Walden Invs. Grp., LLC v. First Nations Bank (In re Montemurro)

580 B.R. 490

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

Walden Investments Group, LLC, Plaintiff,

v.First Nations Bank, f/k/a FNBW Bank f/k/a First National Bank of Wheaton, as Trustee under a Trust Agreement Dated November 21, 1996 and known as Trust Number 1048, et al. Defendants.

Case No. 17bk10230

Adversary No. 17ap00401

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

Signed December 21, 2017

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

Attorneys for Anthony M. and Virginia J. Montemurro: Scott R. Clar and Jeffrey C. Dan, Crane, Heyman, Simon, Welch & Clar, Chicago, Illinois

Attorneys for First Nations Bank F/K/A FNBW Bank F/K/A First National Bank of Wheaton and First Nations Bank, F/K/A FNBW Bank F/K/A First National Bank of Wheaton, as Trustee under a Trust Agreement Dated November 21, 1996 and known as Trust Number 1048: John Robert Weiss and Matthew A. Olins, Duane Morris LLP, Chicago, Illinois

MEMORANDUM DECISION

TIMOTHY A. BARNES, Judge.

Before the court are two motions to dismiss (the "Motions to Dismiss"),¹ brought respectively by First Nations (defined in footnote)² and Anthony M. and Virginia J. Montemurro (the "Debtors" and collectively with First Nations, the "Movants"). The Motions to Dismiss seek dismissal of the Complaint to Determine Extent and Priority of Lien [Adv. Dkt. No. 1] (the "Complaint") filed by Walden Investments Group, LLC ("Walden") in the above-captioned adversary proceeding (the "Adversary"). The Complaint seeks a declaratory judgment regarding Walden's interest, if any, in 4300–4306 West Berteau Avenue, Chicago, Illinois (the "Property"), arising out of Walden's service as state court-appointed receiver prior to the commencement of the underlying, above-captioned bankruptcy case (the "Main Case").

The Motions to Dismiss challenge the sufficiency of the Complaint in light of this court's previous rulings on Walden's motion for relief from stay brought in the Main Case. Each of the Movants, however, mistakes the nature of that ruling and the incorrectly narrows the Complaint to fit with that mistaken nature. Each also mistakes the res judicata and estoppel effect of rulings on motions for relief from stay. As each of the Movants' premises are mistaken, the Motions to Dismiss are infirm. As a result, by separate order issued concurrently with this Memorandum Decision, the Motions to Dismiss are denied.

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).

A proceeding to determine the validity, priority, or extent of a lien or other interest in property is an adversary proceeding under the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), Fed. R. Bankr. P. 7001(2), and is a core proceeding expressly set forth in 28 U.S.C. § 157(b)(2)(K). Declaratory judgments relating to the same are also adversary proceedings, Fed. R. Bankr. P. 7001(9), and are clearly within the court's general authority. 28 U.S.C. § 2201 (the Federal Declaratory Judgment Act) (affording "any court of the United States" the power of declaratory judgment); U.S. Lines, Inc. v. Am. S.S. Owners Mut. Prot. & Indem. Assoc., Inc. (In re U.S. Lines, Inc. ), 197 F.3d 631 (2d Cir. 1999) (holding that bankruptcy court, in a core proceeding, may decide declaratory judgment), cert. denied 529 U.S. 1038, 120 S.Ct. 1532, 146 L.Ed.2d 347 (2000) ; In re Ace Track Co., Ltd. , 556 B.R. 887, 899 (Bankr. N.D. Ill. 2016) (Barnes, J.) (same).

