Central States, Southeast and Southwest Areas Pension Fund et al v. Vanguard Services, Inc. et al

Filing 112

MEMORANDUM Opinion and Order: For the reasons stated, BATO's motion to dismiss the Citation, R. 107 , is granted. This dismissal is without prejudice to the Pension Fund's refiling its supplemental proceeding either as part of this action, or, if appropriate, as a standalone case, provided it can demonstrate its standing to do so. Accordingly, any future request for citation shall indicate on its face or in a document appended thereto the basis for the Pension Fund's standing to pursue the indemnification claims at issue. Signed by the Honorable Thomas M. Durkin on 10/30/2020. Mailed notice. (ecw, )

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UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CENTRAL STATES, SOUTHEAST AND
SOUTHWEST AREAS PENSION FUND AND
CHARLES WHOBREY, Trustee,
Plaintiffs,
v.
VANGUARD SERVICES, INC., et al.,
Defendants,
and
Bridgestone/Firestone, Inc.,
Citation Respondent.

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09 C 4721

Judge Thomas M. Durkin

MEMORANDUM OPINION AND ORDER
Plaintiffs Central States Fund, Southeast and Southwest Area Pension Fund
and Howard McDougall (“Pension Fund”) brought this action against Vanguard
Services, Inc. and other Vanguard entities (together, “Vanguard”) for collection of
contributions and withdrawal liability under the Employee Retirement Income
Security Act (“ERISA”), 29 U.S.C. § 1001, et seq. R. 1. Years prior to the motion at
issue, a consent judgment was entered in the Pension Fund’s favor, and Vanguard
was ordered to pay $4,769,353.60 in unfunded pension withdrawal liability. R. 9. The
Pension Fund thereafter sought to enforce various indemnification agreements
between Vanguard and its former clients as citation respondents in order to satisfy
the consent judgment. At issue here is the Pension Fund’s attempt to enforce

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indemnification agreements between Vanguard and citation respondent Bridgestone
Americas

Tire

Operations,

LLC

(“BATO”),

successor

in

interest

to

Bridgestone/Firestone, Inc. (“Bridgestone”), pursuant to which the Pension Fund
asserts that BATO is liable for the bulk of Vanguard’s withdrawal liability. R. 100. A
citation to discover assets was issued to BATO for that purpose (the “Citation”). R.
103. Now before the Court is BATO’s motion to dismiss the Citation. R. 107. For the
following reasons, that motion is granted.
Background
The consent judgment. Vanguard previously operated as a labor leasing
company that provided clients with temporary personnel. Vanguard paid the
employees and retained responsibility for collective bargaining, fringe benefits, taxes
and payroll, and was obligated to remit contributions to the Pension Fund—a
multiemployer pension fund under ERISA—on behalf of its covered employees.
Vanguard then passed on certain employee costs to its clients through labor lease
agreements, some of which required clients to indemnify Vanguard for withdrawal
liability associated with the Pension Fund.
On July 12, 2008, Vanguard permanently ceased to have an obligation to
contribute to the Pension Fund, triggering a complete withdrawal within the meaning
of ERISA, 29 U.S.C. § 1383. Vanguard was assessed withdrawal liability in the
principal amount of $4,769,353.60. Vanguard and the Pension Fund subsequently
entered into a settlement agreement pursuant to which Vanguard agreed to the entry
of a consent judgment (such agreement, the “Settlement Agreement,” and such

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judgment, the “Consent Judgment”). Pursuant to the Settlement Agreement, the
Pension Fund agreed “not to execute the Consent Judgment or enforce against, or
otherwise attempt to collect any monies due under the Consent Judgment from
[Vanguard].” R. 93-2 at 13. But the Settlement Agreement expressly does not bar the
Pension Fund “from taking any act to assert claims under the Lease Agreements
including post-judgment discovery and taking action against third-parties.” Id. And
it grants the Pension Fund a “first position security interest” in claims under the
lease agreements. Id. ¶ 7.
On August 11, 2009, the Honorable George W. Lindberg—assigned to this case
at the time—entered the Consent Judgment against Vanguard in the amount of
$4,796,660.08, representing the unpaid withdrawal liability principal and
contributions, plus statutory damages and interest. 1
Prior supplementary proceedings for indemnification. Approximately
two years later, through supplementary proceedings under 735 ILCS § 5/2-1402 in
this action, the Pension Fund moved to enforce withdrawal liability indemnification
provisions contained in Vanguard’s labor lease agreements with former clients CMM
Transportation, Inc. (“CMM”) and Wise Alloys, LLC (“Wise”). R. 16; R. 17. The
Pension Fund issued citations to discover CMM and Wise’s assets for that purpose.
R. 10. CMM’s labor lease agreement obligated it to pay “any withdrawal liability
arising out of or in connection with any action or inaction by [CMM].” R. 18-2. And
the Wise agreement obligated it to pay “unfunded pension liability that might be

