IN RE WEINSCHNEIDER, (Bankr.N.D.Ill. 1999)

Bankruptcy No. 89 B 17026, Adversary No. 98 A. 472United States Bankruptcy Court, N.D. Illinois, Eastern Division
August 30, 1999

Chill, Chill Radtke, for Movant/Plaintiff. Attorney for Respondent or Defendant:

(1) Holleb Coff; (2) Winston Strawn; and (3) Goldberg, Kohn, Bell, Black, for Respondent/Defendant.

MEMORANDUM OPINION AND ORDER
GINSBERG, United States Bankruptcy Judge

This matter is before the court on the cross-motions of Daniel Hoseman, the chapter 7 trustee for the estate of Sidney Weinschneider (“Trustee”) and Sidney Weinschneider, the debtor in this case (“Weinschneider” or “Debtor”) under Fed.R.Civ.P. 56, made applicable to these proceedings by Fed.R.Bankr.P. 7056, for summary judgment on the Trustee’s complaint for declaratory judgment. The Trustee asks the court to find, as a matter of law, that the lawsuit Weinschneider filed against Burton Behr, Harold Geiser, and G.W. Burton and Associates (hereinafter referred to collectively as “the Defendants”) in an Illinois state court is property of Weinschneider’s chapter 7 estate. Weinschneider, on the other hand, asks the court to find that the state court lawsuit he filed against the Defendants is not property of the bankruptcy estate.

The court, having considered the pleadings, exhibits, affidavits, and statements of the parties filed in accordance with Local Bankruptcy Rules 402(M) and (N), and the parties’ motions for summary judgment, grants the Trustee’s motion for summary judgment and denies Weinschneider’s cross-motion for summary judgment as to whether the lawsuit is property of Weinschneider’s bankruptcy estate.[1]

Also before the court for resolution are the parties’ cross-motions for summary judgment on Weinschneider’s second affirmative defense to the Trustee’s complaint for declaratory judgment. Weinschneider asks the court to find as a matter of law that the Trustee’s complaint for declaratory judgment is barred by a release and the covenant not to sue which the Trustee executed on December 6, 1996. The Trustee, on the other hand, asks the court to find that his complaint for declaratory judgment is not barred by the release and covenant not to sue. For the reasons stated below, both Weinschneider’s and the Trustee’s motions for summary judgment are denied with respect to Weinschneider’s second affirmative defense.

Jurisdiction
The Court has jurisdiction over this matter under 28 U.S.C. § 1334(b) as a matter arising under section 541 of the Bankruptcy Code. 11 U.S.C. § 541. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) as a matter concerning the administration of the bankruptcy estate and under 28 U.S.C. § 157(b)(2)(E) and (O) as a proceeding to determine whether the lawsuit is property of the estate. This matter is before the Court pursuant to Local Rule 2.33 of the United States District Court for the Northern District of Illinois automatically referring bankruptcy cases and proceedings to this Court for hearing and determination.

Standards for Summary Judgment
To prevail on a motion for summary judgment, the movant must meet the criteria set out in Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056. Summary judgment is appropriate if the entire record, including pleadings, depositions, answers to interrogatories, admissions on file, and any affidavits, shows that there is no genuine issue of material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Fed.R.Bankr.P. 7056; Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552 (1986).

Summary judgment is granted to avoid unnecessary trials when there is no genuine issue of material fact in dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 1355, 89 L.Ed. 538 (1986). The movant bears the burden to show that no genuine issue of material fact is in dispute. Anderson, 477 U.S. at 248; Matsushita, 475 U.S. at 585-86; Celotex, 477 U.S. at 322.

In the instant proceedings, both parties argue for summary judgment. However, that fact by itself does not necessarily lead to the conclusion that there are no genuine issues of material fact. The court must rule on each motion separately in determining whether each judgment may be entered in accordance with applicable principles relating to summary judgment. ITT Indus. Credit Co. v. D.S. America, Inc., 674 F. Supp. 1330, 1331 (N.D.Ill. 1987). See C. Wright, A. Miller M. Kane, Federal Practice and Procedure, § 2720 (2d ed. 1983 Supp. 1987). In that regard, both motions should be denied if both parties fail to meet their burden. Id.

Undisputed Facts
In 1973, Sidney Weinschneider was a partner in a partnership that owned the Golf Mill I and the Golf Mill II nursing homes in Niles, Illinois. (402M, N, para. 6). In 1979, Weinschneider and his partners sold the Golf Mill I and II nursing homes to a group which included Bertram Miner and Lloyd Berhoff. (402 M, N para. 7). Weinschneider financed the sale of the nursing homes by lending $2,987,063.80 to the purchasers. As security for that loan, Weinschneider took back a mortgage on the nursing homes in the amount of $2,987,063.80. (402 M, N para. 8).