What remains is this court's constitutional authority. Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Claims resolution is a process that only occurs in the context of a bankruptcy case, and is thus both a core proceeding and within the court's constitutional authority. 28 U.S.C. § 157(b)(2)(K) ; In re Kelco Metals, Inc. , 532 B.R. 912, 914 (Bankr. N.D. Ill. 2015) (Barnes, J.). A determination of the extent of Walden's interest in the Property is part and parcel to a determination of Walden's claim in the Main Case,³ and thus, is also within the court's constitutional authority. Paloian v. LaSalle Bank Nat'l Ass'n (In re Doctors Hosp. of Hyde Park, Inc. ), 508 B.R. 697, 703 (Bankr. N.D. Ill. 2014) (Schmetterer, J.). Further, all parties have consented to this court's entry of a final order (the Debtor by petitioning for chapter 11 relief, and Walden and First Nations by each filing a proof of claim) or have impliedly consented to this court's jurisdiction, and thus the court may constitutionally hear and determine the matters as core matters. Matilla v. Radco Merch. Servs., Inc. (In re Radco Merch. Servs., Inc. ), 111 B.R. 684, 686 (N.D. Ill. 1990) ; see also Wellness , 135 S.Ct. at 1939 ; Richer , 798 F.3d at 490.

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

HISTORY

At some time prior to 2013, the Property in question became vacant and fell into disrepair. As a result, the City of Chicago commenced an abatement action in the Illinois state courts. The judge in that matter, pursuant to the authority set forth in 65 Ill. Comp. Stat. 5/11–31–2, appointed Walden as a receiver over the Property. In that role, Walden maintained the Property and, ultimately and pursuant to order of the state court, demolished the structure thereon. Despite having completed substantially all of its work in 2016, Walden did not, however, obtain an order of compensation from the state court prior to the commencement of the Main Case on March 31, 2017 (the "Petition Date"). No state court order secured Walden's compensation in any way.

Walden, after the commencement of the Main Case, has taken a variety of steps to attempt to rectify this condition. The matter raised in this Adversary is one of those steps, and turns in part on an interpretation of what has taken place in the Main Case. In particular, it turns on the court's ruling on Walden's unsuccessful, earlier attempt to obtain relief from the automatic stay. With respect to that matter, the court has taken into account the following:

(1) Motion to Lift Automatic Stay [Dkt. No. 40] (the "Relief from Stay Motion");

(2) Objection of First Nations Bank to Walden Investments Group, LLC's Motion to Lift Automatic Stay [Dkt. No. 49];

(3) Debtors' Response to Motion to Lift Automatic Stay of Walden Investments Group, LLC [Dkt. No. 50];

(4) Order [Denying for the Reasons Stated on the Record Motion for Relief from Stay] [Dkt. No. 55]; and(5) Transcript of Hearing Re: Motion for Relief from Stay as to Real Estate Filed by Stephen Peck on Behalf of Walden Investment [sic] Group, LLC Before The Honorable Timothy A. Barnes United States Bankruptcy Court Judge [Dkt. No. 61] (the "Stay Hearing Transcript").⁴

On the Relief from Stay Motion, the court conducted hearings on June 6, 2017 and July 26, 2017, and ruled orally at the latter hearing.

Following the denial of the Relief from Stay Motion, Walden commenced this Adversary, wherein the matter before the court arises. In further considering the matter, the court has considered the following:

(1) Complaint;

(2) First Nations Bank as Trustee's Motion to Dismiss Complaint to Determine Extent and Priority of Lien [Adv. Dkt. No. 20] (the "First Nations Motion to Dismiss");

(3) Debtors' Motion to Dismiss Complaint to Determine Extent and Priority of Lien [Adv. Dkt. No. 23];

(4) Order [Scheduling Motions to Dismiss] [Adv. Dkt. No. 28];

(5) Plaintiff, Walden Investments Group LLC's Response to Debtors' Motion To Dismiss the Complaint To Determine the Extent and Priority of Lien [Adv. Dkt. No. 33];

(6) Plaintiff, Walden Investments Group LLC's Response to First Nations Bank as Trustee's Motion To Dismiss the Complaint To Determine the Extent and Priority of Lien [Adv. Dkt. No. 35] (the "Response");

(7) First Nations Bank as Trustee's Reply to Plaintiff, Walden Investments Group LLC's Response to First Nations Bank as Trustee's Motion To Dismiss the Complaint To Determine

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