In the
United States Court of Appeals
For the Seventh Circuit

No. 00-2519

Marc R. Wilkow,

Plaintiff-Appellant,

v.

Forbes, Inc., and Brigid McMenamin,

Defendants-Appellees.



Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 3477--Blanche M. Manning, Judge.


Argued January 12, 2001--Decided February 20, 2001



  Before Easterbrook, Rovner, and Diane P. Wood, Circuit
Judges.

  Easterbrook, Circuit Judge. Forbes Magazine runs a
column on pending litigation of interest to the
business community. The October 5, 1998, issue of
Forbes covered the grant of certiorari in what
was to become Bank of America National Trust &
Savings Ass’n v. 203 North LaSalle Street
Partnership, 526 U.S. 434 (1999), which presented
the question whether the absolute-priority rule
in bankruptcy has a new-value exception. The
absolute-priority rule, codified in 11 U.S.C.
sec.1129(b)(2)(B)(ii), forbids confirmation of a
plan of reorganization over the objection of an
impaired class of creditors unless "the holder of
any claim or interest that is junior to the
claims of such [impaired] class will not receive
or retain under the plan on account of such
junior claim or interest any property." In other
words, creditors may insist on priority of
payment: secured creditors must be paid in full
before unsecured creditors retain any interest,
and unsecured creditors must be paid off before
equity holders retain an interest. But equity
investors frequently argue that this rule may be
bent if they contribute new value as part of the
plan. Although this court had rejected other new-
value arguments, see Kham & Nate’s Shoes No. 2 v.
First Bank of Whiting, 908 F.2d 1351, 1359-63
(7th Cir. 1990), in 203 North LaSalle we held
that the equity investors could retain ownership
of a commercial office building, in exchange for
about $6 million in new capital over a five-year
period, even though the principal lender would
fall about $38 million short of full repayment.
In re 203 North LaSalle Street Limited
Partnership, 190 B.R. 567 (Bankr. N.D. Ill.
1995), affirmed, 195 B.R. 692 (N.D. Ill. 1996),
affirmed, 126 F.3d 955 (7th Cir. 1997). This was
the decision on which Forbes published a short
column, seven months before the Supreme Court
held the plan "doomed, . . . without necessarily
exhausting its flaws, by its provision for
vesting equity in the reorganized business in the
Debtor’s partners without extending an
opportunity for anyone else either to compete for
that equity or to propose a competing
reorganization plan." 526 U.S. at 454.

  The majority opinion in the Supreme Court
required about 8,000 words to resolve the case--
and without reaching a final decision on the
vitality of the new-value exception (though the
majority’s analysis hog-tied the doctrine). The
majority opinion in this court ran about 9,500
words, with 5,200 more in a dissent. A 670-word
article such as the one Forbes published could
not present either the facts of the case or the
subtleties of the law. What the article lacked in
analysis, however, it made up for with colorful
verbs and adjectives. Taking lenders’ side,
Forbes complained that "many judges, ever more
sympathetic to debtors, are allowing unscrupulous
business owners to rob creditors." According to
the article, a partnership led by Marc Wilkow
"stiffed" the bank, paying only $55 million on a
$93 million loan while retaining ownership of the
building. The full text of this article appears
in an appendix to this opinion. Its core
paragraph reads:

[B]y the mid-1990s, rents were not keeping up
with costs. When the principal came due in
January 1995, Wilkow and his partners pleaded
poverty. To keep the bank from foreclosing,
LaSalle Partnership filed for bankruptcy.
Appraisals of the property came in at less than
$60 million. In theory the bank was entitled to
the entire amount. It suggested selling the
property to the highest bidder. Determined to
keep the building, LaSalle partners asked the
bankruptcy court instead to accept a plan under
which the bank would likely receive a fraction of
what it was owed while the partners would keep
the building. The bank, not the equity holder,
would take the hit.

