In re Sweports, Ltd., 12 B 14254

565 B.R. 129

IN RE: SWEPORTS, LTD., Debtor.

No. 12 B 14254

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

Signed February 28, 2017

Attorney for Sweports, Ltd. and Anthony S. DiVincenzo: Anthony S. DiVincenzo, DiVincenzo Schoenfield Stein, Chicago IL

Attorney for Weissberg and Associates, Ltd.: Ariel Weissberg, Weissberg and Associates, Ltd., Chicago, IL

Attorney for Neal L. Wolf and Pierre Benoit & Associates: Neal L. Wolf, Tetzlaff Law Offices, LLC, Chicago, IL

MEMORANDUM OPINION

A. Benjamin Goldgar, United States Bankruptcy Judge

This chapter 11 case, in which Sweports, Ltd. was the debtor, ended three years ago when the case was dismissed. After dismissal, counsel for the creditors' committee, Neal Wolf, and the committee's financial consultant, Pierre Benoit, applied to be compensated for their work. The applications were denied as moot because the case had been dismissed, but that decision was reversed, and the case was remanded to address the applications. On remand, the applications were granted in part. Wolf and Benoit were awarded fees and expenses.

Wolf and Benoit then registered the fee award with the Illinois state court as a judgment and spent the next year and a half there trying to collect from Sweports. In particular, Wolf and Benoit sought to levy on the stock of Sweports' only subsidiary. But their efforts met with little success, in part because other Sweports creditors asserted claims to the stock. Impatient with their lack of progress in the state court, Wolf and Benoit returned to the bankruptcy court last month and had writs of execution issued directing the U.S. Marshal to levy on the stock.

Sweports and two of its creditors, Anthony DiVincenzo and Ariel Weissberg, have now moved to quash the writs. The writs were stayed pending a decision on the motions. Because the court has no jurisdiction over the collection of the fee award, the motions will be granted and the writs quashed.

1. Jurisdiction

This court had jurisdiction of the Sweports bankruptcy case under 28 U.S.C. § 1334(a). Post-dismissal, the court had ancillary jurisdiction to determine the fees and expenses of Wolf and Benoit. In re Sweports, Ltd. , 777 F.3d 364, 367 (7th Cir. 2015). The court has jurisdiction to consider the current motions because a court always has jurisdiction to determine its jurisdiction. Bayo v. Napolitano , 593 F.3d 495, 500 (7th Cir. 2010) ; Gladney v. Pendleton Corr. Facility , 302 F.3d 773, 775 (7th Cir. 2002).

2. Background

The relevant facts are drawn from the parties' papers; the opinion of the court of appeals; the docket in the Sweports bankruptcy case and other post-dismissal papers in the case; and the dockets of the Circuit Court of Cook County, Illinois in Wolf v. Sweports, Ltd. , No. 15 L 50717 (Cir. Ct. Cook Cty.), Benoit & Assocs. v. Sweports, Ltd. , No. 15 L 50749 (Cir. Ct. Cook Cty.), and Weissberg & Assocs., Ltd. v. Sweports, Ltd. , No. 14 L 11320 (Cir. Ct. Cook Cty.).¹ No facts are in dispute.

a. Proceedings in the Bankruptcy Case

Sweports is a holding company that owns patents and has a subsidiary, UMF, that makes antimicrobial cleaning products using the patented technology. In 2012, several judgment creditors filed an involuntary chapter 11 petition against Sweports. After some initial resistance, Sweports consented to an order for relief. The U.S. Trustee then appointed a committee of unsecured creditors. The committee sought and received approval to retain Wolf as its counsel and Benoit as its financial consultant.

Sweports proposed a plan of reorganization, and later, when exclusivity lapsed, the committee did the same. The court held a combined confirmation hearing but ultimately denied confirmation of both plans. Because the case had been pending for nearly two years, the U.S. Trustee was invited to move to convert or dismiss it. He accepted the invitation, and when no party sought conversion or opposed dismissal, the case was dismissed and closed.

After the case was dismissed and closed, Wolf filed his second and final application for compensation in the case. Benoit filed his own final application a week later. Sweports objected to the applications, arguing that the court lacked jurisdiction to consider them, and the applications were denied on jurisdictional grounds. See In re Sweports, Ltd. , 511 B.R. 522, 524 (Bankr. N.D. Ill. 2014). "Because the case has been dismissed," this court reasoned, "there is no longer an estate from which Wolf and Benoit can be paid and so no point in considering whether and how much they should be paid from it. The applications are moot." Id.

