Dexia Credit -- Asset Protection Scheme Ends In Indictments

Just released court opinions, articles,and other news about asset protection and related topics.
Forum rules The information given on this page is for educational and informational purposes only, and does not constitute any legal or tax advice or opinion. This page is meant to give a quick start to research by other professionals, but it should absolutely not be relied upon for any purposes whatsoever. Additionally, this page is kept current only as our time allows, and the information given here may not be current. We make NO GUARANTEES as to the accuracy of the information herein and you should not rely on it. Even professionals who use this information must independently verify whether it is correct and current. Nothing in the information given below should imply that the drafters of this webpage are admitted to practice law in the referenced state or have any special expertise in the areas listed. Nothing herein should be construed as a solicitation by the drafters of this website to practice law in the referenced state. Persons desiring planning should contact a licensed attorney or other appropriate planning professional in this state. Certainly, nothing herein is any substitute for the services, advice, or counsel of a properly licensed attorney in the relevant state!

Dexia Credit -- Asset Protection Scheme Ends In Indictments

Postby Riser Adkisson LLP » Fri Oct 21, 2011 7:34 pm

Dexia Credit Local v. Rogan, 2008 WL 4543013 (N.D.Ill., Slip Copy Oct. 9, 2008)

United States District Court, N.D. Illinois, Eastern Division.

DEXIA CREDIT LOCAL, Plaintiff,

v.

Peter G. ROGAN, et al., Defendants.

No. 02 C 8288. Oct. 9, 2008.

Scott T. Mendeloff, Abigail Lynn Peluso, Gabriel Aizenberg, Howrey LLP, Former AUSA, United States Attorney's Office (NDIL), Chicago, IL, for Plaintiff.

Howard Michael Pearl, Cornelius Moore Murphy, Monika Maria Blacha, Winston & Strawn LLP, Neil E. Holmen, Walker Wilcox Matousek LLP, Joseph Andrew Spiegler, Much Shelist Denenberg Ament & Rubenstein, PC, Phillip Stewart Reed, Debra L. Bogo-Ernst, John Michael Touhy, Sean Patrick Dailey, Vincent J. Connelly, Mayer Brown LLP, Michael J. O'Rourke, Brian Michael Dougherty, Limo T. Cherian, Mitchell Bruce Katten, O'Rourke, Katten & Moody, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge.

*1 Dexia Credit Local holds a judgment against Peter Rogan in an amount in excess of $124 million. In August 2008, Dexia filed an ex parte motion for a temporary restraining order and a preliminary injunction, seeking an order freezing and turning over various assets in the United States and abroad that it alleges are Rogan's or in his control or that he fraudulently transferred. In that motion, Dexia alleged that Rogan, in concert with his attorney Fred Cuppy and others, had engaged in a longstanding scheme to hinder Dexia and other creditors from executing against his assets. Dexia filed the motion ex parte based on its allegations that Rogan had taken steps in the past to hinder Dexia from collecting, including evading court orders, and that if he became aware of the motion, Rogan likely would take further steps to evade its intended effect.

Dexia supported the motion with an extensive and voluminous factual and legal submission. The Court initially heard Dexia's counsel in camera, albeit on the record, and made findings that permitted Dexia to submit its materials ex parte. The Court then took Dexia's motion for a temporary restraining order under advisement. On or about September 2, 2008, the Court summoned Dexia's counsel for a further in camera court session. During that session, the Court advised Dexia's counsel that it intended to grant the requested temporary restraining orders and asked counsel to prepare and submit the necessary draft orders. Dexia's counsel did so, and the Court signed the orders on September 4-5, 2008.

The temporary restraining orders the Court entered barred Peter Rogan, his wife Judith Rogan, and Cuppy from directly or indirectly making or allowing transfers or other dispositions of various assets. The orders also froze assets held by certain institutions and entities that, based on Dexia's submissions to the Court, appeared to be within Rogan's effective control. These included assets held by certain trusts established for the benefit of Rogan's children, Brian Rogan, Robert Rogan, and Sara Caitlin Rogan, as well as accounts in which funds the trusts had transferred to the children were held. Those accounts included the children's own accounts at certain banks and brokerage firms.

Rogan's counsel served the temporary restraining orders upon the enjoined individuals and upon the institutions and entities holding the accounts the Court had ordered frozen. Following service of those orders, Brian, Robert, and Sara Rogan each moved to dissolve the orders. Because the orders had been entered ex parte in the first place, they were of limited duration. See Fed.R.Civ.P. 65(b)(2). As a result, Dexia's motion for a preliminary injunction effectively merged with the requests to dissolve the orders. The Court set the matter down for hearing on the motion for preliminary injunction and directed Dexia to post a $50,000 bond, which Dexia promptly did.

Facts

An evidentiary hearing is required on a motion for preliminary injunction only to the extent that the response to such a motion identifies genuine issues of material fact. See In re Aimster Copyright Litig. ( Appeal of Deep), 334 F.3d 643, 653-54 (7th Cir.2003); Ty, Inc. v. GMA Accessories, Inc., 132 F.3d 1167, 1171 (7th Cir.1997). "[A]s in any case in which a party seeks an evidentiary hearing, he must be able to persuade the court that the issue is indeed genuine and material and so a hearing would be productive-he must show in other words that he has and intends to introduce evidence that if believed will so weaken the moving party's case as to affect the judge's decision on whether to issue an injunction." Ty, 132 F.3d at 1171. The Rogan children made written submissions to the Court that raised no dispute about the lion's share of Dexia's factual contentions. Rather, the factual component of their submissions focused on their contentions that they are innocent parties who were unfairly harmed by the temporary restraining order and would be unfairly harmed by a preliminary injunction.

*2 The Court first reviews the facts relevant to the appropriateness of enjoining Peter Rogan. The Rogan children have contested none of those facts. Thus, the Court will review them in summary fashion.

In 1989, an entity that Rogan controlled purchased Edgewater Medical Center, a hospital on Chicago's north side. The Rogan-controlled entity managed and administered EMC, and Rogan served as EMC's chief executive officer.

In 1994, EMC was sold to Northside Operating Company. To finance the purchase, Rogan caused the Illinois Health Facilities Authority to issue approximately $41 million in bonds. Though he had sold EMC, Rogan retained control of the hospital after the sale via a series of transactions, and he then caused EMC to enter into management contacts with two entities that he also controlled, Braddock Management LP and Bainbridge Management, Inc. In 1997, Rogan arranged to refinance the bond debt at a lower interest rate, and to this end, in June 1988 he secured a letter of credit from Dexia guaranteeing repayment of the bonds. Dexia contends that both during the due diligence process that led to its issuance of the letter of credit, and after Dexia issued the letter of credit, Rogan defrauded Dexia by concealing that a significant portion of EMC's revenue was obtained by fraudulent means, specifically fraud in connection with claims for Medicare and Medicaid payments.

Eventually EMC's fraud was discovered, and the government suspended Medicare and Medicaid payments to EMC. This caused EMC to suffer financial reverses and, eventually, led Dexia to have to pay $55 million on EMC's behalf to satisfy obligations to bondholders. Dexia was unable to obtain reimbursement from EMC. It thereafter sued Rogan, Braddock Management, and Bainbridge Management for fraud, conspiracy, and other torts. In May 2007, Dexia obtained a default judgment against Rogan and the entities for actual damages of approximately $53 million, punitive damages of approximately $53 million, prejudgment interest of approximately $18 million, and costs of approximately $11,000.

Dexia then instituted proceedings to attempt to collect its judgment. Both before and after entry of the judgment, Dexia met with stalling, resistance, and outright evasion from Rogan and others connected with him. It ultimately obtained documents and other evidence that led it to file, in mid-August 2008, its motion seeking imposition of temporary restraining orders and preliminary injunctions against various persons and entities.

At issue in the present proceedings are trusts that Rogan established for the benefit of his three children. They include three United States-based trusts established in 1992 and three Belize-based trusts established in 1997. In 1992, Rogan's children were ages 14, 11, and 8, respectively. The trusts were initially funded primarily with ownership interests in Rogan-controlled businesses.

When EMC was sold to Northside Operating Company in 1994, the children's trusts, which held stock in a Rogan-controlled entity that owned the hospital, received a total of approximately $4 million from the sale proceeds of $31 million. The trusts also owned entities that, in turn, owned the management companies through which Rogan continued to operate EMC following its sale. During the period when Rogan operated EMC via these entities-1994 through 1997-the children's trusts received millions of dollars in distributions from the entities.

*3 In 2002, the federal government instituted litigation against Rogan under the federal False Claims Act concerning the alleged submission of false Medicare and Medicaid claims for patients referred to EMC. In that case, Judge John Darrah found that in the early 1990's, Rogan entered into a conspiracy with another EMC officer and two physicians to pay the physicians kickbacks and other improper benefits in return for patient referrals. These referrals, in turn, resulted in substantial profits for Rogan. See United States v. Rogan, 459 F.Supp.2d 692, 700 (N.D.Ill.2006). Though the government's lawsuit directly concerned particular false claims submitted from 1995 through 2000, Judge Darrah found that "[t]he conspiracy was evident in the early 1990s." Id. Based upon other findings by Judge Darrah, it appears that he concluded the conspiracy began (albeit on an apparently smaller scale) at least as early as 1993, see id. (findings concerning dealings between Roger Ehmen and a Dr. Barnabas)-in other words, before the 1994 sale of EMC to Northside Operating Company that generated proceeds paid to the children's trusts. Judge Darrah found that the government proved that from 1995 through 2000, Rogan caused Edgewater to submit over $19 million in false claims to Medicare and Medicaid. Id. at 727. As indicated earlier, during at least part of that period, the Rogan children's trusts received significant distributions from the entities managing the hospital's operations, whose operations were in turn controlled by Peter Rogan.

Based upon these facts, which the Rogan children do not contest, the children's trusts have been funded, in significant part, with assets that fairly may be considered to be the proceeds of fraud. On the other hand, Dexia does not appear to contend, and it has not shown at this juncture, that all of those funds were the proceeds of fraud.

In its submission in support of its motion for temporary restraining order and preliminary injunction, Dexia offered evidence tending to show that following the establishment and funding of the children's trusts, Rogan continued to exercise control over the trusts and the assets they held. In the current proceedings, the children have not challenged Dexia's contention in that regard. For this reason, the Court, again, reviews this evidence in summary fashion.

First, Rogan's personal attorney, Fred Cuppy, played a direct role in administering the children's trusts. In 1999, Cuppy, in his role as trustee, received on the trusts' behalf a distribution of a little over $1.2 million from Braddock Management LP; immediately caused the trusts to "loan" $1.35 million to Boulevard Management, Ltd.; and Boulevard, via the assistance of Troy Myers (another Peter Rogan attorney), in turn transferred $1.2 million to Rogan himself. This sum was transferred ostensibly to pay off a promissory note, though no documents evidencing the note have surfaced. See Dexia Ex. 349 ¶ 46 & attached Ex. KK. The Court reasonably may infer, and does infer, that Rogan and Cuppy used the children's trusts on this occasion to facilitate a significant payment to Rogan via a circuitous route which, the Court infers, was employed to try conceal payment to Rogan of what amounted to a very large cash distribution from entities in which he had no significant ownership interest of record.

*4 Dexia's evidence also reflects that Rogan controlled and controls certain investments that appeared on the surface to be owned by the children's trusts. These include various real estate developments in Savannah, Georgia. Dexia's evidence also reflects that Cuppy caused the children's trusts and a Bahamian trust established by Rogan to invest in the same Rogan-related enterprises. Indeed, in 2002, Cuppy caused an entity that was, on paper, owned entirely by the children's Belize-based trusts to transfer nearly $1 million to an entity from which Rogan and Cuppy drew money for Rogan's benefit. Finally, Dexia has offered evidence tending to show that David Miller, an employee of Rogan, administered transactions pertaining to assets that, on their surface, were owned entirely by the children's trusts.

Robert and Sara Rogan submitted signed but unsworn statements in support of their motion to dissolve the temporary restraining order and, in effect, in opposition to Dexia's motion to convert that order to a preliminary injunction. Because the statements are unsworn, they are of no real benefit to the Rogan children. But even an unsworn statement may be used by an opposing party, see Fed.R.Evid. 801(d), and the statements are beneficial to Dexia in certain respects. Specifically, certain of the statements confirm that the Rogan children have received significant distributions from the trusts. Sara Rogan stated that she has "received periodic distributions" from a trust, the last a $25,000 distribution in July 2008; Brian Rogan made a similar statement (which he later repeated in a sworn affidavit). Robert Rogan says nothing in his unsworn statement about his receipt of funds from the trusts. It appears from Dexia's submissions and from the arguments of counsel for the children that each of the children has at least one bank account as well as a securities account.

In later-submitted sworn affidavits, which Dexia has not sought to dispute and which the Court appropriately may consider, Brian Rogan recounts his employment history. After graduating from college in 1983, he went to work for ABF Freight Systems in its management training program, worked there for a little over two years, and received a salary, which he deposited into a personal account at Chase Bank. He left ABF to go to work for Hoover Creek Plantation in a management role, receiving a salary of $60,000, which he deposited into a personal account at Wachovia Bank on which his mother Judith Rogan is also, it appears, a signatory. He opened an account at Bank of America in Chicago in August 2008 when he resumed his education.

Brian states in a sworn affidavit that he has received distributions from a trust established in his name-in amounts he does not disclose beyond the reference to $25,000 mentioned above-and that he has invested that money "in part" in a securities account at TD Ameritrade. He used funds "given to me from my trust" to pay for his wedding in September 2007. He states that he has not transferred any funds to Peter Rogan.

*5 Dexia has also submitted its own evidence regarding benefits the Rogan children have received from the trust, the accuracy of which the children do not contest. A trust of which Robert Rogan is the beneficiary purchased and owns the residence into which he moved in 2003; Cuppy was Robert's primary contact in facilitating the acquisition. Robert has also received from one or both of the trusts established for his benefit living expenses and funds for the purchase of a car.

Dexia has also submitted evidence reflecting that between 2004 and 2006, Judith Rogan transferred over $548,000 to her daughter Sara or for Sara's benefit. Dexia contends, with supporting evidence, that Peter Rogan has been the sole source of all funds to which Judith has had access. The Rogan children do not contest Dexia's contention. They likewise have not contested Dexia's contention that Judith has acted as Peter Rogan's alter ego, a contention amply supported by evidence Dexia has submitted to the Court. As a result, it has been established, at least for purposes of the present motion, that the $548,000-plus that Sarah has received or benefitted from was transferred, in effect, by Peter Rogan (via Judith Rogan as his alter ego).

Aside from the brief references in the Rogan children's statements and the evidence regarding Robert Rogan cited above, Dexia has offered no evidence-at least none the Court can locate in the voluminous submissions-regarding exactly when the Rogan children received transfers from the trusts. That is, however, unsurprising; Dexia did not have ready access to records regarding deposits and withdrawals from the children's accounts, and the Court was advised during the hearings on the present motion that, with the exception of Brian Rogan, the Rogan children had not produced any meaningful quantity of records regarding those accounts. That aside, however, the evidence submitted is sufficient, at least for purposes of a preliminary injunction motion, to permit a reference that the transfers from the trusts to the children, and from Judith Rogan to Sara, occurred in or after 1997, when the Dexia debt was incurred, and that a significant portion of those transfers occurred after Dexia filed this lawsuit.

Discussion

1. Preliminary issues

The Rogan children challenge the Court's entry of the temporary restraining orders without notice. The Court has previously explained the basis for its determination to enter the orders ex parte and continues to believe that determination was correct. In any event, however, the Rogan children have been heard fully on the issue of the restraining orders' extension and on the motion for preliminary injunction. Their challenge to the ex parte nature of the restraining orders is now effectively moot.

The Court also rejects the Rogan children's challenge to the initial entry of the temporary restraining orders without requiring Dexia to post a bond. The Court subsequently ordered Dexia to post a bond, and Dexia promptly complied. This challenge is thus likewise moot.

*6 Brian Rogan contends it is inappropriate for the Court to enter an injunction against him because he is not a party to the underlying suit. The Court notes initially that it did not enjoin the Rogan children personally, nor has Dexia asked the Court to do so. Rather, the Court was asked to preclude financial institutions from transferring certain assets on the ground that they are, in fact or in effect, Peter Rogan's assets. The requested orders unquestionably affect the interests of the Rogan children, but the fact is that they themselves have not been enjoined personally.

In any event, Illinois' statutory provisions relating to post-judgment collection proceedings, which apply in federal court pursuant to Federal Rule of Civil Procedure 69(a), specifically permit a court to "enjoin any person, whether or not a party to the supplementary proceedings, from making or allowing any transfer or other disposition of, or interference with, the property of the judgment debtor not exempt from the enforcement of a judgment." 735 ILCS 5/2-1402(f)(2). Illinois Supreme Court Rule 277(a), which governs citation proceedings, likewise permits a proceeding to be "against the judgment debtor or any third party the judgment creditor believes has property of or is indebted to the judgment debtor." That is the primary basis upon which Dexia has proceeded in this matter-its contention that third parties hold property that actually is Peter Rogan's, even though it is held under some other guise.

The Rogan children also challenge the propriety of venue in this District. Again, it is important to note that they are not personally the object of any restraining order or of the requested preliminary injunction. Rather, the Court has entered orders directed at persons and institutions holding assets reasonably believed to be those of Peter Rogan, who has a judgment against him that was entered in this District. In any event, as Dexia argues, the Rogan children likely have waived any objection to venue by intervening in this proceeding. See, e.g., Asbury Glen/Summit Ltd. P'ship v. Southeast Mortgage Co., 776 F.Supp. 1093, 1096 (W.D.N.C.1991); Commonwealth Edison Co. v. Train, 71 F.R.D. 391, 394 (N.D.Ill.1976). Even were that not the case, venue is proper here. Ths current proceedings are supplementary, post-judgment collection proceedings that arise from the Court's entry of a judgment against Rogan. The events that gave rise to the "cause of action"-namely Dexia's collection efforts-took place in this District. So even if venue must be determined separately for post-judgment proceedings, it has been established.

2. Merits of Dexia's motion

The Court turns next to the merits of Dexia's motion for a preliminary injunction. To prevail on its motion, Dexia must show that it has a likelihood of success on the merits and that it lacks an adequate remedy at law and will suffer irreparable harm if the injunction is not granted. FoodComm Int'l v. Barry, 328 F.3d 300, 303 (7th Cir.2003). If Dexia meets these requirements, the Court must balance the harm to Dexia if an injunction is not issued against the harm to opposing parties if it is issued, and must also consider the interests of others, including the public. Id. This balancing "involves a sliding scale analysis: the greater [the movant's] chances of success on the merits, the less strong a showing it must make that the balance of harm is in its favor." Id.

*7 The Rogan children did not challenge Dexia's motion to enter preliminary injunctions against the domestic and foreign trusts of which the children are the beneficiaries and have thus forfeited any challenge to those orders. In any event, the Court properly entered preliminary injunctions against the children's trusts based on Dexia's contention, not challenged by the children and on which Dexia has established a reasonable likelihood of success, that the trusts are alter egos of Peter Rogan.

To pierce the veil of the trusts, Dexia must show that they and Rogan have such a unity of interest that their separate personalities no longer exist, and that there are circumstances such that continuing to recognize their separateness would sanction a fraud or promote injustice. See, e.g., Van Dorn Co. v. Future Chem. & Oil Corp., 753 F.3d 565, 569-70 (7th Cir.1985). A trust may be considered to be the alter ego of a judgment debtor if the debtor used the trust's assets for his own benefit and exercised authority over the trust's assets. See, e.g., In re Turner, 335 B.R. 140, 147 (Bankr.N.D.Cal.2005), reaff'd on reconsideration, 345 B.R.2006 (Bankr.N.D.Cal.2006). The factors considered include whether there was a close personal relationship between the transferor and the trust; the transferor received consideration for the transfer; the trust was created to shield the transferor's assets from creditors and the transfer was made in anticipation of incurring debts or in anticipation of collection activity; the transferor continued to enjoy the benefits of the property following transfer; the transferor contributed all or just part of the trust's assets; and there was commingling of management and record keeping of the assets of the transferor and the trust. See, e.g., United States v. Schaut, No. 97 C 4114, 2001 WL 1665314, at *3 (N.D.Ill.Dec.28, 2001); In re Maghazeh, 310 B.R. 5, 18-19 (Bankr.E.D.N.Y.2004); Turner, 335 B.R. at 147.

Even had the Rogan children contested Dexia's request for preliminary injunctions against the trusts, the Court would have concluded that Dexia established a reasonable likelihood of success on the merits on its claim that the trusts are Peter Rogan's alter egos. There is no question that a close relationship exists between the transferor (Rogan) and the trusts (whose beneficiaries are Rogan's children) and that Rogan contributed all of the assets that the trusts hold without receiving any consideration in return. In addition, administration of the trusts was under the control of Cuppy, Rogan's personal attorney. The evidence Dexia presented reflects that Cuppy was wearing at least two hats and that he acted in concert with Peter Rogan and with Rogan's interests in mind as much as, and perhaps more so than, the interests of the trust beneficiaries. And in at least some significant instances, recounted earlier, the trusts' assets were used for the benefit of Rogan himself, without regard to the interests of the trust beneficiaries. To that extent, at least, trusts amounted to a facade that effectively allowed Rogan to direct the disposition of their assets as though he had never parted with them to begin with.

*8 Based on the current record, there is some question whether the children's trusts (in possible contrast to certain other trusts Rogan established) were set up in anticipation of Rogan incurring any particular debt or in anticipation of any particular collection activity. But there is evidence, not disputed by the Rogan children, that Cuppy marketed himself as being in the business of setting up asset protection devices, including offshore trusts, for persons like Peter Rogan with substantial wealth. It is fair to infer that Rogan established the children's trusts for that purpose, even if not to try to evade any particular debt or creditor.

In sum, Dexia provided ample evidence-none of it contested by the Rogan children-establishing a reasonable likelihood of success on its contention that the children's trusts were Peter Rogan's alter egos.FN1 For this reason (in light of the other preliminary injunction factors discussed below), it was and is appropriate to freeze the assets of the trusts.

FN1. The same is true with regard to Judith Rogan, as noted above; the children, and in particular Sara Rogan, have not challenged Dexia's contention in that regard.

That by itself does not, however, entitle Dexia to freeze accounts into which funds that the trusts (or Judith Rogan) have distributed to the children have been deposited. The effect of the alter ego finding is a determination that the trusts' assets and those of Judith Rogan were, in effect, still Peter Rogan's own assets. But that does not definitively determine whether Dexia has shown a reasonable likelihood of success on its contention that the funds Rogan's alter egos transferred to the children are assets that Dexia is entitled to recover-or, at present, to hold in place pending its attempt to recover them.

The Court does not understand Dexia to contend that the Rogan children themselves have acted as Peter Rogan's alter egos-and even if Dexia could be understood as making such a contention, it not established a reasonable likelihood of success on that particular point. There is no indication in the current record that any of the Rogan children were anything other than innocent beneficiaries of their father's largesse. Peter Rogan may have gained via fraud the lion's share of the assets he transferred to the trusts, but there is no indication that the children participated in the fraud or knew of its existence. Nor is there any evidence that any of them-in contrast to, for example, their mother Judith Rogan-were involved in any effort to funnel assets back to Peter Rogan or to permit the assets in the trusts to be used for his benefit. To put it another way, although Rogan, via the instrumentality of the trusts, conferred significant assets on his children without receiving consideration in return, there is no evidence that Rogan retained control over those assets after they were transferred to the children.

Dexia contends that it can levy on the assets that the Rogan children have received from the trusts via a theory that the children are Peter Rogan's nominees. A judgment creditor may levy upon property held in the name of someone other than the judgment debtor if the debtor engaged in a legal fiction by placing title to the property in the hands of someone else while, in actuality, retaining all or some of the benefits of ownership. See, e.g., Richards v. United States, 231 B.R. 571, 578 (E.D.Pa.1999). In determining whether a person-in this case, each of Rogan's children-is a nominee for a debtor, courts consider factors such as whether the person paid consideration for the property, whether the property was given to the person in anticipation of a suit or liability, whether the judgment debtor exercises control of the property after its transfer, whether there is a family or other close relationship between the debtor and the transferee, whether the debtor has the benefits of the property after the transfer, and whether the debtor maintains the property after the transfer. See, e.g., Richards, 231 B.R. at 579, see also, United States v. Reed, 168 F.Supp.2d 1266 (D.Utah 2001). See generally Dexia Mem. Relating to Peter G. Rogan Irrevocable Trust at 24 n. 49 (citing cases), cited in Dexia Resp. to Opp. of Brian Rogan, et al. to Mot. for Prelim. Injunction at 5 n. 5.

*9 In this case, certain of these factors cut in favor of a "nominee" finding, and others cut in the opposite direction. The Rogan children paid neither Peter Rogan nor the trusts or Judith Rogan any consideration, and there is obviously a family relationship between the children and their father. In addition, it appears that the children received significant distributions after it had become apparent that Rogan had potential or even actual liabilities to Dexia. And as discussed earlier, Dexia has offered evidence giving rise to a reasonable inference that the entire purpose of the children's trusts was to allow Rogan to continue, irrespective of his obligations to creditors, to funnel to his children unlimited sums of money, a good deal of it obtained by fraud. On the other hand, there is no indication that Peter Rogan maintained any degree of control over the children's funds after they received distributions from the trusts (or Judith Rogan) or that he obtained any benefit from the funds they received.

In the Court's view, the most significant factor in the analysis of Dexia's nominee theory concerns the transferor's access to or control over the assets following their transfer: as noted earlier, the thrust of the nominee doctrine concerns the debtor's placement of paper title in the hands of someone else while actually retaining some or all of the benefits of ownership. Though Dexia has shown, sufficiently for present purposes, that Peter Rogan retained the benefits of ownership regarding assets held in the children's trusts, it has not shown that he had any of the benefits of ownership over assets that the trusts (or Judith Rogan) had transferred to the children. For this reason, the Court concludes that Dexia has not shown, on the present record, a reasonable likelihood of success on its contention that the children themselves hold assets as Peter Rogan's nominee.

Dexia also appears to contend that Peter Rogan's transfers (via his alter egos) of assets to the children amounted to fraudulent conveyances that may be unwound under Illinois law. A fraudulent transfer by an alter ego entity properly may be treated as a fraudulent transfer by the judgment debtor. See In re Turner, 335 B.R. at 147 (citing Fleet Credit Corp. v. TML Bus Sales, Inc., 65 F.3d 119, 121-22 (9th Cir.1995)). The focus is on the intent of the transferor, not that of the transferee.

Dexia has established a reasonable likelihood of success on its contention that most, if not all, of the transfers made by Peter Rogan's alter egos to the children amount to fraudulent conveyances under Illinois law. Contrary to the suggestion of the children, it appears that a judgment creditor may assert a fraudulent conveyance claim in the context of post-judgment collection proceedings and need not file a separate lawsuit; that is how it was done in Hong Kong Electro-Chemical Works, Ltd. v. Less, 539 F.3d 795 (7th Cir.2008).