In 1986, Weinschneider became a shareholder in Dunhill Spencer. Ltd., Dunhill Spencer was organized to purchase four nursing homes: Golf Mill I and II, the Albany Home, and the Ridgeview Pavilion. (402 M, N para. 9). Dunhill Spencer purchased the four nursing homes for an aggregate price of $31 million. (402 M, N para. 9). To purchase the homes, Dunhill Spencer borrowed $28 million from Home Savings. The loan was secured by a first mortgage on each of the nursing homes. In addition, certain unnamed individuals loaned Dunhill
Spencer $550,000. (402 M, N para. 10). Weinschneider also subordinated his prior first mortgages on the Golf Mill I and II nursing homes to the mortgages of Home Savings on those nursing homes. (402 M, N para. 10).

On February 29, 1988, Weinschneider sold his stock in Dunhill
Spencer to Jack Ehrenhaus, the majority shareholder of Dunhill
Spencer. Weinschneider remained personally liable on the mortgages outstanding on all of the nursing homes. Weinschneider’s subordinated loan in the amount of $2,987,063.80 on Golf Mill I and II also remained outstanding (402 M, N para. 11).

Thereafter, all four nursing homes encountered financial problems. (402 M, N para. 13).

In the spring of 1988, Dunhill Spencer defaulted on its obligations to Weinschneider. On June 7, 1988, Weinschneider filed a complaint in the Circuit Court of Cook County, Chancery Division, to foreclose his second mortgage on the Golf Mill I and II nursing homes.[2]
On March 31, 1989, Home Savings filed a counterclaim to foreclose its first mortgages on all of the nursing homes. (402 M, N para. 15). A receiver was appointed to collect the rents and manage the homes (402 M, N para. 16). On October 16, 1989, a judgment of foreclosure and sale was entered in the state court in favor of Home Savings (402 M, N para. 21). Thereafter, on December 1, 1989, Home Savings was appointed as the mortgagee in possession. (402 M, N para. 22). On January 25, 1990, the Sheriff of Cook County, Illinois conducted a foreclosure sale. Home Savings bid in a total of $19,600,000 for the real estate and $2,071,000 for the personal property and was the sole and successful bidder at the foreclosure sale. A $7,389,095.78 deficiency remained. (402 M, N para. 23). On February 21, 1990, an Order Confirming Sales and for Deficiency Judgment was entered. (402 M, N para. 25).

Home Savings asked Weinschneider to put together a management team to run the nursing homes. Home Savings chose Weinschneider because of his expertise in running nursing homes, as well as his personal financial stake in the success of the nursing homes. (402M, N para. 60). Prior to October 1989, Weinschneider had numerous conversations with Clay Coburn, vice-president of Home Savings, regarding a management team for the nursing homes. (402M, N para. 61).

After his discussions with Coburn, Weinschneider met with various people and sometimes offered to include them in the management team he would propose to Home Savings. (402M, N para. 62). Burton Behr, one of Weinschneider’s personal friends, was one of the people with whom Weinschneider discussed managing the nursing homes. Weinschneider first told Behr about the opportunity with Home Savings in the summer of 1989 (Behr deposition testimony, 402M, N para. 76). August 1989 was the first time Weinschneider and Behr met face to face to discuss the possibility of taking over the management of the nursing homes. (402M, N para. 77, 78). Behr suggested to Weinschneider that Harold Geiser be included as a member of the management team. (402M, N para. 78). Geiser is a certified public accountant with a great deal of experience in the nursing home business. (402 M, N para. 48). However, before October 12, 1989, neither Behr nor Geiser had any significant involvement with Home Savings. (402M, N para. 63).

On September 25, 1989, Weinschneider and Home Savings representatives met for more than nine hours. At that meeting, Weinschneider proposed to Home Savings that an entity named G.W. Burton[3] , which would include Behr and Geiser among its owners, manage the nursing homes. (402M, N para. 64). A representative of Home Savings told Weinschneider that Home Savings was interested in meeting the proposed management team. (402M, N para. 65).

Weinschneider scheduled a meeting among the various parties for October 12, 1989. (402 M, N para. 66, Weinschneider Statement of Additional Uncontested Facts para. 2). Before October 10, 1989, Weinschneider provided Geiser with financial information he could use at the meeting with Home Savings. (402M, N para. 67).

