Holmon v. The Village of Alorton

2016 IL App (5th) 150404, 66 N.E.3d 841

• Court: Appellate Court of Illinois
• Decided: October 19, 2016
• Docket: 5-15-0404
• Status: Unpublished

Opinion

NOTICE 2016 IL App (5th) 150404 Decision filed 10/19/16. The text of this decision may be NO. 5-15-0404 changed or corrected prior to the filing of a Peti ion for Rehearing or the disposition of IN THE the same.

APPELLATE COURT OF ILLINOIS

FIFTH DISTRICT ________________________________________________________________________

LARKIN HOLMON, Independent Administrator ) Appeal from the of the Estate of Taymond Freeman, Deceased, ) Circuit Court of ) St. Clair County. Plaintiff-Appellant, ) ) v. ) No. 14-L-136 ) THE VILLAGE OF ALORTON, ) Honorable ) Randall W. Kelley, Defendant-Appellee. ) Judge, presiding. ________________________________________________________________________

PRESIDING JUSTICE SCHWARM delivered the judgment of the court, with opinion. Justices Cates and Moore concurred in the judgment and opinion.

OPINION

¶1 Larkin Holmon, administrator of the estate of Taymond Freeman, appeals from the

circuit court's order denying Holmon's motion for partial summary judgment and granting

a motion for judgment on the pleadings filed by the Village of Alorton, the appellee. The

appellant seeks to rescind an agreed-upon bankruptcy plan under which the appellee was

to make payments to Freeman's estate. We affirm the circuit court's decision denying the

appellant's motion for partial summary judgment and granting the appellee's motion for

judgment on the pleadings as it relates solely to the issue of rescission. We remand for

1 further proceedings allowing the appellant to enforce the bankruptcy plan payment

provisions.

¶2 BACKGROUND

¶3 On May 31, 1999, Taymond Freeman was shot by Thomas McGowan, a police

officer employed by the appellee. On March 7, 2005, a bench trial was held, in which

Freeman brought, against McGowan, claims of battery and claims relating to violations

of his right to be free from unreasonable search and seizure and his right to be afforded

due process of law. On March 23, 2005, a judgment was entered in favor of Freeman and

against McGowan in the amount of $978,874.40 plus costs of $1821.18. In its judgment,

the circuit court held that McGowan's conduct was not willful, therefore making the

appellee liable to reimburse McGowan for the damages awarded.

¶4 On January 6, 2005, the appellee filed a chapter 9 bankruptcy proceeding (11

U.S.C. § 901 et seq. (2000)) in the United States Bankruptcy Court for the Southern

District of Illinois. Freeman was the appellee's largest creditor. Due to the size of his

claim, if Freeman did not vote to approve the appellee's chapter 9 plan of adjustment in

bankruptcy, the plan would not be approved. Freeman agreed to the appellee's amended

plan of adjustment, which established a new class of creditors, "Class 7," consisting

solely of Freeman. Under this amended plan, Freeman was to receive a total of

$600,000, payable in monthly installments of $2500 over 20 years, with the first payment

due on the sixty-first month following the confirmation of the appellee's bankruptcy plan.

¶5 Section 5.06 of the amended plan of adjustment, which addressed payment of

Freeman's claim, provided as follows: 2 "5.06 Class 7: The creditor in this class consists of the claim for an

outstanding judgment against the Debtor in favor of Taymond Freeman. The

creditor will receive $600,000.00 of his entire claim, to be paid in monthly

installments of $2,500 for a period of twenty (20) years, first payment to be made

on the 61st month (5 years) following the date of confirmation of the Plan, then

$2,500 each month thereafter for the remaining twenty (20) years."

