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09/03/97 MICHAEL DAILEY v. RICHARD SMITH

September 3, 1997

MICHAEL DAILEY, PLAINTIFF-APPELLANT,
v.
RICHARD SMITH, JOHN BITTNER, AND PLASTIC FILM CORPORATION, INC., AND ILLINOIS CORPORATION, DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County. Honorable Thomas P. Quinn, Judge Presiding.

Released for Publication October 9, 1997.

The Honorable Justice Leavitt delivered the opinion of the court. Mcnamara and Rakowski, JJ., concur.

The opinion of the court was delivered by: Leavitt

The Honorable Justice LEAVITT delivered the opinion of the court:

Plaintiff Michael Dailey sued the defendants Richard Smith, John Bittner, and their company, Plastic Film Corporation (PFC), for profits allegedly owed plaintiff as a result of an oral partnership agreement with defendants. A jury returned a verdict in favor of plaintiff and against defendants Smith and Bittner for $288,000. The trial court granted defendants' motion for judgment notwithstanding the verdict, and plaintiff now appeals. We affirm.

In July 1982, plaintiff founded Overlay Systems (Overlay), an Illinois corporation, through which he intended to create a line of decorative wall covering designs. Plaintiff's wife, mother-in-law, and a friend were shareholders in plaintiff's corporation. Plaintiff was the President of Overlay and operated the business out of his own home.

Plaintiff alleged that in October 1982, he entered into an oral "partnership" with defendants Smith and Bittner, who ran and operated PFC. Basically, plaintiff alleged that the three "partners" agreed to buy customized vinyl from one party, resell it for profit, and then split the profits in thirds. Plaintiff alleged he never received his share of profits from defendants and that, as a result, he was forced to seek bankruptcy protection.

In September 1986, plaintiff filed for bankruptcy in the United States Bankruptcy Court for the Northern District of Illinois. In his bankruptcy petition, plaintiff did not list the instant claim against defendants, and he denied having any interest in any partnership at the time. In June 1988, a "Finding of No Assets" was entered, and the bankruptcy trustee was dismissed.

Plaintiff filed his "Amended Complaint for Accounting and For Other Relief" in this matter in May 1988. Following a trial in February 1994, a jury awarded plaintiff $288,000. Defendants then made a motion for judgment notwithstanding the verdict, arguing, among other things, that plaintiff lacked standing to assert his claims following the bankruptcy action and that he was otherwise judicially estopped from now asserting the claims that he had earlier failed to disclose to the bankruptcy court. The trial court granted defendants' motion.

A motion for judgment non obstante veredicto (n.o.v.) should be granted only where all of the evidence, when viewed in a light most favorable to the opponent, so overwhelmingly favors the movant that no contrary verdict based on that evidence could ever stand. Pedrick v. Peoria & Eastern R.R. Co., 37 Ill. 2d 494, 510, 229 N.E.2d 504 (1967); Chicago Title and Trust Co. v. Brescia, 285 Ill. App. 3d 671, 679, 676 N.E.2d 230, 221 Ill. Dec. 709 (1996). We review de novo the granting of a judgment n.o.v. City of Mattoon v. Mentzer, 282 Ill. App. 3d 628, 633, 668 N.E.2d 601, 218 Ill. Dec. 117 (1996); Arellano v. SGL Abrasives, 246 Ill. App. 3d 1002, 1009, 617 N.E.2d 130, 186 Ill. Dec. 891 (1993).

