449 B.R. 767
Bankr. N.D. Ill.2011Background
- Debtors Kimball Hill, Inc. and 29 affiliates filed Chapter 11; joint administration ordered.
- Plan confirmed March 12, 2009 created a Liquidation Trust to pursue estate claims, with U.S. Bank as trustee.
- Exhibit E Final Plan Supplement listed retained causes of action; Liquidation Trust empowered to enforce them.
- April 19, 2010 Liquidation Trust filed an adversary against Wisenbaker entities alleging prepetition transfers totaling $1,665,181 as preferences or fraudulent transfers.
- Defendants moved to dismiss for lack of standing and failure to plead counts; Liquidation Trust amended the complaint.
- Court holds the retention provision sufficiently identified to retain claims, denies standing dismissal, but dismisses Count I while leaving Count II viable and granting leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing of the Liquidation Trust to pursue retained claims | Liquidation Trust retained and transferred enforcement rights under Plan § IV(J)(2). | Plan language failed to specifically identify retained claims against these entities; lack of proper listing defeated standing. | Retention language is sufficiently specific; LT has standing to pursue claims. |
| Sufficiency of Count I (preference avoidance) under § 547(b) | Transfers were made to benefit the defendants and on account of antecedent debts prior to petition. | Allegations do not plausibly show antecedent debt or benefit to defendants; pleading insufficient. | Count I dismissed for failure to state a plausible § 547(b) claim. |
| Sufficiency of Count II (constructive fraudulent transfer) under Rule 9(b) | Allegations identify who, what, when, where, and how transfers occurred and related circumstances. | Circumstances pled with particularity are inadequate and similar Wisenbaker issue remains. | Count II survives; pleading may be enhanced, but Rule 9(b) requirements met at this stage. |
| Leave to amend the Amended Complaint | Amendment should be freely given to address plausibility and clarity, possibly add Wisenbaker Builders as a defendant. | Not necessary to amend; adverse impact on defenses. | Leave to amend granted; Second Amended Complaint due by June 30, 2011. |
Key Cases Cited
- In re Bergner & Co., 140 F.3d 1111 (7th Cir. 1998) (retention provisions may be categorical and still constitute 'specific identification' under 11 U.S.C. §1123(b)(3)(B))
- D & K Properties Crystal Lake v. Mutual Life Ins. Co. of New York, 112 F.3d 257 (7th Cir. 1997) (blanket reservations can fail if not explicit; express retention required to avoid res judicata)
- In re Kmart Corp., 310 B.R. 107 (Bankr. N.D. Ill. 2004) (discusses interplay of Bergner and D&K; reinforces flexible interpretation of retention language)
- In re Acequia, Inc., 34 F.3d 800 (9th Cir. 1994) (broad retention language can preserve claims post-confirmation)
- The Official Committee of Unsecured Creditors of Enron Corp. v. Whalen (In re Enron Corp.), 357 B.R. 32 (S.D.N.Y. 2006) (discussion of antecedent debt and liability concepts in § 547 avoidance)
- In re Superior Toy & Mfg. Co., Inc., 78 F.3d 1169 (7th Cir. 1996) (clarifies understanding of avoidance actions and preservation)