¶6 Another pertinent part of the amended plan of adjustment, section 7.01, dealing

with the effect of the plan on confirmation, provided as follows:

"The distributions and rights afforded in this Plan shall be in complete satisfaction,

discharge and release, effective on the Confirmation Date (hereinafter 'Discharge

Date'), of all Claims against and Interests in the Debtor or any of the assets or

properties of the Debtor of any nature whatsoever. Commencing on the Discharge

Date, all Claimholders and Interestholders shall be precluded forever from

asserting against the Debtor, or the reorganized Debtor, or the respective assets

and properties, any other or further liabilities, liens, obligations, causes of action,

claims or equity interests, including but not limited to all principal and accrued

and unpaid interest on the debts of the Debtor based upon any act or omission,

transaction or other activity or security instrument or other agreement of any kind

or nature occurring, arising or existing prior to the Discharge Date, that was or

could have been the subject of any Claim or Interest, whether or not Allowed,

except with respect to classes of claims unimpaired pursuant to this Plan, said

classes of claims and claimholders therein having been fully satisfied. As of the 3 Discharge Date, the Debtor shall be discharged and released from, and the Debtor

shall hold all assets and properties received or retained by it pursuant to this Plan

free of all liabilities, liens, claims and obligations or other claims of any nature,

including but not limited to equity interests, known or unknown, except classes of

claims unimpaired pursuant to this Plan, and any liens, liabilities, obligations or

other claims expressly authorized under this Plan or created by or preserved under

this Plan or arising after the Discharge Date. All legal or other proceedings and

actions seeking to establish or enforce liabilities, liens, claims, equity interests or

obligations of any nature as against the Debtor or assets or properties received or

retained by the Debtor with respect to debts and obligations, if any, arising before

the Discharge Date shall be permanently stayed and enjoined, except as otherwise

specifically provided in this Plan."

¶7 On December 11, 2006, the amended plan of adjustment was confirmed, and on

April 4, 2007, the bankruptcy court filed an order closing the bankruptcy case.

¶8 Subsequent to the confirmation of the amended plan of adjustment and prior to

any payments being made under the plan, a judgment in the amount of $346,000 was

entered against Freeman in favor of Stacy Goodlow in Goodlow v. Freeman, No. 06-L-

531 (Cir. Ct. St. Clair Co.). On January 14, 2009, the circuit court entered an order in

this case, which redirected a portion of the bankruptcy plan payments to Stacy Goodlow

in satisfaction of her judgment against Freeman. Under this order, the appellee would

pay $400,000 of the $600,000 to Goodlow and a maximum of $200,000 of the $600,000

to Freeman. Accordingly, two-thirds of the monthly plan payments would go to 4 Goodlow and one-third to Freeman. On March 12, 2009, Freeman was murdered. On

May 14, 2012, an estate was opened in the circuit court of St. Clair County, and on June

18, 2012, Larkin Holmon, Freeman's father, was appointed independent administrator of

the estate of Taymond Freeman.

¶9 On January 11, 2012, the appellee was due to pay the first payment under the

bankruptcy plan. Appellee made some, but not all, plan payments, and as of February 14,

2015, the appellee had paid the appellant $20,000. The appellant argues that, as of

February 14, 2015, the appellee should have paid $95,000 to the appellant. The appellee

does not dispute that it owes Freeman $200,000, less payments made under the

bankruptcy plan, nor does it dispute that it is behind on its payments.

¶ 10 Sometime after Freeman's death, the appellant filed a motion in the United States

Bankruptcy Court for the Southern District of Illinois seeking to reopen the bankruptcy

case. On July 31, 2013, the motion to reopen was denied by the bankruptcy court. An

appeal of the bankruptcy court order denying the reopening of the bankruptcy case was

taken to the United States District Court for the Southern District of Illinois, which

affirmed this denial on October 30, 2013. See Holman v. Village of Alorton, No. 13-CV-

925-JPG (S.D. Ill. Oct. 30, 2013). According to the district court's order, the appellant

argued that the federal courts should have found the state courts lacked jurisdiction to

redirect payments to Goodlow. In affirming the denial, the district court noted that, under

the plan, a "contract" arose between the appellee and Freeman that was enforceable in

state court. Further, the district court noted that Illinois state law allows the state courts

5 to order the appellee to direct payments to Goodlow in satisfaction of Goodlow's

judgment against Freeman.

