LB Steel, LLC v. Walsh Constr. Co. (In re LB Steel, LLC)
| Decision Date | 06 July 2017 |
| Docket Number | Adversary Case No. 16–00727,Bankruptcy Case No. 15–35358 |
| Citation | 572 B.R. 690 |
| Parties | IN RE: LB STEEL, LLC, Debtor. LB Steel, LLC, Plaintiff, v. Walsh Construction Company, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Jeffrey C. Dan, Arthur G. Simon, Brian P. Welch, David K. Welch, Crane Heyman
Simon Welch & Clar, Chicago, IL, for Plaintiff.
Michael K. Desmond, Figliulo & Silverman PC, Chicago, IL, for Defendant.
LB Steel, LLC (the "Debtor") filed an adversary complaint against Walsh Construction Company ("Walsh"), seeking to avoid and recover certain funds deposited with the Clerk of the Circuit Court of Cook County (the "Clerk") pursuant to 11 U.S.C. §§ 547(b), 548(a), 550(a), and 553(b).1 Before the Court for ruling is Walsh's motion to dismiss the complaint pursuant to Rules 12(b)(1), 12(b)(6), and 41(b) of the Federal Rules of Civil Procedure, Fed. R. Civ. P. 12(b)(1), 12(b)(6), 41(b), made applicable to adversary proceedings by Federal Rules of Bankruptcy Procedure 7012(b) and 7041. For the reasons that follow, the motion to dismiss will be denied, and the Court will abstain from conducting further proceedings pending the resolution of a related state court appeal.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (E), (F), (H), and (O ). Further discussion in response to Walsh's contention about subject matter jurisdiction appears below.
In addition to considering the facts in the complaint, the exhibit attached thereto, and other documents filed in the bankruptcy case, the Court incorporates the facts section of its memorandum opinion issued in March 2016. That opinion resolved the Debtor's adversary complaint which sought both a determination that certain funds deposited with the Clerk were property of the Debtor's bankruptcy estate and turnover of those funds to the Debtor. See LB Steel, LLC v. Walsh Constr. Co. (In re LB Steel, LLC) , 547 B.R. 790 (Bankr. N.D. Ill. 2016). Because the facts in the prior opinion are relevant to and provide context for this ruling, they are repeated below, together with additional facts pertinent to this Memorandum Opinion.
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, "[the Debtor'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:
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 a two-count complaint (the "First Adversary complaint"). (Adv. No. 15–00876, Docket No. 1.) In Count I, asserted against Walsh, the Debtor sought a declaratory judgment that the Deposited Funds were property of the bankruptcy estate. In Count II, asserted against the Clerk, the Debtor asked for turnover of those funds.2 Subsequently, on January 4, 2016, Walsh filed a motion to dismiss the complaint under Rule 12(b)(6). According to Walsh, the Deposited Funds were not property of the estate because the Circuit Court ordered pre-petition setoff of mutual obligations, and, therefore, the complaint had to be dismissed for failure to state a claim. In the alternative, Walsh asked the Court to abstain from making a decision under 28 U.S.C. § 1334(c)(1) because the appeal of the Judgment Order was pending in the Circuit Court.
On March 8, 2016, the Court heard oral argument on Walsh's motion to dismiss and then took the matter under advisement. On March 29, 2016, the Court issued an opinion, finding that setoff was accomplished pre-petition through and at the time of the entry of the Judgment Order. LB Steel , 547 B.R. at 801. As a result, the Court concluded that the Deposited Funds were not property of the estate and that, thus, those funds could not be turned over to the Debtor. Id. at 801–02. Accordingly, the Court granted Walsh's motion to dismiss, and the complaint was...
To continue reading
Request your trial
-
Gordon v. U.S. Bank, N.A. (In re William)
...Instead, he contends that his failure to do so is not res judicata because of an equitable exception recognized in LB Steel, LLC. 572 B.R. 690, 703-05 (Bankr. N.D. Ill. 2017). Plaintiff relies on LB Steel to argue that there is a widely accepted statutory scheme exception to res judicata th......
-
Roy Anderson Corp. v. 225 Baronne Complex, L. L.C.
...of a statutory or constitutional scheme—which the jurisprudence has labeled the "statutory-scheme exception." In re LB Steel, LLC , 572 B.R. 690, 703-04 (Bankr. N.D. Ill. 2017). Under the statutory-scheme exception, "the general rule of claim splitting does not apply where ‘it is the sense ......
-
In re Hovensa, L.L.C.
...resources. Further, the resolution of the action in the local courts would likely moot the instant appeal. In re LB Steel, LLC, 572 B.R. 690, 709 (Bankr. N.D. Ill. 2017) (staying a federal proceeding in part because it might be mooted by a pending state court action). Simply put, awaiting r......