On October 10, 1989, Weinschneider filed a chapter 11 petition in the United States Bankruptcy Court for the Northern District of Illinois. (402M, N para. 27).[4]

Notwithstanding the chapter 11 filing, two days later, on October 12, 1989, Weinschneider, Behr and Geiser met with representatives of Home Savings. At that meeting, Behr and Geiser outlined their plans for the nursing homes. (402M, N para. 68).

G.W. Burton was incorporated on October 19, 1989.[5] (402 M, N para. 70). Thereafter, the parties continued to negotiate the management agreement.

During the discussions which took place during September and October 1989, Weinschneider and the Defendants agreed that Weinschneider would own 23% of G.W. Burton and would receive a portion of G.W. Burton’s profits; that Weinschneider would continue his efforts on behalf of G.W. Burton to enter into a management agreement with Home Savings; and that Weinschneider would receive profit distributions from his ownership interest in G.W. Burton only if G.W. Burton should become the owner or lessee of the nursing homes and should the nursing homes operate at a profit.[6] (402M, N para. 69).

On October 31, 1989, Weinschneider, Behr, Geiser and the attorney who incorporated G.W Burton, met to discuss a management agreement. (Weinschneider Statement of Additional Contested Facts para. 4).

On November 15, 1989, Weinschneider filed his “Statement of Financial Affairs, Schedules of Assets and Liabilities, Statement of Executory Contracts” with the bankruptcy court. (402 M, N para. 42). Weinschneider did not list any claims against, or contracts with, G.W. Burton, Behr or Geiser in his schedules or statement of affairs. (402 M, N paras. 43, 44).

After he filed his bankruptcy petition, Weinschneider continued his efforts to put together a management agreement and to acquire a right of first refusal for G.W. Burton. (402M, N para. 71). Weinschneider’s efforts on G.W. Burton’s behalf bore fruit, and on December 1, 1989, G.W. Burton, Behr and Geiser entered a management agreement with Home Savings. The agreement gave G.W. Burton a right of first refusal, which gave G.W. Burton thirty days to match any bona fide offers Home Savings received for the purchase of a nursing home. (402 M, N para. 72). On February 12, 1990, G.W. Burton took over the management of the four nursing homes.

(Weinschneider Statement of Additional Contested Facts para. 6). On or about October 31, 1991, G.W. Burton exercised its right of first refusal and acquired the Hampton Plaza Nursing Home. That nursing home has operated at a profit. No payments have ever been made to Weinschneider under the agreements which form the basis of the State Court Suit. (402M, N para. 74).

On May 12, 1990, Weinschneider’s chapter 11 case was converted to a case under chapter 7 of the Bankruptcy Code. Daniel Hoseman was appointed as the chapter 7 trustee by the United States Trustee. (402 M, N para. 38). Weinschneider’s bankruptcy case has not been closed. (402 M, N para. 39). Nine entities claiming to hold unsecured claims totaling $10,057,976.35, have filed claims against Weinschneider’s bankruptcy estate. (402 M para. 40).

On June 12, 1990, the Official Unsecured Creditors Committee filed in this court a “Complaint for Declaratory Judgment, Turnover of Property and Avoidance of Fraudulent Conveyances” against Weinschneider and his wife Sara individually, and against entities known as the Alef Delbar Trust, Beis Delbar Trust and the Gimel Delbar Trust (“Trusts”), Weinschneider in his capacity as settlor and beneficiary of the Trusts, and against Sara, and the children of Weinschneider and Sara, as beneficiaries of the Trusts, Adversary No. 90 A. 00477 (Second Affirmative Defense 402 N para. 10).[7] The Trustee and the various defendants in that lawsuit agreed to compromise their disputes. An order approving their compromise was entered on September 3, 1992. (Trustee’s Statement of Additional Material Facts in connection with the Second Affirmative Defense, para. 44). Not surprisingly, a broad covenant not to sue and a general release were included as part of the settlement agreement. (402 M, N in connection with Second Affirmative Defense, para. 16). However, the Trustee did not execute the general release and covenant not to sue until some four years later, on December 6, 1996. (402 M, N in connection with Second Affirmative Defense, para. 18). The covenant not to sue attached to the order approving the compromise entered by the court and the covenant not to sue signed by the Trustee were broader in scope than the covenant not to sue set out in the body of the court’s order. Paragraph 4 of the decretal portion of the order provides in pertinent part:

4. Upon entry of this Order and the turn over of the assets contained in paragraph 3 of this Order, the Trustees herein shall:
(a) Give a covenant not to sue the six children and their spouses of Sidney and Sara Weinschneider on all claims, known or unknown, that the respective Bankruptcy Estates of Sidney and Sara Weinschneider may, could or have against the six children and their spouses, namely:

Elliot Weinschneider and Barbara Weinschneider

Avery Weinschneider and Chany Weinschneider

Benjamin Weinschneider and Eva Weinschneider

Rebecca Sova and Jay Sova

David Weinschneider and Devorah Weinschneider

Leon Weinschneider and Miriam Weinschneider

in form as is attached hereto as Exhibit D.