¶ 11 On January 31, 2014, the appellant filed suit against the appellee for breach of

contract, resulting in these proceedings. The appellant's complaint seeks to hold the

payment agreement arising from the bankruptcy plan null and void and to reinstate the

March 23, 2005, judgment in the amount of $978,874.40 plus costs. On March 18, 2015,

the appellant filed a motion for partial summary judgment with the circuit court of St.

Clair County. In the motion, the appellant requested a finding that "the [appellee] is in

breach of its contract with Taymond Freeman entered into in the bankruptcy of the

[appellee] and that the contract is to be held null and void." The appellant further sought

(1) to hold the judgment entered on March 23, 2005, in the amount of $978,874.40 plus

costs to be in full effect, (2) costs of the current action, (3) postjudgment interest awarded

at 9% since March 23, 2005, and (4) to set a hearing for the award of attorney fees in the

originating case. The appellant stated that the appellee should be given credit for the

payments of $20,000 made to the appellant.

¶ 12 On April 30, 2015, the appellee filed a motion for judgment on the pleadings,

arguing that Freeman had accepted the bankruptcy plan, that the appellant was Freeman's

successor in interest and therefore bound by the bankruptcy plan, and that therefore the

appellant may only recover the money due under the bankruptcy plan. On September 1,

2015, the circuit court entered an order denying the appellant's motion for partial

summary judgment and granting the appellee's motion for judgment on the pleadings. In

its order, the circuit court found that the appellee had "not complied with the Chapter 9 6 Plan and, in fact, owe[d] a total of $600,000," with $400,000 less payments made owed

to Goodlow and $200,000 less payments made owed to the appellant; that "[t]here is no

dispute of material fact as to the amount owed under the Chapter 9 Plan"; and that "[the

appellant] admits that [the appellee] has paid $20,000 toward the Plan." The circuit court

noted that the appellant's "relief is to enforce its contract against the [appellee]," that

rescission of the "contract" as requested by appellant is impossible because the March 23,

2005, judgment was discharged once the bankruptcy plan was entered, and that the circuit

court lacked the authority to vacate the bankruptcy. The circuit court therefore

"decline[d] to exercise its discretion to grant rescission of the contract" and held that

appellee's "Motion for Judgment on the Pleadings as it relates to the issue of rescission is

GRANTED" (emphasis added). On September 28, 2015, the appellant filed notice of

appeal.

¶ 13 ANALYSIS

¶ 14 The appellant challenges the circuit court's denial of his motion for partial

summary judgment. The appellant also challenges the circuit court's grant of the

appellee's motion for judgment on the pleadings based on the appellee's purely legal

challenge to the appellant's complaint. Both motions for partial summary judgment and

motions for judgment on the pleadings on purely legal challenges are reviewed de novo.

See Sinclair Oil Corp. v. Allianz Underwriters Insurance Co., 2015 IL App (5th) 140069,

¶ 34; Warren County Soil & Water Conservation District v. Walters, 2015 IL 117783,

¶¶ 45-47.

7 ¶ 15 "A confirmed plan of reorganization is in effect a contract between the parties and

the terms of the plan describe their rights and obligations." Ernst & Young LLP v. Baker

O'Neal Holdings, Inc., 304 F.3d 753, 755 (7th Cir. 2002). Both parties agree, as does this

court, that a new "contract" was formed between the two parties under the bankruptcy

plan. Section 5.06 of the bankruptcy plan sets forth the terms of the "contract." Freeman

was to receive $600,000 of his entire claim of $978,874.40 plus costs payable in monthly

installments of $2500 over 20 years. Per the later agreed state court order with Freeman's

judgment creditor Goodlow, Goodlow would be paid $400,000 by two-thirds of each

monthly installment, and the appellant would be paid $200,000 by one-third of each

monthly installment.

