In re Zoll

• Decision Date: 01 February 2012
• Docket Number: No. 10 B 2748,10 B 2748
• Citation: In re Zoll, No. 10 B 2748 (Bankr. N.D. Ill. Feb 01, 2012)
• Parties: In re: MARK ZOLL, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

In re: MARK ZOLL, Debtor.

No. 10 B 2748

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

Dated: February 1, 2012

Chapter 7

Judge Goldgar

MEMORANDUM OPINION

This case presents a situation that is thankfully rare: a trustee's sale of the same estate property to two different buyers. Before the court for ruling are competing motions from the buyers, each of whom seeks to vacate the order authorizing the sale to the other. For the reasons discussed below, both motions will be denied.

1. Background

The following facts are taken from the parties' papers and the court's docket. No facts are in dispute.

Mark Zoll owned a 100% membership interest in 102 Washington LLC ("102 Washington"). The primary asset of 102 Washington is real property, improved with a building of some kind, at 102 Washington Street, Waukegan, Illinois. In January 2010, Zoll filed a chapter 7 bankruptcy case, and John Gierum was appointed trustee. Six months later, in June 2010, Gierum filed a motion pursuant to section 363(b) of the Bankruptcy Code seeking permission to sell the estate's interest in 102 Washington to a John Thomas for $15,000. (Dkt. No. 55). Thomas was apparently affiliated in some fashion with an entity called Restructure Capital, LLC. No party in interest objected, and on July 23, 2010, the court granted the motion. The order ("the 2010 sale order") was entered on the docket on July 27, 2010. (Dkt. No. 71).

Sometime after the entry of the 2010 sale order, Thomas tendered to Gierum a check from Restructure Capital for $15,000. On September 7, 2010, Gierum executed an assignment in which he assigned to Restructure Capital the estate's interest in 102 Washington.¹

Restructure Capital and others took actions in reliance on the completed sale. In September 2010, Restructure made amendments to the operating agreement of 102 Washington. On November 19, 2010, two entities known as T6 Unison Site Management, LLC and Unison Site Management II, LLC (collectively, "Unison") acquired from 102 Washington the right to use the rooftop and other portions of the building for the transmission and reception of wireless communication signals. Unison paid 102 Washington $950,000 in cash and lent it another $250,000 secured by a mortgage on the property. There were apparently other transactions undertaken in reliance on the sale, including one involving some people named Glazer and an entity called BCL-Waukegan, LLC. The precise nature of these other transactions is unclear and the parties disagree about their significance, but the details are immaterial.

What is material is that Gierum never received the $15,000 in payment for the estate's interest in 102 Washington. Restructure Capital's check to Gierum was returned for insufficient funds, and no replacement check was ever provided.

Six months passed. Believing the NSF check meant the estate still had an interest in 102 Washington, Gierum then filed a second motion on April 29, 2011, seeking permission to sell theestate's asserted interest to an entity called Aleph Point, LLC ("Aleph Point") for $15,000. (Dkt. No. 102). The motion mentioned the earlier sale but explained that "the purchaser's payment bounced." (Id. at 2). No party in interest objected, and on May 13, 2011, the court granted the motion. The order ("the 2011 sale order") was entered on the docket on May 17, 2011. (Dkt. No. 106).²

At some point after the 2011 sale order was entered, Aleph Point tendered to Gierum a cashier's check for $15,000. According to Gierum, he provided Aleph Point with a written assignment of the estate's interest in 102 Washington.

Apparently prompted by the assignment to Aleph Point, on May 27, 2011, Unison moved under Bankruptcy Rule 9023, or alternatively under Rule 9024, to vacate the 2011 sale order. Apparently prompted by Unison's motion, on June 23, 2011, Aleph Point counterpunched, moving under Rule 9024 to vacate the 2010 sale order. Both motions are fully briefed.

In addition to Unison and Aleph Point, several other parties have weighed in on the question of vacatur. Restructure Capital and BCL-Waukegan have submitted a memorandum supporting the Unison motion, as have Thomas and the Glazers. Gierum, too, supports Unison's motion. He notes in his memorandum that Thomas and Restructure Capital have said they will pay the unpaid $15,000, and he offers to return Aleph Point's money.

. Discussion

Both Unison's motion and Aleph Point's motion will be denied. No adequate reason has been given to vacate either sale order under the applicable bankruptcy rules. The parties to thesales - Gierum, Restructure, and Aleph Point - will instead be left to their remedies under state law. Illinois contract law, not bankruptcy law, determines who owns 102 Washington.

a. The Contractual Analysis

First, the contractual analysis. There are two contracts for the sale of 102 Washington at issue. The first was between Gierum and Restructure Capital. At some point either before or after the 2010 sale order was entered (the record is unclear), Gierum and Restructure Capital entered into what appears to have been an oral contract under which Gierum agreed to assign to Restructure Capital the estate's interest in 102 Washington in exchange for $ 15,000. Gierum executed a written assignment to Restructure Capital, and Thomas tendered to Gierum Restructure Capital's check.

