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800 S. Wells Commercial LLC v. Gouletas (In re Gouletas)

Name
IN RE: Nicholas S. GOULETAS, Debtor. 800 South Wells Commercial LLC, Plaintiff, v. Nicholas S. Gouletas, Defendant.
Attorney(s)
Attorney for Plaintiff: F. Dean Armstrong, Armstrong Law Firm, Frankfort, IL, Attorneys for Debtor/Defendant: Richard H. Fimoff & Robert J. Trizna, Robbins, Salomon & Patt, Ltd., Chicago, IL, TIMOTHY A. BARNES, Judge Before the court are two competing partial motions for summary judgment (together, the "Motions") in the above-captioned adversary proceeding (the "Adversary Case"):, (1) the Defendant's Motion for Summary Judgment [Adv. Dkt. No. 80] (the "Defendant's Motion"), brought by the debtor in the above-captioned bankruptcy case (the "Bankruptcy Case") and the defendant in the Adversary Case, Nicholas S. Gouletas (the "Defendant"); and, (2) the Plaintiff's Response to Defendant's Motion for Summary Judgment on Limitations and Cross-Motion for Summary Judgment on Limitations [Adv. Dkt. No. 86] (the "Plaintiff's Motion"), brought by 800 South Wells Commercial LLC (the "Plaintiff" and collectively with the Defendant, the "Parties")., For the reasons set forth more fully below, upon review of the respective filings, the court concludes that the Affirmative Defense fails as a matter of law and that the Plaintiff is therefore entitled to summary judgment on the Affirmative Defense. The Plaintiff's Motion will, therefore, by separate order issued concurrently with this Memorandum Decision, be granted. The Defendant's Motion will be denied and the Affirmative Defense will be stricken., As a proceeding to determine the dischargeability of a debt is a matter arising under the Bankruptcy Code and a proceeding to deny debtor's discharge may only arise in a case under the Bankruptcy Code, the Adversary Case is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (I) & (J). It follows that a motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure, made applicable by Rule 7056 of the Federal Rules of Bankruptcy Procedure in the Adversary Case, is also a core proceeding pursuant to 28 U.S.C. §§ 157(b)(1) & (2). Further, in accordance with Stern , 564 U.S. at 499, 131 S.Ct. 2594, the bankruptcy court has constitutional authority to decide matters of nondischargeability, as the debtor's discharge and the dischargeability of a particular debt necessarily stem from the bankruptcy itself. Parkway Bank & Tr. v. Casali(In re Casali) , 526 B.R. 271, 274 (Bankr. N.D. Ill. 2015) (Schmetterer, J.); see also Wan Ho Indus. Co., Ltd. v. Hemken(In re Hemken) , 513 B.R. 344, 350 (Bankr. E.D. Wis. 2014). Each of the parties has also either expressly or impliedly consented to this court's exercising authority over this matter. In light of the foregoing, the court concludes that it has constitutional authority to finally decide the Motions either directly or through the parties' consent., The following background reflects the undisputed facts contained in the submissions of the Parties and the uncontroverted facts contained in the Plaintiff's Counter-Statement of Facts in Opposition to Defendant's Motion for Summary Judgment on Limitations and in Support of Plaintiff's Cross-Motion for Summary Judgment on Limitations [Adv. Dkt. No. 86-6] (the "Plaintiff's Statement"). Bankr. N.D. Ill. R 7056-2; Frankfurt v. Friedman(In re Friedman) , 531 B.R. 741, 743 (Bankr. N.D. Ill. 2015) (Schmetterer, J.)., The Plaintiff was the owner of certain leasehold interests (the "Leasehold") in a commercial space and underground parking located at 800 South Wells Street in downtown Chicago. Resp., at p. 3. The Leasehold was subject to two mortgages, the lesser of which (the "Second Mortgage") secured certain notes by the Plaintiff (collectively the "Notes") for a $5,900,000.00 debt owed to CIB Bank ("CIB"). Id. ; Pl.'s Stmt., at p. 3; Pl.'s Stmt., Exh. 190 (June 16, 2010 judgment on the Notes) (the "Notes Judgment"). As further collateral for the debt, CIB received a security interest (the "Security Interest") in all the existing membership interests in the Plaintiff. Resp., at p. 3; Pl.'s Stmt., at p. 3; Def.'s Stmt., Exh. 2-B, at ¶¶ 1.1, 2.1-2.2 (agreement granting security interest in membership interests) (the "Security Agreement")., In the same year, DJV began its own collection attempts. DJV sued the Plaintiff on the Notes and the Defendant for breach of a personal guaranty of the loan (the "Guaranty"). Id. ; Notes Judgment, at ¶¶ 1-2. DJV also exercised its rights under the Security Agreement to seize control of the Plaintiff from the Defendant and River City Investors, LLC ("RCI"), the other member of the Plaintiff. DJV then installed itself as the manager of the Plaintiff. Resp., at p. 4; Pl.'s Stmt., at p. 4., In the legal action, DJV obtained in 2010 a final judgment against the Plaintiff for the over $11.5 million due under the Notes and against the Defendant for $1 million due under the Guaranty. Pl.'s Stmt., at p. 11; Notes Judgment, at ¶¶ 1-2., In March 2011, DJV caused the Plaintiff to sue its former manager, the Defendant, for breach