Under Illinois law, a debtor's transfer of an asset before or after a creditor's claim arose is fraudulent if the transfer was made "with actual intent to hinder, delay, or defraud any creditor of the debtor." 740 ILCS 160/5(a). In determining whether "actual intent" exists, a court is to consider whether:

*10 - the transfer was to an insider;

- the debtor retained possession of control of the property after transfer;

- the debtor had been sued or threatened with suit before the transfer;

- the transfer was of substantially all the debtor's assets;

- the debtor absconded;

- the debtor removed or concealed assets;

- the debtor received consideration reasonably equivalent to the value of the asset transferred;

-the debtor was insolvent or became insolvent shortly after the transfer;

-the transfer was made shortly before or after a substantial debt was incurred;

-the debtor transferred the essential assets of a business to a lienor who transferred the assets to an insider of the debtor.

740 ILCS 160/5(b).

In this case, though Peter Rogan did not retain control over the assets after they were transferred to his children, the transfers were made to "insiders" (immediate family members); at least some of them were concealed via the circuitous routing of transfers via offshore trusts; at least some of the transfers were made after Dexia filed or threatened suit; Rogan left the country for Canada; Dexia has shown that he concealed significant assets via other trusts and similar devices; he became insolvent in the sense of not having assets sufficient to satisfy his obligations; and he received no consideration for the transfers. Whether or not these particular transfers constituted all or substantially all of his assets, the evidence is sufficient to show a reasonable likelihood of success on Dexia's contention that at least some the transfers to the children amounted to fraudulent conveyances. This leads to a conclusion that some significant portion of the assets contained in the children's personal bank and securities accounts-precisely how much is less than crystal clear-are there as a result of fraudulent conveyances.

The Rogan children argue that they should not be penalized because their father chose to provide for them. There is, of course, nothing wrong with providing for one's children. But that does not mean that a debtor is entitled to dispose of his assets (via alter egos, as Rogan did) as he wishes-even to support his children-while evading his obligations to creditors.

The Rogan children also argue that they are entirely innocent of the fraud that Rogan was found, via the default judgment, to have perpetrated upon Dexia. They contend, to paraphrase one of their lawyers, that the sins of the father should not be visited upon his children. The Court certainly ascribes to this as a matter of principle. That said, the law permits transfers by a debtor to family members to be undone under appropriate circumstances. On the other hand, the Rogan children's innocence vis-a-vis the underlying fraud factors into the Court's consideration of the balance of harms, a matter the Court will take up shortly.

Finally, on the issue of likelihood of success, the Court briefly addresses the issue of constructive trust. "The doctrine of constructive trust is an equitable remedy based on fairness. A court may impose a constructive trust on property acquired through fraud or theft, with the victim as beneficiary ...." Hong Kong Electro-Chemical Works, Ltd. v. Less, 539 F.3d 795, 800 (7th Cir.2008). Dexia has established a reasonable likelihood of success on its contention that at least some portion of the assets held in the children's trusts, and thus some portion of the assets transferred to them, was obtained by fraud and thus is subject to imposition of a constructive trust. That is a further basis upon which Dexia may seek to levy on the funds transferred to the children.

*11 The Court next turns to the other factors in the preliminary injunction analysis. Dexia has established that, absent a preliminary injunction, it risks irreparable injury for which it lacks an adequate remedy at law. Dexia holds a substantial judgment against Rogan but has been unable to collect. Given the dilatory and obstructive tactics that Rogan and others acting in concert with him have used to hinder Dexia's collection efforts (which Dexia has convincingly shown and which the Rogan children do not address, let alone dispute), it is likely that, given the opportunity, Rogan will take steps to make the trust assets similarly unavailable. A significant risk of transfer beyond the court's jurisdiction of the assets of a judgment debtor that might be used to satisfy the judgment against him qualifies as irreparable injury. See, e.g., Tri-State Generation & Transmission Ass'n v. Shoshone River Power, Inc., 805 F.2d 351, 355 (10th Cir.1986); In re Feit & Drexler, Inc., 760 F.2d 406, 416 (2d Cir.1985); cf. SEC v. Lauer, 52 F.3d 667, 671 (7th Cir.1995) (potential for dissipation of assets belonging to another amounts to irreparable injury).FN2 And once the assets are dissipated or removed from the jurisdiction of the Court-of which there is a significant risk-Dexia would lack any reasonably adequate means to levy on those assets. This is sufficient to establish the lack of an adequate legal remedy.

FN2. In Grupo Mexicano de Desarrollo S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 119 S.Ct. 1961, 144 L.Ed.2d 319 (1999), the Supreme Court held that prior to entry of a money judgment, a district court lacks the authority to issue a preliminary injunction to prevent a defendant from transferring assets in which no lien or equitable interest is claimed. That decision has no bearing on this case, for at least two reasons: Dexia already has a judgment against Rogan, and its citation to discover assets issued to Rogan gave it a lien on his assets. See, e.g., Pontikes v. Perazic, 295 Ill.App.3d 478, 484, 229 Ill.Dec. 723, 692 N.E.2d 712, 717 (1998). Furthermore, as discussed earlier, Illinois' post-judgment procedure specifically permits a court to enjoin transfer or disposition of property of the judgment debtor-and, as the Court has concluded, Dexia has established a reasonable likelihood of success on its claim that the assets the children's trusts hold and those the trusts transferred to the children are in effect Peter Rogan's property.

Dexia likewise faces a risk of irreparable injury for which it lacks an adequate legal remedy from the dissipation of the funds the children have obtained via fraudulent conveyances or which they hold in constructive trust for Dexia as the creditor of Peter Rogan. By all indications, in particular the arguments made by their attorneys, the children do not have significant assets beyond those that Dexia has asked the Court to freeze. Allowing the children unfettered access to those assets thus necessarily will lead to their dissipation.

Though Dexia risks irreparable harm absent a preliminary injunction, the children, who as far as the Court can determine are innocent beneficiaries of Peter Rogan, unquestionably will be harmed by entry of the requested injunction. The bottom line is that if the requested injunction is issued as Dexia request, they will lack access to funds that otherwise would be available to them for the expenses of daily living, not to mention legal fees they may have reasonably incurred in attempting to seek relief from the Court's prior orders. But because a preliminary injunction is an equitable remedy, the Court does not see this as an "all or nothing" proposition. By allowing the Rogan children access to the funds in their bank accounts-which are minimal to begin with-and to some portion of the funds in their securities accounts, subject to the Court's oversight, the Court can mitigate the harm they would suffer from a preliminary injunction without depriving Dexia of a nearly-full measure of the remedy it seeks.

*12 Having considered and balanced the appropriate factors, the Court grants Dexia's motion for a preliminary injunction FN3 against the accounts at issue in which, it appears from the evidence, the Rogan children hold funds transferred from their trusts or from Judith Rogan, with the following exceptions and conditions. First, the amounts currently in any checking or savings accounts held at banks that are currently the subject of the temporary restraining orders will be unfrozen, and the Rogan children may use those funds to pay reasonable and necessary expenses. Second, counsel for Dexia and the Rogans are directed to meet and to promptly (i.e. within the next three business days) come up with a mechanism that will permit each of the children to obtain, if he or she wishes, $25,000 (net of anticipated capital gains and other taxes as well as commissions) from his or her securities account that is currently the subject of the temporary restraining orders. The children may open new bank accounts in which they may deposit these funds and any others that the Court may hereafter permit them to access from the securities accounts; they will be required to disclose those accounts to Dexia and execute consents permitting Dexia's counsel to obtain records from any such accounts. The funds thus withdrawn may be used for ordinary and necessary expenses of the account holder. The Court is allowing the Rogan children to use these funds-both those from their regular checking accounts and the $25,000 from their securities accounts-upon the express condition that the funds cannot be transferred directly or indirectly to or for the benefit of Peter Rogan, Judith Rogan, Fred Cuppy, or anyone working for or acting in concert with any of them. The children are directed to report to the Court and to Dexia's counsel with specificity, in documents to be filed under seal, how any of these funds have been expended or transferred, by the close of business on the Friday of each week so long as they still retain any amount of these funds. The Court wishes to make it clear that it will not tolerate any variance from or noncompliance with these directives and will not hesitate to impose severe sanctions, including a contempt finding, upon a showing of such noncompliance. The Court expects counsel to cooperate in drafting and proposing the order or orders necessary to carry out the Court's rulings.

FN3. This may, in effect, require modification of previously-entered orders rather than entry of an entirely new order. The Court will leave the mechanics of this to counsel in the first instance.

Because the Court has relaxed the terms of the restraining orders, it believes that the bond currently posted by Dexia with regard to the Rogan children and Judith Rogan is adequate and need not be increased or otherwise modified.

The Court will entertain an appropriate request for expedited discovery, to the extent that has not already been directed by prior orders in this case, to facilitate prompt disposition of Dexia's claims to any funds in the Rogan children's accounts that will remain frozen. These matters will be set for trial or any other necessary evidentiary hearing at a prompt date to be set at the upcoming status hearing. The Court will also entertain requests by the Rogan children for further withdrawals from their securities accounts but will do so only upon submissions verified under oath, and subject to inquiry by the Court and Dexia's counsel, demonstrating good cause for the nature and amount of any expenditures they propose to make.

Conclusion

*13 The Court grants Dexia's motion for a preliminary injunction, extending to the accounts held by Brian Rogan, Robert Rogan, and Sara Caitlin Rogan, on the terms and conditions stated in the body of this decision. The case is set for a status hearing on October 16, 2008 at 9:30 a.m. Proposed draft orders are to be submitted to the Court, in hard copy, by no later than 12:00 p.m. on October 15, 2008.Â

= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

Join our LinkedIn Group on Asset Protection at http://www.linkedin.com/groups?mostPopular=&gid=3694878

Join our Twitter on Asset Protection at http://www.twitter.com/jay_adkisson

Get our RSS Feed on Asset Protection at http://assetprotectionbook.com/forum/feed
RISER ADKISSON LLP, 100 Bayview Circle, Suite 210, Newport Beach, CA 92660, Ph: 949-200-7284, Fax: 877-296-0678, jay --at-- risad.com - http://www.risad.com - http://www.jayadkisson.com - http://www.captiveinsurancecompanies.com - http://www.eaibook.com - http://www.calejl.com

Purchase our book "Asset Protection: Concepts and Strategies" at
http://www.amazon.com/gp/product/0071432167?ie=UTF8&tag=httpassetproc-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0071432167?
User avatar
Riser Adkisson LLP
Riser Adkisson LLP
 
Posts: 2099
Joined: Thu Nov 13, 2008 8:06 pm
Location: California, Georgia, North Carolina, Oklahoma, and Texas

Re: Dexia Credit -- Asset Protection Scheme Ends In Indictme

Postby Riser Adkisson LLP » Fri Oct 21, 2011 7:35 pm

Dexia Credit Local, 2008 WL 4855416 (N.D.Ill., Nov. 10, 2008)

United States District Court,

N.D. Illinois,

Eastern Division.

DEXIA CREDIT LOCAL, Plaintiff,

v.

Peter G. ROGAN, et al., Defendants.

No. 02 C 8288.

Nov. 10, 2008.

Scott T. Mendeloff, Abigail Lynn Peluso, Gabriel Aizenberg, Howrey LLP, Former AUSA, United States Attorney‘s Office, Chicago, IL, for Plaintiff.

Howard Michael Pearl, Cornelius Moore Murphy, Monika Maria Blacha, Winston & Strawn LLP, Neil E. Holmen, Walker Wilcox Matousek LLP, Joseph Andrew Spiegler, Much Shelist Denenberg Ament & Rubenstein, PC, Phillip Stewart Reed, Debra L. Bogo-Ernst, John Michael Touhy, Sean Patrick Dailey, Vincent J. Connelly, Mayer Brown LLP, Michael J. O'Rourke, Brian Michael Dougherty, Limo T. Cherian, Mitchell Bruce Katten, O'Rourke, Katten & Moody, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge.

*1 The Court previously entered a temporary restraining order that, among other things, had the effect of freezing certain accounts held by Frederick Cuppy and a corporation of which he is the sole shareholder. Plaintiff Dexia Credit Local has moved for entry of a preliminary injunction seeking essentially the same relief. Cuppy opposes entry of a preliminary injunction. For the reasons stated below, the Court grants Dexia's motion in part and denies it in part. This constitutes the Court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a).

Background

Dexia holds a judgment against Peter Rogan in an amount in excess of $124 million. In August 2008, Dexia filed an ex parte motion for a temporary restraining order and a preliminary injunction, seeking an order freezing and turning over various assets in the United States and abroad that it alleges are Rogan's or in his control or that he fraudulently transferred. In that motion, Dexia alleged that Rogan, in concert with Cuppy (Rogan's attorney) and others, had engaged in an elaborate and longstanding scheme to hinder Dexia and other creditors from executing against Rogan's assets. Dexia filed the motion ex parte based on its allegations that Rogan had taken steps in the past to hinder Dexia from collecting, including evading court orders, and that if he became aware of the motion, Rogan likely would take further steps to evade its intended effect.

Dexia supported the motion with an extensive and voluminous factual and legal submission. The Court initially heard Dexia's counsel in camera, albeit on the record, and made findings that permitted Dexia to submit its materials ex parte.The Court then took Dexia's motion for a temporary restraining order under advisement. On or about September 2, 2008, the Court summoned Dexia's counsel for a further in camera court session. During that session, the Court advised Dexia's counsel that it intended to grant the requested temporary restraining orders and asked counsel to prepare and submit the necessary draft orders. Dexia's counsel did so, and the Court signed the orders on September 4-5, 2008.

The temporary restraining orders the Court entered barred Peter Rogan, his wife Judith Rogan, and Cuppy from directly or indirectly making or allowing transfers or other dispositions of various assets. The orders also froze assets held by certain institutions and entities that, based on Dexia's submissions to the Court, appeared to be within Rogan's effective control. These included assets held by a number of trusts Rogan had established with Cuppy's assistance: the Peter G. Rogan Irrevocable Trust, the RPP Finance Trust, and domestic and offshore trusts established for the benefit of Rogan's children, as well as accounts in which funds the trusts had transferred to the children and others were held.

Cuppy did not seek to dissolve the temporary restraining order but did oppose entry of a preliminary injunction. Cuppy filed an affidavit and a memorandum in opposition to Dexia's motion for a preliminary injunction. Dexia then filed a supplemental memorandum providing additional evidence and argument relating to Cuppy. The Court held an evidentiary hearing on September 29 and October 31, 2008.

Facts

1. Cuppy's affidavit

*2 In his affidavit, Cuppy stated that the temporary restraining order had the effect of, among other things, freezing a personal bank account at Chase Bank, a personal investment account at Smith Barney, and an account at Chase Bank in the name of Dynamic Alliance Inc., a corporation of which Cuppy is the sole shareholder. See Cuppy 1 st Affid. ¶¶ 6-7, 10.

Cuppy stated in his affidavit that he had rendered legal services to Rogan at various times and is also Rogan's friend. Id. ¶ 4. He also stated that he had invested in certain projects in which “entities referenced in the Dexia motion” had also invested. Cuppy also stated that he had “received fees for management services from entities referenced by Dexia,” and that “[t]hose payments were for services rendered.” Id. ¶ 9.

Cuppy stated in his affidavit that he is a trustee of certain domestic trusts established for the benefit of Rogan's children in 1992 and, as such, is “responsible for managing investments on behalf of the various beneficiaries.” Id.¶ 11. Cuppy expressed concern that because the trusts' assets consist in part of securities and options, the injunction could prevent him as trustee from closing open orders and positions, risking a diminution of the assets' value. Id. Cuppy further stated that he acts as a trustee of certain Belizean trusts established for the benefit of Rogan's children and that he discharges those responsibilities through an entity called Caribe Trustees Limited, of which he is the sole owner. He stated that these trusts possess no assets other than an indirect interest in an entity called 410 Montgomery, LLC. Id. ¶ 12.

Cuppy further stated in his affidavit that he acts in a managerial capacity for CFMT Ltd. and, through Dynamic, for CFMT of Florida, LLC, each of which is owned, directly or indirectly, by the Peter G. Rogan Irrevocable Trust. That trust, Cuppy stated, owns a partial interest in two real estate projects in Savannah, Georgia, and a real estate project in Hilton Head, South Carolina that Dynamic manages.Id.

Finally, Cuppy stated that Peter Rogan has never owned an interest in or received a payment from Dynamic. He stated that Dynamic owns four assets: a minority interest in real estate in Merrillville, Indiana that it has held for twenty-five years; two condominium units in Jacksonville, Florida, which it manages for itself and other investors (not including Rogan); a passive minority interest in Seal Wrap Systems, LLC; and an indirect one percent interest in 410 Montgomery, LLC.Id. ¶ 10.

Cuppy separately filed an affidavit, pursuant to directions in the temporary restraining order, identifying assets held for the benefit of “Rogan Entities” as that term was defined in the order. This affidavit identified accounts holding the assets of the Rogan children's trusts and various other entities and listed the amounts held in those accounts as of September 12, 2008. See Cuppy 2d Affid. ¶¶ 4-10.

*3 In his memorandum in opposition to Dexia's preliminary injunction motion, Cuppy argued that Dexia had offered no evidence that any of his personal accounts or those of Dynamic contained any assets belonging to Peter Rogan, see Cuppy Mem. at 3, 6-7; that his investment in and management of projects in which Rogan-related entities has no bearing on whether his accounts contain Rogan's assets, see id. at 4; and that absent such evidence, there is no basis to freeze Cuppy's accounts. See id. at 4-5. Cuppy also argued that the temporary restraining order had caused him significant harm and that a preliminary injunction would compound this and would jeopardize the continued existence of Dynamic. See id.at 5-7. Finally, Cuppy argued that he should be permitted to discharge his responsibilities as trustee of the Rogan children's trusts. See id. at 9-10.

2. Dexia's supplemental submission

Dexia filed a supplemental memorandum in which it contended, and offered evidence, that the financial affairs of Cuppy and his company Dynamic are closely intertwined with those of Peter Rogan and the trusts he established and that Cuppy had received significant transfers from entities connected with the trusts and/or Rogan. This included the following:

- The children's Belizean trusts indirectly own ninety-nine percent of Boulevard Investors, LLC, which in turn owns the 410 Montgomery condominium development in Savannah; Cuppy's company Dynamic owns the other one percent; and Dynamic received payments of over $38,000 from 410 Montgomery in June and November 2006.

- Dynamic originally owned a one-third share of a real estate development called Taylor Row but sold that share to the children's domestic trusts, which already owned another one-third share. Cuppy arranged financing for the project and agreed to give a personal guaranty to support part of the financing. Cuppy received a $35,000 payment from Taylor Row in October 2005.

- The children's domestic trusts and Dynamic each own a one-third interest in a real estate development in Savannah called Gardens on Jones, LLC; Cuppy signed the operating agreement for the LLC on behalf of Dynamic Alliance and the trusts; Dynamic made payments into the project totaling $800,000; and Cuppy personally guarantied a loan for the project.

- Seal Wrap, LLC, referenced in Cuppy's affidavit as an entity in which Dynamic Alliance holds a passive minority interest, is one-third owned by Boulevard Investors LLC, an entity owned ninety-nine percent by the children's Belizean trusts and one percent by Dynamic Alliance.

- Various entities owned directly or indirectly by the Peter G. Rogan Irrevocable Trust in which neither Cuppy nor Dynamic Alliance held an ownership interest had made significant payments to Cuppy or Dynamic Alliance: a total of $35,000 from Wilmington Condominium Commons to Cuppy in 2005; a total of $80,000 from Hoover Creek Condo Partners to Cuppy in 2005-2006; $10,000 from CFMT Ltd. (a subsidiary of a Rogan trust) in 2006; and $30,000 from CFMT of Florida (a subsidiary of CFMT Ltd.) to Dynamic Alliance in 2006.

*4 - The RPP Finance Trust, of which Cuppy was a trustee and is a beneficiary, made payments to Dynamic and Cuppy from 2001 through 2006 totaling over $550,000. Dynamic and Cuppy transferred around $500,000 to RPP Finance Ltd. during that same period, ostensibly to repay loans for which there was no documentation.

- Dexia also provided evidence of other transactions between Cuppy and Rogan-related entities or entities in which they had invested.

3. Matters that Cuppy has not disputed

An evidentiary hearing is required on a motion for preliminary injunction only to the extent that the response to such a motion identifies genuine issues of material fact. See In re Aimster Copyright Litig. ( Appeal of Deep), 334 F.3d 643, 653-54 (7th Cir.2003); Ty, Inc. v. GMA Accessories, Inc., 132 F.3d 1167, 1171 (7th Cir.1997). “[A]s in any case in which a party seeks an evidentiary hearing, he must be able to persuade the court that the issue is indeed genuine and material and so a hearing would be productive-he must show in other words that he has and intends to introduce evidence that if believed will so weaken the moving party's case as to affect the judge's decision on whether to issue an injunction.” Ty, 132 F.3d at 1171.

In the materials it submitted in support of its motion for temporary restraining order and for a preliminary injunction, Dexia offered ample evidence that Cuppy assisted in Rogan in concealing his assets and attempting to place them beyond the reach of creditors. In significant part, this was done via the various trusts referenced earlier, which Cuppy set up for Rogan and thereafter oversaw and administered. In addition, Dexia's evidence submitted in connection with its motion also reflects that Cuppy aided Rogan in deliberately evading orders entered by judicial officers in this case, in an effort to keep his assets from the grasp of Dexia.

In his submissions prior to the evidentiary hearing, Cuppy raised no dispute regarding these points. Nor did Cuppy contest Dexia's assertion that the Peter G. Rogan Irrevocable Trust, the RPP Finance Trust, or the children's domestic and offshore trusts are Peter Rogan's alter egos or nominees. The Court takes those contentions as established for purposes of the present motion.FN1

FN1. Had Cuppy given any indication that he intended to dispute Dexia's allegations on these points, Dexia would have had, and no doubt would have exercised, the opportunity to question him on these points during his testimony at the evidentiary hearing.

4. The evidentiary hearing

The Court held an evidentiary hearing on Dexia's motion for entry of a preliminary injunction against Cuppy. Cuppy was the only witness to testify at the hearing. Consistent with the disputes issues addressed in Cuppy's pre-hearing submissions, his testimony focused on Dynamic Alliance, Cuppy's involvement with projects in which Rogan-related trusts had invested, and transfers he and Dynamic had received.

The uncontested factual material Dexia submitted gives one reason to be skeptical regarding Cuppy's bona fides in his dealings relating to Peter Rogan. The Court, however, found Cuppy's testimony at the hearing largely credible-though not always favorable to Cuppy's position. The Court summarizes the evidence as follows.

*5 First, Cuppy testified that the accounts that are currently subject to the temporary restraining order do not hold any assets belonging to Peter Rogan. He also testified that he had never used Dynamic or its accounts to funnel assets to Rogan. The Court found this testimony credible. Second, Cuppy agreed that he had been involved in a variety of investments and transactions relating to the various Rogan-related trusts and entities they control, including CFMT of Florida LLC, an entity wholly owned by CFMT Ltd., which in turn is wholly owned by the Peter G. Rogan Irrevocable Trust. In certain instances, Cuppy stated, he invested in projects along with the Rogan children's trusts because the particular project was too large, and “we needed additional capital.” In previous testimony that was admitted in evidence during Cuppy's cross-examination, Cuppy conceded that this created the potential for a conflict of interest given his dual roles.

Third, Cuppy admitted that he and Dynamic had received significant transfers of funds from the trusts and entities in which they invested. For that reason, the Court need not list the details of those transfers except for particular instances discussed below. Cuppy testified that these transfers consisted of management and trustee fees, one distribution to him as a trust beneficiary, and loans. Cuppy admitted that with relatively insignificant exceptions, he himself had made these transfers on behalf of the trusts-in other words, he caused the trusts to transfer funds to himself and to Dynamic. Cuppy also largely admitted Dexia's contentions that the transfers lacked supporting documentation, such as management contracts, loan agreements, promissory notes, and the like.

Two of these transfers are of particular note. First, Cuppy testified that Dynamic owes the RPP Finance Trust $305,000, which he testified that he caused RPP to loan to Dynamic.FN2 Cuppy stated that Dynamic invested the funds in a condominium in Fort Lauderdale, Florida (which, Cuppy testified, he is now trying to sell in order to repay RPP).FN3 The loan was, Cuppy testified, made on an interest-free basis, and it has been outstanding for several years. Cuppy conceded that the loan is not documented by a promissory note or loan agreement. The evidence established that Cuppy caused RPP to make this unlimited, interest-free loan essentially at his whim. Second, Cuppy conceded that documents reflect that in 2002, he caused RPP to make a $20,000 distribution to him, which he identified on the entity's bank statements as a “K-1 distribution.” Cuppy admitted that he made no such distributions to the trust's other beneficiaries. When asked to explain this, Cuppy stated, in substance, that he simply decided to make a distribution to himself.

FN2. As noted earlier, Cuppy was, at the time, a trustee of the RPP Finance Trust; he has been and remains a beneficiary.

FN3. There is an apparent disconnect between Cuppy's sworn statement in his affidavit that Dynamic owned only specific assets-which included two condominiums in Jacksonville, Florida but none in Fort Lauderdale-and his October 31 hearing testimony that the funds Dynamic “borrowed” from the RPP Trust were invested in a condominium in Fort Lauderdale. Though the Court's notes of the testimony do not reflect any square statement that Dynamic is the owner of the Fort Lauderdale property, that is a reasonable inference from Cuppy's testimony that it was Dynamic that “borrowed” the money from the RPP Trust. The Court expects Cuppy to clarify or correct either his statement in the affidavit or his hearing testimony in this regard.

Cuppy evidently had both the authority and the ability to draw money from the RPP Finance Trust at his whim, at whatever times and in whatever amounts he desired. It is reasonable to infer that Rogan put Cuppy in a position that enabled him to do this because Cuppy's assistance was critical in aiding Rogan in placing and keeping his assets beyond the reach of his creditors.

*6 The Court cannot say, however, that Dexia has shown that the payments that Cuppy characterized as management and trustee fees were unearned or that they were disproportionate to the work he did. The Court found credible Cuppy's testimony that he had performed valuable services in managing and overseeing various real estate developments in which the trusts invested and that he was entitled to be paid for those services. Although these payments appear to have been made at times and in amounts that Cuppy determined on a discretionary basis, the Court cannot say, based on the present record, that consideration was lacking for the payments.

On the other hand, two transfers-which, again, lacked documentation or other support-appear to have been made without any consideration (at least not any legally legitimate consideration) in return. These included the indefinite-term, interest-free loan of $305,000 that Cuppy caused RPP Finance Trust to make to Dynamic, and the $20,000 “beneficiary” distribution that Cuppy caused RPP to make to him, and only to him, in 2002.

Discussion

To obtain a preliminary injunction, Dexia must show that it has a likelihood of success on the merits and that it lacks an adequate remedy at law and will suffer irreparable harm if the injunction is not granted. FoodComm Int'l v. Barry, 328 F.3d 300, 303 (7th Cir.2003). If Dexia meets these requirements, the Court must balance the harm to Dexia if an injunction is not issued against the harm to opposing parties if it is issued, and must also consider the interests of others, including the public. Id. This balancing “involves a sliding scale analysis: the greater [the movant's] chances of success on the merits, the less strong a showing it must make that the balance of harm is in its favor.” Id.

