In re Memorial Estates, Inc.
| Decision Date | 01 September 1988 |
| Docket Number | 86 C 7780,85 C 8786,83 B 1016 and 83 A 1119.,Bankruptcy No. 85 C 3520,87 C 3829 |
| Citation | 90 BR 886 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | In re MEMORIAL ESTATES, INC., Debtor. CHICAGO BANK OF COMMERCE, Plaintiff, v. AMALGAMATED TRUST AND SAVINGS BANK, et al., Defendants. |
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Jeffrey R. Liebman, George Grumley, Marjorie E. McCollom, Arvey, Hodes, Costello & Burman, Chicago, Ill., for plaintiff.
William L. Needler, William L. Needler & Assoc., Ltd., Chicago, Ill., for defendants.
A bank holds a mortgage on a cemetery. The cemetery fails to make the mortgage payments and attempts to sell most of its assets, including "unused burial spaces," to a third party. The third party operates the cemetery, sells "unused burial spaces," and keeps the proceeds, claiming that the "unused burial spaces" are not covered by the bank's mortgage. The bank then brings an action in state court to foreclose on the cemetery. One can imagine a host of ghostly legal issues, but none arises in this case.
The central issue is whether the bank's mortgage covers the cemetery's "unused burial spaces." Soon after the bank brought the foreclosure action, the cemetery filed for bankruptcy, the foreclosure case was removed to federal court, and the third party filed affirmative defenses and counterclaims to the foreclosure action. The bankruptcy court held hearings on the bank's foreclosure action and on the third party's counterclaims, and pursuant to 28 U.S.C. § 157(c)(1) issued proposed findings of fact and conclusions of law to this Court. The bankruptcy court proposed that the bank's mortgage covered the "unused burial spaces," that the bank was entitled to foreclose its mortgage on the cemetery, and that the third party's counterclaims were without merit. The bankruptcy court also denied the third party's motion to recuse the bankruptcy judge for bias and denied a petition to intervene by a class of owners of mausoleum rights and a class of the cemetery's union employees.
The third party has now filed before this Court a motion to strike the bankruptcy court's proposed findings and conclusions, an appeal of the bankruptcy judge's refusal to recuse himself for bias, and specific objections to the proposed findings and conclusions. As part of the de novo review of the third party's specific objections under section 157(c)(1), this Court has held a hearing during which the parties clarified the record and submitted additional documentary and testimonial evidence. For the following reasons, the Court denies the third party's motion to strike the proposed findings and conclusions, affirms the bankruptcy judge's refusal to recuse himself for bias, grants in part and denies in part the specific objections to the proposed findings and conclusions, and herewith issues its own findings of fact and conclusions of law as follows.
The bank is the Chicago Bank of Commerce ("Bank"). The cemetery is Memorial Estates, Inc. ("Memorial Estates"). The third party is Cemco, Inc. ("Cemco"). On May 17, 1978, the Bank and Memorial Estates entered into a lending arrangement, the specific details of which will be set out later in this Court's detailed findings and conclusions. In simplified form, Memorial Estates executed an installment note ("Note") payable to bearer in the amount of $425,000; the Note was secured by a trust deed conveyance ("Trust Deed" or "mortgage"). The mortgage provided that to secure payment of the Note, Memorial Estates does "grant, remise, release, alien and convey" the cemetery "premises" together with "all improvements, tenements, easements, fixtures and appurtenances thereto belonging . . .". The Bank is the holder of the Note.
On November 15, 1981, Memorial Estates attempted to convey to Cemco most of its assets, including "the perpetual use and occupancy for exclusive burial rights" of a section in the cemetery referred to as the Garden of Devotion. The Bank did not approve the conveyance to Cemco, and Cemco did not make any payments under the Note. (The Note, secured by the Bank's mortgage, had been in default since April 2, 1981.)