¶ 16 The appellant seeks to rescind the "contract" between himself and the appellee

created by the bankruptcy plan. The appellant argues that due to the appellee's admitted

nonperformance of its obligations, this "contract" should be rescinded and the

prebankruptcy plan confirmation judgment amount restored. " '[R]escission means the

cancelling of a contract so as to restore the parties to their initial status.' " Horwitz v.

Sonnenschein Nath & Rosenthal LLP, 399 Ill. App. 3d 965, 973 (2010) (quoting Puskar

v. Hughes, 179 Ill. App. 3d 522, 528 (1989)). A party seeking rescission must be able to

" 'restore the other party to the status quo existing at the time the contract was made.' "

Id. at 974 (quoting Puskar, 179 Ill. App. 3d at 528).

¶ 17 Section 7.01 of the bankruptcy plan further delineated the terms of the "contract"

by providing the effect of confirmation of the plan. Section 7.01 of the plan provided that

"[t]he distributions and rights afforded in this Plan shall be in complete satisfaction, 8 discharge and release *** of all Claims against and Interests in the Debtor" that were not

explicitly preserved under the bankruptcy plan. Section 7.01 further provided that as of

the confirmation of the plan, the debtor shall be discharged and released from all claims

except claims created or preserved under the plan.

¶ 18 A bankruptcy plan "operates as an absolute settlement, and the failure to pay

unpaid obligations created by the plan will not revive the old debts." In re Curry, 99 B.R.

409, 411 (Bankr. C.D. Ill. 1989). "There is nothing in the [Bankruptcy] Act to suggest

that the debtor's failure to achieve promises made in a confirmed plan reinstates an

original obligation." Id. The appellant argues that Curry concerns only chapter 11

bankruptcies and that the provisions referenced are not applicable to chapter 9

bankruptcies. However, "confirmation [of a chapter 9 plan] effectively discharges the

debtor from all debts except those 'owed to an entity that, before confirmation of the plan,

had neither notice nor actual knowledge of the case.' " Nebraska Security Bank v.

Sanitary & Improvement District No. 7, 119 B.R. 193, 195 (Bankr. D. Neb. 1990)

(quoting 11 U.S.C. § 944(c)(2) (1988)). Pursuant to section 7.01 of the plan and

operation of chapter 9 of the bankruptcy code, on confirmation of the plan of adjustment

the indebtedness of the appellee to Freeman or his successors in interest in excess of

$600,000 was discharged.

¶ 19 Appellant has cited no authority, and we have found no authority, permitting the

state courts to rescind a "contract" made in a bankruptcy reorganization plan confirmed

by the bankruptcy court. "[I]t is well established that sole jurisdiction in bankruptcy is

lodged in the national government and that power is paramount and supersedes all 9 inconsistent state laws." General Iron Industries, Inc. v. A. Finkl & Sons Co., 292 Ill.

App. 3d 439, 444 (1997). The appellant is asking us to rescind part of a bankruptcy plan,

which is solely under the jurisdiction of the federal courts. Instead, as the United States

District Court noted in denying the appellant's appeal of the bankruptcy court order

denying the motion to reopen the bankruptcy case, the appellant's remedy is to enforce

the "contract" in the state courts. See Holman v. Village of Alorton, No. 13-CV-925-JPG

(S.D. Ill. Oct. 30, 2013). Therefore, enforcement of the terms of the "contract" and not

rescission is the appropriate remedy for the appellant. Thus, we hold that the appellant

may seek to enforce in state court the contract made in the confirmed bankruptcy plan,

but he may not seek to rescind the plan. We therefore affirm the judgment of the circuit

court, which denied the appellant's motion for partial summary judgment and granted the

appellee's motion for judgment on the pleadings as it relates solely to the issue of

rescission.

