includes a credit for approximately $600,000.00, the money the Bank received from the sale of
Nancy’s Aspen property. (Id.) Nancy has also filed a secured claim against the estate to recover the
$600,000.00 of her funds that the Bank applied to R&B’s loan. See 11 U.S.C. § 509(a) (“[A]n entity
. - that has secured a claim of a creditor against the debtor, and that pays such claim, is subrogated
to the rights of such creditor to the extent of such payment.”). If Nancy wins the state court suit, the
Bank’s secured claim will increase from about $950,000.00 to about $1.5 million and Nancy’s claim
will disappear, leaving a total of $1.5 million in secured claims. If Nancy loses the state court suit,
the Bank keeps its $950,000.00 secured claim and Nancy keeps her $600,000.00 secured claim,
leaving a total of $1.5 million in secured claims.” In other words, the total amount of secured claims
asserted against the estate by these two creditors will remain the same, regardless of the outcome of
the state court suit.

That description of the claims, defendants argue, is inaccurate. Though Nancy filed a secured

claim, the debtor has scheduled her claim as unsecured. Thus, defendants say, the outcome of the

“In an adversary proceeding against the Bank, the debtor alleges that the Bank is over
secured. (Pl.’s Mem. Opp’n Removal, Ex. B ¥ 18.) Defendants apparently agree, as they do not
argue that the Bank will have an unsecured claim for $600,000.00 if it loses the state court suit, as
it would if it were under secured. See 11 U.S.C. § 506(a) (“An allowed claim of a creditor secured
by a lien on property in which the estate has an interest . . . is a secured claim to the extent of the
value of such creditor’s interest in the estate’s interest in such property . .. and is an unsecured claim
to the extent that the value of such creditor’s interest . . . is less than the amount of such allowed
claim.”)

?Nancy’s claim would, however, be subordinate to the Bank’s. See 11 U.S.C. § 509(c) (“The
court shall subordinate to the claim of a creditor and for the benefit of such creditor an allowed
claim, by way of subrogation under this section, or for reimbursement or contribution, of an entity
that is liable with the debtor on, or that has secured, such creditor’s claim, until such creditor’s claim
is paid in full, either through payments under this title or otherwise:”).

-4-


In March 2002, Nancy filed a twelve-count complaint against the Bank and three of its
employees for, among other things, rescission, fraud in the inducement and conversion. Defendants
removed the case to this Court contending that it falls within the Court’s jurisdiction because it is

related to the R&B chapter 11 bankruptcy case.

Discussion

This Court has jurisdiction over “all civil proceedings arising under title 11, or arising in or
related to cases under title 11.” 28 U.S.C. § 1334(b). The phrase “related to” is interpreted narrowly
in this circuit “not only out of respect for Article III but also to preserve the jurisdiction of state
courts over questions of state law involving persons not party to the bankruptcy.” Home Ins. Co. v.
Cooper & Cooper, Ltd., 889 F.2d 746, 749 (7" Cir. 1989). Thus, a case is related to a chapter 11
proceeding only if “it affects the amount of property available for distribution or the allocation of
property among creditors.” In re Xonics, 813 F.2d 127, 131 (7" Cir. 1987). A dispute between two
creditors meets that standard, our court of appeals has said, “only if [it] involve[s] property of the
estate or if resolving two creditors’ intramural squabble will affect the recovery of some other
creditor.” In re Kubly, 818 F.2d 643, 645 (7" Cir. 1987).

Defendants say that the state court suit will impact the bankruptcy estate because it will
determine the existence and amount of Nancy’s claim and the amount of the Bank’s claim. The
Bank is half right. The state suit will resolve those issues, but it will not impact the bankruptcy
estate because it will not affect the amount of property available for distribution or the recovery of
any other creditor. The Bank has filed a secured claim against the estate for approximately

$950,000.00. (See Defs.’ Reply Mem. Supp. Mot. Refer Bankr. Ct., Ex. 2, Proof Claim.) That claim

-3-


state suit will determine whether her claim is secured or unsecured, a determination that could affect
the recovery of other creditors of the estate.

Regardless of its outcome, however, the state court suit will not determine that Nancy is an
unsecured creditor. The issue in the state suit is whether Nancy, in fact, mortgaged her property to
secure the loan to R&B. If the state court determines that she did, she loses the suit but gains a
secured claim against the debtor by virtue of 11 U.S.C. 509(a). If the state court determines that she
did not, Nancy wins the state court suit, collects $600,000.00 from the Bank, and has no claim at all
against the estate. Thus, the state court suit will determine whether Nancy is a secured creditor of
R&B or not a creditor at all, not that she is an unsecured creditor.

In short, the outcome of the state court suit between Nancy and the Bank will neither affect
the amount of property in the R&B bankruptcy estate nor the recovery of any of its other creditors.’
Thus, this suit is not related to the R&B bankruptcy. Because “related to” jurisdiction is the only

purported basis for the Court’s subject matter jurisdiction, this case must be remanded to state court.

Conclusion
For the reasons set forth above, defendants’ motion to refer this case to the bankruptcy court
is denied and this case is remanded to the Circuit Court of Cook County.

