In re Cook
- Reporters:
- ,
- Before:
- Mary P. Gorman
Mary P. Gorman
United States Bankruptcy Judge
OPINION
I. Factual and Procedural Background
A. The Individual Cases
Although the motions for stay relief filed in each case are virtually identical and the decision on the motions is not controlled by the separate facts of each case, a brief discussion of each individual case is warranted.
i. Tammy D. Cook
Tammy D. Cook, a resident of LeRoy, Illinois, filed her voluntary petition under Chapter 7 on March 24, 2023. She was represented in the filing by Attorney A. Christopher Cox; Roger Prillaman was appointed as the Chapter 7 trustee. The Trustee reported collecting over $31,000 in assets in his December 31, 2023, report and has since received $25,000 from the Debtor and her non-filing spouse to settle the Trustee‘s demands related to equity in their residence. Claims total almost $13.85 million, with the largest claim having been filed by Interinsurance Exchange for over $13.5 million and another claim having been filed for over $266,000 by Johnny White, the attorney representing the four Debtors in the pending California litigation.
ii. Dean R. Kohn
Dean R. Kohn, a resident of Bloomington, Illinois, filed his voluntary petition under Chapter 7 on March 24, 2023. He was represented in the filing by Attorney A. Christopher Cox; Roger Prillaman was appointed Chapter 7 trustee. At the end of 2023, the Trustee reported collecting a little more than $28,800 from Mr. Kohn, and, in March 2024, the Trustee sold a parcel of commercial real estate owned by Mr. Kohn, netting over $67,000 for the bankruptcy estate. Claims are just over $13.85 million with claims filed in this case by Interinsurance Exchange and Johnny White identical to their claims filed in the Cook case.
A discharge was issued to Dean Kohn on July 3, 2023. Prior to the entry of the discharge, Interinsurance Exchange filed a complaint to determine the dischargeability of a debt it claims is owed to it by Dean Kohn. That complaint will be discussed in detail below. Just as it had in the Cook case,
iii. Frank F. Lunn IV
Frank F. Lunn IV, a resident of Bloomington, Illinois, at the time, filed his voluntary petition under Chapter 7 on March 26, 2023. He was represented in the filing by Attorney A. Christopher Cox; Roger Prillaman was appointed Chapter 7 trustee. The Trustee reported collecting more than $68,000 in his December 31, 2024, report. Claims exceed $16 million. Interinsurance Exchange filed a claim in this case identical to the claims it filed in the Cook and Kohn cases. Johnny White‘s claim filed in this case was for a little over $277,000.
A discharge was issued to Frank Lunn on July 3, 2023. Prior to the entry of the discharge, Interinsurance Exchange filed a complaint to determine the dischargeability of a debt it claims is owed to it by Frank Lunn. That complaint will be discussed in detail below. As in the previously discussed cases, Interinsurance Exchange filed an emergency motion for stay relief that was initially denied without prejudice. The request has been renewed and is now before the Court.
Francis S. Rathbun, a resident of Fairbury, Illinois, filed his voluntary petition under Chapter 7 on March 24, 2023. He was represented in the filing by Attorney A. Christopher Cox; Roger Prillaman was appointed Chapter 7 trustee. In his December 31, 2023, report, the Trustee acknowledged collecting a little over $28,900; he has since settled with Francis Rathbun and his non-filing spouse with respect to the equity in their home for about $21,000 and the equity in some timberland for just over $32,600. Claims are a little over $13.86 million. Interinsurance Exchange and Johnny White filed claims in the Rathbun case identical to the claims they filed in the Cook and Kohn cases.
A discharge was issued to Francis Rathbun on June 27, 2023. Prior to the entry of the discharge, Interinsurance Exchange filed a complaint to determine the dischargeability of a debt it claims is owed to it by Francis Rathbun. The complaint will be discussed in detail below. As in the other cases, Interinsurance Exchange sought relief from stay on an emergency basis early in the case; the requested relief was denied without prejudice. Interinsurance Exchange‘s renewed request for relief from stay is now before the Court.
