Case Doc 3977 Filed 08/03/16 Entered 08/03/16 15:12:04 Desc Main Document Page 1 of 13 IMPORTANT: DO NOT DISCARD

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1 Document Page 1 of 13 IMPORTANT: DO NOT DISCARD YOU ARE RECEIVING THIS NOTICE BECAUSE THE ADMINISTRATOR FOR THE KHI TRUSTS IS OBJECTING TO YOUR CLAIMS. IF YOU DO NOT RESPOND, YOUR CLAIMS MAY BE REDUCED, MODIFIED OR ELIMINATED. UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) In re: ) Chapter 11 ) Case No KIMBALL HILL, INC., ) ) Hon. Timothy A. Barnes Debtor. ) ) Hearing Date: 10:30 a.m., C.T. ) NOTICE OF OBJECTION TO CLAIM NOS AND 1492 ASSERTED BY JOHN A. RITTER AND RELATED HEARING TO: John A. Ritter 3455 Cliff Shadows Parkway Suite 220 Las Vegas, Nevada PLEASE TAKE NOTICE that on August 17, 2016 at 10:30 a.m., C.T. or as soon thereafter as counsel may be heard, we shall appear before the Honorable Timothy A. Barnes in Courtroom 744 in the United States Courthouse, 219 South Dearborn Street, Chicago, Illinois, or before any other judge who may be sitting in his place and stead, and present the attached Objection to Claim Nos and 1492 Asserted by John A. Ritter, at which time and place you may appear if you so desire. Your claims may be reduced, modified, or eliminated. You should read these papers carefully and discuss them with your attorney, if you have one. If you do not want the Court to eliminate or change your claims, then you or your lawyer should file a written response to the Objection to Claim Nos and 1651 Asserted by Pardee Homes of Nevada. If you do not object to the relief requested, an order will be presented to the Court and the relief requested may be granted. Any response to this objection must contain, at a minimum, the following information: a. a caption setting forth the name of the Court, the name of the Debtor, the case number and the title of the objection to which the response is directed; {7049 OBJ A DOC}

2 Document Page 2 of 13 b. the name of the claimant, his/her/its claim number and a description of the basis for the amount of the claim; c. the specific factual basis and supporting legal argument upon which the party will rely in opposing this objection; d. any supporting documentation, to the extent it was not included with the Proof of Claim previously filed with the clerk or claims agent, upon which the party will rely to support the basis for and amounts asserted in the Proof of Claim; and e. the name, address, telephone number and fax number (if available) of the person(s) (which may be the claimant or the claimant s legal representative) with whom counsel for the KHI Trusts should communicate with respect to the claim or the objection and who possesses authority to reconcile, settle, or otherwise resolve the objection to the disputed claim on behalf of the claimant. PLEASE TAKE FURTHER NOTICE that any response must be filed with the Clerk of the Bankruptcy Court (219 S. Dearborn, Chicago, IL 60604, and served on: (a) counsel to the KHI Trusts, Shaw Fishman Glantz & Towbin LLC, 321 North Clark Street, Suite 800, Chicago, Illinois 60654, Attn: Mark L. Radtke, Esq. and (b) the Office of the United States Trustee for the Northern District of Illinois, 219 South Dearborn Street, Suite 873, Chicago, Illinois 60604, Attn: Kathryn M. Gleason, Esq. and Stephen G. Wolfe, Esq. Respectfully submitted, Dated: August 3, 2016 /s/ Mark L. Radtke SHAW FISHMAN GLANTZ & TOWBIN LLC Mark L. Radtke (Illinois Bar No ) 321 N. Clark St., Ste. 800 Chicago, IL Telephone: (312) Facsimile: (312) Counsel to the KHI Trusts {7049 OBJ A DOC} 2

