In re Stoecker, Bankruptcy No. 89 B 02873.

CourtUnited States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois
Writing for the CourtJOHN H. SQUIRES
Citation143 BR 118
PartiesIn re William J. STOECKER, Debtor.
Docket NumberBankruptcy No. 89 B 02873.
Decision Date26 May 1992





John A. Relias, Jennifer Murphy, Vedder, Price Kaufman & Kammholz, Chicago, Ill., David A. Bryan, Wasserman, Bryan, Landry & Honold, Toledo, Ohio, for Mid American Nat. Bank and Trust Co.

Keevan D. Morgan, Morgan & Bley, Ltd., Chicago, Ill., for Bank of Bellwood.

Thomas E. Raleigh, Raleigh & Helms, Chicago, Ill., trustee.

Robert Radasevich, George M. Hoffman, James H. Bowhay, Neal Gerber & Eisenberg, Chicago, Ill., for trustee.


JOHN H. SQUIRES, Bankruptcy Judge.

This matter comes before the Court on the Trustee's objection to the allowance of certain proofs of claim filed by The Bank of Bellwood ("Bellwood") and Mid American National Bank and Trust Company ("Mid American"). For the reasons set forth herein, the Court having considered the pleadings filed, does hereby sustain in part the Trustee's objection to the secured claim of Bellwood. Bellwood's secured claim is disallowed for failure to support same as required by Federal Rule of Bankruptcy Procedure 3001(c) and (d). Bellwood's motion for judgment on the pleadings is denied and its demand for a jury trial stricken. Additionally, the Court hereby sustains the Trustee's objection to the secured claim of Mid American and denies Mid American's request for an equitable lien. The principal holding of the Court is that the statute of limitations prescribed in 11 U.S.C. § 546(a) does not apply to claims objections based on 11 U.S.C. § 502(d).


The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and General Rule 2.33(a) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B) and (O).


Many of the facts, background and some of the history of this case are contained in earlier Opinions of the Court. See In re Stoecker, 118 B.R. 596 (Bankr.N.D.Ill. 1990); In re Stoecker, 114 B.R. 965, 967-968 (Bankr.N.D.Ill.1990); In re Stoecker, 103 B.R. 182, 184-185 (Bankr.N.D.Ill.1989). On February 21, 1989, an involuntary Chapter 11 petition was filed against the Debtor. Thereafter, on March 8, 1989, after a full evidentiary hearing, the Court ordered the appointment of a Chapter 11 trustee. Subsequently, on March 14, 1989, the Court entered an order for relief under Chapter 11. Thomas Raleigh (the "Trustee") was thereafter appointed by the United States Trustee on March 20, 1989. The case was subsequently converted on February 26, 1990. The Trustee continues to serve as trustee of the Chapter 7 estate pursuant to 11 U.S.C. § 701(a).

A. The Bank of Bellwood

On January 30, 1987, the Debtor borrowed the sum of $750,000.00 from Bellwood. The loan was allegedly evidenced by a promissory note and interest was payable monthly. The loan came due on February 1, 1989. On December 20, 1988, the Debtor made a $6,562.50 payment to Bellwood for December interest. Thereafter, on January 18, 1989, the Debtor made an additional $9,541.66 payment for January interest. Bellwood obtained judgment by confession against the Debtor during the ninety days preceding the bankruptcy. Bellwood allegedly recorded its memoranda of judgment against some of the Debtor's real estate and placed writs of execution with the sheriff to seize the Debtor's personal property. Citations to discover assets were issued and levies were allegedly made to enforce the judgment.

On March 11, 1991, the Trustee filed an adversary proceeding against Bellwood alleging that the December and January interest payments were avoidable preferential transfers pursuant to 11 U.S.C. § 547(b). That suit did not proceed to trial and no order was entered avoiding any liens obtained by Bellwood incidental to its post-judgment enforcement actions against the Debtor. Subsequently, Bellwood and the Trustee entered into a settlement agreement (the "Settlement Agreement") which was approved by the Court on June 3, 1991. Pursuant to the terms of the Settlement Agreement, Bellwood's distribution from the Debtor's estate was reduced by the sum of $11,333.33. In addition, Bellwood generally released the Trustee and the estate from all claims, except those set forth in Bellwood's proof of claim. Moreover, Bellwood agreed not to amend or increase its claim against the estate based upon the $11,333.33 reduction. The relevant portion of the Settlement Agreement on which Bellwood relies provides as follows:

3. Release of the Bank by Trustee. The Trustee, his successors, agents, and assigns, does hereby release and forever discharge the Bank from any and all claims, demands, or causes of action of any kind whatsoever which he has, had or may have had against it, including without limitation of the generality of the foregoing, all claims, counterclaims, or cross-claims that have been or could have been asserted in the Adversary Proceeding.