Exhibit D to the Order, and the Covenant Not to Sue executed by the Trustee provide in pertinent part:

The undersigned, Daniel Hoseman, Trustee of the Estate of Sidney Weinschneider . . . and Eugene Crane, Trustee of the Estate of Sara Weinschneider . . . do hereby covenant to and in favor of the Debtors, Sidney Weinschneider and Sara Weinschneider, the Alef, Bais and Gimel Delbar Trusts, and the six children of Sidney and Sara Weinschneider and their spouses (collectively “Defendants”) and forever agree that they will refrain from instituting, prosecuting or participating in any suit or action, at law or in equity, or to take any action to collect, enforce or recover on any claim, known or unknown, which the respective bankruptcy estates [sic] may, could or have against the above named parties, and to assure the Defendants their peace and freedom from any action in the event that the Defendants fully and timely perform hereunder . . . (Exhibit C to Weinschneider’s Second Affirmative Defense).

The Release signed by the Trustee provide in pertinent part:

. . . Daniel Hoseman, Trustee of the Estate of Sidney Weinschneider . . . and Eugene Crane, Trustee of the Estate of Sara Weinschneider . . . do hereby remise, release and forever discharge all claims, known or unknown, against the Alef, Bais and Gimel Delbar Trusts, and against Sidney and Sara Weinschneider . . . (exhibit B to Weinschneider Second Affirmative Defense)

In June 1995, Weinschneider, “for disclosure purposes only,” amended his bankruptcy schedule B-3 to indicate that he held a 23% interest in G.W. Burton based on an agreement with Behr and Geiser. (402 M, N para. 45). The amendment stated:

Debtor amends Schedule B-3 to list a post-petition acquired claim that is not property of the bankruptcy estate. This Amendment is made for disclosure purposes only and does not make this claim property of the bankruptcy estate. The post-petition claim is as follows:
Claim for a 23% interest in G.W. Burton and Associates, L.T.D. (“G.W. Burton”) (sic) based on an agreement made between debtor, Burton W. Behr and Harold Geiser, and evidenced by an acknowledgment of such interest signed by Burton W. Behr, president of G.W. Burton, dated 12/8/89.

The debtor’s claim for this interest is not property of the estate because the interest was acquired after the 10/10/89 bankruptcy filing and the debtor did not have any sort of claim for such interest as of the bankruptcy filing. Such claim cannot be characterized as proceeds or other progeny of property of the bankruptcy estate under code sec. 541(a)(6). Likewise, the interest in G.W. Burton was given to Sidney Weinschneider in exchange for his post-petition services to G.W. Burton.

The value of this claim is listed as unknown because it is highly speculative. Debtor has made several demands to formally obtain the interst in G.W. Burton. It appears that a lawsuit may have to be filed in order to enforce the above described agreement and acknowledgement.

On June 15, 1995, Albert Millstein, one of the Debtor’s attorneys,[8]
sent a letter to the Trustee’s attorney. The letter provided some additional background for Weinschneider’s claim against the Defendants. There is no indication in the letter that Weinschneider had laid the groundwork for the management contract or even had begun negotiations for an interest in G.W.

Burton before filing his Chapter 11 petition. (Ex. 22 to 402M, N for Second Affirmative Defense).

On February 5, 1996, Weinschneider filed a complaint in the Illinois Circuit Court, Law Division, against the Defendants.[9] (402 M, N para. 49). In the complaint, Weinschneider alleged that the Defendants breached a December 8, 1989 written agreement to convey 23% of the equity in G.W. Burton to Weinschneider. Weinschneider sought $1 million in damages from the Defendants. (402M, N para. 49). The Defendants moved to dismiss the complaint, alleging that the December 8, 1989 document did not constitute a written contract. (402M, N para. 50). On September 19, 1996, the state court granted the Defendants’ motion to dismiss. (402 M, N para. 53).