Wilkow replied with this libel suit under the
diversity jurisdiction, contending that Forbes
and Brigid McMenamin, the article’s author,
defamed him by asserting that he was in poverty
(or, worse, "pleaded poverty" when he was
solvent) and had filched the bank’s money.
According to Wilkow, Forbes should at least have
informed its readers that the bank had lent the
money without recourse against the partners, so
that a downturn in the real estate market, rather
than legal machinations, was the principal source
of the bank’s loss.

  The district court dismissed the complaint under
Fed. R. Civ. P. 12(b)(6) for failure to state a
claim on which relief may be granted. 2000 U.S.
Dist. Lexis 6587 (N.D. Ill. May 12, 2000). That
was a misstep. A complaint is sufficient whenever
the plaintiff could prevail under facts
consistent with the complaint’s allegations, and
defamation is a recognized legal claim. See Cook
v. Winfrey, 141 F.3d 322 (7th Cir. 1998); see
also Walker v. National Recovery, Inc., 200 F.3d
500 (7th Cir. 1999); Bennett v. Schmidt, 153 F.3d
516 (7th Cir. 1998). The body of this complaint
was not self-defeating. Instead the district
judge based her decision on the text of the
article. But when "matters outside the pleading
are presented to and not excluded by the court,
the motion shall be treated as one for summary
judgment and disposed of as provided in Rule 56,
and all parties shall be given reasonable
opportunity to present all material made
pertinent to such a motion by Rule 56." Fed. R.
Civ. P. 12(b). If Wilkow were arguing that he
wanted the additional procedures that precede
summary judgment under Rule 56, we would be
obliged to remand. Yet Wilkow does not ask for
more process, so we treat the case as if the
district court had granted summary judgment.

  In the district court the parties wrangled
about choice of law. Forbes is based in New York,
and Wilkow’s business has its headquarters in
Chicago. The district judge split the difference,
ruling that Illinois law supplies the claim for
relief but that New York law supplies an absolute
privilege for "the publication of a fair and true
report of any judicial proceeding". McKinney’s
New York Civil Rights Law sec.74. According to
the judge, McMenamin’s story is privileged under
New York law as a report of proceedings in 203
North LaSalle Street. The judge added, for good
measure, that the article is protected by the
first amendment because the forceful
characterizations to which Wilkow objects are
opinions rather than facts. See Milkovich v.
Lorain Journal Co., 497 U.S. 1, 20 (1990); Gertz
v. Robert Welch, Inc., 418 U.S. 323, 339-40
(1974); Stevens v. Tillman, 855 F.2d 394, 398-400
(7th Cir. 1988). Forbes did not misstate any of
the details of the situation, and neither
Illinois nor New York requires a reporter to
include all facts (such as the nonrecourse nature
of the loan) that put the subject in the best
light.

  We don’t think it necessary to consider either
constitutional limits on liability for defamation
or privileges under New York law, because this
article is not defamatory under Illinois law in
the first place. (The parties do not contest the
district court’s conclusion that Illinois law
governs the claim and New York law the defense of
privilege.) In Illinois, a "statement of fact is
not shielded from an action for defamation by
being prefaced with the words ’in my opinion,’
but if it is plain that the speaker is expressing
a subjective view, an interpretation, a theory,
conjecture, or surmise, rather than claiming to
be in possession of objectively verifiable facts,
the statement is not actionable." Haynes v.
Alfred A. Knopf, Inc., 8 F.3d 1222, 1227 (7th
Cir. 1993). See also Sullivan v. Conway, 157 F.3d
1092 (7th Cir. 1998) (Illinois law); Bryson v.
News America Publications, Inc., 174 Ill. 2d 77,
100, 672 N.E.2d 1207, 1220 (1996); Stevens, 855
F.2d at 400 ("we do not think [that under
Illinois law] the statements characterized as
’opinions’ are actionable independent of the
factual propositions they imply").

