JORGE L. ALONSO, District Judge.
Before the Court is the appeal of Napleton Enterprises, LLC and the cross-appeals of Banco Popular North America and 334 Grand Joint Venture, LLP from the bankruptcy court's March 25, 2015 memorandum opinion (Bankr. Dkt. No. 440), as amended on April 1, 2015 (Bankr. Dkt. No. 445), and the bankruptcy court's March 25, 2015 Order on Motion for a Rule to Show Cause (Bankr. Dkt. No. 441). Napleton Enterprises, LLC also appeals from the bankruptcy court's March 25, 2015 Order Granting Banco's Motion to Join (Bankr. Dkt. No. 442). 334 Grand Joint Venture, LLP also cross-appeals from the bankruptcy court's March 25, 2015 Order Denying Relief to 334 Grand Joint Venture, LLP (Bankr. Dkt. No. 443). For the reasons explained below, the Court dismisses the appeal of 334 Grand Joint Venture, LLP; affirms in part and reverses in part the bankruptcy court's memorandum opinion as amended and the Order on Motion for a Rule to Show Cause; and reverses the Order Granting Banco's Motion to Join.
This appeal centers on real estate commonly known as 334 West Grand Avenue in Elmhurst, Illinois (the "Elmhurst Property"). Prior to February 24, 2004, Standard Bank and Trust Company ("Standard Bank") held title to the Elmhurst Property as trustee under a land trust of which Napleton Enterprises, LLC ("Napleton") was the sole beneficiary. On February 24, 2004, "Windy City Auto Group Corporation or assignee" entered into a Real Estate Sales Contract (the "Real Estate Contract") to purchase the Elmhurst Property from "Standard Bank and Trust Company, as Trustee" under the land trust. (ROA 2541-50.)
Rider B to the Real Estate Contract contains a "Grant of Right of First Refusal" that provides as follows:
(Id. 2549.)
Banco Popular North America ("Banco") provided Bahary with a loan for the purchase of the Elmhurst Property. To secure the loan, Bahary granted Banco a mortgage on the property. Bahary then defaulted on its loan obligations, and on August 27, 2010, Banco filed in DuPage County a foreclosure action against Bahary. (Id. 2558.)
On October 14, 2011, Bahary filed a petition for relief under Chapter 11 of the Bankruptcy Code. Banco's state-court foreclosure action was stayed pursuant to the automatic stay under § 362 of the Bankruptcy Code. In its bankruptcy petition and schedules, Bahary did not list the right of first refusal ("ROFR") or list Napleton as having any kind of potential claim. (Id. 2130-75.) Thus, Napleton did not receive notice of Bahary's bankruptcy proceeding.
On November 1, 2011, Banco filed a motion in the bankruptcy court seeking modification of the automatic stay to allow Banco to continue to pursue its foreclosure proceeding. (Bankr. Dkt. No. 35.) On May 7, 2012, Bahary filed a "motion to approve compromise and settlement of dispute." (ROA 2180-2226.) In the motion, Bahary sought the bankruptcy court's entry of an order authorizing Bahary to enter into a compromise and settlement with Banco. (Id. 2180, 2185.) Attached to the motion as Exhibit 1 was the proposed "Settlement and Deed in Lieu of Foreclosure Agreement" ("Settlement Agreement"). (Id. 2186-2226.) As part of the settlement, Bahary and Banco agreed that immediately upon entry of an order approving the settlement, Bahary would, by deed in lieu of foreclosure, turn over the Elmhurst Property to Banco. (Id. 2182, 2198.)
In an order entered on May 30, 2012, the bankruptcy court granted Bahary's motion and authorized it to settle Banco's claims against the bankruptcy estate pursuant to the Settlement Agreement. (Bankr. Dkt. No. 300.) The bankruptcy court also granted Banco's motion for relief from the automatic stay and authorized Banco to take possession of the Elmhurst Property. (Bankr. Dkt. No. 299.) The same day, Bahary executed a warranty deed in lieu of foreclosure conveying the Elmhurst Property to Banco, and the deed was recorded on May 31, 2012. (ROA 2560-63.)
