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04/27/94 BUSHUE CORPORATION v. FIRST NATIONAL BANK

April 27, 1994

BUSHUE CORPORATION, A FOREIGN CORPORATION, MARK BUSHUE, AND STEPHEN BUSHUE, PLAINTIFFS-APPELLANTS,
v.
FIRST NATIONAL BANK OF EFFINGHAM, A NATIONAL BANKING ASSOCIATION, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Effingham County. No. 92-CH-28. Honorable Richard H. Brummer, Judge Presiding.

Lewis, Chapman, Rarick

The opinion of the court was delivered by: Lewis

PRESIDING JUSTICE LEWIS delivered the opinion of the court:

Plaintiffs, Bushue Corporation (the corporation) and Mark Bushue and Stephen Bushue, individual shareholders of the corporation, appeal from the trial court's dismissal with prejudice of their complaint. Plaintiffs' complaint sought rescission, restitution, damages, and injunctive relief in relation to several loan agreements with defendant, the First National Bank of Effingham (the bank). The trial court's order dismissed plaintiffs' complaint on the basis that the claims asserted by plaintiffs were barred by a prior order of the United States Bankruptcy Court (the bankruptcy court), which had dismissed an almost identical lawsuit filed by the corporation against the bank in 1991. The issue we confront in this appeal is whether the trial court erred in finding that plaintiffs' claim is barred by res judicata. For reasons we will discuss herein, we affirm the trial court's dismissal of plaintiffs' complaint.

The underlying sequence of events between plaintiffs and defendant began in 1986, when plaintiffs entered into a loan agreement with the bank, whereby the corporation gave the bank a mortgage and security interest in real estate owned by the corporation, as collateral for the obligations of Bushue Brothers, a general partnership (the partnership). In the years between 1986 and 1989, the bank entered into certain loan agreements with the partnership. The corporation's shareholders, including the plaintiffs Mark Bushue and Stephen Bushue, expressly approved the transactions between the bank and the corporation.

In March 1990, after the bank started collection procedures, the corporation commenced voluntary bankruptcy proceedings under chapter 12 of the Bankruptcy Code. (11 U.S.C.A. sec. 1201 et seq. (1993).) As part of those proceedings, the bank and the corporation entered into a stipulation, agreeing to a plan of reorganization for the corporation, whereby the bank's claims, which were based upon the loan agreements from 1986 through 1989, were allowed and the corporation agreed to pay the bank's claims and agreed not to pursue any further legal or equitable remedies against the bank. The stipulation was filed in the corporation's bankruptcy proceeding, and the bankruptcy court confirmed the stipulation and plan of reorganization.

In May 1991, the corporation filed a lawsuit against the bank in Effingham County circuit court, number 91-L-25 (the 1991 lawsuit), which was removed to the bankruptcy court the same month. The 1991 lawsuit asserted the following claims against the bank: in count I, the corporation sought rescission of the loan agreements, which were the subject of the parties' stipulation and plan of reorganization in bankruptcy court, and restitution of the money paid by the corporation to the bank, on the basis that the corporation did not have the authority to do business in the State of Illinois under section 13.05 the Business Corporation Act of 1983 (Ill. Rev. Stat. 1991, ch. 32, par. 13.05 (now 805 ILCS 5/13.05 (West 1992))); in count II, the corporation sought rescission and restitution on the theory of lack of consideration; in count III, the corporation alleged that the bank induced it by fraud to execute certain loan documents in 1986; and in count IV, the corporation sought compensatory and punitive damages against the bank.

On August 15, 1991, the bankruptcy court granted the bank's motion to dismiss the 1991 lawsuit. In its order of involuntary dismissal, the bankruptcy court found that prior to the hearing on the bank's motion to dismiss, the corporation had filed a motion to dismiss the underlying bankruptcy proceeding, wherein the corporation alleged "that upon dismissal of the underlying bankruptcy proceedings, [the bankruptcy] court will lose jurisdiction over the instant adversary proceeding."

The bankruptcy court found that the main issue presented by the corporation's motion to dismiss the underlying bankruptcy was whether the corporation should be allowed to relitigate issues concerning the bank's claim which were dealt with under the terms of the corporation's confirmed plan of reorganization. The bankruptcy court found that there was a direct conflict between the corporation's assertions made in the adversary proceeding (the 1991 lawsuit) and the corporation's assertions made in the confirmed plan of reorganization.

The bankruptcy court found that the corporation had an absolute right to dismiss its chapter 12 bankruptcy proceedings at any time, but that right was not without limitations. The bankruptcy court stated, "It is apparent that the [corporation] is unhappy with the results of its confirmed plan of reorganization and now wants to clear the slate and relitigate the issues resolved in the confirmed plan," and, "The bottom line is that the [corporation] wanted the protection of Chapter 12 until it no longer served its purpose and now wants to get out when the chips are down."

The bankruptcy court delayed the entry of the dismissal of the underlying bankruptcy proceeding until it first dismissed the 1991 lawsuit. The bankruptcy court specifically stated that the reason it delayed dismissal of the underlying bankruptcy was to protect the rights of the bank and to prohibit the corporation from using the bankruptcy code to deny the bank the rights it was granted under the confirmed plan of reorganization. In February 1992, the corporation requested the bank to comply with the terms of the confirmed plan, and the bank did so. The corporation did not voluntarily dismiss its chapter 12 bankruptcy case until April 1992.

In November 1992, the corporation filed another lawsuit against the bank in Effingham County circuit court, number 92-CH-28 (the 1992 lawsuit). The 1992 lawsuit consisted of six counts in which the corporation sought rescission, restitution, compensatory and punitive damages, and injunctive relief based upon the same theories of recovery asserted in the 1991 lawsuit. The bank filed its motion to dismiss the 1992 lawsuit, claiming, inter alia, that the stipulation and the order of the bankruptcy court confirming the corporation's chapter 12 plan of reorganization was res judicata, such that the corporation was barred from maintaining the 1992 lawsuit or any similar action against the bank.

On January 15, 1993, the circuit court granted the bank's motion to dismiss the 1992 lawsuit, stating, in pertinent part: that the 1992 lawsuit sought the same relief as the 1991 lawsuit which was removed to the bankruptcy court; that the bankruptcy court had dismissed the 1991 lawsuit on the merits; that the bankruptcy court's order of October 10, 1991, denying the corporation's motion to reconsider was a final and unappealed order; and that the bankruptcy court had clearly intended not to and did not vacate the 1991 lawsuit when it finally dismissed the underlying proceedings in April 1992. The circuit court additionally found that Mark Bushue and Stephen Bushue, as shareholders of the corporation, were "in privity with the family-owned corporation," such that the Disposition of the corporate claim was res judicata to the named individual plaintiffs as well as to the corporate plaintiff. Plaintiffs do not challenge this finding on appeal. The trial court dismissed the 1992 lawsuit with prejudice, and plaintiffs appealed after the trial court denied their motion to reconsider.

We now turn to the basic issue presented by this appeal, whether the trial court erred in finding that the 1992 lawsuit was barred by the bankruptcy court's dismissal of the 1991 lawsuit. "The doctrine of res judicata provides that 'a final judgment rendered by a court of competent jurisdiction on the merits is conclusive as to the rights of the parties and their privies, and, as to them, constitutes an absolute bar to a subsequent action involving the same claim, demand or cause of action.'" Housing Authority for La Salle County v. Young Men's Christian ...


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