An assignment is a transfer of an identifiable property, right, or claim from the assignor to the assignee. Toepper v. Brookwood Country Club Rd. Ass 'n, 204 Ill. App. 3d 479, 489, 561 N.E.2d 1281, 1287 (2d Dist. 1990). Under Illinois law, an assignment must meet the same requirements as other contracts, such as intent, mutuality of assent, capacity to contract, legal subject matter, and consideration. Cincinnati Ins. Co. v. American Hardware Mfrs. Ass'n, 387 Ill. App. 3d 85, 100, 898 N.E.2d 216, 230 (1st Dist. 2008); Northwest Diversified, Inc. v. Desai, 353 Ill. App. 3d 378, 387, 818 N.E.2d 753, 761 (1st Dist. 2004). An assignment need not take any particular form as long as it adequately evidences the intent of the assignor to vest ownership of the subject matter in the assignee and describes the subject matter with sufficient particularity. Cincinnati Ins. Co., 387 Ill. App. 3d at 100, 898 N.E.2d at 230.

Gierum's assignment to Restructure Capital met all of the requirements for an enforceable contract. It evidenced Gierum's intent to assign to Restructure Capital the interest in102 Washington and described that interest with sufficient particularity. Both Gierum and Restructure Capital assented to the assignment. The subject matter was legal: there is no prohibition on the transfer of interests in an LLC. And there was consideration in the form of a $15,000 payment. No party contends the assignment to Restructure Capital was invalid.

The effect of a valid assignment is to transfer to the assignee all interest the assignor has in the subject matter. Apollo Real Estate Inv. Fund, IV, L.P. v. Gelber, 398 Ill. App. 3d 773, 779, 935 N.E.2d 949, 955 (1st Dist. 2009); Northwest Diversified, 353 Ill. App. 3d at 387, 818 N.E.2d at 761; Toepper, 204 Ill. App. 3d at 489, 561 N.E.2d at 1287 (noting that "[a]n assignment operates to transfer to the assignee all of the assignor's right, title, and interest in whatever is assigned"). The assignment Gierum executed accordingly transferred ownership of the estate's interest in 102 Washington to Restructure Capital. Upon the assignment's execution, Restructure Capital, not the bankruptcy estate, owned 102 Washington.³

Although Gierum performed his obligations under the contract, however - assigning the interest in 102 Washington to Restructure Capital - Restructure Capital failed to perform its obligations. It failed to pay the $15,000 because the check tendered on its behalf bounced and was never replaced. Restructure Capital's failure to pay the purchase price was a breach of the contract. See Ercor Corp. v. Northern Bldg. Co., No. 09 C 3320, 2010 WL 1729482, at *3 (N.D. Ill. Apr. 27, 2010); Indeck Energy Servs., Inc. v. NRG Energy, Inc., No. 03 C 2265, 2004 WL2095554, at *9 (N.D. Ill. Sept. 16, 2004); see also REI Transport, Inc. v. C.H. Robinson Worldwide, Inc., 519 F.3d 693, 698 (7th Cir. 2008) (discussing Minnesota law).

Upon Restructure Capital's breach, Gierum was entitled to elect his remedy. See MC Baldwin Fin. Co. v. DiMaggio, Rosario & Veraja, LLC, 364 Ill. App. 3d 6, 18, 845 N.E.2d 22, 33 (1st Dist. 2006); Newton v. Aitken, 260 Ill. App. 3d 717, 720, 633 N.E.2d 213, 216-17 (2d Dist. 1994). He could have affirmed the contract, sued Restructure Capital, and sought damages. See MC Baldwin, 364 Ill. App. 3d at 18, 845 N.E.2d at 33; Newton, 260 Ill. App. 3d at 720, 633 N.E.2d at 216-17; see also Chicago United Indus., Ltd. v. City of Chicago, 445 F.3d 940, 945 (7th Cir. 2006) (noting that "[t]he normal remedy for breach of contract is an award of damages"). Or, since Illinois permits rescission for substantial breach, see Horwitz v. Sonnenschein, Nath & Rosenthal LLP, 399 Ill. App. 3d 965, 973-74, 926 N.E.2d 934, 942 (1st Dist. 2010), he could have disaffirmed the contract, sued Restructure Capital, and sought rescission of the contract and restitution of the interest assigned, see MC Baldwin, 364 Ill. App. 3d at 18, 845 N.E.2d at 33; Newton, 260 Ill. App. 3d at 719-20, 633 N.E.2d at 216-17; see, e.g., IMF Tool Co. v. Siebengartner, 899 F.2d 584, 587 (7th Cir. 1990) (holding that the failure to pay for transferred shares of stock gave rise to a claim for rescission of the sale).

Gierum's election to sue for damages would have left the interest in 102 Washington in Restructure Capital's hands and potentially compensated the estate monetarily. Gierum's election to sue for rescission and restitution would potentially have permitted Gierum to reacquire the interest for the estate. As it happened, though, Gierum did neither. He did not sue Restructure Capital for damages. He did not sue...