B. The Three Related Cases
When the four individual Debtors discussed above filed their bankruptcies, three related entities also filed. Interinsurance Exchange also
Acclaim Resource Partners, LLC filed its voluntary petition under Chapter 7 on March 27, 2023.1 Frank Lunn signed the petition on Acclaim‘s behalf but did not state his role or title with Acclaim. The petition was filed by Attorney A. Christopher Cox. Jeffrey D. Richardson was appointed trustee. Interinsurance Exchange filed an emergency motion for relief from stay that was initially denied without prejudice. After investigation, on July 31, 2023, the Trustee filed a report of no distribution indicating he had located no assets to administer. After hearing on a renewed request for relief from stay and in the absence of objection from the Trustee or Acclaim, an order was entered on November 5, 2024, granting relief from stay to Interinsurance Exchange to pursue the California litigation as to Acclaim. The case was closed on December 19, 2024.
Kahuna Business Group, Inc. filed its voluntary petition under Chapter 7 on March 27, 2023.2 Kahuna Business Group‘s petition was filed by Attorney A. Christopher Cox and signed by Frank Lunn as president. Jeana K. Reinbold was appointed trustee; pursuant to reports filed by the Trustee, it appears that she has collected almost $200,000 from bank accounts and tax refunds. Claims include Interinsurance Exchange‘s claim for over $13.5 million and the claim of Johnny White for a little more than $291,000. Interinsurance
Kahuna Business Holdings, LLC filed its voluntary petition under Chapter 7 on March 27, 2023.3 Frank Lunn signed the petition, but no title for Mr. Lunn was disclosed; Attorney A. Christopher Cox filed the petition. Jeffrey D. Richardson was appointed the case trustee. After investigation, on September 5, 2024, the Trustee filed a report of no distribution indicating that he had located no assets to administer. Interinsurance Exchange filed an emergency motion for relief from stay that was initially denied without prejudice. Its renewed motion for stay relief to pursue the California litigation against Kahuna Business Holdings was granted after hearing and in the absence of objection by the Trustee or Kahuna Business Holdings by order entered November 5, 2024. The case was closed December 19, 2024.
C. The California Litigation
At the time the bankruptcy cases at issue here were filed, Interinsurance Exchange had litigation pending in California against the individual Debtors and the related entities. The California case was filed October 6, 2017, in the Superior Court of the State of California, County of Orange, and captioned: Interinsurance Exchange of the Automobile Club, Plaintiff v. Acclaim Resource Partners, LLC; Kahuna Business Holdings LLC; Kahuna Business Group Inc.; Kevin G. May, an individual; Dean R. Kohn, an individual; Tammy Cook, an
The state court complaint identifies Interinsurance Exchange as a reciprocal insurer with a principal place of business in California. It describes Acclaim as an Illinois limited liability company formed in 2005 and as a subrogation services company whose services included the investigation and evaluation of insurance claims, the settlement of such claims, and the distribution of settlement funds. The four individual Debtors named as Defendants were described in the complaint as Illinois residents and as members, managers, officers, and alter egos of Acclaim.
Interinsurance Exchange alleges in the complaint that, in 2014, it entered into a written Subrogation Services Agreement with Acclaim whereby it agreed to refer to Acclaim certain subrogation claims for recovery. The subrogation agreement set forth various terms, including those for
According to Interinsurance Exchange, the California litigation was set for a jury trial scheduled to begin shortly after the bankruptcies were filed. The California litigation has been stayed as to the four individual Debtors and the three related entities since March 2023.
