Paloian v. Lasalle Bank Nat'l Ass'n (In re Doctors Hosp. of Hyde Park, Inc.)

• Decision Date: 06 June 2012
• Docket Number: Adversary No. 11 A 01983.,Bankruptcy No. 00 B 11520.
• Citation: 474 B.R. 576
• Parties: In re DOCTORS HOSPITAL OF HYDE PARK, INC., Debtor. Gus A. Paloian, Chapter 11 Trustee of Doctors Hospital of Hyde Park, Inc., Plaintiff, v. LaSalle Bank National Association, f/k/a LaSalle National Bank, as Trustee for Certificate Holders of Asset Securitization Corporation Commercial Pass–Through Certificates, Series 1997, D5, by and through its servicer, ORIX Capital Markets, LLC, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

474 B.R. 576

In re DOCTORS HOSPITAL OF HYDE PARK, INC., Debtor.Gus A. Paloian, Chapter 11 Trustee of Doctors Hospital of Hyde Park, Inc., Plaintiff,

v.LaSalle Bank National Association, f/k/a LaSalle National Bank, as Trustee for Certificate Holders of Asset Securitization Corporation Commercial Pass–Through Certificates, Series 1997, D5, by and through its servicer, ORIX Capital Markets, LLC, Defendant.

Bankruptcy No. 00 B 11520.

Adversary No. 11 A 01983.

United States Bankruptcy Court,

N.D. Illinois,

Eastern Division.

June 6, 2012.

John Costello, Esq., Scott A. Semenek, Jeffrey L. Gansberg, Esq., John E. Frey, Esq., Yeny Estrada, Edwards Wildman Palmer LLP, Chicago, IL, for Debtor/Plaintiff/Trustee.

Lewis T. Stevens, Esq., Michael Warner, Esq., Simon Warner & Dolby LLP, Fort Worth, TX, Howard L. Adelman, Esq., Adam P. Silverman, Esq., Adelman, Gettleman, Merens, Berish & Carter, Ltd., Chicago, IL, for LaSalle Bank.

N. Neville Reid, Fox, Hefter, Swibel, Levin & Carroll LLP, Chicago, IL, for Unsecured Creditors Committee.

David T.B. Audley, Esq., Michael T. Benz, Esq., Richard Wohlleber, Chapman and Cutler LLP, Chicago, IL, for LaSalle Bank N.A. as Trustee for Certificate–Holders of Asset Securitization Corp. Commercial Mortgage Pass–Through Certificates, Series 1997 D5, and through its servicer, ORIX Capital Markets, LLC.

Stacy J. Flanigan, Winston & Strawn LLP, Chicago, IL, for Dan K. Webb.

Kathryn M. Gleason, Esq., Chicago, IL, Office of the U.S. Trustee.

James M. Witz, Esq., Frances Gecker, Esq., Freeborn & Peters, Chicago, IL, for Stephen Weinstein.

Nancy A. Peterman, Esq., Jane B. McCullough, Esq., Kimberly M. DeShano, Esq., Greenburg Traurig PC, Chicago, IL, for Asset Securitization Corp. and Nomura Asset Capital Corp.

MEMORANDUM OPINION ON CHAPTER 11 TRUSTEE'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON LASALLE'S CLAIM TO CERTAIN ASSETS

JACK B. SCHMETTERER, Bankruptcy Judge.

In the Chapter 11 Bankruptcy case filed by the debtor Doctors Hospital of Hyde Park (“Debtor”), a claim was filed by LaSalle Bank National Association, f/k/a LaSalle National Bank as Trustee for certain asset certificateholders of Asset Securitization Corporation Commercial Mortgage Pass–Through Certificates, Series 1997, D5 (“LaSalle”) for $60,139,317.04 (“Claim”). On his objection to the Claim, a Motion for “Partial” Summary Judgment was filed by the Chapter 11 Trustee, Gus A. Paloian (“Trustee”). The Motion sought rulings to limit the extent of LaSalle's lien on certain property of the Debtor.