On October 17, 1996, Weinschneider filed a four-count Verified First Amended Complaint against the Defendants in the Illinois state court. Count I alleged that the December 8, 1989 document was a written contract; Count II alleged that the December 8, 1989 document was evidence of an enforceable oral agreement; Count III alleged that the Defendants breached their fiduciary duties owed to Weinschneider, and Count IV sought a declaratory judgment that Weinschneider owned 23% of G.W. Burton’s stock. Weinschneider sought more than $6 million in damages from the Defendants. (402M, N para. 54). G.W. Burton and the other defendants, moved to dismiss the complaint.

In his response to the motion to dismiss the First Amended Complaint, Weinschneider asserted:

“. . . it is a fact that Behr, Geiser and Weinschneider agreed before the execution of the Management Agreement that Weinschneider would have a percentage interest in G.W. Burton. (Weinschneider Affidavit, Exhibit A hereto, para. 9). The parties reached this agreement in conjunction with the incorporation of G.W. Burton on October 19, 1989. (Id.) Weinschneider offered (sic) and invited Behr and Geiser to participate with him in forming a corporation and team to manage the troubled nursing homes. (Id. at 4-6) Behr and Geiser accepted that offer, but they always understood and agreed that Weinschneider would be a participating owner in this venture. (Id. at 9) (402M, N para. 56).

On April 10, 1997, the state court dismissed Count I of the First Amended Complaint with prejudice. Counts II, III, and IV of the First Amended Complaint were dismissed with leave to amend on or before May 1, 1997. (402M, N para. 57).

On May 1, 1997, Weinschneider filed a five-count Verified Second Amended Complaint against the Defendants in the Illinois state court (“State Court Suit”). In Count I, Weinschneider alleges that the Defendants breached their fiduciary duties to him. In Count II, Weinschneider alleges that the Defendants breached their oral agreement to give him 23% of G.W. Burton’s profits from the Hampton Plaza Nursing Home. In Count III, Weinschneider seeks to recover from the Defendants on a quantum meruit basis. Weinschneider seeks damages exceeding $6 million. (402 M, N para. 58). In Count IV, Weinschneider seeks a declaratory judgment that he owns 23% of G.W. Burton and is entitled to 23% of G.W. Burton’s profits. In Count V, Weinschneider seeks an accounting of G.W. Burton’s profits. The State Court Suit is still pending. (402M, N para. 59).

On February 27, 1998, the Trustee filed a complaint in the bankruptcy court seeking a declaratory judgment that the State Court Suit is property of the bankruptcy estate. On or about April 27, 1998, after Weinschneider and the Defendants had responded to the Trustee’s complaint for declaratory judgment, the Trustee filed a motion for judgment on the pleadings. The motion for judgment on the pleadings was converted to one for summary judgment, and, on July 29, 1998, the Trustee filed his motion for summary judgment. On August 21, 1998, Weinschneider responded to the Trustee’s motion for summary judgment and filed his cross-motion for summary judgment seeking a declaratory judgment that the State Court Suit is not property of the bankruptcy estate. Thereafter, the Defendants responded to the Trustee’s and Weinschneider’s motions for summary judgment. The Trustee’s motion for summary judgment and Weinschneider’s cross-motion for summary judgment are now before this court for determination.

In addition, Weinschneider filed a Second Affirmative Defense, which alleged that the Trustee’s claims against Weinschneider were barred by the General Release and Covenant Not to Sue which the Trustee signed on December 6, 1996. Weinschneider moved for summary judgment on his Second Affirmative Defense, and the Trustee filed a cross-motion for summary judgment on the enforceability of the General Release and Covenant Not to Sue. These cross-motions are also before this court for determination.

Discussion
The Trustee contends that there is no issue of material fact and that he is entitled to summary judgment declaring that the State Court Suit is property of Sidney Weinschneider’s bankruptcy estate and that the Release does not prevent him from pursuing the Complaint for Declaratory Judgment. Weinschneider also contends there is no issue of material fact and that he is entitled to a declaratory judgment holding that the State Court Suit is not part of his bankruptcy estate, and that the Trustee therefore has no standing to pursue or to interfere with Weinschneider’s pursuit of the State Court Suit.

