Holmon v. Village of Alorton

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Holmon v. Village of Alorton, 2016 IL App (5th) 150404Appellate Court LARKIN HOLMON, Independent Administrator of the Estate of
Caption Taymond Freeman, Deceased, Plaintiff-Appellant, v. THE VILLAGE
OF ALORTON, Defendant-Appellee.
District & No. Fifth District
Docket No. 5-15-0404
Filed October 19, 2016
Decision Under Appeal from the Circuit Court of St. Clair County, No. 14-L-136; the
Review Hon. Randall W. Kelley, Judge, presiding.
Judgment Affirmed and remanded.
Counsel on George R. Ripplinger, of Ripplinger & Zimmer, LLC, of Belleville,
Appeal for appellant.
Charles W. Courtney, Jr., Alana I. Mejias, and Jayni A. Desai, of
Courtney, Clark & Mejias, P.C., of Belleville, for appellee.
Panel PRESIDING JUSTICE SCHWARM delivered the judgment of the
court, with opinion.
Justices Cates and Moore concurred in the judgment and opinion.
OPINION
¶1 Larkin Holmon, administrator of the estate of Taymond Freeman, appeals from the circuit
court’s order denying Holmon’s motion for partial summary judgment and granting a motion
for judgment on the pleadings filed by the Village of Alorton, the appellee. The appellant seeks
to rescind an agreed-upon bankruptcy plan under which the appellee was to make payments to
Freeman’s estate. We affirm the circuit court’s decision denying the appellant’s motion for
partial summary judgment and granting the appellee’s motion for judgment on the pleadings as
it relates solely to the issue of rescission. We remand for further proceedings, allowing the
appellant to enforce the bankruptcy plan payment provisions.
¶2 BACKGROUND
¶3 On May 31, 1999, Taymond Freeman was shot by Thomas McGowan, a police officer
employed by the appellee. On March 7, 2005, a bench trial was held, in which Freeman
brought, against McGowan, claims of battery and claims relating to violations of his right to be
free from unreasonable search and seizure and violations of his right to be afforded due process
of law. On March 23, 2005, a judgment was entered in favor of Freeman and against
McGowan in the amount of $978,874.40 plus costs of $1821.18. In its judgment, the circuit
court held that McGowan’s conduct was not willful, therefore making the appellee liable to
reimburse McGowan for the damages awarded.
¶4 On January 6, 2005, the appellee filed a chapter 9 bankruptcy proceeding (11 U.S.C. § 901et seq. (2000)) in the United States Bankruptcy Court for the Southern District of Illinois.
Freeman was the appellee’s largest creditor. Due to the size of his claim, if Freeman did not
vote to approve the appellee’s chapter 9 plan of adjustment in bankruptcy, the plan would not
be approved. Freeman agreed to the appellee’s amended plan of adjustment, which established
a new class of creditors, “Class 7,” consisting solely of Freeman. Under this amended plan,
Freeman was to receive a total of $600,000, payable in monthly installments of $2500 over 20
years, with the first payment due on the sixty-first month following the confirmation of the
appellee’s bankruptcy plan.
¶5 Section 5.06 of the amended plan of adjustment, which addressed payment of Freeman’s
claim, provided as follows:
“5.06 Class 7: The creditor in this class consists of the claim for an outstanding
judgment against the Debtor in favor of Taymond Freeman. The creditor will receive
$600,000.00 of his entire claim, to be paid in monthly installments of $2,500 for a
period of twenty (20) years, first payment to be made on the 61st month (5 years)
following the date of confirmation of the Plan, then $2,500 each month thereafter for
the remaining twenty (20) years.”
¶6 Another pertinent part of the amended plan of adjustment, section 7.01, dealing with the
effect of the plan on confirmation, provided as follows:
“The distributions and rights afforded in this Plan shall be in complete satisfaction,
discharge and release, effective on the Confirmation Date (hereinafter ‘Discharge
Date’), of all Claims against and Interests in the Debtor or any of the assets or
properties of the Debtor of any nature whatsoever. Commencing on the Discharge
Date, all Claimholders and Interestholders shall be precluded forever from asserting
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against the Debtor, or the reorganized Debtor, or the respective assets and properties,
any other or further liabilities, liens, obligations, causes of action, claims or equity
interests, including but not limited to all principal and accrued and unpaid interest on
the debts of the Debtor based upon any act or omission, transaction or other activity or
security instrument or other agreement of any kind or nature occurring, arising or
existing prior to the Discharge Date, that was or could have been the subject of any
Claim or Interest, whether or not Allowed, except with respect to classes of claims
unimpaired pursuant to this Plan, said classes of claims and claimholders therein
having been fully satisfied. As of the Discharge Date, the Debtor shall be discharged
and released from, and the Debtor shall hold all assets and properties received or
retained by it pursuant to this Plan free of all liabilities, liens, claims and obligations or
other claims of any nature, including but not limited to equity interests, known or
unknown, except classes of claims unimpaired pursuant to this Plan, and any liens,
liabilities, obligations or other claims expressly authorized under this Plan or created
by or preserved under this Plan or arising after the Discharge Date. All legal or other
proceedings and actions seeking to establish or enforce liabilities, liens, claims, equity
interests or obligations of any nature as against the Debtor or assets or properties
received or retained by the Debtor with respect to debts and obligations, if any, arising
before the Discharge Date shall be permanently stayed and enjoined, except as
otherwise specifically provided in this Plan.”
