All American Laundry Service, Inc. v. First State Bank of Harvard (In re Ascher)

141 B.R. 652, 1992 Bankr. LEXIS 1101
CourtUnited States Bankruptcy Court, N.D. Illinois
DecidedMarch 31, 1992
DocketBankruptcy No. 90 B 10559; Adv. Nos. 90 A 702, 90 A 753
StatusPublished
Cited by1 cases

This text of 141 B.R. 652 (All American Laundry Service, Inc. v. First State Bank of Harvard (In re Ascher)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
All American Laundry Service, Inc. v. First State Bank of Harvard (In re Ascher), 141 B.R. 652, 1992 Bankr. LEXIS 1101 (Ill. 1992).

Opinion

MEMORANDUM OPINION ON SCHAU-WECKER’S MOTION FOR SUMMARY JUDGMENT AGAINST TRUSTEE’S CONDITIONAL COUNTERCLAIM

JACK B. SCHMETTERER, Bankruptcy Judge.

INTRODUCTION

The subject Adversary case Nos. 90 A 702, All American Laundry Service, Inc. et al. v. First State Bank of Harvard et al., and 90 A 753, Schauwecker v. Ascher, have been consolidated for trial. The two Adversary cases relate to the Chapter 7 bankruptcy proceeding of Walter Ascher (“Ascher”). Plaintiffs in each case are su[654]*654ing for control of a commercial laundry business originally purchased from Royal Laundry Systems (“Royal”). Dorothy Schauwecker (“Schauwecker”) also seeks to recover $300,000 from Ascher and a declaration that such debt is non-discharge-able under § 523 of the Bankruptcy Code. David Grochocinski is the Chapter 7 trustee for the estate of Ascher (“Trustee”) and is a defendant in these Adversary proceedings. He has adopted the counterclaim filed by Ascher against plaintiffs in the All American case, and thereby seeks damages and an accounting based on the plaintiffs’ alleged seizure of the commercial laundry business. He also filed a conditional counterclaim against Schauwecker seeking damages against her if he prevails in these Adversary proceedings and on his counterclaim against the other plaintiffs. The basis for his conditional counterclaim is that Schauwecker is alleged to be a partner of the other plaintiffs and is therefore jointly and severally liable for their actions.

Schauwecker has moved in case No. 90 A 753 for summary judgment on the Trustee’s conditional counterclaim pursuant to Fed.R.Bankr.P. 7056 (Fed.R.Civ.P. 56). She argues that there is no genuine issue of fact on the issue of whether she and Ascher were co-partners, and contends that co-partners cannot be liable to one another for damages as a matter of law. She also seeks sanctions against the Trustee pursuant to Fed.R.Bankr.P. 9011 (Fed.R.Civ.P. 11) for filing his conditional counterclaim. For reasons discussed below, the conditional counterclaim against Schauwecker is stricken with leave to the Trustee to amend, and her motion for Rule 11 sanctions is denied. Schauwecker’s motion for summary judgment is being held in abeyance. If the Trustee does not seek to amend his complaint to seek a partnership accounting against her, summary judgment will be granted on her motion.

THE PLEADINGS

Plaintiffs seek accountings from Ascher (now against Trustee) for their benefit. The Trustee seeks an accounting from the All American plaintiffs. Further, this litigation will decide who owns and controls the ongoing commercial laundry business acquired from Royal through an asset purchase agreement (the “Agreement”) dated August 28, 1987. Schauwecker’s First Amended Complaint, Exhibit 2. Royal then operated the commercial laundry business at 200 East Frisco. Boulevard in Harvard, Illinois. Assets listed in the Agreement consisted of laundry equipment and related items then owned or leased by Royal. The Agreement transferred all of Royal’s assets to Ascher.

Ascher entered into the Agreement “on behalf of an entity to be formed.” Exhibit 2, at p. 1. In late 1987 or early 1988, Ascher formed All American Laundry Service, Inc. (the “Corporation”), and caused 10,000,000 shares of stock to be issued. The Corporation was formed for the purpose of operating a commercial laundry business. Ascher also formed a partnership called All American Leasing (the “Leasing Partnership”), and all plaintiffs apparently contend that they are partners in this entity. However, the plaintiffs in the two cases do not allege that they are partners with each other.

The purpose and function of the Leasing Partnership are in dispute. Ascher and the plaintiffs in All American allege that the Leasing Partnership was set up for purposes of creating a tax deduction for the partners. The plaintiffs in All American allege that Ascher proposed that the Corporation transfer ownership of the assets to the Leasing Partnership, and then have the Leasing Partnership lease the assets back to the Corporation which would operate the commercial laundry business. Tax deductions would be obtained by having the Leasing Partnership recognize losses based on depreciation of the assets and then passing on those losses on to the partners. The plaintiffs in All American allege that this sale and lease-back transaction never occurred because they questioned the propriety of both taking a tax deduction from the Leasing Partnership and owning stock in the Corporation. Ascher alleges that the transaction never occurred because these plaintiffs wrongfully seized the business [655]*655before the transaction could be consummated.

Schauwecker has a different conception of the partnership. When she demanded an accounting of the Leasing Partnership’s activities, she referred to it as “ALL AMERICAN LEASING d/b/a ALL AMERICAN LAUNDRY, INC.” Schauwecker’s Amended Complaint at ¶ B. Therefore, it appears from her pleadings that Schau-wecker believes the Leasing Partnership owns the Corporation’s shares. The relationship of the Leasing Partnership to the laundry business will be an issue for trial.

Plaintiffs in All American Laundry Service et al. v. First State Bank of Harvard et al. are Michael Brogan, Edward Long, and James Kelly (hereinafter referred to collectively as the “All American plaintiffs”). They collectively owned 10,-247 shares in United Parcel Post of Amer-ica, Inc. (“UPS”) which they pledged to Commercial Bank of Berwyn as collateral for a $668,000 loan.1 They allege that the loan from this bank was used to purchase Royal’s assets, and contend that Ascher represented they would own a commercial laundry business as a result of their pledge of UPS stock to obtain the loan. Therefore, the All American plaintiffs claim to be constructive owners of over 68% of the Corporation’s stock. They say that Ascher owned .003% of the stock and Schauwecker owns the rest. It is apparent from their pleadings and the Trustee’s counterclaim that the All American plaintiffs have taken control of the business, and that an issue at trial will be the legality of that action.

Schauwecker alleges that she endorsed a $300,000 check over to Ascher to be used for “partnership purposes”. Schauwecker’s First Amended Complaint at 1113. Ascher then endorsed that check over to counsel for Royal who deposited it in such counsel’s escrow account. Schauwecker’s Complaint, Ex. 3. She says that this cheek was used as earnest money for the asset purchase under the Agreement. On the basis of these allegations, Schauwecker first seeks a non-dischargeable judgment of $300,000 against Ascher to recover her investment. She also seeks a declaration that the assets obtained in the Agreement are held in constructive trust for the benefit of the Partnership.2 She further demands a full accounting for all activities of the Corporation and the Leasing Partnership from the time when Royal’s assets were acquired until the present.

The Trustee’s response to Schauwecker and the All American plaintiffs is twofold.

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Related

In Re Ascher
146 B.R. 764 (N.D. Illinois, 1992)

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Bluebook (online)
141 B.R. 652, 1992 Bankr. LEXIS 1101, Counsel Stack Legal Research, https://law.counselstack.com/opinion/all-american-laundry-service-inc-v-first-state-bank-of-harvard-in-re-ilnb-1992.