  Characterizations such as "stiffing" and "rob"
convey McMenamin’s objection to the new-value
exception. She expostulates against judicial
willingness to allow debtors to retain interests
in exchange for new value, not particularly
against debtors’ seizing whatever opportunities
the law allows. Nothing in the article implies
that Wilkow did (or even proposed) anything
illegal; Forbes informed the reader that the
district court and this court approved Wilkow’s
proposed plan of reorganization. Every detail in
the article (other than the quotation in the
final paragraph) comes from public documents; the
article does not suggest that McMenamin knows
extra information implying that Wilkow pulled the
wool over judges’ eyes or engaged in other
misconduct. Colloquialisms such as "pleaded
poverty" do not imply that Wilkow was destitute
and failing to pay his personal creditors, an
allegation that would have been defamatory. Read
in context, the phrase conveys the idea that the
partnership could not repay the loan out of rents
received from the building’s tenants. After all,
inability to pay one’s debts as they come due is
an ordinary reason for bankruptcy, and 203 North
LaSalle Street Partnership did file a petition in
bankruptcy. Filing a bankruptcy petition is one
way of "pleading poverty."

  Although the article drips with disapproval of
Wilkow’s (and the judges’) conduct, an author’s
opinion about business ethics isn’t defamatory
under Illinois law, as Haynes and Bryson explain.
Informing the reader about the nonrecourse nature
of the loan might have made Wilkow look better,
but it would not have drawn the article’s sting:
that the partners got to keep the property even
though the bank lost $38 million. The original
deal’s fundamental structure was that the
partnership would repay the loan from rental
income, and that if revenue was insufficient the
bank could choose to foreclose (cutting its loss
and reinvesting at the market rate elsewhere), to
renegotiate a new interest rate with the
partners, or to forebear in the hope that the
market would improve and the full debt could yet
be paid. These options collectively would be
worth more than the market value of the building
on the date of default. Yet the partners refused
to honor these promises to the bank. They
persuaded judges to eliminate the bank’s rights
to foreclose, to renegotiate, or to forebear and
retain the full security interest. The plan of
reorganization stripped down the security
interest, prevented the bank from foreclosing,
and required it to finance the partnership’s
operations for the next decade, at a rate of
interest below what the bank would have charged
in light of the newly revealed riskiness of the
loan. If the real estate market fell further
during that time, so that the partnership could
not repay even the reduced debt, then the bank
was going to lose still more money. The present
value of the promises made to the bank in the
plan of reorganization therefore was less than
the appraised value of the building. But the
partners stood to make a great deal of money if
the market turned up again (as it did), for they
had shucked $38 million in secured debt while
retaining most appreciation in the property’s
value. Whether that was a sound use of bankruptcy
reorganization, independent of the plan’s new-
value aspects, is open to question. See National
Bankruptcy Commission, Final Report 661-706k
(Oct. 20, 1997).

  A reporter is entitled to state her view that
an ethical entrepreneur should have offered the
lender a better bargain, such as allowing the
bank to foreclose and take its $55 million with
certainty, avoiding the additional risk that this
plan fastened on the lender. Foreclosure would
have had serious consequences for the partners,
who would have lost about $20 million in
recaptured tax benefits. These potential losses
created room for negotiation. Armed with the new-
value exception, however, the partners were able
to retain the tax benefits, sharing none with the
bank in exchange for its approval of a
restructuring, while depriving the bank of a
security interest that would have been valuable
when the market recovered. Although a reader
might arch an eyebrow at Wilkow’s strategy, an
allegation of greed is not defamatory; sedulous
pursuit of self-interest is the engine that
propels a market economy. Capitalism certainly
does not depend on sharp practices, but neither
is an allegation of sharp dealing anything more
than an uncharitable opinion. Illinois does not
attach damages to name-calling. See Stevens, 855
F.2d at 400-02 (collecting cases, including
examples such as "sleazy" and "rip-off").
Wilkow’s current and potential partners would
have read this article as an endorsement of
Wilkow’s strategy; they want to invest with a
general partner who drives the hardest possible
bargain with lenders. By observing that Wilkow
used every opening the courts allowed, Forbes may
well have improved his standing with investors
looking for real estate tax shelters (though
surely it did not help his standing with
lenders). No matter the net effect of the
article, however, it was not defamatory under
Illinois law, so the judgment of the district
court is

affirmed.



