United States District Court, N.D. Illinois, Eastern Division
ROBERT SOBCZAK-SLOMCZEWSKI, Debtor.
ROBERT SOBCZAK- SLOMCZEWSKI, Defendant-Appellee. WDH LLC, Plaintiff-Appellant,
appeal from the U.S. Bankruptcy Court for the Northern
District of Illinois, Eastern Division Bankr. Case No.
13-A-972 Judge Donald Cassling
MEMORANDUM OPINION AND ORDER
M. Dow, Jr. United States District Judge.
case is on appeal from the United States Bankruptcy Court for
the Northern District of Illinois, Eastern Division, Case No.
13-A-972. Plaintiff-Appellant WDH LLC
(“Appellant”) appeals from the Bankruptcy
Court's April 28, 2017 order denying Appellant's
motion for relief and correction of judgment (the
“Order”). See App. 228. For the reasons set forth
below, the Bankruptcy Court's Order is AFFIRMED.
Robert Sobczak-Slomczewski (“Debtor”) was a
principal of Dells Hospitality, Inc. d/b/a Hilton Garden Inn
Wisconsin Dells (“Dells”). Dells borrowed $12.6
million (the “Loan”) from Bear Stearns Commercial
Mortgage, Inc. (“Bear Stearns”) to fund the
acquisition of the Hilton Garden Inn Hotel in Lake Delton,
Wisconsin (the “Hotel”). Debtor, in his
individual capacity, agreed to indemnify Bear Stearns against
certain losses that it might suffer in connection with the
Loan. The Loan was subsequently acquired by Maiden Lane
Commercial Mortgage-Backed Securities Trust 2008-1 (the
defaulted on the Loan. The Trust therefore began foreclosure
proceedings in Wisconsin state court. The Hotel eventually
was sold at auction to Appellant, which is a limited
liability company owned by the Trust. Appellant subsequently
assigned to Maiden Lane, LLC (“Maiden Lane”) all
of its right, title, and interest in all payments,
guarantees, claims, demands, causes of action, remedies, and
judgments to which it is entitled against Debtor.
he was in default under the Loan and the foreclosure
proceedings were pending, Debtor transferred more than $677,
000 of Hotel revenues that had been pledged as cash
collateral to secure repayment of the Loan. Upon discovering
these transfers, Appellant sued debtor in Wisconsin state
court for indemnification, conversion and embezzlement (the
“Wisconsin Case”). Debtor removed the action to
the United States District Court for the Western District of
Wisconsin (“Wisconsin District Court”). On March
20, 2013, the Wisconsin District Court granted summary
judgment for Appellant (the “Wisconsin Order”),
concluding that Debtor committed conversion and embezzlement
and awarding Appellant $667, 000 in actual damages. The
Wisconsin District Court also ordered Appellant to submit
proof of exemplary damages and any documentation needed for
the court to consider an award of additional damages.
April 22, 2013, Debtor filed a petition for Chapter 7
bankruptcy (No. 13 B 16661) in the Bankruptcy Court for the
Northern District of Illinois (the “Bankruptcy
Court”). Without ruling on exemplary damages, the
Wisconsin District Court dismissed the Wisconsin Case
“without prejudice subject to its reopening upon the
completion of bankruptcy proceedings where all issues have
not been rendered fully dispositive.” App. 20.
18, 2013, Appellant filed an adversary proceeding (No.
13-A-972) in the Bankruptcy Court. See App. 40. The adversary
complaint asked the Bankruptcy Court to determine the
dischargeability of the Wisconsin Order under 11 U.S.C.
§ 523(a)(4) and (6). The complaint alleged that
Appellant had “obtained summary judgment against the
Debtor” in the Wisconsin District Court “on March
20, 2013 in the amount of at least $677, 000.00, plus
interest, costs, disbursements, reasonable attorneys'
fees, and treble damages.” App. 41. In its prayer for
relief, Appellant asked the Bankruptcy Court to
“[d]etermine and adjudge that Debtor's indebtedness
to [Appellant] is excepted from the Debtor's general
discharge pursuant to 11 U.S.C. § 523(a)(4) and/or
(a)(6).” App. 49.
moved for summary judgment in the adversary proceeding. In
its memorandum in support of summary judgment, Appellant
explained that it was “a creditor of [Debtor] by virtue
of . . . obtaining summary judgment against . . .
Debtor” in the Wisconsin Case “on March 20, 2012
in the amount of at least $677, 000.00.” App. 131-132.
