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Wolf v. FirstMerit Bank, N.A.

United States District Court, N.D. Illinois

July 31, 2015

Donald L. Wolf, Sr., et al., Appellants,
v.
FirstMerit Bank, N.A., Appellee

For Donald L. Wolf, Sr., Donald L. Wolf, Jr., David M. Wolf, Appellants (3:15-cv-50035): James E. Stevens, LEAD ATTORNEY, Barrick, Switzer, Long, Balsley & Van Evera, Rockford, IL; Russell Wade Baker, Barrick, Switzer, Long, Balsley & Van Evera, LLP, Rockford, IL.

For FirstMerit Bank, N.A., (3:15-cv-50035, 3:15-cv-50037) Appellee: Gus Anthony Paloian, LEAD ATTORNEY, Christopher James Harney, Michael Ryan Pinkston, Seyfarth Shaw LLP, Chicago, IL.

For Service List (3:15-cv-50035, 3:15-cv-50037, 3:15-cv-50103): United States Trustee, Office of the United States Trustee, Chicago, IL; Jeffrey P. Allsteadt, U.S. Bankruptcy Court, Chicago, IL; Thomas M. Lynch, United States Bankruptcy Court, Northern District Of Illinois, Rockford, IL.

For David M. Wolf, Appellant (3:15-cv-50037): James E. Stevens, LEAD ATTORNEY, Barrick, Switzer, Long, Balsley & Van Evera, Rockford, IL; Russell Wade Baker, Barrick, Switzer, Long, Balsley & Van Evera, LLP, Rockford, IL.

For FirstMerit Bank, N.A., Plaintiff (3:15-cv-50103): Gus Anthony Paloian, Michael Ryan Pinkston, LEAD ATTORNEYS, Seyfarth Shaw LLP, Chicago, IL.

For David M. Wolf, Donald L. Wolf, Jr., Donald L. Wolf, Sr., Defendants (3:15-cv-50103): James E. Stevens, Barrick, Switzer, Long, Balsley & Van Evera, Rockford, IL; Russell Wade Baker, Barrick, Switzer, Long, Balsley & Van Evera, LLP, Rockford, IL.

ORDER

FREDERICK J. KAPALA, United States District Judge.

The January 12, 2015 Order of the Bankruptcy Court is affirmed. The motion to withdraw is denied. The following cases are closed: 15 C 50035, 15 C 50036, 15 C 50037, and 15 C 50103. Ruling on the appeal in case numbers 14 C 50337, 14 C 50338, and 14 C 50339 is stayed pending resolution of the motion to convert by the bankruptcy court.

STATEMENT

The debtors in the three bankruptcy cases underlying this appeal--brothers David M. Wolf and Donald L. Wolf, Jr. and their father Donald L. Wolf, Sr. (collectively the " Wolfs" )--each own a fractional share of a land trust which in turn is the owner of a piece of commercial real estate at 10611-10685 Wolf Drive, Huntley, Illinois (the " Property" ). FirstMerit Bank, N.A., is the holder of a defaulted note secured by the Property and any rents derived from the Property. The Wolfs, who are seeking reorganization pursuant to Chapter 11 bankruptcy petitions, moved the bankruptcy court to permit payment of certain professional fees from the rents collected from the Property since the filing of the debtors' petitions. The bankruptcy court ultimately denied the Wolfs' motion, a denial which they now appeal. For the reasons which follow, the bankruptcy court's order is affirmed and FirstMerit's related motion to withdraw the referral of an issue from the bankruptcy court is denied.

I. BACKGROUND

The Wolfs are indirect or direct owners and officers of nine entities, eight of which have filed Chapter 11 bankruptcy petitions and have been consolidated for administrative purposes (collectively the " Chardon Debtors" ). The Chardon Debtors own, among other property not relevant to the instant appeal, eight commercial real estate properties which are security for notes held by FirstMerit. FirstMerit also holds a note secured by the Property and the rents derived from the Property. The Property is not owned by the Chardon Debtors, but is instead owned by a land trust in which the Wolfs own a 100% interest (Donald Wolf, Sr. has a 51% share and the other two have 24.5% shares). FirstMerit, the Wolfs, and the Chardon Debtors signed cross-collateralization agreements which, at least for the purposes of this appeal, had the effect of aggregating the loan amounts and securing that aggregate against all of the various property listed above. It is undisputed that the value of the various collateral is insufficient to fully cover FirstMerit's claims against the Wolfs.

The rents collected from the Property are currently being held as cash collateral for FirstMerit's loan pursuant to the agreement between the parties and § 552 of the Bankruptcy Code. The Wolfs have requested, and have been permitted, to use that cash collateral to pay certain expenses of the Property, including maintenance of the property, without objection from FirstMerit. However, the Wolfs also requested the opportunity to pay their attorneys' fees and costs, as well as expert costs, totaling $278,582.90 from the cash collateral. FirstMerit objected, arguing that the collected rents were part of its collateral and the Wolfs had not offered adequate protection to protect FirstMerit from the collateral's loss in value. After taking the issue under advisement, the bankruptcy court issued a thorough opinion, ultimately denying the Wolfs' request. In brief, the bankruptcy court rejected the Wolfs' argument that they were not required to provide adequate protection in order to use FirstMerit's cash collateral to pay their professionals and rejected their secondary argument that, even if they were required to provide adequate protection generally, the " equities of the case" exemption to that requirement applied.

The Wolfs have now each appealed, and those appeals have been consolidated for the purposes of this order. In their briefing, the Wolfs have represented that, should this court affirm the bankruptcy court's order denying them the opportunity to pay their professionals by way of FirstMerit's cash collateral, they would be unable to successfully reorganize. As a response to that representation, FirstMerit moved the bankruptcy court to convert the Wolfs' bankruptcies to Chapter 7 liquidation rather than Chapter 11 reorganization. FirstMerit also filed a motion with this court to withdraw that motion from the bankruptcy court and rule on it immediately. The court will address the motion to withdraw after resolving the cash-collateral appeal. But, before either of those things can occur, the court must address FirstMerit's argument that this court lacks jurisdiction over the cash-collateral appeal.

II. DISCUSSION

A. Jurisdiction

FirstMerit argues that this court lacks jurisdiction because the order from the bankruptcy court adjudicating the cash collateral issue is not " final" within the meaning of 28 U.S.C. ...


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