ENTER:
<=

DATED: Vad 31,2002.

°The Court assumes that there are other creditors, though the parties have not identified any
or indicated whether such creditors are secured or unsecured.

UNITED STATES DISTRICT JUDGE

-5-


Minoge Order Form (06/97)

a

»)

S j& United States District Court, Northern District of Hlinois

Name of Assigned Judge Sitting Judge if Other
or Magistrate Judge Paul B. Plunkett than Assigned Judge
CASE NUMBER 02 C 3843 DATE 7/31/2002
CASE NANCY L. BEEVERS vs. NORTH SHORE COMMUNITY BANK & TRUST
TITLE
[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
() oO Filed motion of [ use listing in “Motion” box above.]
(2) Oo Brief in support of motion due
(3) o Answer brief to motion due. . Reply to answer brief due.
(4) im) Ruling/Hearing on set for at
(5) im) Status hearing[held/continued to] [set for/re-set for] on set for at
(6) oO Pretrial conference[held/continued to] [set for/re-set for} on set for at
(7) oO Trial{set for/re-set for] on at
(8) o [Bench/Jury trial] [Hearing] held/continued to at
(9) a This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) O General Rule21 OO FRCP41(a)(1) O FRCP41(a)(2).

ao (Other docket entry] ENTER MEMORANDUM OPINION AND ORDER: Defendants’ motion

to refer this case to the bankruptcy court is denied and this case is remanded to the Circuit Court of Cook

County. Ruling date of August 1, 2002 is stricken.
(1) [For further detail see order attached to the original minute order.]

No notices required.

Mail AO 450 form,

No notices required, advised in open court,

Notices mailed by judge’s staff.
Notified counsel by telephone.

Docketing to mail notices,

Copy to judge/magistrate judge.

TBK

umber of notices

JUL 3 1 2002

date dockered

dockeling deputy fritiats

date mailed notice

courtroom
deputy's
initials

central Clerk’s Office _ mailing doputy inials



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
NANCY L. BEEVERS, ) DOCKETED
) Ge nee
Plaintiff, ) JUL 83 au?
)
v. ) No. 02 C 3843
) Paul E. Plunkett, Senior Judge
NORTH SHORE COMMUNITY )
BANK & TRUST COMPANY, et al. )
)
Defendants. )

MEMORANDUM OPINION AND ORDER

Plaintiff filed suit against defendants in state court alleging, among other things, that they
fraudulently induced her to execute a mortgage on some real estate to secure a loan North Shore
Community Bank (“the Bank”) made to the company headed by plaintiff's husband. Defendants,
who contend that this case is “related to [a] case[] under title 11,” removed it to this Court. They
now move to have the case referred to the bankruptcy court. For the reasons set forth below, the

motion is denied and the case is remanded to the Circuit Court of Cook County.

Facts
Nancy Beevers is married to Robert Beevers, president of the R&B Group (“R&B”).
(Compl. {J 8-9.) Nancy has no interest in R&B, which is the subject of a chapter 11 proceeding in

bankruptcy court. (Id. J 18; Notice of Removal { 2.)


On May 30, 2000, the Bank loaned R&B $1.5 million. (Compl. $12.) The loan was secured
by R&B’s accounts receivable, inventory and equipment. (Id., Ex A.) Nancy did not sign the
promissory note for the loan, nor did she pledge any of her assets as security for it. (id. J 14.)

On May 31, 2001, the Bank extended and renewed the note. (Id. 415.) After doing so, the
Bank asked Robert whether a piece of property in Aspen, Colorado that was identified on the
Beevers’ financial statement could be used to secure the loan. (Id. {{ 16, 18.) Robert repeatedly told
the Bank that the Aspen property could not be used as security for the loan because it was held in
trust for Nancy, who had no interest in R&B. (Id.)

On August 25, 1991, Nancy went to the Bank and signed a single sheet of paper that she was
told was just “a formality to complete [the Bank] file.” (Id. 20.) That document was, in fact, a
signature page that the Bank attached to a mortgage on Nancy’s Aspen property. (Id. § 21.)
Subsequently, the Bank had the mortgage recorded as a lien on the Aspen property. (Id. 424.)

In October 2001, R&B lost a lawsuit filed against it by a third party. (Id. 29.) Ultimately,
judgment was entered against R&B in the amount of $1.3 million. (Id.) At that point, Nancy
decided to sell the Aspen property and lend R&B the proceeds so it could satisfy the judgment. (Id.
130.)

On January 29, 2002, Nancy entered into a contract to sell the Aspen property. (Id. { 31.)
On February 8, 2002, she learned that the Bank had recorded a mortgage against the property. (Id.
32.) Thereafter, Nancy tried to cancel the sale of the property, but the buyer threatened suit. (Id.
438.) Asa result, Nancy went through with the sale, which closed on February 25, 2002. (Id. § 48.)
The Bank applied the net proceeds of the sale, slightly over $600,000.00, against the balance on

R&B’s loan. (Id. | 51, Count I { 6.)