KHI Liquidation Trust v. Wisenbaker Builder Servs., Inc. (In re Kimball Hill, Inc.)

• Decision Date: 12 October 2012
• Docket Number: Bankruptcy No. 08–bk–26779.,Adversary No. 10–ap–00824.
• Parties: In re KIMBALL HILL, INC., et al., Debtor. KHI Liquidation Trust, Plaintiff, v. Wisenbaker Builder Services, Inc. and Wisenbaker Builder Services Ltd., Defendants.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

480 B.R. 894

In re KIMBALL HILL, INC., et al., Debtor.KHI Liquidation Trust, Plaintiff,

v.Wisenbaker Builder Services, Inc. and Wisenbaker Builder Services Ltd., Defendants.

Bankruptcy No. 08–bk–26779.

Adversary No. 10–ap–00824.

United States Bankruptcy Court,

N.D. Illinois,

Eastern Division.

Oct. 12, 2012.

Recognized as Unconstitutional

28 U.S.C.A. § 157(b)(2)(C)

Gordon E. Gouveia, Shaw Fishman Glantz & Towbin LLC, Chicago, IL, for Plaintiff.

Henry J. Kaim, Edward L. Ripley, King & Spaulding LLP, Houston, TX, Darren B. Watts, Swanson, Martin & Bell, LLP, Chicago, IL, for Defendants.

MEMORANDUM DECISION

TIMOTHY A. BARNES, Bankruptcy Judge.

The matter before the court is the Motion To Dismiss the Second Amended Adversary Complaint To Avoid and Recover Avoidable Transfers and Disallow Claims (the “ Motion To Dismiss ”) [Docket No. 51] of Wisenbaker Builder Services Ltd. and Wisenbaker Builder Services, Inc. (collectively “ Wisenbaker ” or “ Defendants ”).

JURISDICTION

Jurisdiction and authority are central issues in this proceeding and are considered and discussed at length below. Putting aside the specific challenge, in general, the federal district courts have “original and exclusive jurisdiction” of all cases under title 11 of the United States Code (the “ Bankruptcy Code ”). 28 U.S.C. § 1334(a). The federal district courts also have “original but not exclusive jurisdiction” of all civil proceedings arising under the Bankruptcy Code, or arising in, or related to cases under title 11. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a) (“ IOP 15(a) ”).

A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code, or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). A motion to avoid a preferential transfer under section 547 of the Bankruptcy Code arises in a case under title 11 and is specified as a core proceeding. 28 U.S.C. § 157(b)(2)(F); Burtch v. Seaport Capital, LLC (In re Direct Response Media, Inc.), 466 B.R. 626, 646 (Bankr.D.Del.2012). A motion to avoid and recover a fraudulent conveyance under sections 544(b), 548, and 550 of the Bankruptcy Code arises in a case under title 11 and is also specified as a core proceeding. 28 U.S.C. § 157(b)(2)(H); DBSI, Inc. v. Swenson (In re DBSI, Inc.), 466 B.R. 664, 665–66 (Bankr.D.Del.2012).

Accordingly, at this point, the court would conclude that final judgment is within the scope of this court's authority. Given the nature of the Motion, however, the court will reserve judgment on this issue until having considered and discussed the parties' arguments.

THE MATTERS BEFORE THE COURT

In considering the Motion, the court has considered the transcript of the arguments of the parties at the November 9, 2011 hearing (the “ Hearing ”). ¹ and has reviewed and considered the Motion itself, any exhibits submitted in conjunction therewith, as well as:

(1) The Complaint To Avoid and Recover Avoidable Transfers and Disallow Claims (the “ Original Complaint ”) [Docket No. 1];

(2) The Amended Complaint To Avoid and Recover Avoidable Transfers and Disallow Claims (the “ First Amended Complaint ”) [Docket No. 20];

(3) The court's Memorandum Opinion dated June 2, 2012 (the “ Original Memorandum Opinion ”) [Docket No. 47];

(4) The Second Amended Complaint to Avoid and Recover Avoidable Transfers and Disallow Claims (the “ Second Amended Complaint ”) [Docket No. 50];

(5) KHI Liquidation Trust's Response in Opposition to Motion by Defendants Wisenbaker Builder Services, Inc. and Wisenbaker Builder Service Ltd. To Dismiss the Second Amended Adversary Complaint To Avoid and Recover Avoidance Transfers and Disallow Claims (the “ Response ”) [Docket No. 57];

(6) Defendants' Reply to KHI Liquidation Trust's Response in Opposition to Motion by Defendants Wisenbaker Builder Services, Inc. and Wisenbaker Builder Service Ltd. To Dismiss the Second Amended Adversary Complaint To Avoid and Recover Avoidable Transfers and Disallow Claims (the “ Reply ”) [Docket No. 58];

(7) KHI Liquidation Trust's Statement of Supplemental Authority in Opposition to Defendants' Motion To Dismiss [Docket No. 64];

(8) Defendants' Submission of Supplemental Authority [Docket No. 67]; and

(9) KHI Liquidation Trust's Response to Defendants' Submission of Supplemental Authority [Docket No. 69].