The adversary proceeding was dismissed with prejudice pursuant to the terms of the Settlement Agreement on June 24, 1991.

On August 27, 1991, the Trustee filed objections to the filed proofs of claim of various creditors, including Bellwood. The Trustee listed Bellwood's claim as a "Remaining General Unsecured Claim In The Estate." The Trustee contends that Bellwood's claim, which was filed as a secured claim, should be treated as a general unsecured claim if the liens are released because Bellwood's security results from voidable preferential transfers under section 547, and hence, its claim must be disallowed under section 502(d).

On September 17, 1991, Bellwood filed an objection to the classification of its claim as a general unsecured claim. Bellwood argued that its claim should be classified and paid as a secured claim. Attached to Bellwood's objection was a copy of its proof of claim. The underlying documents, however, evidencing the loan to the Debtor, and the memoranda of judgment and executions perfecting judgment and execution liens were not provided. Subsequently, on October 8, 1991, the Trustee filed a reply to Bellwood's objection. Shortly thereafter, on October 10, 1991, Bellwood also filed a motion to strike the Trustee's objection and reply as being improper. On October 11, 1991, the Trustee filed a separate objection to Bellwood's claim which tracked the arguments contained in the Trustee's original objection and reply.

On October 11, 1991, at a hearing on the Trustee's objections, the Court denied Bellwood's motion to strike and granted it twenty-eight days to file a response to the Trustee's objection. The Trustee was thereafter granted fourteen days to reply, and Bellwood was granted an additional fourteen days to file a final reply. In addition, the Court held that the Trustee need not file a separate adversary proceeding under Federal Rule of Bankruptcy Procedure 7001 because the Trustee's objection sought only to disallow Bellwood's secured claim and did not seek any affirmative relief against Bellwood. The Court held that the Trustee's objection could be litigated as a contested matter under Federal Rule of Bankruptcy Procedure 9014.

Thereafter, on November 6, 1991, Bellwood filed an "Answer to Trustee's Purported Section 502(d) Objection to Bellwood's Secured Claim." Bellwood made the following points: (1) it reiterated its objection to the procedural posture of the matter, asserting that the Trustee was seeking relief available only through an adversary proceeding commenced in accordance with Bankruptcy Rule 7001; (2) alleged that the Trustee's moving papers fail to state a claim upon which relief can be granted; (3) the relief requested by the Trustee is beyond the scope of a hearing on an objection to a claim and is beyond the scope of section 502(d) which the Trustee cannot employ "offensively"; (4) that the obligations of Bellwood to the Trustee were discharged pursuant to the Settlement Agreement; (5) the Trustee's objection is barred by the doctrine of res judicata; (6) the section 546(a) limitations period precludes the Trustee from commencing any action under section 547 to avoid the alleged preferential transfers to Bellwood and recover same under section 550 (which section is referenced in section 502(d) and thus is time barred even as an objection to Bellwood's claim); and (7) all material facts should be tried by a jury.

Along therewith, Bellwood filed a motion for judgment on the pleadings accompanied with a memorandum in support thereof.1 On November 22, 1991, the Trustee filed his response to Bellwood's motion for judgment on the pleadings. Thereafter, Bellwood filed its reply to the Trustee's response on December 6, 1991. A hearing was set on the matter on December 16, 1991. At that time, the Court afforded the parties an opportunity to introduce evidence into the record. The parties, however, waived evidentiary hearing and rested on the pleadings filed. In addition, the Court allowed the parties to supply additional memoranda regarding the applicability of the recent U.S. Supreme Court decision In re ZZZZ Best Co., ___ U.S. ___, 112 S.Ct. 527, 116 L.Ed.2d 514 (1991). In accordance with that ruling, Bellwood filed its memorandum of law on December 18, 1991. Shortly thereafter, on December 20, 1991, the Trustee then filed a surreply in further support of his objections to the secured claims of Bellwood and Mid American, in which he addressed the recent Supreme Court decision. The Court subsequently took the matter under advisement.

B. Mid American National Bank and Trust Company

Like Bellwood, Mid American filed a secured claim against the Debtor which is also the subject of the Trustee's same objection....

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