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                                   Appellate Court                           document
                                                                             Date: 2017.01.19
                                                                             15:32:51 -06'00'




                  Holmon v. Village of Alorton, 2016 IL App (5th) 150404



Appellate Court        LARKIN HOLMON, Independent Administrator of the Estate of
Caption                Taymond Freeman, Deceased, Plaintiff-Appellant, v. THE VILLAGE
                       OF ALORTON, Defendant-Appellee.



District & No.         Fifth District
                       Docket No. 5-15-0404



Filed                  October 19, 2016



Decision Under         Appeal from the Circuit Court of St. Clair County, No. 14-L-136; the
Review                 Hon. Randall W. Kelley, Judge, presiding.



Judgment               Affirmed and remanded.



Counsel on             George R. Ripplinger, of Ripplinger & Zimmer, LLC, of Belleville,
Appeal                 for appellant.

                       Charles W. Courtney, Jr., Alana I. Mejias, and Jayni A. Desai, of
                       Courtney, Clark & Mejias, P.C., of Belleville, for appellee.



Panel                  PRESIDING JUSTICE SCHWARM delivered the judgment of the
                       court, with opinion.
                       Justices Cates and Moore concurred in the judgment and opinion.
                                             OPINION

¶1        Larkin Holmon, administrator of the estate of Taymond Freeman, appeals from the circuit
     court’s order denying Holmon’s motion for partial summary judgment and granting a motion
     for judgment on the pleadings filed by the Village of Alorton, the appellee. The appellant seeks
     to rescind an agreed-upon bankruptcy plan under which the appellee was to make payments to
     Freeman’s estate. We affirm the circuit court’s decision denying the appellant’s motion for
     partial summary judgment and granting the appellee’s motion for judgment on the pleadings as
     it relates solely to the issue of rescission. We remand for further proceedings, allowing the
     appellant to enforce the bankruptcy plan payment provisions.

¶2                                        BACKGROUND
¶3       On May 31, 1999, Taymond Freeman was shot by Thomas McGowan, a police officer
     employed by the appellee. On March 7, 2005, a bench trial was held, in which Freeman
     brought, against McGowan, claims of battery and claims relating to violations of his right to be
     free from unreasonable search and seizure and violations of his right to be afforded due process
     of law. On March 23, 2005, a judgment was entered in favor of Freeman and against
     McGowan in the amount of $978,874.40 plus costs of $1821.18. In its judgment, the circuit
     court held that McGowan’s conduct was not willful, therefore making the appellee liable to
     reimburse McGowan for the damages awarded.
¶4       On January 6, 2005, the appellee filed a chapter 9 bankruptcy proceeding (11 U.S.C. § 901
     et seq. (2000)) in the United States Bankruptcy Court for the Southern District of Illinois.
     Freeman was the appellee’s largest creditor. Due to the size of his claim, if Freeman did not
     vote to approve the appellee’s chapter 9 plan of adjustment in bankruptcy, the plan would not
     be approved. Freeman agreed to the appellee’s amended plan of adjustment, which established
     a new class of creditors, “Class 7,” consisting solely of Freeman. Under this amended plan,
     Freeman was to receive a total of $600,000, payable in monthly installments of $2500 over 20
     years, with the first payment due on the sixty-first month following the confirmation of the
     appellee’s bankruptcy plan.
¶5       Section 5.06 of the amended plan of adjustment, which addressed payment of Freeman’s
     claim, provided as follows:
                 “5.06 Class 7: The creditor in this class consists of the claim for an outstanding
             judgment against the Debtor in favor of Taymond Freeman. The creditor will receive
             $600,000.00 of his entire claim, to be paid in monthly installments of $2,500 for a
             period of twenty (20) years, first payment to be made on the 61st month (5 years)
             following the date of confirmation of the Plan, then $2,500 each month thereafter for
             the remaining twenty (20) years.”
¶6       Another pertinent part of the amended plan of adjustment, section 7.01, dealing with the
     effect of the plan on confirmation, provided as follows:
             “The distributions and rights afforded in this Plan shall be in complete satisfaction,
             discharge and release, effective on the Confirmation Date (hereinafter ‘Discharge
             Date’), of all Claims against and Interests in the Debtor or any of the assets or
             properties of the Debtor of any nature whatsoever. Commencing on the Discharge
             Date, all Claimholders and Interestholders shall be precluded forever from asserting