3 Document Page 3 of 13 UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) In re: ) Chapter 11 ) Case No KIMBALL HILL, INC., ) ) Hon. Timothy A. Barnes Debtor. ) ) Hearing Date: 10:30 a.m., C.T. ) OBJECTION TO CLAIM NOS AND 1492 ASSERTED BY JOHN A. RITTER AND RELATED HEARING U.S. Bank National Association (the Administrator ), as the Plan Administrator for the KHI Post-Consummation Trust (the PCT ) and the Liquidation Trust Administrator for the KHI Liquidation Trust (the LT and collectively with the PCT, the KHI Trusts ), as successors to Kimball Hill, Inc. ( KHI ) and certain of its debtor subsidiaries (collectively, the Debtors ) 1 hereby files this objection (the Objection ) to claim numbers 1488 and 1492 (the Disputed Claims ), copies of which are attached hereto as Group Exhibit A, asserted by John A. Ritter (the Claimant ) against KHI and Kimball Hill Homes Nevada, Inc. ( KHHN ) and requests the entry of an order, substantially in the form attached hereto (the Proposed Order ), disallowing the Disputed Claims. In support of this Objection, the Administrator incorporates by 1 The Debtors include: Kimball Hill, Inc.; 18th and Peoria, LLC; KH Financial Holding Company; KH Ingham Park South, LLC; KHH Texas Trading Company L.P.; Kimball Hill Far East Detroit, LLC; Kimball Hill Homes Austin, L.P.; Kimball Hill Homes California, Inc.; Kimball Hill Homes Dallas, L.P.; Kimball Hill Homes Florida, Inc.; Kimball Hill Homes Houston, L.P.; Kimball Hill Homes Illinois, LLC; Kimball Hill Homes Nevada, Inc.; Kimball Hill Homes Ohio, Inc.; Kimball Hill Homes Oregon, Inc.; Kimball Hill Homes Realty Florida, Inc.; Kimball Hill Homes San Antonio, L.P.; Kimball Hill Homes Texas Investments, L.L.C.; Kimball Hill Homes Texas Operations, L.L.C.; Kimball Hill Homes Texas, Inc.; Kimball Hill Homes Washington, Inc.; Kimball Hill Homes Wisconsin, Inc.; Kimball Hill Stateway, Inc.; Kimball Hill Texas Investment Company, L.L.C.; Kimball Hill Urban Centers Chicago One, L.L.C.; Kimball Hill Urban Centers Chicago Two, L.L.C.; Kimball Hill Urban Centers Special Purposes, LLC; Kimball Hill Urban Centers, L.L.C.; National Credit and Guaranty Corporation; and The Hamilton Place Partnership. {7049 OBJ A DOC}

4 Document Page 4 of 13 reference the Declaration of Bradley R. Grining in Support of the Objections to Inspirada and Kyle Claims [Docket No. 3956] (the Grining Declaration ), and respectfully states as follows: Introduction 1. The Disputed Claims assert potential claims in undetermined amounts against KHI and KHHN under the Cross-Indemnity Agreement. The Disputed Claims do not, however, contain any allegations that would give rise to a claim under the Cross-Indemnity Agreement, which requires certain bad acts before any liability can be triggered. The absence of such allegations highlights the absence of any bad acts by KHI or KHHN. Indeed, neither KHI nor KHHN engaged in any conduct that would trigger liability under the Cross-Indemnity Agreement. Moreover, the Claimant never sought to liquidate his claim or otherwise provide any evidence to substantiate a claim against KHI or KHHN. Without any triggering conduct under the Cross-Indemnity Agreements, the Disputed Claims must be disallowed. 2. Even if the Claimant would have established some basis for a claim under the Cross-Indemnity Agreement, along with allowable damages, the Disputed Claims would be seeking a double-recovery of the same damages from two different Debtors which is prohibited under the consolidated distribution scheme implemented pursuant to the Plan. Therefore, one of the Disputed Claims would also be subject to disallowance on that additional basis. Jurisdiction 3. This Court has jurisdiction to consider and issue a final order regarding this Objection pursuant to 28 U.S.C. 157 and 1334, and Paragraph 58(a) of the Findings of Fact, Conclusions of Law, and Order Confirming Joint Plan of Kimball Hill, Inc. and its Debtor Subsidiaries Pursuant to Chapter 11 of the United States Bankruptcy Code [Docket No. 1118] (the Confirmation Order ) approving the Joint Plan of Reorganization of Kimball Hill, Inc. and {7049 OBJ A DOC} 2