1

This Court revived the Consent Judgment on September 18, 2018. R. 96.
3

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assessed against Vanguard . . . as a result of supplying lease employees to any of
[Wise’s] terminals.” R. 13-2. CMM and Wise objected to the motions to enforce on
various grounds, but ultimately the indemnification provisions were enforced and
payment ordered against them for their proportionate shares of withdrawal liability. 2
BATO lease agreements and Vanguard’s successor’s bankruptcy filing.
Like CMM and Wise, Bridgestone and Bandag—an entity Bridgestone acquired in
2017—previously leased labor from Vanguard pursuant to written agreements (such
agreements together, the “BATO Agreements”). The agreement between Vanguard
and Bridgestone was executed in 1992 and indicates that it will “run until cancelled
by either party” (“Bridgestone Agreement”). It provides further that:
[Bridgestone] will indemnify and hold Vanguard harmless and defend
against any loss, expense, fine, penalty or liability resulting from actual
or alleged violation of any laws or regulations concerning employment
or the application of any law concerning termination of employment
caused solely by [Bridgestone.]
R. 101-3 at 3, 7. The Bridgestone Agreement also indicates that Bridgestone will “pay
Vanguard for services provided in accordance with the attached SCHEDULES or any
AMENDMENT(s) thereto.” Id. at 4. One such schedule, executed in July 2006,
reflects the parties’ agreement to certain “rates, fees, charges and conditions” and
indicates that “such wage rates, fees and amounts shall be invoiced accordingly.” R.
109, Ex. C to Sprau Aff., p. 1. It also states:
In accordance with the collective bargaining agreement applicable to
Vanguard’s employees, Bridgestone/Firestone will be billed for the exact
cost of the following fringe benefits and taxes, or any subsequent
That is, $40,238.68 plus interest as to CMM in 2012, and $300,404.69 plus interest
as to Wise in 2015. R. 67; R. 73; R. 83.

2

4

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increases thereof which become effective under the Labor Agreement, or
as a result of any change in Federal or State law or rules or regulations.
Id. at 4, ¶ V. The schedule thereafter sets forth the weekly pension contributions per
employee. Id. at 5.
In turn, Vanguard and Bandag executed an agreement in 1989 regarding
Bandag’s labor leasing (“Vanguard-Bandag Agreement”). And Bandag and another
defendant, Vanguard sister company VMT Companies, Inc. (“VMT”), entered into a
labor leasing agreement effective as of 1995 (“VMT-Bandag Agreement,” and the
Vanguard-Bandag and VMT-Bandag Agreements together, “Bandag Agreements”).
R. 101 at 5. Like the Bridgestone Agreement, the Bandag Agreements also state that
they run “until cancelled by either party.” R. 101-5 at 5; R. 101-6 at 5. Schedules to
the Bandag Agreements contain the following clause:
Any withdrawal liability related to the collective bargaining agreement
and arising out of or in connection with any action or inaction of
Vanguard, shall be the responsibility of Vanguard; and any withdrawal
liability arising out of or in connection with any action or inaction by
Bandag shall be Bandag’s responsibility.
R. 101 at 4.
Ultimately, both Bandag and Bridgestone cancelled their respective
agreements with Vanguard. While the parties apparently agree that the Bandag
Agreements were cancelled prior to Vanguard’s 2008 decision to withdraw from the
pension plan, they dispute whether Bridgestone did. Indeed, the Pension Fund claims
that the Bridgestone Agreement was cancelled in 2009, while BATO contends that it
was cancelled in 2007. Regardless, according to the Pension Fund, the termination of