Appendix

Have the courts gone too far in protecting
debtors against creditors? In this case
it sure looks like it.

Stiffing the creditor

By Brigid McMenamin

  IT HAPPENS EVERY DAY: Business seeks refuge in
bankruptcy; owner and creditors make a deal--
leaving owner in charge.

  Presumably the creditors are satisfied that they
got the best possible deal under the
circumstances. But what if the owner tries to
shaft them by offering only pennies on the
dollar? These days, often as not, courts are
siding with the bankrupt owners and forcing
creditors to accept almost whatever deal the
bankrupt party offers them.

  In short, many judges, ever more sympathetic to
debtors, are allowing unscrupulous business
owners to rob creditors.

  Unless a creditor is prepared to spend years
battling it out in court, he usually caves in.
Forget the old rule that in bankruptcy creditors
enjoy "absolute priority" over debtors.
  The U.S. Supreme Court will soon test the
limits of this leniency. It has agreed to review
a case in which the Bank of America National
Trust & Savings Association claims it was stiffed
by a real estate partnership led by Marc Wilkow
of M&J Wilkow, Ltd., a Chicago-based manager of
strip malls and offices.

  The bank is asking the Court to nix a
bankruptcy plan under which it might receive as
little as $55 million for its $93 million lien
against a Chicago office building. Under Wilkow’s
plan the bank must give up as much as 40% of its
claim while Wilkow and his partners get to keep
the building.

  A lot rides on an eventual Supreme Court
decision. That’s why eight outsiders have filed
friend-of-the-court briefs, including the
American Bankers Association, the American
Council of Life Insurance, the American College
of Real Estate Lawyers and the Solicitor General.

  The whole mess started in 1987 when Bank of
America began lending 203 N. LaSalle Street
Partnership $93 million to build a sleek building
in Chicago with a 15-floor, 547,000-square-foot
office space. The place was soon humming, 98%
leased to everything from Coopers & Lybrand to
the American Civil Liberties Union.

  But by the mid-1990s, rents were not keeping up
with costs. When the principal came due in
January 1995, Wilkow and his partners pleaded
poverty. To keep the bank from foreclosing,
LaSalle Partnership filed for bankruptcy.
Appraisals of the property came in at less than
$60 million. In theory the bank was entitled to
the entire amount. It suggested selling the
property to the highest bidder. Determined to
keep the building, LaSalle partners asked the
bankruptcy court instead to accept a plan under
which the bank would likely receive a fraction of
what it was owed while the partners would keep
the building. The bank, not the equity holder,
would take the hit.

  Yet federal judge Paul Plunkett blessed
LaSalle’s plan. Bank of America will get as
little as $55 million plus interest--and even
that in monthly payments over seven to ten years.

  What happened to the old "absolute priority
rule"? To get around that, the partners used a
controversial "new value" concept in which the
owners agree to kick in fresh capital in return
for equity.

  To validate the concept, the owners proposed to
put in $6.1 million in fresh capital, over five
years.

  Nice deal--for the debtor. The bank takes an
up-to-$38 million haircut, and the owner throws
in just $4.1 million in present value.

  In September 1997 the federal appeals court
that heard the case deferred to the lower court’s
decision. So the bank petitioned the Supreme
Court to step in. On May 4 it agreed.

  Bank of America’s argument has been boosted by
a February ruling from a federal appeals court in
New York that found in favor of the creditors in
a similar situation. With two such recent
conflicting rulings and so much at stake,
arguments before the Supreme Court will be heard
on Nov. 2.

  Realizing the Court could rule against the
partnership, Wilkow says he is willing to sweeten
his offer. "The time to talk settlement is when
there’s a cloud of uncertainty over everyone’s
head," he explains.

[McMenamin’s article was accompanied by a
photograph of the 203 North LaSalle Street
building captioned "Chicago’s 203 North LaSalle
Street, Stiffing the bank with court approval."]
