United States District Court, N.D. Illinois, Eastern Division
DAVID LEIBOWITZ, Trustee of McDonough Associates, Inc., Plaintiff,
BOWMAN INTERNATIONAL, INC. f/k/a Bowman International, LLC and Bowman Consulting Group, Ltd., Defendants.
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
Associates, Inc. (MAI) entered bankruptcy after some of its
creditors filed an involuntary petition. After the petition
was filed, MAI allegedly transferred some of its assets to
Bowman International, Inc. and Bowman Consulting Group, Ltd.
(together, Bowman). The bankruptcy court then appointed David
Leibowitz as trustee for the MAI estate. The Trustee has
brought claims against Bowman to void the transfer as
unlawful under 11 U.S.C. § 549 (claim 1) and to hold
Bowman liable for MAI's debts under a theory of successor
liability (claim 2). Bowman has moved for summary judgment on
both claims. Bowman has also moved to bar the testimony of
the Trustee's expert, John Pruitt. The Trustee has moved
to strike three of the affirmative defenses that Bowman
raised in its answer.
reasons stated below, the Court denies Bowman's motion
for summary judgment on both claims. The Court also denies
Bowman's motion to bar Pruitt's testimony and the
Trustee's motion to strike three of Bowman's
an engineering consulting firm that worked primarily on
projects for the Illinois Department of Transportation (IDOT)
and the Illinois State Toll Highway Authority. In June 2012,
IDOT suspended MAI from conducting any business with IDOT due
to overbilling and fraud. MAI lost a substantial portion of
its income and became unable to make payments to its secured
creditor, Associated Bank. On June 13, 2012, Associated
issued MAI a notice of default. Soon after, the two entered
into a forbearance agreement under which MAI agreed to find a
buyer for its business.
same month, MAI entered into discussions for a potential sale
with Bowman, a national engineering consulting firm based in
Virginia. In July 2012, Bowman conducted a review of
MAI's business and records. On September 21, the two
companies entered into a letter of intent in which Bowman
agreed to purchase MAI's assets. In October and November,
Bowman continued to review MAI's financial records,
customer contracts, and computer system. Bowman interviewed
MAI employees and began the process of qualifying to receive
projects from IDOT and the City of Chicago.
financial situation continued to decline. In November 2012,
Associated told MAI that if a sale of the assets did not
close by November 30, Associated would foreclose. Senior
managers of Bowman and MAI met at MAI's offices on
November 30 to close the sale. While the meeting was taking
place, three of MAI's other creditors filed an
involuntary bankruptcy petition. When Bowman's lenders
learned of the petition, they decided they would no longer
consent to the transaction. Bowman and MAI never executed the
asset purchase agreement. MAI then told the petitioning
creditors that the Bowman deal was dead. Associated froze
MAI's bank account and began to plan how it would collect
MAI's receivables, on which Associated had a lien.
these adverse developments, Bowman and MAI managers continued
to meet for the rest of the day and eventually reached a new
agreement. The parties dispute the nature of this agreement.
Regardless, a number of changes occurred at MAI in the
following days. Feroz Nathani, the president of MAI, and Dan
Curley, another employee, informed MAI employees that the
company was closing. Many MAI employees left MAI and were
immediately hired by Bowman. The parties dispute whether MAI
fired the employees before they were hired by Bowman. Bowman
made Matthew Letson, a senior MAI employee, a vice president
and put him in charge of Bowman's new Chicago office.
Nathani resigned from MAI and became an executive vice
president of Bowman; he also joined Bowman's board of
directors. In all, Bowman hired twelve former MAI
shareholders. The parties dispute whether these employees
also became shareholders of Bowman; Bowman claims that they
did not. The employment agreements between Bowman and these
new hires provided for distribution of Bowman stock to them
within sixty days of hiring as well as over the course of
their employment. As of the time of this litigation, Bowman
has not issued any of these shares.
also assigned the lease for its Chicago office space to
Bowman. Bowman took over the space and began to use MAI's
furniture, equipment, and electronic files. Bowman also began
transferring employees' files from MAI equipment to
Bowman systems. Bowman began contacting former MAI clients to
indicate that many from the MAI team were coming on board and
to offer Bowman as a replacement on MAI's uncompleted
projects. According to Bowman, Alan Swanson, an officer and
director of MAI, assigned MAI's contracts with the City
of Chicago to Bowman in February 2013. The Trustee agrees
that Swanson purported to do this but argues he lacked
authority to do so because he was already working for Bowman
at the time.
