Chicago Regional Council of Carpenters Pension Fund v. Van Der Laan (In re Van Der Laan)

Citations: 556 B.R. 366; 2016 Bankr. LEXIS 3140Docket: Bankruptcy No. 15 B 31218; Adversary No. 15 A 00910

Court: United States Bankruptcy Court, N.D. Illinois; August 24, 2016; Us Bankruptcy; United States Bankruptcy Court

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Plaintiffs, representing the Chicago Regional Council of Carpenters Funds, filed a motion for summary judgment against Jerald Van Der Laan in a chapter 7 bankruptcy case to determine the dischargeability of a debt under 11 U.S.C. § 523(a)(6). The debt arose from transfers of corporate assets made by Van Der Laan after being served with a citation to discover assets. Although Van Der Laan admitted to the asset transfers, he argued they were conducted on behalf of the corporation to pay its creditors and denied personal liability to the Funds.

The court evaluated the motion for summary judgment, determining that the Plaintiffs' evidence, including Van Der Laan's admissions, established all necessary facts to resolve the dischargeability claim. Van Der Laan failed to create a triable issue regarding any essential element of the claim. Thus, the court concluded that the admissible evidence did not support any contrary findings, leading to the granting of the Plaintiffs’ motion for summary judgment.

The memorandum outlines the standards for summary judgment, indicating that it requires the absence of genuine disputes over material facts and that the moving party is entitled to judgment as a matter of law. The court's role is not to resolve factual disputes but to determine if a rational trier of fact could find in favor of the non-moving party. Summary judgment is appropriate when the non-moving party does not demonstrate the existence of an essential element of their case.

Summary:

A court must grant summary judgment against a non-moving party if, after discovery, they fail to provide sufficient evidence to support their position on a material question. Mere minimal evidence is inadequate; the non-moving party must present credible evidence for the jury to find in their favor. Local Bankruptcy Rules 7056-1 and 7056-2 outline procedures for summary judgment motions, including the requirement for the moving party to submit a statement of uncontested material facts supported by admissible evidence. The opposing party must respond to each fact and provide evidence to dispute any claimed facts, with uncontradicted facts deemed admitted. In this case, Jerald Van Der Laan, the defendant, has largely admitted the plaintiffs' facts regarding the Chicago Regional Council of Carpenters Pension Fund and related funds, which are governed by ERISA and provide various benefits to union members. The plaintiffs sued Van Der Laan's company in 2012 for unpaid contributions, seeking recovery under ERISA for health and welfare benefits, along with damages and legal fees. The case is identified as Chicago Regional Council of Carpenters Pension Fund, et al. v. Van Der Laan Brothers Concrete Contractors, Inc., filed on September 28, 2012.

On November 7, 2013, the Funds' motion for summary judgment in the 2012 Action was granted, resulting in a future judgment for damages and attorney fees against the Company. While this action was pending, on December 20, 2013, Van Der Laan opened a new account for the Company at BMO Harris Bank, motivated by concerns that creditors would seize Company assets in its existing First Midwest Bank account. Van Der Laan, who controlled the Company's payments and was the sole signatory on the new account, deposited funds derived from the Company's receivables into the BMO Harris Bank account.

On January 7, 2014, the Funds' petition for attorney fees was granted, and on March 11, 2014, a judgment of $88,075.72 plus interest and fees was entered against the Company in favor of the Funds. The Company ceased operations shortly thereafter, and supplementary proceedings to collect the judgment were initiated by the Funds, including a citation to discover assets.

In April 2014, the Funds filed a new suit under ERISA against the Company for additional unpaid contributions (the "2014 Action"). On June 14, 2014, a citation to discover assets was served on the Company via Van Der Laan, which included a restraining order against transferring non-exempt property. Despite receiving the citation, Van Der Laan facilitated the transfer of over $88,000 from the BMO Harris Bank account to pay other creditors, including payments to his family members, without court approval or notifying the Funds.

Van Der Laan, as the sole officer of the Company, facilitated transfers from the Company’s BMO Harris Bank account after being served with a Citation between June 20, 2014, and July 31, 2015. His personal counsel, representing both him and the Company, appeared in a related 2012 Action on January 20, 2015, regarding a Rule to Show Cause initiated by the Funds. At the time of the Citation's service, the Company lacked sufficient assets to cover its debts and ceased providing services in early 2014. A judgment was entered against the Company for $139,140.62 on January 26, 2015. Other than the BMO Harris account, all Company assets were liquidated by First Midwest Bank. On September 14, 2015, Van Der Laan filed for Chapter 7 bankruptcy, listing the Funds with a disputed claim. To date, approximately $23,000 has been collected from the judgment of $88,075.72, but attorney's fees and costs awarded have exceeded amounts collected. The Citation has been extended through April 17, 2017. 