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               against the Debtor, or the reorganized Debtor, or the respective assets and properties,
               any other or further liabilities, liens, obligations, causes of action, claims or equity
               interests, including but not limited to all principal and accrued and unpaid interest on
               the debts of the Debtor based upon any act or omission, transaction or other activity or
               security instrument or other agreement of any kind or nature occurring, arising or
               existing prior to the Discharge Date, that was or could have been the subject of any
               Claim or Interest, whether or not Allowed, except with respect to classes of claims
               unimpaired pursuant to this Plan, said classes of claims and claimholders therein
               having been fully satisfied. As of the Discharge Date, the Debtor shall be discharged
               and released from, and the Debtor shall hold all assets and properties received or
               retained by it pursuant to this Plan free of all liabilities, liens, claims and obligations or
               other claims of any nature, including but not limited to equity interests, known or
               unknown, except classes of claims unimpaired pursuant to this Plan, and any liens,
               liabilities, obligations or other claims expressly authorized under this Plan or created
               by or preserved under this Plan or arising after the Discharge Date. All legal or other
               proceedings and actions seeking to establish or enforce liabilities, liens, claims, equity
               interests or obligations of any nature as against the Debtor or assets or properties
               received or retained by the Debtor with respect to debts and obligations, if any, arising
               before the Discharge Date shall be permanently stayed and enjoined, except as
               otherwise specifically provided in this Plan.”
¶7         On December 11, 2006, the amended plan of adjustment was confirmed, and on April 4,
       2007, the bankruptcy court filed an order closing the bankruptcy case.
¶8         Subsequent to the confirmation of the amended plan of adjustment and prior to any
       payments being made under the plan, a judgment in the amount of $346,000 was entered
       against Freeman in favor of Stacy Goodlow in Goodlow v. Freeman, No. 06-L-531 (Cir. Ct.
       St. Clair Co.). On January 14, 2009, the circuit court entered an order in this case, which
       redirected a portion of the bankruptcy plan payments to Stacy Goodlow in satisfaction of her
       judgment against Freeman. Under this order, the appellee would pay $400,000 of the $600,000
       to Goodlow and a maximum of $200,000 of the $600,000 to Freeman. Accordingly, two-thirds
       of the monthly plan payments would go to Goodlow and one-third to Freeman. On March 12,
       2009, Freeman was murdered. On May 14, 2012, an estate was opened in the circuit court of
       St. Clair County, and on June 18, 2012, Larkin Holmon, Freeman’s father, was appointed
       independent administrator of the estate of Taymond Freeman.
¶9         On January 11, 2012, the appellee was due to pay the first payment under the bankruptcy
       plan. Appellee made some, but not all, plan payments, and as of February 14, 2015, the
       appellee had paid the appellant $20,000. The appellant argues that, as of February 14, 2015, the
       appellee should have paid $95,000 to the appellant. The appellee does not dispute that it owes
       Freeman $200,000, less payments made under the bankruptcy plan, nor does it dispute that it is
       behind on its payments.
¶ 10       Sometime after Freeman’s death, the appellant filed a motion in the United States
       Bankruptcy Court for the Southern District of Illinois, seeking to reopen the bankruptcy case.
       On July 31, 2013, the motion to reopen was denied by the bankruptcy court. An appeal of the
       bankruptcy court order denying the reopening of the bankruptcy case was taken to the United
       States District Court for the Southern District of Illinois, which affirmed this denial on October
       30, 2013. See Holman v. Village of Alorton, No. 13-CV-925-JPG (S.D. Ill. Oct. 30, 2013).

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       According to the district court’s order, the appellant argued that the federal courts should have
       found the state courts lacked jurisdiction to redirect payments to Goodlow. In affirming the
       denial, the district court noted that, under the plan, a “contract” arose between the appellee and
       Freeman that was enforceable in state court. Further, the district court noted that Illinois state
       law allows the state courts to order the appellee to direct payments to Goodlow in satisfaction
       of Goodlow’s judgment against Freeman.
¶ 11       On January 31, 2014, the appellant filed suit against the appellee for breach of contract,
       resulting in these proceedings. The appellant’s complaint seeks to hold the payment agreement
       arising from the bankruptcy plan null and void and to reinstate the March 23, 2005, judgment
       in the amount of $978,874.40 plus costs. On March 18, 2015, the appellant filed a motion for
       partial summary judgment with the circuit court of St. Clair County. In the motion, the
       appellant requested a finding that “the [appellee] is in breach of its contract with Taymond
       Freeman entered into in the bankruptcy of the [appellee] and that the contract is to be held null
       and void.” The appellant further sought (1) to hold the judgment entered on March 23, 2005, in
       the amount of $978,874.40 plus costs, to be in full effect; (2) to recover costs of the current
       action; (3) to obtain postjudgment interest awarded at 9% since March 23, 2005; and (4) to set
       a hearing for the award of attorney fees in the originating case. The appellant stated that the
       appellee should be given credit for the payments of $20,000 made to the appellant.
¶ 12       On April 30, 2015, the appellee filed a motion for judgment on the pleadings, arguing that
       Freeman had accepted the bankruptcy plan, that the appellant was Freeman’s successor in
       interest and therefore bound by the bankruptcy plan, and that therefore the appellant may only
       recover the money due under the bankruptcy plan. On September 1, 2015, the circuit court
       entered an order denying the appellant’s motion for partial summary judgment and granting the
       appellee’s motion for judgment on the pleadings. In its order, the circuit court found that the
       appellee had “not complied with the Chapter 9 Plan and, in fact, owe[d] a total of $600,000,”
       with $400,000 less payments made owed to Goodlow and $200,000 less payments made owed
       to the appellant; that “[t]here is no dispute of material fact as to the amount owed under the
       Chapter 9 Plan”; and that “[the appellant] admits that [the appellee] has paid $20,000 toward
       the Plan.” The circuit court noted that the appellant’s “relief is to enforce its contract against
       the [appellee],” that rescission of the “contract” as requested by appellant is impossible
       because the March 23, 2005, judgment was discharged once the bankruptcy plan was entered,
       and that the circuit court lacked the authority to vacate the bankruptcy. The circuit court
       therefore “decline[d] to exercise its discretion to grant rescission of the contract” and held that
       appellee’s “Motion for Judgment on the Pleadings as it relates to the issue of rescission is
       GRANTED” (emphasis added). On September 28, 2015, the appellant filed notice of appeal.