On June 14, 2012, Bahary filed its Second Amended Plan of Reorganization (the "Plan"), which provided in relevant part that on the effective date of the Plan or pursuant to agreement, whichever occurred first, Bahary would surrender the Elmhurst Property to Banco in exchange for Banco's waiver of unsecured claims. (Bankr. Dkt. No. 310 at 4.) The Plan also contained a discharge provision. (Id. at 9.) The bankruptcy court confirmed the Plan on August 21, 2012. (Bankr. Dkt. No. 349.)
On May 6, 2014, a Special Warranty Deed was recorded in DuPage County in which Banco conveyed the Elmhurst Property to 334 Grand Joint Venture, LLP ("334 Grand LLP"). (ROA 2568-70.)
On June 30, 2014, Napleton filed a lawsuit in DuPage County (the "DuPage Action") against Windy City Auto Group Corporation ("Windy City"), Bahary, Banco, and 334 Grand LLP in which Napleton seeks a declaratory judgment that the ROFR is valid and currently enforceable; Banco and 334 Grand LLP are not bona fide purchasers of the Elmhurst Property; the conveyance of the Elmhurst Property from Bahary to Banco triggered the ROFR; even if it did not, Banco took the Elmhurst Property subject to the ROFR; the conveyance of the Elmhurst Property from Banco to 334 Grand LLP triggered the ROFR; and there is no minimum purchase price requirement in the ROFR. (Id. 2524-26.) In addition, Napleton asserts breach of contract claims for damages against Windy City and Bahary; a breach of contract claim against Banco for damages and, in the alternative, a claim for tortious interference with contract; and a claim seeking damages against 334 Grand LLP for tortious interference with prospective economic advantage. Napleton also seeks specific performance of the ROFR against Banco and 334 Grand LLP (with respect to the transaction between those entities), and, in the alternative, that a constructive trust be imposed on the Elmhurst Property and 334 Grand LLP be ordered to convey the property to Napleton. (Id. 2526-37.)
On July 18, 2014, Bahary's counsel sent a letter to Napleton's counsel to notify them that Bahary had filed for Chapter 11 relief in 2011 and received a bankruptcy discharge in August 2012. (Id. 2043.) The letter stated Bahary's position that the DuPage Action was a violation of the discharge injunction. (Id.) Further communications ensued between Bahary's counsel and Napleton's counsel, but they apparently reached a stalemate about whether the DuPage Action violated the discharge injunction. Napleton did not seek relief from the bankruptcy court; instead, after Bahary failed to file an answer in the DuPage Action, Napleton sought and obtained an entry of default on September 29, 2014. (Id. 2084.) The same day, Bahary filed a motion in the bankruptcy court to reopen the case, for an order to be entered to show cause why Napleton and its counsel should not be held in contempt of court for actions inconsistent with the Plan and for violating the discharge injunction, and for an award of reasonable attorneys' fees and costs. (Id. 2466-83.) Banco moved to join Bahary's motion and also requested that the bankruptcy court "determine the [e]ffect of the bankruptcy proceeding" on the DuPage Action and enter an order "staying all proceedings" in the DuPage Action until further order of the bankruptcy court.
The bankruptcy court reopened the case and then took briefs and held a hearing on the motions. On December 29, 2014, the bankruptcy court granted Bahary's motion and scheduled a show-cause hearing. (ROA 2486-97.) Napleton moved for relief from the order. (Id. 2501-2631.) The bankruptcy court denied that motion, (id. 2633-46), and held an evidentiary show-cause hearing on January 14 and 27, 2015.
On March 25, 2015, the bankruptcy court issued a memorandum opinion in which it concluded that, having found in its previous order that Napleton had no claim to assert in Bahary's bankruptcy because the transfer to Banco did not trigger the ROFR, it could not find that there was a violation of the discharge injunction as a result of Napleton's attempt to collect on a debt that did not exist. (Id. 2649; Bankr. Dkt. No. 440.) The bankruptcy court found that at best, Napleton held an "inchoate interest" and "neither Bahary nor its transferee Banco owed Napleton anything with regards to the right of first refusal." (Id. 2649, 2666.) Because Napleton did not have notice of the bankruptcy proceeding and the ROFR was not ripe, said the court, there were no grounds to find Napleton or its counsel in contempt. (Id. 2649.) However, "to achieve Bahary's reorganization goals," relieve it from the burden of "defending a matter where the complainant is pursuing an interest that is of no consequence,"
These appeals followed.
