562 B.R. 708
Bankr. N.D. Ill.2016Background
- Trustee sold substantially all assets of four debtor gas-station LLCs to PAV2, LLC under 11 U.S.C. § 363(f) for net proceeds of $5,229,475.27; Sale Order provided that interests would attach to the proceeds.
- United Central Bank (UCB; now Hanmi) claimed an allowed secured claim of $14,077,157.67 secured in the proceeds.
- Illinois Department of Revenue (IDOR) asserted tax claims including a successor-liability claim under Illinois "Bulk Sales" statutes and sought turnover of proceeds. IDOR had secured liens of $1,387,418.93 against the proceeds; remaining IDOR claims were characterized as unsecured.
- Bankruptcy Court (Barnes, J.) issued the Proceeds Opinion allocating interests; District Court affirmed most holdings but remanded to determine (1) the dollar recovery IDOR would have had if its successor-liability interest were not extinguished by § 363(f) and (2) mechanics of awarding adequate protection.
- On remand, the bankruptcy court adopted terminology distinguishing "calculable value" (statutory measure) from "realizable value" (recoverable under priority scheme) and held IDOR proved calculable value but failed to prove any realizable value or independent source of recovery given UCB's senior liens.
- Court denied the remaining IDOR relief, granted remaining UCB motion aspects, and authorized payment of remaining proceeds to Hanmi.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether IDOR's successor-liability interest has "calculable value" under Illinois Bulk Sales Acts | IDOR: reasonable value equals purchaser's price for assets (apply sale price/net proceeds to tax obligations) | Hanmi/UCB: reasonable value should be net of UCB's liens (zero) | Held: IDOR proved calculable value of $1,535,589.04 (use sale proceeds without netting UCB liens for calculable value) |
| Whether IDOR's successor-liability interest has "realizable value" (i.e., would yield recovery if § 363(f) had not extinguished it) | IDOR: statutory successor claim represents a valuable source of recovery against purchaser/personally liable transferee | UCB/Hanmi/Trustee: even if statutory claim exists, UCB's senior secured liens consume available recovery; no independent assets shown for purchaser | Held: No realizable value — IDOR failed to carry burden to show any recoverable source given UCB's superior claim and absence of evidence purchaser had assets beyond the purchased collateral |
| Burden of proof and standard on remand | IDOR: implied it had value and recovery | Hanmi/Trustee: section 363(p) requires IDOR to prove validity/extent/priority; Trustee already met adequate-protection burden | Held: Under 11 U.S.C. § 363(p)(2) IDOR bears burden on validity/extent/priority; preponderance standard applies (Grogan) |
| Whether adequate protection provided by Sale Order entitles IDOR to priority recovery beyond claim priorities in Bankruptcy Code | IDOR: seeks recovery from proceeds consistent with adequate protection attachment; argued adequate protection may require turnover | UCB/Hanmi: Sale Order's attachment to proceeds satisfied adequate protection; priority and distribution governed by Bankruptcy Code, not by repeated adequate-protection demands | Held: Sale Order provided adequate protection (interests attached to proceeds); that does not elevate IDOR's priority over UCB; distribution follows statutory priority scheme, not iterative adequate-protection awards |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (preponderance standard governs proof of nondischargeability in bankruptcy contexts)
- Christianson v. Colt Indus. Operating Corp., 486 U.S. 800 (law-of-the-case doctrine governs subsequent stages)
- Sprague v. Ticonic Nat'l Bank, 307 U.S. 161 (mandate rule and lower court compliance with appellate rulings)
- Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251 (findings may not rest on speculation)
- Locklin v. Day-Glo Color Corp., 429 F.2d 873 (fact findings cannot rest on guess or speculation)
- In re Pers. Comp. Network, Inc., 97 B.R. 909 (matters under § 363 are core bankruptcy proceedings)