In re Rosebud Farm, Inc., Case No. 18bk24763

• Citation: 619 B.R. 202
• Decision Date: 25 August 2020
• Docket Number: Case No. 18bk24763
• Parties: IN RE: ROSEBUD FARM, INC., Debtor.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

619 B.R. 202

IN RE: ROSEBUD FARM, INC., Debtor.

Case No. 18bk24763

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

Signed August 25, 2020

Counsel to Chapter 7 Trustee, Lauren Newman, Esq., Thompson Coburn LLP, 55 E. Monroe, 37th Floor, Chicago, IL 60603

Counsel to Longo and Associates Ltd., Joseph Anthony Longo, Esq., Longo and Associates Ltd., 2100 West Haven, Mount Prospect, IL 60056

MEMORANDUM DECISION

TIMOTHY A. BARNES, Judge.

Before the court is the Trustee's Objection to Claim No. 4 of Longo and Associates Ltd./Joseph Anthony Longo [Dkt. No. 119] (the "Objection"), filed by the Alex D. Moglia, the chapter 7 trustee (the "Trustee"), as amended and in part superseded by the Trustee's Sur-Reply to Amended Claim Filed by Longo and Associates Ltd[.]/Joseph Anthony Longo [Dkt. No. 143] (the "Sur-Reply"), objecting to the secured status and to the amount of Claim Nos. 4-1, 4-2, 4-3 and 4-4 (collectively, the "Claim"), filed by Longo and Associates Ltd. and Joseph Anthony Longo (collectively, "Longo") on the ground that Longo has failed to establish the secured status of the Claim or entitlement to an amount greater than $615,257.21.

For the reasons stated herein, the Trustee has overcome the presumptive validity of the Claim as to its amount and secured status, and has shifted the burden to Longo to show that the Claim is secured and is allowable in an amount greater than the amount to which the Trustee concedes Longo is entitled. Longo has failed to establish the secured status of the Claim and to show entitlement to a claim in an amount greater than $615,257.21. Accordingly, the Objection, as amended by the Sur-Reply, will be sustained and the Claim will be allowed as a general unsecured claim in the amount of $615,257.21.

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 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 has statutory authority to 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 bankruptcy 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). Absent consent, the bankruptcy judge 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).

In addition to the foregoing considerations, a bankruptcy judge must also have constitutional authority to hear and determine a matter. Stern v. Marshall , 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Constitutional authority exists when a matter originates under the Bankruptcy Code or, in noncore matters, where the matter is either one that falls within the public rights exception, id. , or where the parties have consented, either expressly or impliedly, to the bankruptcy court hearing and determining the matter. See, e.g. , Wellness Int'l Network, Ltd. v. Sharif , 575 U.S. 665, 135 S. Ct. 1932, 1939, 191 L.Ed.2d 911 (2015) (parties may consent to a bankruptcy court's jurisdiction); Richer v. Morehead , 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough").

The Objection seeks a determination by the court whether a claim should be allowed or disallowed pursuant to 11 U.S.C. § 502. This contested matter, concerning the allowance or disallowance of a claim against the bankruptcy estate, is expressly a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). Further, in accordance with Stern , 564 U.S. at 499, 131 S.Ct. 2594, the court has constitutional authority to decide claim objections, as such objections may arise only in a case under the Bankruptcy Code and necessarily stem from the bankruptcy case itself. In re Montalbano , 486 B.R. 436, 438–39 (Bankr. N.D. Ill. 2013) (Barnes, J.) (citing Lenior v. GE Capital Corp. (In re Lenior ), 231 B.R. 662, 667 (Bankr. N.D. Ill. 1999) (Schmetterer, J.); Knox v. Sunstar Acceptance Corp. (In re Knox ), 237 B.R. 687, 693 (Bankr. N.D. Ill. 1999) (Schmetterer, J.)).

Accordingly, the court has the jurisdiction, statutory authority and constitutional authority to hear and determine the Objection.