5 Document Page 5 of 13 Its Debtor Subsidiaries Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 814] (the Plan ). This is a core proceeding pursuant to 28 U.S.C. 157(b)(2)(B). 4. Venue is proper in this Court pursuant to 28 U.S.C and The statutory basis for the relief requested herein is section 502 of chapter 11 of the United States Code (the Bankruptcy Code ) and Rules 3007 and 9014 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ). 6. On April 23, 2008 (the Petition Date ), the Debtors each filed a voluntary petition for relief with the Court under chapter 11 of the Bankruptcy Code. The Debtors cases (the Cases ) were jointly administered pursuant to Rule 1015 of the Bankruptcy Rules and pursuant to orders of the Court all of the Debtors Cases were closed except for KHI s lead case no On March 12, 2009, the Bankruptcy Court entered the Confirmation Order 2 approving the Plan. The Plan became effective on March 24, 2009 (the Effective Date ). Pursuant to Paragraph 34 of the Confirmation Order, the Administrator is authorized to file this Objection on behalf of the KHI Trusts. Background 8. As of the Petition Date, the Debtors, along with certain non-debtor affiliates, operated a homebuilding enterprise that was one of the 25 largest homebuilders and one of the largest privately-owned homebuilders in the United States. Collectively, the Kimball Hill companies designed, coordinated the construction of, and sold new homes (single-family attached and detached homes as well as multi-family homes) to a broad range of customers in 2 Any capitalized terms not defined herein shall have the meaning ascribed to such terms in the Confirmation Order. {7049 OBJ A DOC} 3

6 Document Page 6 of 13 numerous metropolitan markets, and primarily located in five major geographic regions Illinois, Texas, Nevada, California, and Florida. 9. Like most homebuilders, certain of the Debtors did not actually construct homes but instead coordinated the activities of numerous contractors. They were involved in both horizontal (i.e., development of buildable lots from raw land) and vertical (i.e., building homes) construction. Those Debtors developed their own communities, which involves both horizontal construction and vertical construction, and built homes on horizontally developed lots in other homebuilders or developers communities. They also formed joint ventures with other homebuilders to develop master-planned communities. One such development was known as Inspirada and located in Henderson, Nevada. A. The Inspirada Development 1. Background of the Inspirada Development 10. South Edge, LLC ( South Edge ) was a Nevada limited liability company, and its members were Kimball Hill Homes Nevada, Inc. ( KHHN ), a Nevada corporation; KB Home Nevada, Inc., a Nevada corporation ( KB Nevada ); Focus South Group, LLC, a Nevada limited liability company ( Focus ); Coleman-Toll Limited Partnership, a Nevada limited partnership ( Coleman-Toll ); Alameda Investments, LLC, a Delaware limited liability company ( Alameda ); Pardee Homes of Nevada, a Nevada corporation ( Pardee ); Meritage Homes of Nevada, Inc., an Arizona corporation ( Meritage Nevada ); and Beazer Homes Holding Corp., a Delaware corporation ( Beazer and each, a South Edge Member and collectively, the South Edge Members ). 11. In early 2004, the South Edge Members formed South Edge for the purpose of purchasing approximately 1,953 acres of vacant real estate (the Property ) in the City of {7049 OBJ A DOC} 4