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Vanguard’s services under the BATO Agreements contributed to Vanguard’s
complete withdrawal from the fund.
The Pension Fund seeks to enforce the BATO Agreements’ indemnification
provisions, requesting a judgment in the amount of $4,378,940.93 plus interest and
attorney’s fees and costs. The Pension Fund issued the Citation in connection with
those efforts. BATO now moves to dismiss the Citation under Rules 12(b)(1) and (6),
arguing that: (1) the indemnification provisions terminated with the BATO
Agreements; (2) the Court lacks jurisdiction to enter a judgment against it; and (3)
the Consent Judgment is not binding on BATO. BATO also contends that the Pension
Fund lacks standing to pursue Vanguard’s claims against it because Vanguard’s
successor in name, MC3, Inc. (“MC3”) filed for Chapter 7 bankruptcy in August 2015
and the claims therefore belong to the bankruptcy estate.
Standard 3
A Rule 12(b)(1) motion tests whether the Court has subject matter jurisdiction.
Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir.

The Pension Fund challenges whether Rule 12(b)(6) applies to supplementary
proceedings under 735 ILCS § 5/2-1402, and indicates that it has “not been able to
find any cases where a supplementary proceeding was dismissed under that rule.” R.
109 at 1 n.1. However, the Court located Zausa v. Pellin, 2017 WL 2311232 (N.D. Ill.
May 26, 2017), a standalone lawsuit to enforce a judgment under § 1402 in which the
court dismissed the action under Rule 12(b)(6) (among others) for failure to state a
claim. But the Court recognizes that this supplementary proceeding differs from
Zausa, because this proceeding was filed as part of the underlying action, and
therefore there is no complaint to construe. Nevertheless, in keeping with the spirit
of Rule 12(b)(6) and because there does not appear to be any confusion about the basis
for BATO’s alleged liability, the Court gives deference to the allegations in the
Pension Fund’s motion to enforce the indemnification agreement as to BATO (R. 100;
R. 101) in assessing the parties’ various arguments for and against dismissal.
3

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2009). When evaluating a motion to dismiss under Rule 12(b)(1), if there are no
factual disputes, the Court accepts the allegations in the complaint as true, and draws
all reasonable inferences in the plaintiff’s favor. Bultasa Buddhist Temple of Chi. v.
Nielsen, 878 F.3d 570, 573 (7th Cir. 2017). But “a plaintiff faced with a 12(b)(1) motion
to dismiss bears the burden of establishing that the jurisdictional requirements have
been met.” Ctr. for Dermatology and Skin Cancer, Ltd. v. Burwell, 770 F.3d 586, 58889 (7th Cir. 2014).
In contrast, a Rule 12(b)(6) motion challenges the “sufficiency of the
complaint.” Berger v. Nat. Collegiate Athletic Assoc., 843 F.3d 285, 289 (7th Cir. 2016).
Generally, a complaint must provide “a short and plain statement of the claim
showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), sufficient to
provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). This standard “demands more than an
unadorned, the-defendant-unlawfully- harmed-me accusation.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). While “detailed factual allegations” are not required, “labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not
do.” Twombly, 550 U.S. at 555. The complaint must “contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Iqbal, 556
U.S. at 678 (quoting Twombly, 550 U.S. at 570). “ ‘A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.’ ” Boucher v. Fin.
Sys. of Green Bay, Inc., 880 F.3d 362, 366 (7th Cir. 2018) (quoting Iqbal, 556 U.S. at

