In re LLC 1 07CH12487

• Decision Date: 30 September 2019
• Docket Number: Case No. 13bk49315
• Citation: 608 B.R. 830
• Parties: IN RE: LLC 1 07CH12487, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

608 B.R. 830

IN RE: LLC 1 07CH12487, Debtor.

Case No. 13bk49315

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

Signed September 30, 2019

Debtor: LLC 1 07CH12487, Chicago, IL

Attorney for Debtor:¹ Adam B. Goodman, Chicago, IL

Attorney for Kirk Etter: B. Lane Hasler, Chicago, IL

Attorney for N. Neville Reid, Chapter 7 Trustee: Bruce de'Medici, Oak Park, IL

Trial Attorney for Patrick S. Layng, United States Trustee: Stephen G. Wolfe, Chicago, IL

MEMORANDUM DECISION

Timothy A. Barnes, United States Bankruptcy Judge On September 30, 2018, exactly one year ago, the District Court vacated this court's oral decision dismissing the above-captioned case (the "Case") and remanded the Case "for specific findings and conclusions permitting dismissal under the Bankruptcy Code, or for further proceedings."¹ Because the underlying Motion to Dismiss² was fundamentally flawed—so much so that it caused the District Court to misunderstand in its entirety this court's dismissal ruling—and because the movant, the Debtor, appeared to be defunct and was no longer represented by counsel,³ on remand and after a considerable period of time during which no party sought any form of relief from the court,⁴ the court issued an Order to Show Cause,⁵ asking again why the Case should not be dismissed.

At the hearing on June 5, 2019 (the "Hearing") on the Order to Show Cause, the court was swayed by the arguments of the United States Trustee—a party that had not appeared on the Motion to Dismiss, but who had appeared at the Hearing at the request of the court—that a legitimate purpose remained for this otherwise abusive and wasteful case and the court therefore determined that "further proceedings" were appropriate. As a result, the Motion to Dismiss was denied. Having learned from the Remand Order that this could not, as it often does, rest solely on the oral determination, the court at that time made clear to the parties that it would memorialize that ruling in writing following that denial. This Memorandum Decision does just that.

This Memorandum Decision also affords the court an opportunity to clarify the District Court's analysis in the Remand Order and to respond to what appears to be criticism directed at this court from the District Court. Because, as just noted, the Motion to Dismiss was fundamentally flawed and because this court's oral ruling was not as fulsome in communicating the basis for dismissal independent of that motion as a written ruling might have been, the Remand Order's analysis is based on a different section of the Bankruptcy Code⁶ than the section upon which dismissal of this Case was actually based. As a result, the District Court was critical of and discounted this court's earnest effort to interpret the law and the facts correctly. Further, because the Remand Order was published, there is now a potential disharmony between the law in this area and that of the Remand Order. This Memorandum Decision attempts to harmonize the results, to fix what this court might have broken by failing to rule in a way that led the District Court to the right result.

As one might imagine, this Case is an extraordinary case in many ways, and not just because of the foregoing. As a result, this Memorandum Decision takes on an extraordinary form. The court will dispense with the undersigned's customary precatory opening—the recitation of jurisdiction⁷ —and will instead launch straight ahead.

HISTORY

The history of this Case is long and disturbing on many levels. The Order to Show Cause sets forth that history—up to the point of the order's issuance only, of course—in a fair amount of detail. Because of that, the findings in the Order to Show Cause, which is attached to this Memorandum Decision as Attachment A, are adopted and incorporated as if fully set forth in herein.⁸

That adoption, however, is likely frustrating to the reader by causing failure of continuity here and does not, as a matter of necessity, communicate what happened in this Case after the issuance of the Order to Show Cause and leading up to the Hearing. For that reason, the court will discuss both the prior and more recent history and thereby use this opportunity to provide some color on the issues presented here that is not evident from the unembellished factual recitations in the Order to Show Cause.

A. Prior to Remand

As the facts of the Order to Show Cause demonstrate, this Case has been largely a waste of time for all concerned. It has, unquestionably, been a waste of this court's limited time and resources. That is unusual for a chapter 7 liquidation of a defunct business.

The Case was commenced in 2013. In the more than five years since then, the only thing that has happened of any lasting effect is that relief from stay has been granted several times.

