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Key Equipment Finance, Inc. v. Rubloff Md87-936, LLC

United States District Court, Seventh Circuit

December 6, 2013

KEY EQUIPMENT FINANCE, INC., Plaintiff,
v.
RUBLOFF MD87-936, L.L.C., RONALD E SWENSON, AND GERAL H. WEBER, JR., Defendants.

MEMORANDUM OPINION AND ORDER

SHARON JOHNSON COLEMAN, District Judge.

This matter comes before the Court on plaintiff Key Equipment Finance, Inc.'s ("Key") motion for order of replevin. For the following reasons, Key's motion for order of replevin is denied without prejudice.

Background

On August 10, 2006, Key loaned defendant Rubloff MD87-936, LLC ("Rubloff") $6, 333, 269.56 to purchase a small aircraft ("First Note"). Rubloff executed a security agreement granting Key a security interest in the aircraft. On August 15, 2007, Key loaned Rubloff an additional $6, 300, 000.00 to repair and improve the aircraft ("Second Note"). Defendants Ronald E. Swenson ("Swenson") and Gerald H. Weber, Jr. ("Weber") executed personal guaranties on each note in Key's favor in August of 2006 and 2007. Rubloff failed to make payments and defaulted on both notes in February 2011. In October 2011, the parties reached a settlement agreement for a discounted payoff of $4, 830, 000.00. Rubloff again defaulted by failing to make payments in December 2011. Key subsequently declared the entire unpaid balance of each note immediately due, amounting to $9, 704, 974.32 plus all interest, fees and costs.

Key filed the instant complaint on May 7, 2013 alleging (I) claim for replevin, (II) foreclosure of mortgage and security interest, (III) breach of the First Note, (IV) breach of the Second note, (V) breach of guaranty against Swenson, and (VI) breach of guaranty against Weber. Key filed an order for replevin and motion for order preserving evidence[1] noticed for presentment on June 5, 2013, alleging Rubloff had not cured the default and refused to turn over the aircraft. On June 4, 2013, Rubloff filed for Chapter 11 bankruptcy in the District of Kansas at Wichita and Key's motions in this court were stayed. In bankruptcy, Key moved for relief from the automatic stay pursuant to 11 U.S.C. § 362(d)(1) and (2) and requested waiver of rule 4001(a)(3) in order to continue its replevin action. Key also moved to dismiss the bankruptcy action pursuant to 11 U.S.C. § 1112(b).

The bankruptcy court ultimately modified the automatic stay and dismissed the case. Rubloff filed a notice of appeal with the district court in Kansas and moved to stay pending appeal with the bankruptcy court. Thereafter, Key revived its motions pending in this court and filed a supplement regarding the bankruptcy proceedings.

Discussion

1. Order on Replevin

In Illinois, replevin is strictly a statutory proceeding and the requirements of the statute must be followed precisely. Carroll v. Curry, 392 Ill.App.3d 511, 513 (2d Dist. 2009) (citing Universal Credit Co. v. Antonsen, 374 Ill. 194, 200 (1940)). Section 19-101 of the Illinois Code of Civil Procedure provides that "[w]henever any goods or chattels have been wrongfully distrained, or otherwise wrongfully taken or are wrongfully detained, an action for replevin may be brought for recovery of such goods or chattel by the owner or person entitled to their possession." 735 ILCS 5/19-101. The court conducts a hearing to review the basis for the plaintiff's alleged claim to possession. 735 ILCS 5/19-107. The plaintiff must prove that he is lawfully entitled to the possession of the property sought to be recovered, and that the defendant wrongfully detains the property after refusing to deliver possession of it to the plaintiff. International Harvester Credit Corp. v. Helland, 130 Ill.App.3d 836, 838 (2d Dist. 1985) (citing Hanaman v. Davis, 20 Ill.App.2d 111 (1959)).

Key argues that the bankruptcy hearing on its motion to lift the stay and dismiss the bankruptcy action obviates the need for a hearing on replevin before this court. Rubloff argues it is entitled to an evidentiary hearing prior to entering an order on replevin. This Court agrees with Rubloff. No order for replevin may be entered nor may property be seized pursuant to an order for replevin prior to notice and hearing. 735 ILCS 5/19-105. Circumstances excusing the hearing requirement include the imminent destruction, concealment, removal, perishable nature, or imminent sale, transfer or assignment of the disputed property. 735 ILCS 5/19-106. Key fails to allege any circumstances excusing the hearing requirement, thus its motion to enter an order for replevin prior to a hearing must be denied. See Firestone Fin. Corp. v. King Amusements, Inc., 2013 WL 1286665 at *7-8 (N.D. Ill. Mar. 28, 2013) (stating that "granting replevin based solely on a contested, pre-discovery motion for replevin would be improper").

2. Key's supplement regarding bankruptcy proceedings

In its supplement, Key urges the Court to take judicial notice of certain findings of fact and law made by the bankruptcy judge, as well as attestations made and a stipulation entered into during the bankruptcy proceeding. Key attaches the bankruptcy order lifting the stay, transcript of the oral ruling, order denying Rubloff's motion for stay pending appeal, a stipulation, and Rubloff's bankruptcy petition to its supplement. A court may take judicial notice of an adjudicative fact that is not subject to reasonable dispute and either generally known within the territorial jurisdiction of the trial court or capable of accurate and ready determination. Fed.R.Evid. 201(b); Trudeau v. ConsumerAffairs.com, Inc., 2011 WL 3898041 at *2 (N.D. Ill. Sept. 6, 2011). Thus, the Court takes judicial notice of the court documents Key has provided for the limited purpose of recognizing the fact of litigation and related judicial actions; it does not consider the documents for the truth of the matters asserted therein. See id; Global Relief Found. v. New York Times Co., 2002 WL 31045394 at *4 (N.D.Ill. Sept.11, 2002).

Key argues Rubloff should be precluded by res judicata and collateral estoppel from re-litigating certain findings of fact and law made by the bankruptcy judge. In the bankruptcy action, Key moved for relief from the automatic stay under 11 U.S.C. § 362(d)(1) and (2). Key also moved to dismiss the bankruptcy case for cause on three grounds: diminution of the estate and absence of reasonable likelihood of rehabilitation, gross mismanagement, and failure to maintain insurance pursuant to 11 U.S.C. § 1112(b)(1) and (4)(A), (B), and (C). The bankruptcy court ultimately granted both motions.

As a preliminary matter, a hearing on a motion to lift the automatic stay under Section 362(d) is limited in scope and the issues considered are limited to adequacy of protection, equity and necessity to an effective reorganization. Matter of Vitreous Steel, 911 F.2d at 1231-1234. Indeed, the court considers only whether there is a colorable claim of a lien on a property of the estate. Id. at 1234 (emphasis added); see also In re Brian Wise Trucking, Inc., 386 B.R. 215, 218 (Bankr. N.D. Ind. 2008) (the purpose of 362(d)(1) is to ensure that a secured creditor is not harmed while the debtor attempts to reorganize its affairs while 362(d)(2) is designed to test whether the debtor is making sufficient progress towards a sufficiently realistic goal so that its efforts should be allowed to proceed). Section 1112(b) is meant to cut short a bankruptcy plan and confirmation process where it is pointless. In re Original IFPC Shareholders, Inc., 317 B.R. 738, 749 (Bankr. ...


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