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Smith v. Sipi, LLC

United States District Court, N.D. Illinois, Eastern Division

December 29, 2014

KEITH SMITH AND DAWN SMITH, Appellants,
v.
SIPI, LLC, AND MIDWEST CAPITAL INVESTMENTS, LLC, Appellees, and HAROLD MOSKOWITZ, Appellant,
v.
KEITH SMITH AND DAWN SMITH, Appellees.

MEMORANDUM OPINION AND ORDER

HARRY D. LEINENWEBER, District Judge.

Before the Court is Appellants Keith and Dawn Smith's (the "Smiths") Motion for Rehearing [ECF No. 29]. The Smiths have also filed a Motion for Leave to Rile a Reply Brief [ECF No. 36]. For the reasons stated herein, the Motion for Leave to File a Reply is granted, but the Motion for Rehearing is denied.

I. BACKGROUND

Appellants Keith Smith and Dawn Smith sought to use the fraudulent transfer provision of the Bankruptcy Code to avoid the sale of their house pursuant to Illinois tax law. The house, which Dawn inherited from her great-grandfather, was encumbered by a tax lien for unpaid real estate taxes for the 2000 tax year. The Smiths did not satisfy the lien and the property was sold at a tax sale to a predecessor of Appellee SIPI, LLC ("SIPI"). SIPI obtained and recorded a tax deed that it subsequently sold to Appellee Midwest Capital Investments, LLC. After filing for bankruptcy, the Smiths initiated an adversary action to avoid the transfer of the home as fraudulent. The Bankruptcy Court ruled in the Smiths' favor. On appeal, however, the Court reversed the bankruptcy court and granted SIPI's Motion to Dismiss the adversary proceeding.

The Smiths now move for a rehearing [ECF No. 29] of the Court's Memorandum Opinion and Order [ECF No. 28]. The Court asked SIPI to respond to the Motion, and after the Motion was fully briefed, the Smiths moved to file a reply brief [ECF No. 36]. The Court grants the Motion to File a Reply but, even after considering that brief, the Court denies the Motion for Rehearing.

II. LEGAL STANDARD

Bankruptcy Rule 8015 is "the bankruptcy counterpart to FED. R. CIV. P. 59(e)." Matter of Grabill Corp., 983 F.2d 773, 775 (7th Cir. 1993). "A party may request a rehearing under Bankruptcy Rule 8015 where it believes that the appellate tribunal has overlooked or misapprehended some point of law or fact." First Nat. Bank of Omaha v. Sysouvanh, No. 11-CV-675-wmc, 2014 WL 26274, at *5 (W.D. Wis. Jan. 2, 2014) (internal quotation marks omitted).

"District courts apply a dual standard of review when considering a bankruptcy appeal. The factual findings of the Bankruptcy Court are reviewed for clear error, while the conclusions of law are reviewed de novo." Chapman v. Charles Schwab & Co., No. 01 C 9697, 00 A 0358, 00 B 5538, 2002 WL 818300, at *2 (N.D. Ill. Apr. 30, 2002).

III. ANALYSIS

The Smiths have moved for rehearing of the Court's opinion dismissing their fraudulent transfer case, raising nine arguments in support of their Motion.

First, the Smiths argue that the Court should grant their Motion because of a typographical error. The Smiths correctly note that the Court stated in one instance that "a tax creditor is deemed to have received reasonably equivalent value' for the foreclosed property if all of the state's tax foreclosure laws have been complied with." (emphasis added). This was an error; the relevant party is the tax debtor, not the creditor. However, this error is of no consequence because the opinion's analysis focused entirely on whether the tax debtor - here, the Smiths - received reasonably equivalent value. In fact, just two sentences later the opinion states, "Therefore, the Smiths received reasonable equivalent value." A simple typographical error that had no effect on the analysis or outcome of the case is not enough to support the Smiths' Motion.

Second, the Smiths assert that the Court was wrong and inconsistent in concluding that (1) it is not "sensible for the Court to try to calculate the consideration received by the tax debtor, " and (2) the Smiths received reasonably equivalent value. The Smiths argue that the Court cited no authority for the first statement and that the first statement is logically inconsistent with the second. The Smiths' contention that the Court did not cite any authority is completely disingenuous; both the preceding and subsequent sentences include citations to well-reasoned case law that support the proposition. The Smiths' assertion that the two statements are inconsistent is also disingenuous. The Court determined that the law allows certain tax debtors, such as those in the Smiths' position, to be deemed to have received equivalent value as a matter of law. Where such a determination is proper, there is no inconsistency in holding both that a debtor received reasonably equivalent value and that the Court cannot sensibly calculate the consideration received by the tax debtor.

Third, the Smiths argue that the Seventh Circuit's prior ruling in this case found that the Smiths would be entitled to relief under 11 U.S.C. § 548 if their Complaint's allegations were proven at trial. The Smiths argue that this finding is the law of the case. They are wrong. The Smiths point to language in the Seventh Circuit's ruling that says "Section 522(h) gives debtors-in-possession, like the Smiths the same § 548 avoidance powers with respect to involuntary transfers of certain exempt properties, like homesteads." In re Smith, 614 F.3d 654, 657 (7th Cir. 2010) (emphasis added). The Seventh Circuit used the phrase "like the Smiths" only when generally describing the powers of a debtor-in-possession to avoid transfers under § 548. Id.

More importantly, the Seventh Circuit's decision dealt with a separate motion to dismiss that advanced different arguments from those at issue in the current Motion to Dismiss. The Seventh Circuit explicitly stated that "the issue in this case is when, under Illinois law, was SIPI's tax-buyer interest in the Smith property so perfected that the Smiths could no longer convey a superior' interest to a BFP?" Id. at 658. The Seventh Circuit concluded only that "the Smiths filed for bankruptcy, so they have sufficiently pleaded the two-year look-back element of their fraudulent transfer claim." Id. at 661. The Seventh Circuit never dealt with the issue in this case: whether the Smiths satisfied the reasonably equivalent value element. Thus, the Seventh Circuit opinion cannot possibly supply the law of the ...


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