Kelleher v. National Asset Loan Management, Ltd. (In re Shelbourne North Water Street L.P.)
Docket: Case No. 13 B 44315; Adversary No. 15 A 00544
Court: United States Bankruptcy Court, N.D. Illinois; September 6, 2016; Us Bankruptcy; United States Bankruptcy Court
Garrett Kelleher initiated an adversary proceeding against National Asset Loan Management, Ltd. (NALM) and Capita Asset Services (Ireland) Limited, asserting that they were prohibited from collecting a personal loan he incurred, based on the confirmed chapter 11 plan of Shelbourne North Water Street, L.P. The NALM Parties filed motions to dismiss and for a protective order, but Kelleher voluntarily dismissed the complaint without prejudice before any decision was made on these motions. Subsequently, an agreement was reached in which Kelleher would withdraw his notice of dismissal and request the court to replace a prior Memorandum Opinion with one that formally dismisses the adversary proceeding due to failure to state a claim.
The court concluded that the release and injunction provisions in the Shelbourne plan do not apply to Kelleher’s personal debts to the NALM Parties, as he was not a debtor and they were not creditors of Shelbourne. Background details reveal that Shelbourne, formed to develop a property in Chicago, borrowed $69 million secured by its assets, with Kelleher personally guaranteeing the loan. Kelleher also took a separate $6.1 million loan for which he was solely liable and which was unconnected to Shelbourne. Following a series of legal actions, including a foreclosure initiated by a mechanics lien creditor and subsequent involuntary bankruptcy proceedings against Shelbourne, NALM acquired the loans after Anglo Irish Bank was merged into IBRC. NALM retained the Kelleher Loan but was not a creditor in the Shelbourne bankruptcy, which resulted in the confirmation of a chapter 11 plan that included specific release and injunction provisions relevant to the case.
In July 2015, Kelleher initiated an adversary proceeding against the NALM Parties, seeking a declaratory judgment asserting that the release and injunction provisions of the Shelbourne plan prevent them from collecting on the Kelleher Loan. Kelleher claimed to be included as a “Released Party” under the plan and argued that the provisions apply to the Kelleher Loan, which is a debt from a non-debtor to a non-creditor. He alleged that funds from the Kelleher Loan were used to pay vendors for goods and services related to the development of the Chicago Spire and that NALM had a role in the Shelbourne bankruptcy proceedings despite not owning the Shelbourne Loans. Kelleher further claimed that NALM participated in settlement negotiations that contributed to the confirmed joint plan.
Kelleher asserted that loan statements sent by Capita to his U.S. residence for the Kelleher Loan violated the release and injunction, seeking a declaratory judgment to confirm the Kelleher Loan's discharge under the Shelbourne plan and to enjoin collection actions. He also requested actual and punitive damages for the alleged willful violation of the injunction by the NALM Parties.
On October 2, 2015, the NALM Parties filed a motion to dismiss, arguing lack of subject matter and personal jurisdiction, which the court later considered as a motion to dismiss for failure to state a claim. They contended that the Kelleher Loan did not fall under the plan’s release or injunction, emphasizing that they had not been notified or served with the plan, were not creditors, had no voting rights on the plan, and did not receive distributions. Kelleher did not adequately explain how the plan's language could release his liability to NALM regarding the Kelleher Loan, only asserting that a chapter 11 plan could potentially release a claim owed by a non-debtor to a non-creditor, without providing substantive analysis of the plan's language.
The court analyzed Kelleher's complaint regarding his potential claims under the Shelbourne plan, which includes provisions for "Released Parties" and "Released Claims." Kelleher cited plan language that positions him as a "beneficiary" of the release and injunction provisions but failed to articulate how the Kelleher Loan qualifies as a “Released Claim.” His assertion that claims related to the Kelleher Loan constitute "Released Claims" was not substantiated with relevant analysis, leading to the conclusion that the release and injunction provisions do not apply to the Kelleher Loan.
The release provision, Section 7.4, defines "Released Parties," including Kelleher, as being released from all claims and interests, specifying that the plan's rights satisfy and discharge all claims categorized as "Released Claims." The definition of "Released Claims" encompasses all claims against the Released Parties, yet it necessitates that these claims must be against the debtor, per the plan's definition of "Claim," which aligns with the Bankruptcy Code. Consequently, "Released Claims" are primarily claims against the debtor, while the broader definition of "Causes of Action" includes various claims but lacks clarity in relation to the debtor. The court found that Kelleher did not demonstrate how his claims fell within the definitions provided in the plan, emphasizing the limitations of the terms as defined.