At the time of commencement, the Debtor's Schedules indicated limited real estate assets and tax lien claims against the same. More than a year after the commencement of the Case, however, an unscheduled creditor became involved. That creditor, Kirk Etter ("Etter"), through filings seeking discovery from the chapter 7 trustee (the "Trustee") and separately an accounting from either the Debtor or the Trustee, appeared poised to usurp the role of the Trustee in this Case.

That initial foray was largely unsuccessful, however, both because Etter failed to appear and prosecute the former request and, with respect to the latter, because the Trustee opposed the extraordinary relief requested and challenged Etter's standing as an unscheduled creditor with no claim on file.

Subsequently, the Case seemed to go in fits and starts. The Debtor sought voluntary dismissal of the Case.⁹ All of the active parties, namely the Debtor, Etter and the Trustee agreed at that time to dismissal, only to have the agreement fall apart before an order could be entered. The dismissal motion was thereafter withdrawn and the Debtor's counsel withdrew and was replaced. The parties nonetheless continued to work together to tie up details in order to dismiss the Case. While the Trustee found assets in the Debtor's bankruptcy estate to administer and Etter, in turn, filed a secured proof of claim,¹⁰ the Trustee retained an accountant to assist him in preparing a final tax return and the Case seemed poised once again to conclude.

Here is where things began to go awry, if they had not already. In order to complete the tax return for the estate, the Trustee needed to see the Debtor's tax returns which had not, for some reason, yet been produced. Rather than the Trustee seeking those returns, however, Etter once again stepped into the Trustee's shoes and filed a motion to compel the Debtor to turn over the same. Recall that Etter's first filings in the Case had been unsuccessful. So too would this have been, if the Trustee had not appeared and asked the court to grant Etter's request and thus the bankruptcy estate the cost of making a duplicate one.¹¹ In the face of the Trustee's support, the court granted Etter's motion instead of requiring an appropriate one from the Trustee.¹²

That was a mistake. In so doing, the court inadvertently set into motion a chain of events that included years of scorched-earth litigation, delay and frustration. The court and other parties were inundated with Etter's further discovery requests, multiple motions to compel and numerous motions for sanctions. Many of these motions, as were the first motions brought by Etter, were brought in violation of the Local Rules and were denied for such failures.¹³

Further complicating matters, the Trustee changed his position on more than one occasion on whether a bankruptcy purpose existed for the Case, ultimately concluding that such a purpose existed. That final position coincided with an agreement with Etter regarding the Trustee's fees, the existence of which was disclosed to the court when the court questioned the changing positions. This history is set forth in more detail in the Order to Show Cause.

During this time, the Debtor again requested voluntary dismissal of the Case. The Motion to Dismiss sought dismissal under section 305, the abstention provision of the Bankruptcy Code, but the Debtor's arguments solely more aligned with the "for cause" provisions of section 707, that this Case was a two-party dispute.¹⁴

The court noted early on that the Debtor, in seeking to voluntarily dismiss this Case as a two-party dispute, was not really invoking the court's authority under section 305 but rather was asking for dismissal for cause. As this is a chapter 7 case, that means dismissal for cause under the more specific chapter 7 dismissal provision, 11 U.S.C. § 707(a), not the more general dismissal provision in the context of abstention. 11 U.S.C. § 305.

Despite the court's direction, the parties' briefing on this issue was unhelpful. After a number of hearings where the parties debated whether cause under section 707 existed, the court ultimately found that it did and so dismissed.

In doing so, however, this court made a second, fundamental mistake. It ruled orally and, in so doing, relied in part on what it had previously stated at the hearings leading up to the dismissal hearing and thus the shared knowledge of the parties of what had brought the Case to the point of dismissal. That put the District Court in the unenviable position of, in order to understand what the court ruled, having either to rely on the parties to clarify the less-than-clear record—which as provided to the District Court was limited to solely what Etter, the only party appearing on the appeal, chose to provide—or to conduct its own investigation into the record. The District Court chose the former and also chose to make certain assumptions on the limited record before it. As a result, not having the benefit of the history of the Case or an even-handed account of what had transpired, it is understandable that certain of those assumptions were mistaken. This court bears the ultimate responsibility...