Holmon v. The Village of Alorton
2016 IL App (5th) 150404
| Ill. App. Ct. | 2016Background
- In 2005 Taymond Freeman obtained a $978,874.40 judgment against Village of Alorton police officer Thomas McGowan; the Village was ordered to reimburse McGowan.
- The Village filed a Chapter 9 bankruptcy; Freeman (its largest creditor) agreed to a confirmed amended plan providing Freeman $600,000 payable as $2,500/month over 20 years, beginning in month 61 after confirmation.
- A state-court creditor of Freeman, Stacy Goodlow, later obtained a $346,000 judgment and the state court redirected two-thirds of the bankruptcy-plan payments to Goodlow and one-third to Freeman.
- Freeman died in 2009; his son Larkin Holmon was later appointed administrator of Freeman’s estate. The Village has made only partial plan payments (about $20,000 by early 2015).
- Holmon sued in state court seeking (1) rescission of the bankruptcy-plan “contract” based on the Village’s nonperformance and restoration of the original 2005 judgment, and (2) related relief. The state trial court denied rescission and held Holmon’s remedy is enforcement of the plan contract; Holmon appealed.
Issues
| Issue | Holmon’s Argument | Village’s Argument | Held |
|---|---|---|---|
| May a state court rescind a confirmed Chapter 9 plan (i.e., rescind the contract created by plan confirmation) and revive the prebankruptcy judgment? | The Village’s admitted nonperformance of the plan payments justifies rescission and revival of the original 2005 judgment. | The confirmed Chapter 9 plan discharged preconfirmation claims; only the plan obligations remain and rescission is precluded because the bankruptcy discharge is federal and exclusive. | Court: No. Rescission is not available in state court; confirmation created a binding contract and Chapter 9 discharge prevents revival of the old debt. |
| Is the confirmed bankruptcy plan a contract enforceable in state court? | Holmon sought rescission but also argued the Village breached the plan; he contended broader relief including revival of the prior judgment. | Village: The plan is a binding contract; Holmon, as successor in interest, is limited to enforcing the plan terms (recover payments due under the plan). | Court: Yes. The confirmed plan functions as a contract and Holmon may enforce its payment provisions in state court, but may not rescind the plan. |
| Would affirming the trial court bar Holmon from later enforcing the plan by res judicata? | Holmon feared a res judicata bar would prevent future enforcement actions to collect outstanding plan payments. | Village acknowledged nonpayment and stated Holmon may still sue to enforce the plan; acquiescence would avoid claim-splitting problems. | Court: No bar. Res judicata will not necessarily preclude enforcement—exceptions apply (party agreement/acquiescence; continuing wrong). Holmon may amend complaint and pursue enforcement. |
Key Cases Cited
- Ernst & Young LLP v. Baker O'Neal Holdings, Inc., 304 F.3d 753 (7th Cir. 2002) (confirmed plan operates as a contract between parties).
- In re Curry, 99 B.R. 409 (Bankr. C.D. Ill. 1989) (failure to pay under a confirmed plan does not revive preconfirmation debts).
- Nebraska Security Bank v. Sanitary & Improvement Dist. No. 7, 119 B.R. 193 (Bankr. D. Neb. 1990) (confirmation of a chapter 9 plan discharges debtor except for limited exceptions).
- General Iron Indus., Inc. v. A. Finkl & Sons Co., 292 Ill. App. 3d 439 (Ill. App. Ct. 1997) (bankruptcy jurisdiction is federal and supersedes inconsistent state law).
- Hudson v. City of Chicago, 228 Ill. 2d 462 (Ill. 2008) (discussing Restatement (Second) of Judgments § 26 exceptions to claim preclusion).