LB Steel, LLC v. Walsh Constr. Co. (In re LB Steel, LLC)

• Decision Date: 29 March 2016
• Docket Number: Bankruptcy Case No. 15–35358,Adversary Case No. 15–00876
• Citation: 547 B.R. 790
• Parties: In re: LB Steel, LLC, Debtor. LB Steel, LLC, Plaintiff, v. Walsh Construction Company and Dorothy Brown, Clerk of the Circuit Court, Cook County, Illinois, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

547 B.R. 790

In re: LB Steel, LLC, Debtor.

LB Steel, LLC, Plaintiff,

v.Walsh Construction Company and Dorothy Brown, Clerk of the Circuit Court, Cook County, Illinois, Defendants.

Bankruptcy Case No. 15–35358

Adversary Case No. 15–00876

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

Signed March 29, 2016

David J. Gold, Daniel A. Zazove, Perkins Coie LLP, Chicago, IL, for Plaintiff.

Michael K. Desmond, Figliulo & Silverman PC, Chicago, IL, for Defendants.

Cook County Clerk pro se.

MEMORANDUM OPINION

Janet S. Baer, Bankruptcy Judge

LB Steel, LLC (the "Debtor") filed an adversary complaint against Walsh Construction Company ("Walsh") and Dorothy Brown, Clerk of the Circuit Court of Cook County (the "Clerk"), seeking both a determination that certain funds deposited with the Clerk are property of the Debtor's bankruptcy estate and turnover of those funds to the Debtor, the latter pursuant to 11 U.S.C. § 543.¹ Before the Court for ruling is Walsh's motion to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, Fed.R.Civ.P. 12(b)(6), made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7012(b). For the reasons that follow, the motion will be granted, and the complaint will be dismissed.

FACTS

On a Rule 12(b)(6)motion to dismiss, the Court considers the facts both in the complaint and in any exhibits attached to the complaint, as well as information of which the Court can take judicial notice. See Fed.R.Civ.P. 10(c)(made applicable to adversary proceedings by Fed. R. Bankr.P. 7010); Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1019–20 (7th Cir.2013). The well-pleaded facts are taken as true for purposes of the motion, and all reasonable inferences from the facts are drawn in favor of the non-movant. Chi. Bldg. Design, P.C. v. Mongolian House, Inc., 770 F.3d 610, 612 (7th Cir.2014); Killingsworth v. HSBC Bank Nev., N.A., 507 F.3d 614, 618 (7th Cir.2007). In this matter, the complaint, the exhibit attached thereto, and other documents filed in the bankruptcy case allege the following facts.

In January 2003, Walsh contracted with the City of Chicago (the "City") to serve as the general contractor for a construction project at O'Hare International Airport (the "Project"). Subsequently, Walsh executed a subcontract with Carlo Steel Corporation ("Carlo Steel") to fabricate steel canopies for the Project. On March 12, 2003, Carlo Steel entered into a sub-subcontract with the Debtor to make steel supports for the canopies. The Debtor, in turn, executed an agreement with Calumet Testing, Inc. ("Cal Testing") to provide weld-testing services for the steel supports.

About two years later, a surge of litigation began.

In February 2005, the Debtor filed suit in the Circuit Court of Cook County (the "Circuit Court") against Carlo Steel, Walsh, the City, and others in Case No. 05 CH 2675 for, among other things, recovery of the unpaid contract balance owed to the Debtor, as well as owner-approved extras and other work performed by the Debtor in connection with the Project. Additionally, the Debtor sought adjudication of its mechanic's lien of $1,554,654 on the public funds associated with the Project. That amount was the balance due by the City to Walsh on their contract.

In 2007, after finding various alleged construction defects in the work done on the Project, the City filed suit in the Circuit Court against Walsh for breach of contract in Case No. 07 L 3886. Thereafter, Walsh sued Carlo Steel, and Carlo Steel, in turn, filed a third-party complaint against the Debtor. Carlo Steel later assigned its claim against the Debtor to Walsh.

On June 19, 2008, the Debtor filed a complaint in the Circuit Court against Cal Testing in Case No. 08 L 6675, alleging breach of contract for failure to identify problems with the steel supports fabricated by the Debtor. That case and the one filed by the Debtor in 2005 (Case No. 05 CH 2675) were subsequently consolidated into the City's 2007 case against Walsh (Case No. 07 L 3886).

About five years later, after the City and Walsh settled the City's claims against Walsh in Case No. 07 L 3886, the Circuit Court entered an agreed order on February 21, 2013, dismissing with prejudice the City's claims against Walsh. On March 12, 2013, Walsh then filed a second amended complaint against both the Debtor and Cal Testing. In response, Cal Testing filed a counterclaim for interpleader, seeking its dismissal from the case in exchange for a deposit of funds in the amount of $1,812,696, the remainder of Cal Testing's insurance policy limit. On May 13, 2013, the Circuit Court granted Cal Testing's interpleader and entered an order directing Cal Testing to deposit $1,812,696 with the Clerk (the "Cal Testing Deposit"). The order provided that upon the deposit of those funds, Cal Testing was dismissed with prejudice and without costs from Case Nos. 07 L 3886 and 08 L 6675. Pursuant to the order, Cal Testing deposited the funds with the Clerk on June 4, 2013.