¶7 On December 11, 2006, the amended plan of adjustment was confirmed, and on April 4,
2007, the bankruptcy court filed an order closing the bankruptcy case.
¶8 Subsequent to the confirmation of the amended plan of adjustment and prior to any
payments being made under the plan, a judgment in the amount of $346,000 was entered
against Freeman in favor of Stacy Goodlow in Goodlow v. Freeman, No. 06-L-531 (Cir. Ct.
St. Clair Co.). On January 14, 2009, the circuit court entered an order in this case, which
redirected a portion of the bankruptcy plan payments to Stacy Goodlow in satisfaction of her
judgment against Freeman. Under this order, the appellee would pay $400,000 of the $600,000
to Goodlow and a maximum of $200,000 of the $600,000 to Freeman. Accordingly, two-thirds
of the monthly plan payments would go to Goodlow and one-third to Freeman. On March 12,
2009, Freeman was murdered. On May 14, 2012, an estate was opened in the circuit court of
St. Clair County, and on June 18, 2012, Larkin Holmon, Freeman’s father, was appointed
independent administrator of the estate of Taymond Freeman.
¶9 On January 11, 2012, the appellee was due to pay the first payment under the bankruptcy
plan. Appellee made some, but not all, plan payments, and as of February 14, 2015, the
appellee had paid the appellant $20,000. The appellant argues that, as of February 14, 2015, the
appellee should have paid $95,000 to the appellant. The appellee does not dispute that it owes
Freeman $200,000, less payments made under the bankruptcy plan, nor does it dispute that it is
behind on its payments.
¶ 10 Sometime after Freeman’s death, the appellant filed a motion in the United States
Bankruptcy Court for the Southern District of Illinois, seeking to reopen the bankruptcy case.
On July 31, 2013, the motion to reopen was denied by the bankruptcy court. An appeal of the
bankruptcy court order denying the reopening of the bankruptcy case was taken to the United
States District Court for the Southern District of Illinois, which affirmed this denial on October
30, 2013. See Holman v. Village of Alorton, No. 13-CV-925-JPG (S.D. Ill. Oct. 30, 2013).
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According to the district court’s order, the appellant argued that the federal courts should have
found the state courts lacked jurisdiction to redirect payments to Goodlow. In affirming the
denial, the district court noted that, under the plan, a “contract” arose between the appellee and
Freeman that was enforceable in state court. Further, the district court noted that Illinois state
law allows the state courts to order the appellee to direct payments to Goodlow in satisfaction
of Goodlow’s judgment against Freeman.
¶ 11 On January 31, 2014, the appellant filed suit against the appellee for breach of contract,
resulting in these proceedings. The appellant’s complaint seeks to hold the payment agreement
arising from the bankruptcy plan null and void and to reinstate the March 23, 2005, judgment
in the amount of $978,874.40 plus costs. On March 18, 2015, the appellant filed a motion for
partial summary judgment with the circuit court of St. Clair County. In the motion, the
appellant requested a finding that “the [appellee] is in breach of its contract with Taymond
Freeman entered into in the bankruptcy of the [appellee] and that the contract is to be held null
and void.” The appellant further sought (1) to hold the judgment entered on March 23, 2005, in
the amount of $978,874.40 plus costs, to be in full effect; (2) to recover costs of the current
action; (3) to obtain postjudgment interest awarded at 9% since March 23, 2005; and (4) to set
a hearing for the award of attorney fees in the originating case. The appellant stated that the
appellee should be given credit for the payments of $20,000 made to the appellant.