The proceeding falls under the jurisdiction of 28 U.S.C. § 1334 and is referred to a bankruptcy judge as a core proceeding under 28 U.S.C. § 157(b)(2)(I), focusing on the dischargeability of a debt under 11 U.S.C. § 523(a). While bankruptcy law addresses dischargeability, the validity of claims is governed by non-bankruptcy law, with Van Der Laan denying liability for the Funds' claims.

Plaintiffs argue that liability arises under Illinois law due to Van Der Laan's violation of a Citation issued before the bankruptcy case commenced. The Citation, issued by an Illinois District Court, is governed by state law, specifically under 735 ILCS 5/2-1402, which details supplementary proceedings to enforce money judgments. A citation to discover assets allows a judgment creditor to identify non-exempt assets of the debtor and compel their application toward satisfying the judgment.

In Illinois, the citation serves to prevent the judgment debtor or third parties from obstructing asset recovery efforts. The code specifies that a judgment creditor may initiate supplementary proceedings by serving a citation to the debtor or a third party in possession of the debtor's assets. An order compelling the turnover of property can be issued only after a hearing to determine rights to the assets, with the judgment becoming a lien on the debtor's nonexempt assets upon citation service. 

The lien attaches to all personal property owned or subsequently acquired by the debtor until the citation's disposition. Van Der Laan has not contested the Citation's validity, and service on him as President of the Company is deemed valid. Consequently, the judgment lien encompasses all personal property in the debtor's possession and control at the time of citation service, along with property that may be acquired thereafter. The Citation included restraining language to prevent interference with the covered property.

You are prohibited from transferring or interfering with any non-exempt property belonging to the Judgment Debtor or any money due to them until further court order or the termination of proceedings. You are not required to withhold payments exceeding double the judgment amount. Under Illinois law, violations of this citation can result in contempt charges or judgments against third parties for the lesser of the unpaid judgment amount or the value of transferred property. The statute enforces strict prohibitions against transfers until a court order is issued. Courts may impose sanctions for contempt without needing to establish willfulness, focusing instead on the party's diligence in complying with orders. Additionally, corporate judgment debtors cannot make payments before satisfying the judgment creditor, and corporate officers can be held in contempt for violating citations. Personal liability may arise for corporate officers allowing non-exempt payments. Van Der Laan, as President of the Company, is liable for transferring corporate assets to creditors while the Citation was pending, violating the citation lien that includes after-acquired property. Van Der Laan was served with the Citation and is accountable for the transfers made on behalf of the Company. Similar cases under Illinois law have found corporate officers personally liable for such violations.

For dischargeability under § 523(a), Van Der Laan is determined to owe a nondischargeable debt per 11 U.S.C. § 523(a)(6), which excludes debts for willful and malicious injury to another's entity or property. The Plaintiffs bear the burden of proof to establish the nondischargeability of the debt by a preponderance of the evidence, as per Grogan v. Garner. To succeed, they must demonstrate three elements: (1) Van Der Laan caused an injury to their property interest; (2) his actions were willful; and (3) they were malicious.

The term "injury" refers to a violation of a legal right, with the law providing a remedy. The Plaintiffs allege injury to their property interest due to Van Der Laan's actions regarding a citation lien under Illinois law, specifically 735 ILCS 5/2-1402(m)(f)(1). Each unauthorized transfer of Company funds while the citation was pending constitutes an ongoing injury, as citation liens apply to after-acquired property. Van Der Laan transferred over $88,000 in corporate assets to creditors without court approval, which deprived the Plaintiffs of funds that could have been applied to their judgment. The citation required disclosure of all interests in assets, and any transfers post-citation were violations unless sanctioned by the court. Consequently, Van Der Laan's actions resulted in a quantifiable injury to the Plaintiffs, valued at approximately $88,000, aligning with 735 ILCS 5/2-1402(f)(1), which allows for a judgment equal to the unpaid portion of the judgment or the value of the transferred property, whichever is lesser.

Van Der Laan contends that no injury exists due to the absence of a violated legal right but fails to provide supporting authority or evidence for his claims. He attempts to introduce facts suggesting another creditor holds a blanket lien over the Company's assets, but Plaintiffs objected to these as lacking admissible evidence, and the objections were sustained. Van Der Laan's statements regarding the Company's mortgage execution are based solely on his personal affidavit, which does not meet the requirements of Rule 56(e) for competent testimony and admissible evidence. Additionally, statements regarding the existence of property interests require the actual documents to be submitted, which Van Der Laan has not done. His legal conclusions about the parties’ property interests are also inadmissible as they do not constitute factual testimony.