Weinschneider lacks standing to prosecute the State Court Suit if he has no financial stake in the outcome of the State Court Suit litigation. See Depoister v. Mary M. Holloway Foundation,36 F.3d 582, 585 (7th Cir. 1994) citing Matter of Andreucetti, 975 F.2d 413, 416 (7th Cir. 1992) (litigant must be “person aggrieved” to appeal a bankruptcy court order, meaning that the order diminishes the person’s property, increases the person’s burdens or impairs the person’s rights, and the person is directly and adversely affected); Caserta v. Tobin, 175 B.R. 773
(S.D. Fla. 1994) (chapter 7 debtor lacked standing to object to creditor’s claim where the debtor lacked any pecuniary interest in the outcome of the objection). The Trustee contends that Weinschneider individually does not have a financial stake in the State Court Suit because the State Court Suit is property of Weinschneider’s bankruptcy estate, not property of Weinschneider personally.

Weinschneider, on the other hand, claims that the State Court Suit is his personal property, not that of the bankruptcy estate. Thus, the issue before the court is whether the State Court Suit is property of Weinschneider’s bankruptcy estate or whether it belongs to Weinschneider individually. The Trustee has standing to pursue the State Court Suit only if the State Court Suit is property of the bankruptcy estate.

The Bankruptcy Code defines property of the estate:

11 U.S.C. § 541. Property of the estate

(a) The commencement of a case under section 301, 302 or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case . . .
(6) Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case.

Property of the estate is broadly defined. In re Carousel International Corp., 89 F.3d 359, 362 (7th Cir. 1996); In re Yonikus, 996 F.2d 866, 869
(7th Cir. 1993). Property of the estate includes causes of action a debtor has against third parties. See Field v. Transcontinental Ins. Co., 219 B.R. 115, 118 (E.D.Va. 1998), citing Tignor v. Parkinson (In re Tignor), 729 F.2d 977, 981 (4th Cir. 1984). The State Court Suit is property of Weinschneider’s bankruptcy estate if Weinschneider had a cause of action against the Defendants on October 10, 1989, the date the Chapter 11 petition was filed. Tignor v. Parkinson (In re Tignor), 729 F.2d 977 (4th Cir. 1984).

However, even if Weinschneider’s cause of action against the Defendants arose after the petition date, the State Court Suit may be property of Weinschneider’s bankruptcy estate if the cause of action is sufficiently “rooted in the pre-bankruptcy past.” Segal v. Rochelle, 382 U.S. 375, 380
(1966). The Trustee claims that the State Court Suit is estate property because the law suit arises out of Weinschneider’s prepetition activities. Weinschneider contends that the State Court Suit is his individual property because the claim did not exist on the date of the petition.

It is true that Weinschneider did not have a claim against the Defendants on the petition date because on that date, October 10, 1989, G.W. Burton had yet to be incorporated, Home Savings had yet to approve the proposed management team, and the management agreement had yet to be negotiated. In addition, as of the petition date, the Defendants were not yet obligated to make payments to Weinschneider because the nursing homes were not yet operating at a profit, Nevertheless, matters surrounding the creation of G.W. Burton and the allocation of rights therein and the negotiation of the management agreement and the selection of the management team were all accomplished or resolved shortly after the petition was filed. The State Court Suit, which emerges from that transaction can still be property of the estate if the State Court Suit is “sufficiently rooted in the prebankruptcy past.” See Segal, 382 U.S. at 380.

The test to determine whether property acquired post-petition stems from prebankruptcy activity was first articulated by the United States Supreme Court in Segal v.Rochelle, 382 U.S. 375 (1966). Although Segal arose under the Bankruptcy Act of 1898, it remains good law under the current Bankruptcy Code. Under the Bankruptcy Code, property acquired postpetition is estate property if it is sufficiently rooted in the prebankrupcty past. In re Ryerson, 739 F.2d 1423, 1426 (9th Cir. 1984) citing S.Rep. No. 989, 95th Cong., 2d Sess. 82, reprinted in 1978 U.S. Code Cong. Ad.News 5868.

In Segal, the debtor had loss-carryback tax refunds available based on losses sustained in the year the bankruptcy petition was filed. The Supreme Court stated that property acquired after the petition date may nonetheless be property of the estate if it is “sufficiently rooted in the prebankruptcy past and so little entangled in the debtor’s ability to make a fresh start that it should not be excluded from property of the estate.” Id. at 380. Because the tax refund was attributed to the debtor’s prepetition operations, the Supreme Court found that the tax refund was rooted in the debtor’s prepetition past. Moreover, loss of the tax refund to the estate where it would be liquidated for the benefit of creditors, would not have a significant impact on the debtor’s ability to make a fresh start. Accordingly, the Supreme Court found that the tax refund was property of the debtor’s bankruptcy estate. Id.

