In re Llc

• Decision Date: 02 June 2011
• Docket Number: Nos. 10 C 6295.,Bankruptcy No. 10 B 15753.,s. 10 C 6295.
• Citation: 450 B.R. 769
• Parties: In re BRITTWOOD CREEK, LLC, Debtor.Arrow Road Construction Co., Appellant,v.Bridgeview Bank Group, Appellee.
• Court: U.S. District Court — Northern District of Illinois

450 B.R. 769

In re BRITTWOOD CREEK, LLC, Debtor.Arrow Road Construction Co., Appellant,

v.Bridgeview Bank Group, Appellee.

Nos. 10 C 6295.

Bankruptcy No. 10 B 15753.

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

June 2, 2011.

Nazia J. Hasan, Raymond John Ostler, Gomberg, Sharfman, Gold and Ostler, P.C., Chicago, IL, for Appellant.Douglas Joseph Lipke, Vedder Price P.C., Chicago, IL, for Appellee.

MEMORANDUM OPINION

CHARLES R. NORGLE, District Judge.

Before the Court is Arrow Road Construction Company's (“Arrow Road”) appeal of the United States Bankruptcy Court for the Northern District of Illinois's August 12, 2010 Order Annulling the Automatic Stay As To Bridgeview Bank Group, Nunc Pro Tunc To May 24, 2010 (the “Annulment Order”). For the following reasons, the decision of the Bankruptcy Court is affirmed.

I. BACKGROUND

A. Facts

Brittwood Creek, LLC (the “Debtor”) is a single purpose entity that owned a residential real estate development project in Oak Brook, Illinois (the “Property”). The Property was developed with approximately $25 million in loans advanced by Appellee Bridgeview Bank Group (the “Bank”). The Property and its proceeds were pledged to the Bank as collateral for the Debtor's obligations under a Construction Loan Agreement. The Debtor defaulted under the Construction Loan Agreement by, among other things, failing to make scheduled payments to the Bank.

On or about October 29, 2009, the Bank filed a foreclosure action, Bridgeview Bank Group v. Brittwood Creek, LLC, et al., No. 2009 CH 5173, in the Eighteenth Judicial Circuit, DuPage County (the “Foreclosure Action”) and subsequently recorded a lis pendens on the Property. On December 14, 2009, after publication of the lis pendens, Arrow Road recorded a mechanic's lien against the Property for $81,723.24 (the “Lien”). The Lien stated that Arrow Road last performed work on the Property—roadway construction and asphalt paving—on December 1, 2009, over a month after the Bank filed the Foreclosure Action.

Judgment of Foreclosure was entered on behalf of the Bank on March 8, 2010. However, just before the sheriff's sale, the Debtor electronically filed a voluntary petition under the Bankruptcy Code (the “Code”). On April 9, 2010, at 2:13 pm, Debtor's counsel filed a petition under Chapter 7 of the Code (the “Chapter 7 Case”). The Bankruptcy Court found that Debtor's counsel, intending to file under Chapter 11 of the Code, “inadvertently and by mistake” electronically filed the petition under Chapter 7. Tr. of Proceedings before the Hon. John H. Squires 6 [hereinafter Bankr. Tr.]. Upon realizing the mistake, Debtor's counsel contacted the Bankruptcy Clerk but was advised that the Chapter 7 petition could not be withdrawn. The Chapter 7 Case was assigned to the Honorable John H. Squires, No. 10–15753. Forty-two minutes later, at 2:55 pm, Debtor's counsel filed another petition, this time under Chapter 11 (the “Chapter 11 Case”). The Chapter 11 Case was assigned to the Honorable Jacqueline P. Cox, No. 10–15776.

The Bankruptcy Clerk mailed Notice of the Chapter 7 Case to the Debtor's creditors on April 14, 2009, and Notice of the Chapter 11 Case to Debtor's creditors on April 15,2009. Arrow Road received both notices. With the exception of removing the Chapter 7 Trustee from the Chapter 11 Notice, the two Notices were the same.

While no action was taken in the Chapter 7 Case, the Chapter 11 Case moved forward from the beginning. The Debtor filed its schedules in the Chapter 11 Case and the interested parties, including the Bank, participated. Arrow Road, however, did not participate in the case. Seeking to proceed with the Foreclosure Action, the Bank filed a motion to lift the automatic stay in the Chapter 11 Case (“Lift Stay Motion”) on April 21, 2010. The Debtor did not oppose the motion. Arrow Road received notice of the Lift Stay Motion but did not respond. On May 24, 2010, Judge Cox entered an Agreed Order of Relief From Automatic Stay, stating that the Bank is “hereby authorized to do any and all acts necessary and/or proper to enforce its right with respect to the [Property], including but not limited to, continuing the Foreclosure Action and sheriff's sale.” The Chapter 11 Case was formally dismissed on June 8, 2010, and Arrow Road received notice of the dismissal.

On June 11, 2010, the Debtor filed a Motion to Dismiss the Chapter 7 Case. This was the first document filed in the two-month-old Chapter 7 Case and it specifically cited the fact that the Chapter 7 case was filed inadvertently and that Debtor's counsel attempted to terminate the filing while it was in progress but was unsuccessful. Arrow Road received notice of this Motion as well.

