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River West Plaza - Chicago, LLC D/B/A Joffco Square v. River West Plaza - Chicago

April 11, 2011

RIVER WEST PLAZA - CHICAGO, LLC D/B/A JOFFCO SQUARE,
IN RE: DEBTOR. FRANK SCHWAB APPELLANT,
v.
RIVER WEST PLAZA - CHICAGO, LLC D/B/A JOFFCO SQUARE, AND BANK OF AMERICA, N.A.,
APPELLEES.



The opinion of the court was delivered by: Elaine E. Bucklo United States District Judge

MEMORANDUM OPINION AND ORDER

Creditor-Appellant Frank Schwab ("Schwab") appeals from an order of the Bankruptcy Court for the Northern District of Illinois disallowing his Proof of Claim against Debtor-Appellee River West Plaza - Chicago, LLC d/b/a Joffco Square ("River West"). River West and appellee Bank of America, N.A. ("Bank of America") have moved to dismiss Schwab's appeal as moot. For the reasons discussed below, the motion is granted.

I.

In July 2009, River West, a real estate asset company that owned and operated Joffco Square, a shopping center in Chicago, filed a voluntary Chapter 11 petition for bankruptcy. On July 18, 2010, Schwab filed a proof of claim in the action, asserting that, pursuant to an agreement with River West, he was entitled to twenty-five percent of River West's profits allegedly due to him. Prior to the bankruptcy filing, Schwab sued River West in Illinois state court for, inter alia, breach of contract in an attempt to collect the profits. He filed a lis pendens in December 2008, and after he filed for summary judgment, River West filed for bankruptcy. Once the bankruptcy proceedings were underway, litigation in the state court action was stayed.

Bank of America, which held a mortgage on the Joffco Square property, subsequently filed an objection to Schwab's proof of claim. On September 22, 2010, the bankruptcy court disallowed Schwab's claim in its entirety. During a hearing on the matter, the bankruptcy court stated that Schwab's claim was "essentially a claim to a disputed equity interest," and that Schwab's interest "is subordinate to any of the unsecured claims in this case." Transcript of Sept. 22, 2010 Hearing at 2:20-23. The bankruptcy court went on to observe that "[u]nsecured claims exhaust whatever assets are available," and that as a result, Schwab's claim was "not in a position to be allowed." Transcript of Sept. 22, 2010 Hearing at 2:23-25.

In November 2010, Schwab filed the instant appeal, presenting four questions for review: (1) whether the bankruptcy court erred in denying Schwab's claim against River West; (2) whether the bankruptcy court erred in denying his motion to abstain from ruling on the Bank's objections to his claim; (3) whether the bankruptcy court erred in denying his motion for discovery; and (4) whether the bankruptcy court erred in denying his motion to subordinate the Bank's mortgage to his lis pendens.

The bankruptcy proceedings continued while the parties briefed the appeal. On October 4, 2010, Bank of America and River West filed a joint liquidation plan ("the joint plan"), which proposed that Joffco Square be sold via auction. Shortly thereafter, the auction was scheduled for December 15, 2010. However, it was not until December 9, 2010 that Schwab filed a motion in the bankruptcy court asking that the sale be stayed pending the outcome of the instant appeal. The next day, Schwab filed a motion in this Court asking to advance the briefing schedule, and to stay the sale of Joffco Square.

On December 14, 2010, I denied Schwab's request for a stay, holding that the motion was premature because there had been no ruling yet on the motion to stay in the bankruptcy court. However, I granted the motion to advance and reset the briefing schedule. That same day, the bankruptcy court entered an order denying Schwab's motion to stay. Schwab filed an objection to the joint plan. Notably, however, he did not appeal the bankruptcy court's denial of his motion to stay, and did not renew his request for a stay in this Court.

On December 15, 2010, an auction was conducted for the purchase of Joffco Square. Inland Real Estate Corporation ("Inland") was the prevailing bidder. On December 22, 2010, the bankruptcy court held a joint confirmation and sale hearing. The bankruptcy court overruled Schwab's objection and entered an order confirming the joint plan (the "confirmation order"). The bankruptcy court also entered an order approving the sale of debtor's assets ("the sale approval order"), including Joffco Square, to Inland.

On January 11, 2011, the joint plan became effective. The sale of Joffco Square to Inland was closed pursuant to the sale approval order. On February 9, 2011, the Bankruptcy Court held a post-confirmation status hearing regarding any outstanding matters in the bankruptcy case. Schwab never appealed or sought to stay the confirmation order or the sale approval order. Neither Schwab nor his counsel attended the post-confirmation hearing.

It was also on February 9, 2010 that, having already filed their respective responses to Schwab's brief on appeal, River West and Bank of America filed a joint motion to dismiss the appeal. Citing 11 U.S.C. § 363(m), they contend that since Schwab failed to obtain a stay, his appeal is moot. I agree.

Section 363 provides:

The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.

11 U.S.C. § 363(m). As the Seventh Circuit explained, under section 363(m), "when a party challenges a bankruptcy court's order authorizing the sale of estate property to a good faith purchaser, it must obtain a stay pending appeal or the appeal becomes moot once the sale is made." Matter of Lloyd, 37 F.3d 271, 273 (7th Cir. 1994). Here, Schwab does not dispute that Inland was a good faith ...


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