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In re Heotis

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

March 29, 2018

In re THEODORE A. HEOTIS, Bankr. Case No. 16-28071,
v.
CITY OF AURORA, Appellee. THEODORE A. HEOTIS, Appellant,

          On appeal from the United States Bankruptcy Court Case No. 16-28071

          MEMORANDUM OPINION AND ORDER

          Hon. Virginia M. Kendall United States District Judge

         Currently before the Court are three consolidated appeals from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division, Nos. 16 B 28071 and 16 A 00567. Specifically, Appellant Theodore Heotis appeals from the following orders entered by the Bankruptcy Court: (1) a January 18, 2017 Order and a January 19, 2017 Corrected Order granting in part and continuing in part the City of Aurora (the “City”)'s motion for relief from the automatic stay in the Chapter 13 proceeding (ROA Dkt. 13-6) at 18-19, [1] and (2) a January 18, 2017 Order granting in part and denying in part the City's motion to dismiss the Adversary Complaint (two appeals were filed regarding this Order). (ROA Dkt. 13-7) at 28. Heotis moved for a stay pending appeal before this Court (Dkt. 10), and on September 28, 2017, the Court denied Heotis's motion. (Dkt. 40). For the reasons set forth below, the challenged Orders of the Bankruptcy Court are AFFIRMED.

         BACKGROUND

         A. The Liens on Heotis' Property

         Heotis operates a used car lot at 512 Broadway in Aurora, Illinois (the “Property”), a parcel of land that he owns. (Dkt. 34-1) at ¶ 4. On November 26, 2002, the City issued a special use permit pursuant to Ordinance 02-121 (“Special Use Ordinance”) in order to allow Heotis to conduct his used auto sales business on the Property, which is located in a residential area. (ROA Dkt. 13-3) at 43-50. Through the Special Use Ordinance, the City placed thirteen conditions on the Property's usage, mostly aimed at improving its appearance, remediating any environmental issues, and prohibiting the use of the Property as a salvage yard. Id. at 45. The Aurora City Council later found that Heotis failed to comply with six of the thirteen of the conditions, in particular, by failing to remove buried tires and other soil contaminants from the Property and to make certain other improvements to the site. (ROA Dkt. 13-3) at 51-53. Accordingly, in a new ordinance, Ordinance 07-28 dated March 13, 2007, the City rescinded the Special Use Ordinance and vacated the corresponding permit. Id. at 51-52.

         The City then commenced a variety of measures to clean up the environmental contamination of the Property, including removing thousands of tons of salvage debris, installing fencing, transporting an 8, 000-gallon storage tank, and treating and removing non-hazardous wastewater. (ROA Dkt. 13-2) at 38. The City alleges that Heotis was using the property for illegal waste transfer and as a salvage yard. These measures cost the City over $900, 000.[2] As a result, the City recorded two liens on the Property for cleanup and related costs or “nuisance abatement”: the first, for $899, 713.74, was recorded on October 15, 2007; the second, for $19, 217.38, was recorded on February 19, 2008. (ROA Dkt. 13-2) at 64-65.

         B. The City's Foreclosure Action in State Court

         On January 21, 2011, the City sued Heotis in the Circuit Court of the Sixteenth Judicial Circuit, Kane County, Illinois for injunctive relief for zoning violations (Count I) and to foreclose on the liens it had entered against the Property (Count II), Case No. 2011 CH 448. (ROA Dkt. 13-2) at 37-38. In the foreclosure action (as well as in the later described Adversary Complaint and in this appeal), Heotis contests the validity of the liens and claims that the City- not he-failed to comply with the terms of the Special Use Ordinance. See, e.g., (ROA Dkt. 13-6) at 27-28; (Dkt. 8-1) at 14-16; (Dkt. 25) at 8-9. On August 23, 2011, the state court granted the City's motion for default judgment for Count I and entered a permanent injunction enjoining Heotis' illegal use of the Property. (ROA Dkt. 13-2) at 38. After many years of discovery, on April 27, 2016, the City filed a motion for summary judgment on Count II; the state court set a briefing schedule on the motion and scheduled a hearing for September 1, 2016. (ROA Dkt. 13-2) at 38-39. Heotis' counsel withdrew after the City filed its motion for summary judgment and Heotis did not file a response brief in accordance with the court's schedule. Instead, on August 31, 2016, the day before the state-court hearing, Heotis filed for Chapter 13 bankruptcy (“Petition, ” No. 16 B 28071). (ROA Dkt. 13-2) at 9-30.