Prior to the issuance of discharges to the individual Debtors, Interinsurance Exchange filed complaints to determine dischargeability against each of them.5 The complaints were essentially identical and sought the entry of judgment against each individual in the amount of $3,273,049.69 plus interest, treble damages under California law, and punitive and exemplary damages. The adversary complaints also sought to have the debts determined to be nondischargeable based on allegations of fraud, breach of fiduciary duty, larceny, embezzlement, and willful and malicious injury to property. The Debtors responded by filing motions to dismiss asserting that the complaints failed to state claims upon which relief could be granted. In particular, the Debtors said that the complaints failed to plead plausible claims that the Debtors were personally liable for the debts of Acclaim and failed to plead plausible claims under any theory that the debts, even if owed by the individuals, should be excepted from their discharges. After considering the written arguments of all parties, the Debtors’ motions to dismiss were granted. This Court found that the complaints failed to plead plausible causes of action to hold the Debtors individually liable and to except the debts, even if owed, from discharge. The Court also noted that the complaints were defective in that the allegations were pleaded in long, rambling paragraphs rather than the
Interinsurance Exchange filed amended complaints in each case. The amended complaints contained the same theories of nondischargeability as the original complaints but contained more precise allegations of individual wrongdoing on the part of each Debtor.6 Some but not all of the long, rambling paragraphs were restructured. The Debtors again filed motions to dismiss asserting that the amended complaints failed to state claims upon which relief could be granted. After briefing, this Court dismissed counts one and two of each complaint with prejudice, finding that each of those counts purported to state claims for oral fraudulent misrepresentations about the financial condition of Acclaim and were barred by controlling precedent.7
The Debtors’ motions to dismiss were denied as to the remainder of the amended complaints. The Court found that the amended complaints had cured many of the defects in the original complaints, albeit in some instances by the narrowest of margins. The Court expressed continuing concerns about the unwieldy format of the amended complaints and the inclusion of factual allegations that appeared wholly unrelated to the actual claims. The amended
E. The Stay Relief Motions
As stated above, shortly after the individual and related entity bankruptcy cases were filed, Interinsurance Exchange filed emergency motions for relief from stay in each case. The motions were virtually identical and claimed that, under California law, a mandatory five-year rule was in place that required commercial cases be tried within five years of filing.9 Interinsurance Exchange asserted that, because the California litigation was filed in October 2017, it was bumping up against that five-year deadline which had already been extended due to the COVID-19 pandemic. It claimed that, because only seven of the nine defendants in the California litigation had filed bankruptcy, the California court might order it to trial as to the two remaining defendants and thus cause what it claimed would be irreparable harm.
At the initial, emergency hearing on the motions for relief from stay, the trustees, Mr. Richardson, Mr. Prillaman, and Ms. Reinbold, all appeared in opposition to the motions, claiming that they had not had time to fully review and determine the extent of the assets in each of the bankruptcy cases. They argued that it would be prejudicial to them to allow substantial litigation in which their rights might be affected to proceed so early in the cases. Attorney Cox appeared and objected on behalf of all the debtors and claimed, as it related to the individual Debtors, that they should not be required to defend the California litigation until the issue of their discharges and any exceptions to such discharges were resolved by this Court. After hearing the arguments of all counsel, this Court denied Interinsurance Exchange‘s request for emergency relief. The denial was without prejudice and, by written orders, the stay in each case was continued in full force and effect pending further hearing.
Prior to the hearing and in accordance with this Court‘s pretrial order, the parties docketed their exhibits. Interinsurance Exchange docketed 59 exhibits, largely consisting of multiple pages of filings from the California litigation.10 The individual Debtors docketed 13 exhibits, likewise largely consisting of documents from the California case; the same 13 exhibits were docketed in each case.11 Interinsurance also docketed a stipulation by the parties that non-certified copies of documents from the California litigation were authentic and admissible for all uses and purposes that certified copies might be used. Each party also filed a request for the Court to take judicial notice of their docketed exhibits. Interinsurance Exchange asked for judicial notice of 56 of its 59 filings; the individual Debtors asked for judicial notice as to all their exhibits.