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678). In applying this standard, the Court accepts all well-pleaded facts as true and
draws all reasonable inferences in favor of the non-moving party. Tobey v. Chibucos,
890 F.3d 634, 646 (7th Cir. 2018).
Analysis
Proceedings to collect a judgment must “accord with the procedure of the state
where the court is located.” Fed. R. Civ. P. 69(a). Two provisions of Illinois law govern
supplementary proceedings to collect a judgment. The first, 735 ILCS 5/2-1402,
provides that a judgment creditor can enforce a judgment against assets held by a
debtor or third party by issuing a citation to discover assets. 735 ILCS § 5/2-1402(a);
Stonecrafters, Inc. v. Wholesale Life Ins. Brokerage, Inc., 915 N.E.2d 51, 56 (Ill. App.
Ct. 2009). The judgment creditor “need only have a reasonable belief that third
parties hold judgment debtor assets” to issue such a citation. In re Emerald Casino,
Inc., 223 F. Supp. 3d 740, 751 (N.D. Ill. 2016). And courts generally look for “some
evidence” that the third party possesses assets of the judgment debtor to support that
belief. Schak v. Blom, 777 N.E.2d 635, 639 (Ill. App. Ct. 2002). The second provision
is Illinois Supreme Court Rule 277. That rule requires the party to whom the citation
is directed “to appear for examination . . . concerning the property or income of or
indebtedness due the judgment debtor.” Ill. Sup. Ct. R. 277(c)(3). The rule also
provides for discovery, and expressly allows “[a]ny interested party” to “subpoena
witnesses and adduce evidence as upon the trial of any civil action.” Ill. Sup. Ct. R.
277(e). In the end, the judgment creditor has the burden to show that the citation
respondent possesses assets belonging to it. Mid-American Elevator Co. v. Norcon,
Inc., 679 N.E.2d 387, 390 (Ill. App. Ct. 1996).
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I.

Effect of Termination on Indemnification Obligation
At the outset, BATO contends that the Citation should be dismissed because

any payment obligation terminated when the BATO Agreements were cancelled, and
the BATO Agreements were cancelled before Vanguard’s withdrawal liability arose.
BATO points out that each agreement states that it “shall run until cancelled by
either party,” and that none contains a survival clause. R. 108 at 6-7. BATO relies on
the Third Circuit’s decision in Nitterhouse Concrete Products, Inc. v. Glass, Molders,
Pottery, Plastics & Allied Workers International Union, & Local Union 201B AFLCIO CLC, 763 Fed App’x 164 (3d Cir. 2019). In Nitterhouse, the court affirmed the
district court’s conclusion that indemnification provisions did not cover withdrawal
liability incurred after the termination of the agreements because there was “no
explicit language” indicating that the liability “extended beyond the expiration of the
agreements.” Id. at 6-7 (citing Nitterhouse, 2018 WL 656013, at *19 (M.D. Pa. Feb. 1,
2018)).
But the Pension Fund argues that unlike the agreement in Nitterhouse, the
Bridgestone Agreement was still in effect when Vanguard’s withdrawal liability
accrued, and as such, Vanguard’s right to payment vested and survived the
subsequent termination of the agreement. R. 109 at 6-7. The Pension Fund offers an
April 30, 2009 letter from Bridgestone to Vanguard indicating that Bridgestone was
terminating the agreement effective May 30, 2009—nearly eleven months after
Vanguard’s withdrawal from the Pension Fund. BATO complains that this letter was
offered “without explanation or context,” and that it presents “a fact issue as to the

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timing and effectiveness of the termination of Vanguard’s services to Bridgestone” as
to which it “is entitled to a full trial and jury.” R. 110 at 3. But the Court does not
view this dispute as a basis for dismissal. Indeed, summary proceedings under 735
ILCS § 5/2-1402 allow for broad discovery and an evidentiary hearing, and permit
third party citation respondents like BATO to present any defenses they might have
asserted against the judgment debtor. See Dexia Credit Local v. Rogan, 619 F.3d 612,
624 (7th Cir. 2010) (735 ILCS 5/2-1402 “permit[s] the court to determine the rights of
third parties”); JPMorgan Chase Bank v. PT Indah Kiat Pulp & Paper, 2012 WL
2254193, at *2 (N.D. Ill. June 14, 2012) (“Broad discovery is thus allowable in citation
proceedings involving a third-party”); see also Fed. R. Civ. P. 69(a)(2) (“in aid of the
judgment or execution, the judgment creditor . . . may obtain discovery from any
person . . . as provided in [the federal rules governing pre-trial discovery]”); see also
Stonecrafters, Inc., 915 N.E.2d at 58 (the rights of a “third-party citation respondent
can be adjudicated in citation proceedings”). Indeed, the Seventh Circuit has held
that following discovery in a § 1402 proceeding, “[t]he creditor is then entitled to a
trial or evidentiary hearing on the evidence.” GE Betz, Inc. v. Zee Co., 718 F.3d 615,
629 (7th Cir. 2013).
Further, the Pension Fund argues that unlike in Nitterhouse, the BATO
Agreements’ terms and the parties’ conduct demonstrate that the indemnification
obligations survived, even assuming the agreements were terminated before
withdrawal liability accrued. The Pension Fund points to the fact that: (1) the
Bridgestone Agreement obligates Bridgestone to pay the “exact cost” of the pension