of fiduciary duty, abuse of his position for personal gain through self-dealing and other violations of the duty of loyalty. Pl.'s Stmt., at p. 11. In January 2014, the state court defaulted the Defendant and entered an $11,550,040.12 default judgment against him (the "Fiduciary Judgment"). Id. While the Plaintiff, still controlled by DJV, attempted to collect on the Fiduciary Judgment, the Defendant fought the same, including through appeals and other attacks. Id. , at pp. 12-14., Following discovery, the Plaintiff moved for partial summary judgment. Plaintiff's Motion for Summary Judgment [Adv. Dkt. No. 52] (the "First Summary Judgment Motion"); see also Plaintiff's Memorandum of Law in Support of Plaintiff's Motion for Summary Judgment [Adv. Dkt. No. 52-2], at pp. 2-7, 9-11. In the First Summary Judgment Motion, the Plaintiff sought judgment as a matter of law on Count III of the Complaint (the section 727 count) and two of the Defendant's affirmative defenses-unclean hands and the Affirmative Defense., After briefing and argument, the court ruled on most but not all of the First Summary Judgment Motion, first orally on December 20, 2017, see Tr. at pp. 5-20, Dec. 20, 2017 [Adv. Dkt. No. 85] (the "Transcript"), and then by following order on January 1, 2018. Order Granting in Part and Denying in Part Plaintiff's Motion for Partial Summary Judgment [Adv. Dkt. No. 77] (the "First Summary Judgment Order"). There the court granted partial summary judgment in favor of the Plaintiff on certain elements of its claim under section 727(a) of the Bankruptcy Code and full summary judgment in favor of the Plaintiff on the Defendant's unclean hands affirmative defense. Id. , at p. 1. However, with respect to the Affirmative Defense, the court found only that DJV had successfully fulfilled the notice requirements under the Security Agreement to take control of the Plaintiff in 2006. Id. (granting summary judgment on the Affirmative Defense in favor of the Plaintiff "on the alleged lack of notice issue"); Tr., at pp. 11-14, 18. The remainder of the Affirmative Defense was reserved for later ruling, First Summ. J. Order, at pp. 1-2 (denying summary judgment on the Affirmative Defense "as to the statute of limitations issue" and limiting the Affirmative Defense "to the issue of the statute of limitations for enforcement"); Tr., at pp. 14, 18, upon the Motions and further briefing below., (4) The Defendant's Reply in Support of His Motion for Summary Judgement and His Response in Opposition to Plaintiff's Cross Motion for Summary Judgement [Adv. Dkt. No. 95] (the "Defendant's Reply"); and, (5) The Plaintiff's Reply to Defendant's Response to Plaintiff's Cross-Motion for Summary Judgment on Limitations [Adv. Dkt. No. 94]., Before the court are two motions for partial summary judgment. Summary judgment is appropriate if: first, on the pleadings, moving papers, and affidavits or other evidence submitted therewith there is no genuine issue of material fact; and, second, the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(e) (made applicable to the Adversary Case by Bankruptcy Rule 7056 ); Dunn v. Menard, Inc. , 880 F.3d 899, 905 (7th Cir. 2018)., First, the movant must, with citation to materials in the record, demonstrate that no genuine dispute of material fact exists. Fed. R. Civ. P. 56(c)(1). "By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (emphases in original); World Mktg. , 574 B.R. at 677., To be genuinely at issue, the disputed material fact must be outcome determinative under governing law. Sylvester v. Martin(In re Martin) , 130 B.R. 930, 937 (Bankr. N.D. Ill. 1991) (Schmetterer, J.) (citing Anderson , 477 U.S. at 248, 106 S.Ct. 2505 ). A genuine issue of material fact exists if, after a resolution of the disputed fact by the factfinder, "a reasonable jury could return a verdict for the nonmoving party." Anderson , 477 U.S. at 258, 106 S.Ct. 2505 ; Dunn , 880 F.3d at 905. The court makes this determination under the standard that would be used at trial. Valley Liquors, Inc. v. Renfield Imps., Ltd. , 822 F.2d 656, 659 (7th Cir. 1987) (citing Anderson , 477 U.S. at 252, 106 S.Ct. 2505 )., The Defendant's theory is essentially the following: (1) the ten-year statute of limitations for actions on written contracts began to run on the Security Agreement in 2005, when the Plaintiff defaulted on the loan, thereby triggering DJV's remedies under the Security Agreement; (2) DJV had authority over the Plaintiff only a result of the Security Agreement; (3) once the limitations period ran the Security Agreement was no longer enforceable and DJV lost the authority to manage the Plaintiff; (4) the statute ran before the Plaintiff commenced the Adversary Case; and (5) the filing of the Adversary Case is therefore infirm because the Plaintiff acted on the order of a person without authority to so direct the Plaintiff to act. See Defendant's Memorandum of Law in Support of His Motion for Summary Judgment [Adv. Dkt. No. 82] (the "Defendant's Memorandum"), at pp. 3-6; see also Def.'s Reply, at pp. 2-8.

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