In re Weitzman

• Decision Date: 07 February 2008
• Docket Number: No. 05 B 05747.,05 B 05747.
• Citation: 381 B.R. 874
• Parties: In re Melvin WEITZMAN, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

381 B.R. 874

In re Melvin WEITZMAN, Debtor.

No. 05 B 05747.

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

February 7, 2008.

COPYRIGHT MATERIAL OMITTED

Bennett A. Kahn, Melvin J. Kaplan, Melvin J. Kaplan & Associates, Chicago, IL, for Debtor.

David J. Fish, The Fish Law Firm, PC, Naperville, IL, Tom Vaughn, Chicago, IL, for Trustee.

MEMORANDUM OPINION

SUSAN PIERSON SONDERBY, Bankruptcy Judge.

This, matter is before the court on the Motion of Elgin Riverboat Casino to Reopen Case and to Retroactively Allow State Court Proceeding Against Trustee Thomas Vaughn (the "Motion"). For the reasons stated, the Motion is granted in part and denied in part.

Background

The parties are in agreement as to the facts. In addition, where necessary to provide background, the court has taken judicial notice of certain dates on this bankruptcy case's docket and the contents of documents filed in this case. Fed. R.Evid. 201; In re Woodmar Realty Co., 294 F.2d 785, 788 (7th Cir.1961). On May 23, 2000, the Circuit Court for the 16th Judicial Circuit, Kane County, Illinois (the "State Court") entered a judgment in favor Elgin Riverboat Casino d/b/a Grand Victoria Casino (the "Casino") and against Melvin Weitzman (the "Debtor") in the amount of $31,538.73 (the "Judgment").

On February 21, 2005 (the "Petition Date"), the Debtor filed a voluntary petition for relief under chapter 13 of title 11 of the United States Code (the "Bankruptcy Code"). A proposed chapter 13 plan was filed on March 1, 2005, and later amended on August 19, 2005 (the "Amended Plan"). The Casino filed proof of claim no, 3 in the chapter 13 case asserting an unsecured nonpriority claim in the amount of $28,282.73 based on the Judgment.

During the pendency of the chapter 13 case, the Debtor paid $81,000 to the standing chapter 13 trustee, Tom Vaughn (the "Trustee")¹ in accordance with 11 U.S.C. § 1326(a)(1) which requires debtors to commence making proposed plan payments to the chapter 13 trustee no later than 30 days after the date of the filing of the plan or the order for relief, whichever is earlier. Some of those funds were disbursed by the Trustee to the Debtor's ex-wife pursuant to an order of the court entered on February 24, 2006.

The court entered an order denying confirmation of the Amended Plan on February 3, 2006. The Trustee then brought a motion to dismiss the case for denial of confirmation pursuant to 11 U.S.C. § 1307(c)(5). The dismissal motion was scheduled for hearing on February 23, 2006 at 9:30 a.m. Shortly before the hearing on the dismissal motion, the Trustee's counsel advised the Casino's counsel by telephone that the case was going to be dismissed and that the Trustee was holding $52,636.37 of the payments the Debtor made toward the proposed Amended Plan (the "Debtor's Funds"). The court granted the dismissal motion on February 23, 2006, but the order of dismissal was not entered on the case docket until the following day. The case remained open and the Trustee continued to serve after dismissal until June 2, 2006.²

In the early afternoon of February 23, 2006, the Casino, in an effort to collect on its Judgment, caused the issuance of a Third-Party Citation to Discover Assets from the State Court directed to "Tom Vaughn, Chapter 13 Trustee" (the "Citation"). The issuance of the Citation commenced a supplementary proceeding before the State Court. See 735 ILCS § 5/2-1402(a); ILL. S. CT. R. 277. The Citation commanded the Trustee to (i) appear before the State Court on March 22, 2006, to be examined under oath to discover assets or income of the Debtor not exempt from the enforcement of the Judgment, and (ii) produce the Debtor's Funds and records containing information concerning the Debtor's nonexempt property. In the meantime, the Citation prohibited the Trustee from making or allowing any transfer of nonexempt property belonging to the Debtor. The Citation further warned that the failure to appear at the examination may result in arrest, contempt proceedings, and possible imprisonment.

The Casino did not provide this court with a copy of a proof of service of the Citation and did not divulge in its Motion or supporting papers when, how, and on whom the Citation was served. At a hearing on the Motion, the Casino acknowledged that the Citation was not left with the Trustee personally, but was given to someone at the Trustee's office. Information as to the identity of that person, whether he or she was the Trustee's employee, and if so, his or her job responsibilities were not provided to this court.

