Wheeler Fin. v. JPMorgan Chase Bank (In re Aguirre)

In re RAMON AGUIRRE AND BERTHA AGUIRRE, Debtors.

WHEELER FINANCIAL, INC., Appellant, v. JPMORGAN CHASE BANK, N.A., RAMON AGUIRRE, AND BERTHA AGUIRRE Appellees. Bankr. Judge Martha M. Pacold Appellees.

Civil Nos. 18-cv-07915, 19-cv-01232, 19-cv-01233

Bankr. Case No. 14-24420

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

August 19, 2021

MEMORANDUM OPINION AND ORDER

Martha M. Pacold U.S. District Judge

This bankruptcy appeal addresses three orders entered by the bankruptcy court in the Chapter 11 proceedings of Debtors Ramon and Bertha Aguirre (“the Debtors”). JPMorgan Chase Bank, N.A. (“Chase”) loaned the Debtors money and had a security interest in their commercial property. Wheeler Financial, Inc. (“Wheeler”) had a tax lien on that property. After the bankruptcy court confirmed a Chapter 11 reorganization plan, it granted Wheeler relief from the bankruptcy proceeding's automatic stay and declined to allow the Debtors to modify the reorganization plan. Chase and the Debtors appealed, and the district court reversed. On remand, the bankruptcy court entered the three orders at issue in this appeal. For the following reasons, the court affirms two of those orders and vacates the third.

Background

The court assumes familiarity with Judge Norgle's opinion on the prior appeal from this case. See In re Aguirre 565 B.R. 646, 648 (N.D.Ill. 2017). That decision describes the history of this dispute in detail, id. at 648-51, and the court reviews those facts only briefly here.

The Debtors own a commercial property located at 1374 West Grand Avenue in Chicago, Illinois, and run a restaurant located inside. [11-1] at 4.^[1] In 2009, Chase provided the Debtors a loan that was collateralized by both the Debtors' residential property, located in Lisle, Illinois, and the Chicago commercial property containing the restaurant. [11-1] at 9 100, 698.

The Debtors did not pay their 2010 real estate taxes on the restaurant property, so the Clerk of Cook County sold a Certificate of Purchase to the property to Wheeler at ¶ 2012 tax sale, giving Wheeler a tax lien on the property. [11-1] at 25, 33. Wheeler continued to pay the property taxes in subsequent years. [11-1] at 35-42. As of February 2019 Wheeler's tax claim totaled $68, 528.55. [11-1] at 98.

On June 30, 2014, the Debtors filed for Chapter 11 bankruptcy. [11-1] at 249. They did not list Wheeler or the Clerk of Cook County as a creditor at that time.

Meanwhile Wheeler filed a petition for a tax deed in the Circuit Court of Cook County on December 10, 2014. [11-1] at 48. The Debtors did not file an appearance, and Wheeler did not serve Chase with a summons.

In February 2015, the Debtors filed in bankruptcy court a Second Amended Plan of Reorganization (the “Plan”) with three classes of creditors. [11-1] at 84-93. Class One was Chase, Class Two was Wheeler, and Class Three consisted of non-priority unsecured creditors. The Debtors' Plan contemplated a full payment to Wheeler, funded by the sale of another of the Debtors' properties. [11-1] at 92.

Wheeler argued that it did not receive actual notice of the bankruptcy filing until it received a Certificate of Service of Class Two Ballots on March 1, 2015. By this point, Wheeler had missed the deadline to file a proof of claim in the bankruptcy court. [11-1] at 106. Nevertheless, after receiving notice of the bankruptcy proceedings, Wheeler was able to participate in those proceedings by negotiating an additional provision in its claim which required the Debtors to pay the entire balance owed to Wheeler within six months of Plan confirmation. [11-1] at 300. The bankruptcy court confirmed that Plan, including that provision, on April 15, 2015. [11-1] at 283.

The Debtors did not make any payments to Wheeler within the six-month period, which ended on October 15, 2015. [11-1] at 27. In November 2015, Wheeler filed a motion for relief from the automatic stay under 11 U.S.C. § 362(d)(1) in order to pursue the pending state court petition for a tax deed.^[2] [11-1] at 22. In December, the Debtors filed a motion to modify the Plan to extend the due date for its payment to Wheeler by six months (to April 15, 2016) and to provide a guaranty that Chase would pay if the Debtors could not. [11-1] at 301, 306, 308. At a January 2016 hearing, counsel for the Debtors and Chase appeared with $50, 000 in cashier's checks and offered to pay Wheeler immediately, rather than within the proposed six-month extension. [14] at 23-24. Nonetheless, on April 18, 2016, the bankruptcy court granted the motion to lift the stay and denied the motion to modify the Plan. [11-1] at 316-17. Chase and the Debtors appealed. [11-1] at 320- 33. On May 2, Chase moved in the bankruptcy court for a stay of the decision pending appeal, [14] at 97-100, and the bankruptcy court denied that motion on May 11, [14] at 103.

