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In re Delay

United States District Court, C.D. Illinois, Springfield Division

September 23, 2019

In re KENT EUGENE DELAY, Debtor,
v.
RYAN BANDY, Appellee. KENT EUGENE DELAY, Appellant,

          Appeal from: Adversary No. 16-7040 Bankruptcy No. 14-71512 Honorable Mary P. Gorman, presiding

          OPINION

          SUE E. MYERSCOUGH, U.S. DISTRICT JUDGE:

         Debtor/Appellant, Kent Eugene Delay, appeals the award of compensatory and punitive damages to Appellee Ryan Bandy. Because the Bankruptcy Court did not abuse its discretion in awarding compensatory and punitive damages to Bandy, the decision of the Bankruptcy Court is AFFIRMED.

         I. BACKGROUND[1]

         On October 11, 2013, Bandy filed a lawsuit against Delay and Randall Stieren in Sangamon County, Illinois. R. 13.[2] Mr. Bandy’s lawsuit was based on a Purchase Agreement through which Bandy purchased the interests that Delay and Stieren held in RKR Clubs, LLC (RKR Clubs). See Complaint (d/e 13-1), at 1. The Purchase Agreement provided that Delay and Stieren retained an option to reacquire their membership interests under certain conditions. See id. at 1, 6.

         Delay and Stieren filed an answer to Bandy’s complaint and a counterclaim against Bandy on November 7, 2013. Id. On July 17, 2014, Delay and Stieren filed a motion for summary judgment in the state court case. R. 14. Bandy responded by filing a cross-motion for summary judgment on December 19, 2014. R. 15. On March 23, 2015, the state court judge granted Delay and Stieren’s motion for summary judgment and denied Bandy’s cross-motion for summary judgment. R. 16. Bandy appealed, but the Illinois Appellate Court for the Fourth District affirmed the trial court’s judgment and remanded the case for further proceedings. See Order (d/e 13-30), at 12.

         Delay and Stieren subsequently filed a Motion to Compel Judgment on August 19, 2016, asking the state trial court to compel the transfer of the interests in RKR Clubs to which Delay and Stieren were entitled pursuant to the repurchase option in the Purchase Agreement. R. 21-22. Delay and Stieren also sought authorization for a breach of contract claim against Bandy and for an accounting by a third-party accountant to determine damages. R. 22. Bandy filed an objection to the motion. B.R. 68-75.

         However, on August 20, 2014, months before the state court judge granted Delay and Stieren’s motion for summary judgment, Delay filed for bankruptcy. B.R. 1. In listing creditors holding unsecured nonpriority claims, Delay included Bandy. R. 47. However, Bandy’s mailing address was listed as that of David Reid, Delay and Stieren’s attorney in the state court case. Id.; R. 13. As a result, Bandy did not learn that Delay had filed bankruptcy until after the state court judge had granted summary judgment in favor of Delay and Stieren. Transcript (d/e 4), at 67. Delay received a discharge in bankruptcy in December 2014. B.R. 2.

         On August 4, 2016, after Bandy had learned of Delay’s bankruptcy, Bandy’s attorney sent an e-mail to the Trustee, Mariann Pogge (Trustee), offering $10, 000 for Delay’s interest in RKR Clubs and Delay’s rights as set forth in the state court counterclaim. See Transcript (d/e 4), at 217-18; Complaint, R. 258, 268. The trustee informed Reid of Bandy’s offer; Reid responded by stating that the offer was too low and tendering a $15, 000 offer on behalf of Delay. See Transcript (d/e 4), at 218. On August 16, 2016, the Trustee filed a Motion to Compromise. B.R. 60-62. In the motion, the Trustee seeks authorization to compromise the bankruptcy estate’s interest in Delay’s state court counterclaim and any rights flowing to Delay pursuant to the counterclaim with Delay for $15, 000. Id. at 60-61. The Bankruptcy Court has not yet ruled on that motion.

         On September 13, 2016, Bandy initiated an adversary case by filing a complaint against Delay. B.R. 7-10. On May 9, 2017, Bandy filed a five-count Second Amended Complaint for Sanctions for Violation of Automatic Stay. Sec. Am. Complaint, R. 161-176. In Count I, Bandy sought sanctions against Delay for Delay’s violation of the automatic stay resulting from Delay’s filing of a bankruptcy petition. Id. at 162-66. Count II sought a declaratory judgment finding that the state court judgment was void due to the judgment being obtained in violation of the automatic stay. Id. at 166-67. Count III sought a declaratory judgment that the Trustee’s Motion to Compromise was also void and providing guidance to the Trustee on how to sell Delay’s interest in RKR Clubs. R. 167-68. Count IV sought sanctions against Reid for Reid’s violations of the automatic stay and the Illinois Rules of Professional Conduct. R. 169-74. Count V sought punitive damages from Reid due to Reid’s willful and deliberate violation of the automatic stay. R. 174-75.

         On June 5, 2017, the Trustee filed a Motion for Leave to Intervene as to Count II of Second Amended Compliant. R. 187-91. On that same date, the Trustee filed a Motion to Dismiss Count III of Second Amended Complaint. R. 192-96. On June 27, 2017, the Bankruptcy Court entered Orders granting the Trustee’s motions. R. 205-06. Bandy’s remaining claims were tried to the Bankruptcy Court on December 19 and December 20 of 2017.

         The Bankruptcy Court issued its Opinion on March 29, 2018. Opinion, R. 245-304. For the reasons set forth in the Opinion, the Bankruptcy Court entered judgment in favor of Bandy and against Delay on Count I. Order, R. 306. On Count II, the Bankruptcy Court entered judgment in favor of Bandy and against Delay and the Trustee, but also entered judgment in favor of Stieren and against Bandy. Id. On Counts IV and V, the Bankruptcy Court entered judgment in favor of Reid and against Bandy. Id. at 307.

         As to Count I of Bandy’s Second Amended Complaint, the Bankruptcy Court found that Delay had willfully violated the automatic stay under both § 362(a)(1) and § 362(a)(3). Opinion, R. 287. The Bankruptcy Court determined that Bandy’s compensatory damages should include “an opportunity to purchase, for $15, 000, Mr. Delay’s interest in RKR Clubs, rights under the Purchase Agreement, and all claims that were raised or that could have been raised in the counterclaim filed in state court.” Id. at 291. Bandy’s option to make this purchase was subject to several conditions, one of which was that Bandy had to agree to subordinate his claim in the bankruptcy case to all other timely filed claims. Id.

         The Bankruptcy Court also determined that Bandy was entitled to $5, 000 in attorney’s fees as compensatory damages. Id. at 293. Although Bandy sought a substantial amount of attorney’s fees paid to his attorney in the state court case, the Bankruptcy Court decided that it could not award Bandy damages for those fees, in part because Bandy did not itemize the fees. Id. at 292-93. At trial, Bandy testified that he had paid the attorney representing him in the bankruptcy case approximately $27, 000. Transcript (d/e 4), at 68-69. But because Bandy failed to itemize the fees paid to his attorney in the bankruptcy case, the Bankruptcy Court could not find the $27, 000 amount reasonable given the missteps and time wasted by Bandy‚Äôs ...


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