Chi. & Vicinity Laborers' Dist. Council Pension Plan v. R&W Clark Constr., Inc. (In re R&W Clark Constr., Inc.)

656 B.R. 628

IN RE: R&W CLARK CONSTRUCTION, INC., Debtor.

Chicago & Vicinity Laborers' District Council Pension Plan,Chicago & Vicinity District Council Laborers' Welfare Plan,Chicago & Vicinity District Council Retiree Welfare Plan andCatherine Wenskus, not individually but as Administrator of the Funds, Plaintiffs, v. R&W Clark Construction, Inc., Defendant.

Case No. 23bk03279

Adv. No. 23ap00127

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

Signed February 8, 2024

Attorneys for Plaintiffs: Karen I. Engelhardt and Patrick Foote, Allison, Slutsky & Kennedy P.C., Chicago, IL.

Attorneys for Defendant: Gregory K. Stern, Monica C. O'Brien, Dennis E. Quaid and Rachel S. Sandler, Gregory K. Stern, P.C., Chicago, IL.

MEMORANDUM DECISION

TIMOTHY A. BARNES, Judge.

This matter comes on for consideration on the Motion to Dimsiss [sic] Adversary Complaint [Adv. Dkt. No. 12] (the "Motion to Dismiss"), filed by R&W Clark Construction Inc. ("R&W"), the defendant in the above-captioned adversary proceeding (the "Adversary Proceeding") and debtor in the above-captioned chapter 11 bankruptcy case (the "Main Case").¹

The Motion to Dismiss seeks dismissal of the Adversary Complaint [Adv. Dkt. No. 1] (the "Complaint") brought by the Chicago & Vicinity Laborers' District Council Pension Plan, the Chicago & Vicinity District Council Laborers' Welfare Plan, the Chicago & Vicinity Laborers' District Council Retiree Welfare Plan (collectively "Funds"), and Catherine Wenskus, as Administrator of the Funds (together with the Funds, the "Plaintiffs"). In the Complaint, the Plaintiffs seek a judgment of nondischargeability against R&W for all unpaid fringe benefit contributions, dues, interest, liquidated damages and audit costs due and owing on the audit for the period of October 1, 2014, to and including December 31, 2018, including Plaintiffs' reasonable attorneys' fees and costs incurred, as follows (the "Counts" and as to each, "Count ___"):

Count I: For money, property, services or an extension, renewal or refinancing of credit that was obtained by false pretenses, false representation or actual fraud pursuant to 11 U.S.C. § 523(a)(2)(A);

Count II: For money, property, services or an extension, renewal or refinancing of credit that was obtained by materially false statements pursuant to 11 U.S.C. § 523(a)(2)(B); and

Count III: For willful and malicious injury by R&W to another entity or to the property of another entity pursuant to 11 U.S.C. § 523(a)(6).

The Motion to Dismiss advocates for dismissal on two grounds: That the Plaintiffs are unentitled to relief under these Counts as R&W is not an individual debtor and that the Complaint insufficiently pleads relief in Count II.

For the reasons more fully set forth below, upon review of the parties' respective filings and after conducting a hearing on the matter, the Court finds that the Motion to Dismiss is well taken. As a result, by separate order entered concurrent herewith, the Motion to Dismiss with be GRANTED and the Complaint will be DISMISSED.

JURISDICTION

The federal district courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (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 the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may refer these cases to the bankruptcy courts 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 court judge to whom a case has been referred has statutory authority to 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). Bankruptcy court judges must therefore determine, on motion or sua sponte, whether a proceeding is a core proceeding or is otherwise related to a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the bankruptcy court judge may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court judge may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1) & (c). Absent consent, the bankruptcy court judge must "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1).

In addition to the foregoing considerations, a bankruptcy court judge must also have constitutional authority to hear and determine a matter. Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Constitutional authority exists when a matter originates under the Bankruptcy Code or, in noncore matters, where the matter is either one that falls within the public rights exception, id., or where the parties have consented, either expressly or impliedly, to the bankruptcy court judge hearing and determining the matter. See, e.g., Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665, 669, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015) (parties may consent to a bankruptcy court judge's jurisdiction); Richer v. Morehead, 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough").