¶ 13                                         ANALYSIS
¶ 14       The appellant challenges the circuit court’s denial of his motion for partial summary
       judgment. The appellant also challenges the circuit court’s grant of the appellee’s motion for
       judgment on the pleadings based on the appellee’s purely legal challenge to the appellant’s
       complaint. Both motions for partial summary judgment and motions for judgment on the
       pleadings on purely legal challenges are reviewed de novo. See Sinclair Oil Corp. v. Allianz
       Underwriters Insurance Co., 2015 IL App (5th) 140069, ¶ 34; Warren County Soil & Water
       Conservation District v. Walters, 2015 IL 117783, ¶¶ 45-47.


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¶ 15        “A confirmed plan of reorganization is in effect a contract between the parties and the
       terms of the plan describe their rights and obligations.” Ernst & Young LLP v. Baker O’Neal
       Holdings, Inc., 304 F.3d 753, 755 (7th Cir. 2002). Both parties agree, as does this court, that a
       new “contract” was formed between the two parties under the bankruptcy plan. Section 5.06 of
       the bankruptcy plan sets forth the terms of the “contract.” Freeman was to receive $600,000 of
       his entire claim of $978,874.40 plus costs payable in monthly installments of $2500 over 20
       years. Per the later agreed state court order with Freeman’s judgment creditor Goodlow,
       Goodlow would be paid $400,000 by two-thirds of each monthly installment, and the appellant
       would be paid $200,000 by one-third of each monthly installment.
¶ 16        The appellant seeks to rescind the “contract” between himself and the appellee created by
       the bankruptcy plan. The appellant argues that, due to the appellee’s admitted nonperformance
       of its obligations, this “contract” should be rescinded and the prebankruptcy plan confirmation
       judgment amount restored. “ ‘[R]escission means the cancelling of a contract so as to restore
       the parties to their initial status.’ ” Horwitz v. Sonnenschein Nath & Rosenthal LLP, 399 Ill.
       App. 3d 965, 973 (2010) (quoting Puskar v. Hughes, 179 Ill. App. 3d 522, 528 (1989)). A party
       seeking rescission must be able to “ ‘restore the other party to the status quo existing at the time
       the contract was made.’ ” Id. at 974 (quoting Puskar, 179 Ill. App. 3d at 528).
¶ 17        Section 7.01 of the bankruptcy plan further delineated the terms of the “contract” by
       providing the effect of confirmation of the plan. Section 7.01 of the plan provided that “[t]he
       distributions and rights afforded in this Plan shall be in complete satisfaction, discharge and
       release *** of all Claims against and Interests in the Debtor” that were not explicitly preserved
       under the bankruptcy plan. Section 7.01 further provided that as of the confirmation of the
       plan, the debtor shall be discharged and released from all claims except claims created or
       preserved under the plan.
¶ 18        A bankruptcy plan “operates as an absolute settlement, and the failure to pay unpaid
       obligations created by the plan will not revive the old debts.” In re Curry, 99 B.R. 409, 411
       (Bankr. C.D. Ill. 1989). “There is nothing in the [Bankruptcy] Act to suggest that the debtor’s
       failure to achieve promises made in a confirmed plan reinstates an original obligation.” Id. The
       appellant argues that Curry concerns only chapter 11 bankruptcies and that the provisions
       referenced are not applicable to chapter 9 bankruptcies. However, “confirmation [of a chapter
       9 plan] effectively discharges the debtor from all debts except those ‘owed to an entity that,
       before confirmation of the plan, had neither notice nor actual knowledge of the case.’ ”
       Nebraska Security Bank v. Sanitary & Improvement District No. 7, 119 B.R. 193, 195 (Bankr.
       D. Neb. 1990) (quoting 11 U.S.C. § 944(c)(2) (1988)). Pursuant to section 7.01 of the plan and
       operation of chapter 9 of the bankruptcy code, on confirmation of the plan of adjustment the
       indebtedness of the appellee to Freeman or his successors in interest in excess of $600,000 was
       discharged.
¶ 19        Appellant has cited no authority, and we have found no authority, permitting the state
       courts to rescind a “contract” made in a bankruptcy reorganization plan confirmed by the
       bankruptcy court. “[I]t is well established that sole jurisdiction in bankruptcy is lodged in the
       national government and that power is paramount and supersedes all inconsistent state laws.”
       General Iron Industries, Inc. v. A. Finkl & Sons Co., 292 Ill. App. 3d 439, 444 (1997). The
       appellant is asking us to rescind part of a bankruptcy plan, which is solely under the
       jurisdiction of the federal courts. Instead, as the United States District Court noted in denying
       the appellant’s appeal of the bankruptcy court order denying the motion to reopen the

