Yorkville and Shorewood, Illinois (the "Developments").1

As was not uncommon with such subdivision construction, KHI was subject to any number of restrictions relating to the Developments. Those at issue here arose out of annexation agreements between KHI and the municipality having jurisdiction over the subdivision (the "Annexation Agreements"). Each Annexation Agreement contained terms and conditions under which the subdivision development would proceed pursuant to the Illinois Municipal Code, 65 ILCS 5/11.15.1–1, et seq ., and each was recorded on or near its effective date.

As was also not uncommon for such developments, KHI obtained bonds (the "Performance Bonds") securing its performance with respect to the Developments, including with the restrictions placed on it by the Annexation Agreements. F & D acted as the surety for such Performance Bonds, which means that, in exchange for a fee, F & D was contractually obligated to make good financially for any failure of KHI within the scope of the Performance Bonds. In return, F & D had a right of indemnity from KHI that was memorialized in one or more indemnity agreements (the "Indemnity Agreements").

On April 23, 2008 (the "Petition Date"), Kimball Hill and 29 of the other KHI entities (collectively, the "Debtors") filed voluntary petitions for chapter 11 bankruptcy relief. Shortly after the Petition Date, the court entered an order providing for the joint administration of all of the Debtors' cases pursuant to Federal Rule of Bankruptcy Procedure 1015 (together, the "Cases"). In the Schedules and Statements of Financial Affairs filed by the Debtors, the Debtors listed and made reference to a significant number of indemnity obligations. See , e.g. , First Amended Schedules of Assets and Liabilities re: Kimball Hill, Inc., at Schedules F & G [Dkt. No. 477].

The general bar date for the filing of proofs of claims was set as August 1, 2008 (the "Bar Date"). Order (A) Setting Bar Date for Filing Proofs of Claim and (B) Approving Form and Manner of Notice Thereof [Dkt. No. 359]. On or before the Bar Date, F & D filed ten proofs of claim against an equal number of Debtor entities (collectively, the "F & D Claims"). Each of the F & D Claims not only expressly asserted claims under the Indemnity Agreements, but also asserted claims under "principals of common law" and "Suretyship." See , e.g. , Proof of Claim #1636 filed in Case 08–10095 on August 1, 2008 and attachments thereto (capitalization in original).

On February 6, 2009, the Debtors objected to eight of the F & D Claims on the grounds that they were duplicative. Debtors' Second Omnibus Objection to Certain (A) Duplicative Claims and (B) Overstated Claims for Voting Purposes Only [Dkt. No. 965] (the "First Claims Objection"). F & D responded but later withdrew its response. The court thereafter sustained the First Claims Objection, disallowing the subject F & D Claims for voting purposes only. Order Granting Objection to Certain (A) Duplicative Claims and (B) Overstated Claims for Voting Purposes Only [Dkt. No. 1163].

On March 12, 2009, the court entered an order (the "Confirmation Order")2 confirming the Debtors' joint plan of liquidation (the "Plan").3 The Plan and the Confirmation Order discharged and released all claims of parties that voted in favor of the Plan against the Debtors, the KHI Trust (defined below) and other identified parties, specifically providing that:

[O]n and after the Effective Date, Holders of Claims and Interests voting to accept the Plan ... shall be deemed to have conclusively, absolutely, unconditionally, irrevocably, and forever, released and discharged the Debtors, the Post–Consummation Trust, the Liquidation Trust, and the Released Parties from any and all Claims, Interests, obligations, rights, suits, damages, Causes of Action, remedies, and liabilities whatsoever, including any derivative Claims asserted on behalf of a Debtor, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in
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