- 7th Cir. No. 14-2618 (Aug. 11, 2015)
- The 7th Circuit affirmed the District Court (N.D. Ill.), finding that the creditor (Morehead) converted his participation interest in commercial real estate owned by a trust controlled by one of the debtors (Richer) to a demand note in a timely manner, and therefore had an unsecured claim against the debtors' estate. The 7th Circuit also held that the Bankruptcy Judge acted within his jurisdiction in deciding this issue of Illinois common law because 1) the parties' implicit consent to the Bankruptcy Court's adjudication of the claim was sufficient because the parties were "sophisticated businessmen represented by counsel who can be presumed to be aware of their clients' legal rights" and 2) the parties failed to object to the Bankruptcy Court's adjudication of the claim at any point during the litigation.
- Procedural context:
- Morehead filed an unsecured claim against the debtors' estate. The debtors filed an adversary proceeding to determine the nature and extent of Morehead's claim and objecting to Morehead's claim. The Bankruptcy Court upheld Morehead's claim, and the District Court affirmed.
- On November 25, 2005, Mr. Richer and Morehead executed an "Equity Participation Agreement" (the "Agreement") in which Morehead agreed to pay Richer $700,000 for the right to receive 8% of the net proceeds from any sale of commercial real estate owned by a trust controlled by Richer. The Agreement gave Morehead the option to convert his participation interest to a demand note payable within 180 days of conversion. If Morehead exercised that right on the third, fourth, or fifth anniversary date of the Agreement, the value of the demand note would be $700,000 plus 7% simple interest. On November 24, 2009, Morehead sent Richer by certified mail return receipt requested a letter purporting to convert Morehead's participation interest to a demand note for $700,000 plus interest, effective on November 25, 2009, the fourth anniversary of the Agreement. Apparently, Richer did not make the payment to Morehead. After the Richers filed for bankruptcy, Morehead filed an unsecured claim against their estate in the amount of $945,000. The Richers then filed an adversary proceeding objecting to Morehead's claim. The Richers argued that Morehead's letter purporting to convert his interest had to be mailed or otherwise communicated to them on the anniversary date, not before or after, and that Morehead had therefore failed to comply with the conversion option under the Agreement. Further, they argued that Morehead's only lawful interest in the property was to receive a share of the net proceeds of the property if and when it was sold, which had not happened. The court considered the language of the option and notification provisions in the Agreement and concluded that Morehead complied with the terms of the conversion option and therefore had an unsecured claim against the debtors' estate.
- Posner, Kanne, and Hamilton, Circuit Judges
Analysis: Bankrupt Borrowers Won’t Forfeit Coronavirus Aid Payments to Creditors Under Stimulus Package
3060 in the system
1 Being Processed