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In re Jumer's Castle Lodge

February 27, 2006

IN RE: JUMER'S CASTLE LODGE, INC., DEBTOR.
CREDITORS' COMMITTEE OF JUMER'S, CASTLE LODGE, INC., FOR AND ON BEHALF OF JUMER'S CASTLE LODGE, INC., AS DEBTOR IN POSSESSION OF THE ABOVE BANKRUPTCY ESTATE, PLAINTIFF-APPELLANT,
v.
D. JAMES JUMER, DEFENDANT-APPELLEE.



The opinion of the court was delivered by: Joe Billy McDADE United States District Judge

OPINION

Adv. No. 01-8253

Dist. Ct. No. 05-1178

Before the Court is Appellant, Creditor's Committee of Jumer's Castle Lodge, Inc.'s ("Creditor's Committee") appeal from the Bankruptcy Court's Opinion of May 11, 2005, granting summary judgment in favor of Appellee, D. James Jumer ("Jumer"). For the reasons that follow, the decision of the Bankruptcy Court is AFFIRMED.

I. BACKGROUND

The following facts are not in dispute. At all times relevant to the instant matter, Jumer was the principal shareholder of Debtor, Jumer's Castle Lodge, Inc. ("JCL"). JCL was part of a chain of family-owned hotels primarily located in Central Illinois and best known for its medieval German architecture. In addition to its hotel operations, JCL also became involved in the riverboat casino business. However, by October of 1997, JCL had fallen on hard times, requiring Jumer to seek additional capital to fund its operations.

As a result of JCL's financial difficulties, Jumer began negotiating the sale of JCL with Frank Pedulla ("Pedulla") of Saranow Gaming Investors, Inc. ("Saranow"). Initially, Saranow was interested in purchasing JCL outright but developed concerns regarding JCL's asset structure. These concerns included:

(1) defaulted loans with two of JCL's primary lenders (Marine Bank and National City Bank);

(2) substantial cross-collateralization listed on JCL's corporate balance sheet as a result of numerous notes and accounts receivables due and owing to JCL from other enterprises and non-hotel assets owned by Jumer; and

(3) payments in the amount of $14,000 per month (or $168,000 per year) to lease the real property and improvements owned by Jumer but from which JCL's Galesburg Hotel ("JG property") was being operated.

To ease its concerns, Saranow proposed instead to purchase 30% of JCL's outstanding stock for a cash payment of $2,000,000, if, and, only if, Jumer and JCL fulfilled certain conditions set forth by Saranow and JCL's primary lenders. These conditions included:

(1) Jumer transferring to JCL his entire ownership interest in the JG property (effectively eliminating $168,000 in lease payments per year from JCL to Jumer);

(2) Jumer transferring to JCL his entire ownership interest in two parcels of real property adjacent to JCL's Peoria Hotel ("Peoria parcels");

(3) Jumer transferring to JCL $1,000,000 in cash for partial satisfaction of numerous notes and accounts receivables due and owing to JCL from Jumer's other enterprises and non-hotel assets; and

(4) Jumer accepting in exchange, all of JCL's non-hotel assets, including: inter-company accounts receivables due and owing to JCL, three automobiles, the existing cash value of Jumer's life insurance policy, and a gas station along with its inventory.

Saranow and JCL's primary lenders believed that the above-listed transfers would help put JCL on a healthy footing as an ongoing concern by increasing its appeal to outside investors and making it easier for JCL to obtain additional financing in the future.

Thus, pursuant to the conditions outlined above, the parties entered into two interrelated agreements on July 31, 1998: an Agreement for Sale of Real Property (covering the transfers of property, accounts receivables, and cash between Jumer and JCL) and a Securities Purchase Agreement (covering Saranow's purchase of 30% of JCL's outstanding stock). The execution of these agreements resulted in the following transfers:

(1) JCL receiving full ownership interest in the JG property and the Peoria parcels;

(2) JCL receiving $2,000,000 in capital from Saranow and a 1,000,000 cash payment from Jumer;

(3) Saranow receiving 30% interest in JCL; (4) Jumer receiving an accounts receivable due and owing to JCL from Jumer's of St. Charles ("JSC"), an unrelated Jumer entity, with a book value of $2,767,545;

(5) Jumer receiving additional accounts receivables due and owing to JCL from other enterprises owned by Jumer valued at $1,459,110;

(6) Jumer receiving three automobiles valued at $64,000; (7) Jumer receiving ownership of the life insurance policies held by JCL ...


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