On June 28, 2013, the City and Walsh filed a joint motion, seeking to deposit with the Clerk funds in the amount of $1,554,654, the balance due to Walsh under its contract with the City, in exchange for the dismissal of all claims against the City by Walsh and the Debtor. Subsequently, on November 12, 2013, the Circuit Court entered an order directing the City to deposit $1,554,654 with the Clerk (the "City Deposit"). According to the order," LB Steel's lien [wa]s released as to the City only and [now] attaches to the deposited funds." Pursuant to the order, the City deposited the funds with the Clerk on November 12, 2013.

On October 14, 2015, after a six-week trial, the Circuit Court entered a judgment in the consolidated cases ("the Judgment Order"). The Judgment Order provided, in relevant part, as follows:

1. Judgment is entered in favor of Walsh ... and against [the Debtor] ... for Breach of Contract in the amount of $27,500,000.00;

* * *

3. Judgment is entered in favor of [the Debtor] and against ... Walsh ... for breach of contract, in the amount of $6,500,000.00;

* * *

5. Judgment is entered in favor of [the Debtor] and against Walsh on Count II of [the Debtor's] Counterclaim in Case No. 2007 L 3886 ... for lien under 770 ILCS 60/23, in the amount of $1,554,654.00;

6. Judgment is entered in favor of [the Debtor] ... on ... [the Debtor's] Complaint against Cal Testing in Case No. 08 L 6675[ ] for the principal amount of $1,812,696.00 plus accrued interest that was deposited with the Clerk ... by Cal Testing.... This $1,812,696.00 is independent of, and in addition to, the $6,500,000.00 awarded to [the Debtor] ...;

* * *

11. [The Debtor] shall be entitled to a credit for $6,500,000.00 based upon its contract claims, bond claim, and lien claim and $1,812,696.00 plus accrued interest based upon [the Debtor's] claims against [Cal] Testing and the funds deposited by [Cal] Testing (plus accrued interest), which amounts shall be set-off against [Walsh's] judgment, for a net judgment in favor of Walsh ... and against [the Debtor] in the amount of $19,187,304.00, less accrued interest from funds deposited by [Cal] Testing;

* * *

13. IT IS HEREBY ORDERED that the Clerk ... shall release the $1,554,654.00 deposited by the City ... with the Clerk ..., plus accrued interest, to Walsh ...;

14. IT IS HEREBY ORDERED that the Clerk ... shall release the $1,812,696.00 deposited by Cal Testing ..., plus accrued interest, to Walsh ...;

* * *

16. Notwithstanding the Parties['] claim for attorneys' fees and costs against [the Debtor] and the continuance of this matter for this issue, this Court makes an express finding that there is no just reason for delaying either enforcement or appeal or both of this Judgment Order pursuant to Illinois Supreme Court Rule 304(a).

On October 18, 2015, four days after entry of the Judgment Order, the Debtor filed a voluntary petition for relief under chapter 11. Shortly thereafter, on October 23, 2015, Walsh filed a motion to modify the automatic stay, seeking to withdraw the City Funds and the Cal Testing Funds deposited with the Clerk (together, the "Deposited Funds") and to allow Walsh to liquidate its claim for attorneys' fees and costs as provided for in the Judgment Order.

On December 4, 2015, the Debtor filed the instant adversary complaint against Walsh and the Clerk, alleging that the Deposited Funds are property of the bankruptcy estate and, thus, should be turned over to the Debtor.² On January 4, 2016, Walsh filed its motion to dismiss the complaint. According to Walsh, the Deposited Funds are not property of the estate because the Circuit Court ordered pre-petition setoff of mutual obligations, and, therefore, the complaint must be dismissed for failure to state a claim. In the alternative, Walsh asks the Court to abstain from making a decision under 28 U.S.C. § 1334(c)(1)because the appeal of the Judgment Order is pending in the Circuit Court.

The Court heard oral argument on March 8, 2016 on Walsh's motion to dismiss and then took the matter under advisement. After a review of the relevant pleadings, applicable case law, and the arguments of the parties, the Court is now ready to rule.

STANDARDS UNDER RULE 12(b)(6)

A complaint will be dismissed under Rule 12(b)(6)unless it clears two hurdles. EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir.2007). First, the complaint must contain enough factual information to give the defendant "fair notice" of the claim so that it can prepare its defense. Reger Dev., LLC v. Nat'l City Bank, 592 F.3d 759, 764 (7th Cir.2010)(internal quotation omitted). Second, the complaint must plausibly suggest that the plaintiff has a right to relief, the allegations raising that right above a "speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

Even when there is fair notice and a plausible claim, however, a complaint should be dismissed if the alleged facts do not state a...