In re Valley Liquors, Inc.
| Decision Date | 10 August 1989 |
| Docket Number | Bankruptcy No. 88 B 4599,Adv. No. 88 A 912. |
| Citation | 103 BR 961 |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
| Parties | In re VALLEY LIQUORS, INC., Debtor. The FIRST NATIONAL BANK OF CHICAGO, Plaintiff, v. VALLEY LIQUORS, INC., Debtor and Debtor in Possession in Case No. 88 B 4599, Abraham Schechter, as Agent for Mar-Salle, Inc., Daviess County Corp., Medley International, Inc., Medley Distilling Co., Medley Wine Co., Abraham Schechter, Vivian Schechter, Robert Schechter, Jane Schechter, and Jeffrey Schechter, and Hans Cornell Champagne Cellers, Inc., Defendant. |
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Robert W. Berliner, Jr., Berliner and Krasnow, Chicago, Ill., for defendant Abraham Schechter.
Pamela S. Hollis, Hollis & Johnson, Chicago, Ill., Trustee of the Estate of Valley Liquors, Inc.
Sandra T. Rasnak, Chicago, Ill., Office of the U.S. Trustee.
Michael L. Stone, Fagel, Haber & Maragos, Chicago, Ill., for plaintiff First Nat. Bank of Chicago.
Christopher G. Walsh, Rothschild, Barry & Myers, Chicago, Ill., for Hans Cornell Champagne Cellers, Inc.
The Debtor held an option to purchase the property in which it operated. It sold that option for $140,000.00. Plaintiff claims a prior lien on all net proceeds of sale. The First National Bank of Chicago as Plaintiff ("First National"), filed this adversary complaint seeking determination of the parties' respective rights to the proceeds of sale of the option by Debtor ("Debtor", or "Valley Liquors") to V.I.P. Industrial Development Co. ("V.I.P."). Defendant Abraham Schechter, was sued as Agent for several interested persons and entities. He moved to dismiss the complaint for asserted failure to state a claim upon which relief may be granted. He argues that First National lacks and fails to plead any valid or perfected security interest in or to the sale Proceeds. The related bankruptcy case was filed under Chapter 11 but has since been converted to one under Chapter 7 of the Bankruptcy Code. The Debtor's Trustee sought to be substituted as the party in interest. No objections were asserted thereto. Therefore, Trustee was substituted as Defendant in place of Valley Liquors. Trustee supports movant's argument that First National failed to perfect any security interest in Debtor's Option. However, Trustee does not seek dismissal. Trustee has not counterclaimed for relief. The extent of her claims in the sale proceeds presently are uncertain on this record. However, her brief clearly asserts intent to attack lien interests asserted by all parties asserting lien interests in the sale proceeds.
The Court has core jurisdiction over this adversary proceeding under 28 U.S.C. §§ 1334(b) and 157(b)(2). The suit concededly involves sale proceeds of Debtor's property. Under 28 U.S.C. § 157(b)(2)(E) the proceeding is core because it seeks turn over of estate property. Under § 157(b)(2)(K) this case requires determination of the validity, extent and priority of liens or other interests asserted or which could be asserted by Plaintiff and Defendants in and to said estate property. Furthermore, under § 157(b)(2)(B) Plaintiff's suit amounts to a secured claim against the estate.
In order for Schechter to prevail on his motion to dismiss, it must clearly appear from the pleadings that First National can prove no set of facts in support of its claims which would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Swanson v. Wabash, Inc., 577 F.Supp. 1308 (N.D.Ill.1983). The issue is not whether First National will ultimately prevail, but whether it has pleaded a cause of action sufficient to entitle it to offer evidence in support of its claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). When reviewing a defendant's motion to dismiss, the Court must consider both pleaded facts and reasonable inferences drawn from pleaded facts, in a light most favorable to the plaintiff. Mescall v. Burrus, 603 F.2d 1266, 1269 (7th Cir.1979); City of Milwaukee v. Saxbe, 546 F.2d 693, 704 (7th Cir.1976); Westland v. Sero of New Haven, Inc., 601 F.Supp. 163, 166 (N.D.Ill.1985); Grant v. City of Chicago, 594 F.Supp. 1441, 1445 n. 6 (N.D.Ill.1984); Morgan v. DeRobertis, 582 F.Supp. 271, 273 (N.D.Ill.1984).
The following pleaded facts are undisputed for purposes of considering the motion to dismiss.
1. Plaintiff First National is a banking corporation organized under the laws of the United States of America having its principal place of business within the State of Illinois.
