Case 23-00201 Doc 52 Filed 08/31/23 Entered 08/31/23 07:08:36 Desc Main
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`UNITED STATES BANKRUPTCY COURT
`NORTHERN DISTRICT OF ILLINOIS
`EASTERN DIVISION
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`Judge Deborah L. Thorne
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`Case No. 21-05193
`Chapter 11
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`Adv. Proc. No. 23-201
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`In re:
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`Ford City Condominium
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`Association,
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`____________________________________)
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`City of Chicago, Illinois,
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`Plaintiff,
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`Ford City Condominium
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`Association, et al.
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`Defendants.
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`____________________________________)
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`MEMORANDUM OPINION
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`The City of Chicago filed this proceeding seeking relief under the Illinois Condominium
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`Property Act, 765 ILCS § 605/14.5. Specifically, the City seeks to have the court (1) declare the
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`property managed by the Debtor Ford City Condominium Association a “distressed
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`condominium property,” (2) appoint a receiver, and (3) deconvert the property from a
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`condominium to property owned in common by the over 300 unit owners.
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`The court abstains under 28 U.S.C. § 1334(c) from hearing this adversary proceeding, as
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`it is merely “related to” the underlying chapter 11 case1 and the matter can be heard more
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`1 The City’s complaint alleges that the matter is a core proceeding “because it concerns the administration of the
`Debtor’s bankruptcy estate and it affects the liquidation of assets of the estate or the adjustment of the debtor-
`creditor relationship.” (Am. Compl. ¶ 3, Adv. Dkt. No. 21.) Yet the complaint asks for relief related to the
`condominium property, which belongs to the unit owners. In its filing dated August 16, 2023, the City seems to
`concede that this proceeding is merely “related to” the Ford City chapter 11 case. (See Adv. Dkt. No. 40.)
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`efficiently in the Circuit Court of Cook County. To the extent necessary, the court modifies the
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`automatic stay to allow the City to proceed in the Circuit Court of Cook County.
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`A. Bankruptcy Proceeding and the Property
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`I. Background
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`On April 20, 2021, Debtor Ford City Condominium Association filed a petition under
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`subchapter V of chapter 11 of the Bankruptcy Code. The Debtor is the governing body for a
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`condominium project located at 4300 W. Ford City Drive in Chicago, Illinois (the “Property”).
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`(Am. Compl. ¶ 6, Adv. Dkt. No. 21.) The Property consists of seven residential buildings with a
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`total of 319 units. (Id. ¶ 7.)
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`For many years prepetition, the Debtor struggled to pay its debts and maintain the
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`Property in a safe and secure condition. (Id. ¶ 13.) Although no bar date has been set, there are
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`proofs of claim on file for $1.3 million in overdue water bills, $129,612 for elevator services, and
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`$219,085 for masonry work. (Id. ¶¶ 16, 23, 24.) The City of Chicago has filed a significant
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`number of cases against the Debtor for building code violations. An inspection in May 2023
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`found 115 violations, including: “large cracks and bulging in foundations with imminent risk of
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`failure, failure to maintain elevators in multiple buildings, failing roofs, failing exterior walls,
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`broken windows, ripped screens, missing smoke detectors and carbon monoxide detectors,
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`missing emergency exit signs, expired fire extinguishers.” (Id. ¶¶ 17, 44.)
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`As a result of serious allegations of mismanagement by the Debtor’s board, the previous
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`bankruptcy judge entered an order on September 2, 2021, removing the debtor-in-possession and,
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`under 11 U.S.C. § 1183(b)(5), placing Subchapter V Trustee William Avellone in possession of
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`the Property. (Bankr. Dkt. No. 129).2 Since that date, Mr. Avellone has employed a management
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`2 In a separate adversary proceeding pending before this court, the Trustee alleges mismanagement by the Debtor’s
`board of directors.
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`2
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`company, collected assessments from unit owners, and done his best to prevent further
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`deterioration to the Property. (Bankr. Dkt. No. 149.) Despite this effort, the building code
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`violations continue and the future of the Property as a viable condominium remains in doubt.
