In re Teknek, LLC
| Decision Date | 06 April 2006 |
| Docket Number | Bankruptcy No. 05 B 27545.,Adversary No. 06 A 00412. |
| Citation | 343 B.R. 850 |
| Parties | In re TEKNEK, LLC, Debtor. Lawrence Fisher, Trustee, Plaintiff, v. Sheila Hamilton, Jonathan Kennett, Mark Rollinson, Alan Sandilands, Will Gutteriez, Jerry Wilberg, Tekena, USA, LLC, and Kenham, LLC, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Neal Levin, James Witz, Joji Takada, Freeborn & Peters, LLP, Chicago, IL, for Plaintiff/Trustee.
Gregory Jordan, Evangelos Gegas, Peter Schmidt, Dykema, Gossett, Rooks, Pitts PLLC, Chicago, IL, for Defendant.
Teknek LLC filed a Chapter 7 bankruptcy case on July 12, 2005,1 disclosing $73.22 in total assets and total liabilities of 83,788,609.57. Over ninety-nine percent of these liabilities, or approximately $3,779,000, belongs to a single unsecured judgment creditor, Systems Division, Inc. ("SDI"). The two members of the debtor are C.J. Kennett ("Kennett"), who holds an 85% interest, and Sheila Hamilton ("Hamilton"), who holds the remaining 15%.
After the Chapter 7 trustee retained as special bankruptcy counsel the law firm that had represented SDI in attempting to collect the money judgment, see 11 U.S.C. § 327(c), he filed a file-count "Verified Adversary Complaint" on January 19, 2006. The complaint named as defendants six individuals, including Kennett and Hamilton, and two business entities carrying on two subsequent versions of the same company, Teknek America/Kenham LLC and Tekena USA. The other four individual defendants are shareholders of Tekena USA. Count I is by far the primary concern of this opinion and the motion to vacate at issue herein. It alleges factually and constructively fraudulent conveyances under 11 U.S.C. § 544(b) and 740 Ill. Comp. Stat. 160/52 in the form of Teknek LLC's transfer of its business assets to defendant Teknek America/Kenham LLC and of large amounts of cash to defendants Kennett and Hamilton; Tekena USA is alleged to be a subsequent transferee under 11 U.S.C. § 550. Count II requests that the veils of the American Teknek entities Kennett and Hamilton own be pierced. Count III alleges that Kennett and Hamilton received wrongful distributions of profit from a limited liability company within the meaning of 805 Ill. Comp. Stat. 180/25-30 and -35. Count IV alleges that Kennett and Hamilton breached fiduciary duties to the debtor and its creditors within the meaning of 805 III. Comp. Stat. 180/15-3. Count V alleges that Rollinson, a shareholder of Tekena USA, has possession of a vehicle to which the debtor Teknek LLC has legal title, thereby rendering the property subject to an order directing turnover of estate property to the bankruptcy trustee under 11 U.S.C. § 542.
On the same day, January 19, 2006, the trustee supplemented the complaint with the "Trustee's Emergency Motion to Appoint Receiver or, in the Alternative, for a Temporary Restraining Order," which requested the two identified forms of interim equitable relief with respect to defendant Tekena USA. At the January 23, 2006, hearing on this emergency motion, the trustee presented exclusively documentary evidence, much of which had been authenticated by individual defendants Kennett and Hamilton during depositions. At this hearing, five of the eight defendants — Tekena USA and its four shareholders — appeared in defense by means of a single attorney after having filed a written response to the emergency motion that same day. At the conclusion, the Court initially announced entry of a TRO enjoining any transfers over $1000 until 3:00 pm on the following day, January 24, 2006, at which time the Court would enter a more detailed order granting a TRO and appointing a receiver. On January 24, 2006, the Court entered "Corrected Preliminary Findings in Support of a Receivership and a Conditional Temporary Restraining Order." The TRO froze assets only in the event that Kennett and Hamilton terminated a certain distributorship license but otherwise permitted ordinary-course business activity as long as full market value in goods or services was received for all asset transfers. The ruling further appointed attorney Jay Steinberg as the receiver but did not order him to take possession and control of the business operation. Instead, a receiver with limited scope was ordered to oversee all receipts and disbursements to ensure that fair market value be received for all transfers of money or property and to generally monitor Tekena USA's financial relationship with the debtor Teknek LLC and defendant Teknek America/Kenham LLC. The Court continued the trustee's emergency motion to February 2, 2006, to tie up open issues concerning the receivership, including the applicant's bond requirements, and it entered two orders resolving these issues at the continued hearing: a "Supplemental Order for the Appointment of a Receiver" and an order finding cause to dispense with the applicant's duty to submit a bond. The Court did not explicitly convert the TRO into a preliminary injunction, as the issues concerning the receivership dominated the continued hearing.