There is plenty of evidence, uncontested for present purposes, that Cuppy has helped Rogan evade his creditors, including via illegitimate means. But Dexia offers no authority for the proposition that this, without more, justifies freezing Cuppy's assets to satisfy Dexia's judgment against Rogan. Rather, an injunction freezing Cuppy's assets and those of Dynamic is appropriate only to the extent those assets are appropriately considered to be Rogan's or were fraudulently transferred by Rogan.

The precise legal theory on which Dexia seeks to freeze Cuppy's and Dynamic's assets was not clearly articulated in its arguments following the evidentiary hearing. Based on the evidence presented, it would be fair to refer to Cuppy as Rogan's agent in the management and oversight of the alter ego trusts. But that alone does not warrant undoing every transfer that Cuppy received-and Dexia cites no authority suggesting that would be appropriate.

In contrast to other situations in which Dexia sought temporary restraining orders and preliminary injunctions, Dexia does not appear to contend that Cuppy or Dynamic are Rogan's nominees or alter egos. Rather, as best as the Court can discern from Dexia's arguments and legal memoranda, it appears that Dexia contends that Cuppy received fraudulent transfers from entities that are Rogan's alter egos. (Cuppy has not contested Dexia's contention that the various trusts, and specifically the RPP Finance Trust, are appropriately considered to be Rogan's alter egos.)

*7 As the Court noted in its recent decision regarding the Rogan children, a fraudulent transfer by an alter ego of a judgment debtor properly may be treated as a fraudulent transfer by the judgment debtor himself. See In re Turner, 335 B.R. 140, 147(Bankr.N.D.Cal.2005), reaff'd on reconsideration, 345 B.R.2006 (Bankr.N.D.Cal.2006). And as the Court also concluded in that decision, a judgment creditor may assert a fraudulent conveyance claim in the context of post-judgment collection proceedings and need not file a separate lawsuit; that is how it was done in Hong Kong Electro-Chemical Works, Ltd. v. Less, 539 F.3d 795 (7th Cir.2008).

Under Illinois law, a debtor's transfer of an asset before or after a creditor's claim arose is fraudulent if the transfer was made “with actual intent to hinder, delay, or defraud any creditor of the debtor.” 740 ILCS 160/5(a). In determining whether “actual intent” exists, a court considers whether:

- the transfer was to an insider;

- the debtor retained possession or control of the property after transfer;

- the debtor had been sued or threatened with suit before the transfer;

- the transfer was of substantially all the debtor's assets;

- the debtor absconded;

- the debtor removed or concealed assets;

- the debtor received consideration reasonably equivalent to the value of the asset transferred;

- the debtor was insolvent or became insolvent shortly after the transfer;

- the transfer was made shortly before or after a substantial debt was incurred;

- the debtor transferred the essential assets of a business to a lienor who transferred the assets to an insider of the debtor.

740 ILCS 160/5(b).

Some of the factors set forth in the Illinois statute are, without question, present in this case. Dexia has a reasonable likelihood of success on its contention that Cuppy is an “insider” vis-a-vis Rogan given their close personal and business relationship and the evidence of Cuppy's assistance to Rogan in his attempt to keep assets from his creditors. In addition, at least some of the transfers were arguably concealed via circuitous routing; at least some were made after Dexia filed or threatened suit; Rogan left the country for Canada; Dexia has shown that Rogan concealed significant assets by various means; and Rogan became insolvent in the sense of not having assets sufficient to satisfy his obligations. On the other hand, Rogan did not retain control over the property after its transfer to Cuppy-though that factor is not dispositive.

The primary issue, in the Court's view, is whether the transfers in question were made without reasonably equivalent consideration. The evidence presented at the hearing tends to show that Cuppy provided reasonably equivalent consideration for the transfers that he characterized as management or trustee fees. The absence of documentation supporting the transfers and the apparently discretionary basis on which they were made is relevant but not dispositive in this regard. Based on Cuppy's credible testimony, the Court finds that he performed legitimate services for the transferor entities, consisting of management and oversight of their investments and assets. Nor are the amounts of the transfers so high that they would be considered to be out of proportion to the services Cuppy performed.

*8 The Court cannot say the same regarding the $305,000 that Cuppy caused the RPP Finance Trust to transfer to Dynamic. Cuppy's characterization of this as a loan is somewhat suspect, but even if the characterization is accurate, it was an interest-free loan for an indefinite term, made by and to the person who had control of the trust's assets at his apparent whim, without any documentation of an obligation to repay. Nor was there any apparent benefit to the trust or its beneficiaries from making the “loan.” Cuppy's claimed desire, expressed at the hearing, to repay the loan comes, in essence, at the point of a sword. Dexia has established a reasonable likelihood of success on its contention that this was a fraudulent transfer of assets of RPP Finance Trust, an alter ego of Peter Rogan.

The same is true of the $20,000 distribution that Cuppy caused that trust to make to him as a beneficiary. This, again, appears to have been made based upon Cuppy's whim-as evidenced by the fact that no such distributions were made to any of the trust's other beneficiaries.

Dexia has established that it will suffer irreparable harm unless Cuppy and Dynamic are prevented from transferring assets sufficient to repay these fraudulent transfers. In this regard, the evidence-uncontested for purposes of this hearing-of Cuppy's active involvement in Rogan's attempts to evade his creditors is significant. Dexia has shown that it is likely that absent an injunction, Cuppy will dispose of whatever assets he might have that would enable him to repay these sums. A significant risk of transfer beyond the court's jurisdiction of the assets of a judgment debtor that might be used to satisfy the judgment against him qualifies as irreparable injury. See, e.g., Tri-State Generation & Transmission Ass'n v. Shoshone River Power, Inc., 805 F.2d 351, 355 (10th Cir.1986); In re Feit & Drexler, Inc., 760 F.2d 406, 416 (2d Cir.1985); cf. SEC v. Lauer, 52 F.3d 667, 671 (7th Cir.1995) (potential for dissipation of assets belonging to another amounts to irreparable injury).FN4 And once the assets are dissipated or removed from the jurisdiction of the Court-of which there is a significant risk-Dexia would lack any reasonably adequate means to levy on those assets. This is sufficient to establish the lack of an adequate legal remedy.

FN4. In Grupo Mexicano de Desarrollo S.A. v. Alliance Bond Fund, Inc.,527 U.S. 308, 119 S.Ct. 1961, 144 L.Ed.2d 319 (1999), the Supreme Court held that prior to entry of a money judgment, a district court lacks the authority to issue a preliminary injunction to prevent a defendant from transferring assets in which no lien or equitable interest is claimed. That decision has no bearing on this case, for at least two reasons: Dexia already has a judgment against Rogan, and its citation to discover assets issued to Rogan gave it a lien on his assets. See, e.g., Pontikes v. Perazic, 295 Ill.App.3d 478, 484, 229 Ill.Dec. 723, 692 N.E.2d 712, 717 (1998). Furthermore, as discussed in the Court's decision on Dexia's preliminary injunction motion regarding the Rogan children, Illinois' post-judgment procedure specifically permits a court to enjoin transfer or disposition of property of the judgment debtor. See Dexia Credit Local v. Rogan, No. 02 C 8288, 2008 WL 4543013, at *6 (N.D.Ill. Oct.9, 2008). As the Court has concluded, Dexia has established a reasonable likelihood of success on its claim that the assets that Rogan's alter ego trusts transferred to Cuppy and Dynamic are in effect Rogan's property.

There is no question that Cuppy will experience harm from entry of a preliminary injunction. Given the strong likelihood of success on the merits that Dexia has shown, however, this does not outweigh the irreparable harm that Dexia will experience if no injunction is entered.

Having considered the relevant factors, the Court grants Dexia's motion for a preliminary injunction against Cuppy and Dynamic Alliance, limited to the restraint of funds or assets sufficient to repay the transfers the Court has determined were likely fraudulent. This may consist of or include real estate, so long as the appraised value of the real estate (considered in light of the current weakness in the real estate market), combined with other assets that will be restrained, is sufficient to repay the transfers. Dexia and counsel for Cuppy are directed to make prompt efforts to identify funds or assets sufficient to meet the Court's requirements and are to report to the Court in this regard, via a joint status report, to be filed by no later than November 18, 2008.FN5 The matter is set for a status hearing on November 20, 2008 at 9:30 a.m.

FN5. The Court acknowledges that Dexia's counsel has a lot on its plate, but the Court expects counsel to give priority to this particular matter.

*9 In addition, the Court acknowledges Cuppy's concern that his inability to carry out his role as trustee for the children's trusts may place the assets of those trusts in jeopardy. Given, however, the evidence about Cuppy presented by Dexia in its temporary restraining order / preliminary injunction papers, the Court believes it appropriate that Cuppy be removed as trustee (to the extent this has not already occurred) and replaced by a neutral person to be appointed by the Court. The Court directs counsel for Dexia to meet and confer promptly with counsel of record for the beneficiaries of the trusts to attempt to agree upon an appropriate replacement.

Conclusion

The Court grants Dexia's motion for a preliminary injunction against Frederick Cuppy and Dynamic Alliance, Inc., on the terms and conditions stated in the body of this decision. A proposed preliminary injunction order embodying the Court's ruling is to be submitted to the Court, in hard copy, by no later than the close of business on November 12, 2008. The case is set for a status hearing on November 20, 2008 at 9:30 a.m.

= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

Join our LinkedIn Group on Asset Protection at http://www.linkedin.com/groups?mostPopular=&gid=3694878

Join our Twitter on Asset Protection at http://www.twitter.com/jay_adkisson

Get our RSS Feed on Asset Protection at http://assetprotectionbook.com/forum/feed
RISER ADKISSON LLP, 100 Bayview Circle, Suite 210, Newport Beach, CA 92660, Ph: 949-200-7284, Fax: 877-296-0678, jay --at-- risad.com - http://www.risad.com - http://www.jayadkisson.com - http://www.captiveinsurancecompanies.com - http://www.eaibook.com - http://www.calejl.com

Purchase our book "Asset Protection: Concepts and Strategies" at
http://www.amazon.com/gp/product/0071432167?ie=UTF8&tag=httpassetproc-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0071432167?
User avatar
Riser Adkisson LLP
Riser Adkisson LLP
 
Posts: 2099
Joined: Thu Nov 13, 2008 8:06 pm
Location: California, Georgia, North Carolina, Oklahoma, and Texas

Re: Dexia Credit -- Asset Protection Scheme Ends In Indictme

Postby Riser Adkisson LLP » Fri Oct 21, 2011 7:36 pm

Dexia Credit Local v. Rogan, 2009 WL 528902 (N.D.Ill., March 2, 2009).

United States District Court,

N.D. Illinois,

Eastern Division.

DEXIA CREDIT LOCAL, Plaintiff,

v.

Peter G. ROGAN, et al., Defendants.

No. 02 C 8288.

March 2, 2009.

Scott T. Mendeloff, Abigail Lynn Peluso, Gabriel Aizenberg, Howrey LLP, Former AUSA, United States Attorney‘s Office, Chicago, IL, for Plaintiff.

Neil E. Holmen, Walker Wilcox Matousek LLP, Joseph Andrew Spiegler, Much Shelist Denenberg Ament & Rubenstein, PC, Michael J. O'Rourke, O‘Rourke, Moody, Brian Michael Dougherty, Mitchell Bruce Katten, O'Rourke, Katten & Moody, Limo T. Cherian, O'Rourke, McCloskey & Moody, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge.

*1 As part of supplementary proceedings to enforce a judgment Peter Rogan,Dexia Credit Local (Dexia) has filed a motion requesting turnover of certain assets. Intervenors Brian, Sara, and Robert Rogan oppose that motion. They have filed jury demands with respect to Dexia's claims. Dexia objects to those jury demands, contending that the Rogans have no right to a jury trial. The parties have submitted briefs and presented oral argument on this issue. This decision memorializes the basis for the Court's oral ruling on February 26, 2009.

BackgroundFN1

FN1. The Court presumes general familiarity with the factual background set forth in its earlier opinions in this matter. See Dexia Credit Local v. Rogan, No. 02 C 8288, 2008 WL 4855416 (N.D.Ill. Nov. 10, 2008); DexiaCredit Local v. Rogan, No. 02 C 8288, 2008 WL 4543013 (N.D.Ill. Oct.9, 2008).

Dexia sued Peter Rogan and others for fraud, conspiracy, and other torts. It eventually obtained a judgment against Peter Rogan in excess of $124 million. Dexia subsequently pursued supplementary proceedings before this Court to satisfy its judgment. This Court entered temporary restraining orders freezing various assets that, Dexia contends belong to, or were fraudulently transferred by, Peter Rogan. Brian, Sara, and Robert Rogan (Peter Rogan's adult children) and Judith Rogan (his wife) then intervened to oppose the freeze orders. The Court ultimately entered preliminary injunctions that had the effect of extending the freeze orders in large part.

On December 8, 2008, Dexia filed, pursuant to the Court's instruction, a renewed motion for turnover pertaining to the assets in which the Rogan children claimed an interest. That motion was addressed to four categories of assets: those held by (1) the Peter G. Rogan Irrevocable Trust; (2) the RPP Finance Trust; and (3) various trusts domiciled in Florida and Belize that Peter Rogan created in the names of each of his children; and (4) assets the Rogan children received from those trusts.

Discussion

1. Robert Rogan

In federal court, a party must make a jury demand, to the extent the party is entitled to a trial by jury, with respect to any issue “no later than 10 days after the last pleading directed to the issue is served.” Fed.R.Civ.P. 38(b). In post-judgment proceedings seeking a turnover order, this means that a party asserting a right to a jury must file a jury demand within ten days of being served with the motion for turnover. See Lawyers Title Ins. Corp. v. Dearborn Title Corp., No. 04 C 3277, 1998 WL 801781, at *1 (N.D.Ill. Nov. 12, 1998).

Dexia filed its renewed motion seeking turnover on December 8, 2008, and Robert Rogan's counsel received the motion electronically on or about that same date. He did not file his jury demand until February 25, 2009, long after the ten-day period for doing so had passed. Accordingly, Robert Rogan has forfeited his claim to a jury trial in these proceedings.

2. Sara and Brian Rogan

a. Federal or state law

The Rogans contend that Illinois law controls whether they are entitled to a jury trial. Dexia maintains that federal law controls but that in any event, Illinois and federal law lead to the same conclusion.

Federal Rule of Civil Procedure 69(a) provides that “[t]he procedure on execution [of a money judgment]-and in proceedings supplementary to and in aid of judgment or execution-must accord with the procedure of the state where the court is located ....“ Fed.R.Civ.P. 69(a)(1). This does not mean that state law replaces federal procedure wholesale during supplementary proceedings. See Resolution Trust Corp. v. Ruggiero, 994 F.2d 1221, 1226 (7th Cir.1993) ( Rule 69(a) not intended “to borrow the entire procedural law of the state, so that in supplementary proceedings in federal district court in Illinois the judge would apply the Illinois rules of civil procedure and of evidence rather than the counterpart federal rules”) (emphasis in original); see also Int'l Fin. Servs. Corp. v. Chromas Techs. Canada, Inc., 356 F.3d 731, 735 (7th Cir.2004) (“Even where ... a district court is applying the substantive law of a state, federal procedural law controls the question of whether there is a right to a jury trial.”); Mission Bay Campland, Inc. v. Sumner Fin. Corp., 72 F.R.D. 464, 466-67 (M.D.Fla.1976) (federal law controls the right to a jury trial in supplementary proceedings pursuant to Rule 69(a)). The Rogans have not presented any authority that the right to a jury trial in federal court is controlled by state law, whether in supplementary proceedings or otherwise. Thus the Court will consult federal law to determine whether the Rogans are entitled to a jury trial in these proceedings.

*2 Even if Illinois law applies, the analysis does not change. As detailed below, whether a party is entitled under federal law to a jury trial in supplementary proceedings depends on the type of relief sought by the plaintiff, namely whether it seeks equitable or legal relief. The Illinois statute addressing supplementary proceedings refers to Illinois' garnishment statute for the procedure in situations in which a person claims an interest in the property a judgment creditor seeks to obtain. See 735 ILCS 5/2-1402(g). The garnishment statute in turn provides that trials “shall be conducted as in other civil cases.” 735 ILCS 5/12-711(c). Nothing in either of these statutes requires a jury trial. Rather, trials shall be conducted as in other civil cases. Under Illinois law, like federal law, the type of relief sought determines whether a party is entitled to a jury trial in a civil case. FN2 See e.g.,Morris B. Chapman & Assocs., Ltd. v. Kitzman, 307 Ill.App.3d 92, 106, 240 Ill.Dec. 235, 716 N.E.2d 829, 842 (1999) (no right to a jury trial where equitable relief is sought). The cases the Rogans cite are inapposite. Those cases merely refer to the use of juries in particular supplemental proceedings without any analysis of whether the law required a jury or of the relief sought in those proceedings. The right to a jury trial does not appear to have been contested in any of those cases.

FN2. At oral argument, the Rogans made reference, for the first time, to another Illinois statute, 735 ILCS 5/12-202. That statute states a “trial shall proceeding ... in the same manner as in other civil cases, and may be by a jury if either party demands one.” Id. Assuming this statute applies (which is by no means clear), its language leads to the same conclusion-the right to a jury trial is the same as in other civil cases and thus depends on the nature of the relief sought.

b. Nature of the relief Dexia seeks

Federal Rule of Civil Procedure 38 provides for a jury trial when a party is entitled to one under an applicable statute or the Seventh Amendment to the United States Constitution. Fed.R.Civ.P. 38(a). Under the Seventh Amendment, “[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved. U.S. Const. amend. VII.

The Supreme Court has “consistently interpreted the phrase ‘Suits at common law’ to refer to suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies were administered.” Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 41, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989) (internal quotation omitted) (emphasis in original). To determine whether an action is legal or equitable in nature, courts first compare the action to those brought “ ‘prior to the merger of courts of law and equity,’ “ and then “ ‘examine the remedy sought and determine whether it is legal or equitable in nature.’ “ Id. at 42 (quoting Tull v. United States, 481 U.S. 412, 417-18, 107 S.Ct. 1831, 95 L.Ed.2d 365 (1987)). “The second stage of this analysis is more important than the first.” Id.

In Granfinanciera, the Supreme Court quoted at length from a treatise regarding the difference between equitable and legal remedies:

“[W]hether the trustee's suit should be at law or in equity is to be judged by the same standards that are applied to any other owner of property which is wrongfully withheld. If the subject matter is a chattel, and is still in the grantee's possession, an action in trover or replevin would be the trustee's remedy; and if the fraudulent transfer was of cash, the trustee's action would be for money had and received. Such actions at law are as available to the trustee to-day as they were in the English courts of long ago. If, on the other hand, the subject matter is land or an intangible, or the trustee needs equitable aid for an accounting or the like, he may invoke the equitable process, and that also is beyond dispute.”

*3 Id. at 44 (quoting 1 G. Glenn, Fraudulent Conveyances & Preferences § 98 at 183-84 (rev. ed.1940)). Acknowledging that there is no hard-line test for determining whether a remedy is equitable or legal, the Seventh Circuit has provided useful guidance in this regard:

It is possible, nonetheless, to draw general distinctions between the two forms of relief. Legal remedies traditionally involve money damages. Equitable remedies, by contrast, are typically coercive, and are enforceable directly on the person or thing to which they are directed. Traditionally, equitable relief is discretionary, whereas legal relief is not.

Int'l Fin. Servs. Corp., 356 F.3d at 736 (internal citations and quotations omitted).

In this case, Dexia seeks turnover of two categories of assets. The first are assets contained in the various trusts. Dexia contends that the assets in those trusts are in fact the assets of Peter Rogan, against whom Dexia has a judgment, and should be used to satisfy that judgment. The Rogan children are the putative beneficiaries of those trusts. As such, their interests in the trusts are intangible assets. Dexia is attempting to terminate the children's intangible interests and obtain a turnover of the assets of the trusts, which are held not by the children, but by the trustees of the trusts. Under the guidance provided by Granfinancieraand International Financial Services, it is clear that the children are not entitled to have a jury determine whether Dexia is entitled to the relief it seeks concerning the trusts. Among other reasons, Dexia is not seeking a monetary award from any of the Rogan children. Additionally, the Seventh Circuit has noted that a court order to turn over property during proceedings under Rule 69(a) “was an order in the nature of specific performance,” which is an equitable remedy. See Ruggiero,994 F.2d at 1225 (affirming district court order requiring judgment debtor's wife to turn over real estate to judgment creditor and imposing a resulting trust on the same property); Marseilles Hydro Power, LLC v. Marseilles Land & Water Co., 299 F.3d 643, 648 (7th Cir.2002) (holding that specific performance is an equitable remedy).

The second category of assets that Dexia seeks to have turned over includes assets in the Rogan children's personal bank and securities accounts, which Dexia claims were transferred from the various trusts. Unlike the relief with respect to the trusts, this involves turning over to Dexia assets in which the Rogan children have a direct, tangible interest. Though the question is not free from doubt, what Dexia seeks in this regard is somewhat akin to a money judgment against the children, which would be a legal remedy. See Granfinanciera, 492 U.S. at 44; Int'l Fin. Servs. Corp., 356 F.3d at 736. The Court concludes that Brian and Sara Rogan (who made jury demands in a timely fashion) are entitled to a jury trial with respect to Dexia's claim to recover the assets in their personal accounts.

Conclusion

*4 For the reasons set forth above, the Court strikes Robert Rogan's jury demand. The Court also strikes Brian and Sara Rogan's jury demand with respect to Dexia's request for turnover of the assets of the RPP Finance Trust, the Peter G. Rogan Irrevocable Trust, and the trusts domiciled in Florida and Belize that Peter Rogan created in the names of each of his children. Brian and Sara Rogan are entitled to a jury trial with respect to Dexia's attempt to recover transfers they received from the trusts.FN3

FN3. On February 27, 2009, the Court made a further oral ruling ordering a separate trial on the threshold issue of whether the trusts are Peter Rogan's alter egos, which Dexia and the Rogan Children agreed is a mater to be determined by the Court, not a jury. This decision is not intended to alter that oral ruling.


= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

Join our LinkedIn Group on Asset Protection at http://www.linkedin.com/groups?mostPopular=&gid=3694878

Join our Twitter on Asset Protection at http://www.twitter.com/jay_adkisson

Get our RSS Feed on Asset Protection at http://assetprotectionbook.com/forum/feed
RISER ADKISSON LLP, 100 Bayview Circle, Suite 210, Newport Beach, CA 92660, Ph: 949-200-7284, Fax: 877-296-0678, jay --at-- risad.com - http://www.risad.com - http://www.jayadkisson.com - http://www.captiveinsurancecompanies.com - http://www.eaibook.com - http://www.calejl.com

Purchase our book "Asset Protection: Concepts and Strategies" at
http://www.amazon.com/gp/product/0071432167?ie=UTF8&tag=httpassetproc-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0071432167?
User avatar
Riser Adkisson LLP
Riser Adkisson LLP
 
Posts: 2099
Joined: Thu Nov 13, 2008 8:06 pm
Location: California, Georgia, North Carolina, Oklahoma, and Texas

Re: Dexia Credit -- Asset Protection Scheme Ends In Indictme

Postby Riser Adkisson LLP » Fri Oct 21, 2011 7:37 pm

Dexia Credit Local v. Rogan 624 F.Supp.2d 970 (N.D.Ill., 2009).

United States District Court,

N.D. Illinois,

Eastern Division.

DEXIA CREDIT LOCAL, Plaintiff,

v.

Peter G. ROGAN, et al., Defendants.

Case No. 02 C 8288.

March 12, 2009.

*972 Scott T. Mendeloff, Abigail Lynn Peluso, Gabriel Aizenberg, Howrey LLP, Former AUSA, United States Attorney's Office, Chicago, IL, for Plaintiff.

Neil E. Holmen, Walker Wilcox Matousek LLP, Joseph Andrew Spiegler, Much Shelist Denenberg Ament & Rubenstein, PC, Michael J. O'Rourke, Brian Michael Dougherty, Limo T. Cherian, Mitchell Bruce Katten, O'Rourke, Katten & Moody, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge:

As part of supplementary proceedings to enforce a judgment Peter Rogan, DexiaCredit Local (Dexia) has filed a motion requesting turnover of certain assets. Intervenors Brian, Sara, and Robert Rogan (the Rogan children) oppose that motion. Dexia and the Rogan children have moved for summary judgment with respect to some of the trusts holding the assets that Dexia seeks. The Rogan children have also moved to strike Dexia's Local Rule 56.1 statement in support of one of its summary judgment motions and to strike a declaration submitted with Dexia's opposition to the Rogan children's motion for summary judgment. For the reasons set forth below, the Court denies the Rogan children's motions to strike, grants in part and denies in part Dexia's motions for summary judgment, and denies the Rogan children's motion for summary judgment.

BackgroundFN1

FN1. The Court presumes general familiarity with the factual background set forth in its earlier opinions in this matter. See Dexia Credit Local v. Rogan, No. 02 C 8288, 2008 WL 4855416 (N.D.Ill. Nov. 10, 2008); DexiaCredit Local v. Rogan, No. 02 C 8288, 2008 WL 4543013 (N.D.Ill. Oct. 9, 2008).

On cross-motions for summary judgment, the Court construes facts and draws*973 inferences “in favor of the party against whom the motion under consideration is made.” In re United Air Lines, Inc., 453 F.3d 463, 469 (7th Cir.2006).

Dexia sued Peter Rogan and others for fraud, conspiracy, and other torts. It eventually obtained a judgment against Rogan in excess of $124 million. Dexia subsequently pursued supplementary proceedings before this Court to satisfy its judgment. This Court entered temporary restraining orders freezing various assets that Dexia contends belong to Rogan or that he fraudulently transferred. Brian, Sara, and Robert Rogan (Peter Rogan's adult children) and Judith Rogan (his wife) then intervened to oppose the freeze orders. The Court ultimately entered preliminary injunctions that had the effect of extending the freeze orders in large part.

On December 8, 2008, Dexia filed, pursuant to the Court's instruction, a renewed motion for turnover pertaining to the Rogan children's interests in four categories of assets: those held by (1) the Peter G. Rogan Irrevocable Trust (PGR trust); (2) the RPP Finance Trust (RPP trust); and (3) various trusts domiciled in Florida and Belize that Peter Rogan created in the names of each of his children; and (4) assets the Rogan children received from those trusts.

Five of the trusts identified in Dexia's renewed motion for turnover are the subjects of the parties' summary judgment motions. Dexia's first motion for summary judgment seeks turnover of the assets of the PGR trust. The Rogan children have moved to strike Dexia's Local Rule 56.1 statement in support of the PGR trust summary judgment motion but have not otherwise responded to either the motion or Dexia's Local Rule 56.1 statement.