Curley stayed with MAI to oversee the bankruptcy proceedings.
During this time, Curley and Swanson (while still with MAI)
often communicated by email with MAI's counsel, Stephen
Brown, regarding the bankruptcy proceedings. Swanson also
forwarded these e-mails to Nathani, who by that point had
already left MAI to join Bowman. On the day that the
creditors filed the involuntary petition, Brown had told the
creditors that MAI would not contest the petition. On
December 5, 2012, however, MAI told the bankruptcy judge that
it was opposing the involuntary petition. The bankruptcy
court appointed Leibowitz as Trustee in February 2013. At
that time, the Trustee abandoned some MAI records that were
still at the Chicago property but retained many as well.
Likewise, the Trustee obtained permission from the bankruptcy
court to abandon or sell some of the telephone and computer
equipment that Bowman was not using.
Trustee then filed the current complaint against Bowman. The
Trustee alleges that Bowman's takeover of MAI's
business constitutes a post-petition transfer of MAI's
assets and therefore is voidable under 11 U.S.C. § 549.
Compl. ¶¶ 76-84. The Trustee further alleges that
Bowman's conduct made it a successor of MAI and therefore
liable for all of MAI's debts. Id. ¶¶
85-92. In its answer, Bowman denies the Trustee's
allegations and raises a number of affirmative defenses,
including the following: 1) any recovery under claim 1 should
be reduced by value Bowman may have provided to MAI during
the exchange; 2) the Trustee has unclean hands, which should
prevent his recovery under claim 2; and 3) MAI was at least
as responsible for the damage to its bankruptcy estate, and
therefore the Trustee should be barred from recovering under
claim 2 on the basis of in pari delicto.
moved for summary judgment on both of its claims and moved to
bar the expert testimony of Pruitt. The Trustee moved to
strike the three affirmative defenses discussed above. In
this decision, the Court considers all three motions.
Bowman's motion for summary judgment
Bowman has moved for summary judgment, the Court views the
evidence in the light most favorable to the Trustee and draws
reasonable inferences in his favor. See Bunn v. Khoury
Enters., Inc., 753 F.3d 676, 681 (7th Cir. 2014).
Summary judgment is appropriate only when the record
discloses no dispute on any material fact. Lesch v. Crown
Cork & Seal Co., 282 F.3d 467, 471 (7th Cir. 2002).
If a reasonable jury could return a verdict for the
non-moving party, the court should deny summary judgment.
See Bunn, 753 F.3d at 681.
claim 1, the Trustee alleges that Bowman received a
post-petition transfer of MAI's assets in violation of 11
U.S.C. § 549. The Trustee alleges that Bowman took over
MAI's "space, equipment, unfinished business, and
computers" and "took possession of [MAI's]
paper and electronic business files." Compl. ¶ 78.
In moving for summary judgment, Bowman argues that it did not
receive any assets belonging to MAI.
549 authorizes a trustee to avoid a transfer of
"property of the estate that occurs after the
commencement of the case." 11 U.S.C. § 549(a). Once
the bankruptcy petition is filed, "all of the
debtor's property becomes property of the estate."
Matter of Jones, 768 F.2d 923, 926 (7th Cir. 1985).
The scope of the estate is broad and includes "all
interests of a debtor, both legal and equitable."
Id. These property interests are defined by state
law. Peterson v. McGladrey & Pullen, LLP, 676
F.3d 594, 598 (7th Cir. 2012).
parties agree that, after the filing of the involuntary
petition, MAI assigned the lease of its office space to
Bowman. See Def.'s Mem. in Support of Mot. for
Summ. J. at 4; Pl.'s Resp. to Def.'s Mot. for Summ.
J. at 12. Further, Bowman does not argue that a lease is not
a property interest under Illinois law. Bowman instead argues
that the lease was not an asset but rather a liability that
would have been treated as an administrative expense in
bankruptcy, and therefore the trustee cannot avoid the
transfer. Def.'s Reply at 3. Section 549 of the
Bankruptcy Code, however, does not draw this distinction, and
Bowman cites no authority in support of its position. A
leasehold clearly qualifies as a property interest under
Illinois law and is included in the bankruptcy estate.