On May 5, 2016, Wheeler filed an application for a tax deed to the property in state court. [11-1] at 350. On May 25, the state court held a hearing and took the matter under advisement. [11-1] at 351. On May 27, Chase moved in the district court to stay the bankruptcy court's stay relief order. [11-1] at 352. At a hearing on June 3, Wheeler asked the district court for the opportunity to brief Chase's motion, and the district court set a briefing schedule. [11-1] at 352. On June 27, 2016, the district court granted the motion to stay. 565 B.R. at 651. However, in the intervening period, the state court issued a tax deed to Wheeler and Wheeler recorded it. Id. Chase and the Debtors did not appear at or contest the state court proceedings. Id. When the district court granted the stay, the district court instructed Wheeler not to take further action on the tax deed. Id.

In January 2017, the district court held that after the Plan was confirmed, “Wheeler no longer had a lien on the Debtors' restaurant property.” Id. at 654. Accordingly, “it was an abuse of discretion for the bankruptcy court to lift the stay and permit Wheeler to pursue legal action in the state court.” Id. Because the bankruptcy court's decision was “based on erroneous conclusions of law, ” the district court vacated the bankruptcy court's order modifying the automatic stay and remanded “for further proceedings consistent with this Opinion.” Id. at 655. The district court also vacated the bankruptcy court's order denying the Debtors' motion to modify the Plan without discussing the merits of that denial. Id. Wheeler appealed this decision to the Seventh Circuit. [14] at 277. In July 2018, the Seventh Circuit dismissed the appeal for lack of appellate jurisdiction after determining that the district court's decision was not a final and appealable order. [14] at 316-18.

On remand in the bankruptcy court, Chase filed (and subsequently amended) a motion requesting that the court compel Wheeler to vacate the tax deed. [11-1] at 465, 471. On November 15, 2018, the court granted that motion and entered an order (the “Tax Deed Order”) stating: “The parties in this matter are authorized and Wheeler Financial, Inc. is directed to take such actions in accordance with this Order as are necessary to correct state-court or other state or county records.” [11-1] at 533. In accordance with the order, Wheeler filed an unopposed motion in the state court tax deed proceeding to vacate the order issuing the tax deed. That motion was granted without prejudice in December 2018. [14] at 608.

The Debtors then moved to modify the Plan to allow Chase to pay Wheeler's claim. [11-1] at 540, 547. On February 6, 2019, the court entered an order (the “Modification Order”) approving a Plan modification that allowed the Debtors to satisfy the claim by paying Wheeler $68, 528.55 within seven days of the order. [11-1] at 98. On the same day, the court also entered an order (the “Stay Order”) denying Wheeler's renewed request for relief from the automatic stay to pursue a tax deed in state court. [11-1] at 624. Wheeler's appeals from these three orders- the Tax Deed Order, the Modification Order, and the Stay Order-make up the consolidated appeal now before the court.

Discussion

I. The Stay Order and Plan Modification Order

The court first addresses the appeals from the bankruptcy court's Stay Order and Plan Modification Order.

Bankruptcy courts have the power to grant creditors relief from an automatic stay and to modify a debtor's confirmed plan. See 11 U.S.C. § 362(d)(1) (providing for relief from the automatic stay if the bankruptcy court makes a “for cause” finding); see also § 1127(b) (providing for modification of a plan if the bankruptcy court determines that “circumstances warrant” modification of the plan). The bankruptcy's court's decisions exercising this discretion can be reversed only for an abuse of discretion. Matter of Holtkamp, 669 F.2d 505, 507 (7th Cir. 1982); In re Witkowski, 16 F.3d 739, 746 (7th Cir. 1994). The court therefore reviews both the Stay Order and Plan Modification Order for an abuse of discretion.

The Bankruptcy Court abuses its discretion when “1) the decision was based on an erroneous conclusion of law, 2) the record contains no evidence on which the bankruptcy court could have based its decision, or 3) the factual findings are clearly erroneous.” Matter of Stavriotis, 977 F.2d 1202, 1204 (7th Cir. 1992).

As a threshold matter, all of Wheeler's challenges to both the Stay Order and the Modification Order turn on arguments that are foreclosed by Judge Norgle's prior order in this case. Wheeler admits as much. See [11] at 19 (“The Second Stay Order was squarely premised upon the Remand Opinion's erroneous law of the case that the Plan had extinguished Wheeler's lien rights”); id. at 24 (“Like the Second Stay Order, the Modification Order was premised on this Court's erroneous...