PROCEDURAL HISTORY

In addition to reviewing the Objection, the Claim and the Sur-Reply, the court has considered the arguments of the parties at the hearings held on December 3, 2019, December 18, 2019 and January 29, 2020, and has reviewed and considered the following documents:

(1) Response of Longo and Associates Ltd./Joseph Anthony Longo to Trustee's Objection to Proof of Claim [Dkt. No. 132] (the "Response");¹ and

(2) The Trustee's Reply to Longo and Associates Ltd./Joseph Anthony Longo's Response to Trustee's Objection to Claim No. 4 [Dkt. No. 139] (the "Reply").

The court has taken into consideration any and all exhibits submitted in conjunction with the foregoing. Though these items do not constitute an exhaustive list of the filings in this case, the court has taken judicial notice of the contents of the docket in this case. 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).

Having conducted such review, this Memorandum Decision constitutes the court's determination of the Objection and the amount and secured status of the Claim.

FINDINGS OF FACT²

From the above review and the consideration of the procedural background, as well as of the evidence submitted by the parties,³ the court determines the salient facts to be and so finds as follows:

A. The Prepetition Action

1. This matter arises from a prepetition lawsuit brought against the debtor, Rosebud Farm, Inc. (the "Debtor"), in the District Court for the Northern District of Illinois on December 23, 2011. SeeSmith v. Rosebud Farm, Inc. , Case No. 11-cv-09147 (N.D. Ill. filed December 23, 2011) (the "Prepetition Action"). Longo represented the plaintiff, Robert Smith ("Smith"), in the Prepetition Action.

2. Final judgment in the Prepetition Action was entered against the Debtor and in favor of Smith on July 24, 2017, effective retroactively from July 14, 2017, in the amount of $559,656.57. Judgment in a Civil Case [Prepetition Action, Dkt. No. 339] (the "Judgment").

3. The Judgment was recorded with the Cook County Recorder of Deeds on September 18, 2017, which placed a judgment lien on the Debtor's real estate in Cook County. Memorandum of Judgment, filed as Claim No. 4-4, at pp. 1–4 (the "Recorded Judgment").

4. The Judgment was later affirmed on appeal, on August 2, 2018. SeeSmith v. Rosebud Farm, Inc. , 898 F.3d 747 (7th Cir. 2018).

5. On August 23, 2018, the District Court awarded Longo attorney's fees under a federal fee shifting statute in the amount of $611,388.50 and costs in the amount of $3,868.71, for a total $615,257.21, to be paid by the Debtor. Memorandum Opinion and Order [Prepetition Action, Dkt. No. 474] (the "Fee Award"). Longo had sought attorney's fees and costs in the amount of $1,396,358.71.

B. Postpetition Proceedings

6. Shortly after the Fee Award was entered and the Judgment affirmed on appeal, on August 31, 2018, the Debtor filed the above-captioned bankruptcy case.

7. On February 4, 2019, Longo filed Claim No. 4-1, thereby asserting a secured claim against the estate for attorney's fees and costs in the amount of $1,780,258.71. See Claim No. 4-1.

8. After Longo's attempts to modify the automatic stay to seek collection on the Claim in District Court, to dismiss this case and to stay all proceedings in this case were unsuccessful, see Orders [Dkt. Nos. 48, 52, 60], and the denial of Longo's appeal of the court's denial of his request for dismissal of this case, see Order [Dkt. No. 82], on October 28, 2019, the Trustee filed the Objection.

9. After obtaining an extension of the time to respond to the Objection, see Order Extending Time to Respond to Claim Objection [Dkt. No. 130], Longo filed the Response, which includes additional documentary support for the Claim not attached to Claim No. 4-1. Compare Claim 4-1 with Resp., App. 1–21.

10. The Trustee timely filed his Reply.

11. On January 28, 2020, without leave of court, Longo filed new documentary materials in support of the Claim on the claims docket as Claim Nos. 4-2, 4-3 and 4-4. See Claim Nos. 4-2, 4-3, 4-4 (the "Additional Documents").

12. The Additional Documents were filed on the eve of the continued hearing on the Objection, after the Objection had been fully briefed according to the court's scheduling orders, and without including the amended proof of claim form, despite being filed on the claims docket as if the materials themselves were amended proofs of claim. See id.

13.

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