Peter Rogan settled the PGR trust in 1996 with his own assets. The trust identifies Peter and Judith Rogan, as well as the Rogan children, as beneficiaries of the trust. The PGR trust provides for a trust protector to ensure that the trustees comply with the wishes of the settlor, i.e., Peter Rogan. At the time the PGR trust was created, Peter Rogan submitted a “letter of wishes” stating “[p]lease distribute all of the income of the Trust to me upon receipt by the Trustee. I will provide you with wire transfer information ... to accomplish the transfer of the funds for my use.” Dexia Local Rule 56.1 Statement, Ex. 72. “There is no evidence that the trustees of the PGR trust ever denied a or considered denying a request Rogan made for Trust funds.” Dexia Local Rule 56.1 Statement ¶ 17.

The RPP trust is another one of the trusts addressed by Dexia's turnover motion. Dexia has filed a separate summary judgment motion with respect to the RPP trust. Peter Rogan established the RPP trust in 1995. He and Fred Cuppy were its first trustees. Peter Rogan ceased serving as a trustee in 1996. Cuppy continued to serve as the sole trustee for the RPP trust until December 5, 2006. The Rogan children admit that the RPP trust does not prevent creditors of trust beneficiaries from “accessing the trust's assets prior to the demise of both Peter Rogan and Fred Cuppy.” Rogan Children Resp. to Dexia Local Rule 56.1 Statement ¶ 28. Peter Rogan is a beneficiary of the RPP trust (as are the Rogan children), but the Rogan children contend that he never received a distribution from the trust.

In 1992, Peter and Judith Rogan settled three trusts for the benefit of their children, the Brian Rogan Domestic Trust, the Sara Caitlin Rogan Domestic Trust, and the Robert Rogan Domestic Trust (collectively*974 the Rogan domestic trusts). The Rogan children are the only named beneficiaries of the Rogan domestic trusts, though each trust names contingent beneficiaries in the event the named beneficiary dies. A ten percent stock interest in Edgewater Operating Company (EOC) was the initial corpus for each of the Rogan domestic trusts. After EOC was sold in August 1994, the Rogan domestic trusts received money in exchange for the EOC stock they held. The Rogan children contend that the Rogan domestic trusts were created for estate planning purposes. Dexia disputes that contention.

Discussion

Summary judgment is appropriate if “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). To determine whether a genuine issue of material fact exists, the Court must view the record in the light most favorable to the nonmoving party and draw reasonable inferences in that party's favor. Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Lesch v. Crown Cork & Seal Co., 282 F.3d 467, 471 (7th Cir.2002). A genuine issue of triable fact exists only if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248, 106 S.Ct. 2505. “The fact that plaintiff and defendants have filed cross-motions for summary judgment does not change the applicable standard. The Court must consider each motion independently and must deny both motions if there is a genuine issue of material fact.” Egan Marine Corp. v. Great Am. Ins. Co. of N.Y., 531 F.Supp.2d 949, 953 (N.D.Ill.2007) (citations omitted).

1. The PGR trust

a. The motion to strike Dexia's Local Rule 56.1 statement

The Rogan children have not filed a response to Dexia's PGR trust motion, nor have they responded to Dexia's statement of facts filed pursuant to Local Rule 56.1. Rather, they have moved to strike Dexia's statement of facts pursuant toFederal Rule of Civil Procedure 56(e). That rule provides that an affidavit in support of a motion for summary judgment must be made on “personal knowledge” and that “[i]f a paper or part of a paper is referred to in an affidavit, a sworn or certified copy must be attached to or served with the affidavit.” Fed. R. Civ. P. 56(e)(1).

The Rogan children attack two affidavits that Dexia cites in support of its motion. The first is the affidavit of Matthew Gibbons. Gibbons is the chairman of Oceanic Bank and Trust Limited (Oceanic). Dexia submitted the affidavit to authenticate documents produced by Oceanic that Dexia cites in support of its motion. Gibbons swears that he has reviewed the documents with the identifying numbers OB00001 to OB01914 and that they are true and correct copies of Oceanic's business records.

The Rogan children contend that the affidavit and Dexia's entire statement of facts should be stricken because Dexia did not attach each of the 1,914 pages identified in the affidavit. Though Dexia did not attach each of those pages, it made them available for copying and inspection by the Rogan children on at least three separate occasions, as early as November 18, 2008. Thus the documents have been made available to the Rogans, even if they were not all attached to the affidavit. Moreover, Dexia has submitted with its Local Rule 56.1 statement all of Oceanic's *975 documents it offers in support of its motion for summary judgment. This was all Dexia was required to do. See Edlund v. St. Anthony Med. Ctr., No. 00 C 50216, 2002 WL 596358, at *1 (N.D.Ill. Apr. 16, 2002).

The cases the Rogan children cite are inapposite. G.D. Searle & Co. v. Charles Pfizer & Co., 231 F.2d 316, 318 (7th Cir.1956), merely notes that inadequate affidavits should be disregarded; it does not address the issue raised with respect to Gibbons' affidavit. In Logan v. Denny's, Inc., 259 F.3d 558, 570 (6th Cir.2001), the Sixth Circuit disregarded an affidavit because the document referenced in it had not been “attach[ed] or produce[d].” As noted above, Dexia made the Oceanic documents available to the Rogan children and attached the subset of documents that it contends support its motion.

Additionally, the Rogan children target an affidavit signed by one of Dexia's attorneys, Gabriel Aizenberg. In that affidavit, Aizenberg states that he has not seen any documents produced in discovery indicating that the trustees of the PGR trust denied or considered denying a request made by Peter Rogan. Aizenberg also states that the other attorneys he worked with and/or supervised on this matter have not seen any such documents. Essentially, with respect to this subject, Aizenberg contends that none of Dexia's lawyers have found a needle in the haystack of documents they reviewed.

The Court need not address the propriety of Aizenberg's affidavit. The point of the affidavit was to advance the contention that no evidence reflects that the PGR trust's trustees ever denied or considered denying any of Peter Rogan's requests. Even without the affidavit, Dexia has made the point in its motion for summary judgment in a way sufficient to put the Rogan children on notice of Dexia's contention that no such evidence existed. Specifically, Dexia argued that “there is no evidence that the Trustees ever denied or considered denying a request Rogan made for Trust funds.” Dexia Mot. for Summ. J. at 5. The Rogan children have not submitted any contrary evidence.

b. Self-settled spendthrift trusts

Even though the Rogan children have failed to respond to either Dexia's motion for summary judgment or its accompanying Local Rule 56.1 statement, this means only that the Rogan children have admitted the facts set forth in that statement. See, e.g., Raymond v. Ameritech Corp., 442 F.3d 600, 608 (7th Cir.2006). Dexia must still establish that it is entitled to judgment as a matter of law based on those uncontroverted facts. See id.; Flynn v. Sandahl, 58 F.3d 283, 288 (7th Cir.1995). Dexia contends it is entitled to turnover of the assets of the PGR trust because, under the trust's terms and based on the circumstances of its formation, the trust holds the assets of Peter Rogan.

The first step is to determine which jurisdiction's law governs the interpretation and operation of the PGR trust. The PGR trust deed of settlement provides that the trust was established under the law of the Bahamas and that Bahamian governs its enforcement and construction. The fact that the trust documents specify Bahamian law does not necessarily mean, however, that this Court will honor that choice of law provision.

A district court sitting in diversity applies the choice-of-law rules of the state in which it sits. E.g., Malone v. Corrections Corp. of Am., 553 F.3d 540, 543 (7th Cir.2009). Under Illinois law, courts will not honor a choice of law provision specified to govern the interpretation and enforcement*976 of a contract where doing so would violate Illinois public policy. E.g., Thomas v. Guardsmark, Inc., 381 F.3d 701, 704-06 (7th Cir.2004). That rule of contract interpretation also applies to the interpretation of trusts. E.g., Ranger v. Ranger, 379 Ill.App.3d 752, 757, 318 Ill.Dec. 519, 883 N.E.2d 750, 754 (2008).

A trust created for a settlor's own benefit is a self-settled trust.Schechter v. Balay (In re Balay), 113 B.R. 429, 437 n. 14 (Bankr.N.D.Ill.1990);Black's Law Dictionary 1518 (7th ed. 1999). The PGR trust is a self-settled trust because Peter Rogan both established and is a beneficiary of the trust. A spendthrift trust is “ ‘a trust that prohibits the beneficiary's interest from being assigned and also prevents a creditor from attaching that interest.’ ” Mattis v. State Univs. Retirement Sys., 212 Ill.2d 58, 81, 287 Ill.Dec. 541, 816 N.E.2d 303, 316 (2004) (quoting Black's Law Dictionary 1518 (7th ed. 1999)). The PGR trust is a spendthrift trust because it prohibits creditors from obtaining the beneficiaries' interests and prevents the beneficiaries from alienating their interests.

For purposes of this motion, Dexia has conceded that Bahamian law would not permit it to seek turnover of the assets held by the PGR trust, because Bahamian law permits the use of self-settled spendthrift trusts to shield assets from a settlor's creditors. Dexia contends, however, that Bahamian law on this point is contrary to Illinois law and public policy and should therefore be disregarded.

Under Illinois law, spendthrift trusts are valid except when they have been created or funded by a judgment debtor. See 735 ILCS 5/2-1403. A self-settled spendthrift trust is “void as to existing or future creditors, and they can reach his or her interest under the trust.” In re Marriage of Chapman, 297 Ill.App.3d 611, 620, 231 Ill.Dec. 811, 697 N.E.2d 365, 371 (1998); see also Barash v. Morris (In re Morris), 151 B.R. 900, 906-07 (C.D.Ill.1993). This rule reflects the law in most U.S. jurisdictions. E.g., Restatement (Third) of Trusts § 58(2);Restatement (Second) of Trusts § 156(2). Bahamian law to the contrary would violate Illinois' public policy. Accordingly, this Court will not apply Bahamian law to the construction and operation of the PGR trust. See, e.g., Scentura Creations, Inc. v. Long, 325 Ill.App.3d 62, 69, 258 Ill.Dec. 469, 756 N.E.2d 451, 457 (2001) (“a party cannot rely on the protections of foreign law to enforce a contract that is illegal in the forum of the local government.”).FN2

FN2. Dexia has also cited persuasive authority that under Illinois law it is not bound by the PGR trust's choice of law provision as a third party and that application of the “most significant relationship test” would result in the application of Illinois rather than Bahamian law. See generally DexiaMot. for Summ. J. at 18-22.

Illinois law permits Dexia to reach Peter Rogan's interest in the PGR trust. Under the terms of that trust, the trustees can provide Peter Rogan with the entire corpus of the trust, as well as all of the trust's income. Indeed, Dexia has submitted evidence, uncontested by the Rogan children, that Peter Rogan has received millions of dollars of distributions from the PGR trust. Because the PGR trust is self-settled and its settlor, Peter Rogan, can receive all of the trust's income as well as its entire corpus, Dexia, as his creditor, is entitled to execute on the assets of the Trust. Accordingly, the Court grants Dexia's motion for summary judgment with respect to its request for turnover of the Rogan children's interests in the PGR trust. FN3

FN3. Under the authority cited above, there is no requirement that a creditor prove a trustee never refused to honor a request for a distribution by a settlor in order to execute on the assets of a self-settled spendthrift trust. Thus Dexia was not required to submit any evidence that the PGR trust's trustees had never refused a request by Peter Rogan.

*977 2. The RPP trust

The RPP trust does not contain a choice of law provision. Dexia provides a detailed analysis in support of its contention that Florida law applies to the RPP trust. The Rogan children have not disputed that contention, and they rely primarily on Florida law in opposition to the motion (though, like Dexia, they cite several cases from other jurisdictions). The Court will apply Florida law with respect to Dexia's motion for summary judgment concerning the RPP trust.

a. Sufficiency of Dexia's evidence

The Rogan children contend Dexia lacks an evidentiary basis for its motion for summary judgment because many of the exhibits attached to its Local Rule 56.1 statement have not been authenticated. Dexia responds that those documents were produced variously by Peter Rogan, Cuppy, and the RPP trust in response to discovery, and that they are self-authenticating because they were produced by “central parties to this case.” Dexia Reply in Support of its Mot. for Summ. J. at 11. The Rogan children dispute this argument.

Dexia correctly notes that the majority of its exhibits were submitted to support its contention that Florida law applies to the RPP trust. As noted above, the Rogan children have conceded that point, eliminating Dexia's need to rely on those particular unauthenticated exhibits.

One important exhibit, however, remains unauthenticated-the RPP trust instrument itself. See Dexia Ex. 297. The identifying stamp on that document appears to indicate that Cuppy produced it to Dexia. As indicated above, Dexia contends that the document's production by Cuppy is sufficient to authenticate it-that is, to establish that it is what it purports to be, namely the actual RPP trust instrument.

The cases that Dexia cites to support this conclusion do not permit a finding of so-called “self-authentication” on the record as it now stands. For the most part, those cases stand for the proposition that if a party to a case produces documents, that is sufficient to establish that they are the party's documents. But Dexia wants to go further than this; it asks the Court to determine that the document is the actual RPP trust instrument. If the Court knew more about the circumstances of the document's production, such a finding might be permissible. For example, if Dexia made a request to Cuppy to produce the RPP trust instrument, or all trust instruments relating to Peter Rogan, his act of producing this particular document likely would be sufficient to authenticate it. But if, on the other hand, Cuppy produced the document pursuant to a much broader request-for example, a request for all documents relating to Peter Rogan-settled trusts, or even all documents relating to the RPP trust, the act of production of this particular document would not permit the Court to determine that it is the actual RPP trust instrument. On the present record, the Court can draw no conclusions from Cuppy's act of producing this particular document.

It is likely that Dexia would have no difficulty authenticating the RPP trust instrument via some other means. The document bears a signature purporting to be that of Peter Rogan. See Dexia Ex. 297 at 9. If Dexia can provide evidence sufficient to support a finding that this is, in fact, Rogan's signature, that would allow the *978 document to be admitted in evidence. There may also be other ways to authenticate the document. That, however, will have to await another day. On the present record, the Court cannot make a determination that the document is, in fact, the RPP trust instrument.

This does not prevent the Court from ruling on some of the legal issues raised by Dexia's motion. Rule 56(d)(1) permits district courts to “determine what material facts are not genuinely disputed” but does not address whether a court may resolve the legal questions that would apply to the facts. Fed. R. Civ. P. 56(d)(1). Rule 16(c)(2), however, permits a court to enter orders “formulating and simplifying the issues” before it. Fed. R. Civ. P. 16(c)(2)(A) & (P). Even though summary judgment is not appropriate, this Court may “resolve the legal questions posed by the motion in the interest of advancing the litigation.” Wetherill v. Univ. of Chicago, 548 F.Supp. 66, 67 n. 2 (N.D.Ill.1982); see also Agri-Sales, Inc. v. United Potato Co., 436 F.Supp.2d 967, 969 (N.D.Ill.2006) (“Resolution of issues as a matter of law under Rule 16 is directly analogous to a Rule 56(d) proceeding in the summary judgment area ....”); 6A C. Wright, A. Miller, & M. Kane, Federal Practice & Procedure § 1529 at 299-301 (2d ed. 1990).

Dexia and the Rogan children have submitted extensive briefs arguing their positions regarding the rights creditors may or may not have with respect to self-settled trusts under Florida law. Dexia contends the RPP trust is a self-settled trust. Though the Court cannot grant Dexia's summary judgment motion because Dexia has not (yet) submitted evidence authenticating the RPP trust document, Dexia presumably will attempt to do so in a supplemental filing or at trial. At that time, the Court will be required to apply Florida law to that trust. It will simplify the issues before the Court and significantly advance this litigation if the Court resolves the purely legal questions that the parties have already briefed. Accordingly, the Court will do so pursuant to Rule 16(c)(2)(A) & (P).

b. Self-settled trusts for the benefit of the settlor

Dexia contends that under Florida law, a creditor can execute on the property of a trust, regardless of whether the trust contains a spendthrift provision, to the extent that the settlor is also a beneficiary of the trust. Dexia relies on a recent Florida statute and cases that predate the statute in support of this contention.

The statute Dexia relies upon is part of the Florida Trust Code, which was enacted effective July 1, 2007. It provides, in relevant part:

(1) Whether or not the terms of a trust contain a spendthrift provision, the following rules apply:

(a) The property of a revocable trust is subject to the claims of the settlor's creditors during the settlor's lifetime to the extent the property would not otherwise be exempt by law if owned directly by the settlor.

(b) With respect to an irrevocable trust, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor's benefit. If a trust has more than one settlor, the amount the creditor or assignee of a particular settlor may reach may not exceed the settlor's interest in the portion of the trust attributable to that settlor's contribution.

Fla. Stat. § 736.0505(1)(a)-(b). Under the terms of this statute, Dexia can reach the assets of any irrevocable trust settled by Peter Rogan if Peter Rogan is also a beneficiary of that trust. Id. In that situation, Dexia could collect the maximum amount *979 of the trust's assets that the trustee could potentially distribute to Peter Rogan. Id.

The Rogan children respond that section 736.0505 does not apply because it was enacted in 2007, two years after the RPP trust was apparently settled. Another section of the same statute, however, states that the Florida Trust Code applies “to all trusts created before, on, or after” its enactment. Fla. Stat. § 736.1303(1)(a). It also applies to judicial proceedings commenced after July 1, 2007 and to judicial proceedings commenced before that date unless application of the statute would “prejudice the rights of the parties.” Id. § 736.1303(1)(b)-(c).

In short, section 736.0505 applies unless the Rogan children can establish their rights will be prejudiced. The Rogan children cannot make such a showing because the statute is effectively a codification of existing Florida common law. “Where a trust is self-funded by a beneficiary ... the beneficiary's interest is subject to alienation by her creditors.” Menotte v. Brown (In re Brown), 303 F.3d 1261, 1265-66 (11th Cir.2002) (applying Florida law). In Brown, the settlor created a trust with her own assets. Id. at 1263. The trust contained a spendthrift provision and provided that the settlor was entitled to receive seven percent of the value of the trust annually. Id. at 1263-64. Upon the settlor's death, the seven percent annual payments would be made to the settlor's daughter for the rest of her life, after which the trust corpus would pass to several charities. Id. at 1264. Subsequently, the settlor filed for bankruptcy protection, and her creditors attempted to access the trust's assets to satisfy their claims against her. Id. at 1263-64.

The Eleventh Circuit concluded that the settlor's creditors could reach the trust assets up to the amount of the settlor's interest in the trust. Id. at 1268. The creditors could not reach the trust corpus, however, because the settlor only had a right to trust income, not to all of the assets of the trust. Id. at 1268-69; see alsoIn re Lawrence, 251 B.R. 630, 642 (S.D.Fla.2000) (creditors could reach maximum amount of trust assets settlor could potentially receive from a self-settled trust) (applying Florida law); Restatement (Second) of Trusts § 156(2) (“Where a person creates for his own benefit a trust for support or a discretionary trust, his transferee or creditors can reach the maximum amount which the trustee under the terms of the trust could pay to him or apply for his benefit.”) (cited in Brown );Sattin v. Brooks (In re Brooks), 217 B.R. 98, 103 (Bankr.D.Conn.1998) (noting that “nearly every jurisdiction” has adopted the rule creditors can reach a settlor's interest in a self-settled trust).

The Rogan children respond that this rule does not apply in situations where a trust has more than one beneficiary. The cases on which they rely, however, do not support that conclusion. The Florida case they cite, Sylvester v. Sylvester, does not address whether a creditor can reach the assets of a trust that has more than one beneficiary. See Sylvester v. Sylvester, 557 So.2d 599, 600 (Fla.App.1990). That case merely addressed whether a trust was irrevocable. Id. Moreover, the quotation from Sylvester on page 7 of the Rogan children's brief does not even come from the majority opinion in the case. Id. at 601 (Downey, J., concurring in part and dissenting in part). The two Missouri cases the Rogan children cite are inapposite because they apply a particular Missouri statute that is inapplicable here. Last, In re Marrama, 316 B.R. 418, 423 (B.A.P. 1st Cir.2004), is irrelevant. The court in that case noted that a debtor was the sole beneficiary of a trust, but it did not determine that a creditor cannot seek *980 assets in a trust with multiple beneficiaries. Id.

Brown illustrates that a creditor can seek a settlor's interest in a self-settled trust even if there are other beneficiaries. In that case, the settlor's daughter and several charities were beneficiaries of the trust along with the settlor. Brown, 303 F.3d at 1263-64. This did not stop the settlor's creditors from reaching her interest in the trust. Id. at 1268-69. The creditors could reach the trust assets, but only to the extent of the settlor-debtor's potential interest in them. Id.

In sum, regardless of whether section 736.0505 or the common law that preceded it governs this action, the result is the same under Florida law. If a settlor creates a self-settled trust, i.e., a trust under which the settlor is one of the beneficiaries, a judgment creditor of the settlor can reach the trust's assets to satisfy its judgment. Its ability to do so is limited to the maximum amount that the settlor-beneficiary could receive from the trust's income and corpus, e.g., just income if the settlor can only receive income, or the entirety of the trust corpus if the settlor can receive the entire corpus.

c. Discretionary trusts

The Rogan children contend that under Florida law, if a trustee has discretion whether to make a distribution to a beneficiary, creditors of that beneficiary are prevented from reaching the trust's assets. In support of this argument, they rely on another section of the Florida Trust Code:

(2) Whether or not a trust contains a spendthrift provision, if a trustee may make discretionary distributions to or for the benefit of a beneficiary, a creditor of the beneficiary, including a creditor as described in s.736.0503(2), may not:

(a) Compel a distribution that is subject to the trustee's discretion; or

(b) Attach or otherwise reach the interest, if any, which the beneficiary might have as a result of the trustee's authority to make discretionary distributions to or for the benefit of the beneficiary.

Fla. Stat. § 736.0504(2).

To the extent the Rogan children rely on section 736.0504, they implicitly concede that section 736.0505 applies retroactively, as neither section was enacted until 2007. See 2006 Fla. Law c. 2006-217 § 5. The entire Florida Trust code was enacted and made effective as of July 1, 2007. Equity does not permit the Rogan children to pick and choose which sections of that statute they think should apply retroactively.

Assuming these two sections of the Florida Trust Code apply to the RPP trust, section 736.0504 provides that creditors of a beneficiary may not reach the assets of discretionary trusts, whereas section 736.0505 permits creditors to reach the maximum amount of a trust that can be distributed to the settlor. The former provision deals generally with whether a creditor can attach a beneficiary's interest in a trust. The latter provision, by contrast, concerns when a creditor is permitted to reach the interest a settlor-beneficiary has in a self-settled trust. “[W]hen both a specific and a general provision govern a situation, the specific one controls.”Berkson v. Gulevsky (In re Gulevsky), 362 F.3d 961, 963 (7th Cir.2004); see alsoMurray v. Mariner Health, 994 So.2d 1051, 1061 (Fla.2008) (“where two statutory provisions are in conflict, the specific controls the general provision.”).

Section 736.0505 addresses the specific situation raised by Dexia's claim with respect to the RPP trust. Thus to the extent there is a conflict between *981sections 736.0504 and 736.0505, section 736.0505 controls. This result is confirmed by the cases that preceded the Florida Trust Code:

Indeed, when a person creates a discretionary trust for his own benefit ... his creditors can reach the maximum amount which the trustee under the terms of the trust could pay to him ... even though the trustee in the exercise of his discretion wishes to pay nothing to the beneficiary or to this creditors, and even though the beneficiary could not compel the trustee to pay him anything.

Lawrence, 251 B.R. at 642 (quotation omitted). The Eleventh Circuit reached a similar conclusion in Brown. “The fact that [the settlor-beneficiary] cannot exercise dominion over the trust assets is irrelevant to this analysis. The issue of self-settlement is separate from the issue of control ....” Brown, 303 F.3d at 1267 n. 9.

3. The Rogan children's domestic trusts

a. Statutes of limitations and repose

The Rogan children first contend that Dexia's fraudulent transfer claims with respect to the Rogan domestic trusts are barred by Florida's statute of repose. Under that statute, an action based on fraud must be initiated “within 12 years after the date of the commission of the alleged fraud, regardless of the date the fraud was or should have been discovered.” Fla. Stat. § 95.031(2)(a). It is undisputed that the Rogan domestic trusts were settled in 1992. Dexia filed its motion for turnover of the assets of those trusts in 2008.

Dexia contends that this statute does not apply because it is not claiming that the initial transfers of assets into the Rogan domestic trusts were fraudulent. Rather, Dexia claims, the only transfers that its motion for turnover contends should be undone as fraudulent are transfers within the last four years to the Rogan children from Peter Rogan, Judith Rogan, or the Rogan domestic trusts. Those transfers are within both Florida's and Illinois' fraudulent conveyance limitations periods. See Fla. Stat. § 726.110(1); 740 ILCS 160/10(a).

Dexia's other bases for turnover concerning the Rogan domestic trusts involve claims that those trusts hold the assets of Peter Rogan. These efforts to obtain the alleged assets of Peter Rogan do not implicate Florida's limitations period for fraud actions. Rather, Rule 69(a) invokes Illinois procedural law with respect to the enforcement of judgments. Fed. R. Civ. P. 69(a); see Atlantic Richfield Co. v. Monarch Leasing Co., No. 94-72406, 1995 WL 871140, at *2 (E.D.Mich. Feb. 9, 1995) (applying forum state's statute of limitations for enforcement of judgments pursuant to Rule 69), aff'd, 84 F.3d 204 (6th Cir.1996). Illinois imposes a seven-year limitation period on enforcement of judgments. 735 ILCS 5/12-108(a). Dexia's turnover motion with respect to the Rogan domestic trusts was filed less than two years after entry of judgment against Peter Rogan.

For these reasons, the Court rejects the Rogan children's contention that the motion for turnover is barred by statutes of limitations or repose.

b. Dexia's equitable theories

The Rogan children also raise a number of contentions they claim bar some or all of Dexia's equitable theories supporting turnover.

First, the Rogan children contend Dexia cannot pursue three of its equitable theories-sham trust, constructive trust, and alter ego-without a “separate claim.” Mem. in Supp. of Intervenors' Mot. for *982 Summ. J. at 6. In support of this argument, the Rogan children cite cases that generally discuss the nature of equitable relief. This argument misstates what Dexia is attempting to accomplish in the supplemental proceedings. Dexia has already prevailed on its claims against Peter Rogan. Dexia now seeks to satisfy its judgment against Rogan by collecting assets in the possession of the Rogan domestic trusts that Dexia contends are actually Peter Rogan's assets based on the equitable theories listed above. Dexia does not need to assert a new claim to engage in such proceedings to enforce its judgment against Peter Rogan. Though the situation might be different were Dexia seeking to hold the Rogan domestic trusts directly liable to Dexia (in other words, irrespective of whether the trusts' assets are actually Peter Rogan's), Dexia is not now attempting to do so.