"[A]n action under section 523 of the Bankruptcy Code is unequivocally a bankruptcy cause of action. In re Glenn, 502 B.R. 516, 522 (Bankr. N.D. Ill. 2013) (Barnes, J.), aff'd sub nom. Sullivan v. Glenn, 526 B.R. 731 (N.D. Ill. 2014), aff'd, 782 F.3d 378 (7th Cir. 2015). It arises in a case under title 11 and the code specifies it as a core proceeding. 28 U.S.C. § 157(b)(2)(I). While such actions may turn on state law, determining the scope of a debtor's discharge is a fundamental part of the bankruptcy process. See Deitz v. Ford (In re Deitz), 469 B.R. 11, 20 (B.A.P. 9th Cir. 2012). As observed by one bankruptcy court, "there can be little doubt that [a bankruptcy court], as an Article I tribunal, has the constitutional authority to hear and finally determine what claims are nondischargeable in a bankruptcy case." Farooqi v. Carroll (In re Carroll), 464 B.R. 293, 312 (Bankr. N.D. Tex. 2011); see also Deitz, 469 B.R. at 20; In re Boricich, 464 B.R. [335] at 337 [( Bkrtcy. N.D.Ill. 2011)].

Handler v. Moore (In re Moore), 625 B.R. 896, 900 (Bankr. N.D. Ill. 2021) (Barnes, J.).

It follows that a Motion to Dismiss such an action is also a core proceeding within this court's jurisdiction to determine. By commencing the Adversary Proceeding and filing claims in the Main Case, the Plaintiffs have unequivocally submitted themselves to the jurisdiction and authority of the court on these matters. Langenkamp v. Culp, 498 U.S. 42, 43, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990). Further, no party has objected to the Court entering final orders on the Motion to Dismiss and thus all parties have impliedly consented to this Court's jurisdiction and authority. See Wellness, 575 U.S. at 669, 135 S.Ct. 1932; Richer, 798 F.3d at 490; Moore, 625 B.R. at 900.

Accordingly, the Court has the jurisdiction, statutory authority and constitutional authority to hear and determine both the Complaint and the Motion to Dismiss.

PROCEDURAL HISTORY

In taking up the Motion to Dismiss, the Court has considered the Complaint, the Motion to Dismiss, and the arguments of the parties at the hearing on December 6, 2023, and has reviewed and considered the following filed documents relating to the Motion to Dismiss:

(1) [Scheduling] Order [Adv. Dkt. No. 17];

(2) Plaintiffs' Response to Defendant's Motion to Dismiss Adversary Complaint [Adv. Dkt. No. 31]; and

(3) Reply in Support of Dismissal of Adversary Proceeding [Adv. Dkt. No. 35].

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 Adversary Proceeding or Main Case, the court has taken judicial notice of the contents of the dockets in this matter. See Levine v. Egidi, Case No. 93C188, 1993 WL 69146, at *2 (N.D. Ill. Mar. 8, 1993) (authorizing a bankruptcy court to take judicial notice of its own docket); In re Brent, 458 B.R. 444, 455 n.5 (Bankr. N.D. Ill. 2011) (Goldgar, J.) (recognizing same).

SUMMARY OF ISSUES PRESENTED

The matter before the court presents somewhat of a cause célèbre in the bankruptcy world in recent years.² On August 23, 2019, Congress enacted the Small Business Reorganization Act of 2019, Public Law No. 116-54 (August 23, 2019) (the "SBRA"). In the SBRA, Congress created a somewhat simpler path for business reorganizations under chapter 11 of the Bankruptcy Code. This simpler path has been codified into chapter 11 of the Bankruptcy Code as Subchapter V (Small Business Reorganization), 11 U.S.C. §§ 1181-95 ("Subchapter V").

As with any change to an existing statute, the way in which the change is integrated with what comes before is crucial to understanding how the change will operate. Subchapter V is no different. What is, perhaps, different, is that Congress gave the courts little or no guidance as to what it intended in making its changes, leaving it to the courts to divine Congress's intent on issues such as that at bar.

The issue is a simple one, best asked in the form of questions: Did Congress, in enacting the SBRA and codifying Subchapter V intend to upset the existing scheme of discharge of debts for business entities? Further, regardless of Congress's intent, does the plain language of what was enacted have that effect? If...