7 Document Page 7 of 13 Henderson, Nevada (the City ) and developing the Property into a master-planned community that became known as Inspirada (the Inspirada Development ). 12. The management of South Edge was generally vested in a management committee (the Management Committee ) that was comprised of one representative from each of the South Edge Members with voting rights commensurate with the percentage of each South Edge Member s membership interest in South Edge. 13. The plans for the Inspirada Development called for the development of a town center ( Town Center ) and seven residential villages (each a Village and, collectively, the Villages ). Each Village was comprised of approximately 200 to 250 acres and was subdivided into four or more neighborhoods of 15 to 60 acres per neighborhood (each a POD and, collectively, the PODS ). 14. To partially finance the purchase and development of the Inspirada Development, South Edge obtained a credit facility in the amount of $585,000,000 (the Credit Facility ), in aggregate, from a syndicate of lenders (the South Edge Lenders ), including J.P. Morgan Chase Bank, N.A. ( JPMorgan ), which was also the administrative agent (the Administrative Agent ) for the other lenders that participated in the Credit Facility. 15. On November 1, 2004, South Edge acquired the Property from the Bureau of Land Management after submitting the winning bid of $557 million. 2. South Edge Agreements for the Inspirada Development 16. The South Edge Members rights and obligations regarding the Inspirada Development are set forth in, among other agreements, the Operating Agreement, originally dated as of May 2, 2004, as amended (the Operating Agreement ). {7049 OBJ A DOC} 5

8 Document Page 8 of The Operating Agreement obligated the South Edge Members to make capital contributions for, inter alia, ongoing development costs, major infrastructure costs ( MI Costs ), payment of principal and interest on the Credit Facility, management fees, and professional fees (collectively, Development Costs ), all of which were apportioned incrementally among the South Edge Members as their acquisition of PODS progressed. 18. In addition to the Operating Agreement, the South Edge Members entered into various other agreements, including purchase and sale agreements, development declarations, repayment guarantees, limited guarantees, completion guarantees and the Cross-Indemnity Agreement (collectively with the Operating Agreement, the South Edge Documents ). 19. KHHN had posted letters of credit that partially secured its obligations to South Edge and the South Edge Lenders under the South Edge Documents. Soon after the Petition Date, JPMorgan drew down those letters of credit in the aggregate amount of $10,685,979 (the LC Draws ). 20. Each member had an affiliated guarantor of certain of its obligations relating to South Edge as follows: South Edge Member KB Nevada Focus Coleman-Toll Alameda KHHN Pardee Meritage Nevada Beazer Affiliated Guarantor KB Home John A. Ritter Toll Brothers, Inc. Woodside Group, Inc. KHI Weyerhaeuser Real Estate Company Meritage Homes Corporation Beazer Homes USA, Inc. 21. Under the Limited Guaranty that each South Edge Member and its Affiliated Guarantor executed in favor of the Administrative Agent, the guarantors only indemnify the South Edge Lenders for losses incurred as a result of certain specified bad acts of a guarantor or {7049 OBJ A DOC} 6

9 Document Page 9 of 13 its affiliate including (i) any willful or fraudulent misrepresentation; (ii) any fraudulent act or omission; (iii) the receipt of restricted payments under the loan documents; (iv) misappropriation of funds; and (v) the release of hazardous materials giving rise to environmental liability with respect to the Property or the breach of representations or warranties relating thereto. Similarly, liability under the Cross-Indemnity Agreement is only triggered by an act or omission that results in a claim under a Limited Guaranty. The parties to the Cross-Indemnity Agreement are the South Edge Members (including KHHN and Focus), their affiliated guarantors (including KHI and the Claimant), South Edge and its general manager, Holdings Manager, LLC. follows: B. The Disputed Claims for the Inspirada Development 22. The Claimant filed the following claims against KHHN and KHI in the Cases as Claimant Name Claim No. Alleged Amount Alleged Nature Debtor Alleged Basis John A. Ritter 1488 Unliquidated Unsecured KHI Indemnification John A. Ritter 1492 Unliquidated Unsecured KHHN Indemnification The foregoing claims are duplicative and overlapping, and they remain unliquidated. Relief Requested 23. By this Objection, the Administrator objects to the Disputed Claims on the grounds that (i) they are unsubstantiated; (ii) the Debtors have no liability to the Claimant; and (iii) they are duplicative and violate the consolidated distribution scheme under the Plan. Therefore, the Administrator requests entry of an order pursuant to section 502 of the Bankruptcy Code and Bankruptcy Rules 3007 and 9014, substantially in the form of the Proposed Order attached hereto, disallowing the Disputed Claims. {7049 OBJ A DOC} 7