After the Chapter 11 Lift Stay Order and Motion to Dismiss the Chapter 7 Case, but before the Chapter 7 Case was formally dismissed, a sheriff's sale was conducted on the Property. The Bank, with a bid of $20 million, was the successful bidder. On June 16, 2010, the state court issued an Order Approving Foreclosure Sale, after which the Bank sold the Property to a third-party purchaser, who is now in possession of the Property.

On June 18, 2010, Judge Squires granted the Debtor's Motion to Dismiss the Chapter 7 Case. Arrow Road received notice of the dismissal.

B. Procedural History

On July 13, 2010, nearly one month after the Order Approving Foreclosure Sale, Arrow Road filed a Motion to Vacate Judgment in the Foreclosure Action (“Motion to Vacate”). Arrow Road argued, as it does here, that because the Chapter 7 Case was not dismissed at the time of the Foreclosure Sale, the automatic stay rendered the sale and subsequent sale to a third-party purchaser void ab initio. In response, the Bank immediately sought relief in the Bankruptcy Court, requesting that it amend and/or clarify its June 18, 2010 Order dismissing the Chapter 7 Case. The Bank argued that, pursuant to 11 U.S.C. § 105(a) and Federal Rule of Bankruptcy Procedure 9024 (which incorporates Federal Rule of Civil Procedure 60), the Bankruptcy Court should annul the Chapter 7 automatic stay, nunc pro tunc, to April 9, 2010, the date the bankruptcy cases were filed.

The Bankruptcy Court granted the Bank's Motion on August 12, 2010, retroactively annulling the automatic stay not to April 9 but rather to May 24, 2010, the date of the Agreed Lift Stay Order in the Chapter 11 Case. Issuing his ruling from the bench, Judge Squires stated his findings:

[I]f the first 7 was the inadvertent 7, and the same day a few minutes later the 11 was filed, the appropriate form of relief ought to be to annul the automatic stay that was issued in the 7 at the time of the filing of the petition.... It is clear that retroactive relief from the stay is the exception rather than the rule. And this unusual scenario, which I haven't seen exactly in this form present in this case, is one of those unusual situations where I think annulment is appropriate because it was clearly the intent of the debtor's counsel to file one case that was intended to be filed as an 11, stay relief was appropriately sought and received in that case, and everybody just forgot about the pending 7, which shouldn't have been there, and action should have been taken by debtor's counsel much sooner.

Bankr. Tr. 12–13. Judge Squires further explained that, “All I'm doing today is doing in the 7 what should have been done back when relief was obtained in the 11 as of the same date. They were filed on the same day. They got dismissed ten days or so apart. But this is my way of trying to balance the equities.” Id. at 22.

On August 24, 2010, Arrow Road filed a Notice of Appeal in the Northern District of Illinois. The appeal is fully briefed and before the Court.

II. DISCUSSION

A. Standard of Review

This Court has jurisdiction to review decisions of the Bankruptcy Court pursuant to 28 U.S.C. § 158(a). When adjudicating bankruptcy appeals, district courts are to apply a dual standard of review: the Bankruptcy Court's findings of fact are reviewed for clear error, while its conclusions of law are reviewed de novo. Stamat v. Neary, 635 F.3d 974, 979 (7th Cir.2011); Fed. R. Bankr.P. 8013. Under the clearly erroneous standard, “[i]f the bankruptcy court's account of the evidence is plausible in light of the record viewed in its entirety, we will not reverse its factual findings even if we would have weighed the evidence differently.” Stamat, 635 F.3d at 979 (citation and quotation omitted). When there are “two permissible views of the evidence, the [bankruptcy court's] choice between them cannot be clearly erroneous.” In re Morris, 223 F.3d 548, 553 (7th Cir.2000) (citations omitted).

The Bankruptcy Court's decision to annul the automatic stay pursuant to 11 U.S.C. § 362(d) “is committed to the discretion of the bankruptcy court and, therefore, we review the court's decision for an abuse of discretion.” In re C & S Grain Co., Inc., 47 F.3d 233, 238 (7th Cir.1995) (citing In re Boomgarden, 780 F.2d 657, 660 (7th Cir.1985); see also Christian v. Citibank, F.S.B., 231 B.R. 288, 289 (N.D.Ill.1999) (finding that a Bankruptcy Court's decision to annul the automatic stay “may be overturned only upon a showing of abuse of discretion”)).

The District Court reviews a Bankruptcy Court's grant or denial of relief under Federal Rule of Civil Procedure 60(b), incorporated in Bankruptcy Rule 9024, “under an extremely deferential abuse-of-discretion standard.” Re v. Re, No. 09–3415, 2010 WL 4137433, at *1 (7th Cir. Oct.20, 2010); Wells Fargo Fin. Leasing, Inc. v. Comdisco, Inc., No. 05–C–129, 2006 WL 1519324, at *1 (N.D.Ill. May 30, 2006). Because Rule 60(b) relief “is an extraordinary remedy and is granted only in exceptional circumstances, a [bankruptcy] court abuses its discretion only when no reasonable person could agree with the decision to [grant or] deny relief.” Travelers Cas. & Sur. Co. v. Ockerlund (In re Ockerlund ), No. 10 C 5738, 2011 WL 249456, at *3 (N.D.Ill. Jan.25, 2011) (...