2. Defendant Valley Liquors is an Illinois corporation formerly having its principal place of business within the State of Illinois. On March 23, 1988, Valley Liquors filed its petition for relief under Chapter 11 of Title 11, United States Code. After the filing of this adversary proceeding, Valley Liquor's case was converted to a Chapter 7 and Pamela S. Hollis was appointed trustee of the Valley Liquor estate on or about December 12, 1988.
3. Defendant Abraham Schechter, as agent for Mar-Salle, Inc., Daviess County Corp., Medley International, Inc., Medley Distilling Co., Medley Wine Co., Abraham Schechter, Vivian Schechter, Robert Schechter, Jane Schechter, and Jeffrey Schechter ("Schechter"), resides within the Northern District of Illinois. (Complaint ¶ 6)
4. Defendant Hans Cornell Champagne Cellers, Inc. ("Cornell") is a corporation doing business within the State of Illinois. (Complaint ¶ 7)
5. Prior to filing its petition for relief, Valley Liquors entered into a lease dated September 8, 1978, by and between Aurora National Bank, as Trustee under Trust No. 1415 (as Lessor), and Valley Liquors, Inc. (as Lessee) for the lease of certain real estate commonly known as 1703 North Eastwood Drive, Aurora, Illinois. The lease granted to Valley Liquors an option to purchase said real estate under Section 2701 of the lease which provides in pertinent part:
Section 2701. The Lessee is hereby specifically given the option to purchase the demised premises between the end of the fifth year and the end of the term for the sum of $995,000.00. Six months\' prior written notice of the intention of the Lessee to exercise this option and to purchase the premises must be given . . . (the "Option to Purchase")
6. On November 9, 1987, Valley Liquors served Lessor under the lease with written notice of its intention to exercise the foregoing option. (Memorandum of First National Bank opposing Schechter's motion, at p. 4.).
7. On July 29, 1988, an Order was entered herein authorizing and directing Valley Liquors to sell said Option to Purchase to the V.I.P. Industrial Development Co. for the amount of $140,000.00 (the "Option Proceeds"). The Order authorized such sale free and clear of all liens, claims and encumbrances, and directed that all such liens, claims and encumbrances attach to the proceeds of sale, and further directed the deposit of the Option Proceeds in a segregated, interest-bearing escrow account subject to such liens, claims and encumbrances.
8. The Option sale was closed. Option Proceeds amounting to $140,000.00 have been paid by V.I.P. Industrial Development Co. to Valley Liquors or to its counsel on behalf of Valley Liquors. The Trustee should now be holding those funds segregated and invested.
9. Prior to filing of Debtor's Chapter 11 Petition, First National made occasional advances to Valley Liquors under a revolving line of credit, the terms of which were set forth in a Loan and Security Agreement dated February 18, 1986, by and between First National and Valley Liquors. All loan advances were to be secured thereunder by security interest granted by borrower to lender in borrower's personal property including its "General Intangibles". (Loan & Sec. Agree. ¶ 5.1, at p. 16). "General Intangibles" are defined to include inter alia "all choses in action, causes of action and all other intangible personal property of Borrower of every kind and nature. . . ." (Loan & Sec.Agree. ¶ 1.1(x) at p. 4).
10. Pursuant to said Loan and Security Agreement, Valley Liquors made, executed and delivered to First National its Revolving Loan Note dated March 18, 1986, in the original principal amount of $13,000,000.00, due in the amount of aggregate unpaid advances made under the Loan and Security Agreement, plus interest as set forth therein.
11. First National recorded certain financing statements in the Office of the Secretary of State of Illinois on March 19, 1986. Those covered inter alia the following types of property:
All of Debtor\'s now owned and existing and hereafter acquired accounts, inventory, machinery, equipment, fixtures, chattel paper, general intangibles, instruments and documents wheresoever located . . .
(Emphasis supplied.) (Complaint, Paragraph # 14.)
12. Defendant Schechter may have or claim some interest in and to the Option Proceeds under and by virtue of a real estate mortgage dated February 13, 1987, executed by Valley Liquors, Inc. in favor of said Defendant, securing a contingent obligation not to exceed $10,000,000.00. Said mortgage was recorded in the office of the Recorder of Deeds of Kane County, Illinois on June 1, 1987.
13. Defendant Cornell may have or claim some interest in and to the Option Proceeds under and by virtue of a judgment entered on February 25, 1988, in Case No. 88 C 1606 in the United States District Court for the Northern District of Illinois, Eastern Division.
First National contends that the Option to Purchase constituted one of the "General Intangibles" of Valley Liquors provided as security in the Loan and Security Agreement, and was therefore subject to the perfected security interest of the Bank. On that contention rests its asserted secured claim to proceeds of the Option sale.
The...
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