The term “Released Claims” is explicitly constrained in its definition, requiring that “Causes of Action” must be owed either directly, indirectly, or derivatively through the Debtor or Reorganized Debtor and must pertain to the same subject matter as any claims, interests, or liens on the Debtor's property. This stipulation limits “Released Claims” to those arising from debts owed by the debtor, indicating that a debt solely owed by Kelleher, not secured by the debtor's property, cannot qualify as a “Released Claim.” Though Kelleher is classified as a Released Party, he is not exempt from all claims against him, but only from personal liability related to debts of the debtor as defined under a guaranty.
The release provision in Paragraph 7.4 elaborates that the scope includes “any and all Claims and Interests of any kind,” yet maintains the limitation to claims against the debtor. The release encompasses debts specified in sections 502(g), 502(h), or 502(i) of the Bankruptcy Code, which pertain only to claims by creditors against the debtor. Additionally, the release applies regardless of whether a claim was allowed under section 502 or whether the claimant participated in the plan.
The plan's “rights” are what facilitate the release of “Released Claims,” binding only those entitled to rights under the plan. Consequently, the release pertains solely to claims against the debtor, interests in the debtor, and liens on the debtor’s property. Clause (y) reinforces that "Released Claims" and "Released Parties" are constrained to claims against the debtor, again emphasizing that the claims must arise from the debtor and relate to the same subject matter as outlined in the preceding clauses.
Claims against the debtor, as outlined in clause (x), include both claims against the debtor and interests in the debtor. Clause (y) similarly restricts itself to claims and interests related to the debtor. Paragraph 7.4 states that entities receiving distributions under the plan are conclusively presumed to discharge the debtor and release the Released Parties from Released Claims and any other actions based on the same subject matter as the claims or interests tied to their distributions. This indicates that the release only pertains to claims against the debtor or its property. The language, particularly in capital letters, implies that potential additional claims could be released, but they must still relate to claims or interests in the debtor.
Kelleher did not adequately interpret the definitions of "Released Claim" and "Claim" in relation to the Kelleher Loan, which does not qualify as a claim against the debtor and therefore is not a Released Claim. NALM did not receive any rights under the plan that would activate the discharge and release provisions. The Kelleher Loan is not associated with the debtor's claims or interests, and Kelleher's assertion regarding the release provision's applicability to the Kelleher Loan lacks a reasonable basis.
The injunction provision in Paragraph 7.5, titled "Discharge Injunction," similarly restricts claims against the debtor and its property. It enjoins any entity from collecting on any claim or demand against the Released Parties, emphasizing that these claims pertain primarily to the debtor. Three clauses outline the injunction: clause (a) addresses any claim against the Released Parties, clause (b) limits claims to those related to the same subject matter as claims in Section 7.4, and clause (c) pertains to claims against the debtor's property. The Kelleher Loan does not fit within these parameters, as it is not a claim against the debtor or an interest in the debtor.
The injunction provision specifies that it only applies to parties accepting distributions under the plan, meaning only holders of allowed claims or interests can be bound by it. The NALM Parties, lacking creditor status and not receiving distributions, cannot be subject to the injunction. For the injunction to apply to them or the Kelleher Loan, both must be explicitly identified within the plan and the disclosure statement, as mandated by Rule 3016(c) of the Federal Rules of Bankruptcy Procedure. However, neither the NALM Parties nor the Kelleher Loan is mentioned in these documents, thus they are not included under the injunction. Kelleher received a warning from the court that he needed a clear connection between the Kelleher Loan and the injunction provisions, which he failed to establish. Consequently, Kelleher conceded that no reasonable argument supports the Kelleher Loan's inclusion under the release and injunction provisions. In his response, Kelleher attempted to argue the legality of enjoining a non-creditor, but this theoretical argument is unnecessary, as the plan does not actually enjoin collection of the Kelleher Loan.
The court concludes that the cases cited by Kelleher do not allow for the enforcement of a release and injunction against the NALM Parties regarding the Kelleher Loan. The first case, In re Airadigm Communications, Inc., focuses on creditor claims against non-debtors and does not address non-creditor claims. The second case, In re Ingersoll, Inc., acknowledges the potential for unusual circumstances allowing non-debtor releases but emphasizes that such releases are not commonly valid and require fair notice and an opportunity to object for the affected party. In this instance, the Kelleher Loan was neither mentioned in the plan nor the disclosure statement, failing to provide adequate notice. The NALM Parties were not creditors, did not have voting rights, and were unaware they could be barred from collecting the Kelleher Loan, thus, none of the conditions for a valid release or injunction were met.