10 Document Page 10 of 13 Basis for Objection 24. When asserting a proof of claim against a bankrupt estate, a claimant must allege facts that, if true, would support a finding that the debtor is legally liable to the claimant. In re Pringle Engineering and Mfg., Co., 164 F.2d 299, 302 (7th Cir. 1947); Matter of Int l Match Corp., 69 F. 2d 73, 76 (2d Cir. 1934) (finding that a proof of claim should at least allege facts from which legal liability can be seen to exist). Where the claimant alleges sufficient facts to support its claim, its claim is afforded prima facie validity. In re Carlson, 126 F.3d 915, (7th Cir. 1997). However, a proof of claim that does not set forth a liquidated amount is not a properly filed proof of claim and is not entitled to prima facie validity. See In re Lyndell Drop Forge Co., 111 B.R. 137, (Bankr. W.D. Mich. 1990); In re Harrison, 987 F.2d 677, 680 ( 10th Cir. 1993); In re Broadband Wireless Int l Corp., 295 B.R. 140, 145 (B.A.P. 10th Cir. 2003). A party wishing to dispute a claim that alleges sufficient facts must produce evidence in sufficient force to negate the claim s prima facie validity. Carlson, 126 F.3d at In practice, the objecting party must produce evidence that would refute at least one of the allegations essential to the claim s legal sufficiency. Id. Once the objecting party produces such evidence, the burden shifts back to the claimant to prove the validity of his or her claim by a preponderance of the evidence. Id. 25. Here, the Claimant has not asserted sufficient facts to support his claim in the first instance, and the Administrator has provided evidence that refutes the validity of the Disputed Claims. They should therefore be disallowed. A. The Disputed Claims Should Be Disallowed. 26. In the Addendum to his proof of claim against KHI, the Claimant alleges that he will have a claim against the Debtor in an amount to be determined. In the Addenda to the {7049 OBJ A DOC} 8

11 Document Page 11 of 13 Disputed Claims, the Claimant did not allege any facts that would support a legitimate claim against KHI or KHHN for indemnification. The Claimant s admission that he merely anticipated that he would have a claim, despite his inability to articulate any such claim, is telling. Without more, the Disputed Claims should be disallowed on that basis alone. 27. The Claimant has not and cannot aver facts that show he actually has any claims against KHI or KHHN. The Cross-Indemnity Agreement is the only agreement that is executed by all South Edge Members and their affiliated guarantors. By excluding any allegations in his proofs of claim regarding any triggering event under the Cross-Indemnity Agreement, the Claimant is without a claim under that agreement. The ability to bring claims under the Cross- Indemnity Agreement is limited to certain specified bad acts or omissions. The agreement requires fraud, misrepresentations, omissions or collusion before a member or its affiliated guarantor can pursue another member or its affiliated guarantor. The Claimant has not alleged that KHHN or KHI engaged in any of the prerequisite bad acts that would trigger liability under the Cross-Indemnity Agreement, nor has he articulated any damages under that agreement. Indeed, no such events occurred and no such damages were incurred. The Disputed Claims should accordingly be disallowed in their entirety. B. Claim No Is Duplicative of Claim No and Should Be Disallowed. 28. Claim number 1488 should also be disallowed on the independent basis that it asserts a claim against KHI for the same alleged damages that the Claimant asserts against KHHN in claim number The Plan implements a global compromise and effectuates a consolidated distribution scheme. This Court has already held (on more than one occasion) that the Plan provides for consolidated distributions and has entered orders disallowing duplicative claims given the consolidated distribution scheme under the Plan. The United States District {7049 OBJ A DOC} 9