¶ 20 The appellant has expressed concern that, if this court affirms the circuit court, he

would be barred under res judicata from seeking to enforce the "contract." "Under the

doctrine of res judicata, a final judgment on the merits rendered by a court of competent

jurisdiction bars any subsequent actions between the same parties or their privies on the

same cause of action." Piagentini v. Ford Motor Co., 387 Ill. App. 3d 887, 890 (2009).

The appellee does not dispute that it is behind on the payments owed to the appellant

under the "contract." Further, the appellee has stated that it believes the appellant still

may sue for enforcement of the "contract" without being barred by res judicata.

10 ¶ 21 We agree with the appellee. "Except in case of default, the prayer for relief does

not limit the relief obtainable, but where other relief is sought the court shall, by proper

orders, and upon terms that may be just, protect the adverse party against prejudice by

reason of surprise." 735 ILCS 5/2-604 (West 2014). The appellee, by its own admission,

would not be surprised if the appellant were to seek to enforce the "contract," and the

appellant can amend his complaint to seek this remedy. Further, Illinois recognizes the

claim-splitting exceptions to the doctrine of res judicata set forth in section 26(1) of the

Restatement (Second) of Judgments (Restatement (Second) of Judgments § 26(1)

(1982)). Under the Restatement, a second action is not barred by res judicata if " 'the

parties have agreed in terms or in effect that plaintiff may split his claim or the defendant

has acquiesced therein' " or if " 'the case involves a continuing or recurrent wrong.' "

Hudson v. City of Chicago, 228 Ill. 2d 462, 472-73 (2008) (quoting Rein v. David A.

Noyes & Co., 172 Ill. 2d 325, 341 (1996)). The appellee's "express consent to [the

appellant suing for enforcement of the 'contract'] would constitute an agreement" under

the first exception and, therefore, would permit the appellant to enforce the "contract"

without being barred by res judicata. Piagentini, 387 Ill. App. 3d at 896. Further,

because the appellee continues to owe the appellant payments under the "contract," any

further nonpayment would be a continuing or recurrent wrong that would also permit the

appellant to enforce the "contract" without being barred by res judicata. Therefore, while

we affirm the judgment of the circuit court, which denied the appellant's motion for

partial summary judgment and granted the appellee's motion for judgment on the

pleadings as it relates solely to the issue of rescission, we find that the appellant is not 11 barred by res judicata from bringing further action to enforce the "contract" in the

chapter 9 confirmed plan of adjustment and therefore remand for further proceedings.

¶ 22 CONCLUSION

¶ 23 For the reasons stated, we affirm the judgment of the circuit court of St. Clair

County and remand for further proceedings.

¶ 24 Affirmed and remanded.

12 2016 IL App (5th) 150404

NO. 5-15-0404

IN THE

FIFTH DISTRICT ______________________________________________________________________________

LARKIN HOLMON, Independent Administrator ) Appeal from the of the Estate of Taymond Freeman, Deceased, ) Circuit Court of ) St. Clair County. Plaintiff-Appellant, ) ) v. ) No. 14-L-136 ) THE VILLAGE OF ALORTON, ) Honorable ) Randall W. Kelley, Defendant-Appellee. ) Judge, presiding. ______________________________________________________________________________

Opinion Filed: October 19, 2016 ______________________________________________________________________________

Justices: Honorable S. Gene Schwarm, P.J.

Honorable Judy L. Cates, J., and Honorable James R. Moore, Concur ______________________________________________________________________________

Attorney George R. Ripplinger, Ripplinger & Zimmer, LLC, 2215 West Main for Street, Belleville, IL 62226 Appellant ______________________________________________________________________________

Attorneys Charles W. Courtney, Jr., Alana I. Mejias, Jayni A. Desai, Courtney, for Clark & Mejias, P.C., 104 S. Charles Street, Belleville, IL 62220 Appellee ______________________________________________________________________________