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American Insurance Service Co. v. WGIN Enterprises, LLC

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

September 27, 2016

American Insurance Service Company, Appellant,
v.
WGIN Enterprises, LLC and Irwin Nissen, Appellees.

          MEMORANDUM OPINION AND ORDER

          John Robert Blakey, Judge

         In this bankruptcy appeal, American Insurance Service Company (“AISC”) argues that the Bankruptcy Court erred when it dismissed AISC's Chapter 7 bankruptcy petition on the basis that it was filed in bad faith. WGIN Enterprises LLC (“WGIN”) and its chief executive Irvin Nissen (“Nissen”) argue that the Bankruptcy Court's decision was properly based upon its review of the totality of circumstances presented in this case, such that there is no reversible error. For the reasons set forth below, this Court affirms the decision of the Bankruptcy Court.

         I. Standard of Review

         Pursuant to 28 U.S.C. § 158(a), this Court has jurisdiction to hear appeals from rulings of the Bankruptcy Court. On appeal, this Court reviews the Bankruptcy Court's legal findings de novo and its factual findings for clear error. In re Mississippi Valley Livestock, Inc., 745 F.3d 299, 302 (7th Cir. 2014). Because the Bankruptcy Court's decision here turned upon a finding of bad faith, this Court's review is for clear error. See Citizens Bank v. McKendree, Case No. 06-0049, 2006 WL 2193053, at *2 (S.D. Ill. Aug. 1, 2006) (“Whether a debtor has acted in bad faith is a question of fact that is subject to review for clear error.”) (internal citation omitted); see also Matter of Love, 957 F.2d 1350, 1354 (7th Cir. 1992) (“The bankruptcy court's good faith finding is a purely factual finding evaluated under the clearly erroneous standard of review.”).

         The clearly erroneous standard “requires this court to give great deference” to the bankruptcy court, the trier of fact. Id. Under this standard, if the lower court's account of the evidence is plausible in light of the record viewed in its entirety, a reviewing court may not reverse “even if convinced that it would have weighed the evidence differently as trier of fact.” Id. Indeed, this Court is only empowered to reverse the Bankruptcy Court under the clearly erroneous standard if, based upon the entire record, the Court “is left with the definite and firm conviction that a mistake has been committed.” EEOC v. Sears, Roebuck & Co., 839 F.2d 302, 309 (7th Cir. 1988) (citations and quotation marks omitted).

         II. Facts and Procedural History

         AISC is an Illinois insurance corporation originally formed in 2005. [9] at 7. In 2009, WGIN filed a lawsuit against AISC in the Circuit Court of Cook County, seeking recovery of ostensibly unpaid commissions totaling approximately $1, 600.000. [8-2] at 36. The trial of that underlying state court case was originally set to commence on January 12, 2015. Id. at 70. That trial never occurred because AISC filed its voluntary bankruptcy petition in this case on January 8, 2015. Id.

         AISC's bankruptcy petition only identified five creditors. Id. at 25-28. Three of these creditors were other businesses owned and managed by AISC's CEO and/or his business partner. [9] at 7-14. The fourth creditor was attorney David Roe, who represented AISC in the underlying state court litigation. Id. at 13. The fifth creditor was WGIN. Id. WGIN's claim was worth approximately $1, 600, 000, while Attorney Roe's claim was worth only $7, 300. Id.

         On July 13, 2015, WGIN and Nissen filed a Motion to Dismiss AISC's Chapter 7 bankruptcy petition on the basis that it had been filed in bad faith. [8] at 4. More specifically, WGIN and Nissen argued that AISC's bankruptcy petition had only been filed to delay their underlying state court litigation. Id. After the Motion to Dismiss was filed, AISC filed additional disclosures with the Bankruptcy Court. [9] at 12. These disclosures identified a second creditor, who was owed less than $5, 000. Id.

         On January 20, 2016, the Bankruptcy Court conducted a hearing on AISC's Motion to Dismiss. [8] at 5. At that hearing the Bankruptcy Court heard live testimony from AISC's president, Mr. Jesse Fuller. [9] at 2. Mr. Fuller testified that, inter alia, WGIN was AISC's primary outside creditor, and AISC had not realized any income during the months preceding its bankruptcy petition. Id. at 7-14.

         The Bankruptcy Court ultimately granted the Motion to Dismiss, finding, inter alia:

[W]hat you really get from the bankruptcy to begin with is just a stay, and a stay on the eve of litigation, which is one thing if it is a going-concern operation or a company with multiple claims against it, but it's another thing entirely when you've got what is essentially a single creditor case on the eve of litigation. What you do is you frustrate the trial, but in the end, you do nothing of substance that changes whether or not that trial will go forward.
This is, at its essence, a single creditor dispute. Now, I understand that you've been able to find a second creditor, but I think that while that is of some relevance, it doesn't carry the day. It's a small amount. It was not immediately disclosed, and we know that the initial disclosures versus the subsequent disclosures raises all sorts of concerns in the court, especially when the secondary disclosures were made in a self-serving manner in the context of a contested proceeding.
[C]ommenc[ing] [bankruptcy] primarily for the purpose of putting off this litigation . . . is a justifiable act in a larger context in other cases where cases are commenced on the eve of trial because there are numerous assets to preserve or other creditors that must be balanced, that wasn't the case here; that this case very clearly was frustrating the one and only main creditor in this case from proceeding with the remedy it had worked its ...

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