Weinschneider contends that Segal is inapplicable because the damages Weinschneider seeks to recover from the Defendants in the State Court Suit arose postpetition, i.e., the profits Weinschneider seeks to recover were not generated until several years after the petition was filed.

Weinschneider further argues that as of the petition date he had made only preliminary attempts to acquire property because, as of October 10, 1989, he did not know whether G.W. Burton would be able to negotiate a management agreement with Home Savings and because there was no agreement with the Defendants respecting the ownership of the management entity as of that date.

Thus, Weinschneider essentially ignores Segal. Segal, of course, deals with the situation where matters have not been finalized on the petition date. While such interests usually are not property of the estate, Segal provides an exception where such interests are rooted in the prebankruptcy past.

Chapter 11 typically contemplates the reorganization of a nonindividual business entity.

See N.L.R.B. v. Bildisco and Bildisco, 465 U.S. 513, 528, 104 S.Ct. 1188, 1197 (1984); In re Drexel Burnham Lambert Group, Inc., 138 B.R. 723, 759-60 (Bankr.S.D.N.Y. 1992). But see Toibb v. Radloff, 111 S.Ct. 2197
(1991) (nonbusiness debtor can file petition under Chapter 11).

It appears that Weinschneider filed his petition in order to reorganize his personal business affairs.

Since at least 1973, Weinschneider has been engaged in the nursing home business including the management of securities and instruments received in connection with the sales of his interest in the nursing homes. (Statement of Financial Affairs, para. 1(c)). In fact, the record fails to show any business Weinschneider was engaged in other than that relating to nursing homes: his creditors are, for the most part, related to his involvement in the nursing home business. Thus, as stated in Weinschneider’s “Bankruptcy Petition Cover Sheet,” Weinschneider filed a chapter 11 petition to reorganize his nursing home business.

Consistent with a reorganization under chapter 11, Weinschneider planned to continue with his business, i.e. he planned to remain involved in the nursing home business, including both investment and management. The facts establish that Weinschneider remained involved in the management of his investments in nursing homes and in the management of the nursing homes themselves. Part of Weinschneider’s personal reorganization involved pursuing a deal with G.W. Burton and Home Savings. To protect his investment in some of the nursing homes Home Savings acquired in the foreclosure, he continued to negotiate the terms of a management agreement between G.W. Burton and Home Savings after he filed his chapter 11 petition. Weinschneider also remained involved in the management of nursing homes. The organization of the management team for Home Savings clearly is a management function. Weinschneider occasionally discussed issues and problems facing the nursing homes with Behr. (Statement of Additional Uncontested Facts, para. 7, 8, 9, 10, 14). In short, Weinschneider continued his business dealings and operations as if he had not filed a chapter 11 petition. The deal with G.W. Burton was a continuation of Weinschneider’s prebankruptcy business. He had devoted a great deal of time and effort to the negotiation and execution of a management agreement with Home Savings at the time of his bankruptcy filing. The rapidity with which matters were concluded post-bankruptcy makes that clear. Viewed in this light, the State Court Suit is significantly related to Weinschneider’s pre-bankruptcy activities, i.e. the matters giving rise to the State Court Suit are rooted in Weinschneider’s prebankruptcy past. There are no unresolved issues of material fact to be resolved with respect to the question of whether the matters underlying the State Court Suit were rooted in the prebankruptcy past. Accordingly, the State Court suit is property of Weinschneider’s bankruptcy estate. Segal, 382 U.S. at 375. Because the State Court Suit is property of the bankruptcy estate, the Trustee has standing to pursue the claim. Accordingly, the Trustee’s motion for summary judgment is granted and Weinschneider’s cross-motion for summary judgment is denied.

Second Affirmative Defense
Weinschneider contends that the Release and Covenant Not to Sue bar the Trustee’s complaint for declaratory judgment. According to Weinschneider, as a result of his1995 amendment to his bankruptcy schedule B-3 and the June 15, 1995 letter from Albert Millstein (Weinschneider’s attorney) to the Trustee’s attorney, the Trustee knew or should have known about Weinschneider’s interest in G.W. Burton at the time he executed the Release.

Not surprisingly, the Trustee contends that the Release and Covenant Not to Sue do not bar the complaint for declaratory judgment. The Trustee contends that he is pursuing the bankruptcy estate’s claim against the Defendants, not a claim against Weinschneider personally.