This Court sits as an appellate court for bankruptcy court proceedings. 28 U.S.C. § 158(a)(1). We review the bankruptcy court's factual findings for clear error and its conclusions of law de novo. See Kovacs v. United States, 739 F.3d 1020, 1023 (7th Cir. 2014). Mixed questions of law and fact are reviewed de novo. Freeland v. Enodis Corp., 540 F.3d 721, 729 (7th Cir. 2008). Appellate review of a bankruptcy court's determination of jurisdiction is a question of law subject to de novo review. In re Salem, 465 F.3d 767, 774 (7th Cir. 2006).
In its "statement of issues presented," Napleton implies that it will challenge the bankruptcy court's determinations on ten issues. (Napleton's Br., ECF No. 17, at 1-2.) But Napleton presents no argument in its brief that addresses the first seven issues it claims to present. It has thus waived those arguments. See Lee v. City of Elkhart, Ind., 602 F. App'x 335, 339 (7th Cir. 2015) (citing Marcatante v. City of Chi., 657 F.3d 433, 444 n. 3 (7th Cir. 2011) (undeveloped arguments are waived) and Campania Mgmt. Co. v. Rooks, Pitts & Poust, 290 F.3d 843, 852 n. 6 (7th Cir. 2002) (perfunctory and undeveloped arguments are waived, especially when a party fails to develop the basis of a claim on appeal)). Napleton's brief, which is disorganized and fails to track the issues purportedly addressed, properly presents three appellate issues: 1) whether the bankruptcy court had jurisdiction to determine that Bahary and Banco "do not owe Napleton anything" based on the ROFR and to order the dismissals of Bahary and Banco from the DuPage Action; 2) whether the bankruptcy court "acted properly" (in a constitutional sense, apparently) in requiring the dismissals; and 3) whether the Anti-Injunction Act prohibited the bankruptcy court from ordering the dismissals. The Court need discuss only the first issue.
The bankruptcy court determined that because Bahary's transfer of the Elmhurst Property to Banco was by deed in lieu of foreclosure and not a sale pursuant to a bona fide offer from a third party, Napleton held under the ROFR at best an "inchoate interest" that never developed into an enforceable right during Bahary's bankruptcy. (Bankr. Am. Mem. Op. at 3, 15-16.) In view of this finding and Napleton's lack of notice of the bankruptcy case, the court found no grounds for contempt. (Id. at 3.) But because the court had found that Bahary and Banco owed Napleton nothing based on the ROFR and Napleton therefore had no claim to assert in the bankruptcy, the court ordered Napleton to dismiss its claims against Bahary and Banco in the DuPage Action in order to "enforce" these findings and "achieve Bahary's reorganization goals." (Id. at 3, 17, 19.)
Napleton does not dispute that the bankruptcy court had jurisdiction to consider whether a violation of the discharge injunction occurred, (Napleton's Reply, ECF No. 29, at 8), but it contends that the bankruptcy court did not have subject-matter jurisdiction under § 1334 to determine that Bahary and Banco owed it nothing under the ROFR or to order Napleton to dismiss Bahary and Banco from the DuPage Action. Napleton urges this Court to vacate, for lack of jurisdiction, the portions of the bankruptcy court's orders that require the dismissals, as well as the "portions . . . examining, interpreting and ruling on the ROFR." (Napleton's Br. at 8.)
Federal district courts have original jurisdiction over bankruptcy cases and related proceedings. 28 U.S.C. § 1334(a), (b); Wellness Int'l Network, Ltd. v. Sharif, ___ U.S. ___, 135 S.Ct. 1932, 1939 (2015). The district courts may refer "any or all" bankruptcy cases and related proceedings to the bankruptcy judges for the district, 28 U.S.C. § 157(a), and the courts in this district have done so, see N.D. Ill. Local Rule 40.3.1(a).
