In re Montemurro

581 B.R. 565

IN RE: Anthony M. and Virginia J. MONTEMURRO, Debtors.

Case No. 17bk10230

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

Dated: February 13, 2018

Scott R. Clar and Jeffrey C. Dan, Crane, Heyman, Simon, Clar & Dan, Chicago, IL, Attorneys for Debtors

Robert R. Benjamin, Beverly A. Berneman and Anthony J. D'Agostino, Golan Christie Taglia LLP, Chicago, IL, Attorneys for Walden Investments Group, LLC

MEMORANDUM DECISION

TIMOTHY A. BARNES, Judge.

Before the court is the Request of Walden Investments Group, LLC for Allowance and Payment of Administrative Expense Pursuant to § 543(c)(2) of the Bankruptcy Code [Dkt. No. 71] (the "Application") brought by Walden Investments Group, LLC ("Walden").

The Application calls into question the rules governing payment of prepetition receivers as well as the right to payment of such a receiver whose status at the commencement of a bankruptcy case is uncertain. For the reasons more fully discussed herein, although Walden was a "custodian" for the purposes of the applicable statutes and is entitled to seek compensation as an administrative expense, Walden has failed to establish that its claim meets the applicable standard set forth in the statute. As a result, the court requires a further hearing on the reasonableness of the compensation sought.

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, 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 under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Bankruptcy 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 court may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1) & (c) ; Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1939, 191 L.Ed.2d 911 (2015) ; Richer v. Morehead , 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough"). Instead, the bankruptcy court 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).

Matters arising under section 503(b) of the Bankruptcy Code are matters that may only arise in a bankruptcy case and, thus, the bankruptcy court is empowered to enter final orders with respect to the same. Matilla v. Radco Merch. Servs., Inc. (In re Radco Merch. Servs., Inc. ), 111 B.R. 684, 686 (N.D. Ill. 1990) ("A claim for administrative expenses is one of the core proceedings listed in 28 U.S.C. § 157(b)(2)(B)."); In re World Mktg. Chicago, LLC , 564 B.R. 587, 592 (Bankr. N.D. Ill. 2017) (Barnes, J.) (same). It follows that matters arising under section 543 are also within the court's core jurisdiction. In re Packard Square LLC , 575 B.R. 768, 770–71 (Bankr. E.D. Mich.), reconsideration denied, 577 B.R. 533 (Bankr. E.D. Mich. 2017). Further, all parties have consented to this court's entry of a final order adjudicating the Application.

Accordingly, determination of the Application is within the scope of the court's jurisdiction and constitutional authority.

BACKGROUND AND PROCEDURAL HISTORY

Because of varying positions taken and requests made by Walden throughout this bankruptcy case, a sequential recitation of the history of events related to Walden, the Property (defined below) and the Application is helpful.¹

Prior to the commencement, Anthony M. and Virginia J. Montemurro (the "Debtors") owned and managed real property commonly known as 4300-4306 West Berteau, Chicago, Illinois (the "Property"), including the building located thereon. The Property was held under an Illinois land trust pursuant to the Trust Agreement dated November 21, 1996 and known as Trust Number 1048 (the "Land Trust"). The trustee under the Land Trust is First Nations Bank, f/k/a FNBW Bank f/k/a First National Bank of Wheaton (as trustee, "FNBT").

At some time prior to 2013, the Property became vacant and fell into disrepair. As a result, the City of Chicago commenced an abatement action in the Circuit Court of Cook County, Municipal Department, First District (the "State Court"). That proceeding, Case No. 13 M1 402611, in which the City alleged dangerous and unsafe conditions regarding the Property, was commenced in April 2013 against the Land Trust, the Debtor, the Internal Revenue Service, the Illinois Department of Revenue and others.