12 Document Page 12 of 13 Court for the Northern District of Illinois has also affirmed this Court s disallowance of claims on that basis. See In re Kimball Hill, Inc., 2014 WL , at *5 (N.D. Ill. Nov. 4, 2014). Because the Plan permits only a single distribution on account of the duplicative claims asserted in claim numbers 1488 and 1492, claim number 1488 should be disallowed as duplicative of claim number Reservation of Rights 29. The Administrator hereby reserves the right to object in the future to the Disputed Claims on any ground, and to amend, modify and/or supplement this Objection. Notice 30. The Administrator has provided notice of this Objection in accordance with Bankruptcy Rule 3007 and the Court s Amended Notice, Case Management, and Administrative Procedures dated April 19, 2010 [Docket No. 2168]. In light of the nature of the relief requested, in addition to the fact that the Administrator s counsel has been communicating for many months with counsel for the current beneficial holder of the Disputed Claims (and most of the other disputed claims regarding the Inspirada Development), the Administrator respectfully submits that no further notice is necessary. To the extent the Claimant or his successor in interest does not concede the disallowance of the Disputed Claims, the Administrator anticipates that a briefing schedule will be established at the hearing on the Objection. WHEREFORE, for the reasons set forth herein, the Administrator respectfully requests that the Court enter an order, substantially in the proposed form annexed hereto, and granting such other and further relief as the Court deems just and proper. {7049 OBJ A DOC} 10

13 Document Page 13 of 13 Respectfully submitted, Dated: August 3, 2016 /s/ Mark L. Radtke SHAW FISHMAN GLANTZ & TOWBIN LLC Mark L. Radtke (Illinois Bar No ) 321 N. Clark St., Ste. 800 Chicago, IL Telephone: (312) Facsimile: (312) Counsel to the KHI Trusts {7049 OBJ A DOC} 11

14 Case Doc Filed 08/03/16 Entered 08/03/16 15:12:04 Desc Exhibit A Page 1 of 7 GROUP EXHIBIT A {000 MSC A DOC}

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21 UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF ILLINOIS Eastern Division In Re: ) BK No.: KIMBALL HILL, INC., ) ) Chapter: 11 ) Honorable Timothy A. Barnes ) ) Debtor(s) ) ORDER GRANTING OBJECTION TO CLAIM NOS AND 1492 ASSERTED BY JOHN A. RITTER Upon the Objection to Claim Nos and 1492 Asserted by John A. Ritter (the Objection ),* whereby the Administrator for the KHI Trusts objects to Claim Nos and 1492 (the Disputed Claims ) and requests entry of an order disallowing the Disputed Claims; it appearing that the Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334; it appearing that this proceeding is a core proceeding pursuant to 28 U.S.C. 157(b)(2); it appearing that venue of this proceeding and the Objection in this Court is proper pursuant to 28 U.S.C and 1409; it appearing that notice of the Objection and the opportunity for a hearing on the Objection were appropriate under the particular circumstances and that no other or further notice need be given; the Court having considered the Disputed Claims, the Objection, and any responses thereto; upon the record of the hearing to consider the Objection; and after due deliberation and sufficient cause appearing therefore; it is hereby ORDERED that: 1. Notice of the Objection as provided for therein is proper and no further notice is necessary. 2. Claim Nos and 1492 asserted by John A. Ritter are hereby disallowed. 3. The Administrator and Kurtzman Carson Consultants LLC are authorized and empowered to take all actions necessary to implement the relief granted in this Order. 4. This Court retains jurisdiction with respect to all matters arising from or related to the enforcement or interpretation of this Order. * Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Objection. Enter: Dated: United States Bankruptcy Judge Prepared by: Mark L. Radtke (Illinois Bar No ) 321 N. Clark St., Suite 800 Chicago, IL Rev: _bko

22 Telephone: (312) Facsimile: (312) Counsel to U.S. Bank National Association, as the Plan Administrator for the KHI Post-Consummation Trust and the Liquidation Trust Administrator for the KHI Liquidation Trust Rev: _bko