Upon review of the Trustee's objections to LaSalle's Claim, it was ordered that all objections consisting of counterclaims as defined in Fed. R. Bankr.P. 3007(b) and 7001(2) were to be re-pleaded as separate counts in an adversary proceeding. The Trustee complied with that Order and filed the above-captioned twenty-nine count adversary counterclaim Complaint challenging LaSalle's Claim (11 A 01983, hereinafter the “2011 Adversary”). Counts II through XVIII, X through XIV, and XVIII of the Complaint pertain to issues raised in Trustee's Motion for Partial Summary Judgment.¹

Introduction

The dispute raised by the Trustee's Motion centers on interpretation of several loan documents executed by Debtor. The Trustee's interpretation would exclude certain of the Debtor's assets from LaSalle's lien; LaSalle's interpretation would extend its lien to those assets.

Loan Agreement

Doctor's Hospital of Hyde Park was an Illinois Subchapter S corporation controlledby Dr. James Desnick from 1992 to 2000. It operated hospital facilities at 5800 Stony Island Avenue, Chicago, Illinois. In August 1997, Nomura Asset Capital Corporation (“Nomura”) loaned $50 million to Doctor's Hospital through HPCH, LLC, which owned the Hospital's building and land.² (Jt. Ex. 202, ¶ 26) The loan from Nomura to Doctors Hospital was governed by a Loan Agreement and evidenced by a Promissory Note, both dated August 28, 1997 and executed by the borrower HPCH, LLC in favor of the lender Nomura.

Doctor's Hospital executed a Guaranty and Suretyship Agreement (“Guaranty”) in favor of Nomura dated August 28, 1997. Pursuant to the Guaranty, Doctors Hospital became surety to Nomura for the loan amount. (Jt. Ex. 202, ¶ 73) As security for performance of its obligations under the Guaranty, Doctors Hospital also executed an Operator Security and Pledge Agreement (the “Security Agreement”), also dated August 28, 1997. (Jt. Ex. 202, ¶ 75)

On October 24, 1997, Nomura sold and transferred all of its rights, title and interests in and to the Nomura Loan, along with other mortgage loans, to the Asset Securitization Corporation (“ASC”). (Jt. Ex. 202, ¶ 100, 101). At the same time, ASC entered into a Pooling and Servicing agreement selling ASC's right, title and interest in the Nomura Loan to the LaSalle Bank. (Jt. Ex. 202, ¶ 100, 101). Therefore, LaSalle is successor in interest to Nomura in this bankruptcy case.

Bankruptcy and Proof of Claim

Doctors Hospital filed its Chapter 11 bankruptcy petition on April 17, 2000. (Jt. Ex. 202, ¶ 20). On March 28, 2001, LaSalle Bank filed its Proof of Claim on Official Form 10. In the “Statement of Claim,” attached as an exhibit to Official Form 10, LaSalle stated that as collateral it held liens on all personal property of the Debtor. (LaSalle Ex. 12, at 1) It further stated the Claim was based on the contractual repayment obligation of the Debtor, and the liens and security interests granted to secure the repayment obligation, arising from certain loan agreements. (LaSalle Ex. 12, at 1)

In 2002, Doctors Hospital filed an Adversary Complaint pleading twenty-eight counts against a number of individuals and entities, including LaSalle Bank, seeking recovery of funds for the bankruptcy estate on several theories. (02 A 00363, Dkt. 1, the “2002 Adversary”) As to LaSalle, the Trustee sought to void the Debtor's Guaranty and the liens securing that Guaranty, and to recover certain payments of rent as fraudulent transfers. Allegations of the 2002 Adversary proceeding against LaSalle were consolidated for purposes of trial in 2006 with the Trustee's objections seeking to void LaSalle's Claim. However, objections to the amount, extent, and scope of LaSalle's lien were not tried. Prior to the 2006 trial, Doctors Hospital moved for summary judgment arguing that the Guaranty was non-recourse and seeking to limit LaSalle's Claim to the value of its collateral. That motion was granted on September 22, 2005. ( Id., Dkt. 481)