We agree with the trial court that, under the principles of standing and judicial estoppel, the jury's verdict could not have been allowed to stand. Plaintiff clearly did not have standing to bring the instant claim against defendants, in light of the prior bankruptcy proceedings. The filing of a bankruptcy petition is an assertion of the jurisdiction of the bankruptcy court over all the assets and property of the alleged bankrupt. Wright v. Abbott Capital Corp., 79 Ill. App. 3d 986, 990, 398 N.E.2d 1147, 35 Ill. Dec. 197 (1979). Section 541 of the Bankruptcy Code broadly defines what property belongs to the bankruptcy estate as "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1) (1986); Aspling v. Ferrall, 232 Ill. App. 3d 758, 762, 597 N.E.2d 1221, 174 Ill. Dec. 9 (1992); Koch Refining v. Farmers Union Central Exchange, Inc., 831 F.2d 1339, 1343 (7th Cir. 1987). The reach of this section is extensive; section 541 has been found to encompass "every conceivable interest of the debtor, future, non-possessory, contingent, speculative, and derivative ***." In re Yonikus, 996 F.2d 866, 869 (7th Cir. 1993). See generally In re Plunkett, 23 Bankr. 392, 393-94 (Bankr. E.D. Wis. 1982) (explaining the broad reach of section 541 and Congress' reasons for expansively defining the bankruptcy estate of a debtor). The preceding principles apply regardless of whether the bankruptcy petitioner has scheduled the property or assets. Once a debtor files for bankruptcy, any unliquidated lawsuits become part of the bankruptcy estate, and, even if such claims are scheduled, a debtor is divested of standing to pursue them upon filing his petition. See Wright, 79 Ill. App. 3d at 990; Hammes v. Brumley, 659 N.E.2d 1021, 1025-26 (Ind. 1995) (holding that in such cases suit must be brought by the bankruptcy trustee).

In Wright, the plaintiff brought a derivative suit on behalf of T-O-W Industries against various corporate and individual defendants, including T-O-W. The plaintiff alleged breach of a fiduciary duty and commission of constructive fraud by the defendants, as well as malicious interference with the plaintiff's rights under an employment contract. Wright, 79 Ill. App. 3d at 989. The trial court found the plaintiff lacked standing to bring his claims, since he had earlier filed for bankruptcy and had been adjudicated bankrupt. On appeal, the plaintiff did not contest the general proposition that filing a bankruptcy petition relieved him of standing to pursue his claims. Rather, he argued that he did have standing in light of the fact that a trustee was never appointed in the bankruptcy proceedings. Wright, 79 Ill. App. 3d at 989. The Wright court rejected this contention and held the plaintiff lost his standing to pursue his claims when he petitioned for bankruptcy. The court found, even in the absence of a trustee, that the plaintiff was divested of his interest in the claims, as the claims became in custodia legis when the petition was filed. Wright, 79 Ill. App. 3d at 990.

Similarly, plaintiff in the present case was divested of standing to pursue his claims against defendants at the moment he filed his petition for bankruptcy in September 1986. Plaintiff does not contest the fact that the claims which he now pursues were in existence at the time he commenced the bankruptcy proceedings--he admits that his claims should have been disclosed but blames his failure to disclose them on his reliance on the advice of his bankruptcy counsel.

Plaintiff's attempt to avoid the standing deficiency by claiming reliance on advice of counsel does not avail him. We first note that plaintiff fell well short of proving that his bankruptcy attorney ever advised him not to disclose the present claims. Although she could not remember plaintiff at trial, plaintiff's former counsel testified that she would have listed plaintiff's "partnership" and claims against defendants on his bankruptcy schedules had she been informed of them. Further, she testified it would have been "unthinkable" for her not to include such information, since knowingly failing to include it would have amounted to aiding and abetting a fraud upon a tribunal, for which she could have lost her license. Regardless, the failure to schedule a claim in bankruptcy (as well as the reasons for such failure) can have no relevance to the bankrupt's standing to bring a subsequent claim. Once a bankruptcy petition is filed, all claims belong to the estate, and the bankruptcy trustee alone has standing to pursue them. See generally 8A C.J.S. Bankruptcy § 27 (1988) ("No one other than the [bankruptcy] estate representative has standing to pursue the estate's causes of action ***"); 8A C.J.S. Bankruptcy § 117 ...


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