Smith et al v. Sipi, LLC et al
Filing
45
MEMORANDUM OPINION AND ORDER Signed by the Honorable Harry D. Leinenweber on 12/29/2014:Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHER DISTRICT OF ILLINOIS
EASTERN DIVISION
KEITH SMITH and DAWN SMITH,
Appellants,
v.
SIPI, LLC, and MIDWEST
CAPITAL INVESTMENTS, LLC,
Case Nos.
13 C 6422 and
14 C 1034
Appellees,
Judge Harry D. Leinenweber
and
HAROLD MOSKOWITZ,
Appellant,
v.
KEITH SMITH and DAWN SMITH,
Appellees,
MEMORANDUM OPINION AND ORDER
Before the Court is Appellants Keith and Dawn Smith’s (the
“Smiths”) Motion for Rehearing [ECF No. 29].
also
filed
No. 36].
a
Motion
for
Leave
to
Rile
a
The Smiths have
Reply
Brief
[ECF
For the reasons stated herein, the Motion for Leave to
File a Reply is granted, but the Motion for Rehearing is denied.
I.
BACKGROUND
Appellants Keith Smith and Dawn Smith sought to use the
fraudulent transfer provision of the Bankruptcy Code to avoid
the sale of their house pursuant to Illinois tax law.
The
house,
was
which
Dawn
inherited
from
her
great-grandfather,
encumbered by a tax lien for unpaid real estate taxes for the
2000 tax year.
The Smiths did not satisfy the lien and the
property was sold at a tax sale to a predecessor of Appellee
SIPI, LLC (“SIPI”).
SIPI obtained and recorded a tax deed that
it subsequently sold to Appellee Midwest Capital Investments,
LLC.
After
adversary
filing
action
fraudulent.
for
to
bankruptcy,
avoid
the
the
Smiths
transfer
of
initiated
the
home
an
as
The Bankruptcy Court ruled in the Smiths’ favor.
On appeal, however, the Court reversed the bankruptcy court and
granted SIPI’s Motion to Dismiss the adversary proceeding.
The Smiths now move for a rehearing [ECF No. 29] of the
Court’s Memorandum Opinion and Order [ECF No. 28].
The Court
asked SIPI to respond to the Motion, and after the Motion was
fully
briefed,
No. 36].
the
Smiths
moved
to
file
a
reply
brief
[ECF
The Court grants the Motion to File a Reply but, even
after considering that brief, the Court denies the Motion for
Rehearing.
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II.
LEGAL STANDARD
Bankruptcy Rule 8015 is “the bankruptcy counterpart to FED.
R. CIV. P. 59(e).”
(7th
Cir.
Bankruptcy
1993).
Rule
Matter of Grabill Corp., 983 F.2d 773, 775
“A
8015
party
where
may
it
request
a
believes
that
rehearing
the
under
appellate
tribunal has overlooked or misapprehended some point of law or
fact.”
First Nat. Bank of Omaha v. Sysouvanh, No. 11-CV-675-
wmc, 2014 WL 26274, at *5 (W.D. Wis. Jan. 2, 2014) (internal
quotation marks omitted).
“District
courts
apply
a
dual
considering a bankruptcy appeal.
Bankruptcy
Court
are
reviewed
standard
of
review
when
The factual findings of the
for
clear
conclusions of law are reviewed de novo.”
error,
while
the
Chapman v. Charles
Schwab & Co., No. 01 C 9697, 00 A 0358, 00 B 5538, 2002 WL
818300, at *2 (N.D. Ill. Apr. 30, 2002).
III.
ANALYSIS
The Smiths have moved for rehearing of the Court’s opinion
dismissing
their
fraudulent
transfer
case,
raising
nine
arguments in support of their Motion.
First, the Smiths argue that the Court should grant their
Motion because of a typographical error.
