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In Re Giordano's Restaurant Enterprises, Inc., et al v. John Apostolou

April 3, 2012

IN RE GIORDANO'S RESTAURANT ENTERPRISES, INC., ET AL., DEBTORS, FIFTH THIRD BANK, APPELLANT,
v.
JOHN APOSTOLOU, ET AL., APPELLEES.



The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge

MEMORANDUM OPINION

This matter is before the court on Appellant Fifth Third Bank's (FTB) appeal from the ruling of the bankruptcy court in bankruptcy case number 11-06098. For the reasons stated below, this court affirms the bankruptcy court.

BACKGROUND

In February 2011, a group of entities that operate Giordano's pizza restaurants (Debtors) collectively filed for bankruptcy (Bankruptcy Proceedings) under Chapter 11 of the Bankruptcy Code. John and Eva Apostolou are trustees of trusts that allegedly own 100% of certain common stock and limited partnership interests of Debtors. On May 12, 2011, the bankruptcy court appointed a trustee (Trustee) over the estate in the Bankruptcy Proceedings (Estate) and placed the assets and business of Debtors under the control of the Trustee. On that same day, the bankruptcy court entered an order (May 12 Order) providing that "John Apostolou, Eva Apostolou, Johanna Apostolou and all persons acting for them, as their agents, in concert with them, or otherwise at their direction or under their control . . . may not interfere in the Debtors' business in any way, including, without limitation, by contacting employees, vendors, landlords, tenants, franchisees, and creditors." (5/12/11 OR).

On August 3, 2011, an action was filed in state court (Apostolous Action) by John Apostolou, Eva Apostolou, Basil Apostolou, George Apostolou, and Joanna Apostolou (collectively referred to as "Apostolous"). On August 12, 2011, FTB filed a notice of removal, removing the Apostolous Action to federal court. On August 15, 2011, FTB filed a motion in the Bankruptcy Proceedings, contending that the Apostolous Action violated the bankruptcy automatic stay and violated the May 12 Order. FTB also filed a motion for sanctions against the Apostolous and their counsel. On August 19, 2011, the Trustee filed a motion to enforce the automatic stay against the Apostolous and to stay the Apostolous Action. On August 23, 2011,

the Apostolous filed a motion to remand the Apostolous Action to state court.

On September 21, 2011, the bankruptcy court granted in part the Trustee's motion to enforce the automatic stay (September 21 Order). The bankruptcy court held that certain portions of the complaint in the Apostolous Action violated the automatic stay and that those portions of the complaint were stricken. The bankruptcy court also found that the proposed amended complaint (Amended Complaint) by the Apostolous complied with the court's order and did not violate the automatic stay. The bankruptcy court further granted in part and denied in part FTB's motion for sanctions, denying the request that the Apostolous and their counsel be held in contempt of court. On September 28, 2011, the bankruptcy court remanded the Apostolous Action to state court. FTB now appeals certain rulings by the bankruptcy court.

LEGAL STANDARD

A federal district court has jurisdiction, pursuant to 28 U.S.C. § 158, to hear appeals from the rulings of a bankruptcy court. 28 U.S.C. § 158. On appeal, the district court reviews the factual findings of the bankruptcy court under the clearly erroneous standard and reviews the bankruptcy court's legal findings under the de novo standard. Wiese v. Community Bank of Cent. Wis., 552 F.3d 584, 588 (7th Cir. 2009)(stating that the court "review[s] the bankruptcy court's determinations of law de novo and findings of fact for clear error," but "where the bankruptcy code commits a decision to the discretion of the bankruptcy court, [the court] review[s] that decision only for an abuse of discretion"); see also In re A-1 Paving and Contracting, Inc., 116 F.3d 242, 243 (7th Cir. 1997)(stating that a "bankruptcy court's findings of fact are upheld unless clearly erroneous and the legal conclusions are reviewed de novo"). Where there are mixed questions of law and fact, the district court conducts a de novo review. Freeland v. Enodis Corp., 540 F.3d 721, 729 (7th Cir. 2008).

DISCUSSION

I. Whether Court Determined that Claims Are Not Property of the Estate FTB argues that the bankruptcy court failed to determine if the claims in the Apostolous Action (Claims) are property of the Estate and that the bankruptcy court had an obligation to make such a determination. (Applt. 9-10). FTB also argues that the bankruptcy court improperly delegated that determination to the state court. (Applt. 9-10). Once a bankruptcy petition is filed, pursuant to 11 U.S.C. § 362(a), "the bankruptcy code provides for an automatic stay of efforts outside the bankruptcy proceeding to collect debts from the bankrupt debtor." In re Radcliffe, 563 F.3d 627, 630 (7th Cir. 2009)(explaining that "[b]ringing all debts within the jurisdiction of the bankruptcy court allows for the orderly distribution of assets"). The automatic stay extends to "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate. . . ." 11 U.S.C. § 362(a)(3). The trustee appointed in the bankruptcy proceeding "has the sole right and responsibility to bring claims on behalf of the estate." In re Teknek, LLC, 563 F.3d 639, 645-46 (7th Cir. 2009)(stating that the "trustee has the sole responsibility to represent the estate by bringing actions on its behalf").

FTB contends that the Claims were property of the Estate, and thus the Apostolous Action violated the automatic stay. FTB also asserts that the bankruptcy court improperly delegated to the state court on remand the authority to make a determination as to whether the Claims are property of the Estate. However, the record reflects that the bankruptcy court did determine that the Claims in their entirety are not property of the Estate. The fact that the bankruptcy court did not agree with FTB's position does not mean that the court failed to decide the issue or failed to consider the pertinent law. In the September 21 Order, the bankruptcy court ruled that all of the Claims did not violate the automatic stay. (9/21/11 Enf. OR 1).

The court specified which portions of the Claims involved property of the Estate and the court ruled that such portions "are void as having been brought in violation of the automatic stay and shall be stricken. . . ." (9/21/11 Enf. OR 1). The bankruptcy court further indicated that the Claims in the Amended Complaint (Amended Claims) are not property of the Estate and do not violate the automatic stay.

FTB supports its position by extensively quoting statements made by the bankruptcy court orally at court hearings. However, such statements must be viewed in their proper context and do not clearly indicate that the bankruptcy court was making any ruling orally that was contrary to its written orders. The bankruptcy court's written orders make it clear that the Amended Claims are not property of the Estate. FTB fails to point to any portion of the September 21 Order expressly stating that the bankruptcy court was declining to rule on any ...


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