Gierum v. Glick (In re Glick)
568 B.R. 634
Bankr. N.D. Ill.2017Background
- Jonathan Glick controlled a network of LLCs, partnerships, and two trusts (JCG 1999 Trust — revocable; JCG 2012 Trust — irrevocable). He managed toy-patent/licensing businesses (Awesome Toys, Virtual, Play Makers, etc.).
- Lenders (AEB, Franklin, Glen Eagle) obtained judgments against various Glick entities after defaults; Glick filed Chapter 7 in May 2013 and trustee John Gierum brought this adversary in 2015.
- Trustee alleges the entities are Glick’s alter egos, that transfers (notably a license shift from Virtual to Play Makers and related payments) were fraudulent (pre- and post-petition), and seeks veil-piercing/turnover, avoidance, damages for aiding and abetting, an accounting, and subordination.
- Defendants moved to dismiss under Fed. R. Civ. P. 12(b)(1) and 12(b)(6). The amended complaint was long, internally inconsistent, and relied heavily on reverse-piercing theories.
- The court denied jurisdictional challenges but dismissed nearly all claims on the merits: all counts except (1) a turnover claim concerning Glick’s interest in the JCG 1999 Trust and (2) a §549(a) post-petition avoidance claim against Wolff were dismissed with prejudice.
Issues
| Issue | Plaintiff's Argument (Gierum) | Defendant's Argument | Held |
|---|---|---|---|
| Subject-matter jurisdiction / standing | Trustee’s claims arise under, in, or are related to Title 11; trustee has Article III standing to pursue estate injury | Defendants argued lack of jurisdiction, standing, and that some claims amount to substantive consolidation or concern non-debtors | Court: Jurisdiction exists under 28 U.S.C. §1334; trustee has Article III standing; jurisdictional attacks denied |
| Veil-piercing / reverse piercing (trusts & non-debtors) | Request to reverse-pierce entities and trusts to treat their assets as estate property (outside reverse piercing) | Defendants: state law doesn’t recognize outside reverse piercing; trustee lacks authority; reverse-piercing is impermissible or unsettled | Court: Reverse piercing not recognized under governing law (Delaware for Delaware entities; Illinois for Illinois entities). Trust-piercing likewise unsettled in Illinois. Counts I–VI dismissed |
| Fraudulent-transfer pleading (pre-petition §548 / §544 and IUFTA) | Transfers were disguised (assets and business opportunities moved from JCG 1999 to JCG 2012; licenses and agreements shifted) and thus avoidable | Defendants: complaint fails Rule 9(b) particulars; many transactions were licenses or contract arrangements, not transfers of debtor property | Court: Fraud allegations lack the who/what/when/where/how particularity; moreover alleged transactions were non-transferrable rights/licenses or involved non-debtor property — Counts VII–X dismissed |
| Post-petition transfers / accounting / turnover (§549, §542) | Post-petition payments by entities to Glick, lawyers, and staff were unauthorized estate transfers; trustee seeks turnover and accounting | Defendants: Payments came from non-debtors; without piercing they are not estate property; accounting/turnover unavailable | Court: Except for turnover of Glick’s interest in the revocable JCG 1999 Trust (which became estate property), payments from non-debtors cannot be treated as estate property without reverse piercing; post-petition claims (except Wolff §549) and accounting dismissed |
| Aiding-and-abetting / equitable subordination | Third parties knowingly assisted fraudulent transfers and should be liable or subordinated (e.g., BTM claim) | Defendants: No independent aiding-and-abetting cause for fraudulent transfers; §550 limits recovery to transferees/initial beneficiaries; BTM has no filed claim and Play Makers is non-debtor | Court: Aiding-and-abetting claims fail because underlying FT claims fail and §550 displaces such accessory liability; equitable subordination also fails (Play Makers non-debtor; BTM filed no proof of claim) |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must be plausible and provide more than formulaic recitation)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standards require factual allegations supporting plausibility)
- Main Bank of Chicago v. Baker, 86 Ill.2d 188 (Ill. 1981) (Illinois two-step veil-piercing test: domination/alter ego and injustice/fraud)
- Fowler v. Shadel, 400 F.3d 1016 (7th Cir. 2005) (members of an LLC do not hold estate interests in LLC assets absent piercing)
- Wellness Int’l Network, Ltd. v. Sharif, 727 F.3d 751 (7th Cir. 2013) (discussion of alter-ego doctrines and limits; noted uncertainty whether trust-piercing exists in Illinois)
- ALT Hotel, LLC v. DiamondRock Allerton Owner, LLC, 479 B.R. 781 (Bankr. N.D. Ill. 2012) (analysis rejecting prediction that Delaware would recognize reverse piercing)