The Smiths correctly
note that the Court stated in one instance that “a tax creditor
is deemed to have received ‘reasonably equivalent value’ for the
foreclosed property if all of the state’s tax foreclosure laws
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have been complied with.” (emphasis added).
the
relevant
party
is
the
tax
debtor,
This was an error;
not
the
creditor.
However, this error is of no consequence because the opinion’s
analysis focused entirely on whether the tax debtor — here, the
Smiths — received reasonably equivalent value.
In fact, just
two sentences later the opinion states, “Therefore, the Smiths
received reasonable equivalent value.”
A simple typographical
error that had no effect on the analysis or outcome of the case
is not enough to support the Smiths’ Motion.
Second,
the
Smiths
assert
that
the
Court
was
wrong
and
inconsistent in concluding that (1) it is not “sensible for the
Court to try to calculate the consideration received by the tax
debtor,”
value.
and
(2)
the
Smiths
received
reasonably
equivalent
The Smiths argue that the Court cited no authority for
the first statement and that the first statement is logically
inconsistent with the second.
The Smiths’ contention that the
Court did not cite any authority is completely disingenuous;
both the preceding and subsequent sentences include citations to
well-reasoned
case
law
that
support
the
proposition.
The
Smiths’ assertion that the two statements are inconsistent is
also disingenuous.
The Court determined that the law allows
certain tax debtors, such as those in the Smiths’ position, to
be deemed to have received equivalent value as a matter of law.
Where such a determination is proper, there is no inconsistency
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in holding both that a debtor received reasonably equivalent
value
and
that
the
Court
cannot
sensibly
calculate
the
consideration received by the tax debtor.
Third, the Smiths argue that the Seventh Circuit’s prior
ruling in this case found that the Smiths would be entitled to
relief under 11 U.S.C. § 548 if their Complaint’s allegations
were proven at trial.
law of the case.
The Smiths argue that this finding is the
They are wrong.
The Smiths point to language
in the Seventh Circuit’s ruling that says “Section 522(h) gives
debtors-in-possession, like the Smiths the same § 548 avoidance
powers with respect to involuntary transfers of certain exempt
properties, like homesteads.”
In re Smith, 614 F.3d 654, 657
(7th Cir. 2010) (emphasis added).
phrase
“like
the
Smiths”
only
The Seventh Circuit used the
when
generally
describing
the
powers of a debtor-in-possession to avoid transfers under § 548.
Id.
More importantly, the Seventh Circuit’s decision dealt with
a separate motion to dismiss that advanced different arguments
from those at issue in the current Motion to Dismiss.
The
Seventh Circuit explicitly stated that “the issue in this case
is when, under Illinois law, was SIPI's tax-buyer interest in
the Smith property so perfected that the Smiths could no longer
convey
Seventh
a
‘superior’
Circuit
interest
concluded
to
only
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a
BFP?”
that
“the
Id.
at
Smiths
658.
The
filed
for
bankruptcy, so they have sufficiently pleaded the two-year lookback element of their fraudulent transfer claim.”
Id. at 661.
The Seventh Circuit never dealt with the issue in this case:
whether
the
element.
Smiths
Thus,
satisfied
the
the
Seventh
reasonably
Circuit
equivalent
opinion
cannot
supply the law of the case on this issue.
value
possibly
See, Sprague v.
Ticonic Nat’l Bank, 307 U.S. 161, 168 (1939) (“While a mandate
is controlling as to matters within its compass, on the remand a
lower court is free as to other issues.”).
Fourth, the Smiths argue that the Court overlooked two key
portions of the BFP case.
U.S. 531, 537 (1994).
BFP v. Resolution Trust Corp., 511
The Smiths first point to the portion of
BFP that states that “reasonably equivalent value will continue
to have meaning (ordinarily a meaning similar to fair market
value) outside the mortgage foreclosure context.”
(internal quotation marks omitted).
Id. at 545
However, the Supreme Court
did not explain what that meaning is; rather, this statement was
merely
made
to
§ 548(a)(2)
Court
explain
superfluous.”
supposedly
Court’s
why
conclusion
Id.