Furthermore, even if his arguments were supported, they are legally flawed. Van Der Laan asserts that the Plaintiffs' citation did not create a lien because the Company’s assets were already encumbered, yet he provides no statutory support for this claim, which contradicts established commercial and property law principles. He misinterprets the priority of liens, as the Company is still bound by the Citation's terms despite any superior interests. The proper resolution of competing interests is governed by Illinois supplementary proceedings statutes. Importantly, a lien on an account cannot be perfected through a blanket lien; it requires control or citation service. Since the alleged secured creditor does not have control over the account, the funds are not covered by their lien. Consequently, even if Van Der Laan's facts were validated, they would be irrelevant to the motion. Plaintiffs have demonstrated that the Defendant caused property injuries under § 523(a)(6), with willfulness requiring intentional injury, not just intentional acts causing injury.

"Willful" is defined as the intent to cause injury, rather than merely performing an intentional act that leads to injury. Injuries resulting from negligence or recklessness are excluded from § 523(a)(6). The Supreme Court in Geiger did not clarify the term "intent," but subsequent rulings indicate that intent can be demonstrated through either a subjective intent to injure or a debtor’s awareness that injury is substantially certain to result from their actions. Willfulness is established if the debtor's motive was to inflict injury or their actions were almost certain to cause injury.

In this case, the plaintiffs can prove willfulness under § 523(a)(6) by showing that Van Der Laan either intended to injure them or knew that his actions would likely result in injury. For property-related injuries, the focus is on whether the debtor intended to misuse the creditor's collateral or its proceeds, rather than whether they intended for the creditor to remain unpaid. If the debtor improperly uses collateral, that constitutes intentional injury.

It must be inferred from the circumstances that Van Der Laan intended to cause injury to the plaintiffs, as he knowingly used assets covered by a citation lien in violation of its terms to pay other creditors. While he claimed to have focused on other aspects of the citation, the record indicates he read and understood the citation, which included clear restraining provisions. His testimony and actions during the citation examination further negate any defense based on ignorance of the citation's implications. Van Der Laan had a legal obligation to comply with court orders, and ignorance of the law does not excuse his actions. Thus, he lacks a valid defense against his duty to refrain from making unauthorized transfers.

Van Der Laan contended that he opened the BMO Harris account to protect creditors other than First Midwest Bank, including the Plaintiffs. However, he did not dispute the Plaintiffs' factual statements from his previous deposition, where he indicated that the account was opened to prevent levies from creditors. His subjective intent is not relevant for determining his intent regarding the transfers made after opening the account, which occurred months before the Citation was served. The critical issue is whether he intended to violate the Citation or knew that the subsequent transfers would likely violate it. Evidence shows that he made multiple transfers over approximately a year after the Citation was served, having control over the account as the company's sole officer. The Plaintiffs demonstrated that Van Der Laan either intended to violate the Citation or was substantially certain that the transfers would breach the obligations imposed by it, satisfying the "willfulness" requirement of § 523(a)(6).

For the "malicious injury" element, the conduct must be intentional and cause injury without just cause. Van Der Laan's actions were deemed malicious as he transferred corporate assets in conscious disregard of his duties, fully aware of the Citation's terms, which he read and discussed with company counsel. His transfers, made without just cause or excuse, resulted in malicious injuries to the Plaintiffs, qualifying the debt as nondischargeable under § 523(a)(6). The court concludes that the Plaintiffs have established their case without any material disputes, and judgment will be entered in their favor. Additionally, Local Bankruptcy Rule 7056-1 outlines the requirements for supporting documents in motions for summary judgment, including a statement of material facts and relevant affidavits.

The statement of facts in legal motions must be structured in short, numbered paragraphs that cite specific affidavits, records, and supporting materials for each fact presented. A failure to comply can lead to the denial of the motion. Under Local Bankruptcy Rule 7056-2, parties opposing a summary judgment motion must file several documents, including: a supporting memorandum of law, a concise response addressing each paragraph of the moving party's statement, and any additional facts opposing the motion, also supported by references to relevant materials. All material facts in the moving party's statement are admitted unless specifically contradicted by the opposing party's statement. In a particular case, Van Der Laan attempted to contest a fact by stating concerns about First Midwest Bank levying on his account, supported by an affidavit. However, this affidavit was deemed insufficient because it contradicted his previous sworn deposition statements, as established by circuit law which does not allow a party to create factual disputes through contradictory affidavits. Relevant case law is cited to reinforce this principle against "sham" affidavits.