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`(Am. Compl. ¶¶ 43, 44.) Almost $1.5 million is owed in past-due condominium assessments, and
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`at least $50 million is needed to bring the Property up to code.3 (Monthly Operating Rep. for
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`Small Bus. ¶ 25, Bankr. Dkt. No. 261.) The court fears imminent damage or injury to the unit
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`owners or the public.
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`B. Adversary Proceeding and the Illinois Condominium Property Act
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`As a result of the significant building code violations as well as the threats to the health
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`and safety of the unit owners and the public, the City filed this adversary proceeding seeking an
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`order to “deconvert” the Debtor’s property under the Illinois Condominium Property Act, 765
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`ILCS § 605/14.5 (the “Act”). The Act defines “distressed condominium property” as units that
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`are “operated in a manner or have conditions which may constitute a danger, blight, or nuisance
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`to the surrounding community or to the general public.” Id. § 14.5(a)(1).4 A municipality shall
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`initiate a proceeding under the Act by “filing a verified petition or verified complaint in the
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`circuit court in the county in which the property is located.” Id. § 14.5(b). Once the circuit court
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`finds that the property is a distressed condominium property, the court may order the
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`appointment of a receiver. Id. § 14.5(c). The circuit court may go a step further and declare that
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`the property is no longer a condominium, that it will now be owned in common by the unit
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`owners, that each owner will receive an undivided interest in the property based on the interest
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`3 The Trustee stated in open court that at least $25 million is needed for common areas and another $25 million is
`needed to repair individual units.
`4 To meet this definition, the property must have two of six conditions listed in the Act, such as “serious violations”
`of zoning or building codes, delinquent property taxes, and potential (or successful) termination of essential utilities.
`Id.
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`previously owned in the common elements, and liens affecting any unit will be attached to the
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`undivided interest of the unit owner. Id. § 14.5(c)(2). The receiver may then be able to sell the
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`property and distribute funds based on the undivided interests of each owner. Id. § 14.5 (d).
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`The City’s complaint asks this court to find, among other things, that the Property is a
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`distressed condominium property and that it is owned in common by each of the unit owners.
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`The City also seeks an order appointing Mr. Avellone as receiver under the Act.
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`II. Discussion
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`The court believes that it should sua sponte permissively abstain, as this adversary
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`proceeding is best heard by the Circuit Court. The Circuit Court holds the proper judicial tools to
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`hear this state law matter efficiently, and it routinely appoints receivers in cases of this nature.
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`A. Permissive Abstention
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`Permissive abstention is governed by 28 U.S.C. § 1334(c)(1), which provides:
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`(1) Nothing in this section prevents a district court in the interest of justice, or in
`the interest of comity with State courts or respect for State law, from
`abstaining from hearing a particular proceeding arising under title 11 or
`arising in or related to a case under title 11.
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`In addition to the considerations listed in this statute—the interest of justice and comity with
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`state courts—courts look to a variety of factors to determine whether permissive abstention is
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`appropriate. The court might consider the potential effect (or lack thereof) of abstention on the
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`bankruptcy estate, the extent to which state law issues predominate over bankruptcy issues, the
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`degree of relatedness or remoteness of the proceeding to the main bankruptcy case, and the
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`likelihood of forum shopping. See In re Chi., Milwaukee, St. Paul & Pac. R.R. Co., 6 F.3d 1184,
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`1189 (7th Cir. 1993) (identifying twelve total factors that the Ninth Circuit considers for
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`permissive abstention (quoting In re Eastport Assocs., 935 F.2d 1071, 1075–76 (9th Cir. 1991));
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`In re L & S Indus., Inc., 989 F.2d 929, 935 (7th Cir. 1993) (stating that the “presence of a state
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`law issue is not enough to warrant permissive abstention, but it nevertheless is a significant
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`consideration” (collecting cases)). The Seventh Circuit has instructed that courts “should apply
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`these factors flexibly” and that “no one factor is necessarily determinative.” Chi., Milwaukee, St.
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`Paul & Pac. R.R. Co., 6 F.3d at 1189.
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`Because a court may raise the issue of abstention sua sponte, see In re Repurchase Corp.,
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`329 B.R. 832, 835 n.2 (Bankr. N.D. Ill. 2005) (citing Belotti v. Baird, 428 U.S. 132, 143 n.10
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`(1976)), the court now considers this issue on its own motion.