Under 28 U.S.C. § 1334(b), bankruptcy courts have subject-matter jurisdiction over proceedings "arising under title 11, or arising in or related to cases under title 11." The bankruptcy court found that it had the power to hear and determine the contempt proceedings as "core proceedings," that is, those "arising under" title 11 or "arising in" a case under title 11. (Bankr. Am. Mem. Op. at 4-7 (citing 28 U.S.C. § 157(b)).) The court further stated that "[p]roceedings to enforce the statutory injunction under § 524(a)(2) are core proceedings under 28 U.S.C. § 157(b)(2)(O)—`other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor relationship.'" (Id. at 6 (ellipses omitted).)
"Arising in" jurisdiction encompasses matters that arise only in a bankruptcy case and concern the administration of the bankrupt estate, such as questions as to discharge of a debtor, turning over of estate property, and the validity, extent or priority of liens. In re Repository Techs., Inc., 601 F.3d 710, 719 (7th Cir. 2010); Zerand-Bernal Grp., Inc. v. Cox, 23 F.3d 159, 162 (7th Cir. 1994). "A proceeding `arises in' bankruptcy only if it has `no existence outside of the bankruptcy.'" Repository Techs., 601 F.3d at 719 (citing Stoe v. Flaherty, 436 F.3d 209, 216 (3d Cir. 2006)). Claims "arising under" title 11 "depend on a right created or determined by a statutory provision of title 11." Id. (internal quotation marks omitted); Stoe, 436 F.3d at 216 (a proceeding "arises under" title 11 "if it invokes a substantive right provided by title 11").
Although 11 U.S.C. § 105(a) states that a bankruptcy court may "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of" the Bankruptcy Code, that provision merely codifies that court's equitable powers and does not provide an independent jurisdictional basis. In re Cary Metal Prods., Inc., 158 B.R. 459, 465 (N.D. Ill. 1993) ("Section 105 does not provide a jurisdictional basis, but provides the scope and forms of relief the court may order in an action in which it has jurisdiction.") (internal quotation marks omitted), aff'd sub nom. Zerand-Bernal, 23 F.3d 159; In re Combustion Eng'g, Inc., 391 F.3d 190, 225 (3d Cir. 2005) (stating that "§ 105 does not provide an independent source of federal subject matter jurisdiction" and "the exercise of bankruptcy power must be grounded in statutory bankruptcy jurisdiction."); 1 William L. Norton, Jr. & William L. Norton III, Norton Bankruptcy Law and Practice § 4.4 at 4-18 (3d ed. 2011) (§ 105 "neither confers nor was designed to confer subject-matter jurisdiction on bankruptcy courts").
Bahary's request for entry of a contempt order was within the bankruptcy court's core "arising under" jurisdiction pursuant to § 1334(b) because it was based on rights explicitly provided in the Bankruptcy Code: the discharge (by virtue of plan confirmation) in 11 U.S.C. § 1141(d) and the discharge injunction in 11 U.S.C. § 524(a)(2). See In re Conseco, Inc., 330 B.R. 673, 681-82 (Bankr. N.D. Ill. 2005). As part of this "arising under" jurisdiction, the bankruptcy court had jurisdiction to interpret and enforce the discharge injunction. See Cox v. Zale Delaware, Inc., 239 F.3d 910, 916 (7th Cir. 2001) ("A court retains jurisdiction to enforce its injunctions.").
Napleton maintains that once the bankruptcy court determined that Napleton did not violate the discharge injunction and the court declined to hold it and its counsel in contempt, the court should have declined to make any determination regarding the nature of Napleton's rights under the ROFR. (Napleton's Br. at 8.) This argument that the bankruptcy court exceeded its jurisdiction in examining the ROFR and whether any right of Napleton's survived the approval of the Settlement Agreement and entry of the Plan is an artificial approach that ignores how the court arrived at its conclusion that Napleton had not violated any of the court's orders. In order to rule on the issue of whether Napleton had flouted the discharge injunction by suing Bahary on the ROFR, which Napleton does not dispute was within the bankruptcy court's jurisdiction, the court had to analyze the nature of the ROFR vis-à-vis Bahary and the bankruptcy proceeding to determine whether Napleton was attempting to collect a discharged debt.
