Appeal From the Honorable Judge Eugene R. Wedoff Bankruptcy Case No. 02 B 43578 Bankruptcy Adv. No. 03 A 2234.
The opinion of the court was delivered by: Honorable David H. Coar
MEMORANDUM OPINION AND ORDER
Before this court is Plaintiff LaSalle Bank, N.A.'s ("LaSalle") motion to dismiss for lack of subject matter jurisdiction against Defendant Great American Group, Inc. (GAG). For the reasons set forth below, LaSalle's motion to dismiss is denied.
The facts are not disputed. LaSalle was Goldblatt's Bargaining Stores, Inc.'s ("Goldblatt's") primary lender and held a security interest in substantially all of Goldblatt's assets, including its inventory. Goldblatt's financial situation worsened in early 2003, and it decided to liquidate its inventory and close all of its stores. Goldblatt's entered into Agency Agreements with GAG, a commercial liquidator, to conduct the "Going Out of Business" sales.
Pursuant to the Agency Agreement, GAG agreed to pay a "Guaranteed Amount" to Goldblatt's based on its preliminary valuation of the inventory. That agreement also provided that GAG would pay 85% of the estimated Guaranteed Amount in advance of sale of all of the inventory. Goldblatt's agreed that to the extent that its actual physically counted inventory proved to be less than that set forth in its financial records (upon which GAG allegedly relied in calculating the guaranteed payment), Goldblatt's would "refund" a portion of the estimated guaranteed payment (the "85% payment") to GAG to compensate it for the deficiency in the inventory.*fn1 Upon payment of the 85% of the estimated Guaranteed Amount, GAG acquired a lien on the inventory. Because of LaSalle's lien on the inventory, GAG, Goldblatt's and LaSalle also entered into a Letter Agreement on February 14, 2003, wherein LaSalle consented to the provisions of the Agency Agreement, and GAG and Goldblatt's agreed that GAG would pay the Guaranteed Amount directly to LaSalle to reduce Goldblatt's debt to LaSalle.*fn2 In consideration of the receipt of 85% of the estimated Guaranteed Amount, LaSalle agreed to subordinate its security interests in Goldblatt's inventory to GAG. LaSalle also consented to the Agency Agreement, including the provision regarding the return of any overpayment of the Guaranteed Amount to GAG.
Prior to the commencement of the bankruptcy case, GAG took possession of Goldblatt's inventory, sold some of it and retained all of the proceeds. The final sales were completed in early May 2003. Shortly thereafter, GAG asserted that there was a deficiency in Goldblatt's inventory and a shortfall between the actual aggregate retail price and the retail price (what the inventory was really worth), and the 85% payment exceeded the 43% of actual retail price to which Goldblatt's and LaSalle were entitled. Pursuant to the February 14, 2003 Letter Agreement, GAG made a demand upon LaSalle to refund the difference, approximately $1 million. LaSalle disputed GAG's claim.
On March 11, 2003, Goldblatt's filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. On May 13, 2003, the Trustee moved to assume the GAG Agency Agreements, elevating GAG's otherwise unsecured deficiency claim under the Agency Agreement to an administrative claim. The bankruptcy court approved the assumption of the Agency Agreement, with a reservation of rights.
On July 6, 2003, the Trustee commenced the underlying adversary proceeding joining LaSalle and GAG to determine the amount, validity and priority of interests in the "Guaranteed Amount Refund." At the time the Trustee commenced the adversary proceeding, Goldblatt's inventory had been sold and all of the proceeds were being held by GAG pursuant to the Agency Agreement. GAG asserted a cross claim against LaSalle and Goldblatt's as joint obligors to recover the alleged overpayment on the 85% of the estimated Guaranteed Amount pursuant to the February Letter Agreement. GAG also sought allowance of an administrative claim against the Goldblatt's estate under section 503(b) and 507(a)(1) of the Bankruptcy Code.
On March 4, 2004, the Bankruptcy court entered judgment in favor of GAG and against LaSalle on Counts I, II and IV of the cross claim in the amount of $1,086,094.68. The bankruptcy court entered judgment "in favor of GAG against the Trustee on Counts I, II, III of the counterclaim in the amount of $995,848.00, which constitutes an administrative claim against the bankruptcy estate under Section 503(b) and 507(a)(1)...provided that this judgment amount would be reduced by the amount of the judgment against LaSalle under Counts I, II and IV (or eliminated if such amount is higher) once the Judgment of LaSalle becomes subject to a final and no longer appealable order." LaSalle appealed the judgment and GAG filed a cross appeal. In the appeal, LaSalle has filed the instant motion attacking the subject matter jurisdiction of the Bankruptcy Court as to GAG's claim against it, and seeks an order remanding the case to the Bankruptcy Court with direction to dismiss GAG's cross claim.
Appellate review of a bankruptcy court's factual findings is for clear error, while review of its legal conclusions is de novo. In re Fedpak Sys., 80 F.3d 207 (7th Cir. 1996). Whether the Trustee had standing to initiate the adversary proceedings, and whether the Bankruptcy court had "related to" jurisdiction are questions of federal statutory and constitutional law. As such, this court addresses the issue of subject matter jurisdiction de novo.
LaSalle challenges the subject matter jurisdiction of the Bankruptcy court on two grounds: (1) the Trustee lacked Standing to initiative the adversary proceedings, and (2) the Bankruptcy Court did not have "related to" jurisdiction under 29 U.S.C. ...