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`B. Abstention is Prudent in this Case
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`A number of factors convince this court that it should abstain from the adversary
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`proceeding. First, abstention from the adversary proceeding will not impact the bankruptcy
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`estate. Under the Act, the Debtor does not own the units or the common areas—they belong to
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`the unit owners. 765 ILCS § 605/6. No evidence has been provided that the Debtor owns any of
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`the real property; in fact, the Debtor’s schedules state that it does not have any ownership in real
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`property. (Schedule A/B at 6, Bankr. Dkt. No. 1.) According to the Debtor’s schedules, its only
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`assets include cash, desks, and laundry equipment. (Id.) The court believes that, since Mr.
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`Avellone became trustee-in-possession, the Debtor has collected assessments and now holds
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`more cash. But this fact should not impact the City’s complaint seeking to determine that the
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`Property is no longer a condominium; the cash would remain an asset of the Debtor’s estate
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`subject to an adjudication of claims against the estate.
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`Second, the complaint and the relief sought are based entirely on Illinois law and not on
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`any portion of the Bankruptcy Code. At most, the complaint is only “related to” the bankruptcy
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`because the Debtor is a named party. Even though the Debtor is named, a resolution of whether
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`the Property should be determined to no longer be a condominium will not affect any property of
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`the Debtor, but the interests of the individual unit owners.
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`Finally, the Circuit Court of Cook County would most efficiently administer this cause of
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`action. The Circuit Court frequently appoints receivers to facilitate marshalling of assets and the
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`subsequent liquidation as needed to provide the relief that the City seeks. The Act enumerates the
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`appointed receiver’s powers to secure and maintain the Property: the state court receiver may
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`“use the rents and issues of the property toward maintenance, repair, and rehabilitation of the
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`property prior to and despite any assignment of rents” and, with the court’s authorization, the
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`receiver can “recover the cost of any feasibility study, sale, management, maintenance, repair,
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`and rehabilitation by the issuance and sale of notes or receiver’s certificates bearing such interest
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`as the court may fix . . . .” 765 ILCS § 605/14.5(f). Unlike the state court, the bankruptcy court
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`does not have the authority to appoint a receiver with the specific powers provided for in the Act,
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`and—most importantly—it cannot issue “receiver certificates.”
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`The Trustee and the City argue that bankruptcy court is the best forum to adjudicate this
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`dispute because of the pace of bankruptcy court litigation and the possibility of service by U.S.
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`Mail. Despite the Trustee and City’s rather disparaging assertions about the pace of litigation in
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`Cook County—namely, that the Circuit Court moves as “slow as molasses”—this court has no
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`doubt that its state court colleagues would treat this matter with appropriate alacrity. As the City
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`notes in its complaint, the Act explicitly provides that the circuit court expedite and give
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`precedence to a hearing under the Act, and this court has no doubt that the Circuit Court would
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`expedite once it is apprised of the danger and risk to the public and the residents. (Am. Comp.
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`¶ 48.) Frankly, the City’s concerns seem disingenuous, given that the underlying bankruptcy case
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`has been pending since April 2021 and the City waited until July 2023 to file this complaint.
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`Moreover, though the Federal Rules of Bankruptcy Procedure permit service by U.S. Mail, the
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`City has nonetheless asked to issue hundreds of alias summons and allow service by publication
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`in the Chicago Daily Law Bulletin.5 The mere inconvenience of following state court service
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`rules is not enough to convince this court that this is the proper forum.
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`III. Conclusion
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`For the reasons explained above, the court abstains from hearing this matter under 28
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`U.S.C. § 1334(c)(1). To the extent necessary, the automatic stay is modified for the City to
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`pursue this action in state court.
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`Dated:
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`8-31-2023
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` ___________________________________
`Deborah L. Thorne
`United States Bankruptcy Judge
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`5 The court denied the motion. Publication in the Chicago Daily Law Bulletin is unlikely to reach even one unit
`owner and would be wholly ineffective as a means of notifying all 319 unit owners and providing access to justice.
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