Kelleher's challenge regarding the NALM Parties sending notices to his U.S. address is deemed irrelevant since the plan does not bind them concerning the Kelleher Loan. Furthermore, Kelleher's reference to a settlement agreement involving the debtor and other parties does not substantiate his claim that the Kelleher Loan falls under the plan's release; in fact, it indicates the opposite. The settlement agreement, which includes provisions concerning the "Mortgage Debt" linked to loans from Anglo Irish Bank, does not mention the Kelleher Loan. The confirmed Amended Joint Chapter 11 Plan explicitly implements the terms of the settlement agreement without including the Kelleher Loan, thereby reinforcing that the loan is not released by the plan.
The agreement outlines the payment distribution among parties involved in the joint plan and specifies the mutual releases to be included. Paragraph 18 mandates that the RMW Entities, the Debtor, Debtor Affiliates (including Kelleher), and Atlas exchange broad releases of all claims arising from the related loan and agreements, explicitly excluding claims from NALM against Kelleher regarding the Kelleher Loan, as NALM is not a party to the agreement. Paragraph 19, titled "Further Kelleher Releases," details additional releases for Kelleher, indicating that the RMW Entities will not enforce any judgments related to Kelleher’s guaranties, which will be extinguished, including those to the Bank and Case. Upon entry of the 9019 Order, Kelleher will also be released from guaranties concerning the Mortgage Debt. Notably, neither Paragraphs 18 nor 19 encompass the Kelleher Loan in the releases, as the terms focus solely on claims between the parties to the Settlement Agreement.
The court examined two additional arguments suggested by the complaint that Kelleher did not explicitly make. The first argument claimed NALM's limited intervention in the bankruptcy case bound it to the plan's terms, despite its lack of creditor status and non-involvement in the plan's voting or benefits. The court rejected this notion, emphasizing that the limited intervention was solely for protecting confidential information and did not confer creditor status or release the Kelleher Loan. The second argument concerned the Kelleher Loan being partially secured by Kelleher’s interest in Milltown LLC, which the court clarified does not relate to the debtor or its property, thus maintaining that the release and injunction in the plan do not pertain to the Kelleher Loan.
Kelleher has not provided a legitimate legal or factual basis for asserting that the release and injunction provisions in the Shelbourne plan pertain to the Kelleher Loan, leading to the decision to grant the motion to dismiss the complaint. The bankruptcy judge overseeing the Shelbourne case recused herself in November 2015, and the matter was reassigned. The "Released Parties" include "Shelbourne Affiliates," which encompasses Garrett Kelleher. The plan defines "Interest" as any partnership interest in the Debtor and indicates that claims against the debtor's property are, in essence, claims against the debtor. Notably, a lien that survives a Chapter 7 bankruptcy is treated as a claim against the debtor in any subsequent bankruptcy. While claims against the debtor and claims against the debtor's property are separately defined in the plan, both qualify as "Claims." Paragraph 7.4 of the plan states that, unless specifically stated otherwise, the Released Parties are discharged from all claims and liabilities, including those arising before the Confirmation Date, regardless of whether a Proof of Claim was filed. Furthermore, any entity receiving distributions under this plan is presumed to discharge the debtor and release the Released Parties from claims, including those related to the same subject matter as the claim for which the distribution is received. Clause (z) of Paragraph 7.4 references Released Parties and Released Claims but is limited to releasing the debtor's and reorganized debtor's causes of action against the Released Parties, and its inconsistencies are irrelevant to this case.
Paragraph 7.5 establishes a permanent injunction effective upon the entry of the Confirmation Order, prohibiting any entity from initiating or continuing legal actions to collect claims or demands against the Released Parties. This includes claims related to equity interests, any known or unknown claims based on the same subject matter outlined in Section 7.4, and any claims against the property or security interests held by the Released Parties. Acceptance of distributions under the plan implies consent to this injunction. Existing injunctions or stays under the Bankruptcy Code will remain in effect until the effective date of the plan. Notably, the injunction does not apply to the Kelleher Loan, as the debtor has no liability for it, and it is not secured by the debtor's property or interests. The release provisions in a referenced case explicitly identified the non-debtor and non-creditor parties involved, as well as the origins of the claims. Additionally, the "Bank" is identified as Anglo Irish Bank Corporation, which originally loaned to the debtor, with the loan subsequently transferred to NALM and then to RMW. The guaranty to the "Bank" aligns with that held by RMW at the time of the Settlement Agreement. The term "Case" refers to Case Foundation Company, involved in an agreement guaranteed by Kelleher.