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benefits, including “any subsequent increases thereof;” and (2) the Bandag
Agreements obligate Bandag to pay any withdrawal liability caused by its action or
inaction, and Judge Lindberg previously enforced the very same language against
CMM post-termination. R. 109 at 8. According to the Fund, this language reflects that
the parties intended the payment obligations to include “future withdrawal liability,
not just withdrawal liability incurred during the duration” of the agreements. Id. The
Pension Fund also points out that when Bandag terminated the Vanguard-Bandag
Agreement, Vanguard immediately sent Bandag a letter reminding it of its
continuing obligation for potential withdrawal liability. See 109-10 (letter indicating
that although no withdrawal liability has been assessed, Bandag “would be
responsible for any withdrawal liability incurred by Vanguard . . . as a result of
[Bandag’s] cancellation of our services”).
Other than to complain that the Pension Fund’s offerings “at worst”
demonstrate that the indemnification provisions “suffer from an ambiguity to which
the parties are entitled to a finding of fact as to their intent,” BATO offers no
meaningful response. R. 110 at 3-4. As discussed, discovery and such a fact finding
can occur within this supplementary proceeding—to determine when the BATO
Agreements terminated, and/or whether the parties intended the indemnification
provisions to survive that termination. The Court therefore declines to dismiss the
Citation on this basis.

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II.

Jurisdiction Under 735 ILCS § 5/2-1402
BATO next argues that the Court lacks jurisdiction over the Citation because:

(1) the Pension Fund’s claim is not an unliquidated “asset” under 735 ILCS § 5/21402; and (2) the Pension Fund has not shown that Bridgestone and/or Bandag
“caused” the liabilities within the meaning of the BATO Agreements.
BATO first points to the Illinois Appellate Court’s decision in Ericksen v. Rush
Presbyterian St. Luke’s Medical Center to argue that indemnity claims may not be
pursued as “assets” under 735 ILCS § 5/2-1402 at all. See R. 108 at 7 (quoting
Ericksen, 682 N.E.2d 79, 84 (Ill. App. Ct. 1997)). But Ericksen did not hold that courts
generally

lack

jurisdiction

over

supplementary

proceedings

to

enforce

indemnification provisions. Instead, the court declined to enter a judgment against
the citation respondent in that case because there was no dispute that the
indemnification provision did not apply (and as such there was no “asset”). See
generally Ericksen, 682 N.E.2d 79. Nor does Ericksen require a judgment creditor to
demonstrate prior to the issuance of a citation that a third party possesses assets that
belong to it as BATO suggests; to the contrary, Ericksen “establish[ed] only that the
court cannot enter a judgment against a third-party who does not possess any assets
of the judgment debtor.” See JPMorgan Chase Bank, 2012 WL 2254193, at *2
(emphasis added). Here, the parties do dispute whether and if so to what extent the
indemnification provisions apply to Vanguard’s withdrawal liability. Those issues can
be resolved in this proceeding, and only then can the Court determine whether BATO
holds any assets sufficient to confer jurisdiction to enter judgment against it. See In