Though the foregoing items together do not constitute an exhaustive list of the filings in the above-captioned adversary proceeding, the court has taken judicial notice of the contents of the docket in this matter. See Levine v. Egidi, No. 93C188, 1993 WL 69146, at *2 (N.D.Ill. March 8, 1993), In re Fin. Partners, 116 B.R. 629, 635 (Bankr.N.D.Ill.1989) (Sonderby, J.) (authorizing a bankruptcy court to take judicial notice of its own docket).

PROCEDURAL HISTORY

While the court finds that the question before it should be and is determinable as a matter of law, not fact, the court believes a further consideration of the procedural history underlying this matter is appropriate. In the course of that consideration, the court has noted the following:

(1) On April 23, 2008 (the “ Petition Date ”). Kimball Hill, Inc. and 29 of its affiliates (collectively, the “ Debtors ”) filed voluntary petitions for bankruptcy relief.

(2) Shortly after the Petition Date, the court entered an order providing for the joint administration of all of the cases pursuant to Federal Rule of Bankruptcy Procedure 1015.

(3) During the course of the above-captioned, jointly-administered bankruptcy cases, Wisenbaker filed proofs of claim in six of the individual cases, those of Kimball Hill Homes Austin, L.P., Kimball Hill Homes Dallas, L.P., Kimball Hill Homes Houston, L.P., Kimball Hill Homes San Antonio, L.P. and Kimball Hill, Inc. (the “ Wisenbaker Debtors ”).

(4) On March 12, 2009, the court confirmed the Joint Plan of Kimball Hill, Inc. and its Debtor Subsidiaries (the “ Joint Plan ”). The Joint Plan created a liquidation trust (the “ Liquidation Trust ”) into which certain estate assets, claims, and rights—including those of the Wisenbaker Debtors—were transferred. The Joint Plan also reserved the causes of action owned by any of the affiliates—again, including those of the Wisenbaker Debtors—for adjudication by the Liquidation Trust. While the Joint Plan did not expressly substantively consolidate the cases of the Debtors, as discussed below, it nonetheless had that effect.

(5) On March 24, 2009, the Joint Plan went effective. On that date, U.S. Bank National Association was appointed as the trustee for the Liquidation Trust (the “ Trustee ”).

(6) On April 19, 2010, pursuant to the authority granted it in the Joint Plan and the trust agreement governing the Liquidation Trust, the Trustee commenced the above-captioned adversary by filing the Original Complaint against Wisenbaker. The Original Complaint sought to avoid and recover $ 1,665,181 as preferences or, in the alternative, as fraudulent transfers (collectively, the “ Avoidance Actions ”), and seeking the disallowance of Defendants' claims until the transfers underlying the Avoidance Actions were recovered.

(7) On August 27, 2010, Wisenbaker filed a motion to dismiss the Original Complaint.

(8) On September 9, 2010, the Liquidation Trust filed the first Amended Complaint.

(9) On September 23, 2010, Wisenbaker filed an amended motion to dismiss the First Amended Complaint (the “ Amended Original Motion ”) requesting the court to dismiss the First Amended Complaint because the Liquidation Trust did not have standing to pursue the Avoidance Actions, or, in the alternative, for failure to state a claim pursuant to Rule 8(a) of the Federal Rules of Civil Procedure (the “ Rules ”).

(10) On June 2, 2011, Judge Sonderby of this court issued the Original Memorandum Opinion addressing the Amended Original Motion. In the Original Memorandum Opinion, Judge Sonderby granted in part and denied in part the Amended Original Motion, finding that the Liquidation Trust did have standing to pursue the Avoidance Actions and that the First Amended Complaint sufficiently pled Count II for the avoidance of fraudulent transfers, but that the First Amended Complaint did not sufficiently plead Count I for the avoidance of transfers as preferences. Judge Sonderbygranted the Liquidation Trust leave to amend the First Amended Complaint.

(11) On June 30, 2011, the Liquidation Trust filed the Second Amended Complaint.

(12) On July 21, 2011, Wisenbaker filed the Motion To Dismiss before the court today, asking the court to dismiss the above-captioned adversary proceeding in its entirety pursuant to a relatively recent Supreme Court's decision or, in the alternative, dismiss Count I of the Second Amended Complaint with prejudice for failure to comply with the terms of the Original Memorandum Opinion.

DISCUSSION

The arguments presented in the Motion To Dismiss do not present an issue of first impression to the court (though the Motion To Dismiss does offer this judge, in his relatively short tenure on the bench, the first opportunity to be heard with respect to them). In fact, given the number of strategic-minded defendants who have sought to use Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) (“Stern ”) to prolong and/or obfuscate litigation, one might venture that there is no bankruptcy court today that has not had to deal with the issues considered in Stern and their impact on bankruptcy court authority.²

As the Bankruptcy Court for the Southern District of New York has stated, “[u]nfortunately, Stern ... has become the mantra of every litigant who, for strategic or tactical reasons,...