                                                    -5-
       bankruptcy case, the appellant’s remedy is to enforce the “contract” in the state courts. See
       Holman v. Village of Alorton, No. 13-CV-925-JPG (S.D. Ill. Oct. 30, 2013). Therefore,
       enforcement of the terms of the “contract,” and not rescission, is the appropriate remedy for the
       appellant. Thus, we hold that the appellant may seek to enforce in state court the contract made
       in the confirmed bankruptcy plan, but he may not seek to rescind the plan. We therefore affirm
       the judgment of the circuit court, which denied the appellant’s motion for partial summary
       judgment and granted the appellee’s motion for judgment on the pleadings as it relates solely to
       the issue of rescission.
¶ 20        The appellant has expressed concern that, if this court affirms the circuit court, he would be
       barred under res judicata from seeking to enforce the “contract.” “Under the doctrine of
       res judicata, a final judgment on the merits rendered by a court of competent jurisdiction bars
       any subsequent actions between the same parties or their privies on the same cause of action.”
       Piagentini v. Ford Motor Co., 387 Ill. App. 3d 887, 890 (2009). The appellee does not dispute
       that it is behind on the payments owed to the appellant under the “contract.” Further, the
       appellee has stated that it believes the appellant still may sue for enforcement of the “contract”
       without being barred by res judicata.
¶ 21        We agree with the appellee. “Except in case of default, the prayer for relief does not limit
       the relief obtainable, but where other relief is sought the court shall, by proper orders, and upon
       terms that may be just, protect the adverse party against prejudice by reason of surprise.” 735
       ILCS 5/2-604 (West 2014). The appellee, by its own admission, would not be surprised if the
       appellant were to seek to enforce the “contract,” and the appellant can amend his complaint to
       seek this remedy. Further, Illinois recognizes the claim-splitting exceptions to the doctrine of
       res judicata set forth in section 26(1) of the Restatement (Second) of Judgments (Restatement
       (Second) of Judgments § 26(1) (1982)). Under the Restatement, a second action is not barred
       by res judicata if “ ‘the parties have agreed in terms or in effect that plaintiff may split his
       claim or the defendant has acquiesced therein’ ” or if “ ‘the case involves a continuing or
       recurrent wrong.’ ” Hudson v. City of Chicago, 228 Ill. 2d 462, 472-73 (2008) (quoting Rein v.
       David A. Noyes & Co., 172 Ill. 2d 325, 341 (1996)). The appellee’s “express consent to [the
       appellant suing for enforcement of the ‘contract’] would constitute an agreement” under the
       first exception and, therefore, would permit the appellant to enforce the “contract” without
       being barred by res judicata. Piagentini, 387 Ill. App. 3d at 896. Further, because the appellee
       continues to owe the appellant payments under the “contract,” any further nonpayment would
       be a continuing or recurrent wrong that would also permit the appellant to enforce the
       “contract” without being barred by res judicata. Therefore, while we affirm the judgment of
       the circuit court, which denied the appellant’s motion for partial summary judgment and
       granted the appellee’s motion for judgment on the pleadings as it relates solely to the issue of
       rescission, we find that the appellant is not barred by res judicata from bringing further action
       to enforce the “contract” in the chapter 9 confirmed plan of adjustment and therefore remand
       for further proceedings.

¶ 22                                        CONCLUSION
¶ 23      For the reasons stated, we affirm the judgment of the circuit court of St. Clair County and
       remand for further proceedings.

¶ 24      Affirmed and remanded.

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