After trial on remaining issues, on March 23, 2007, in the 2002 Adversary proceeding judgment was entered voiding Doctors Hospital's Guaranty as well as the liens and security interests granted by Doctors Hospital to secure the guaranty as fraudulent transfers. Doctors Hosp. of Hyde Park, Inc. v. Dr. James H. Desnick, et al., (In re Doctors Hosp. of Hyde Park, Inc.), 360 B.R. 787, 874 (Bankr.N.D.Ill.2007). That decision was based, in part, on a ruling that the Debtor incurred those obligations at a time when it was insolvent. Id. On March 27, 2007, separate orders were entered in the bankruptcy case and the 2002 Adversary proceeding denying LaSalle's Claim. On appeal by both parties, a District Court Judge affirmed those orders and judgments. On further appeal, however, a Seventh Circuit Opinion vacated those decisions in part.³Paloian v. LaSalle Bank, N.A. (In re Doctors Hosp. of Hyde Park, Inc.), 619 F.3d 688 (7th Cir.2010). Of importance to issues to be decided, the Seventh Circuit Opinion stated that Doctors Hospital was solvent in August of 1997, a view contrary to the possibility that the Guaranty could be voided as a fraudulent transfer. Id. at 695.

Settlement Agreements

Prior to trial on allegations in the 2002 Adversary Complaint, Debtor reached settlements with certain defendants, namely, a group of defendants led by James Desnick (the “Desnick Settlement”), Daiwa Healthco–2, LLC, and HFG Healthco–4, Inc., (collectively, the “Daiwa Settlement”). (Movant's Ex. 14). Debtor also reached a settlement with Dan K. Webb (the “Webb Settlement”) prior to commencing litigation against him. The claims released by the settlement agreements made with these parties are referred to herein collectively as the “Settled Claims.”

The Complaint in the 2002 Adversary asserted that certain payments made to Daiwa by Doctors Hospital should be avoided as fraudulent transfers, preferences or post-petition transfers. ( See Movant's Ex. 14, ¶ 194–215) Daiwa Funding settled the Doctors Hospitals 2002 Adversary Complaint against Daiwa Funding for a payment of $360,000 in a settlement agreement approved on February 26, 2003. (Movant's Ex. 9).

Dr. James Desnick settled Doctors Hospital's Complaint against him in a settlement agreement dated May 15, 2003 for payment of $6 million dollars and other consideration. (Movant's Ex. 11). Claims against Desnick in the 2002 Adversary included breach of fiduciary duty, fraudulent transfers, preferences, wrongful payment of dividends, and conversion. LaSalle contested the Desnick Settlement agreement, but its objections were overruled and the settlement agreement finally approved on June 7, 2004. (Movant's Ex. 12). LaSalle appealed the Desnick Settlement to the District Court, which overruled LaSalle's objections and affirmed approval of that Settlement. See LaSalle Bank Nat. Ass'n v. Doctors Hosp. of Hyde Park, Inc., 2005 WL 1766370 (N.D.Ill.2005). LaSalle then appealed the District Judge's decision to the Seventh Circuit Court of Appeals, which affirmed the rulings below. See In re Doctors Hosp. of Hyde Park, 474 F.3d 421 (7th Cir.2007).

Doctors Hospital also entered into a settlement agreement with Dan K. Webb, as to its claims against him, for payment of $270,000. Doctors Hospital asserted against Webb claims similar to those pleaded in the 2002 Adversary against severaldefendants, i.e., that certain payments made to Webb from Doctors Hospital were recoverable as fraudulent transfers. However, Webb was not joined as a...