On Appeal from the United States Bankruptcy Court for the Northern District of Illinois Bankruptcy No. 04 B 31669 Adversary No. 07 A 00838.
The opinion of the court was delivered by: Judge Robert W. Gettleman
MEMORANDUM OPINION AND ORDER
This appeal is taken from the judgment in an adversary proceeding (the "Adversary Proceeding") filed by Appellee Trustee David E. Grochocinski (the "Trustee") in the underlying bankruptcy case of CMGT, Inc. ("CMGT" or the "Estate"). In the Adversary Proceeding, the Trustee sought to determine the validity, extent, or priority of claims and interests of Appellant Spehar Capital, LLC ("Spehar") in the Estate. In response, Spehar raised affirmative defenses and filed a counterclaim in which it alleged that the Trustee had breached a post-petition financing agreement with Spehar.
The bankruptcy court held a bench trial on November 24 and 25, 2008, and on March 17, 2009, that court entered judgment in favor of the Trustee on all counts of its amended complaint and on Spehar's counterclaim. Spehar filed a timely notice of appeal with this court on March 27, 2009. This court remanded the matter to the bankruptcy court for the limited purpose of having that court entertain a Rule 60(b) motion by Spehar. On August 26, 2009, Spehar moved pursuant to Fed. R. Civ. P. 60(b) and Fed. R. Bankr. P. 9024 for relief from the bankruptcy court's judgment. The bankruptcy court denied the Rule 60(b) motion on September 24, 2009.
This court has jurisdiction over the instant matter pursuant to 28 U.S.C. §§ 158(a)(1) and 1334, and Fed. R. Bankr. P. 8001, et seq.
FACTUAL AND PROCEDURAL BACKGROUND
Most of the facts and background are undisputed.*fn1 CMGT was incorporated in the state of Delaware in 1999 and was subsequently dissolved on March 1, 2002, by the Delaware Secretary of State for non-payment of taxes. CMGT was not authorized as a foreign corporation doing business in Illinois, nor did it have a registered resident office or agent with the Illinois Secretary of State's office.
On March 18, 2004, Spehar obtained a judgment in the amount of $17,045,780 and a permanent injunction against CMGT in the Superior Court of the State of California. On March 31, 2004, the judgment was domesticated in Illinois in Dupage County, Eighteenth Judicial Circuit (the "Illinois Court"). On April 7, 2004, Spehar filed two citation notices in the Illinois Court (collectively "Citations to Discover Assets"). The Clerk of the Illinois Court issued one citation and notice to "Louis J. Franco, President/CEO c/o CMGT, Inc." ("Franco") at 2 S 647 White Birch Lane, Wheaton, Illinois, and one to "CMGT, Inc., c/o Louis J. Franco" at the same address, which is Franco's home. The Clerk of the of the Illinois Court did not issue a citation direct to the Secretary of State of Delaware. Spehar served the Citations to Discover Assets on Franco at the Wheaton address.*fn2 Within several days, Franco sent copies of the citations to "All CMGT Investors" on behalf of CMGT.
Also in April 2004, Spehar served a copy of its domesticated judgment on the Delaware Secretary of State. Spehar asserts that it also served a third Citation to Discover Assets and Notice of Citation on the Delaware Secretary of State on April 12, 2004, who then forwarded the citation to "CMGT c/o Louis J. Franco" at the Wheaton address a day later. The Trustee contends that he searched the records of the Delaware Secretary of State and could not find documentation supporting Spehar's assertion. Franco, however, testified on May 7, 2004, before the Illinois Court that he received the Citations by personal service and from the State of Delaware.
On August 25, 2004, Spehar filed a petition for involuntary Chapter 7 bankruptcy against CMGT, and on September 21, 2004, the Trustee was appointed. CMGT had no assets of significant value. During the months of December 2004 through September 2005, Spehar and the Trustee negotiated a post-petition financing agreement which outlined a plan whereby Spehar agreed to loan the estate litigation expenses for the Trustee to prosecute a malpractice claim on behalf of the Estate. On June 14, 2005, the parties memorialized their post petition-financing agreement in a letter ("Financing Agreement"). The Financing Agreement contained a provision stating that the Trustee would "take all necessary or appropriate actions to void the UCC-1 financing statements or other liens that CMGT's shareholders or persons otherwise affiliated filed with the IL Secretary of State Illinois [sic] on or about 12/18/2003." On July 15, 2005, the Trustee filed with the bankruptcy court an Application to Enter into Post-Petition Secured Financing and Other Relief (the "Financing Motion") and requested that the bankruptcy court issue an agreed Financing Order to allow the Estate to obtain credit to pursue a malpractice action against Mayer, Brown, Rowe, & Maw ("Mayer Brown"), the law firm who had provided legal services to CMGT. As part of the Financing Agreement, Spehar was to make specific advances to the Estate in return for a share in the net recovery from the potential legal actions. The Financing Motion stated in relevant part:
Spehar... is the holder of a judgment against [CMGT] in the sum of $17,045,780.00 plus interest and costs.... The judgment was duly registered in the Circuit Court of the 18th Judicial Circuit, Dupage County.... A citation to discover assets was issued [by Spehar] and served upon the former president of [CMGT], Louis Franco.... To the extent that assets are available in this matter, Spehar... by virtue of the citation to discover assets which was served upon [CMGT] more than 90 days prior to the filing of the petition has a valid perfected lien.
After an uncontested hearing on the Financing Motion, the bankruptcy court entered an order ("Financing Order") on September 2, 2005, adopting the language of the parties' agreed proposed order. The Financing Order explicitly stated "IT IS HEREBY ORDERED... by virtue of its Citation to Discover Assets, Spehar has a valid and perfected lien on the proceeds of any [malpractice action] recovery" and that "[t]he Trustee shall take all reasonable and appropriate actions to void all liens that are asserted to be superior to Spehar's valid and perfected lien in CMGT's assets...."
The parties initially complied with the terms of the Financing Order. On September 7, 2005, Spehar paid the Trustee $5,000.00 pursuant to the Financing Order. The Trustee employed special counsel to pursue the malpractice action, and special counsel filed an action in August 2006 in the Circuit Court of Cook County, Illinois, which was removed to the U.S. District Court for the Northern District of Illinois on October 10, 2006.*fn3 That action is currently pending.
On March 22, 2006, Spehar filed a Proof of Claim against CMGT in the bankruptcy proceedings, asserting a secured claim in the amount of $17,045,780.00, that it subsequently amended asserting a secured claim of $13,427,560 and ...