Next, the Rogan children assert that Dexia cannot utilize its equitable theories to seek turnover of the Rogan domestic trusts' assets because a trust is not rendered invalid simply because the settlor, Peter Rogan, allegedly retains control over the trust. See, e.g., Fla. Stat. § 689.075(1); Restatement (Second) of Trusts § 57. The argument again fails to come to grips with the relief Dexia seeks. Dexia does not contend that the assets of the Rogan domestic trusts are in fact Peter Rogan's solely because he allegedly controls those trusts. Rather, Dexia contends that control is one fact among several that it intends to prove to establish its right to the assets of the Rogan domestic trusts. See, e.g., Kendall v. Turner (In re Turner), 335 B.R. 140, 146-47 (Bankr.N.D.Cal.2005); Pergament v. Maghazeh Family Trust (In re Maghazeh), 310 B.R. 5, 17-18 (Bankr.E.D.N.Y.2004) (examining a number of factors, including control, referred to as “badges of fraud” in order to determine if trust was used to shield debtor's interest in various mortgages). Dexia will attempt to prove similar facts in support of its alter ego theory. FN4

FN4. Disputed issues concerning the facts that control the outcome of Dexia's alter ego and sham trusts theories prevent the Court from entering summary judgment in favor of either party concerning those bases for relief.

The Rogan children also assert that Dexia cannot utilize alter ego/veil piercing claims in a supplementary proceeding. Several cases cited by Dexia imply such a rule. See Matos v. Richard A. Nellis, Inc., 101 F.3d 1193, 1195 (7th Cir.1996) (“Illinois likely would not permit veil-piercing in supplementary proceedings....”); Pyshos v. Heart-Land Dev. Co., 258 Ill.App.3d 618, 623-24, 196 Ill.Dec. 889, 630 N.E.2d 1054, 1057-58 (1994). The Illinois Supreme Court has not addressed this issue. More recently, however, the Seventh Circuit stated that “a district court could entertain, under Fed. R. Civ. P. 69(a), a post-judgment motion to pierce the corporate veil.” Int'l Fin. Servs. Corp. v. Chromas Techs. Canada, Inc., 356 F.3d 731, 737 (7th Cir.2004); see also Flip Side Prods., Inc. v. Jam Prods., Ltd., No. 82 C 3684, 1990 WL 186777, at *2 (N.D.Ill. Nov. 8, 1990) (“A supplementary proceeding is a proper means for a judgment creditor ... to collect a judgment from suspected alter egos of the judgment debtor.”). Thus it is appropriate for Dexia to seek the assets of Peter Rogan in the possession of the Rogan domestic trusts on equitable alter ego theory.

More to the point, Pyshos and the other Illinois cases cited by the Rogan children clearly permit a judgment creditor to reach assets of a debtor that are in the hands of third parties, which is precisely what Dexia seeks to do in this proceeding. *983 Pyshos, 258 Ill.App.3d at 623-24, 196 Ill.Dec. 889, 630 N.E.2d at 1057-58 In this regard, the Rogan children place undue emphasis on the labels Dexia has used to describe its equitable theories. In these supplementary proceedings, Dexia does not attempt to impose liability directly on Rogan domestic trusts. Rather, Dexia asserts that those trusts hold Peter Rogan's assets. Dexia may use equitable theories, including an alter ego theory or similar theories, to attempt to prove that assertion.

Last, the Rogan children contend that Dexia's constructive trust theory is improper because Peter Rogan's health care fraud allegedly originated in the early 1990s, whereas Dexia did not become involved with Rogan's company until 1997 or 1998. It is undisputed that the Rogan domestic trusts were settled with stock that was subsequently converted to cash and that this occurred before Dexia's involvement.

Under Illinois law, “a constructive trust is imposed to prevent unjust enrichment by imposing a duty on the person receiving [a] benefit to convey the property back to the person from whom it was received.” Martin v. Heinold Commodities, Inc., 163 Ill.2d 33, 56, 205 Ill.Dec. 443, 643 N.E.2d 734, 745 (1994). “In order to impose a constructive trust, it is sufficient that a party has received money properly belonging to another under circumstances that, in equity, the party ought not be allowed to retain.” Jackson v. Callan Publishing, Inc., 356 Ill.App.3d 326, 334, 292 Ill.Dec. 272, 826 N.E.2d 413, 423 (2005). A trust may be imposed even when the ultimate recipient of the property is an innocent party. Id.

The Rogan domestic trusts did not receive property from Dexia; they were funded before Dexia agreed to guarantee bonds issued by Peter Rogan's company, EOC. Dexia contends that it nonetheless can seek to impose a constructive trust on the trust assets. The sale of EOC, in which the EOC stock held by the Rogan domestic trusts was converted to cash, was financed through the sale of bonds in 1994. Those bonds were refinanced in 1998, and as a material part of the refinancing Dexia guaranteed payment to the bondholders. Dexia argues, however, that the original sale of EOC, and thus the original issuance of bonds, would not have occurred had it been known that Peter Rogan was engaging in fraudulent activity going back to the early 1990s. Had that sale not occurred, Dexia says, there would have been no bonds to refinance in 1998 and thus no occasion at that time for Dexia to guarantee payment. It argues that the Rogan domestic trusts, as recipients of proceeds at an earlier stage of Peter Rogan's alleged ongoing fraudulent scheme, should not retain the benefits of that fraud at Dexia's expense.

The Rogan children are not entitled to summary judgment on this aspect of Dexia's motion for turnover. The Court is not prepared to conclude that Dexia's theory is legally infirm. Even though Dexia did not guarantee payment of bonds until 1998, when it did so, it arguably stepped into the shoes of earlier victims of Peter Rogan's ongoing frauds. See United States v. Shefton, 548 F.3d 1360, 1364 (11th Cir.2008) (party was entitled to constructive trust where it covered loss suffered by its insured as a result of defendant's fraud).

c. Miscellaneous contentions

In their motion for summary judgment, the Rogan children raise several additional arguments that are meritless. First, they contend that the Rogan domestic trusts are not properly before the Court. Dexia, however, sent Cuppy a citation to discover in his capacity as trustee of those trusts, *984 and Cuppy responded in his capacity as trustee. The Court cannot fathom any other method to bring the trusts before the Court, and the Rogan children suggest none. As trustee, Cuppy had a fiduciary duty to advise beneficiaries of adverse claims on the trust assets, and in any event, they are all on notice of Dexia's claims.

The Rogan children also assert that Dexia has not alleged intent to defraud. With respect to alleged fraudulent transfers, Dexia has clearly made such an allegation. Thus the Rogan children's contention on this point fails.

Finally, the Rogan children contend that Dexia cannot raise fraudulent conveyance issues in a supplementary proceeding. The Court disagrees. Dexia can utilize a fraudulent conveyance theory to prove that others hold the assets of Peter Rogan. See, e.g., Kennedy v. Four Boys Labor Serv., Inc., 279 Ill.App.3d 361, 368-69, 216 Ill.Dec. 160, 664 N.E.2d 1088, 1092-93 (1996).

d. Rule 26 motion to strike

The Rogan children ask the Court to strike the affidavit of John Flaherty. That affidavit was submitted by Dexia as an exhibit to its response to the Rogan children's Local Rule 56.1 statement. Flaherty was not listed in Dexia's Rule 26(a)(1) disclosures. “If a party fail to ... identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness ... unless the failure was substantially justified or is harmless.” Fed. R. Civ. P. 37(c)(1)

Dexia offered Flaherty's affidavit to support its contentions concerning general facts that should come as no surprise to the Rogan children. For example, Flaherty asserts that Dexia did not know of Peter Rogan's fraudulent activities in 1998, and, if it had, Dexia would not have guaranteed bonds for companies associated with Rogan. These assertions by Dexia cannot possibly have come as a surprise to the Rogan children, nor do they articulate how they have been harmed other than to state they did not have the opportunity to depose Flaherty. Dexia had previously placed the Rogan children on notice that it may need to supplement the individuals it had disclosed pursuant to Rule 26(a)(1). The Court will, if the Rogan children request, direct Dexia to produce Flaherty under reasonable conditions for a deposition prior to the upcoming hearing on the motion for turnover. Under the circumstances, Dexia's failure to disclose Flaherty at an earlier date was harmless. The Court denies the motion to strike Flaherty's affidavit.

Conclusion

For the reasons set forth above, the Court denies the Rogan children's motions to strike [docket nos. 889, 903]. The Court denies Dexia's motion with respect to the RPP Trust, but makes rulings of law as set forth above pursuant to Rule 16[docket no. 855]. The Court grants Dexia's motion for summary judgment with respect to the PGR trust [docket no. 857]. The Court denies the Rogan children's motion for summary judgment [docket no. 848].

= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

Join our LinkedIn Group on Asset Protection at http://www.linkedin.com/groups?mostPopular=&gid=3694878

Join our Twitter on Asset Protection at http://www.twitter.com/jay_adkisson

Get our RSS Feed on Asset Protection at http://assetprotectionbook.com/forum/feed
RISER ADKISSON LLP, 100 Bayview Circle, Suite 210, Newport Beach, CA 92660, Ph: 949-200-7284, Fax: 877-296-0678, jay --at-- risad.com - http://www.risad.com - http://www.jayadkisson.com - http://www.captiveinsurancecompanies.com - http://www.eaibook.com - http://www.calejl.com

Purchase our book "Asset Protection: Concepts and Strategies" at
http://www.amazon.com/gp/product/0071432167?ie=UTF8&tag=httpassetproc-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0071432167?
User avatar
Riser Adkisson LLP
Riser Adkisson LLP
 
Posts: 2099
Joined: Thu Nov 13, 2008 8:06 pm
Location: California, Georgia, North Carolina, Oklahoma, and Texas

Re: Dexia Credit -- Asset Protection Scheme Ends In Indictme

Postby Riser Adkisson LLP » Fri Oct 21, 2011 7:37 pm

Dexia Credit Local v. Rogan, 2009 WL 855638 (N.D.Ill., Slip Opinion, March 30, 2009).

United States District Court,

N.D. Illinois,

Eastern Division.

DEXIA CREDIT LOCAL, Plaintiff,

v.

Peter G. ROGAN, et al., Defendants.

No. 02 C 8288.

March 30, 2009.

Scott T. Mendeloff, Abigail Lynn Peluso, Gabriel Aizenberg Howrey LLP, Former AUSA, United States Attorney's Office, Chicago, IL, for Plaintiff.

Neil E. Holmen, Walker Wilcox Matousek LLP, Joseph Andrew Spiegler, Much Shelist Denenberg Ament & Rubenstein, PC, Michael J. O'Rourke, O'Rourke & Moody, Brian Michael Dougherty, Mitchell Bruce Katten, O'Rourke, Katten & Moody, Limo T. Cherian, O'Rourke, McCloskey & Moody, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge.

*1 In these supplementary proceedings, plaintiff Dexia Credit Local (Dexia) seeks to satisfy its judgment against Peter Rogan by executing on the assets held by various trusts that he established. Under one of its theories, constructive trust, Dexia contends it is entitled to the assets of those trusts because those assets are the proceeds of fraud that Rogan committed. Under a second group of theories, alter ego, nominee, and sham trust, Dexia contends it is entitled to the assets held by the trusts because they are actually the assets of Peter Rogan.

Dexia has moved the Court to bar Sara, Brian, and Robert Rogan (collectively, the Rogan children) from contesting any facts they admitted or did not oppose in response to Dexia's motions for summary judgment. Pursuant to Federal Rule of Civil Procedure 56(d) (1), the Court grants that motion in part and denies it in part. Dexia and the Rogan children have also filed briefs identifying the issues each side contends are contested or uncontested. As discussed below, the Court also determines, pursuant to Federal Rule of Civil Procedure 16(c), that certain issues are uncontested and other issues remain contested.

Discussion

1. Rule 56(d)(1) determinations

Dexia has moved for turnover of assets held by trusts of which the Rogan children are beneficiaries. An evidentiary hearing on certain key claims made in the motion is set for March 30, 2009. Dexia previously moved for summary judgment on certain claims. In support of those motions, Dexia submitted statements of undisputed facts pursuant to Local Rule 56.1. The Court granted the motions in part and denied them in part.

In responding to Dexia's summary judgment motions, the Rogan children did not dispute certain of the facts that Dexia, in its Local Rule 56.1 submissions, contended were undisputed. Dexia now contends that those facts should be deemed admitted-in other words, they should be deemed not genuinely at issue-for purposes of the upcoming evidentiary hearing.

Federal Rule of Civil Procedure 56(d)(1) provides that “[i]f summary judgment is not rendered on the whole action, the court should, to the extent practicable, determine what material facts are not genuinely at issue ... [and] issue an order specifying what facts ... are not genuinely at issue.” Fed.R.Civ.P. 56(d) (1). The Court did not make findings pursuant to Rule 56(d)(1) regarding the facts the Rogan children had not contested. As the Court previously advised counsel, the Court considers Dexia's current motion as seeking partial reconsideration, pursuant to Rule 56(d)(1).

The Court agrees with Dexia that it is appropriate to make findings under Rule 56(d)(1) identifying the facts that are not genuinely at issue, to simplify the issues and evidence at trial. The Rogan children have advanced no viable reason why the Court should not do what Rule 56(d)(1) permits (and arguably requires).FN1

FN1. Because the Court makes this ruling pursuant to Rule 56(d)(1), it need not address Dexia's contention that under Local Rule 56.1, facts in a statement of uncontested facts that the opposing party does not dispute are deemed admitted for all purposes in the case, not just for purposes of the pending summary judgment motion.

For these reasons, the Court determines that the following facts, contained in Dexia's Local Rule 56.1 statement supporting its motion for summary judgment with respect to the RPP trust and agreed or not disputed by the Rogan children in responding to the motion, are not genuinely at issue:

*2 1. On March 8, 1995, Peter Rogan (Rogan) and Fred Cuppy (Cuppy) created the RPP Finance Trust (“RPP Trust”).

2. Rogan is the trust's grantor, and Rogan and Cuppy were its first trustees.

3. Cuppy and Rogan served as the first Trustees of the RPP Trust from March 8, 1995 to November 30, 1996, when Rogan resigned as trustee.

4. Cuppy continued as the sole Trustee for the RPP Trust until December 5, 2006.

5. On December 5, 2006, Cuppy signed a document-entitled “Deed of Appointment and Resignation of Trustee Supplemental to the RPP Finance Trust Dated March 8, 1995” (“RPP Trust Transfer”).

6. Article 10 of the original RPP trust document named B. Macon Brewer, John Tatooles and John Foley as successor trustees, but all three of those men refused to accept the appointment.

7. The RPP Trust Transfer does not state that it is amending the trust.

8. The RPP Trust Transfer does not purport to quote the language of such an amendment.

9. No other document produced in these proceedings in any way addresses the choice of law issue regarding the RPP Trust.

10. From the RPP trust's inception to the present, Cuppy has lived in Indiana and Florida. Since roughly early 2004, Cuppy claims to have resided primarily in Florida.

11. From the RPP trust's inception to the present, Cuppy has performed his trust duties in these states.

12. At least as of 2004, account statements and IRS 1099 forms from financial institutions holding RPP trust assets were sent to Cuppy's Florida address.

13. At least as of 2004, RPP Trust's tax filings list Cuppy's Florida residence as the trust's address, including K-1 forms in which the trust identified Cuppy's Florida address as that of its “fiduciary,” i.e., its trustee.

14. All of RPP's known real estate investments are located in Florida.

15. The RPP trust contains no provision blocking the creditors of trust beneficiaries-including Rogan-from accessing the trust's assets prior to the demise of both Peter Rogan and Fred Cuppy.

16. Plaintiff Dexia Credit Local is a French banking institution with an agency based in New York, New York.

17. Defendant Peter G. Rogan is a U.S. citizen, who currently resides in Vancouver, British Columbia, Canada. At the time Dexia filed its complaint in this case, Peter Rogan was domiciled in the State of Indiana.

18. Defendant Bainbridge Management, Inc. (“Bainbridge Inc.”) is a corporation organized under the laws of Illinois. At the time Dexia filed its complaint in this case, the principal place of business of Bainbridge Inc. was in Merrillville, Indiana.

19. Intervenor Judith K. Rogan is the wife of Peter G. Rogan, and purports to live in Indiana.

20. Intervenor Robert C. Rogan is the son of Peter and Judith Rogan, and lives in California.

21. Intervenor Brian P. Rogan is the son of Peter and Judith Rogan, and lives in the Northern District of Illinois.

22. Intervenor Sara C. Rogan is the daughter of Peter and Judith Rogan, and lives in the Northern District of Illinois.

*3 The Court likewise finds that the following facts, contained in Dexia's Local Rule 56.1 statement with respect to its motion for summary judgment concerning the PGR Trust and agreed to or not disputed by the Rogan children in responding to Dexia's motion, are not genuinely at issue:

1. On January 5, 1996, Peter Rogan caused an “irrevocable” trust to be created in The Bahamas via a Deed of Settlement (“PGR Bahamas Trust” or “Deed”).

2. Rogan was the settlor of the PGR Trust.

3. “Foreign Grantor Trust Owner Statements,” contained in Rogan's United States tax filings for the years 1996-97, 1999-2001, 2003, 2005 state: “The United States Owner identified in line 6 above [Peter G. Rogan] is treated as the owner of the entire foreign trust to which this statement is attached ... Such United States Owner transferred either directly or indirectly all of the property contributed to the trust ....

4. Rogan's 1996 Form 3520 indicates that Rogan contributed the original amount of funds transferred into the PGR Trust, i.e., $21,344,142.

5. The original trustee was New World Trustees (Bahamas) Limited, a Bahamian entity. Later, another Bahamian entity, Oceanic Bank & Trust (“Oceanic”) replaced New World as trustee. In or about November 23, 2006, new trustees replaced Oceanic on the PGR Bahamas Trust: two principals at Caledonia Corporate Management Group Limited (“Caledonia”) named Matthew McNeilly and William Jennings.

6. There is no evidence that the Trustees ever denied or considered denying a request Rogan made for PGR Trust funds.

7. From 2002-04, the PGR Bahamas Trust made at least $4.75M in distributions, the destination of which the Trustee obtained from Rogan personally. In all, Rogan instructed the Trustee to send $3.225M of the $4.75M in distributions to himself (Rogan) personally. The $3.225M to Rogan consisted of transfers to Rogan personally of: $3,000,000 and $225,000.

8. Rogan told the Trustee to send the remaining $1.525M, which consisted of the following transfers: (i) $100,000 and $50,000 to Judy Rogan; (ii) $50,000 to BFB. Inc. (wholly-owned and controlled by Rogan); (iii) $170,000, $50,000 and $250,000 to Bainbridge Management, Inc.; (iv) $80,000 to Edgewater Property Company; (v) $300,000 and $360,188 to Winston & Strawn, Rogan's personal counsel in this action and others; and (vi) $31,115 and $88,013 to Mayer Brown Rowe & Maw, counsel Rogan retained to represent his companies, including EPC and Bainbridge Inc. 20. The PGR Bahamas

9. Rogan in part funded the PGR Trust with some proceeds from the sale of Edgewater Hospital.

10. The litigation between the parties has been pending in Illinois since 2002.

11. After Edgewater Medical Center defaulted on its bonds, Dexia paid the bondholders via the bond trustee-LaSalle Bank in Illinois.

12. Peter Rogan's (directly and via his alter ego, Bainbridge Management, Inc.) place of business was Illinois (Edgewater Medical Center).

*4 13. The place of business and state of incorporation of Bainbridge Management, Inc., was Illinois.

14. Dexia's place of business is New York.

Dexia contends it is also uncontested that “[f]rom the RPP trust's inception to the present, Cuppy has been the trust's sole beneficiary.” Dexia's Reply in Supp. of Mot. Barring Intervenors from Contesting Facts at 1. This fact is contested, as the Rogan children have pointed to contrary language in the trust document. The Court notes, however, that it appears Dexia may be able to prove that Cuppy is the only vested beneficiary of the RPP Trust.

The Rogan children raise several additional issues. First, they contend that certain documents identified by Dexia are not self-authenticating. The Court dealt with this issue when ruling on the cross motions for summary judgment. To the extent the Rogan children contest facts and Dexia has not yet provided a proper foundation for evidence to the contrary, those facts remain contested. Nothing in this order changes that analysis. Second, the Rogan children take issue with Dexia's quotations from certain documents. To the extent it is necessary under a rule of law to examine an entire document, the Court has done so and will continue to do so.

2. Uncontested and contested issues for hearing

Rule 16(c)(2) permits a court to enter orders “formulating and simplifying the issues” before it. Fed.R.Civ.P. 16(c)(2)(A) & (P). Dexia and the Rogan children agree that the following issues are uncontested, and the Court so finds:

1. In December 1992, Peter Rogan and Judith Rogan established the domestic trusts for each of his three children, Robert, Brian and Sara Caitlin Rogan and appointed Frederick Cuppy, Trustee to the Domestic Trusts and/or Florida Trusts. In 1992, 10% of EOC stock was placed in each of the domestic trusts.

2. Fred Cuppy is a long-time advisor to Peter Rogan and the Rogan Family. Dexia disputes that this completely describes Cuppy's role.

3. David Miller is a former employee of Peter Rogan and worked for Bainbridge Management, L.P. and the former entity, Braddock Management, Inc. and performed accounting functions. Dexia disputes that this completely describes Miller's role.

4. The Peter G. Rogan Irrevocable Trust 001 was established in Nassau, Bahamas and is a self-settled spendthrift trust.

5. Presently, the United States, Dexia Credit Local, and Edgewater Medical Center hold judgments against Peter G. Rogan.

Dexia and the Rogan children disagree whether a number of the issues the Rogan children identify as contested are actually contested or relevant. The Court finds as follows concerning those issues:

Paragraphs 1 & 3.FN2 These statements concern whether Peter Rogan committed a fraud on Northside Operating Group with respect to its purchase of Edgewater Medical Center in 1994. Dexia contends it is irrelevant whether there was a fraud on those purchasers and what is relevant is the alleged fraud on the bondholders that financed the deal. These issues, however, are interrelated; they involved the same acts and occurred at or around the same time frame. The Court is thus not prepared to say that the existence of a fraud on Northside Operating Group is irrelevant. That does not mean, however, that Dexia is required to prove such a fraud existed. Dexia is entitled to frame its legal theory. The Court will determine after the conclusion of the evidentiary hearing whether Dexia has proven what it needs to prove.

FN2. These paragraph numbers refer to the statement of contested issues 2 ues submitted by the Rogan children, docket no. 928.

*5 Paragraphs 9-13. These statements concern the circumstances surrounding various trusts established in the names of the Rogan children. Dexia contends these issues are irrelevant to the legal theories under which it seeks to obtain the assets of those trusts, including alter ego, nominee, sham trust, and constructive trust. The Court disagrees with Dexia. Though evidence concerning the formation and purpose of the children's trusts may not be dispositive, it is relevant to determination of whether those trusts currently hold the assets of Peter Rogan. For example, to determine whether the trusts are Peter Rogan's alter ego, a factor the Court will have to consider is whether Rogan's alleged control over the children's trusts was exercised “to commit a wrongful act.” In re Maghazeh, 310 B.R. 5, 19 (Bankr.E.D.N.Y.2004). The Court must also consider the “general chronology of events” and the “inadequacy of consideration,” among other factors. Id. at 17. The court in Maghazeh conducted this analysis with respect to a trust that was created at an earlier time before the fraudulent activity alleged in that case. Id. Though Dexia is relying primarily on a different theory here, the same sort of evidence is relevant to, though not necessarily determinative of, the current dispute.

Paragraph 15. This statement concerns the source of the funds received by the domestic trusts in 1994 following the sale of stock. This Court agrees with Dexia that this issue is not genuinely disputed. Whether the money that flowed to the trusts came directly from Peter Rogan or one of his companies, it is undisputed that Peter Rogan set up the structure that caused the money to flow into the trusts.

Paragraphs 20 & 38. The Rogan children argue that whether the domestic and Belizean trusts were established to conceal the assets of Peter Rogan and defraud his creditors is a contested issue. Dexia responds that this is not part of what it has to prove. Though the Court agrees that Dexia does not need to prove this proposition to succeed on at least some of its equitable theories, the matter is not entirely irrelevant. For example, the Rogan children might utilize evidence on this point to undermine Dexia's claim to equitable relief. See In re Maghazeh, 310 B.R. at 17-19.

Paragraphs 25, 29, 39, 44, 54 & 59. The Rogan children contest whether Peter Rogan or Cuppy possess the assets of the domestic or Belizean trusts. The Court agrees with Dexia that these issues are irrelevant. In the current proceedings, Dexia is attempting to recover assets in the possession of various trusts and individuals that it contends are actually the assets of Peter Rogan. Whether Rogan or Cuppy hold trust assets has no relevance.

Paragraph 31. The Rogan children contend it is relevant whether Judith Rogan is in possession of the assets of Peter Rogan or owes him money. Though that issue may well be relevant in a citation proceeding against Judith Rogan, she is not participating in the upcoming hearing because proceedings against her are currently stayed under the Bankruptcy Code. Her possession of assets has nothing to do with whether the various trusts or the Rogan children hold the assets of Peter Rogan.

*6 Paragraphs 48-63. These issues concern the RPP trust. The Court agrees with Dexia that if (1) Dexia authenticates the exhibit or exhibits that comprise the RPP trust document and (2) thereby demonstrates that the RPP trust is a self-settled trust of which Peter Rogan can receive all of the trust's income and corpus, regardless of whether the trustee has discretion, then the issues identified in paragraphs 48-63 will no longer be relevant. See Dexia Credit Local, 2009 WL 648634, at *6-9. If Dexia fails to do so, then these matters will be relevant and contested.

Paragraphs 8, 16, 19, 21, 26-28, 34, 37, 40 & 45-46. Dexia has responded to the issues identified in these paragraphs by stating they are disputed in part. In each situation, Dexia appears to dispute either the implications of the issue as framed by the Rogan children or portions of the issue. Most of these paragraphs concern the establishment, operation, control over, and actions of the various trusts at issue in these proceedings. The Court concludes that the issues raised in these paragraphs are genuinely contested.

Paragraphs 64-68. These paragraphs concern alleged fraudulent transfers. The matters in these paragraphs are contested, though they are not among the issues to be determined in the hearing commencing on March 30, 2009.

Paragraphs 2, 6-7, 14, 18, 22-24, 30, 32-33, 35-36, 41-43 & 47. Dexia and the Rogan children agree that the issues identified in these paragraphs are contested.

Dexia and the Rogan children also disagree whether a number of the issues Dexia identifies as contested are actually contested or relevant. The Court finds as follows with respect to those issues:

Paragraphs I.A.6-10.FN3 Dexia contends that whether Peter Rogan created the Rogan children's trusts to protect his assets in anticipation of a lawsuit and funded them to keep assets from his creditors is contested. The Rogan children challenge this based on the proposition that Dexia admits Peter Rogan did not have creditors or anticipated creditors in 1992. The Court agrees with Dexia. Though Peter Rogan was not in debt in 1992, Dexia may be able to prove that based on his business activities, he anticipated he would need to create trusts to protect his assets against future liabilities.

FN3. These paragraph numbers refer to the statement of contested issues ues submitted by Dexia, docket no. 927.

Paragraphs III.B.1-6 & 13. See the discussion below regarding issue preclusion estoppel and default judgments.

Paragraphs III.B.7 & 9-10. These paragraphs concern whether Peter Rogan disclosed any fraudulent activities at various points in time. The proposition that Peter Rogan never disclosed fraudulent activities is not genuinely disputed. With respect to nature and timing of any fraudulent activities, Dexia is required to prove their existence and timing as otherwise set forth throughout this order.