Given that the bankruptcy court concluded that there was no violation of the discharge injunction, its was not enforcing that injunction when it ordered Napleton to dismiss its claims against Bahary and Banco. But in the court's view, its order was "necessary to enforce its findings that at the time of confirmation [Bahary] and Banco owed Napleton nothing regarding its [ROFR]." (Bankr. Am. Mem. Op. at 17.) Napleton contends that the bankruptcy court was not empowered to make those findings or order the dismissals. This Court agrees. The focus here is not on the bankruptcy court's jurisdiction to enforce the discharge, but on its jurisdiction over Napleton's state-court claims against Bahary and Banco. Those claims did not arise during the bankruptcy proceeding or concern the administration of the bankrupt estate, nor do they depend on a right created by the Bankruptcy Code, so they cannot be said to "arise in" a bankruptcy proceeding or "arise under" title 11. The next question, then, is whether the DuPage Action is "related to" Bahary's bankruptcy.
"The bankruptcy jurisdiction is designed to provide a single forum for dealing with all claims to the bankrupt's assets. It extends no farther than its purpose. . . . [I]t is the relation of dispute to estate, and not of party to estate, that establishes jurisdiction." In re Xonics, Inc., 813 F.2d 127, 131 (7th Cir. 1987). Furthermore, as the court observed in Cytomedix, Inc. v. Perfusion Partners & Assocs., Inc., 243 F.Supp.2d 786, 789-90 (N.D. Ill. 2003):
Id. The Seventh Circuit interprets "related to" jurisdiction narrowly, "out of respect for Article III . . . as well as to prevent the expansion of federal jurisdiction over disputes that are best resolved by the state courts," and therefore its test for "related to" jurisdiction is more limited than that of other Courts of Appeals. FedPak, 80 F.3d at 213-14; see also Home Ins. Co. v. Cooper & Cooper, Ltd., 889 F.2d 746, 749 (7th Cir. 1989) ("Overlap between the bankrupt's affairs and another dispute is insufficient unless its resolution also affects the bankrupt's estate or the allocation of its assets among creditors.").
Banco argues, conclusorily, that "[a]llowing Napleton to pursue a non-existent claim against the [Elmhurst] Property threatens the Confirmed Plan, the Bankruptcy Court's interpretation of the terms of the Confirmed Plan, and thus, the relief afforded to both Banco and Bahary under the Code." (Banco's Br., ECF No. 21, at 14.) But it does not explain in terms of the proper § 1334 considerations how the DuPage Action is "related to" Bahary's bankruptcy proceeding. The issue is whether Napleton's claims against Bahary and Banco in the DuPage Action affect the amount of property for distribution (in other words, the estate) or the allocation of property among creditors. In this Court's view, the answer is no. The dispute does not involve property of the estate. Bahary relinquished its interest in the Elmhurst Property when the property was deeded to Banco. The jurisdiction of the bankruptcy court "does not follow the property[; i]t lapses when property leaves the estate." Xonics, 813 F.2d at 131. The property in the estate has already been distributed to Bahary's creditors, the reorganization Plan was confirmed, and the bankruptcy was closed. Payments to creditors have already been made and will not be affected. Furthermore, contrary to Banco's assertion, Napleton does not seek to unwind the deed-in-lieu transaction that was approved by the bankruptcy court (rather, it seeks to unwind a subsequent transfer). The dispute over the ROFR goes beyond any enforcement or implementation of the confirmed Plan. The Court is also mindful that Napleton had no opportunity in the bankruptcy case to protect any right it may have had.
