United States District Court, N.D. Illinois, Eastern Division
OPS3 LLC, LEE M. FACKLIS, JEFFREY DEAN FACKLIS, and 2201 W. FULTON, LLC, Plaintiffs-Appellants,
AMERICAN CHARTERED BANK, Defendant-Appellee.
Appeal from the United States Bankruptcy Court for the
Northern District of Illinois, Case No. 12-ap-01667
MEMORANDUM OPINION AND ORDER
R. Wood United States District Judge
LLC, Lee Facklis, Jeffrey Facklis, and 2201 W. Fulton, LLC
("Appellants") have brought this appeal from the
decision of the bankruptcy court dismissing their adversary
complaint. The adversary complaint sought, as relevant here,
a declaratory judgment that personal guaranties by Lee
Facklis and Jeffrey Facklis (collectively, the
"Facklises") had been discharged in bankruptcy, and
an injunction preventing American Chartered Bank
("ACB") from enforcing a mortgage executed by the
Facklises in favor of ACB to secure loans made to the debtors
as it too had been discharged in the bankruptcy. The
bankruptcy court dismissed both of those claims in an oral
ruling, reasoning that the bankruptcy plan language did not
specifically discharge either the personal guaranties or the
mortgage. Appellants now contend that the bankruptcy court
erred, as the plain meaning of the plan language discharged
both the guaranties and the mortgage. For the reasons set
forth below, the Court affirms the decision of the bankruptcy
court dismissing the adversary complaint.
debtors in the underlying bankruptcy case were four separate
business entities: Show Department, Inc.; Resolution Digital
Studios (“Resolution”); Boreray, LLC; and 2201
West Fulton, LLC (“Fulton, ” and collectively
with Show Department, Resolution, and Boreray, the
“Debtors”). (Adversary Compl. ¶¶ 4-5,
Dkt. No. 13-1.) Sometime prior to the bankruptcy, the
Facklises-who were two insiders of the Debtors-executed
personal guaranties (the “Facklis Guaranties”)
for each of seven business loans made to the Debtors by ACB.
(Id. ¶ 20.) Separately, in March 2010, the
Facklises executed a second mortgage on certain Wisconsin
real estate that they owned personally (the “Wisconsin
Mortgage”) to secure a loan in the amount of $340, 000
made by ACB to Show Department, Boreray, and Resolution.
(Id. ¶¶ 23-24.)
each of the Debtors filed voluntary petitions for bankruptcy,
the bankruptcy court entered an order allowing the joint
administration of the Debtors with In re Show Department,
Inc., Case No. 10-bk-42055 (Bankr. N.D. Ill.), as the
lead case. (Id. ¶ 14.) Each of the Debtors
filed a separate Plan of Reorganization, all of which were
confirmed on December 15, 2011. (Id. ¶¶
15, 17.) OPS3 LLC was created pursuant to the Plans of
Reorganization of Show Department, Resolution, and Boreray,
and assumed all assets and liabilities of those three
Debtors. (Id. ¶¶ 4, 16.) Meanwhile, under
its Plan of Reorganization, Fulton continued in existence and
retained ownership of the real estate located at 2201 West
Fulton in Chicago Illinois, and also provided for the
repayment of the mortgage debt on that property owed to ACB.
(Id. ¶ 18.)
the Plans of Reorganization contained the following provision
labeled Section 9.13:
On the latest Effective Date of the four Plans, (a)
all guaranties of any of the Debtors (Show Department, Inc.;
Resolution Digital Studios, LLC; Boreray, LLC; 2201 W.
Fulton, LLC) of the payment, performance or collection of any
other of the Debtors shall be deemed eliminated and
cancelled; (b) any obligation of any of Debtors
and all guaranties by or on behalf of any of the Debtors
shall be merged into the obligation of the Debtor as stated
in the Plan; and (c) intercompany Claims between the
Debtor entities shall be eliminated.
(Id. ¶ 19 (emphasis added).) Each of the
confirmed Plans of Show Department, Boreray, and Resolution
also contained the following provision at Section 2.01:
ACB is secured to the extent of the value of its collateral,
including accounts receivable, equipment, furniture, general
intangibles and chattel papers (all assets), as of the
Effective Date of the Plan.
(Id. ¶ 38.)
October 31, 2012, OPS3 and the Facklises filed an adversary
complaint against ACB. The action included three counts;
however, only Counts I and III are relevant to the appeal.
Count I sought a declaratory judgment that the Facklis
Guaranties had been “merged” into the obligations
of the Debtors, per Section 9.13, and then discharged in
bankruptcy. (Id. ¶ 27.) Count III sought an
injunction preventing ACB from enforcing the Wisconsin
Mortgage on the ground that Section 2.01 fails to state
specifically that ACB is secured in the Wisconsin Mortgage
and therefore that secured debt was discharged in bankruptcy.
(Id. ¶¶ 38-45.)
filed a motion to dismiss the adversary complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6) and Federal Rule of
Bankruptcy Procedure 7012. After briefing concluded, the
bankruptcy court dismissed the action in an oral ruling.
(Apr. 25, 2013 Tr. at 7:6-13:12, Dkt. No. 13-2.) With respect
to Count I, the bankruptcy court found Appellants'
interpretation of Section 9.13 to be overly broad in light of
Seventh Circuit precedent indicating that releases of third
parties in bankruptcy actions must be narrowly tailored and
supported by express findings by the bankruptcy court that
such releases are absolutely essential to the reorganization.
(Id. at 7:6-8:25.) The bankruptcy court also found
that the plain language of Section 9.13 did not support the
proposition that the Facklis Guaranties had been discharged.
The bankruptcy court commented that the relevant language
stated that guaranties on behalf of the debtor were
“merged” into the debtor and further noted:
I don't even know what merged means. If you look it up in
the dictionary, it says unite. . . . [I]n your next phrase,
you say and intercompany claims between the debtor entity
shall be eliminated. You really wouldn't have had to use
that last sentence. It would be surplusage if your term of
merger was ...