Paragraph III.B.11. This paragraph concerns Dexia's actions with respect to issuing a $56 million letter of credit. The Rogan children contend there is no evidence to support the statements in this paragraph. The evidence Dexia cites, the declaration of John Flaherty, was submitted as part of Dexia's statement of additional facts in opposition to the Rogan children's motion for summary judgment. As the Court previously stated on the record at a status hearing, the Rogan children are not bound by facts submitted by Dexia in opposition to their motion for summary judgment. Accordingly, the matters in this paragraph remain disputed. Dexia may well be able to establish these points at the evidentiary hearing via Flaherty's testimony.

*7 Paragraphs I.A.1-5 & 9-11; I I.A.1-15; I I I.A.1-5; III.B.8, 12 & 14-16. Dexia and the Rogan children agree that the issues identified in these paragraphs are contested.

Paragraphs I.B.1-5; II.B.1-5 & 7-8. Dexia and the Rogan children agree that the issues identified in these paragraphs are uncontested.

3. Issue preclusion, pleadings, and default judgment as evidence

Dexia contends that based on the judgment entered against Peter Rogan in the current case and judgments entered in two related cases, the Rogan children are barred from relitigating certain issues pursuant to the doctrine of issue preclusion, sometimes referred to as “collateral estoppel.” Those issues are detailed on pages 1-4 of Dexia's brief in support of nonparty issue preclusion (docket no. 949).

The doctrine of issue preclusion bars parties from relitigating issues in a lawsuit under the following conditions:

1) the issue sought to be precluded must be the same as that involved in the prior action, 2) the issue must have been actually litigated, 3) the determination of the issue must have been essential to the final judgment, and 4) the party against whom estoppel is invoked must be fully represented in the prior action.

Washington Group Int'l, Inc. v. Bell, Boyd & Lloyd LLC, 383 F.3d 633, 636 (7th Cir.2004). The Court will address the first three elements of issue preclusion with respect to each issue identified by Dexia and will then analyze whether the fourth element is satisfied.

a. Relitigation of issues that were previously decided

Dexia seeks to apply the doctrine of issue preclusion to a number of prior determinations concerning Peter Rogan's fraudulent activities. With respect to Dexia's alter ego, sham trust, and nominee theories, those prior determinations regarding fraud appear to be of limited relevance. Those theories are largely based on Peter Rogan's control over the trusts and their assets, as well as other factors including lack of consideration, relationship between the parties, and enjoyment of the benefits of the assets. See, e.g., United States v. Schaut, No. 97 C 4114, 2001 WL 1665314, at *3 (N.D.Ill.Dec.28, 2001); In re Maghazeh, 310 B.R. at 17-19.

Peter Rogan's fraudulent activities have more relevance to Dexia's constructive trust theory. “In order to impose a constructive trust, it is sufficient that a party has received money properly belonging to another under circumstances that, in equity, the party ought not be allowed to retain.” Jackson v. Callan Publishing, Inc., 356 Ill.App.3d 326, 334, 292 Ill.Dec. 272, 826 N.E.2d 413, 423 (2005).

It is well established that when a person's property has been wrongfully appropriated and converted into a different form, equity impresses a constructive trust upon the new form or species of property, not only while it is in the hands of the original wrong-doer, but as long as it can be followed and identified in whosesoever hands it may come, except those of a bona fide purchaser for value. [A] constructive trust may be imposed even though the person wrongfully receiving the benefit is innocent of collusion. By accepting the property, he adopts the means by which it was procured.

*8 Id. (internal citations and quotation mark omitted). Thus, if the assets in the children's trusts were originally obtained by Peter Rogan's fraud, that fraud can follow those assets to the present day.

First, Dexia contends that the Rogan children are barred from contesting the matters asserted in paragraphs 91, 124, 151, 152, 155, 159, 160 & 185 of its second amended complaint. Paragraphs 91, 124, and 151-52 concern Peter Rogan's healthcare fraud scheme and how it involved payment of management fees to Rogan's companies. Paragraphs 155 and 159 are allegations that Rogan and his companies knew that Dexia would rely on financial information produced by those companies and that Dexia would not have issued a letter of credit had it been aware of the healthcare fraud. Paragraph 160 contains allegations about paying off the original 1994 bondholders. Finally, paragraph 185 is an allegation that Peter Rogan learned that in early 1999, the U.S. Department of Justice was investigating his healthcare fraud scheme.

The judge who was presiding over the case at the time entered default judgment in Dexia's favor on the second amended complaint. Factual allegations in a complaint, except those pertaining to damages, are deemed admitted upon entry of default judgment. E.g., Yang v. Hardin, 37 F.3d 282, 286 (7th Cir.1994). Looking at the second amended complaint as a whole, it is clear that the allegations listed above were essential to the default judgment in favor of Dexia. Dexia sued Peter Rogan for, among other things, fraud. These allegations provide important information regarding the history and nature of that fraud, going back to the healthcare fraud that made possible the sale of Peter Rogan's hospital, and that ultimately resulted in Dexia repaying the bondholders whose money facilitated Rogan's fraud.

The Rogan children respond that “a default judgment is not a proper basis for collateral estoppel,” because issue determined via a default judgment does not satisfy the requirement that it be “actually litigated.” Grip-Pak, Inc. v. Ill. Tool Works, Inc., 694 F.2d 466, 469 (7th Cir.1982). There are, however, exceptions to that general rule. In one case, the Seventh Circuit cited Moore's Federal Practicefor the proposition that, due to the requirement of actual litigation, “collateral estoppel does not apply to unlitigated issues underlying default or consent judgments.” Klingman v. Levinson, 831 F.3d 1292, 1296 (7th Cir.1987) (internal quotation marks omitted). Nevertheless, the Seventh Circuit gave preclusive effect to issues determined in a consent judgment where “ the parties could reasonably have foreseen the conclusive effect of their actions.” Id. (emphasis in original) (internal quotation marks omitted). Relying on this principle, courts have given issue-preclusive effect to default judgments entered under conditions similar to those in the instant litigation. See, e.g., In re Bush, 62 F.3d 1319, 1325 (11th Cir.1995); In re Bruetman, 259 B.R. 649, 663 (Bankr.N.D.Ill.2001) (citing Klingman,831 F.3d at 1296) (default judgment given preclusive effect where defendant in underlying action appeared, answered complaint, and engaged in discovery, but then refused to comply with further court orders, resulting in entry of default judgment).

*9 It is undisputed that Peter Rogan participated in this litigation for years, including filing pleadings and pursuing motion practice and discovery, before abandoning the case. He was represented by counsel until he decided to leave the country. Under these circumstances, the default judgment entered against him satisfies the “actually litigated” requirement. Accordingly, the allegations of second amended complaint that, via the default judgment, are deemed to have been admitted, satisfy the first three elements for issue preclusion.

Second, Dexia seeks to bar the Rogan children from contesting a finding in related litigation that Peter Rogan's healthcare fraud scheme began no later than 1993.FN4 See United States v. Rogan, 459 F.Supp.2d 692, 700-01 (N.D.Ill.2006) (Rogan I ). As noted above, the nature and extent of Peter Rogan's fraudulent activities are relevant issues in the current supplementary proceedings. Some of the same issues were decided as part of the previous related litigation. See generally id. Admittedly, Rogan I did not concern whether there was any fraud in the sale of the hospital or the financing of that sale. The court in Rogan I did determine, however, the latest possible starting point of Rogan's healthcare fraud scheme. Id. at 700-01. That determination was essential to the decision in Rogan I. The government's claims in that case were for violations of the conspiracy provisions of the False Claims Act, 31 U.S.C. § 3729(a) (3). Rogan I, 459 F.Supp.2d at 718-19. Examining the origins of the fraud and conspiracy, the court in Rogan Idetermined that Rogan and several doctors conspired in the early 1990s to arrange referrals to Rogan's hospital in return for kickbacks, resulting in substantial profits for Rogan. Id. at 700.

FN4. The Rogan children's brief on this issue indicates that they assume e that Dexia seeks to establish more than this one fact based on the decision in Rogan I. That does not appear to be the case from Dexia's brief.

Third, Dexia contends that issue preclusion applies to findings in a related bankruptcy court proceeding that Peter Rogan's companies fraudulently obtained management fees. In re Edgewater Med. Ctr., 344 B.R. 864 (Bankr.N.D.Ill.2006) (Rogan II ); In re Edgewater Med. Ctr., 332 B.R. 166 (Bankr.N.D.Ill.2005) ( Rogan III ). The receipt of fraudulent management fees is an issue in this case because Dexia is attempting to show that some of fees ended up in the Rogan children's trusts. The Rogan children do not dispute that this issue was actually decided inRogan II and Rogan III. Moreover, the determination was essential to the decisions in those cases, because the nature and amount of those management fees was one of the primary determinations the court made. See Rogan II, 344 B.R. at 872-73; Rogan III, 332 B.R. at 175.

b. Parties bound by the previous determinations

Dexia does not contend that any of the Rogan children were actual parties to the prior decisions it claims have preclusive effect in the current supplementary proceedings. There are, however, six exceptions that permit a party to invoke issue preclusion against a nonparty to the prior litigation. See Taylor v. Sturgell, --- U.S. ----, 128 S.Ct. 2161, 2172-73, 171 L.Ed.2d 155 (2008). Dexia contends that three of those exceptions apply to the Rogan children.

*10 First, “[n]onparty preclusion may be justified based on a variety of pre-existing substantive legal relationship[s] between the person to be bound and a party to the judgment.” Id. at 2172 (internal quotation marks omitted). This is akin to the concept of privity. Id. at 2172 n. 8. According to Dexia, the Rogan children stand in the shoes of the various trusts in this action, and those trusts are bound by the judgments against Peter Rogan because they are his alter egos. The problem with that theory is that whether the trusts actually are Peter Rogan's alter egos is an key disputed issue this Court must resolve in the current proceedings. The Court will not put the cart before the horse in this manner.

Dexia also contends the substantive relationship exception applies based on its contention that there was a conspiracy between Rogan and Cuppy in his role as trustee of the children's trusts. Again, determining whether Cuppy, as trustee, conspired with Rogan to hide his assets by sheltering them in the children's trusts is one of the disputed issues presented in the current proceedings. The Court cannot bind the Rogan children to prior decisions based on legal determinations that remain open questions.

That said, if Dexia proves its alter ego claims in this matter, the Court would be in a position to find that the Rogan children are bound by the determinations made against Peter Rogan. In other words, this aspect of the Dexia's argument in favor of issue preclusion will remain open until the Court has ruled on Dexia's contentions that the children's trusts are the alter egos of Peter Rogan.

Second, Dexia contends that the Rogan children are bound by the prior determinations because they were “adequately represented by someone with the same interests who [wa]s a party to the [prior] suit.” Id. at 2172 (internal quotation marks omitted). With respect to the allegations of the second amended complaint in this case, the Court disagrees that Peter Rogan adequately represented his children's interests. To the contrary, he left the country mid-case, fired his counsel, instructed his former counsel not to accept service on his behalf, disregarded several court orders to appear, and abandoned the litigation entirely. This resulted in a default judgment. Such representation hardly can be characterized as adequate.

The situation is different, however, with respect to the Rogan I and bankruptcy court matters. Peter Rogan and his companies participated fully in those cases to their conclusion and were represented by counsel. In fact, Rogan testified at trial in each of those cases. Peter Rogan had the same interest in those cases as his children have in the present supplementary proceedings, namely, persuading the trier of fact that (1) he did not engage in healthcare fraud and (2) the management fees he and his companies received were not fraudulently obtained. Accordingly, it is appropriate to preclude the Rogan children from relitigating these issues in the current proceedings.

*11 Third, “a party bound by a judgment may not avoid its preclusive force by relitigating through a proxy.” Id. at 2173. Dexia contends issue preclusion is appropriate because the Rogan children are merely agents or proxies through which Peter Rogan seeks to revisit prior rulings against him. The party asserting issue preclusion bears the burden of proof as to the doctrine's applicability. American Nat'l Bank & Trust Co. of Chicago v. Regional Transp. Auth., 125 F.3d 420, 430 (7th Cir.1997). Though Dexia points to a number of circumstances that arguably suggest that the Rogan children are serving as Peter Rogan's agents, that conclusion is based on a series of inferences from aspects of their litigation strategy from which other equally reasonable inferences could be drawn. For example, Dexia points to the fact that the Rogan children sought to challenge Dexia's claims to the assets of two trusts not in their names, the PGR trust and the RPP trust. Though this could indicate that Peter Rogan directed their actions, it is equally plausible that the children, as potential beneficiaries of those trusts, were seeking to protect their own interests. The other inferences Dexia attempts to draw are similarly flawed.

More to the point, with regard to the domestic and Belizean trusts in the Rogan children's names, the children have a clear interest of their own-a claim to millions of dollars-in preventing Dexia from obtaining the assets of those trusts. Based on that interest, the Court concludes that Dexia has failed to show that the Rogan children are acting as their father's agent or proxy in the current proceedings.

To summarize, the following determinations in prior cases are binding upon the Rogan children: (1) Peter Rogan initiated a healthcare fraud scheme no later than 1993; and (2) management companies controlled by Peter Rogan fraudulently obtained more than $13 million in management fees. The allegations of Dexia's second amended complaint in the present case, however, are not binding on the Rogan children at this time. If Dexia establishes that the Rogan children's trusts are alter egos of Peter Rogan, the Court will be prepared to revisit this issue.

Conclusion

For the reasons set forth above, the Court grants in part and denies in part Dexia's motion to bar the Rogan children from contesting certain facts at trial [# 918]. The Court has also made findings and rulings as set forth above pursuant toFederal Rule of Civil Procedure 16(c)(2(A) & (P).

= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

Join our LinkedIn Group on Asset Protection at http://www.linkedin.com/groups?mostPopular=&gid=3694878

Join our Twitter on Asset Protection at http://www.twitter.com/jay_adkisson

Get our RSS Feed on Asset Protection at http://assetprotectionbook.com/forum/feed
RISER ADKISSON LLP, 100 Bayview Circle, Suite 210, Newport Beach, CA 92660, Ph: 949-200-7284, Fax: 877-296-0678, jay --at-- risad.com - http://www.risad.com - http://www.jayadkisson.com - http://www.captiveinsurancecompanies.com - http://www.eaibook.com - http://www.calejl.com

Purchase our book "Asset Protection: Concepts and Strategies" at
http://www.amazon.com/gp/product/0071432167?ie=UTF8&tag=httpassetproc-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0071432167?
User avatar
Riser Adkisson LLP
Riser Adkisson LLP
 
Posts: 2099
Joined: Thu Nov 13, 2008 8:06 pm
Location: California, Georgia, North Carolina, Oklahoma, and Texas

Re: Dexia Credit -- Asset Protection Scheme Ends In Indictme

Postby Riser Adkisson LLP » Fri Oct 21, 2011 7:38 pm

Dexia Credit Local v. Rogan, 602 F.3d 879 (7th Cir., 2010)

United States Court of Appeals,

Seventh Circuit.

DEXIA CRÉDIT LOCAL, Plaintiff-Appellee,

v.

Peter G. ROGAN, et al., Defendants,

and

Judith K. Rogan, Citation Respondent-Appellant.

No. 08-3500.

Argued June 3, 2009.

Decided April 26, 2010.

*881 Scott T. Mendeloff, Attorney (argued), Howrey LLP, Chicago, IL, for Plaintiff-Appellee.

Michael J. O'Rourke, Attorney (argued), O'Rourke & Moody, Chicago, IL, for Citation Respondent-Appellant.

Howard M. Pearl, Attorney, Winston & Strawn LLP, Phillip S. Reed, Attorney, Mayer Brown LLP, Chicago, IL, for Defendants.

Before EASTERBROOK, Chief Judge, and ROVNER and SYKES, Circuit Judges.

ROVNER, Circuit Judge.

In a supplementary proceeding to enforce a judgment against Peter Rogan and related partnerships, Dexia Crédit Local obtained a preliminary injunction barring Judith Rogan, Peter's wife, from continuing to transfer certain assets. On appeal, Judith asserts that the district court lacked subject-matter jurisdiction and that the preliminary injunction was improper. We conclude otherwise and affirm.

I.

This appeal has its genesis in the longstanding Medicare and Medicaid fraud scheme that Peter Rogan carried out through Edgewater Medical Center from 1993 to 2001. See United States v. Rogan, 517 F.3d 449, 451 (7th Cir.2008). In 1998 Peter and one of his related partnerships sought to refinance Edgewater's bond debt to get a lower interest rate. Concealing the fraud scheme, they arranged for Dexia to guarantee Edgewater's repayment of the bonds.

Dexia brought this diversity action against Peter and his related partnerships for fraud, conspiracy, and other torts relating to this longstanding scheme. See 28 U.S.C. § 1332. But Peter abandoned his defense of this suit by absconding to Canada, and Dexia obtained a default judgment for $124 million against him and some of his partnerships. To satisfy its judgment, Dexia served Judith Rogan with a citation to discover assets. See FED.R.CIV.P. 69; 735 ILCS § 5/2-1402.

Next, Dexia filed an ex parte motion for a temporary restraining order (“TRO”) to freeze certain of Judith's assets. Dexia asserted in an affidavit that it would sustain irreparable harm if the Rogans had *882 advance notice of the freeze-order. See FED.R.CIV.P. 65(b). Dexia also appended documentation to show that Judith was helping her husband conceal assets by placing his assets in accounts under her name, opening offshore accounts, and sending money to him or his creditors from these accounts. According to Dexia's motion, she even helped him flee to Canada by opening new bank accounts there and transferring several million dollars from other offshore accounts into these Canadian accounts.

The district court granted the TRO without notice to the Rogans, concluding that there was good cause to believe that Judith acted as the alter ego of her husband and disposed of his assets for his benefit. Under the terms of the TRO, Judith was prohibited from transferring, concealing, or dissipating any assets owned or controlled by Peter and certain defined entities, including trusts purportedly owned by the Rogans' children, pending the court's determination of Dexia's request to extend the TRO into a preliminary injunction under the same terms.

Judith promptly moved to dissolve the TRO on grounds that it was based solely on Dexia's affidavit, which was improper hearsay; that the TRO was vague and overly broad; and that the district court lacked subject-matter jurisdiction over her, a non-party. The court denied Judith's motion as moot, explaining that it would address all arguments at a hearing three days later to determine whether the TRO should be converted into a preliminary injunction. Dexia's and Judith's counsel did not object.

But Judith could not point to any evidence in the record to contest Dexia's assertion that she acted as the alter ego of her husband. Although before the preliminary injunction hearing she submitted an affidavit disputing her control over various bank accounts, and at the hearing her former attorney and a former employee testified that Peter had no interest in some of her assets, she later withdrew all this evidence. When the hearing resumed in the afternoon, Judith's counsel informed the court that Judith had filed for bankruptcy that morning and that she was withdrawing her affidavit and the offered testimony. The next day, however, Dexia informed the court that Judith's bankruptcy petition had been declared a “nullity from its inception” because she failed to comply with minimum filing requirements.

The court granted the preliminary injunction under the same terms as the TRO, and Judith's counsel did not object. At a later hearing, the court explained its decision by noting that Judith had withdrawn her evidence in opposition to the injunction and she did not object to its terms.

After Judith appealed the preliminary injunction, we ordered her to supplement her jurisdictional statement to address the citizenship of the named partnership-defendants. At this point, she discovered that complete diversity was lacking in Dexia's original action against Peter because diversity jurisdiction does not exist where the party on one side of a case is foreign and the party on the other side includes both domestic and foreign parties. See Salton, Inc. v. Philips Domestic Appliances & Pers. Care B.V., 391 F.3d 871, 875 (7th Cir.2004); Allendale Mut. Ins. Co. v. Bull Data Sys., Inc., 10 F.3d 425, 428 (7th Cir.1993). Judith discovered that Dexia was a French company and two of the named partnership-defendants had partners who were Belizean corporations. She then supplemented her jurisdictional statement on appeal and identified the citizenship of these partners. In the district court, she also moved to dismiss Dexia's citation to discover her assets.

*883 While this appeal was pending, the district court denied her motion and dismissed the two nondiverse parties, concluding that they were unnecessary and dispensable. The court further stated that under Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 109 S.Ct. 2218, 104 L.Ed.2d 893 (1989), the dismissal of the dispensable nondiverse parties acted retroactively to validate any acts occurring before dismissal. Thus, the court concluded that the judgment in the underlying action was final and that the Rogans could no longer challenge Dexia's citation to discover her assets on jurisdictional grounds.

II.

Judith presents two issues on appeal: (1) whether the district court had subject-matter jurisdiction over the case; and (2) whether the district court abused its discretion when it entered the preliminary injunction.

A. Subject-Matter Jurisdiction

Dexia first asserts that Judith's subject-matter jurisdiction argument is waived because she never raised it at the hearing on the preliminary injunction. But we have an independent duty to ensure subject-matter jurisdiction, seeBüchel-Ruegsegger v. Büchel, 576 F.3d 451, 453 (7th Cir.2009); EEOC v. The Chi. Club, 86 F.3d 1423, 1428 (7th Cir.1996), and neither the parties nor their lawyers may waive arguments that the court lacks jurisdiction. United States v. Tittjung,235 F.3d 330, 335 (7th Cir.2000); see also Dave v. Ashcroft, 363 F.3d 649, 652 (7th Cir.2004).

Judith argues that the district court lacked subject-matter jurisdiction over Dexia's original action against Peter and his related partnerships because the presence of foreign parties on both sides of the case spoiled diversity jurisdiction. And if Dexia's original judgment was void for lack of jurisdiction, she continues, the court lacked jurisdiction over Dexia's citation to discover her assets. Judith's jurisdictional challenges, however, come too late. The judgment against Peter is final. She might have mounted an attack on subject-matter jurisdiction before a final decision was entered in Dexia's original action, but she did not. “[S]ubject-matter jurisdiction may not be attacked collaterally.” Travelers Indem. Co. v. Bailey, ---U.S. ----, 129 S.Ct. 2195, 2205, 174 L.Ed.2d 99 (2009) (quotation and internal citation omitted); Kontrick v. Ryan, 540 U.S. 443, 455 n. 9, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004). In any event, the parties have not discussed the difference between direct and collateral challenges to a judgment. And even if we could entertain Judith's collateral attack, we would conclude that the district court properly dismissed the nondiverse parties under Federal Rule of Civil Procedure 21and preserved its jurisdiction. See Newman-Green, Inc., 490 U.S. at 832, 109 S.Ct. 2218; Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1492 (7th Cir.1996). Under Rule 21, a district court can dismiss dispensable, nondiverse parties either before or after a final judgment. Newman-Green, Inc., 490 U.S. at 827, 832 n. 6, 109 S.Ct. 2218; see also Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 572-73, 124 S.Ct. 1920, 158 L.Ed.2d 866 (2004); Caisse Nationale de Credit Agricole v. CBI Indus., Inc., 90 F.3d 1264, 1271 (7th Cir.1996).

B. The Preliminary Injunction

Judith next makes a host of challenges to the district court's entry of the preliminary injunction. She asserts, for instance, that the district court failed to make findings of fact and conclusions of law in violation of Federal Rule of Civil Procedure 52; that the court failed to specify its reasons for the injunction, to*884 state its terms specifically, and to describe in reasonable detail the acts restrained in violation of Federal Rule of Civil Procedure 65(d); that the injunction was overly broad; and that the injunction could not be issued against her, a non-party. Dexia responds that these arguments are waived because they were not renewed when the court entered the preliminary injunction.

We decline to find waiver here. Although arguments not raised before the district court may not be raised for the first time on appeal, Bus. Sys. Eng'g, Inc. v. Int'l Bus. Machs. Corp., 547 F.3d 882, 889 n. 3 (7th Cir.2008), this rule is not meant to be overly formalistic; rather, the requirement that parties appeal only issues that have first been presented to the district court maintains the efficiency, fairness, and integrity of the judicial system for all parties. See Republic Tobacco Co. v. N. Atl. Trading Co., Inc., 381 F.3d 717, 728 (7th Cir.2004); Boyers v. Texaco Ref. & Mktg., Inc., 848 F.2d 809, 812 (7th Cir.1988). It is true that Judith did not reassert her objections to the preliminary injunction, but she objected on the same grounds to the TRO which contained identical terms and was issued by the court for identical reasons, and the district court explained that it would address Judith's concerns regarding the TRO when it considered the preliminary injunction. To require her to re-raise her objections would be an overly formalistic application of waiver.

As to the merits, Judith first argues that the injunction violates Federal Rule of Civil Procedure 65(d) because it lacks specific terms, a reasonable description of the acts restrained or required, and reasons why it was issued. SeeFED.R.CIV.P. 65(d)(1). We disagree. The preliminary injunction directly addressed the key issue-whether Judith controlled certain of Peter's assets and transferred funds from these accounts to elude his creditors. And it described in reasonable detail that Judith was prohibited from transferring, converting, encumbering, concealing, or otherwise dissipating these assets for the benefit of her husband or any of the entities her husband controlled. Further, the court provided its reasons for the injunction: Judith was doing everything in her power to help her husband conceal his assets from creditors. The injunction is sufficiently precise and self-contained, and we require nothing more to comply with Rule 65. See PMC Inc. v. Sherwin-Williams, Co., 151 F.3d 610, 619 (7th Cir.1998); Bd. of Educ. v. Ill. State Bd. of Educ., 79 F.3d 654, 657 (7th Cir.1996).

Next, Judith asserts that the district court in two respects did not comply with Federal Rule of Civil Procedure 52, which requires a court to substantiate the issuance of an injunction with findings and conclusions of law. See FED.R.CIV.P.52(a)(2). First, she asserts without elaboration that the court was required to conduct an evidentiary hearing. But the court need not conduct an evidentiary hearing unless one is called for as a result of a fact issue created by the response to a motion for a preliminary injunction. See, e.g., In re Aimster Copyright Litig.,334 F.3d 643, 653-54 (7th Cir.2003); Promatek Indus., Ltd. v. Equitrac Corp., 300 F.3d 808, 814 (7th Cir.2002); Ty, Inc. v. GMA Accessories, Inc., 132 F.3d 1167, 1171 (7th Cir.1997). Here, Judith raised no issue of fact; rather she withdrew her evidence and did not object when the court entered the injunction.

Second, she argues that the court did not comply with Rule 52 by not making Rule 52's requisite factual findings in a written order accompanying the injunction. But at a later hearing, the court pronounced its reasons and conclusions orally, stating that the justifications for the TRO *885 would substantiate the court's findings for the preliminary injunction. Pronouncing its decision orally on the record is acceptable. See FED.R.CIV.P. 52(a)(1); EEOC v. Severn Trent Serv., Inc.,358 F.3d 438, 442 (7th Cir.2004). Further, we note that Rule 52 facilitates judicial review, see Mayo v. Lakeland Highlands Canning Co., 309 U.S. 310, 316, 60 S.Ct. 517, 84 L.Ed. 774 (1940); Freeland v. Enodis Corp., 540 F.3d 721, 739 (7th Cir.2008), by ensuring a sufficient record from which we can render a decision. SeeMiranda v. Bennett, 322 F.3d 171, 175 (2d Cir.2003); Davis v. New York City Hous. Auth., 166 F.3d 432, 436 (2d Cir.1999); Tekkno Labs., Inc. v. Perales, 933 F.2d 1093, 1097 (2d Cir.1991). In this case, there were no contested matters; Judith withdrew all her evidence, and the district court provided its reasons and conclusions orally. Based on the record before us, we conclude that the court adequately complied with Rule 52.