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re Emerald Casino, Inc., 223 F. Supp. 3d at 752-53 (citations were properly issued
where “no potential avenue for recovery has been thoroughly ruled out by a binding
judgment, and neither movant has responded to the citations to the extent necessary
to establish whether they hold assets of the judgment debtor”). To hold otherwise at
this stage would be premature and improper.
BATO next argues that the Court lacks jurisdiction because any claim is
“unliquidated” in that its amount cannot be “ascertained or . . . readily . . . calculated.”
R. 108 at 8 (citing Matter of Knight, 55 F.3d 231, 235 (7th Cir. 1995)). But the Court
agrees with the Pension Fund that the same methodology used to compute CMM and
Wise’s proportionate share of withdrawal liability can be used to compute BATO’s.
See R. 109 at 11-12 (quoting previous court orders noting that the withdrawal liability
“damages are fixed and certain” and that the Pension Fund “used a reasonable
methodology” to compute CMM and Wise’s proportionate share).
Finally, BATO contends that the claims are unliquidated because the Pension
Fund has not established that Bridgestone and Bandag caused Vanguard to incur the
liability within the meaning of the BATO Agreements. More specifically, BATO
points out that Bridgestone is not contractually obligated to indemnify Vanguard
unless Bridgestone “solely” caused the withdrawal liability, R. 108 at 9 (citing R. 1013, Art. I ¶ 6), and Bandag need indemnify Vanguard only for liabilities “arising out of
or in connection with any action or inaction by Bandag,” R. 101-7 ¶ III; R. 101-8 ¶ III.
BATO argues that both determinations require a fact finding. But this argument
misses the mark: the CMM indemnification provision contained the very same

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“causation” language as the Bandag Agreements here. See R. 67 at 1. And more to
the point, discovery and briefing on BATO’s defenses is permissible, including on this
issue of causation. Accordingly, the Court declines to dismiss the Citation for lack of
jurisdiction at this stage. 4
III.

Whether the Withdrawal Liability Award is Binding on BATO
BATO next argues that it is not bound by the withdrawal liability award under

collateral estoppel principles, both because it was not “actually litigated” in the
underlying case, and because BATO was not a party in any event. BATO also
contends that under Illinois law, the Pension Fund must prove that the withdrawal
liability set forth in the Settlement Agreement was “reasonable.” R. 108 at 11 (citing
Guillen ex rel. Guillen v. Potomac Ins. Co. of Ill., 785 N.E.2d 1, 14 (Ill. 2003)). BATO
argues that Vanguard had no incentive to ensure the award’s reasonableness,
because it agreed only “to pay a small portion of the [amount] in exchange for [the
Pension Fund’s] agreement not to pursue it . . . for the much larger balance.” R. 110
at 7. In so arguing, BATO again insists that it is entitled to “a proceeding with service,
full discovery and an opportunity to rebut any showing that the Settlement
Agreement . . . was reasonable,” as well as “to test [Vanguard’s] motivations.” R. 108
at 12. But assuming that the Pension Fund must make such a showing, as discussed,

The Court notes that if Bridgestone cancelled the Bridgestone Agreement only after
Vanguard’s complete withdrawal as the Pension Fund contends, there is a question
as to whether that cancellation could have “solely” caused the withdrawal liability
such that Bridgestone (now BATO) would be contractually obligated to indemnify
Vanguard.

4

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BATO can present its defenses to the Pension Fund’s claims at an evidentiary hearing
in the context of this citation proceeding. This is not a basis for dismissal.
IV.

Central States’ Standing to Pursue Vanguard’s Claims
Finally, BATO argues that the Pension Fund lacks standing to pursue

Vanguard’s causes of action under the BATO Agreements because: (1) Vanguard did
not assign the indemnification claims to the Pension Fund; and (2) the claims at issue
belong to MC3’s bankruptcy estate.
The Pension Fund does not meaningfully argue that it is Vanguard’s assignee.
And for good reason; the Settlement Agreement only grants the Pension Fund a “first
position security interest” in the claims at issue, and the Pension Fund does not
contend that it has foreclosed upon that interest. R. 93-2 ¶ 7. Nevertheless, the
Pension Fund has standing as judgment creditor to pursue the claims of judgment
debtor Vanguard—at least to the extent that Vanguard itself can pursue them. See
For Your Ease Only, Inc. v. Calgon Carbon Corp., 2009 WL 3255317, at *2 (N.D. Ill.
Oct. 6, 2009) (judgment creditor has rights equal to judgment debtor because
judgment creditor “stands in the shoes of the judgment debtor”).
But as discussed, Vanguard’s successor in name, MC3, filed for Chapter 7
bankruptcy in August 2015. Generally, a Chapter 7 bankruptcy debtor’s prebankruptcy legal claims belong to the bankruptcy estate, and as such can be
administered solely by the bankruptcy trustee. See 11 U.S.C. § 541(a)(1)
(commencement of a bankruptcy case creates an estate which consists of all legal and
equitable interests in property as of that time); see also Biesek v. Soo Line Railroad