The Trustee also contends that he was not aware of the State Court Suit when he executed the Release and Covenant Not to Sue because Weinschneider had not disclosed sufficient relevant information about his claim against the Defendants to alert the Trustee that Weinschneider’s claim might have prepetition roots despite the duty to do so imposed on debtors by 11 U.S.C. § 521 (3) and (4).[10] The Trustee further argues that even if the claim against the Defendants was a claim against Weinschneider, the Release and Covenant Not to Sue did not divest the estate of its interest in the State Court Suit because the Trustee has not abandoned the estate’s interest in the State Court Suit, and the Release and Covenant Not to Sue do not contain language indicating that the Trustee is abandoning the estate’s interest in the State Court Suit. See 11 U.S.C. § 554; Fed.R.Bankr.P. 6004.

A release is a contract in which the releasor relinquishes a right to prosecute a claim against the releasee. Village of Fox River Grove v. Grayhill, Inc., 806 F. Supp. 785, 793 (N.D. Ill. 1992); Prall v. Indiana National Bank, 627 N.E.2d 1374 (4th Dist. Ind. 1994). A release is interpreted in accordance with principles of applicable state contract law. Lumpkin v. Envirodyne Industries, Inc., 933 F.2d 449 (7th Cir. 1991), Village of Fox River Grove, 806 F. Supp. at 793.

The intent of the parties controls the scope of a release. Village of Fox River Grove, 806 F. Supp. at 793; Corona v. Illinois Cent. Gulf R.R. Co., 203 Ill. App.3d 947, 148 Ill.Dec. 933, 561 N.E.2d 239, 242 (5th Dist. 1990). When faced with a general release, the court must interpret the contract so that only claims known to the parties are released. Carlile v. Snap-On-Tools, 271 Ill. App.3d 833, 839, 207 Ill.Dec. 861, 648 N.E.2d 317, 321 (4th Dist. 1995). However, a general release only covers claims that the party signing the release knows of or could discover through reasonable inquiry. Fair v. Int’l Flavors
Fragrances, Inc., 905 F.2d 1114, 1116 (7th Cir. 1990); Fujisawa Pharmaceutical Co., Ltd. v. Kapoor, 16 F. Supp.2d 941, 951 (N.D.Ill. 1998). A release which contemplates the release of unknown claims will be enforced as written in the absence of mistake, fraud or unconscionability. Wagner v. NutraSweet Co., 95 F.3d 527, 523 (7th Cir. 1996).

Despite his contentions to the contrary, the Trustee’s complaint for declaratory judgment is a claim against Weinschneider. The Trustee contends that on the petition date, Weinschneider’s claim against the Defendants became property of the estate by operation of law, and that he is merely pursuing the estate’s claim against the Defendants. The Trustee challenges Weinschneider’s standing to prosecute the State Court Suit in the complaint for declaratory judgment. Although the complaint for declaratory judgment does not seek to recover affirmative monetary relief from Weinschneider, it does seek to affect Weinschneider’s rights vis a vis the State Court Suit. As such, it is a claim against Weinschneider.

The Trustee contends that the Release does not bar him from pursuing the instant suit.

The Trustee argues that he was not aware of the basis for the State Court Suit when he executed the Release and Covenant Not to Sue. The Trustee claims that the information Weinschneider disclosed regarding his claim against the Defendants was incomplete and misleading. Neither the amendment to schedule B-3 nor the June 15, 1995 letter disclose the prepetition foundation of Weinschneider’s claim against the Defendants. The amendment states that Behr acknowledged Weinschneider’s interest in G.W. Burton on December 8, 1989, two months after Weinschneider filed his chapter 11 petition, but did not mention that negotiations had begun well before Weinschneider filed a chapter 11 petition.

The court finds that there are questions of material fact regarding the Release and Covenant Not to Sue. Specifically, the court finds that whether the Trustee knew or should have known about Weinschneider’s claim against the Defendants, whether Weinschneider concealed his claim against the Defendants, or whether Weinschneider provided the Trustee with false or incomplete information to mislead the Trustee, are disputed material facts which are critical to the resolution of whether the Release and Covenant Not to Sue bar the Trustee’s complaint for declaratory judgment. Thus, summary judgment must be denied as to both the Trustee and Weinschneider as to the Second Affirmative Defense.

Conclusion
For the reasons stated above, the Trustee’s motion for summary judgment on his complaint for declaratory judgment that the State Court Suit is property of the estate is granted.

Weinschneider’s cross-motion for summary judgment on the Trustee’s complaint for declaratory judgment is denied.

Weinschneider’s motion for summary judgment on his Second Affirmative Defense and the Trustee’s cross-motion for summary judgment, are denied.