Judith's next argument is somewhat difficult to follow. She contends that when Dexia withdrew its Rule 65(b) affidavit, the absence of that affidavit somehow rendered Dexia's documentary evidence unauthentic and inadmissible. But Judith misconstrues the course of events: Dexia did not withdraw the affidavit, but instead submitted it in order to comply with Federal Rule of Civil Procedure 65(b)(1), which requires a party seeking an ex parte TRO to certify that the movant would suffer irreparable harm. See FED.R.CIV.P. 65(b)(1). And even if Dexia's evidence was inadmissible under the Federal Rules of Evidence, we have recognized that a district court may grant a preliminary injunction based on less formal procedures and on less extensive evidence than a trial on the merits. See, e.g., Ty, Inc., 132 F.3d at 1171; SEC v. Cherif, 933 F.2d 403, 412 n. 8 (7th Cir.1991); see also Johnson v. Couturier, 572 F.3d 1067, 1083 (9th Cir.2009);Cobell v. Norton, 391 F.3d 251, 261 (D.C.Cir.2004); Levi Strauss & Co. v. Sunrise Int'l Trading Inc., 51 F.3d 982, 985 (11th Cir.1995). We find no error here.

Next, Judith contends that the injunction is overly broad because it requires her to exercise control over her children's trusts and prohibits her from using certain of her own assets. But the injunction here was tailored to the scope of her alleged misconduct, and we cannot say the court abused its discretion. SeeLineback v. Spurlino Materials, LLC, 546 F.3d 491, 505 (7th Cir.2008); Gaddy v. Abex Corp., 884 F.2d 312, 318 (7th Cir.1989). When the district court fashioned the broad injunction, it noted the elaborate steps Judith had taken to evade creditors. Further, the court relied upon evidence that Judith did not dispute at the time of the injunction-evidence documenting the extensive support she provided her husband to conceal his assets, including her use of offshore accounts and various trusts to funnel money to Canada.

Last, Judith contends that the district court improperly entered an injunction against her because she was not a party to the underlying case. But one need not be a party to be susceptible to an injunction. Under Illinois law-which governs Dexia's proceedings to execute its judgment, see FED.R.CIV.P. 69(a)-restraining orders are proper against third-party defendants and citation respondents. See 735 ILCS § 5/2-1402; Star Ins. Co. v. Risk Mkt. Group Inc., 561 F.3d 656, 662-63 (7th Cir.2009); Cacok v. Covington, 111 F.3d 52, 54 (7th Cir.1997).

Accordingly, we AFFIRM the ruling of the district court.

= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

Join our LinkedIn Group on Asset Protection at http://www.linkedin.com/groups?mostPopular=&gid=3694878

Join our Twitter on Asset Protection at http://www.twitter.com/jay_adkisson

Get our RSS Feed on Asset Protection at http://assetprotectionbook.com/forum/feed
RISER ADKISSON LLP, 100 Bayview Circle, Suite 210, Newport Beach, CA 92660, Ph: 949-200-7284, Fax: 877-296-0678, jay --at-- risad.com - http://www.risad.com - http://www.jayadkisson.com - http://www.captiveinsurancecompanies.com - http://www.eaibook.com - http://www.calejl.com

Purchase our book "Asset Protection: Concepts and Strategies" at
http://www.amazon.com/gp/product/0071432167?ie=UTF8&tag=httpassetproc-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0071432167?
User avatar
Riser Adkisson LLP
Riser Adkisson LLP
 
Posts: 2099
Joined: Thu Nov 13, 2008 8:06 pm
Location: California, Georgia, North Carolina, Oklahoma, and Texas

Re: Dexia Credit -- Asset Protection Scheme Ends In Indictme

Postby Riser Adkisson LLP » Fri Oct 21, 2011 7:39 pm

U.S. v. Krogan, 2010 WL 3927489 (N.D.Ind., Slip Copy, Sept. 30, 2010).

United States District Court,

N.D. Indiana,

Hammond Division.

UNITED STATES of America, Appellant,

v.

Judith K ROGAN, Appellee.

No. 2:09-CV-314 JVB.

Sept. 30, 2010.

Appeal from the United States Bankruptcy Court for the Northern District of Indiana, No. 08 B 23221, J. Philip Klingeberger, Bankruptcy Judge.

Joseph A. Stewart, US Attorney's Office, Northern District of Illinois, Chicago, IL, for Appellant.

Gordon E. Gouveia, Gouveia & Associates, Merrillville, IN, for Appellee.

OPINION AND ORDER

JOSEPH S. VAN BOKKELEN, District Judge.

*1 The United States Government has appealed the bankruptcy court's July 24, 2009, final order. For the reasons explained below, the Court affirms the bankruptcy court.

A. Facts and Proceedings in Bankruptcy Court

The Debtor, Judith Rogan, is the wife of Peter Rogan who has two money judgments against him in the Northern District of Illinois: a $64,259,032 judgment in favor of the Government, and a judgment of about $124 million in favor ofDexia Credit Local. On November 6, 2006, the Government recorded an abstract of judgment in Cook County, Illinois, against one of the Debtor's scheduled assets, a condominium at 55 E. Erie in Chicago. The abstract of judgment identified the Debtor as a nominee of Peter Rogan. In addition, on July 12, 2007, the Government recorded an abstract of judgment in Porter County, Indiana, against another of Debtor's scheduled assets, the property located at 476 Wexford, Valparaiso, Indiana. This abstract, too, identified Debtor as a nominee of Peter Rogan. During the pendency of the action, the Wexford property was sold and the proceeds from the sale were deposited in an escrow account.

On November 12, 2007, the Government filed a complaint in Northern District of Illinois to foreclose its judicial liens against the Erie and Wexford properties (United States v. Judith Rogan, 07 C 6398 (N.D.Ill)). Although both properties were titled to Debtor's revocable trust, the Government asserted that Peter Rogan was the real owner of both properties. In addition, in 2008, the Government sued Debtor in Northern District of Illinois to avoid allegedly fraudulent transfers in the amount of $5,500,000 from Peter Rogan to Debtor ( United States v. Peter Rogan,02 C 331 N.D. Ill)).

On September 24, 2008, in post-judgment supplementary proceedings, Dexia obtained a preliminary injunction order that froze assets held in the name of Peter Rogan, the Debtor, her children, and multiple trusts of which they and Peter Rogan were beneficiaries ( Dexia v. Peter Rogan, 02 C 8288 (N.D.Ill)). The Government appeared in the Dexia injunction proceedings to assert and protect its interests.

Four days later, on September 28, 2008, Debtor filed for Chapter 13 bankruptcy. Among the scheduled assets, Debtor included the Erie property, bank accounts in Canada containing over $540,000, interests in various investment accounts, and the $912,000 proceeds of sale of the Wexford property in the escrow account.

On December 12, 2008, the Government moved for relief from the automatic stay. The Government, joining in Dexia's previously filed lift-stay motion, requested that the stay be modified to allowed continued litigation in the foreclosure suit, the fraudulent transfer action, and the Dexia injuction proceedings as to Debtor. On December 16, the bankruptcy court held a preliminary hearing on the motions to lift the stay and set out a briefing schedule. On January 27, 2009, the bankruptcy court held a pretrial conference setting February 18, 2009, as the date for the final hearing on the motions. On February 12, 2009, the bankruptcy court rescheduled the final hearing regarding the motions to stay from for February 20.

*2 On June 1, 2009, the Government presented an argument to the bankruptcy court that the automatic stay had expired by operation of 11 U.S.C. § 362(e)because the bankruptcy court had not issued its decision within sixty days of the Government's motion.FN1 The Government contended that it had not agreed to the extension of the statutory sixty-day period and the bankruptcy court did not on its own find that good cause required an extension.

FN1. Section 362(e)(2) states that automatic stays terminate sixty days after a motion to lift the stay, unless a decision is issued before then, the parties agree to an extension of time, or the bankruptcy court finds good cause for delaying the issuance of the decision:

Notwithstanding paragraph (1), in a case under chapter 7, 11, or 13 in which the debtor is an individual, the stay under subsection (a) shall terminate on the date that is 60 days after a request is made by a party in interest under subsection (d), unless-

(A) a final decision is rendered by the court during the 60-day period beginning on the date of the request; or

(B) such 60-day period is extended-

(I) by agreement of all parties in interest; or

(ii) by the court for such specific period of time as the court finds is required for good cause, as described in findings made by the court.

That same day, the bankruptcy court issued an order addressing the Government's contention that the automatic stay had expired on its own accord. The bankruptcy court concluded that all parties had consented to holding the final hearing regarding the motions to lift the stay outside the sixty-day period, on February 20, 2009. Moreover, having consented to this extension, the parties entered into an agreement that “put no end date on the court's determination, which the court has endeavored to make as promptly as it could given its caseload, and given the complexity and relative novelty of the issues presented by the § 362(d) motions.” (Bankr.Ct. July 15, 2009, Order at 3.) On July 24, 2009, the bankruptcy court entered its decision, denying Dexia's and the Government's motions to lift the stay.

B. Issues for Appeal

The United States appealed the bankruptcy court's denial of its motion to lift the stay. Its argument is twofold: the Government maintains that the bankruptcy court incorrectly ruled that the stay had not expired by virtue of § 362(e)(2) and that the bankruptcy court erred in denying its motion to lift the stay on the merits.

The Debtor argues that the Government lacks standing to pursue this appeal. She contends that the Government's motion before the bankruptcy court was merely a motion to join Dexia's motion to lift the stay, which, according to the Debtor, was denied by the bankruptcy court. Thus she argues that the Government is appealing an issue that was not before the bankruptcy court-the merits of lifting stay-rather than the bankruptcy court's denial of its motion to join in Dexia's motion. In addition, the Debtor defends the bankruptcy court's finding that lifting of the stay was unwarranted and that the parties had consented to the issuance of the lift-stay order months after the original deadline.

C. Government's Standing

If the Debtor's argument about the Government's standing seems convoluted, it is because it is. The Debtor bases her argument on the title of the Government's December 12, 2008, motion-Motion to Join Dexia's Motion to Modify Stay-and completely ignores the substance of the motion itself. While ideally motion titles should inform the court about what is requested, courts look at the substance, not the title. See Miller v. Transamerican Press, Inc., 709 F.2d 524, 527 (7th Cir.1983)(“The court will construe [the motion], however styled, to be the type proper for the relief requested.”). Despite its somewhat misleading title, the Government's motion deals with lifting the automatic stay, and the bankruptcy court recognized the motion as such. See July 15, 2009, Order at 1 n. 1 (“The Court has generously construed the Government's ‘joinder’ in Dexia's motion as a separate motion on behalf of the United States.”); see also July 23, 2009, Order at 1 (“In their respective motions, Dexia and the United States seek relief from the automatic stay of 11 U.S.C. § 362(a) so that they can pursue actions against the Chapter 13 debtor ... which were pending against her in the United States District Court for the Northern District of Illinois at the time that she filed her petition initiating this Chapter 13 case on September 27, 2008.”). This Court, too, recognizes that the Government's December 12, 2010, motion was a motion to lift the stay, the denial of which the Government is appealing.

D. 11 U.S.C. § 362(e)(2)

*3 As noted above, the statute provides that automatic stays terminate sixty days after a motion to lift the stay, unless a decision is issued before then, the parties agree to an extension of time, or the bankruptcy court finds good cause for delaying the issuance of the decision:

Notwithstanding paragraph (1), in a case under chapter 7, 11, or 13 in which the debtor is an individual, the stay under subsection (a) shall terminate on the date that is 60 days after a request is made by a party in interest under subsection (d), unless-

(A) a final decision is rendered by the court during the 60-day period beginning on the date of the request; or

(B) such 60-day period is extended-

(I) by agreement of all parties in interest; or

(ii) by the court for such specific period of time as the court finds is required for good cause, as described in findings made by the court.

11 U.S.C. § 362(e)(2).

The Government argues that the automatic stay expired on its own accord because the bankruptcy court did not have the parties' explicit agreement to delay the issuance of its order until July 24, 2009, and because it did not separately make findings consistent with § 362(e)(2)(B)(ii). In particular, the Government claims that because it did not explicitly consent to extending the sixty-day time period, the bankruptcy court had only until February 10, 2009 (the sixtieth day after the Government's motion to stay had been filed), to issue its decision.

The Court disagrees. On December 16, 2008, four days after the Government's motion, the bankruptcy court held a preliminary hearing. It memorialized the hearing on December 23, setting forth the schedule for determining the motions to lift the stay. On January 27, 2009, the bankruptcy court held a pretrial conference setting the final hearing on the motions for February 18. This schedule was memorialized in the bankruptcy court's February 9, 2009, Order. Although the February 18 date fell outside the sixty-day window, there is no indication that the Government objected holding the hearing on that date, which was beyond the sixty days provided in the statute. Moreover, when during another pretrial hearing on February 12, the bankruptcy court moved the hearing by two days from February 18 to February 20, the Government again expressed no objection to the delay. This Court defers to the bankruptcy court's account in its July 15, 2009, Order that this last and all previous orders delaying the evidentiary hearing were entered “with the consent of the parties to every provision stated in it, including the consent of the [Government].” July 15, 2009, Order at 2. The absence of the Government's objections further attests to the Government's concurrence.

Since the Government agreed to hold the final hearing outside the sixty-day period, it follows that the Government consented to the final decision being issued outside of the sixty-day period as well. Thus the question before this Court is whether the Government's consent extended until July 24, 2009. Here, too, the Court defers to the bankruptcy court. Having held numerous hearings with the parties, the bankruptcy court was in the best position to assess the nature of the agreement. Moreover, as the bankruptcy court's twenty-nine-page opinion and the parties' oversized briefs on appeal attest, the relatively novel matter before the bankruptcy court required prolonged consideration. FN2 Under these circumstances, therefore, it may be inferred that the Government's consent extended for several months. In fact, the Government did not invoke § 362(e) (2) until June 1, 2009, more than one hundred days after the hearing. In conclusion, the Court finds that the bankruptcy court's delay until July 24, 2009, did not trigger the application of § 362(e)(2).

FN2. In fact, after filing this appeal, the Government asked for extension of time to file its opening brief because “[t]he issues raised in this appeal are numerous and complex so that an adequate brief cannot reasonably be prepared by the date the brief is due.” (DE 2 at 1.)

E. Bankruptcy Court's Denial of Government's Motion to Lift the Stay

*4 The Court reviews the bankruptcy court's denial of the Government's motion to lift the stay under 11 U.S.C. § 3362(d) for abuse of discretion. In re Williams,144 F.3d 544, 546 (7th Cir.1998) (citing In re C & S Grain Co., 47 F.3d 233, 237-38 (7th Cir.1995). A bankruptcy court abuses its discretion when “its decision is premised on an incorrect legal principle or a clearly erroneous factual finding, or when the record contains no evidence on which the court rationally could have relied.” In re Kmart Corp., 381 F.3d 709, 713 (7th Cir.2004). Also, the bankruptcy court's finding of fact shall not be set aside on appeal unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of witnesses. See Fed. R. Bankr.P. 8013. “A finding is ‘clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake had been committed.” United States v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948).

In the bankruptcy court, the Government sought to lift the automatic stay with respect to the Northern District of Illinois cases where it is seeking to foreclose its judicial liens against the Erie and Wexford properties and to avoid allegedly fraudulent transfers in the amount of $5,500,000 from Peter Rogan to the Debtor. The stay is in effect because the Debtor listed the properties and accounts in question in the Northern District of Illinois cases among the scheduled assets. The bankruptcy court applied the test from International Business Machines v. Fernstrom Storage & Van Co. ., 938 F.2d 731 (7th Cir.1991) FN3 and found that the Government has failed to establish “cause” under 11 U.S.C. § 362(d)(1) FN4 with respect to its request to lift the automatic stay. Under the first prong of the test, the bankruptcy court found that the bankruptcy estate or the Debtor, or both, would suffer prejudice if the civil cases were allowed to continue during the pendency of the bankruptcy:

FN3. The Court of Appeals for the Seventh Circuit used a three factor test to determine whether to grant a litigant relief from an automatic stay. The questions to be asked are whether:

a) Any great prejudice to either the bankrupt estate or the debtor will result from continuation of the civil suit,

b) the hardship to the [non-bankrupt party] by maintenance of the stay considerably outweighs the hardship of the debtor, and

c) the creditor has a probability of prevailing on the merits.

Fernstrom, 938 F.2d at 735.

FN4. Title 11 U.S.C. § 362(d)(1) provides:

On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay-

(1) for cause, including the lack of adequate protection of an interest in property of such party in interest.

The court, unlike district court, has particularized expertise in the bankruptcy arena with respect to concepts of law which may or may not apply under applicable precedents to determine issues relating to the imposition of constructive trusts or similar remedies, and the potential utilization of § 544 or other avoidance powers. This court, unlike the district courts, is statutorily imbued with the responsibility for balancing the interests of all creditors and parties-in-interest whose claims may be affected by a determination of property interests. Given the issues that foreseeably will arise with respect to the matters asserted by Dexia and the United States, this court is quite comfortable in determining that significant prejudice may arise to the interests of the estate and/or the debtor if the assertions of Dexia and the United States are determined in a non-bankruptcy forum.

*5 (July 24, 2009, Order at 26-27.)

As for the second prong, whether the litigation in Hammond is more burdensome to the Government than litigation in Chicago, the bankruptcy court found no considerable hardship for the Government, thus finding no compelling reason to lift the stay on the basis of hardship. Likewise, the bankruptcy court found no disadvantage for the Government in the fact that the litigation in Illinois had been ongoing for some time and that the judges there may be more familiar case. Rather, the bankruptcy court expressed its ability to familiarize itself with the existing records. ( Id. at 27-28.)

As for the final factor, whether the Government has a probability of prevailing on the merits, the bankruptcy court sided with the Government but concluded that the claims can be as easily settled “in the bankruptcy court by means of an adversary proceeding under Fed. R. Bankr.P. 7001(1), (2), (7) and/or (9) as it can by proceeding with the presently pending actions in the Northern District of Illinois.” (Id. at 29.)

This Court does not find that the bankruptcy court abused its discretion by refusing to lift the automatic stay. The bankruptcy court correctly found that the proceedings which the Government seeks to pursue have significant ramifications for the property of the Debtor's Chapter 13 bankruptcy estate and thus significant ramifications for the landscape of any Chapter 13 plan for which the Debtor may seek confirmation. This is not a typical motion to lift the stay, where relief is requested in a civil action in which a plaintiff is attempting to recover from the debtor's insurer; rather, the Debtor's other creditors are in direct competition with the Government and their interests must be safeguarded. Insofar as the Debtor listed the properties and accounts in the schedule, it will be up to the bankruptcy court to determine her interests in these assets. The bankruptcy court was rightfully reluctant to relinquish its jurisdiction. Finding no abuse of discretion, the Court affirms the decision of the bankruptcy court.

F. Conclusion

The Court affirms the bankruptcy court's July 24, Order, regarding the Government's motion to lift stay in all respects.

= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

Join our LinkedIn Group on Asset Protection at http://www.linkedin.com/groups?mostPopular=&gid=3694878

Join our Twitter on Asset Protection at http://www.twitter.com/jay_adkisson

Get our RSS Feed on Asset Protection at http://assetprotectionbook.com/forum/feed
RISER ADKISSON LLP, 100 Bayview Circle, Suite 210, Newport Beach, CA 92660, Ph: 949-200-7284, Fax: 877-296-0678, jay --at-- risad.com - http://www.risad.com - http://www.jayadkisson.com - http://www.captiveinsurancecompanies.com - http://www.eaibook.com - http://www.calejl.com

Purchase our book "Asset Protection: Concepts and Strategies" at
http://www.amazon.com/gp/product/0071432167?ie=UTF8&tag=httpassetproc-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0071432167?
User avatar
Riser Adkisson LLP
Riser Adkisson LLP
 
Posts: 2099
Joined: Thu Nov 13, 2008 8:06 pm
Location: California, Georgia, North Carolina, Oklahoma, and Texas

Re: Dexia Credit -- Asset Protection Scheme Ends In Indictme

Postby Riser Adkisson LLP » Fri Oct 21, 2011 7:40 pm

Dexia Credit Local v. Rogan, ___ F.3d ____, 2010 WL 4751739 (7th Cir. Nov. 24, 2010)

United States Court of Appeals,

Seventh Circuit.

DEXIA CRÉDIT LOCAL, Plaintiff-Appellee,

v.

Peter G. ROGAN, et al., Defendants,

and

Robert C. Rogan, Brian P. Rogan, and Sara C. Rogan, Intervenors-Appellants.

No. 09-2986.

Argued Feb. 22, 2010.

Decided Nov. 24, 2010.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 02 C 8288-Matthew F. Kennelly, Judge.

Scott T. Mendeloff, Howrey LLP, Chicago, IL, for Plaintiff-Appellee.

Michael John O'Rourke, O'Rourke & Moody, Timothy J. Touhy, Touhy, Touhy, Buehler & Williams LLP, Chicago, IL, for Intervenors-Appellants.

Neil Holmen, Walker Wilcox Matousek, Chicago, IL, for Defendants.

Before KANNE and WILLIAMS, Circuit Judges, and SPRINGMANN, District Judge.FN*

FN* Of the Northern District of Indiana, sitting by designation.

SPRINGMANN, District Judge.

*1 After obtaining a $124 million judgment against Peter Rogan (Rogan), Dexia Crédit Local (Dexia) instituted supplemental proceedings to locate Rogan's assets and satisfy its judgment. In the course of supplemental proceedings, Dexia requested the turnover of assets held in trusts that Rogan had established, including trusts in the names of each of his three adult children, Robert, Brian, and Sara (the Rogan Children). After the district court froze the trust assets in the course of preliminary proceedings, the Rogan Children intervened in the supplementary proceedings. The case advanced to a bench trial, and the district court concluded that the trust assets actually belonged to and were controlled by Rogan. The court entered a final judgment ordering the turnover to Dexia of nearly all the assets of the Rogan Children's trusts, and terminating the Rogan Children's interests in those trusts. The Rogan Children appealed. Finding that none of the issues raised on appeal requires reversal, we affirm the decision below.

I. BACKGROUND

A. The Underlying Lawsuit and Judgment

This case has its genesis in the Medicare and Medicaid fraud scheme that Rogan perpetrated through Edgewater Medical Center (EMC), a hospital on Chicago's north side, from at least 1993 to 2001. See United States v. Rogan, 459 F.Supp.2d 692 (N.D.Ill.2006) (Rogan I), aff'd United States v. Rogan, 517 F.3d 449 (7th Cir.2008). In 1989, an entity that Rogan formed and controlled purchased EMC. The Rogan-controlled entity managed and administered EMC, and Rogan served as EMC's chief executive officer.

In 1994, EMC was sold to Northside Operating Company. To finance the purchase, Rogan caused the Illinois Health Facilities Authority to issue approximately $41 million in bonds. Although he had sold EMC, Rogan retained control of the hospital after the sale through a series of transactions, and he then caused EMC to enter into management contracts with two entities that he also controlled, Braddock Management, L.P. and Bainbridge Management, Inc. In 1997, Rogan arranged to refinance the bond debt, and to this end, in June 1998, he secured a letter of credit from Dexia guaranteeing EMC's repayment of the bonds. Eventually EMC's fraud was discovered, and the government stopped Medicare and Medicaid payments to EMC. This caused financial distress to EMC and, eventually, required Dexia to pay $55 million on EMC's behalf to satisfy obligations to bondholders. Dexia was unable to obtain reimbursement from EMC.

In November 2002, Dexia sued Rogan and his management company partners for fraud, conspiracy, and other torts. Dexia alleged that, during the due diligence process that led to its issuance of the letter of credit and after Dexia issued the letter of credit, Rogan defrauded Dexia by concealing that a significant portion of EMC's revenue was obtained through Medicare and Medicaid fraud. Rogan vigorously defended against the lawsuit for numerous years, but then moved to Canada and abandoned his defense. In May 2007, Dexia obtained a default judgment against Rogan and his partner companies for $124 million.

B. The Government's False Claims Act Suit

*2 In 2002, the federal government instituted litigation against Rogan under the federal False Claims Act (FCA), 31 U.S.C. §§ 3729-3733, for the submission of false Medicare and Medicaid claims for patients referred to EMC. FN1 In that case, the district court found that Rogan conspired with another EMC officer and physicians to pay kickbacks and other improper benefits to the physicians in return for patient referrals. These referrals resulted in substantial profits for Rogan. See Rogan I, 459 F.Supp.2d at 700. Although the government's lawsuit focused on particular false claims submitted from 1995 through 2000, the district court found that “[t]he conspiracy was evident in the early 1990s.” Id. The court also concluded that the conspiracy began (albeit on an apparently smaller scale) at least as early as 1993. See id. (findings related to dealings between Roger Ehmen and Dr. Ravi Barnabas); id. at 722 (findings related to Dr. Barnabas). The court concluded that the government proved that, from 1995 through 2000, Rogan caused EMC to submit over $19 million in false claims to Medicare and Medicaid. Id. at 727.

FN1. The other six participants in the fraud were charged criminally and pleaded guilty. The theory advanced by the government in the False Claims Act civil action was that Rogan conspired with the six indicted persons to defraud the United States.

C. The Rogan Children Trusts

In 1992, Rogan and his wife, Judith, set up three trusts in Florida for the benefit of their children (the Domestic Trusts). The Rogan Children are the only named beneficiaries of the Domestic Trusts. A 10% stock interest in EMC was the initial corpus for each of the Domestic Trusts. After EMC was sold in August 1994, the Domestic Trusts received money in exchange for the EMC stock they held. The Domestic Trusts also owned entities that, in turn, owned the management companies through which Rogan continued to operate EMC following its sale. During the period when Rogan operated EMC through these entities-from 1994 through 1997-the Domestic Trusts received millions of dollars in distributions from the entities. Fredrick Cuppy, who also served as Rogan's lawyer, was the trustee. He was later removed as trustee by the district court as part of the supplemental proceedings.

In June 1997, Rogan formed three additional trusts for his children under Belizean law (Belizean Trusts and collectively with the Domestic Trusts, the Trusts or Rogan Children Trusts). He funded the Belizean Trusts with interests in several of his companies. A company owned by Cuppy served as the trustee.

D. Supplemental Proceedings

To collect its May 2007 judgment, Dexia served Peter Rogan and Judith Rogan with citations to discover assets. See Fed.R.Civ.P. 69; 735 ILCS § 5/2-1402. On September 26, 2007, Dexia initiated supplementary proceedings against the Rogan Children Trusts by serving a citation on Cuppy, the trustee of those Trusts. In February 2009, Dexia served citations upon the individual children.