Given that Napleton seeks damages in the DuPage Action based on its allegation that Bahary "convey[ed] the [Elmhurst Property] or caus[ed] the [Elmhurst Property] to be conveyed to Banco without notice to Napleton and its counsel under the ROFR," (ROA 3086-87), and that conveyance had been approved by the bankruptcy court, the Court can understand the bankruptcy court's desire to rule on the effect of that proceeding on Napleton's claims against the reorganized debtor and a former creditor. But the bankruptcy court's approval of the deed-in-lieu transaction between Bahary and Banco, and the fact that the transaction was a part of the confirmed Plan,
Accordingly, because the bankruptcy court was without subject-matter jurisdiction under § 1334, the Court will vacate the bankruptcy court's finding that Bahary and Banco "do not owe Napleton anything" with respect to the ROFR as well as its order requiring Napleton to dismiss its claims against Bahary and Banco in the DuPage Action. Because the jurisdictional issue is dispositive, the Court need not reach Napleton's remaining arguments pertaining to jurisdiction, the constitutional propriety of the bankruptcy court's actions, and the Anti-Injunction Act.
Banco has cross-appealed from the portion of the bankruptcy court's order declining to hold Napleton and its counsel in contempt.
In support of its assertion that it "raised the issue of the assessment of sanctions" before the bankruptcy court, Banco cites only its reply brief in support of its motion to join Bahary's motion to reopen the case and for a rule to show cause, in which Banco sought attorneys' fees and costs under § 105(a) and presented an undeveloped argument. (ROA 3198-99.) Banco's motion to join Bahary's motion to reopen the case and for a rule to show cause, however, did not include a request for an award of attorneys' fees and costs, (id. 3059-60), and Bahary's motion did not include a request for any attorneys' fees and costs that Banco had incurred, (id. 2471). By making its request for fees and costs for the first time in a reply brief before the bankruptcy court, Banco waived the argument and failed to preserve it for appeal. See HyperQuest, Inc. v. N'Site Solutions, Inc., 632 F.3d 377, 382 (7th Cir. 2011); In re Rimsat, Ltd., 212 F.3d 1039, 1048 (7th Cir. 2000) (concluding that the appellants waived the argument that the sanctions imposed by the bankruptcy court were excessive and unwarranted, and noting that "such arguments must be made to the sanctioning court if they are to be considered by a reviewing court"). Therefore, the Court will not consider the merits of Banco's appeal.
Even if Banco had not waived its request in the bankruptcy court, it has waived the issue here because it fails to acknowledge that this Court applies the deferential "abuse of discretion" standard to the bankruptcy court's decision not to hold Napleton and its counsel in contempt. See In re Taylor, 793 F.3d 814, 818 (7th Cir. 2015); Rimsat, 212 F.3d at 1046. Banco asserts that the bankruptcy court "gave an unnecessarily charitable view as to what Napleton did" and that an award of sanctions "was warranted." (Banco's Br. at 25, 27). But Banco does not develop an argument, or even contend in a conclusory fashion, that the bankruptcy court abused its discretion in that its decision was irrational, arbitrary, or based on either a clearly erroneous factual conclusion or an error of law. See Musser v. Gentiva Health Servs., 356 F.3d 751, 755 (7th Cir. 2004).
334 Grand LLP filed a notice of cross-appeal but failed to file a brief or anything further in this proceeding. Accordingly, 334 Grand LLP's appeal is dismissed for want of prosecution and pursuant to Federal Rule of Bankruptcy Procedure 8018(a)(4).
The cross-appeal of 334 Grand Joint Venture, LLP is dismissed. The Court affirms in part and reverses in part the bankruptcy court's memorandum opinion of March 25, 2015 (Bankr. Dkt. No. 440), as amended on April 1, 2015 (Bankr. Dkt. No. 445), as well as the Order on Motion for a Rule to Show Cause (Bankr. Dkt. No. 441). The Order on Motion for a Rule to Show Cause will stand to the extent that the bankruptcy court found that Napleton and its counsel did not violate the discharge injunction and the court declined to hold those parties in contempt of court. The Order on Motion for a Rule to Show Cause is vacated as to 1) the bankruptcy court's finding that the Michael Bahary & Steven Bahary Partnership and its transferee, Banco Popular North America, "do not owe Napleton anything with regards to the Right of First Refusal provided for in the 2004 Sale Agreement"; and 2) the order requiring Napleton to dismiss the Michael Bahary & Steven Bahary Partnership and Banco Popular North America with prejudice from the DuPage Action. The Court vacates the Order Granting Banco's Motion to Join (Bankr. Dkt. No. 442).