The hearing commenced with a discussion of the requests for judicial notice. The Court said that, because the parties were in apparent agreement on the issue and because of the nature of the documents for which judicial notice was sought, the Court was inclined to grant the requests. The Court pointed out, however, that judicial notice might be an ineffective method of proof without some testimony about each particular exhibit. Although the Court
Interinsurance Exchange called Tammy Cook as its first witness. Ms. Cook said that she lives in LeRoy, Illinois, which is about a 20-minute drive to her attorney‘s office and about a 90-minute drive to the courthouse in Springfield. She acknowledged that she is a defendant in the California litigation. Ms. Cook was shown Exhibit BE and identified it as Acclaim‘s response to a request to admit facts filed in the California litigation. She acknowledged her signature on the verification page of the response that she had signed as a representative of Acclaim and agreed that she understood that she was admitting facts when she signed the response.
Francis Rathbun was the next witness called by Interinsurance Exchange. He said that he resides in Fairbury, Illinois, an hour and 45-minute drive from Springfield and a 45-minute drive from his attorney‘s office. He said that his deposition was taken in California on one occasion; the deposition was videotaped and lasted about seven hours. He said that he is familiar with and had used Zoom.
Interinsurance Exchange next called Dean Kohn as a witness. Mr. Kohn said that he lives in Bloomington, Illinois; from his home, it is a 10-minute drive to his attorney‘s office and a 60-minute drive to Springfield. He said that
Frank Lunn was the next witness called by Interinsurance Exchange. Mr. Lunn said that he now lives in Gilbert, Arizona, and had flown from Arizona to Peoria, Illinois, the day before to appear at the hearing. He said that his deposition was taken in the California litigation; the deposition was videotaped and lasted about seven hours. He said that he was a member/manager of Acclaim but denied that he was chairman of Acclaim‘s board of directors. With respect to Kahuna Business Group, Inc., Mr. Lunn said that he was president and CEO and was responsible for the day-to-day affairs of the business. With respect to Kahuna Business Holdings, LLC, he said that he was a manager but denied being responsible for the day-to-day affairs of the business.
The last witness called by Interinsurance Exchange was its own employee, Courtney Young. Mr. Young appeared by Zoom from Costa Mesa, California. He confirmed that he was having no technical difficulties with his appearance. Mr. Young said that, as an employee of Interinsurance Exchange, he was familiar with the California litigation. His deposition was taken twice in the case, and each deposition lasted a full day. He said that one deposition was in person in Los Angeles and the other was taken by Zoom. He also said that other Interinsurance Exchange employees, including Tammy Wittal, Heather Billotti, and Lester Tung, had their depositions taken in connection with the California litigation. Although he did not attend all of their depositions, he was involved in some of the preparations for the depositions. Under cross-
At the conclusion of Mr. Young‘s testimony, Interinsurance Exchange rested its case. Interinsurance Exchange‘s Exhibits BE, BF, and BG—which were not subject to the previously granted request for judicial notice—were admitted into evidence.
The Debtors first called Roger Prillaman as a witness. Mr. Prillaman acknowledged that he is the case trustee for all four individual Debtors and that, in each of their cases, assets had been collected. He opined that the litigation involving Interinsurance Exchange should remain in the bankruptcy court and that the stay should not be modified. Mr. Prillaman pointed out that the bankruptcy court has exclusive jurisdiction over dischargeability complaints of the type pending against the Debtors here and that many of the court decisions in favor of granting stay relief to pursue litigation in other forums arose in different contexts than presented here.12 Mr. Prillaman expressed concern that the Debtors might be forced to litigate on an uneven playing field if this Court allowed the California litigation to proceed. He said that the individuals had been largely stripped of their assets and likely had few
On cross-examination, Mr. Prillaman acknowledged that he was appearing by Zoom but demurred when counsel for Interinsurance Exchange suggested that he was likely an expert on Zoom. Mr. Prillaman was aware of the Debtors’ pending counterclaim in the California litigation, as well as their pending motion seeking fees for Attorney White based on an “Anti-SLAPP” statute. Mr. Prillaman said that he had not hired counsel to represent the estates or to pursue any counterclaims or other litigation in California. He said that he had weighed the likely merits of the estates’ potential claims, the fact that Mr. White‘s attorney‘s lien might attach to any recovered proceeds, and the cost of hiring counsel in deciding—thus far—against taking action in California. He said that he was a fiduciary to all creditors in the cases and had a duty to maximize the potential distribution to all. He acknowledged to counsel for Interinsurance Exchange that he was familiar with the concept of collateral estoppel but declined to agree that the facts in the California case were the same as those necessary to prove up the dischargeability complaints. He further declined to speculate as to any preclusive effect that a California jury verdict might have on the matters pending here.