Appellant requested that the Bankruptcy Court “enter an
order determining that [Appellant]'s Wisconsin District
Court Judgment is not subject to the Debtor's General
Discharge.” App. 149. Appellant's brief did not
discuss treble damages or attorneys' fees. The proposed
order submitted with the motion for summary judgment
requested a declaration that “[t]he debt owed by Robert
Sobczak-Slomczewski to [Appellant] in the amount of $677,
000.00, together with all related fees and costs, is allowed
[in] full and held to be non-dischargeable pursuant to 11
U.S.C. §§ 523(a)(4) and 523(a)(6).”  at
August 5, 2014, the Bankruptcy Court granted Appellant's
motion for summary judgment, concluding that “the $667,
000 debt owed by the Debtor to [Appellant] is
non-dischargeable under § 253(a)(4) and (a)(6).”
App. 203. Debtor appealed the Bankruptcy Court's judgment
to the District Court, which dismissed the appeal as
untimely. The Seventh Circuit affirmed, and the Supreme Court
denied Debtor's petition for writ of certiorari.
September 4, 2016, Appellant filed a motion in the Wisconsin
District Court to reopen its lawsuit against Debtor to seek
additional damages under the Wisconsin Order. The Wisconsin
District Court reopened the case. It awarded Appellant treble
damages and post-judgment interest, but denied
Appellant's request for attorneys' fees, for a total
award of $2, 033, 370.43 (the “Additional Damages
Order”). See App. 26. The Wisconsin District Court
declined to address whether the additional damages were
non-dischargeable in bankruptcy, instead noting that
“[t]he bankruptcy court found only that this
court's award [of] $667, 000 in actual damages
was dischargeable, . . . without addressing (and apparently
without being asked to address) the potential of an award of
treble damages or attorneys' fees.” App. 29.
November 29, 2016, Appellant filed a motion to reopen the
Bankruptcy Court adversary proceeding for the purpose of
modifying the court's previous order (the “Motion
to Reopen”) and a motion for relief and correction of
judgment pursuant to Federal Rules of Civil Procedure 60(a)
and 60(b)(6) (the “Rule 60 Motion”). Appellant
argued that the judgment should be corrected to reflect that
the additional damages awarded by the Wisconsin District
Court were non-dischargeable.
February 15, 2017, the Bankruptcy Court granted the Motion to
Reopen (which was unopposed), but denied the Rule 60 Motion.
The Bankruptcy Court determined that Appellant was not
entitled to relief under Rule 60(a)-which authorizes a court
to “correct a clerical mistake or a mistake arising
from oversight or omission, ” Fed.R.Civ.P.
60(a)-because “the Final Order, finding only $667,
000.00 non-dischargeable, was an accurate reflection of the
Court's intention at the time.” App. 233. The Court
rejected Appellant's argument that, by requesting a
“non-dischargeability award of ‘at least'
$667, 000.00, it thereby reserved its right to seek an amount
greater than $677, 000.00 at some unspecified date, ”
explaining that Appellant's summary judgment motion
“never specifically requested or provided evidence for
any specific sum over that amount that should be
awarded.” App. 232-233.
Bankruptcy Court also rejected Appellant's argument that
it was entitled to relief under Rule 60(b)(6)-Rule 60's
“catchall” provision for “any other reason
that justified relief” but that is not specifically
provided for in the rule. Fed.R.Civ.P. 60(b)(6). The
Bankruptcy Court determined that Appellant did not file his
motion within a reasonable time, because Appellant “was
aware of its right to pursue potential additional damages, at
the very least, on March 20, 2013, ” when the Wisconsin
District Court issued an order in which it
“acknowledged that causes of action of the type found
in that case generally make treble damages mandatory.”
App. 234-236. According to the Bankruptcy Court,
“[o]nce aware of its entitlement to seek that relief,
[Appellant] could have explicitly requested that this Court
include in its Final Order a provision declaring
non-dischargeable any additional damages made by the
Wisconsin District Court in the Wisconsin Order.” App.
236. “Having failed to do that in the adversary
proceeding, ” the Bankruptcy Court further explained,
Appellant “could have preserved its rights by filing a
motion for rehearing or clarification within fourteen days of
this Court's entry of the Final Order, ” or
“could have filed a motion under Rule 60(b)(1) for
‘mistake, inadvertence, surprise, or excusable
neglect' after the issuance of the Final Order within one
year of its entry.'” App. 236-237 (quoting
Bankruptcy Court concluded that, even if Appellant's
motion under Rule 60(b)(6) had been timely, the facts that it
alleged did not “rise to the level of extraordinary
circumstances.'” App. 237. The Bankruptcy Court
acknowledged that its denial of the motion “may result
in what one could describe as a dischargeability
‘windfall' for the Debtor, ” while noting in
a footnote that “[w]indfall is perhaps too strong a
word to use in these circumstances” given that
Appellant “still has the right to pursue the Debtor for
up to $677, 000.00.” App. 237. Nonetheless, the
Bankruptcy Court explained, “that ‘windfall'
is the result of [Appellant's] own litigation decisions,
and an ...