IN RE SPIEGEL

657 B.R. 34

IN RE: Marshall SPIEGEL, Debtor.

Case No. 20bk21625

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

Signed January 26, 2024

Synopsis:

On the Official Unsecured Creditors' Committee's objection to the claim of Matthew Spiegel, held: Matthew Spiegel as the claimant failed to satisfy his burden of entitlement to a general unsecured claim of $475,000.00 from the debtor's (his father) estate. At the evidentiary hearing, Matthew Spiegel did not demonstrate an express contract, contract implied in fact or contract implied in law existed and no other equitable ground was applicable to support an obligation to repay the amount allegedly loaned to the debtor prepetition. For these reasons, the Committee's objection is SUSTAINED.

Attorneys for Matthew Spiegel, William J. Factor and Jeffrey K. Paulson, FACTORLAW, Chicago, IL

Attorney for Marshall Spiegel, Shelly A. DeRousse, Smith Gambrell & Russell, LLP, Chicago, IL

Attorneys for the Official Unsecured Creditors' Committee, Nicholas R. Dwayne and Howard L. Adelman, Adelman & Gettleman, Ltd., Chicago, IL

MEMORANDUM DECISION

Timothy A. Barnes, Judge.

The matter before the court comes on for consideration on the objection of the Official Unsecured Creditors' Committee (the "Committee") for the bankruptcy estate of Marshall Spiegel (the "Debtor") [Dkt. No. 855]¹ (the "Objection") in the above-captioned case. In the Objection, the Committee seeks the disallowance of the $475,000.00 claim scheduled by the Debtor in favor of his son Matthew Spiegel ("Matthew"), ostensibly for funds advanced by Matthew to the Debtor in order for the Debtor to collateralize a letter of credit issued in lieu of an appellate bond.

After briefing and a five-day evidentiary hearing, the matter was taken under advisement. After careful consideration of the evidence provided and the arguments of the parties and for the reasons more fully stated herein, the Objection is well taken and will, by separate order entered concurrently with this Memorandum Decision, be SUSTAINED.

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").

The Objection seeks a determination by the court whether a claim should be allowed or disallowed pursuant to section 502 of the Bankruptcy Code. This contested matter, concerning the allowance or disallowance of a claim against the bankruptcy estate, is expressly a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). Further, in accordance with Stern, 564 U.S. at 499, 131 S.Ct. 2594, the court has constitutional authority to decide claim objections, as such objections may arise only in a case under the Bankruptcy Code and necessarily stem from the bankruptcy case itself. In re Montalbano, 486 B.R. 436, 438-39 (Bankr. N.D. Ill. 2013) (Barnes, J.) (citing Lenior v. GE Capital Corp. (In re Lenior), 231 B.R. 662, 667 (Bankr. N.D. Ill. 1999) (Schmetterer, J.); Knox v. Sunstar Acceptance Corp. (In re Knox), 237 B.R. 687, 693 (Bankr. N.D. Ill. 1999) (Schmetterer, J.)).

Accordingly, the court has the jurisdiction, statutory authority and constitutional authority to hear and determine the Objection.

BACKGROUND

On December 16, 2020, the above-captioned case (the "Chapter 11 Case") was commenced by the Debtor. Voluntary Petition [Dkt. No. 1].

A. Prepetition History

Prior to filing the Chapter 11 Case, the Debtor was involved in protracted and highly contentious state-court litigation against a variety of individual members and their spouses of the condominium association governing his residence. That litigation, styled as Spiegel v. Hall, Case No. 15 L 10817 (the "State Court Litigation")² in the Circuit Court of Cook County (the "Illinois Circuit Court"), was commenced in 2015 and appears to continue in various forms of appeal.

On March 29, 2019, the Illinois Circuit Court imposed sanctions against the Debtor and his state court counsel, John Xydakis ("Xydakis"), in an amount in excess of $1 million (the "Sanction Award"). The Illinois Circuit Court stated in its order that the sanctions were for "abusive litigation tactics of filing complaints filed with baseless accusations, misrepresenting case law by reversing or altering holdings, filing lawsuits for the sole purpose of harassment, increasing costs and delay, and filing objectively unreasonable motions to disqualify counsel and judges." Committee's Exh. 39.

On or about May 22, 2019, the Debtor and Wintrust Bank, N.A. ("Wintrust") entered into a letter of credit in the principal amount of $1,225,000.00 (the "Letter of Credit").³ The Letter of Credit was payable to Eugene E. Murphy Jr. (the "Beneficiary"), as the beneficiary to the recipients of the Sanction Award, upon the occurrence of certain conditions precedent.

On May 22, 2019, to partially fund the Letter of Credit, Matthew assigned and granted Wintrust a security interest in a certificate of deposit with Wintrust ending in -8763 ("Wintrust CD 8763"), which had a balance of $250,000.00, and second certificate of deposit with Wintrust ending in -4178 ("Wintrust CD 4178"), which had a balance of $225,000.00 (together, the "Matthew CDs").

On December 3, 2020, the Illinois First District Appellate Court affirmed the Sanction Award. On December 11, 2020, the Beneficiary drew on the Letter of Credit. Wintrust made a payment to the Beneficiary in the amount of $1,224,763.39. Then, during the course of this bankruptcy case, Wintrust liquidated the Matthew CDs, which Matthew asserts gave rise to his claim for $475,000.00.

B. Postpetition History

After the commencement of the Chapter 11 Case, on March 3, 2021, the Committee was appointed by the United States Trustee to act as the official committee of unsecured creditors in the Chapter 11 Case. Appointment of Unsecure Creditors' Committee [Dkt. No. 81]. The Committee is made up of members who were or are related to the parties in the State Court Litigation opposite of the Debtor.

The Chapter 11 Case has given rise to substantial litigious activity with the involvement of several parties, but the disputes have been predominantly between the Debtor, Matthew and the Committee and in many ways act along the same lines as the State Court Litigation. The Committee and the Debtor have been at odds for the duration of the case with motivations that seem to predate the Chapter 11 Case itself.

One of those disputes arose when counsel to the Committee filed their third interim fee application [Dkt. No. 686] (the "Fee Application"). A combined objection to the Fee Application was filed by the Debtor and Matthew. Combined Objection to Marshall Spiegel and Matthew Spiegel to Third Interim Fee Application of Adelman & Gettlement [sic], Ltd. [Dkt. No. 739]. Additionally, 1116-22 Greenleaf Building, LLC ("Greenleaf"), an entity which the Debtor and Matthew are the sole members of, filed an objection to the Fee Application. Objection of 1116-22 Greenleaf Building, LLC to Third Interim Fee Application of Adelman & Gettleman, Ltd. for Allowance and Payment of Interim Compensation and Reimbursement of Expenses as Counsel to the Official Committee of Unsecured Creditors and for Shortened Notice Thereof [Dkt. No. 736]. Those objections in large part asked the court to disallow the Committee's counsel's fees because of a perception that the Committee should not be in opposition to the Debtor.

In response to the objections, the Committee argued...