¶ 12 On April 30, 2015, the appellee filed a motion for judgment on the pleadings, arguing that
Freeman had accepted the bankruptcy plan, that the appellant was Freeman’s successor in
interest and therefore bound by the bankruptcy plan, and that therefore the appellant may only
recover the money due under the bankruptcy plan. On September 1, 2015, the circuit court
entered an order denying the appellant’s motion for partial summary judgment and granting the
appellee’s motion for judgment on the pleadings. In its order, the circuit court found that the
appellee had “not complied with the Chapter 9 Plan and, in fact, owe[d] a total of $600,000,”
with $400,000 less payments made owed to Goodlow and $200,000 less payments made owed
to the appellant; that “[t]here is no dispute of material fact as to the amount owed under the
Chapter 9 Plan”; and that “[the appellant] admits that [the appellee] has paid $20,000 toward
the Plan.” The circuit court noted that the appellant’s “relief is to enforce its contract against
the [appellee],” that rescission of the “contract” as requested by appellant is impossible
because the March 23, 2005, judgment was discharged once the bankruptcy plan was entered,
and that the circuit court lacked the authority to vacate the bankruptcy. The circuit court
therefore “decline[d] to exercise its discretion to grant rescission of the contract” and held that
appellee’s “Motion for Judgment on the Pleadings as it relates to the issue of rescission is
GRANTED” (emphasis added). On September 28, 2015, the appellant filed notice of appeal.
¶ 13 ANALYSIS
¶ 14 The appellant challenges the circuit court’s denial of his motion for partial summary
judgment. The appellant also challenges the circuit court’s grant of the appellee’s motion for
judgment on the pleadings based on the appellee’s purely legal challenge to the appellant’s
complaint. Both motions for partial summary judgment and motions for judgment on the
pleadings on purely legal challenges are reviewed de novo. See Sinclair Oil Corp. v. Allianz
Underwriters Insurance Co., 2015 IL App (5th) 140069, ¶ 34; Warren County Soil & Water
Conservation District v. Walters, 2015 IL 117783, ¶¶ 45-47.
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¶ 15 “A confirmed plan of reorganization is in effect a contract between the parties and the
terms of the plan describe their rights and obligations.” Ernst & Young LLP v. Baker O’Neal
Holdings, Inc., 304 F.3d 753, 755 (7th Cir. 2002). Both parties agree, as does this court, that a
new “contract” was formed between the two parties under the bankruptcy plan. Section 5.06 of
the bankruptcy plan sets forth the terms of the “contract.” Freeman was to receive $600,000 of
his entire claim of $978,874.40 plus costs payable in monthly installments of $2500 over 20
years. Per the later agreed state court order with Freeman’s judgment creditor Goodlow,
Goodlow would be paid $400,000 by two-thirds of each monthly installment, and the appellant
would be paid $200,000 by one-third of each monthly installment.
¶ 16 The appellant seeks to rescind the “contract” between himself and the appellee created by
the bankruptcy plan. The appellant argues that, due to the appellee’s admitted nonperformance
of its obligations, this “contract” should be rescinded and the prebankruptcy plan confirmation
judgment amount restored. “ ‘[R]escission means the cancelling of a contract so as to restore
the parties to their initial status.’ ” Horwitz v. Sonnenschein Nath & Rosenthal LLP, 399 Ill.
App. 3d 965, 973 (2010) (quoting Puskar v. Hughes, 179 Ill. App. 3d 522, 528 (1989)). A party
seeking rescission must be able to “ ‘restore the other party to the status quo existing at the time
the contract was made.’ ” Id. at 974 (quoting Puskar, 179 Ill. App. 3d at 528).
¶ 17 Section 7.01 of the bankruptcy plan further delineated the terms of the “contract” by
providing the effect of confirmation of the plan. Section 7.01 of the plan provided that “[t]he
distributions and rights afforded in this Plan shall be in complete satisfaction, discharge and
release *** of all Claims against and Interests in the Debtor” that were not explicitly preserved
under the bankruptcy plan. Section 7.01 further provided that as of the confirmation of the
plan, the debtor shall be discharged and released from all claims except claims created or
preserved under the plan.
¶ 18 A bankruptcy plan “operates as an absolute settlement, and the failure to pay unpaid
obligations created by the plan will not revive the old debts.” In re Curry, 99 B.R. 409, 411
(Bankr. C.D. Ill. 1989). “There is nothing in the [Bankruptcy] Act to suggest that the debtor’s
failure to achieve promises made in a confirmed plan reinstates an original obligation.” Id. The
appellant argues that Curry concerns only chapter 11 bankruptcies and that the provisions
referenced are not applicable to chapter 9 bankruptcies. However, “confirmation [of a chapter
9 plan] effectively discharges the debtor from all debts except those ‘owed to an entity that,
before confirmation of the plan, had neither notice nor actual knowledge of the case.’ ”
Nebraska Security Bank v. Sanitary & Improvement District No. 7, 119 B.R. 193, 195 (Bankr.
