588 B.R. 32
Bankr. N.D. Ill.2018Background
- In 1988 the Trump entities recorded a use covenant requiring the Showboat property be operated as a casino until 2082; in 2014 Showboat Propco separately recorded a restrictive covenant banning gaming until 2024, creating a conflict.
- Stockton negotiated to buy the shuttered Showboat property in late 2014 for a university campus; Stockton was not told about the Trump use covenant and only learned of it from a title report shortly before closing.
- To avoid delaying closing, the PSA required Showboat Propco to use commercially reasonable efforts after closing to obtain a bankruptcy-court-approved release from the Trump entities and indemnified Stockton against enforcement of the use covenant; CEOC guaranteed that indemnity. The PSA also barred Stockton from assigning rights without Showboat Propco’s written consent.
- Stockton closed, later filed proofs of claim in the Caesars chapter 11 cases asserting contract and tort claims arising from the Showboat transaction, then sold the property to Renaissance and assigned its claims to Renaissance. Notices of transfer were filed and Renaissance became the record holder.
- Debtors objected to allowance of the Stockton claims, arguing Renaissance lacks enforceable rights due to (1) nonassignable tort claims under New Jersey law and (2) the PSA’s anti-assignment clause preventing transfer of contract rights without consent.
- The court held Renaissance has Article III standing as an assignee, but disallowed the claims on enforceability grounds: tort claims are nonassignable and forfeited by Renaissance; contract claims are barred by the PSA’s anti-assignment clause and Rule 3001(e) does not override substantive contract limits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing: can Renaissance sue on Stockton's assigned claims? | Renaissance: assignment gives it Stockton's rights; assignee has standing. | Debtors: assignment problems mean Renaissance lacks standing. | Held: Renaissance has Article III standing as an assignee. |
| Are Stockton’s tort claims enforceable by Renaissance? | Renaissance: implicitly that assignment sufficed (did not defend tort claims). | Debtors: New Jersey prohibits pre-judgment assignment of tort claims. | Held: Tort claims are nonassignable under NJ law and Renaissance forfeited any opposing argument; tort claims disallowed. |
| Are breach-of-contract claims enforceable by Renaissance despite PSA anti-assignment clause? | Renaissance: Rule 3001(e) procedural notices suffice to place claims in transferee’s hands regardless of PSA language. | Debtors: PSA prohibits assignment without Showboat Propco consent; no such consent given. | Held: PSA’s anti-assignment clause bars enforcement; Rule 3001(e) is procedural only and does not validate substantively invalid transfers; contract claims disallowed. |
| Does Bankruptcy Rule 3001(e) override nonbankruptcy substantive restrictions on assignment? | Renaissance: Rule 3001(e) and transfer notices put Renaissance in Stockton’s shoes. | Debtors: Rule 3001(e) is procedural and cannot alter substantive rights or override contracts. | Held: Rule 3001(e) does not create substantive rights or validate otherwise invalid transfers. |
Key Cases Cited
- Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (U.S. 2016) (standing requires concrete, particularized injury)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (U.S. 1992) (standing doctrine framework)
- Sprint Commc'ns Co. v. APCC Servs., Inc., 554 U.S. 269 (U.S. 2008) (assignees may have standing to sue on assigned claims)
- Travelers Cas. & Sur. Co. v. Pac. Gas & Elec. Co., 549 U.S. 443 (U.S. 2007) (bankruptcy claim allowance follows underlying substantive law)
- Midland Funding, LLC v. Johnson, 137 S. Ct. 1407 (U.S. 2017) (distinction between having a claim and enforceability in bankruptcy)
- In re Smith, 848 F.2d 813 (7th Cir. 1988) (bankruptcy court authority to enter final judgment)