On March 21, 2006, the day before the return date on the Citation, the Trustee filed an "Emergency Motion to Remove State Court Causes. Pursuant to 29 U.S.C 1452 and Federal Rule of Bankruptcy Procedure 9027 and Vacate Dismissal Pursuant to Federal Rule of Civil Procedure 60(b)." The Trustee asked in the motion that the supplementary proceedings commenced by the Casino and two other creditors be removed to this court. This court entered an order denying that motion on April 11, 2006, based, at least in part, on the representation of the Trustee's counsel that the Trustee was not holding any of the Debtor's Funds because they were disbursed by the Trustee to the Debtor within 24 hours after dismissal of the bankruptcy case. The Trustee's counsel advised that the fact the Trustee was not holding the Debtor's Funds would be reported to the State. Court judges presiding over the supplementary proceedings.

Approximately two months later, on June 1, 20*, the Trustee filed his Final Report and Account in this case. The Final Report reflects the Trustee's disbursement of the Debtor's Funds to the Debtor, but does not indicate the date of that disbursement. As noted, the Trustee's counsel previously informed the court that the disbursement was made within a day of the dismissal of the case. The parties have only agreed for this motion, however, that the Trustee's disbursement to the Debtor took place sometime between the dismissal of this chapter 13 case on February 23, 2006, and the March 22, 2006 return date on the Citation. Both of those dates are prior to the closing of the chapter 13 case and discharge of the Trustee on June 2, 2006. Because of the absence of information as to the particulars of the service of the Citation this court does not know whether the disbursement of the Debtor's Funds occurred before or after service of the Citation, assuming there was service.

On January 11, 2007, about six months after the closing of the chapter 13 case, the Casino filed a pleading entitled Third-Party Complaint against the Trustee with the State. Court (the "Complaint"). In Count I of the Complaint, the Casino seeks to hold the Trustee personally liable for the amount of its Judgment against the Debtor based on 735 ILCS § 5/2-1402(f). That statute allows the State Court to enter judgment against a third-party citee who violates a citation's prohibition against transferring nonexempt moneys due the judgment debtor. In this matter, the Casino contends that the Trustee violated the Citation's prohibition when he transferred the Debtor's Funds, and, should therefore have a judgment entered against him and in favor of the Casino in the amount of the Judgment against the Debtor. In Count II, the Casino asks the State Court to issue a Rule to Show Cause against the Trustee why he should not be held in contempt for violating the Citation's prohibition. The Casino alleges that "[t]he contempt lies in the Trustee's willful failure to respond to, or otherwise comply with, the Citation in any manner whatsoever, and in his failure to hold the funds pending a resolution by this Court or the State Court." (Reply of Elgin Riverboat `Casino in Support of Motion to Retroactively Allow State Court Proceedings Against Trustee Thomas Vaughn, p. 3).

On February 8, 2007, the Trustee filed a motion to dismiss the Complaint with the State Court based on the Barton doctrine which requires plaintiffs to obtain the permission of the appointing court to bring a lawsuit against the trustee. The Casino did not respond to that motion, but informed the State Court of its intention to obtain permission from this court to proceed with the Complaint against the Trustee.

Approximately four months later, on June 20, 2007, the Casino filed this Motion to Reopen Case and to Retroactively Allow State Court Proceedings Against Trustee Vaughn. In the Motion, the Casino seeks permission to continue with the Complaint. To explain its failure to seek permission from this court prior to filing the Complaint in the State Court, the Casino offers that at the time it filed the Complaint it did not "believe the Barton doctrine applied ... because the bankruptcy case had been dismissed and the [T]rustee was holding the [D]ebtor's money simply as any other stake holder receiving a third party citation regarding a judgment debtor." (Motion, ¶ 10). As will be discussed, the belief as to the inapplicability of the Barton doctrine was misplaced and the Trustee was not holding the Debtor's Funds like "any other stake holder."

Discussion

A. Jurisdiction

Federal courts have a duty to police their own jurisdiction over matters brought before them. Smoot v. Mazda Motors of America, Inc., 469 F.3d 675, 678 (7th Cir.2006). This matter involves a motion under section 350(b) of the Bankruptcy Code to reopen a closed chapter 13 case so the court can consider a creditor's request for permission to continue a lawsuit against the chapter 13 trustee for an action he took during his administration of the Debtor's estate.

Under Section 350(b) of the Bankruptcy Code, "[a] case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." 11 U.S.C. § 350(b). The court has jurisdiction to decide a motion to reopen. In re Redmond, 380 B.R. 179, 182 (Bankr.N.D.Ill.2007).

Reopening a case is not mandatory. In re...