In re Pierport Dev. & Realty, Inc.

• Decision Date: 03 May 2013
• Docket Number: No. 12 B 09546.,12 B 09546.
• Citation: 491 B.R. 544
• Court: U.S. Bankruptcy Court — Northern District of Illinois
• Parties: In re PIERPORT DEVELOPMENT & REALTY, INC., Debtor.

491 B.R. 544

In re PIERPORT DEVELOPMENT & REALTY, INC., Debtor.

No. 12 B 09546.

United States Bankruptcy Court,

N.D. Illinois,

Eastern Division.

May 3, 2013.

Joseph D. Frank, Micah R. Krohn, FrankGecker LLP, Chicago, IL, for Trustee.

Ira P. Goldberg, Julia Jensen Smolka, DiMonte & Lizak, LLC, Park Ridge, IL, for Debtor.

Stavros S. Giannoulias, Eric S. Rein, George J. Spathi, Horwood Marcus & Berk Chartered, Chicago, IL, for Bear Construction Co.

Josiah A. Groff, Dowd, Bloch & Bennett, Chicago, IL, for Illinois District Council No. 1 of the International Union of Bricklayers and Allied Craftworkers, AFL–CIO.

Robert A. Langendorf, Chicago, IL, for Donna Harris.

David Nightingale, Hinshaw and Culbertson LLP, Chicago, IL, for Travelers Casualty and Surety Company of America.

James M. Philbrick, Law Offices of James M. Philbrick, P.C., Mundelein, IL, for Ally Financial f/k/a GMAC.

Jennifer J. Pomaranski, Meckler, Bulger & Tilson, IL, for Nate Berkus Associates, Inc.

Christopher H. Purcell, Sherman & Sherman, Chicago, IL, for Ford Motor Credit Company LLC.

JUDGMENT ORDER ON CHAPTER 7 TRUSTEE'S OBJECTION TO CLAIM NO. 6

JACK B. SCHMETTERER, Bankruptcy Judge.

Pursuant to the Memorandum Opinion of this date, it is hereby ORDERED and ADJUDGED Trustee's Objection to the Claim of Administrative District Council 1 of Illinois of the International Union of Bricklayers and Allied Craftworkers, AFL–CIO (Claim No. 6) is partly sustained and partly overruled as follows: Claim No. 6 is allowed as a secured claim in the amount of $30,350.00 and allowed as an unsecured claim in the amount of $224,526.32.

MEMORANDUM OPINION ON CHAPTER 7 TRUSTEE'S OBJECTION TO CLAIM NO. 6

Administrative District Council 1 of Illinois of the International Union of Bricklayers and Allied Craftworkers, AFL–CIO (the “Union”) filed a proof of claim in this chapter 7 case of the debtor Pierport Development & Realty, Inc. (“Debtor” or “Pierport”) docketed in Debtor's claim registry as Claim No. 6 (the “Claim”) in the amount of $344,876.32, of which $319,279.69 is alleged to be secured. Barry A. Chatz, as chapter 7 trustee of the bankruptcy estate (the “Trustee”), objects to Claim No. 6 and seeks disallowance of portions of the Union's Claim. The Trustee further objects on the ground that Claim No. 6 overstates the extent to which the Union's Claim is a secured claim. For reasons discussed below, the Trustee's objection will be partly sustained and partly overruled by separate order, and the Union will be allowed a secured claim in the amount of $30,050.00 and an unsecured claim in the amount of $224,876.32.

BACKGROUND

On September 27, 2011, a U.S. District Court Judge in the Northern District of Illinois entered a judgment order in favor of the Union against the debtor in district court case No. 10 C 7800, Pierport Development & Realty, Inc. (“Pierport” or “Debtor”), awarding the Union $238,534.84 plus post judgment interest on the unpaid balance (the “Judgment Award”). (Objection to Claim Ex. 1, at 5–6.) The District Court Judge further ordered Pierport to provide a bond in the amount of $90,000. Id. To collect on its judgment, the Union instituted a supplementary proceeding in that case under 735 ILCS 5/2–1402, and a Citation to Discover Assets (the “Citation”) was issued. That was served on Pierport on October 12, 2011. On December 16, 2011, Pierport's sole shareholder, Peter Arenson, appeared for examination in that supplementary proceeding. Under Illinois law, discussed below, service of the Citation on Pierport gave the Union a statutory lien on all unencumbered property interests that Pierport held or thereafter acquired (the “Citation Lien”).

On March 12, 2012 (the “Petition Date”), Pierport filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code, 11 U.S.C. § 101, et seq. The Trustee conducted an investigation of the assets and liabilities of the bankruptcy estate (the “Estate”) and determined that as of the Petition Date, Debtor's assets that could potentially be liquidated for benefit of all creditors consisted of certain equipment and vehicles, the value of which to the Estate was estimated at $30,350.00.¹ In addition, the Trustee identified as part of the Estate three potential fraudulent transfer claims against various entities (the “Fraudulent Transfer Claims”), including payments to Debtor's sole shareholder Peter Arenson, and to certain affiliated businesses (together with Arenson, the “Arenson Parties”).