         C. The Bankruptcy Proceedings

         After being notified of Heotis's Petition, the City immediately moved for relief from the Automatic Stay on September 9, 2016. (ROA Dkt. 13-2) at 37-45. Shortly thereafter, on September 15, 2016, Heotis filed an Adversary Proceeding (No. 16 A 000567) requesting that the Bankruptcy Court determine the validity of the City's liens on the Property under Federal Rule of Bankruptcy Rule of Procedure 7001(2). The Adversary Complaint alleged that the liens are invalid because they (1) are unsupported by documentation and (2) were imposed in breach of the Special Use Ordinance and the City's agreement with Heotis that federal funds would cover the cleanup costs. (ROA Dkt. 13-6) at 25-29. On September 29, 2016, Heotis filed a Chapter 13 Plan and associated schedules. On November 10, 2016, the City moved to dismiss the Adversary Complaint on four grounds: failure to state a claim, lack of jurisdiction, mandatory abstention, and permissive abstention. (ROA Dkt. 13-6) at 43-50 & (ROA Dkt. 13-7) at 1-2; see also (ROA Dkt. 13-7) at 6-27.

         On January 6, 2017, the parties came before the Bankruptcy Court for a hearing on the City's two pending motions. First, the Bankruptcy Court granted the motion to dismiss the Adversary Complaint on permissive-abstention grounds (see 28 U.S.C. § 1334(c)(1)) in order to allow the foreclosure litigation to proceed. (ROA Dkt. 13-7) at 28; see (Dkt. 34-1). In addressing the City's arguments, the Bankruptcy Court held that, under 28 U.S.C. § 157(b)(2)(K), it both had jurisdiction over the matter and was not required to abstain because the adversary proceeding sought to determine the validity of certain liens was a core proceeding under that statute. (Dkt. 34-1) at ¶ 6-A8. When it came to permissive abstention, however, the Bankruptcy Court “flexibly applied” the twelve factors laid out in In re Hearthside Baking Co., Inc., 391 B.R. 807 (Bankr. N.D.Ill. 2008) and In re Chicago, Milwaukee, St. Paul & Pacific R.R. Co., 6 F.3d 1184 (7th Cir. 1993) (“In re Chicago, Milwaukee R.R.”); determined that nine of the twelve factors weighed in favor of abstention; and therefore exercised its discretion to permissively abstain from hearing the adversary proceeding. (Dkt. 34-1) at ¶ 10-A16. The court declined to consider the City's 12(b)(6) argument. Id. at ¶ 16. The Bankruptcy Court also partially granted the City's motion for relief from the Automatic Stay. On this issue, the Bankruptcy Court looked to the three-factors set forth in In re Fernstrom Storage and Van Co., 938 F.2d 731 (7th Cir. 1991), and found that all three factors, plus the interest of judicial efficiency, constituted cause to lift the automatic stay. (Dkt. 34-1) at ¶ 16-18. Accordingly, the Bankruptcy Court allowed the underlying foreclosure action to proceed on limited grounds: “through entry of a Judgment of Foreclosure and Sale, if proven, with no judicial sale to occur without further order of court.” (Dkt. 1) at 6; (ROA Dkt. 13-6) at 19.

         On February 1, 2017, Heotis filed three notices of appeal-one in the main bankruptcy case, No. 16 B 28071, appealing the order and corrected order granting in part and continuing in part the City's motion for relief from the automatic stay (see (Dkt. 1)), and two in the adversary proceeding, No. 16 A 00567, both appealing the same order granting in part and denying in part the City's motion to dismiss the Adversary Complaint. See (Dkts. 8-1, 8-2). In one of the appeals of the Bankruptcy Court's order dismissing the Adversary Complaint, Heotis filed a motion for leave to appeal (see (Dkt. 8-1) at 12-25), which primarily argues the merits of the appeal, but also advocates for a holistic resolution of all contested orders in the event that the order on permissive abstention is not independently final and immediately appealable. The City objected to this motion in this Court. See (Dkt. 6). The three appeals originally were assigned to three separate district court judges, and they were consolidated before this Court on Heotis's motion. See (Dkt. 8), (Dkt. 14).

         Also on February 1, 2017, Heotis filed a motion to stay the enforcement of the Bankruptcy Court's order lifting the Automatic Stay pending appeal of the bankruptcy case. The motion was briefed expeditiously, and on February 16, 2017, the Bankruptcy Court denied the motion. See (Dkt. 10) at 3. The next day, Heotis moved this Court for stay pending appeal (Dkt. 10), which the Court denied. (Dkt. 40). The state case therefore continued, and, after the state court denied the City's motion for summary judgment (see (Dkt. 25) at 14), the case was set for trial on July 24, 2017. (Dkt. 34) at 7. Filings in the underlying Chapter 13 matter indicate that, instead of proceeding to trial as scheduled, the parties have been working towards settlement of the issues regarding the Property, and that on March 23, ...


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