Jeana Reinbold was called next by the Debtors. Ms. Reinbold said that she is the trustee in the Kahuna Business Group case and that her preference
Under cross-examination, Trustee Reinbold admitted that she had not hired counsel and was not pursuing any matters in the California litigation. She said, however, that she had approached local counsel for Interinsurance Exchange about estimating its claim for purposes of distribution and had been told, “No.” She believed that, based on the anticipated costs of litigation, the bankruptcy court remains the most convenient forum.
Tammy Cook next testified on her own behalf. She said that she objected to the granting of stay relief and confirmed that she had no insurance to cover her costs of defense or any judgment that might be entered against her in California. She stated that she had been represented by Johnny White and Christopher Cox in the California case. It was her understanding that Mr. White would be withdrawing due to nonpayment. She said that she did not have the resources to hire new California counsel to defend her at trial. Under cross-examination, Ms. Cook agreed that she was paying Mr. Cox to defend her in the bankruptcy court.
Francis Rathbun was also called to testify again. Like Ms. Cook and Mr. Kohn, Mr. Rathbun said that he was represented in the California litigation by Johnny White and Christopher Cox, but he expected Mr. White to withdraw due to nonpayment of fees. Mr. Rathbun was not aware of any other attorneys who might represent him, and he said he did not have resources to hire another attorney. He also said that he was without insurance to cover the cost of defense or to pay any judgment entered against him. Under cross-examination, Mr. Rathbun said that he was employed and earning a salary. He also agreed that his California co-defendant, Mr. May, was represented by counsel but said he was not certain of the attorney‘s identity.
Frank Lunn testified next. He said that, like the others, he was represented in the California litigation by Mr. White and Mr. Cox but assumed that Mr. White would be withdrawing. Mr. Lunn said that he did not have insurance that would cover his defense or pay any judgment entered against him. He was not aware of any attorney who might represent him in California and had no resources to mount a defense. Under cross-examination, he agreed
The last witness the Debtors intended to call was Johnny White who was scheduled to appear by Zoom. Because the hearing had progressed more quickly than anticipated, Mr. White was not immediately available when the Debtors were ready to call him. After conferring, counsel for the Debtors and Interinsurance Exchange stipulated that, if called, Mr. White would testify (1) that he and his firm intended to withdraw from representing the Debtors in California; (2) that no motion to withdraw had yet been filed; (3) that no order allowing any withdrawal had yet been granted; (4) that Attorney Cox was admitted in California pro hac vice but, under the terms of such admission, would need local counsel to appear with him in order to continue representing the Debtors; and (5) that Aryeh Kaufman, the attorney representing co-defendant Kevin May in the California litigation, would conceivably be available to serve as local counsel with Mr. Cox. With the stipulation, the Debtors rested. Interinsurance Exchange offered no rebuttal testimony.
II. Jurisdiction
This Court has jurisdiction over the issues before it pursuant to
III. Legal Analysis
Interinsurance Exchange seeks relief from the automatic stay to pursue the California litigation on the basis that there is “cause” for such relief.
Generally, when considering a creditor‘s motion for relief from stay, a debtor or other party opposing the relief has the burden of proof on all issues other than equity in property.
