Kelleher v. National Asset Loan Management, Ltd. (In re Shelbourne North Water Street L.P.)

556 B.R. 874
United States Bankruptcy Court, N.D. Illinois·Decided September 6, 2016·No. Case No. 13 B 44315; Adversary No. 15 A 00544·Published

Opinion

MEMORANDUM OPINION

Carol A. Doyle, United States Bankruptcy Judge

Garrett Kelleher filed this adversary proceeding against National Asset Loan [876]*876Management, Ltd. (“NALM”) and Capita Asset Services (Ireland) Limited (“Cap-ita”) alleging that they are barred under provisions in the confirmed chapter 11 plan of Shelbourne North Water Street, L.P. from collecting on a personal loan made to Kelleher. NALM and Capita (collectively the “NALM Parties”) filed a motion to dismiss the' complaint and then a motion for a protective order. Before either motion was decided, Kelleher voluntarily dismissed the complaint without prejudice. The parties have now reached an agreement under which: (1) Kelleher will withdraw his notice of voluntary dismissal, and (2) the parties have asked the court to substitute this Memorandum Opinion dismissing the adversary proceeding for a previous Memorandum Opinion issued by the court. In accordance with the agreement of the parties, the court will vacate its previous opinion and dismiss the complaint for failure to state a claim. The fundamental issue in this ease is whether release and injunction provisions in the Shelbourne plan apply to debts owed by Kelleher, who was not a debtor, to the NALM parties, who were not creditors of Shelbourne. The answer is no: the Shelb-ourne plan did not affect Kelleher’s personal liability to the NALM parties.

I. Background

A. The Loans and Shelbourne Bankruptcy Case

Shelbourne North Water Street, L.P. (“Shelbourne” or “debtor”) was formed to own a parcel of real estate in Chicago and develop a building on it known as the Chicago Spire. Kelleher was the principal of Shelbourne. Shelbourne borrowed approximately $69 million from the Anglo Irish Bank Corporation, Ltd. for the project (the “Shelbourne Loans”). The loan was secured by Shelboume’s Chicago Spire property and was personally guaranteed by Kelleher. Kelleher also personally borrowed another $6.1 million for the project that was secured by interests he held in another limited liability corporation (Milltown, LLC) and other personal assets (the “Kelleher Loan”). Shelbourne was not a party to the Kelleher Loan transaction in any way: it did not sign the note, it did not guarantee the loan, and none of its assets were used as collateral. Kelleher used the Kelleher Loan proceeds, however, to pay expenses related to Shelbourne.

In June 2010, a mechanics lien creditor of Shelbourne filed a foreclosure action in the Circuit Court of Cook County. In October 2010, Anglo Irish Bank filed a counterclaim in the foreclosure case to collect on the Shelbourne Loans. In 2011, Anglo Irish Bank was merged into the Irish Bank Resolution Corporation (“IBRC”). The IBRC assigned the Shelbourne Loans and the Kelleher Loan to NALM, which had been formed to acquire, hold, and manage loan assets. NALM then substituted into the foreclosure case for Anglo Irish Bank. In June 2013, NALM transferred the Shelbourne Loans and Kelleher’s guaranty of those loans to RMW Acquisition Company, but it retained the Kelleher Loan. RMW intervened in the foreclosure case.

In October 2013, RMW and other creditors of Shelbourne filed an involuntary petition under chapter 11 against Shelbourne in the bankruptcy court for the District of Delaware. In November 2013, the case was transferred to the bankruptcy court in this district. RMW was the principal secured creditor in the Shelbourne bankruptcy case. NALM was not a creditor in that case because it transferred the Shelbourne Loans to RMW and retained only the [877]*877Kelleher Loan, on which the debtor had no liability. In October 2014, the court confirmed a second amended joint chapter 11 plan of reorganization proposed by the debtor and RMW, which implemented a settlement agreement entered into by the debtor, RMW, Kelleher, and others (but not NALM). The plan contains release and injunction provisions that are at the center of this case.

B. The Adversary Proceeding

In July 2015, Kelleher filed this adversary proceeding against the NALM Parties seeking a declaratory judgment that the release and injunction provisions in the Shelbourne plan bar them from collecting on the Kelleher Loan from Kelleher. He alleged that he is included in the definition of “Released Parties” under the plan and that the release and injunction provisions apply to the Kelleher Loan. He did not explain how the Kelleher Loan, which is a debt owed solely by a non-debtor to a non-creditor, falls within the claims covered by the release and injunction.

Instead, Kelleher alleged that the funds obtained from the Kelleher Loan were paid directly to vendors for goods and services provided to Shelbourne in connection with development of the Chicago Spire. He also alleged that NALM “participated” in the Shelbourne bankruptcy, even though it no longer owned the Shelb-ourne Loans, because NALM intervened in the bankruptcy case for the limited purpose of protecting the confidentiality of information that had been. sealed in the state court foreclosure action. He further alleged that NALM “participated” in settlement negotiations that led to entry of a settlement agreement among the debtor, RMW, Kelleher, and others that formed the basis for the joint plan that was ultimately confirmed. Based primarily on these allegations, Kelleher asserted that the release and injunction in the Shelb-ourne plan barred the NALM Parties from collecting on the Kelleher Loan. Kelleher then alleged that Capita sent loan statements to Kelleher at his residence in the U.S. seeking payment of the Kelleher Loan in violation of the release and injunction.

Kelleher sought a declaratory judgment determining that the Kelleher Loan was released and discharged by the Shelbourne plan and that all collection actions against him were enjoined. He also sought actual and punitive damages for the NALM Parties’ allegedly willful violation of the injunction contained in the plan and confirmation order.

On October 2, 2015, the NALM Parties filed a motion to dismiss for lack of subject matter jurisdiction and personal jurisdiction. In light of the recent agreement of the parties, the court will treat the NALM parties’ motion as one to dismiss for failure to state a claim upon which relief can be granted relief. The complaint fails to allege a plausible claim that the Shelbourne plan released and enjoined collection of debts owed by Kelleher to NALM.1

II. The Plan

The NALM Parties contend that the language of the relevant definitions, the release provision, and the injunction provision in the Shelbourne plan makes it clear that the Kelleher Loan does not fall within [878]*878either the release or the injunction. They also argue that they could not be bound by the plan even if the plan proponents had attempted to include the Kelleher Loan within the release and injunction because: (1) they did not receive notice that the debtor intended to enjoin them, (2) they did not receive proper service of the plan, (3) they were not creditors in the Shelb-ourne bankruptcy case, (4) they were not permitted to vote on the plan, and (5) they did not receive a distribution under the plan.

In his response, Kelleher fails to explain how the plan language applies to release his liability to NALM on the Kelleher Loan.

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Kelleher v. National Asset Loan Management, Ltd. (In re Shelbourne North Water Street L.P.), 556 B.R. 874 (Ill. 2016).

556 B.R. 874 (Kelleher v. National Asset Loan Management, Ltd. (In re Shelbourne North Water Street L.P.)) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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