All of the substantive issues concerning both the TRO and the receivership returned when Tekena USA and its four shareholders filed a "Motion to Vacate TRO and Appointment of Receiver," on which the Court heard argument at a February 21, 2006, hearing. At the conclusion of the hearing, the Court took all issues raised under advisement after announcing that the .TRO was vacated effective the same day. Procedurally, this opinion is a ruling on the motion to vacate its orders granting preliminary equitable relief on the Chapter 7 trustee's emergency motion in the adversary proceeding. To date, only Tekena USA and its four shareholders have appeared to oppose the two forms of preliminary relief, although the nature of this adversary proceeding is such that any finding of a likelihood of success on Count I would require findings of probable success against defendants Kennett, Hamilton, and/or Teknek America/Kenham LLC. Though these last three have not appeared in opposition to the requested preliminary equitable relief, they have filed or plan to file motions to dismiss the underlying complaint.
Teknek LLC filed a Chapter 7 bankruptcy case on July 12, 2005, disclosing $73.22 in total assets and total liabilities of $3,788,609.57. Over ninety-nine percent of these liabilities, or approximately $3,779,000, belongs to a single unsecured judgment creditor, Systems Division, Inc.
The Chapter 7 debtor Teknek LLC and two of the adversary-proceeding defendants, Teknek America/Kenham LLC and Tekena USA, were each, at some point in time, U.S. distributors for a Scottish company once known as Teknek Electronics and then known, after foreign insolvency proceedings, as Teknek Holdings. These various "Teknek" companies do not have parent-subsidiary relationships; these companies are separately owned by defendant members/shareholders Kennett and Hamilton — with the notable exception of the movant in the instant motion to vacate, Tekena USA. Hamilton, as vice president, owns 15% of each U.S. "Teknek" entity, while Kennett, as president, owns 85% of each. Defendants Hamilton and Kennett formed the debtor Teknek LLC in 1996 to sell the circuitry boards, cleaning devices, and other products of the Scottish concern Teknek Electronics in the United States. The distributorship operation at issue in this adversary proceeding has been formally owned in successive order by the Chapter 7 debtor Teknek LLC, then by Teknek Electronics in Scotland, then by defendant Teknek America/Kenham LLC, and finally by defendant Tekena USA.