After considering the evidence presented, the arguments of counsel, and the brief submitted by Interinsurance Exchange, this Court has determined that two legal issues control the decision here. Those issues are that this Court has exclusive jurisdiction to determine whether the debts alleged to be owed by the Debtors to Interinsurance Exchange will be excepted from their discharges and that Interinsurance Exchange has no right to a jury trial on the issue of dischargeability. Considering these two issues in light of the Fernstrom factors and the other factors cited in Grogg, the motions for stay relief must be denied.
A. This Court Has Exclusive Jurisdiction Over Issues of Dischargeability.
Each of the individual Debtors has received a discharge, and no determination has yet been made whether the debts alleged to be owed to Interinsurance Exchange will be excepted from those discharges. Some courts
The allegations made in support of excepting the alleged debts from the Debtors’ discharges are based on claims of fraud, embezzlement, larceny, breach of fiduciary duty, and willful and malicious injury to property under
As the Prate court points out, the exclusive and full jurisdiction of this Court to hear the entirety of the dispute between the parties compels a finding in favor of the Debtors on the first two Fernstrom factors. There would be great prejudice to the Debtors in granting stay relief as they would be compelled to try a complex multicount case in California notwithstanding the fact that some or all of the obligations sought to be enforced in that case have been discharged. And that hardship most certainly outweighs any hardship to Interinsurance Exchange. It can get a full and fair hearing here or, if it prefers, it can withdraw its request for a money judgment from its complaints to determine dischargeability and reserve the damages issues for trial later and elsewhere if it prevails on the dischargeability issues. The choice of trying damages separately from liability is up to Interinsurance Exchange. But it cannot establish cause for stay relief by making the affirmative choice to try its case in two different forums and then claiming that it is being disadvantaged and prejudiced by its own choice.
To the contrary, proceeding with the state court trial first could lead to lengthy reviews of the California record and contentious disputes about how the jury was instructed and what was actually litigated and decided. When asked about the issue at the hearing, counsel for Interinsurance Exchange suggested that he might move to amend the California complaint to bring it more in line with the dischargeability causes of action. But that response undercuts the argument that the California case is ready for trial. It also raises questions about the preclusive effect of a California judgment on amended claims that the Debtors—presumably, as counsel foresees—never appear and defend against. Of course, amending the state court complaint is only a suggestion of what might be done. Whether the California court would allow such amendments and whether any such amendments would be helpful in the ultimate resolution of the pending dischargeability issues is a matter of pure speculation. None of counsel‘s arguments overcome what appears to be the common-sense approach to resolving the parties’ disputes; we must first figure out which, if any, causes of action survive the bankruptcies and are excepted from the discharges previously granted to the Debtors before moving on to determining damages.
The exclusive jurisdiction of this Court to determine the dischargeability of the debts alleged to be owed by the Debtors to Interinsurance Exchange compels denial of the motions for relief from stay. All the Fernstrom factors and several of the Grogg factors—such as judicial economy and the relationship of the matter to the bankruptcy case—weigh strongly in favor of denying the motions. None of the factors support granting the motions.
B. Interinsurance Exchange Does Not Have a Right to a Jury Trial on its Complaints to Determine Dischargeability.
Interinsurance Exchange included demands for a jury trial with each of its complaints to determine dischargeability. It is not entitled to a jury trial, however, because a dischargeability proceeding is the “type of equitable claim for which a party cannot obtain a jury trial.” Hallahan, 936 F.2d at 1505; Pausch v. DiPiero (In re DiPiero), 553 B.R. 122, 132 (Bankr. N.D. Ill. 2016).
Interinsurance Exchange suggests that it should be allowed to go to California and have a jury decide the underlying liability issues involving the Debtors’ conduct with the expectation of obtaining specific findings of wrongdoing by the Debtors that would then be used as collateral estoppel in the dischargeability proceedings here. But the posture of the proceedings here simply does not support that course of action. This Court does not need guidance from a jury—to which the creditor is not entitled—to assist it in evaluating the evidence. And as set forth above, this Court has little confidence that a jury, hearing evidence under California law, would be instructed on the nuances of each cause of action pending here such that its findings could bind this Court. Interinsurance Exchange really wants a jury trial and feels cheated that its plan for such a trial was derailed by the bankruptcy filings. But it makes no persuasive argument that it is entitled to have the jury trial go forward before this Court determines which, if any, of its causes of action survive discharge. Its repeated complaints that the bankruptcy filings were somehow unfair are understandable but do not support granting relief from stay.