On July 15, 1982, the Bank instituted a foreclosure action in the Circuit Court of Cook County against Memorial Estates, Cemco, and certain others claiming an interest in the cemetery property. Cemco resisted the foreclosure, taking the position that its property interest in the "unused burial spaces" was not real property and therefore was not subject to the Bank's mortgage. Alternatively, Cemco asserted that, if its interest was real property, then the common law provides that Cemco takes the "unused burial spaces" free of the mortgage. The Bank quickly moved for the appointment of an equity receiver to operate the cemetery, sell burial spaces, and retain the proceeds pending the outcome of the foreclosure action. The state court judge concluded that the Bank would be entitled to a receiver under the particular circumstances1 and announced that he would appoint one. Before the judge appointed the receiver, however, Memorial Estates filed a petition for bankruptcy, and the foreclosure suit was removed to the bankruptcy court as a "related" case pursuant to 28 U.S.C. § 1452 and § 1334.2
Pursuant to his authority under 28 U.S.C. § 157(c)(1), the bankruptcy judge held a hearing on the Bank's motion for appointment of an equity receiver. Section 157(c)(1) provides in relevant part:
A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under Title 11. In such proceeding, the bankruptcy judge shall 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.
Id. (emphasis added). After the hearing, the bankruptcy judge determined that an equity receiver should be appointed to operate the cemetery pending the outcome of the foreclosure action and, under section 157(c)(1), proposed to the district court that the equity receiver be appointed. The district court agreed, ordered the appointment of the receiver, and Cemco appealed to the Seventh Circuit.
In In re Memorial Estates, 797 F.2d 516 (7th Cir.1986), the Seventh Circuit affirmed the appointment of the equity receiver, stating:
The appointment was a proper exercise of the district judge\'s equitable powers if there was a danger that Cemco would dissipate ("waste," in receivership parlance) assets out of which the bank is entitled to collect the money that Memorial Estates owes it. There was such a danger. Cemco denies any obligation under the mortgage, and hence claims the right to keep selling off what the bank with much show of reason contends is its collateral, and to retain the proceeds. To prevent dissipation of a security interest is . . . a conventional function for a receiver.
Id. at 521 (emphasis added).
With the appointment of the receiver to operate the cemetery, the case proceeded in the bankruptcy court on the Bank's foreclosure action and on Cemco's counterclaims. On July 22, 1985, the bankruptcy judge conducted a trial on the Bank's foreclosure action, and on January 21, 1986, the bankruptcy judge conducted a trial on Cemco's counterclaims. Then on April 11, 1986, the bankruptcy judge issued a memorandum opinion that indicated he would propose to the district court that the Bank's mortgage covers the "unused burial spaces," that the Bank is entitled to foreclosure, and that Cemco's counterclaims be denied.
On June 6, 1986, nearly four months after the bankruptcy judge issued his memorandum opinion, Cemco filed a request that the bankruptcy judge disqualify himself for bias. The bankruptcy judge treated the request as a motion for disqualification, denied the motion on July 15, 1986, and denied Cemco's motion to reconsider on August 18, 1986.3
During the following six months, the bankruptcy court issued four separate sets of proposed findings and conclusions, each of which relates to a separate matter regarding the Bank's foreclosure and Cemco's counterclaims. On August 13, 1986, the bankruptcy court issued proposed findings and conclusions regarding the Bank's foreclosure and Cemco's counterclaims; on October 9, 1986, proposed findings and conclusions regarding the Bank's application to shorten the redemption period;4 on October 9, 1986, proposed findings and conclusions regarding the Bank's application for the equity receiver to issue deeds to certain burial spaces; and on January 28, 1987, proposed findings and conclusions regarding FDIC's motion to require the equity receiver to issue deeds to other burial spaces and to other burial rights.
Cemco has now filed in this Court a motion to strike all of the proposed findings and conclusions, an appeal of the bankruptcy judge's refusal to recuse himself for bias, and specific objections to the proposed findings and conclusions.
Cemco makes six separate arguments to support its motion to strike the bankruptcy judge's proposed findings and conclusions. First, Cemco argues that this Court should strike the proposed findings and conclusions because subject matter jurisdiction over the foreclosure proceeding is lodged in state court and not the federal courts. This Court disagrees. The Seventh Circuit's decision, In re Memorial Estates, 797 F.2d 516 (7th Cir.1986), (as well as this Court's various decisions, see, e.g., In re Memorial Estates, No. 85 C 3520 (N.D.Ill. July 16, 1986) (LEXIS, Genfed library, Dist. file), motion for reconsideration denied (Sept. 4, 1987)), concluded that this Court possesses proper jurisdiction. These decisions are binding as the law of the case, and...
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