On September 14, 2015, at the City of Chicago's request, the State Court appointed Walden as a limited receiver over the Property (the "Initial Receiver Order"). That role was broadened somewhat in a later order on October 19, 2015 (the "Second Receiver Order" and together with the Initial Receiver Order, the "Receiver Orders"). One of the express purposes of Walden's appointment was to prepare the building on the Property for demolition and to demolish that building. On December 10, 2015, Walden recorded the Receiver Orders with the Cook County Recorder of Deeds.

On November 14, 2016, the building on the Property was demolished. On December 12, 2016, the State Court entered an order allowing Walden until March 28, 2018, to file an accounting of its expenses and setting objection deadlines relating thereto (the "Accounting Order"). At that point, by all appearances Walden had performed all tasks required of it as receiver under the Receiver Orders but one, repair of a property line fence. Walden was authorized by the State Court in the Accounting Order to perform that task. By order dated February 27, 2017, Walden's time to submit the accounting was extended to April 3, 2017.

That final accounting was apparently submitted to the State Court on March 30, 2017 (the "Final Accounting") and forms the basis of the Application at bar. The use of the term "apparently" here is quite intentional, for the Final Accounting as set forth in Exhibits 8 through 16 of the Application, see Application, at ¶ 18 (stating that the Final Accounting is those Exhibits), contains items dated after March 30, 2017. For example, page 8 of Exhibit 11 of the Application begins a "Receiver's Final Report—5 for the period July 22, 2016—April 24, 2017" dated April 24, 2017. The title and contents of that document belies Walden's assertion that these exhibits are the Final Accounting as submitted to the State Court on March 30, 2017.

On March 31, 2017 (the "Petition Date"), the Debtors commenced the above-captioned, joint individual chapter 11 case. On May 26, 2017, Walden moved this court for relief from the automatic stay. See Motion to Lift Stay [Dkt. No. 40] (the "Relief from Stay Motion"). In the Relief from Stay Motion, Walden argued that it should be permitted relief from stay in order to perfect a lien that, but for the existence of the automatic stay, it would have received under state law.

On June 6, 2017, the court conducted an initial hearing on the Relief from Stay Motion. On that same date, the court entered a scheduling order relating to the same. See Order [Setting Briefing on Relief from Stay Motion] [Dkt. No. 48]. Subsequent to the entry of that order, first FNBT and then the Debtors objected to the relief sought in the Relief from Stay Motion. See Objection of First Nations Bank to Walden Investments Group, LLC's Motion to Lift Automatic Stay [Dkt. No. 49] and Debtors' Response to Motion to Lift Automatic Stay of Walden Investment[s] Group, LLC [Dkt. No. 50], respectively. Walden filed a reply on July 11, 2017. See Walden Investments Group, LLC's Reply in Support of Its Motion to Lift Automatic Stay [Dkt. No. 52].

On July 26, 2017 (the "Stay Hearing"), the court ruled orally on the Relief from Stay Motion, denying the request as, among other reasons, it runs contrary to the express purposes of the automatic stay. See Order [Denying for the Reasons Stated on the Record Motion for Relief from Stay] [Dkt. No. 55]; Transcript of Hearing Re: Motion for Relief from Stay as to Real Estate Filed by Stephen Peck on Behalf of Walden Investment Group, LLC Before The Honorable Timothy A. Barnes United States Bankruptcy Court Judge [Dkt. No. 61] (the "Stay Hearing Transcript"), at p. 17 ("[T]he whole purpose of bankruptcy is to put a freeze and allow the Bankruptcy Code to decide what the priority and payment of creditors is. ... [W]hat you're asking runs contrary to the purpose of bankruptcy."); see also Redmond v. Fifth Third Bank , 624 F.3d 793, 800 (7th Cir. 2010) ("Section 362(a) prohibits collection activities in violation of the stay, such as attempting to convert an unsecured prepetition claim into a secured claim, attempting to obtain possession of property of the Chapter 13 estate, or attempting to perfect a lien against property of the estate .") (emphasis added). At the Stay Hearing, Walden also modified its arguments to include an argument...