In arguing for a jury trial, Interinsurance Exchange also raises several logistical arguments. Counsel suggests this Court‘s courtroom is too small and
Finally, Interinsurance Exchange suggests that if it is not granted relief from stay, it would seek to withdraw the reference of the pending matters. All cases under Title 11 and related proceedings are referred by the district courts to the bankruptcy courts.
When the issue of withdrawal of the reference was raised by Interinsurance Exchange‘s counsel, this Court understood the argument to be that, by moving to the District Court, his client could obtain a jury trial on all the issues it would be entitled to a jury on in state court. But, as this Court pointed out, withdrawal of the reference would not bring the California litigation before the District Court. It would only bring the complaints to determine dischargeability before the District Court. And the Seventh Circuit case law holding that a determination of nondischargeability is an equitable action for which there is no entitlement to a jury trial would apply in District Court just as it does in this Court. Further, charged with deciding without a jury whether certain debts were excepted from the Debtors’ discharges, the District Court would likely not empanel a jury to decide damages on all possible theories of indebtedness before deciding the threshold issues of the dischargeability of the alleged debt under each theory. Obviously, it would be up to the District Court to decide how to proceed, but it would make little sense to spend the limited resources of the District Court to have a jury consider issues of punitive and exemplary damages with respect to debts that will not be excepted from discharge.
The lack of entitlement to a jury trial combined with the exclusive jurisdiction of this Court to hear the dischargeability complaints weighs heavily in favor of denying the motions for relief from stay. Sending the parties to
C. The Other Issues Raised by Interinsurance Exchange Do Not Support Relief from Stay.
At the hearing on the motions for stay relief, Interinsurance Exchange concentrated its proofs and arguments on the fact that the California litigation is ready for trial and on its assertions that case law requires this Court to ignore the expense to the Debtors of litigating in California. Neither factor controls here, but both issues merit brief discussion.
i. The Readiness of the California Litigation for Trial Does Not Compel Stay Relief.
It is not disputed that the California litigation was set for jury trial when the bankruptcies were filed. And it also does not appear to be disputed that discovery was complete in California. The bankruptcies, however, stayed the pending trial and raised new issues. Interinsurance Exchange says it should be allowed to try the case it is ready to try and to see where that leads as far as
Interinsurance Exchange believes that the issues in California are very similar to the issues raised in the dischargeability complaints. That is not wholly wrong, but it overlooks the nuances of the provisions of
Equally important, this Court questions the credibility of the representation that, although discovery is complete in California, significantly more needs to be done here. Interinsurance Exchange cannot have it both ways. If, as it claims, the causes of action are so similar that all that will be needed after a California jury trial is a simple, quick motion for summary judgment in the dischargeability proceedings here, then it must have all it needs to prove up the alleged wrongdoing of the Debtors. If it does not have the evidence to prove up its claims for nondischargeability, then sending the case to California for a jury trial likely will not be helpful in resolving the issues here. Everything that happened to form the factual basis for the complaints in California and here happened in 2017 or before. Interinsurance Exchange put
Related to being ready to go to trial in California, counsel for Interinsurance Exchange raised two evidentiary issues and said that his client would be prejudiced as to both if required to try the dischargeability issues here first. He argued that Tammy Cook‘s signed responses to requests to admit facts for herself and for Acclaim in the California litigation would not carry the same weight here. He said that she could deny the admissions here that would be admissible in the California case without her testimony. That may well be true, but he asked Tammy Cook at the hearing in this matter whether she had signed the responses and understood that she was making admissions when she did so. She said, as to both responses, that she signed them and understood what she was doing. To suggest that she, under oath at trial on the dischargeability complaint, would deny the genuineness of her signature or claim to have been confused about what she was doing is pure speculation wholly unsupported by the facts presented by Interinsurance Exchange itself.