Wolf and Benoit appealed directly to the court of appeals, and the court of appeals reversed. Sweports , 777 F.3d at 365–68. Although there was no longer an estate from which Wolf and Benoit could be paid, the court concluded that the estate's debts became debts of Sweports upon dismissal. Id. at 366. And dismissal did not prevent the bankruptcy court from at least determining "that Wolf had a valid claim to a fee in the amount he was seeking." Id. at 367.² In addition to "its ordinary jurisdiction," the court said, bankruptcy courts have "a ‘clean-up’ jurisdiction (‘ancillary’ jurisdiction, it is commonly called) to take care of minor loose ends." Id. at 367. In this instance, "[t]here was a loose end, left dangling—Wolf's claim for fees." Id. The case was therefore remanded for consideration of Wolf's and Benoit's applications.

On remand, the case was reopened and the applications were briefed. Over Sweports' objections, the applications were granted in part and denied in part. Wolf was awarded final compensation of $862,312.43 in fees and $6,234.89 in expenses. Benoit was awarded final compensation of $94,158.75 in fees and $1,659.38 in expenses. There was no appeal. The case was re-closed.

b. Proceedings in the State Court

Wolf and Benoit then commenced collection efforts against Sweports in Illinois state court. Almost immediately, though, their collection proceedings became complex, entangled with the efforts of other Sweports creditors to get paid.

In October 2015, Wolf and Benoit registered their fee award with the Circuit Court of Cook County as a federal judgment in accordance with 735 ILCS 5/12–501 (2014). See Wolf v. Sweports, Ltd. , No. 15 L 50717 (Cir. Ct. Cook Cty.); Benoit & Assocs. v. Sweports, Ltd. , No. 15 L 50749 (Cir. Ct. Cook Cty.). Wolf and Benoit then had citations to discover assets issued to Sweports.

They were not alone. The year before, Weissberg, who had represented Sweports in its bankruptcy case and had not been paid either, brought an action of his own against Sweports. Weissberg & Assocs., Ltd. v. Sweports, Ltd. , No. 14 L 11320 (Cir. Ct. Cook Cty.). In November 2015, a judgment for $600,000 was entered in Weissberg's favor. He too, had a citation to discover assets issued to Sweports.

In December 2015, Wolf and Benoit sought to intervene in the Weissberg action as adverse claimants, were allowed to do so, and filed adverse claims. Weissberg filed parallel motions to intervene as an adverse claimant in the Wolf and Benoit matters, was allowed to intervene, and filed adverse claims in each. Benoit moved to intervene in the Wolf matter; his motion was granted. (Whether Wolf moved to intervene in the Benoit matter is unclear, but presumably he did. The docket reflects that early on in the matter Wolf filed a "counterclaim.")³

Around the same time the parties were seeking to intervene in each other's matters, each party filed a turnover motion. Weissberg moved in the Weissberg matter for the turnover of all of Sweports' assets, including the UMF stock. Wolf filed a turnover motion in the Wolf matter and also sought a judgment lien against Sweports. Benoit filed a turnover motion of his own in the Benoit matter. Wolf and Benoit both sought turnover not only of the UMF stock but also of the patents Sweports owned.

In a December 2015 order entered in the Wolf matter, the state court granted Wolf his judgment lien as well as a lien under 735 ILCS 5/2–1402(k–10) (2014) on the stock and the patents, though "without prejudice to ... a determination of priority between any party asserting an adverse claim ...." Wolf's turnover motion was continued. The court set a deadline for other parties to file adverse claims to Sweports' assets.

The deadline resulted in the filing of at least one other adverse claim. DiVincenzo, yet another lawyer who had represented Sweports and not been paid, filed an adverse claim for $935,180.20 in the Wolf matter and apparently in the Benoit matter as well. In his claim, DiVincenzo noted that he had possession of 19,635 shares of Sweports' UMF stock. He asserted a "general or retaining lien" against the stock.⁴

Meanwhile, in November 2015 Sweports had moved to vacate the registrations of the Wolf and Benoit fee award as a federal judgment. Sweports argued that the award was not a judgment because it was neither final nor enforceable. In February 2016, the state court agreed in a lengthy written decision. The registrations were vacated.

c. Back to the Bankruptcy Court

The vacatur brought Wolf and Benoit back to the bankruptcy court the next month with motions under Bankruptcy Rule 9024, Fed. R. Bankr. P. 9024, seeking clarification of the fee award. Wolf in particular sought an order declaring that the fee award was a judgment, specifically a judgment in his and Benoit's favor and against Sweports.

Both motions were denied on the ground that no clarification was necessary. But in ruling on Wolf's motion, the court did observe on the record that the award met the definition of "judgment" in Rule 54(a) of the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 54(a) (made applicable by Fed. R. Bankr. P. 7054, 9014(c) ).⁵

d. Back to the State Court

Armed with this observation, Wolf and Benoit returned to the state court and moved for reconsideration of the decision vacating the registrations. In September 2016, the state court granted their motions and reinstated...