In 1999, the lone noninsider creditor of this bankruptcy estate, SDI, sued the debtor and the Scottish concern, Teknek Electronics, in a federal district court in California for infringement of its patent rights. After obtaining a jury verdict in its favor on July 12, 2004, SDI was granted a money judgment now worth in excess of $3.7 million on August 18, 2004; the money judgment was affirmed on appeal. On March 25, 2005, SDI registered the judgment from the original federal district court with the U.S. District Court for the Northern District of Illinois, see 28 U.S.C. § 1963, and attempted to collect on the same in Illinois where the debtor's operation base is located. In the federal collection suit, U.S. District Court Judge Shadur entered a June 2, 2005, order finding Kennett and Hamilton and Teknek America/Kenham LLC in civil contempt of court for disobeying the order of the federal district court judge presiding over the patent-infringement suit in California. As a result of this finding, U.S. District Court Judge Shadur enjoined Teknek America/Kenham LLC from trading in the United States, a move Kennett admitted was a prompt for Teknek LLC's Chapter 7 filing. Four days later, Judge Shadur denied an emergency motion to stay enforcement of the June 2 ruling without prejudice. On June 29, 2005, Teknek America/Kenham LLC filed another emergency motion to stay or modify the June 2 ruling, while SDI filed a July 5, 2005, motion to have Kennett, Hamilton, and Teknek America/Kenham LLC declared in further contempt of the June 2 ruling. The Chapter 7 filing of debtor Teknek LLC followed these two pending countermotions on July 12, 2005. The bankruptcy filing may have caused Judge Shadur to vacate the June 2 injunction effective July 15, 2005, which mooted Teknek America/Kenham LLC's motion to stay or modify the June 2 ruling. Judge Shadur also denied without prejudice the motion to hold Teknek America/Kenham LLC, Kennett, and Hamilton in...
To continue reading
Request your trial
-
In re Phillips, Adversary No. 06 A 01180.
...11 U.S.C. § 550. Section 550(a) sets forth the parties from whom fraudulent transfers can be recovered, Fisher v. Hamilton (In re Teknek, LLC), 343 B.R. 850, 880 (Bankr.N.D.Ill.2006), and provides as (a) Except as otherwise provided in this section, to the extent that a transfer is avoided ......
-
In re the Heritage Organization, L.L.C.
...made on account of equity ownership in an L.L.C. are not made for reasonably equivalent value); see also Fisher v. Hamilton (In re Teknek, LLC), 343 B.R. 850, 861 (Bankr.N.D.Ill.2006) ("Similarly, a distribution of profits or dividends to L.L.C. members that is not compensation or salary fo......
-
In re Knippen
...look to § 550(a). Section 550(a) sets forth the parties from whom fraudulent transfers can be recovered, Fisher v. Hamilton (In re Teknek, LLC), 343 B.R. 850, 880 (Bankr.N.D.Ill.2006), and provides as (a) Except as otherwise provided in this section, to the extent that a transfer is avoided......
-
In re Heating Supply Co., Inc., Bankruptcy No. 03 B 49243-49246. (Jointly Administered) (Bankr. N.D. Ill. 2/26/2007), Bankruptcy No. 03 B 49243-49246. (Jointly Administered)
...to § 550(a). Section 550(a) sets forth the parties from whom fraudulent transfers can be recovered, Fisher v. Hamilton (In re Teknek, LLC), 343 B.R. 850, 880 (Bankr. N.D. Ill. 2006), and provides as (a) Except as otherwise provided in this section, to the extent that a transfer is avoided u......
-
Generalised Creditors and Particularised Creditors: Against a Unified Theory of Standing in Bankruptcy.
...It seems that D Corp. had almost no assets of its own: Its petition listed them as worth $73.22. Fisher v. Hamilton (In re Teknek, LLC), 343 B.R. 850, 856 (Bankr. N.D. 111. 2006). Moreover, the value of the assets that D Corp. had transferred to H Corp. were also negligible in value, so tha......
-
Operations
...liabilities. There was no evidence that the single member LLC in fact incurred any tax liability. In Re Teknet, LLC (Fisher v. Hamilton), 343 B.R. 850 (Bankr. N.D. Ill. 2006). A distribution of profits to LLC members that is not compensation for services is not a transfer for reasonably equ......
-
Fraudulent Transfers and Juries: Was Granfinanciera Rightly Decided?
...369 U.S. at 477-78 (quoting Kirby v. Lake Shore & M. S. R.R. Co., 120 U.S. 130, 134 (1887)); see Devlin, supra note 32, at 1623. (135) 343 B.R. 850 (Bankr. N.D. 111. (136) 527 U.S. 308 (1999). (137) See Whitehead v. Shattuck, 138 U.S. 146, 151 (1891) ("where an action is simply for the ......