In making its arguments, Interinsurance Exchange relies on several cases which do hold that stay relief should be granted or at least seriously considered when litigation in another forum is at an advanced stage. The cases do not, however, support the granting of stay relief here. Interinsurance
Interinsurance Exchange also relies heavily on and quotes from In re Parkinson, 102 B.R. 141 (Bankr. C.D. Ill. 1988) (Altenberger, J.). The creditor in Parkinson was granted stay relief to proceed with litigation in state court subject to returning to the bankruptcy court for a determination of dischargeability on any judgment obtained against the debtor in state court. Id. at 143. The context of Parkinson seems somewhat similar to what is before this Court, and the Parkinson court did specifically rely on the fact that the state court litigation had been pending for a long time in granting stay relief. Id. at
ii. The Expense of Proceeding in California is Not a Controlling Factor in Denying Stay Relief.
Interinsurance Exchange has repeatedly argued that the expenses of litigation should not be considered in deciding whether to grant it relief from stay. It quotes, at length, In re Quay Corp., 2006 WL 208704, at *3 (N.D. Ill. Jan. 24, 2006), for the proposition that the costs of litigation are not a factor in deciding stay relief. But the issue before the court in Quay was whether a stay pending appeal should be granted and not the underlying substantive issue of whether the bankruptcy court erred in granting stay relief for the entry of judgment in a case that had been substantially tried before the bankruptcy filing. Id. at *1. Quay analyzes the factors in granting a stay pending appeal rather than factors involved in determining whether to grant relief from the automatic stay in the first place. As with the other issues discussed above, Interinsurance Exchange relies on a case for language that sounds good, all the while ignoring the context in which the case arose and was decided.
The Court heard little evidence about the expenses of going forward with the litigation in California versus here. This Court‘s anecdotal experience suggests that the litigation has been and will continue to be expensive on both sides. Multiple complex issues need to be resolved, and it is hard to imagine a cheap or easy way to effectuate a resolution of all such issues. Three of the Debtors live in central Illinois, suggesting that it would be personally less expensive for each of them to try the dischargeability actions here rather than to pay for and attend a trial in California. But based on the posture of the cases and the positions taken by Interinsurance Exchange, it looks like there will ultimately be trials in both places. The issue then remains a matter of which case should go first rather than how much it will all cost.
Nothing in Interinsurance Exchange‘s presentation supports a finding that there will be monetary savings for anyone involved by trying the California case first. This Court remains convinced that trying the dischargeability cases first will narrow or at least more precisely define the scope of claims against the Debtors that will survive the bankruptcies. That, in turn, should narrow the issues involved in calculating damages. Judicial economy is well served by this Court‘s decision.
Interinsurance Exchange is anxious to get back to California and to have the jury trial to which it believes it is entitled on all its claims against the Debtors. It asserts that it has been wronged by the bankruptcy filings and should be allowed to have the day in California court previously scheduled notwithstanding the filings here. Interinsurance Exchange is not the first and it will not be the last creditor to appear before this Court and make such a plea. The plea is insufficient, however, to overcome the strong reasons for denying stay relief and for trying the dischargeability cases before assessing any potential damage claims.
The Debtors have received discharges, and whether the alleged debts to Interinsurance Exchange will be excepted from those discharges must be determined. The California litigation raises many of the same issues as the dischargeability complaints, but Interinsurance Exchange presented no proof or compelling argument that a trial on issues pleaded differently and controlled by different law would result in meaningful findings that would shorten a subsequent process here. When asked about the issue, counsel for Interinsurance Exchange said he might amend the California complaint, but it was obvious he had given little thought to the matter. This Court has no confidence that the California case—if allowed to go first—would yield meaningful findings that would assist in determining the dischargeability of any judgment rendered.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to
See written Order.
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