“[t]he
and
forced
second
was
actually
considerations
sales
(to
Id. at 537 n.3.
only
be
tax
sales
may
different,
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not
portion
tax
render
that
the
in
the
quoted
bearing
satisfy
example) may be different.”
that
“[did]
The
“overlook[ed]”
opinion:
foreclosures
its
upon
other
liens,
for
This language says
not
that
they
are
different.
Further, the Court’s opinion already dealt with the
implications
of
and
case
law
discussing
this
language.
The
Smiths have failed to provide any new arguments the Court did
not already address.
Fifth,
the
Smiths
that
Illinois’
BFP
tax
required
sale
a
procedure
bidding-up
procedure
to
conform.
The Smiths provide no citation to BFP in support of
this argument.
which
argue
does
not
Further, the Court discussed in its opinion the
importance, or lack thereof, of a competitive bidding process
within the BFP framework.
Again, the Smiths have failed to
provide any new arguments the Court did not already address.
Sixth, the Smiths argue that the Bankruptcy Code should
displace Illinois tax law.
They advance this argument in a
conclusory manner with no citations to case law or analysis of
Illinois’ tax sale law.
Further, the opinion already dealt with
this issue, noting that “congressional intent to supersede state
laws must be clear and manifest” and that the Code includes no
such indication with respect to state tax sale law.
Here too
the Smiths have failed to provide any new arguments on this
issue.
Seventh,
the
Smiths
argue
that
the
Court
was
wrong
to
conclude that granting fraudulent transfer relief would be “to
the detriment of their creditors.”
they
are
afforded
§ 548
relief,
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The Smiths assert that, if
(1)
unsecured
creditors’
positions would be improved and (2) SIPI would not be harmed.
The
Smiths’
inquiry.
first
contention
misunderstands
the
relevant
Of course a transfer of property from one creditor to
a bankruptcy estate benefits every creditor that is not giving
up
property.
In
this
phrase,
though,
the
Court
was
only
referencing the detriment to the creditors that would lose the
property, not creditors generally.
The Court used the plural
“creditors” because there are two creditors in this case that
would be harmed if the tax sale were a fraudulent transfer.
The
Smiths’ second contention is immediately undercut by their own
admission that both Appellees would be “forced to surrender” a
“self-admitted windfall.”
This admission makes it clear that
Appellees will be harmed.
The Smiths’ argument regarding the
inequity
of
the
Court’s
decision
is
unsupported
by
either
citations to authority or developed logical arguments.
Eighth, the Smiths note that the Court characterized them
as losing their property because of “their own inaction.”
The
Smiths claim that the Court “justifie[d]” its decision based on
this characterization, essentially adding as an element to § 548
relief a requirement that debtors demonstrate that their own
inaction
reading
did
of
not
this
contribute
portion
of
to
the
the
transfer.
opinion
could
No
reasonable
understand
Court as having added an additional element to § 548.
the
Rather,
the Court was simply providing an accurate characterization of
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how the Smiths’ property was lost and explaining why § 548 would
be
turned
“on
its
head”
if
the
Court
adopted
the
Smiths’
position.
Ninth, the Smiths argue that the Court concluded wrongly
that adopting their position would wreak havoc on the balance
between fraudulent transfer and foreclosure laws.
Specifically,
the Smiths assert that Appellees would not be harmed by avoiding
the
tax
sale
as
a
fraudulent
transfer.
discussed already, this contention is wrong.
arguments
are
simply
an
impermissible
For
the
reasons
The Smiths’ other
attempt
to
reassert
arguments that the Court resolved in its opinion.
The Smiths have not identified any point of law or fact
that the Court overlooked or misapprehended and, thus, they have
failed to satisfy their burden.
IV.
CONCLUSION
For the reasons stated herein, the Smiths’ Motion for Leave
to
File
a
Reply
[ECF
No.
36]
is
granted.
The
Motion
for
Rehearing [ECF No. 29] is denied.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
Dated:
12/29/2014
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