490 B.R. 795
Bankr. N.D. Ill.2013Background
- Debtor Michael C. James moved to reopen his Chapter 13 case and to compel the Chapter 13 Trustee to release funds to his attorney Patience R. Clark.
- Creditors object, arguing a third-party citation to discover assets precludes releasing funds to Clark.
- State Court issued a citation directed to the Debtor and the Trustee, triggering supplementary proceedings under Illinois law.
- Debtor’s Chapter 13 case was dismissed (9/27/2012) but not closed, and Clark’s compensation had been approved earlier in the proceedings.
- The Trustee held funds under a proposed plan but had not yet distributed them; Debtor had paid over $11,000 to the Trustee pre-dismissal.
- The Court ultimately held that the citation was improper and that §1326(a)(2) governs, requiring release of funds to Clark.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Barton doctrine bars the state-court citation against the Trustee. | Creditors argue Barton doctrine prohibits such suit without court leave. | Debtor argues Barton doctrine applies to trustees; lack of leave undermines citation. | Barton doctrine protects trustees; improper citation undermines transfer restraint. |
| Whether §1326(a)(2) governs and requires releasing funds to Clark. | Creditors contend funds should be restrained by the citation and applied to the debt. | Debtor/debtor's counsel argues §1326(a)(2) governs post-petition payments when no plan is confirmed. | §1326(a)(2) mandates release of funds to Clark because no plan was confirmed. |
| Whether Illinois 735 ILCS 5/2-1402 is preempted or harmonizable with §1326(a)(2). | Creditors rely on state statute to prohibit transfers pending supplementary proceedings. | Debtor argues federal bankruptcy law controls, making state statute inapplicable or superseded. | Federal bankruptcy law prevails; state statute conflicts and is not harmonizable. |
Key Cases Cited
- Barton v. Barbour, 104 U.S. 126 (1881) (leave of court required to sue the receiver)
- In re Linton, 136 F.3d 544 (7th Cir.1998) (Barton doctrine extends to bankruptcy trustees)
- Weitzman, 381 B.R. 874 (Bankr.N.D.Ill.2008) (reaffirms Barton doctrine and related bankruptcy-trustee protections)
- Kohler Co. v. Moen Inc., 12 F.3d 632 (7th Cir.1993) (statutory harmony when possible; federal law governs conflict)
- Ocasek v. Manville Corp. Asbestos Disease Fund, 956 F.2d 152 (7th Cir.1992) (federal bankruptcy law supremacy over inconsistent state law)