See Munroe v. Brower Realty & Mgmt. Co., 206
Ill.App.3d 699, 704-05, 565 N.E.2d 32, 36 (1990); see
also In re Rickel Home Ctrs., Inc., 209 F.3d 291, 300
(3d Cir. 2000). A reasonable fact-finder could conclude that,
in taking over the lease, Bowman received a transfer of MAI
Other physical property
Trustee further alleges that Bowman received from MAI
equipment, computers, furniture, and paper and electronic
business files. Again, Bowman does not contend that MAI did
not have a property interest in these items. Instead Bowman
appears to argue that MAI never transferred these items to
Bowman and that the Trustee abandoned this property.
See Def.'s Mot. for Summ. J. at 6.
is a genuine factual dispute over whether Bowman received and
used this property. Testimony by former MAI employees
indicates that Bowman began using these items immediately
after the November 30 meeting. See Pl.'s Resp.
to Def.'s SUDF, Exh. 1 (Letson Dep.) 47:6-22, 50:8-52:3,
59:2-12; Letson Dep., Exh. 259.
is also a genuine dispute regarding whether MAI still
retained an interest in this property. First, to the extent
that the Trustee abandoned any property, he did not do so
until late 2013 through early 2015, long after Bowman began
using the property in 2012. See P.'s Resp. to
Def.'s SUDF, Exh. 6 (Leibowitz Affid.) ¶¶ 5-6.
Any later abandonment by the Trustee therefore had no effect
on Bowman's use during this period. Further, the Trustee
stated that, although he eventually abandoned some furniture
and records, he "retained a large quantity of
records" as well as computers of MAI employees.
Id. The Trustee also sold other computer equipment
and telephone hardware. Leibowitz Affid. ¶ 6. Finally,
the abandonment orders issued by the bankruptcy court state
that the Trustee did not waive any rights or arguments with
respect to possible litigation. Def.'s SUDF, Exh. R
(Abandonment Orders) at 2. A finder of fact could reasonably
conclude that Bowman used this property and that it still
belonged to MAI. Thus there is a genuine dispute regarding
whether Bowman received a post-petition transfer of this
property in violation of 11 U.S.C. § 549.
Trustee also contends that Bowman received a transfer of
MAI's intangible assets. Pl.'s Resp. to Def.'s
Mot. for Summ. J. at 6-7. The Trustee appears to argue that
Bowman received MAI's goodwill, including its
relationships with employees and customers and its
organizational structure. See Id. at 7-10. Bowman
argues that MAI's alleged goodwill is actually the
personal goodwill of each MAI employee. Def.'s Mem. in
Support of Mot. for Summ. J. at 7. Further, Bowman contends
that, by the time of the alleged transfer, MAI had lost
virtually all of its value as a going concern and therefore
had nothing to transfer to Bowman. Def.'s Reply at 4-7.
Illinois law, a company's goodwill is an intangible
property right and therefore can belong to the bankruptcy
estate. See Wetekamp v. Lane, 250 Ill.App.3d 1017,
1025-26, 620 N.E.2d 454, 460-61 (1993). Illinois courts
define goodwill as "the advantages a business has over
competitors as a result of its name, location and owner's
reputation." See Russell v. Jim Russell Supply,
Inc., 200 Ill.App.3d 855, 862- 63, 558 N.E.2d 115,
121-22 (1990). "Its value consists of the probability
that the customers of the old firm will continue to be
customers to the new." Id. at 863, 558 N.E.2d
at 121. In order for a court to protect an interest in
goodwill through injunctive relief, the goodwill must have
substantial value. Id. at 862, 558 N.E.2d at 121.
is a genuine factual dispute regarding whether MAI
transferred its goodwill to Bowman. The evidence indicates
that Bowman immediately began using MAI's office space,
equipment, and files. See Letson Dep. 47:6-22,
50:8-52:3, 59:2-12; Letson Dep., Exh. 259. Further, Bowman
hired twelve MAI employees in December 2012. Def.'s SUDF
¶ 10; Pl.'s Resp. to Def.'s SUDF ¶ 10.
Bowman contacted many of MAI's customers who had
outstanding projects in order to assert itself as MAI's
replacement. Letson Dep. 60:2-65:11. Bowman also asked Letson