Mason v. RJK Investors, an Ill. Gen. P'ship, Helen M. Sirakides, of the Helen M. Sirakides Trust, James V. Elides, Barbara Kirkpatrick, of the Delores Tolson Trust, & Robert C. Pekarek, Individually Or of Managerial Psychology Ltd. (In re Klarchek)

• Decision Date: 03 April 2014
• Docket Number: Adversary No. 13ap00631.,Bankruptcy No. 10bk44866.
• Citation: 509 B.R. 175
• Parties: In re Richard J. KLARCHEK, Debtor. Richard J. Mason, Chapter 7 Trustee, Plaintiff, v. RJK Investors, an Illinois general partnership, Helen M. Sirakides, as Trustee of the Helen M. Sirakides Trust, James V. Elides, Barbara Kirkpatrick, as Trustee of the Delores Tolson Trust, and Robert C. Pekarek, Individually or as Trustee of Managerial Psychology Ltd. Pension Plan, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

509 B.R. 175

In re Richard J. KLARCHEK, Debtor.

Richard J. Mason, Chapter 7 Trustee, Plaintiff,

v.RJK Investors, an Illinois general partnership, Helen M. Sirakides, as Trustee of the Helen M. Sirakides Trust, James V. Elides, Barbara Kirkpatrick, as Trustee of the Delores Tolson Trust, and Robert C. Pekarek, Individually or as Trustee of Managerial Psychology Ltd. Pension Plan, Defendants.

Bankruptcy No. 10bk44866.

Adversary No. 13ap00631.

United States Bankruptcy Court,

N.D. Illinois,

Eastern Division.

Signed April 3, 2014.

Paul M. Bauch, Esq., Kenneth A. Michaels, Jr., Esq., Carolina Y. Sales, Esq., Bauch & Michaels, LLC, Chicago, IL, for Defendant.

Paul Catanese, Esq., Patricia K. Smoots, Esq., McGuireWoods LLP, Chicago, IL, for Plaintiff.

MEMORANDUM DECISION

TIMOTHY A. BARNES, Bankruptcy Judge.

The matters before the court are Richard J. Mason's (the “ Trustee ”) Motion to Strike Answers (the “ Motion to Strike ”) filed by Defendant RJK Investors (“ RJK ”), an Illinois general partnership, and the Trustee's Motion for Default Judgment against RJK (the “ Motion for Default Judgment ”). Upon review of the parties' respective filings and after holding hearings on the matters, the court finds that the untimely answers filed by RJK should be stricken as late and filed without leave of the court and that RJK failed to show “excusable neglect” pursuant to Federal Rule of Bankruptcy Procedure 9006(b)(1) (“ Rule 9006(b)(1) ”). The Motion to Strike will therefore be granted. As a result, RJK, having failed to file timely a responsive pleading to the Trustee's complaints, is in default. Accordingly, the Motion for Default Judgment will also be granted.

JURISDICTION

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 title 11 of the United States 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).

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 undertitle 11. 28 U.S.C. § 157(b)(1). A motion to strike answers filed in response to complaints in an adversary proceeding is a procedural device for the court in administrating such proceeding and is core matter within the jurisdiction of a bankruptcy court, pursuant to 28 U.S.C. § 157(b)(2)(A). Bourdeau Brothers, Inc. v. Michael F. Montagne (In re Montagne), No. 08–10916, Adv. No. 08–1024, 2010 WL 271347, at *1 (Bankr.D.Vt. Jan. 22, 2010). A default judgment is a final order. Wellness Intern. Network, Ltd. v. Sharif, 727 F.3d 751, 778 (7th Cir.2013).

A bankruptcy court may enter default judgment on core claims, 28 U.S.C. § 157(b)(1), but absent consent of the parties to a final adjudication of noncore claims by a bankruptcy judge, in noncore matters, may only submit proposed findings of facts and conclusions of law to the district court for de novo review of timely objections and entry of final judgment. Wellness, 727 F.3d at 778; 28 U.S.C. § 157(c)(1)–(2); Fed. R. Bankr.P. 9033. “A non-core proceeding is ‘related’ to a bankruptcy case only when ‘it affects the amount of property available for distribution or the allocation of property among creditors.’ ” In re Olde Prairie Block Owner, LLC, 457 B.R. 692, 699 (Bankr.N.D.Ill.2011) (Schmetterer, J.) ( quoting In re Xonics, Inc., 813 F.2d 127, 130 (7th Cir.1987)).

In the matter before the court, there exist some counts that are core and some that are noncore. Counts III and IV of the amended complaint (the “ Amended Complaint ”) seek to avoid fraudulent transfers under 11 U.S.C. §§ 544 and 548. Claims to avoid fraudulent transfers are core proceedings under 28 U.S.C. § 157(b)(2)(H) and proceedings in which this court has constitutional authority to enter final orders. In re Kimball Hill, Inc., 480 B.R. 894, 907 (Bankr.N.D.Ill.2012) (Barnes, J.).¹ Accordingly, final judgment is within the scope of the court's authority as to Counts III and IV.

