In re Spiegel, 20bk21625

• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois
• Writing for the Court: TIMOTHY A. BARNES UNITED STATES BANKRUPTCY JUDGE
• Docket Number: 20bk21625
• Parties: In re: Marshall Spiegel, Debtor.
• Decision Date: 11 March 2022

In re: Marshall Spiegel, Debtor.

No. 20bk21625

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

March 11, 2022

MEMORANDUM DECISION

TIMOTHY A. BARNES UNITED STATES BANKRUPTCY JUDGE

Before the court is the Objection to Claim #2-1 of Wintrust Bank, N.A. [Dkt. No. 312] (the "Objection"), filed by the debtor, Marshall Spiegel ("Spiegel"), objecting to claim number 2-1 (the "Claim") of Wintrust Bank, N.A. ("Wintrust"). Spiegel objects to the Claim, arguing that Wintrust inappropriately honored a draw request on a letter of credit (the "Letter of Credit") issued by Wintrust on behalf of the applicant, Spiegel, in favor of Eugene E. Murphy, Jr. (the "Beneficiary") as attorney for several creditors who had obtained sanctions orders from the Circuit Court of Cook County. While not challenging that the overall circumstances under which the Letter of Credit, as an appellate bond, should be drawn, Spiegel argues that Wintrust should be held to the standard of strict compliance with the terms of the Letter of Credit and, necessarily, that if such a standard is applicable, the court should hold that Wintrust's honor of the draw was inappropriate and that the Claim should be disallowed.

The Objection, however, fails at the most basic level to show how the Letter of Credit's own language should be interpreted as Spiegel suggests and not as Wintrust has done. Further, Spiegel has failed to account for application of Illinois statutes, the state whose law governs the Letter of Credit, and the Letter of Credit's own terms. Thus, even if Spiegel were successful in his strict compliance argument, Spiegel has failed to carry his burden to rebut the presumed allowance of the filed Claim.

Accordingly, for the reasons more fully explained in this Memorandum Opinion, the Objection will be OVERRULED.

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 (the "District Court") 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).

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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. 464 (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, 135 S.Ct. 1932, 1939 (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 section 502 of the Bankruptcy Code. Claims objections are core to the purpose and operation of bankruptcy law. Lesser v. Gray, 236 U.S. 70, 74 (1915). They are contested matters, Fed.R.Bankr.P. 9014, ^[1] and are expressly core proceedings, 28 U.S.C. § 157(b)(2)(B), that 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.)). As a result, the resolution of claims objections is undoubtedly within the court's constitutional authority. Stern, 564 U.S. at 499.

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

PROCEDURAL HISTORY

This Memorandum Decision constitutes the court's final determination of the matters under advisement, unless expressly stated otherwise herein. In reaching its conclusion, the court has reviewed the Claim, the Objection, Wintrust Bank's Response to Debtor's Objection to Claim [Dkt. No. 404] (the "Response") and the Reply in Support of Objection to Claim #2-1 of Wintrust Bank, N.A. [Dkt. No. 426] (the "Reply"). The court has also considered the arguments of the parties at the hearings held on October 25, 2021, and December 13, 2021.

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As these items do not constitute an exhaustive list of the filings in this bankruptcy, the court has also taken judicial notice of the contents of the docket in this matter. 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 of the Claim.

BACKGROUND

The matter before the court involves a dispute over the Letter of Credit between the issuing bank, Wintrust, and the applicant, Spiegel. While the parties disagree over the applicable law and the propriety of Wintrust's actions, the parties do not dispute the material facts, which are as follows:

Prior to the filing of Spiegel's above-captioned bankruptcy case, Spiegel was involved in protracted and highly contentious state-court litigation against a variety of individual members of the condominium association governing his residence and their spouses.^[2] That litigation, styled as Spiegel v. Hall, Case No. 15 L 10817 (the "State Court Litigation")^[3] in the Circuit Court of Cook County (the "Illinois Circuit Court"), was commenced in 2015 and appears to have continued to the present.

Much of the course of the State Court Litigation is set forth in the Order of the Illinois Appellate Court, First District (the "Illinois Appellate Court") dated December 3, 2020, attached as part of Exhibit A to Wintrust's Response and is not worth restating herein. Resp., Exh. A, pp. 7-37 (the "Appellate Court Order"). The Illinois Appellate Court does make clear, however, that on March 29, 2019, Cook County Circuit Court Judge Margaret A. Brennan granted sanctions in favor of the Sanctions Creditors against both Spiegel and his counsel, John Xydakis ("Xydakis"), ^[4] in an amount in excess of $1 million. Appellate Ct. Order, at ¶ 32. The sanctions were for "abusive litigation tactics of filing complaints filed with baseless accusations, misrepresenting case law by reversing or altering holdings, filing lawsuits for the sole purpose of harassment, increasing costs and delay, and filing objectively unreasonable motions to disqualify counsel and judges." Id. at ¶ 31.

As discussed below, the Letter of Credit appears to have been issued to satisfy the bond requirement of the Illinois Supreme Court regarding the staying of monetary judgments pending an appeal. In support of the Letter of Credit, Spiegel also provided a promissory note dated May 22,

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2019, in the principal amount of $1, 225, 000.00 and an Assignment of Deposit Account (the "Assignment"), each of which were attached to the Claim.^[5]

On appeal, the Illinois Appellate Court affirmed the Illinois Circuit Court in all respects, observing that the underlying litigation had a tortured history, but that Judge Brennan had a detailed grasp of the same. Appellate Ct. Order, at ¶ 75. The Illinois Appellate Court detailed the abuses by Spiegel and Xydakis, e.g., id. at ¶ 79, and further observed that the same tactics that resulted in the sanctions had been repeated before it. Id. at ¶ 86.^[6]

On December 11, 2020, eight days after the Illinois Appellate Court affirmed the Illinois Circuit Court, the Beneficiary drew on the Letter of Credit. Specifically, the Beneficiary presented a letter and certification from the Beneficiary, an attorney licensed to practice in the State of Illinois and made under penalty of law pursuant to section 1-109 of the Illinois Code of Civil Procedure, informing Wintrust that the Beneficiary intends to draw on the Letter of Credit, a sight draft directing Wintrust to pay the Beneficiary, a letter with (1) the Beneficiary's certification that the Debtor has failed to satisfy the judgments dated March...