Negotiations between the Trustee and the Arenson Parties resulted in a proposed settlement agreement, wherein the Arenson Parties would pay a total of $325,000, and in exchange the Trustee would assign to Arenson the Estate's interest in any and all machinery, equipment and vehicles, all other tangible assets, the name and any trademarks of Pierport, and any cemetery plots or properties (the “Transferred Assets”). The settlement also included a mutual release, whereby the Trustee would agree to release all Estate claims against the Arenson Parties arising out of “alter ego, piercing of the corporate veil, preference avoidance, fraudulent transfer avoidance, or other such theories....” The Trustee sought Court approval of the original proposed settlement agreement, but the Union objected on the ground that the agreement purported to release not only the Trustee's claims but also any third-party claims against the Arenson Parties. (One wonders how bankruptcy attorneys for parties A and B think they can dispose of claims by a third party!). The settlement agreement was revised to specifically provide that no claims aside from those held by the Trustee would be released (the “Revised Settlement Agreement”).

The Union still objected to the Revised Settlement Agreement, citing concerns that language in the new agreement was ambiguous and that might bear on whether the Union could pursue related claims against the non-debtor Arenson Parties. When pressed on that objection at the hearing, Union counsel did not specify language objected to. Moreover, Union counsel did not object or raise an issue as to the Trustee's valuation of the Transferred Assets. The Revised Settlement Agreement was then approved. It was also ordered that the Union's Citation Lien would attach to and be secured by settlement proceeds to the extent attributable to the Transferred Assets as of the effective date of the settlement agreement. The Union has asserted that claim in Claim No. 6 filed against the bankruptcy estate. The claim objection by the Trustee followed.

JURISDICTION AND VENUE

Jurisdiction lies over this proceeding under 28 U.S.C. § 1334(b), and authority over this matter has been referred here by Internal Operating Procedure 15(a) of the District Court. This matter concerns allowance or disallowance of claims against the estate and is therefore a core proceeding under 28 U.S.C. § 157(b)(2)(B). Venue lies here under 28 U.S.C. § 1409(a).

DISCUSSION

A validly filed proof of claim constitutes prima facie evidence of the claim's validity. Fed. R. Bankr.P. 3001(f). A party objecting to the proof of claim has the initial burden to produce some evidence or legal point to overcome this rebuttable presumption. In re Orseno, 390 B.R. 350, 353–54 (Bankr.N.D.Ill.2008). The burden then shifts back to the claimant to meet the objection and establish the claim. Id. (citing In re Chapman, 132 B.R. 132, 143 (Bankr.N.D.Ill.1991)). “[T]he ultimate burden of persuasion always remains with the claimant to prove entitlement to the claim.” In re McCoy, 355 B.R. 69, 72 (Bankr.N.D.Ill.2006).

Allowance of the Union's Claim

The Trustee initially objects to Claim No. 6 on the ground that $90,000 of the claim amount is duplicative. A claim may be disallowed to the extent that such claim is unenforceable for a reason other than the claim being contingent or unmatured. 11 U.S.C. § 502(b)(1); In re Hood, 449 Fed.Appx. 507, 510 (7th Cir.2011). A claim that seeks duplicate recovery for the same debt is partially unenforceable to the extent of the duplication. See In re Handy Andy Home Improvement Ctrs., 222 B.R. 571, 575 (Bankr.N.D.Ill.1998) (“[I]t is axiomatic that one cannot recover for the same debt twice.”); Robinson v. Toyota Motor Credit Corp., 201 Ill.2d 403, 266 Ill.Dec. 879, 775 N.E.2d 951 (2002) (“For one injury there should only be one recovery irrespective of the availability of multiple remedies and actions.”).

The Union's Claim for $334,876.32 includes not only the Judgment Award but also an additional $90,000 based on Debtor's pre-petition obligation to provide a bond. But the bond requirement did not saddle Debtor with additional debt in excess of the Judgment Award. It was merely a mechanism to enforce the Judgment Award by providing the Union another source of recovery; such is the nature of a bond. The Union would not be able to recover the same debt from both Debtor and a separate bond procured by Debtor. Therefore, $90,000 of the Union's claim is unenforceable. The Union in its brief conceded to this part of the objection, and the Trustee does not otherwise dispute the remaining amounts due by reason of the Judgment for which the Union seeks allowance. Therefore, the Trustee's objection on this point will be sustained, and the Union's claim will be allowed in the amount of $254,876.32. What remains is the issue as to whether any part of that debt is secured by the citation lien under Illinois law.

Secured Status of the Union's Allowed Claim

The parties' main dispute concerns the validity and reach of the Union's Citation Lien that is the asserted foundation for the Union's secured claim. “An allowed claim of a creditor secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of the creditor's interest in the estate's interest in such property....” 11 U.S.C. § 506(a)(1). The remaining value of the creditor's interest is an unsecured claim. Id.

The Trustee argues that the Union has no...