Count I of the Trustee's Amended Complaint seeks damages for an alleged breach of an agreement; Count II of the Amended Complaint seeks damages for alleged unjust enrichment. “Contract claims of an estate that are only within the ‘related-to’ jurisdiction are not core proceedings.” United Air Lines, Inc. v. The City of Los Angeles (In re UAL Corp.), 391 B.R. 791, 795 (Bankr.N.D.Ill.2008) (Wedoff, J.) ( citing Home Ins. Co. v. Cooper & Cooper, Ltd., 889 F.2d 746, 749 (7th Cir.1989)). Similarly, claims based on unjust enrichment theories are deemed noncore. In re K & R Express Sys., Inc., 382 B.R. 443, 447 (N.D.Ill.2007). Accordingly, the court requests that the District Court treat this Memorandum Decision as proposed findings of fact and conclusions of law as to Counts I and II.

PROCEDURAL HISTORY

In considering the Motion to Strike and the Motion for Default Judgment (collectively, the “ Motions ”), the court has considered the arguments of the parties at the December 10, 2013 and the February 12, 2014 hearings on the Motions, and has reviewed and considered the following filed documents:

(1) Complaint to Recover Advances and Avoid Transfers [Docket No. 1] (the “ Complaint ”);

(2) Summons in an Adversary Proceeding [Docket No. 2];

(3) Certificate of Service [Docket No. 12];

(4) Amended Complaint to Recover Advances and Avoid Transfers [Docket No. 21];

(5) Alias Summons in an Adversary Proceeding [Docket No. 23];

(6) Certificate of Service [Docket No. 27];

(7) Alias Summons in an Adversary Proceeding [Docket No. 36];

(8) Certificate of Service [Docket No. 38];

(9) Trustee's Motion for Entry of a Default Judgment Against Defendant RJK Investors [Docket No. 44];

(10) Defendant RJK Investors' Answer to Complaint [Docket No. 45];

(11) Defendant RJK Investors' Answer to Plaintiff's Amended Complaint [Docket No. 54];

(12) Trustee's Motion to Strike the Answers Filed by Defendant RJK Investors [Docket No. 56];

(13) Joint Discovery Plan [Docket No. 59];

(14) Defendant RJK Investors' Response to Plaintiff's Motion for Default Judgment and Motion to Strike Answer [Docket No. 64]; and

(15) Reply in Support of Trustee's Motion for Entry of a Default Judgment Against Defendant RJK Investors and in Support of Motion to Strike Answer [Docket No. 68].

The court has also taken into consideration any and all exhibits submitted in conjunction with the foregoing. Though these items do not constitute an exhaustive list of the filings in the above-captioned bankruptcy case, 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. Mar. 8, 1993); Inskeep v. Grosso (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).

FACTUAL BACKGROUND

The core dispute in this case is procedural in nature. The Trustee argues that both answers filed by RJK are untimely and should be stricken as no “cause” to accept the late-filed answers is shown pursuant to Rule 9006(b)(1). RJK, on the other hand, argues that the time to file an answer never ran due to improper service on RJK. In response, the Trustee insists that the service on RJK was proper and that RJK waived the defense of insufficient service by failing to raise it in its responsive pleading.

While the matter before the court is, ultimately, a legal dispute as to whether RJK has waived sufficiency of service and whether the answers should be stricken as time-barred, the facts presented in this proceeding are nonetheless integral to a ruling on the matters. As the arguments raised by the parties are based in large part in fact, the court considers here the facts as they have been presented:

(1) Prior to the commencement of this case, Richard J. Klarchek (the “ Debtor ”) was a managing general partner of RJK. In the Amended Complaint, the Trustee alleges that in the Debtor's capacity the Debtor loaned or advanced funds to RJK when needed for operations or to cover cash shortfalls. It is the repayment of these loans/advances that is the focus of the Amended Complaint.

(2) On April 26, 2013, the Trustee filed the Complaint in the above-captioned adversary proceeding against multiple defendants, including RJK, seeking recovery of $371,045 of the loans/advances on contractual and equitable recovery theories. In the alternative, the Trustee sought recovery of certain fraudulent transfers in the net amount of $148,157 pursuant to 11 U.S.C. §§ 548, 544 and 550.

(3) On April 29, 2013, a summons relating to the Complaint was executed on RJK by serving RJK Investors c/o Richard J. Klarchek by first class mail. Pursuant to Federal Rule of Bankruptcy Procedure 7012(a) (“ Rule 7012(a) ”), an answer was due by May 28, 2013.

(4) On June 11, 2013, the Trustee filed the Amended Complaint seeking the same claims as the Complaint but replaced the defendant “Lena Barnett, as trustee of the Deloris Tolson Trust” with defendant “Barbara Kirkpatrick, as trustee of the Delores Tolson Trust.”

(5) On June 12, 2013, a summons relating to the Amended Complaint was executed on RJK by serving RJK Investors c/o Richard J. Klarchek by first class mail. Pursuant to Rule 7012(a), an answer was due by July 12, 2013.

(6) On July 12, 2013, an alias summons was executed on RJK by serving by first class mail 555 Equity Holdings LLC—Berkley Office (“ 555 Equity ”), c/o Jay Klarchek, and Helen M....