D. Neb. 1990) (quoting 11 U.S.C. § 944(c)(2) (1988)). Pursuant to section 7.01 of the plan and
operation of chapter 9 of the bankruptcy code, on confirmation of the plan of adjustment the
indebtedness of the appellee to Freeman or his successors in interest in excess of $600,000 was
discharged.
¶ 19 Appellant has cited no authority, and we have found no authority, permitting the state
courts to rescind a “contract” made in a bankruptcy reorganization plan confirmed by the
bankruptcy court. “[I]t is well established that sole jurisdiction in bankruptcy is lodged in the
national government and that power is paramount and supersedes all inconsistent state laws.”
General Iron Industries, Inc. v. A. Finkl & Sons Co., 292 Ill. App. 3d 439, 444 (1997). The
appellant is asking us to rescind part of a bankruptcy plan, which is solely under the
jurisdiction of the federal courts. Instead, as the United States District Court noted in denying
the appellant’s appeal of the bankruptcy court order denying the motion to reopen the
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bankruptcy case, the appellant’s remedy is to enforce the “contract” in the state courts. See
Holman v. Village of Alorton, No. 13-CV-925-JPG (S.D. Ill. Oct. 30, 2013). Therefore,
enforcement of the terms of the “contract,” and not rescission, is the appropriate remedy for the
appellant. Thus, we hold that the appellant may seek to enforce in state court the contract made
in the confirmed bankruptcy plan, but he may not seek to rescind the plan. We therefore affirm
the judgment of the circuit court, which denied the appellant’s motion for partial summary
judgment and granted the appellee’s motion for judgment on the pleadings as it relates solely to
the issue of rescission.
¶ 20 The appellant has expressed concern that, if this court affirms the circuit court, he would be
barred under res judicata from seeking to enforce the “contract.” “Under the doctrine of
res judicata, a final judgment on the merits rendered by a court of competent jurisdiction bars
any subsequent actions between the same parties or their privies on the same cause of action.”
Piagentini v. Ford Motor Co., 387 Ill. App. 3d 887, 890 (2009). The appellee does not dispute
that it is behind on the payments owed to the appellant under the “contract.” Further, the
appellee has stated that it believes the appellant still may sue for enforcement of the “contract”
without being barred by res judicata.
¶ 21 We agree with the appellee. “Except in case of default, the prayer for relief does not limit
the relief obtainable, but where other relief is sought the court shall, by proper orders, and upon
terms that may be just, protect the adverse party against prejudice by reason of surprise.” 735
ILCS 5/2-604 (West 2014). The appellee, by its own admission, would not be surprised if the
appellant were to seek to enforce the “contract,” and the appellant can amend his complaint to
seek this remedy. Further, Illinois recognizes the claim-splitting exceptions to the doctrine of
res judicata set forth in section 26(1) of the Restatement (Second) of Judgments (Restatement
(Second) of Judgments § 26(1) (1982)). Under the Restatement, a second action is not barred
by res judicata if “ ‘the parties have agreed in terms or in effect that plaintiff may split his
claim or the defendant has acquiesced therein’ ” or if “ ‘the case involves a continuing or
recurrent wrong.’ ” Hudson v. City of Chicago, 228 Ill. 2d 462, 472-73 (2008) (quoting Rein v.
David A. Noyes & Co., 172 Ill. 2d 325, 341 (1996)). The appellee’s “express consent to [the
appellant suing for enforcement of the ‘contract’] would constitute an agreement” under the
first exception and, therefore, would permit the appellant to enforce the “contract” without
being barred by res judicata. Piagentini, 387 Ill. App. 3d at 896. Further, because the appellee
continues to owe the appellant payments under the “contract,” any further nonpayment would
be a continuing or recurrent wrong that would also permit the appellant to enforce the
“contract” without being barred by res judicata. Therefore, while we affirm the judgment of
the circuit court, which denied the appellant’s motion for partial summary judgment and
granted the appellee’s motion for judgment on the pleadings as it relates solely to the issue of
rescission, we find that the appellant is not barred by res judicata from bringing further action
to enforce the “contract” in the chapter 9 confirmed plan of adjustment and therefore remand
for further proceedings.
¶ 22 CONCLUSION
¶ 23 For the reasons stated, we affirm the judgment of the circuit court of St. Clair County and
remand for further proceedings.
¶ 24 Affirmed and remanded.
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