United States District Court, N.D. Illinois, Eastern Division
In re THEODORE A. HEOTIS, Bankr. Case No. 16-28071,
CITY OF AURORA, Appellee. THEODORE A. HEOTIS, Appellant,
appeal from the United States Bankruptcy Court Case No.
MEMORANDUM OPINION AND ORDER
Virginia M. Kendall United States District Judge
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,  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.
The Liens on Heotis' Property
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Ordinance 07-28 dated March 13, 2007, the City rescinded the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.
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. 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.
The City's Foreclosure Action in State Court
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.
The Bankruptcy Proceedings
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
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.
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).
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, ...