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Co., 440 F.3d 410, 413 (7th Cir. 2006) (pre-bankruptcy claims are part of the estate
and belong to the Trustee). This is true even for legal claims that were not filed prior
to the bankruptcy case, provided the actions giving rise to the claims occurred prior
thereto. See In re Polis, 217 F.3d 899, 902 (7th Cir. 2000). As such, “[i]mmediately
upon the filing of a bankruptcy petition, § 362 of the bankruptcy code provides for an
automatic stay of efforts outside the bankruptcy proceeding to collect debts from the
bankrupt debtor.” In re Radcliffe, 563 F.3d 627, 630 (7th Cir. 2009). Nevertheless, a
creditor may seek relief from the automatic stay in order to pursue a claim to the
debtor’s pre-bankruptcy petition legal claims. See Agri-Best Holdings, LLC v. Atlanta
Cattle Exch., Inc., 812 F. Supp. 2d 898, 900 (N.D. Ill. 2011) (although generally a
trustee has the exclusive right to pursue claims on behalf of the debtor’s estate, “that
general principle yields where, as here, a creditor is given relief from the automatic
stay to exercise its rights to the debtor’s pre-petition assets, including the debtor’s
pre-petition legal claims”).
Here, there is no dispute that any indemnification obligation BATO may have
arose before MC3 filed its Chapter 7 bankruptcy petition. But the Pension Fund
contends that the claims for indemnification are nevertheless not part of Vanguard’s
bankruptcy estate because Vanguard did not have the “unfettered ability to possess
and own” them when the bankruptcy proceedings commenced. R. 109 at 15-16
(quoting Matter of Rolf, 34 B.R. 159, 161 (Bankr. N.D. Ill. 1983)). In support, the
Pension Fund points out that the Settlement Agreement granted it a “first position
security interest” in Vanguard’s claims for indemnification, and indicates that if

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Vanguard were to file for bankruptcy, the Pension Fund may pursue the claims
against Vanguard’s customers. Id. at 16 (citing 93-2 ¶ 18). The Pension Fund also
points out that the bankruptcy trustee agreed to the entry of an order that would
allow the Pension Fund to pursue the claims through relief from the automatic stay.
Id., Exs. 8 and 9. But the Pension Fund cites nothing to indicate that property subject
to a security interest falls outside of the bankruptcy estate as a matter of course. And
while the Pension Fund attaches the agreed order that would allow it to pursue the
indemnification claims if entered, it does not demonstrate or claim that it was.
Accordingly, absent evidence of an assignment, that the automatic stay was lifted to
allow the Pension Fund to pursue the indemnification claims, or that the Pension
Fund otherwise has the right to pursue the claims notwithstanding MC3’s
bankruptcy, the Citation is dismissed for the Pension Fund’s failure to demonstrate
standing. See Lightspeed Media Corp. v. Smith, 830 F.3d 500, (7th Cir. 2016) (in a
Chapter 7 liquidation case, “only the trustee has standing to prosecute or defend a
claim belonging to the estate”) (emphasis in original).
Conclusion
For the reasons stated, BATO’s motion to dismiss the Citation, R. 107, is
granted. This dismissal is without prejudice to the Pension Fund’s refiling its
supplemental proceeding either as part of this action, or, if appropriate, as a
standalone case, provided it can demonstrate its standing to do so. Accordingly, any
future request for citation shall indicate on its face or in a document appended thereto

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Case: 1:09-cv-04721 Document #: 112 Filed: 10/30/20 Page 18 of 18 PageID #:2856

the basis for the Pension Fund’s standing to pursue the indemnification claims at
issue.
ENTERED:

_______________________
Honorable Thomas M. Durkin
United States District Judge
Dated: October 30, 2020

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