Midwest M & D Services, Inc., 652 B.R. 805

Midwest M & D Services, Inc. (Debtor) filed Chapter 11 (Subchapter V) in Nov. 2020; plan confirmed under 11 U.S.C. §1191(b) in Apr. 2021, with language ambiguously describing Class 6 equity treatment.
The plan originally suggested Douglas Hanabarger would hold 100% of equity post-confirmation; the court later modified confirmation to clarify existing equity interests were unaffected and Porter's shareholder rights remained unimpaired.
In 2022 Matthew Porter (50% shareholder) sued Douglas and Dawn Hanabarger in Illinois state court under the Illinois Business Corporation Act §12.56 (shareholder oppression), seeking records, injunctions, removal of Hanabargers, and installation of Porter as sole officer/director; the suit was removed and docketed as an adversary proceeding and later dismissed for failure to prosecute.
The Debtor moved for a finding that Porter violated the automatic stay (11 U.S.C. §362(a)(3)), arguing Porter's claim was derivative and therefore property of the bankruptcy estate.
The court analyzed whether Porter's §12.56 claim was derivative (estate property) or an individual shareholder claim, and whether sanctions were appropriate.
Court held §12.56 causes of action belong to the shareholder individually, not to the corporation; therefore Porter did not violate §362(a)(3), and the motion for stay violation was denied.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Porter's complaint was a derivative cause of action/property of the estate	Porter: Complaint arises under 805 ILCS 5/12.56 — an individual shareholder right — so not estate property	Debtor: The claims attack conduct affecting the corporation and thus are derivative and belong to the estate	Held: §12.56 is an individual shareholder cause of action; claim belonged to Porter, not estate; no §362(a)(3) violation
Whether filing the suit violated the automatic stay by exercising control over estate property	Porter: No stay violation because the cause of action is his individual right	Debtor: Filing interferes with debtor’s operations and plan performance; stay was violated	Held: No stay violation; Porter’s suit did not exercise control over property of the estate
Whether sanctions are available or appropriate	Porter: Relief not necessary because no stay violation	Debtor: Requests sanctions under §362(k) and §105(a) for stay violation and interference	Held: Court did not reach merits of sanctions; §362(k) likely inapplicable to a corporate movant; §105(a) is an extraordinary remedy and was not awarded

National Tax Credit Partners, L.P. v. Havlik, 20 F.3d 705 (7th Cir. 1994) (automatic stay §362(a)(3) broadly bars efforts to exercise control over estate property)
In re Geise, 992 F.2d 651 (7th Cir. 1993) (causes of action can be property of the estate under §541)
Koch Refining v. Farmers Union Cent. Exchange, Inc., 831 F.2d 1339 (7th Cir. 1987) (actions against corporate insiders for breaches of fiduciary duty may become estate property)
Zokoych v. Spalding, 344 N.E.2d 805 (Ill. App. Ct. 1976) (distinguishes direct shareholder claims from derivative claims by gravamen of the complaint)
Spillyards v. Abboud, 662 N.E.2d 1358 (Ill. App. Ct. 1996) (recovery in derivative actions inures to corporation; direct actions inure to individual shareholder)
Staisz v. Resurrection Physicians Provider Group, Inc., 209 N.E.3d 361 (Ill. App. Ct. 2022) (§12.56 standing limited to shareholders; treats §12.56 and fiduciary-duty claims separately for standing)
Toscano v. Koopman, 148 F. Supp. 3d 679 (N.D. Ill. 2015) (a plaintiff may have standing under §12.56 even when lacking direct breach-of-fiduciary-duty standing)
Taggart v. Lorenzen, 139 S. Ct. 1795 (2019) (equitable sanctions under §105 are a severe remedy requiring careful application)