United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge.
Roger Greenfield and Theodore Kasemir were the principals of Restaurant Development Group (RDG), which filed for bankruptcy. They later settled bankruptcy-related litigation with the court-appointed bankruptcy trustee, Gus Paloian, who is also a lawyer with the firm Seyfarth Shaw. The settlement was embodied in a consent decree entered by the bankruptcy court. Among other things, it prohibited Paloian and his counsel (the Seyfarth firm) from disclosing information or documents obtained in the litigation, except as required by law.
Paloian later gave an interview with an online legal news publication in which he said that he had participated in exposing a "well-orchestrated, multistep, multilayered scheme to defraud" RDG's creditors. When Greenfield and Kasemir learned of Paloian's statements, they sued Paloian and Seyfarth Shaw in state court for breach of the consent decree and for defamation. Paloian and Seyfarth Shaw removed the case to federal court because it included a claim for breach of a consent decree entered by a federal bankruptcy court.
Paloian and Seyfarth Shaw have now moved to dismiss the complaint on various grounds. For the reasons stated below, the Court dismisses the consent decree claim for lack of jurisdiction but declines to dismiss the defamation claim.
RDG, which Greenfield and Kasemir owned, filed for bankruptcy in this district in 2009. Paloian was appointed as chapter 7 trustee. A good deal of litigation ensued that was related to the bankruptcy.
In March 2009, Greenfield and Kasemir settled their disputes with Paloian. The settlement was embodied in a lengthy and detailed consent decree. The decree recited that Paloian had entered into it "not individually or personally, but solely in his capacity as the duly-appointed Chapter 7 trustee" of the bankruptcy estate of RDG. Compl., Ex. A at 1-2. The consent decree also contained a paragraph entitled "Trustee Exculpation, " which provided as follows:
The Agreement is executed on behalf of the Estate by Gus A. Paloian, not personally or individually, but solely in his capacity as the Chapter 7 Trustee of the Estate, in the exercise of the power and authority conferred upon and vested in his as the Chapter 7 Trustee of the Estate, and all Parties to the Consent Decree for themselves, and on behalf of their successors and assigns, and any other person or entity claiming any rights through them in the Consent Decree, agree that no personal liability or responsibility is assumed by, shall attach to, or shall at any time be asserted or enforced against Gus A. Paloian personally or individually, and/or against his attorneys, with all such personal liability, if any, being expressly waived and released by the Parties.
Id. ¶ 16.
Paragraph 12 of the consent decree, entitled "Confidentiality, " included a sentence that stated: "Neither the Trustee nor his counsel shall issue any press release related to the Consent Decree, the Adversary Proceeding or the Frozen Funds Proceeding." Id. ¶ 12. Paragraph 12 also stated that, with exceptions not pertinent here, "the Trustee and his counsel shall not disclose any information or documents obtained from the G&K Defendants in discovery in the Adversary Proceeding, the Frozen Funds Proceedings or in response to any subpoenas to any third party that relate solely to the G&K Defendants...." Id.
The bankruptcy court entered the consent decree in late March 2009 and dismissed the litigation that the decree settled. In May 2009, the online publication Law360 interviewed Paloian. Most of the interview focused on topics regarding Paloian's work as a bankruptcy partner at Seyfarth Shaw, his personal experiences, and his views on bankruptcy law and on the legal profession. The interviewer also asked Paloian what his most challenging case had been. He answered that it was the RDG bankruptcy, "because of the factual complexity and the investigative effort that was required to expose a well-orchestrated, multistep, multilayered scheme to defraud the creditors of Restaurant Development Group." Defs.' Mem. in Support of Mot. to Dismiss, Ex. A at 1. Paloian went on to describe what he characterized as "a well-planned scheme" by "[t]he ownership, management and others" to transfer RDG's assets so that they were "beyond the reach of creditors, " in order "to avoid paying the company's legitimate obligations." Id.
Greenfield and Kasemir allege that Paloian's statement breached the consent decree's confidentiality provision and that it was deliberately false. They contend that in June 2013, a potential business partner refrained from engaging in a business venture with them, citing Paloian's statements in the Law360 interview. That, plaintiffs allege, is when they first learned of Paloian's statements. They filed this suit on February 3, 2014. They assert claims for breach of contract (the consent decree) and defamation.
Paloian and Seyfarth Shaw have moved to dismiss. They argue that the breach of contract claim is deficient because neither Paloian in his individual capacity nor Seyfarth Shaw was a party to the consent decree; plaintiffs released Paloian from personal liability; and no claim may be brought against him in his capacity as bankruptcy trustee without the ...