As part of the proceedings, the district court granted various temporary restraining orders (TROs) to freeze assets. Before the court converted the TROs into preliminary injunctions, the Rogan Children moved to intervene for the purpose of protecting their claimed beneficial interests in the Trusts. The parties engaged in discovery related to the turnover proceedings, and the Rogan Children lodged various procedural and jurisdictional objections, none of which successfully ended the proceedings or removed the Trust assets from consideration.

*3 During the course of ruling on the various challenges lodged by the Rogan Children, the district court judge discovered that two of the Defendants in Dexia's underlying lawsuit, Bainbridge Management, L.P. (Bainbridge LP) and Braddock Management, L.P. (Braddock LP), were citizens of both Illinois and Belize. This dual citizenship destroyed diversity jurisdiction, which does not exist where the party on one side of a case is foreign-Dexia is a French company-and the party on the other side is both domestic and foreign. See Salton, Inc. v. Phillips Domestic Appliances & Pers. Care B.V., 391 F.3d 871, 875 (7th Cir.2004). The district court dismissed Bainbridge LP and Braddock LP pursuant to Federal Rule of Civil Procedure 21 as nondiverse, dispensable parties. The district court also discovered that the May 2007 default judgment, which had been issued as a final judgment, was not actually final because it did not dispose of claims against Bainbridge LP (which was in bankruptcy and subject to an automatic stay), and the district court had not otherwise made any findings pursuant to Federal Rule of Civil Procedure 54(b). The court then ruled that the effect of dismissing the dispensable parties, including the one that had been in bankruptcy, was to make the May 2007 default judgment against the remaining defendants, Rogan and Bainbridge Management, Inc. (distinct from Bainbridge LP), retroactively final as of May 2007.

The district court conducted a bench trial on Dexia's motion for turnover. On July 7, 2009, the court issued a 48-page opinion granting Dexia's motion for turnover of assets, including those in the Rogan Children's Trusts, with the exception of $30,000 ($10,000 from each Trust) that was gifted to the Trusts by an individual named Scott Gross. This relief was predicated upon the court's finding that the Trust assets actually belonged to Rogan. As alternative relief, the court imposed a constructive trust on the property held by the Trusts. Again, the court excluded the $30,000 that Dexia did not establish was the result of Rogan's fraudulent activities. This appeal followed.

II. ANALYSIS

A. Subject Matter Jurisdiction

The Rogan Children argue that the district court lacked and we lack subject matter jurisdiction over this case. They contend that Dexia has formed an “unincorporated association” with LaSalle Bank, an Illinois corporation, and that LaSalle's citizenship must be considered when determining whether the federal court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a). They assert that, because some of the defendants are also Illinois citizens, Dexia's unincorporated association with an Illinois citizen destroys complete diversity of citizenship. The Rogan Children's claim that Dexia and LaSalle should be considered an unincorporated association is based on the following relationship: more than one year after Dexia issued EMC the letter of credit, LaSalle entered into a participation agreement with Dexia to assume a portion of Dexia's risk.

*4 We must resolve a recognized issue of subject matter jurisdiction before any other action is taken on a case, United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 956 (7th Cir.2003), and we review subject matter jurisdiction determinations de novo, Sapperstein v. Hager, 188 F.3d 852, 855 (7th Cir.1999).

In the proceedings below, the district court determined that only Dexia, not LaSalle, was the real party in interest under Federal Rule of Civil Procedure 17. The district court reasoned that LaSalle's act of taking on part of the obligations with respect to the letter of credit did not transform it into a real party in interest with regard to Dexia's tort claims against Rogan. The Rogan Children do not challenge this finding on appeal. Instead, they assert that the finding under Rule 17 has no bearing on their jurisdictional argument and that the narrow issue on appeal is whether Dexia and LaSalle, by sharing the profits and losses under the letter of credit, were operating as an unincorporated association.FN2 Citing our holding inIndiana Gas Co. v. Home Insurance Co., 141 F.3d 314 (7th Cir.1998), that all of the members belonging to a Lloyd's of London syndicate had to be considered for purposes of diversity jurisdiction, the Rogan Children criticize the district court for restricting its analysis to whether Dexia and LaSalle formed a joint venture or partnership, as opposed to some form of unincorporated association akin to a Lloyd's syndicate. Thus, the Rogan Children frame the issue as whether Dexia and LaSalle operated as an unincorporated association, and they leave unchallenged the trial court's determination that Dexia sued on its own behalf and is the real party in interest.

FN2. Despite arguing in their opening brief that the district court's determination regarding the real party in interest is not relevant to their claim on appeal, the Rogan Children themselves cannot avoid discussing it. In their reply brief, they argue that Dexia did not bring the suit on its own behalf because Dexia's judgment is for both its benefit and LaSalle's because LaSalle bore $20 million of the loss pursuant to the participation agreement. The district court properly addressed this when it reasoned that LaSalle suffered only a “trickle down” harm of Rogan's actions vis-à-vis Dexia, the party that suffered the direct injury. See CCC Info. Servs., Inc. v. Am. Salvage Pool Ass'n, 230 F.3d 342, 347 (7th Cir.2000) (holding that the real party in interest, whose citizenship is relevant for purposes of determining diversity, is the party injured and not its members who felt the injury only through a trickle down effect).

It is true that when the question is “how the citizenship of [a] single artificial entity is to be determined,” the citizenship of that entity is not determined using the real party to the controversy test. Carden v. Arkoma Assocs., 494 U.S. 185, 187 n. 1 (1990). But this principle does not help the Rogan Children unless Dexia was such an unconventional plaintiff, “that is, someone or something other than either a natural person suing in his own rather than a representative capacity, or a business corporation,” Cosgrove v. Bartolotta, 150 F.3d 729, 731 (7th Cir.1998), and not a corporate entity. If Dexia is a corporate entity, the inquiry regarding its citizenship remains straightforward. “[A] corporation is a corporation is a corporation,” Cote v. Wadel, 796 F.2d 981, 983 (7th Cir.1986), and determining its citizenship is as simple as looking at the “State where it has been incorporated and of the State where it has its principal place of business,” 28 U.S.C. § 1332(c)(1). As we explained in Society of Lloyd's v. Estate of McMurray, 274 F.3d 1133 (7th Cir.2001), a lawsuit does not raise the subject matter jurisdiction problem that we addressed in Indiana Gas when a corporation is the named party:

[In Indiana Gas ], we held that complete diversity did not exist between the parties because the complaint named as defendants “Certain Underwriters at Lloyd's, London” and “Certain London Market Insurance Companies.” See [141 F.3d] at 316. Because these entities were not corporations, we treated them as partnerships for purposes of diversity jurisdiction, and since at least one Lloyd's Name was domiciled in the same state as the plaintiff, complete diversity did not exist. See id. at 319. Here, the plaintiff is the Society of Lloyd's, a corporation incorporated under the laws of England, and there is no question that diversity jurisdiction exists.

*5 Estate of McMurray, 274 F.3d at 1134 (citing Indiana Gas, 141 F.3d at 316, 319). Likewise, Dexia, the entity that initiated the lawsuit to recover for fraud, conspiracy, and other related torts, is a corporation incorporated under the laws of France and has its principal place of business in France. And “the status of the named litigant governs-provided that the litigant is an entity rather than a name for an unincorporated association such as a partnership.” Downey v. State Farm Fire & Cas. Co. 266 F.3d 675, 680 (7th Cir.2001) (citing Carden, 494 U.S. 185; Indiana Gas Co., 141 F.3d 314).

The Rogan Children cannot escape the conclusion that this case did not involve an “unconventional party” that should have prompted the district court to take heed of “a jurisdictional warning flag” in relation to that entity. Cosgrove, 150 F.3d at 731. The Rogan Children's claim that the district court should have entertained further notions that “Dexia Crédit Local” actually meant something akin to a Lloyd's of London syndicate or other form of unincorporated association is unfounded. Complete diversity of citizenship exists, and we affirm the district court's determination regarding subject matter jurisdiction.

B. Finality of Judgment

In Illinois, supplemental proceedings under § 2-1402 are not available to creditors “until after judgment capable of enforcement has first been entered in their favor.” Marble Emporium, Inc. v. Vuksanovic, 790 N.E.2d 57, 62 (Ill.App.Ct.2003) (citing cases discussing § 2-1402); see also Ill. Sup.Ct. R. 277(a) (“A supplemental proceeding authorized by section 2-1402 of the Code of Civil Procedure may be commenced at any time with respect to a judgment which is subject to enforcement.”); 735 ILCS 5/2-1402(a). The Rogan Children argue that, when Dexia issued citations to discover assets in the supplemental proceedings, it held a non-final judgment and that the citations were therefore invalid. They submit that although the district court entered a final judgment nunc pro tunc after dismissing nondiverse parties under Federal Rule of Civil Procedure 21, the remainder of the proceedings was void because no new citations based on the final judgment were issued.FN3

FN3. The Rogan Children submit, without citation to the record, that the district court entered a final judgment nunc pro tunc. Our review of the record reveals that, on February 9, 2009, the district court dismissed Defendants Bainbridge LP and Braddock LP pursuant to Rule 21and, in doing so, deter mined that the Rogan Children no longer had any basis to challenge the finality of the May 2007 judgment “due to the retroactive effect of the Rule 21 dismissals.” (R. 100-01.) Perhaps this is what the Rogan Children meant by nunc pro tunc. In any event, it makes no difference to the analysis.

In this appeal, the Rogan Children do not dispute that the district court's dismissal of nondiverse parties was a proper exercise of its authority under Rule 21. See Newman-Green, Inc. v.. Alfonzo-Larrain, 490 U.S. 826, 832 & n. 6 (1989); Hurley v. Motor Coach Indus., Inc., 222 F.3d 377, 380 (7th Cir.2000). We recently held, in a separate appeal filed by Judith Rogan challenging the district court's issuance of a preliminary injunction in these same supplementary proceedings, that “the district court properly dismissed the nondiverse parties under [Rule] 21 and preserved its jurisdiction.” Dexia Credit Local v. Rogan, 602 F.3d 879, 883 (7th Cir.2010).

On the claim that they do advance-that the dismissal of non-diverse parties was insufficient to retroactively render the May 2007 judgment final-we disagree. The Rogan Children make no attempt to explain what purpose would be served by requiring that the discovery citations be re-issued. Nor do they explain why it would be necessary. Rule 21 dismissals are retroactive, Newman-Green, 490 U.S. at 829, and the complaint is read as if the dismissed party had never been included, LeBlanc v. Cleveland, 248 F.3d 95, 99 (2d Cir.2001). Retroactive applications of Rule 21 have permitted appellate courts to affirm decisions of district courts on the merits despite the fact that the change in the parties did not occur until much later in the litigation, thereby avoiding the “waste of time and resources [that] would be engendered by remanding to the District Court or by forcing the[ ] parties to begin anew.” Newman-Green, 490 U.S. at 838. The Supreme Court observed:

*6 [i]f the entire suit were dismissed, Newman-Green would simply refile in the District Court against the [defendants remaining after the Rule 21dismissal] and submit the discovery materials in hand. The case would then proceed to a preordained judgment.... Newman-Green should not be compelled to jump through these judicial hoops merely for the sake of hypertechnical jurisdictional purity.

Id. at 837 (citing Newman-Green, Inc. v. Alfonzo-Larrain, 854 F.2d 916, 932, 939-40 (7th Cir.1988) (Easterbrook, J., dissenting)). The Rogan Children have offered us no answer to this rationale. Their suggestion that Dexia should be required to jump through the judicial hoop of refiling their citations, only to proceed in the district court to a preordained judgment, does not comport with the efficient administration of justice.

Moreover, the district court's actions were entirely consistent with considerations of finality in those situations where a judgment becomes final during the pendency of an appeal. See Lovelette v. S. Ry. Co., 898 F.2d 1286, 1289 (7th Cir.1990) (“[T]he failure to certify a judgment on a separate claim as final under Rule 54(b) can be cured where the rest of the claims and parties are dismissed during the pendency of the appeal.”). Just as in Lovelette, “[w]e see no reason not to extend an analogous principle to the present situation,” id., particularly when we also allow nunc pro tunc orders to render non-final orders final and confer appellate jurisdiction-without dismissal of the appeal or need to re-file the notice of appeal, see Local P-171, Amalgamated Meat Cutters and Butcher Workmen of N. Am. v. Thompson Farms Co., 642 F .2d 1065, 1073 (7th Cir.1981)(holding that a district court has the power to add a Rule 54(b) certification to an order nunc pro tunc after the filing of a premature notice of appeal). See also King v. Gibbs, 876 F.2d 1275, 1278 (7th Cir.1989).

Once the district court properly dismissed the non-diverse parties, only those parties against whom judgment had already been entered remained in the case. The retroactive application of Rule 21 rendered the judgment final and enforceable against these remaining parties, and the court did not err in allowing the matter to proceed upon the citations that had already issued.

C. Scope of a District Court's Authority in Supplemental Proceedings

Federal Rule of Civil Procedure 69(a) provides that “[t]he procedure on execution [of a money judgment]-and in proceedings supplementary to and in aid of judgment or execution-must accord with the procedure of the state where the court is located.” Fed.R.Civ.P. 69(a)(1). In Illinois, 735 ILCS 5/2-1402 and Illinois Supreme Court Rule 277 govern supplemental proceedings. Supplementary proceedings are post-judgment processes that support the judgment creditor in asset discovery and final satisfaction of judgment. Star Ins. Co. v. Risk Mktg. Group, Inc., 561 F.3d 656, 662-63 (7th Cir.2009). The applicable statute provides:

*7 [a] judgment creditor ... is entitled to prosecute supplementary proceedings for the purposes of examining the judgment debtor or any other person to discover assets or income of the debtor not exempt from the enforcement of the judgment, a deduction order or garnishment, and of compelling the application of non-exempt assets or income discovered toward the payment of the amount due under the judgment.

735 ILCS 5/2-1402(a). The service of a citation to discover assets initiates supplemental proceedings. Id.; see also Cacok v. Covington, 111 F.3d 52, 53 (7th Cir.1997).

On appeal, the Rogan Children assert that the district court acted outside its authority in adjudicating the substantive property rights of third parties under equitable theories such as alter ego. They claim that an analysis of the scope of the proceedings is complicated by the fact that even though Dexia was proceeding under an alter ego theory throughout the case, the district court ultimately analyzed the issue under an ownership theory pursuant to our opinion in Star Insurance. In that case, we held that the allegations that must be made to pierce the corporate veil do not fall within the scope of supplemental proceedings wherein the only relevant inquiries are: “(1) whether the judgment debtor is in possession of assets that should be applied to satisfy the judgment; or (2) whether a third party is holding assets of the judgment debtor that should be applied to satisfy the judgment.” Star Ins. Co., 561 F.3d at 660-61 (citing Pyshos v. Heart-Land Dev. Co., 630 N.E.2d 1054, 1057 (Ill.App.Ct.1994)). The Rogan Children assert that regardless of the theory used by the district court, it did not have the authority to adjudicate their personal property rights.

Although the Rogan Children contend that the district court altered the legal theory upon which it relied and thereby disadvantaged them, they do not clearly show what this means to their appeal. Additionally, we do not agree with their characterization of how this case was framed or presented. The district court's final order granting turnover of assets was issued on July 7, 2009. Earlier, in a March 12, 2009, order denying summary judgment on the Rogan Children's claim that Dexia could not pursue sham trust, constructive trust, or alter ego theories without filing a separate claim, the district court wrote:

This argument misstates what Dexia is attempting to accomplish in the supplemental proceedings. Dexia has already prevailed on its claims against Peter Rogan. Dexia now seeks to satisfy its judgment against Rogan by collecting assets in the possession of the Rogan domestic trusts that Dexia contends are actually Peter Rogan's assets based on the equitable theories listed above. Dexia does not need to assert a new claim to engage in such proceedings to enforce its judgment against Peter Rogan. Though the situation might be different were Dexia seeking to hold the Rogan domestic trusts directly liable to Dexia (in other words, irrespective of whether the trusts' assets are actually Peter Rogan's), Dexia is not now attempting to do so.

*8 Dexia Crédit Local v. Rogan, 624 F.Supp.2d 970, 982 (N.D.Ill.2009). In response to the Rogan Children's argument that Dexia could not use alter ego or veil piercing claims in a supplementary proceeding, the court explained that Illinois allows a judgment creditor to reach assets of a debtor that are in the hands of third parties, which was what Dexia was seeking. Id. at 982-83 (“[T]he Rogan children place undue emphasis on the labels Dexia has used to describe its equitable theories. In these supplementary proceedings, Dexia does not attempt to impose liability directly on Rogan domestic trusts. Rather, Dexia asserts that those trusts hold Peter Rogan's assets. Dexia may use equitable theories, including an alter ego theory or similar theories, to attempt to prove that assertion.”).FN4 In a much earlier order granting injunctive relief, the court similarly reasoned: Illinois Supreme Court Rule 277(a), which governs citation proceedings, likewise permits a proceeding to be “against the judgment debtor or any third party the judgment creditor believes has property of or is indebted to the judgment debtor.” That is the primary basis upon which Dexia has proceeded in this matter-its contention that third parties hold property that actually is Peter Rogan's, even though it is held under some other guise.

FN4. In its appellate brief, Dexia notes that courts have used the term “alter ego” in traditional veil piercing cases and property ownership cases, even though only the former implicates the issue of derivative liability. Dexia maintains that, at every stage, it advanced the alter ego/nominee theory only in the context of property ownership, not as a means to pierce the veil or impose derivative liability.

Dexia Crédit Local v. Rogan, 2008 WL 4543013, at *6 (N.D.Ill. Oct. 9, 2008). Consequently, the Rogan Children are the only parties who have attempted to construe Dexia's claim as one that is akin to piercing the corporate veil.

The Rogan Children have shown us nothing that convinces us that the district court granted relief outside the proper scope of supplemental proceedings. A district court may inquire as to whether third parties hold assets of the judgment debtor, and once it is discovered that a third party holds such assets, the court may order the third party “to deliver up those assets to satisfy the judgment.” Pyshos, 630 N.E.2d at 1057; see alsoDowling v. Chi. Options Assocs., Inc., 847 N.E.2d 741, 746 (Ill.App.Ct.2006) (“The provisions of section 2-1402 are to be liberally construed, and the statute gives the court broad powers to compel the application of discovered assets or income in order to satisfy a judgment.”); Kennedy v. Four Boys Labor Serv., Inc., 664 N.E.2d 1088, 1091 (Ill.App.Ct.1996) (stating that the Illinois statute “gives courts broad powers to compel the application of discovered assets or income to satisfy a judgment”); Elmhurst Auto Parts, Inc. v. Fencl-Tufo Chevrolet, Inc., 600 N.E.2d 1229, 1233 (Ill.App .Ct.1992) (noting that the supplemental proceedings statute is not a mere discovery statute, but permits the court to determine the rights of third parties). As long as the action seeks the judgment debtor's assets and does not concern personal liability, it falls within the scope of a supplemental proceeding. Kennedy, 664 N.E .2d at 1092-93 (explaining that a claim brought pursuant to the Fraudulent Transfer Act was properly brought in supplementary proceedings because it did not concern personal liability, but attempted to avoid the transfer of assets, sought recovery of the actual assets transferred, and ordered that the property be returned). Here, the district court determined that the Children's Trusts contained assets of the judgment debtor, Peter Rogan. Accordingly, it held that Dexia was entitled to turnover of the assets of the Children's Trust, terminated the interests of the Rogan Children in the Trusts (with the exception of $30,000), and ordered the trustee to turn over trust assets to Dexia. Following turnover, the Trusts would continue to exist and hold any property that did not belong to Peter Rogan. In taking this action, the district court did not exceed the broad power and authority that is granted to courts in supplemental proceedings to apply assets to satisfy a judgment.

*9 In their reply brief, the Rogan Children assert for the first time that the imposition of a constructive trust requires proof of elements that extend beyond the scope of supplemental proceedings.FN5 The Rogan Children have not independently and sufficiently developed their theory challenging the district court's authority to impose a constructive trust. See JTC Petroleum Co v. Piasa Motor Fuels, Inc., 190 F.3d 775, 781 (7th Cir.1999) (warning that a litigant must do more than assert a novel theory that it wants us to buy); see also Long v. Teachers' Ret. Sys. of Ill., 585 F.3d 344, 349 (7th Cir.2009) (underdeveloped arguments are considered waived). Moreover, as we have often noted, arguments raised for the first time in a reply brief are waived. See Hess v. Reg-Ellen Mach. Tool Corp., 423 F.3d 653, 665 (7th Cir.2005).

FN5. In their opening brief, the Rogan Children appear to assume that the imposition of a constructive trust was within the scope of the proceedings, arguing only that there was insufficient tracing evidence for the court to impose it. We will address the tracing issue later in this Opinion.

D. Right to a Jury Trial

The turnover order challenged in this appeal was issued after a bench trial. The Rogan Children claim that they should have been granted a jury trial pursuant to the Seventh Amendment because the district court's determination of the true ownership of trust assets is an action at law, not equity.

The right to a jury trial in federal court hinges on federal procedural law. Int'l Fin. Servs. Corp. v. Chromas Techs. Canada, Inc., 356 F.3d 731, 735 (7th Cir.2004). Federal Rule of Civil Procedure 38(a) preserves to parties the right of a trial by jury as declared by the Seventh Amendment to the Constitution or as otherwise provided by federal statute. The Seventh Amendment provides that “[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved.” U.S. CONST. amend. VII. To determine whether a particular action will resolve legal rights and thus give rise to a jury trial right, we must examine both the nature of the claim for relief and the remedy sought. Marseilles Hydro Power, LLC v. Marseilles Land & Water Co., 299 F.3d 643, 648 (7th Cir.2002). First, we must “compare the ... action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. Second, we examine the remedy sought and determine whether it is legal or equitable in nature.” Tull v. United States, 481 U.S. 412, 417-18 (1987) (citations omitted). The “ ‘abstruse historical’ search for the nearest 18th-century analog,” id. at 421; Chauffeurs, Teamsters & Helpers Local No. 391 v. Terry, 494 U.S. 558, 565, is less important than determining whether the remedy sought is equitable or legal in nature, see Tull, 481 U.S. at 421; Granfinanciera S.A. v. Nordberg, 492 U.S. 33, 42 (1989); Marseilles, 299 F.3d at 648.

Here, the outcome of the second and more important inquiry regarding the nature of the remedy sought leads to the conclusion that the Rogan Children were not entitled to a jury trial. Legal remedies traditionally involve money damages, while equitable remedies are typically coercive and enforceable directly on the persons or things to which they are directed. Int'l Fin., 356 F .3d at 736 (citing Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210 (2002)). “A suit seeking only equitable relief is not a suit at common law, regardless of the nature of the issues likely or even certain to arise in the case.” Marseilles, 299 F.3d at 648. In the supplemental proceedings, Dexia sought the turnover of assets belonging to Peter Rogan, the judgment debtor. The district court explained:

*10 The Rogan Children are the putative beneficiaries of those trusts. As such, their interests in the trusts are intangible assets. Dexia is attempting to terminate the children's intangible interests and obtain a turnover of the assets of the trusts, which are held not by the children, but by the trustees of the trusts.

(Mar. 30, 2009, Order at 6.) At no time did Dexia seek derivative liability against the Trusts themselves or money damages from the Rogan Children, and the relief ultimately obtained was enforceable directly on the Trusts and was equitable in nature. See Resolution Trust Corp. v. Ruggiero, 994 F.2d 1221, 1225 (7th Cir.1993) (holding that an order that property be turned over to the judgment creditor because it was actually the property of the judgment debtor was in the nature of specific performance); In re Estate of Beckhart, 864 N.E.2d 1002, 1005 (Ill.App.Ct.2007)(describing the remedial and equitable character of constructive trusts); see also People ex rel. Hartigan v. Candy Club, 501 N.E .2d 188, 191 (Ill.App.Ct.1986) (describing a constructive trust as “a device used by chancery to compel one who unfairly holds property to convey the property to the party to whom it justly belongs”). The nature of the relief sought was purely equitable, thus it mattered not whether any of the issues were legal in their nature.

The Rogan Children were not entitled to have a jury decide whether Rogan owned and controlled the assets that were held in the Children's Trusts, and the district court's decision to conduct a bench trial does not warrant reversal.

E. Statutes of Limitations

Under Federal Rule of Civil Procedure 69(a), Illinois procedural law applies to Dexia's effort to enforce its judgment, and Illinois law imposes a seven-year limitations period. 736 ILCS 5/12-108(a) (“Except as herein provided, no judgment shall be enforced after the expiration of 7 years from the time the same is rendered, except upon the revival of the same by a proceeding provided by Section 2-1601 of this Act.”). In May 2007, the district court entered judgment against Rogan. Dexia filed its motion for turnover of assets well within seven years of this judgment. Nevertheless, because Dexia pursued the equitable remedy of a constructive trust on any assets belonging to Rogan that were held in the Children's Trusts, the Rogan Children claim that the seven-year statute of limitations does not apply and instead that Illinois's five-year statute of limitations applies.See Hagney v. Lopeman, 590 N.E.2d 466, 462 (Ill.1992) (holding that, in Illinois, a five-year statute of limitations applies to an action for constructive trusts). They contend that the limitations period began to run in early 2001 when the Federal Bureau of Investigation informed Dexia that Rogan was being investigated for Medicare fraud or, at the latest, when Dexia filed its own lawsuit in November 2002. This, according to the Rogan Children, would have required Dexia to file its claim for the imposition of a constructive trust by November 14, 2007.

*11 We review statute of limitations determinations de novo. In re marchFIRST Inc., 589 F.3d 901, 903 (7th Cir.2009). Dexia maintains that the Rogan Children have waived this statute of limitations argument. Although the Rogan Children asserted as an affirmative defense in response to the citations that Dexia's claims were barred “by the applicable statute of limitations,” they did not claim that the five-year statute of limitations for constructive trusts barred Dexia's claim until they filed a post-trial brief on June 5, 2009. The only specific statute raised prior to trial was Florida's statute of repose. Failure to argue a specific statute of limitations, even if others are argued, constitutes waiver. Anderson v. Flexel, Inc.,47 F.3d 243, 247 (7th Cir.1995). Here, because the Rogan Children failed to identify the five-year statute of limitations for constructive trusts before the trial, Dexia had no notice that the Rogan Children were attempting to bar their claim on this basis, and it was thus prevented from defending against this limitation defense through the presentation of evidence. See, e,.g., Frederickson v. Blumenthal, 648 N.E.2d 1060, 1063 (Ill.App.Ct.1995) (noting that the burden is on the plaintiff to show the application of Illinois's discovery rule to justify filing constructive trust action outside the five-year statute of limitations). Dexia does present argument in response to the Rogan Children's belated statute of limitations claim: that Dexia initiated enforcement by serving citations in June and September 2007, before the November 2007 limitations deadline proposed by the Rogan Children; and that the limitations period was tolled under the discovery rule because Cuppy obstructed Dexia from obtaining critical information about the Trusts. They contend that Dexia's November 2002 lawsuit only established that it was aware that Rogan fraudulently induced it to issue the letter of credit by concealing fraud at EMC and that the Trusts received proceeds of the sale of EMC, not that the transfers were part of Rogan's scheme to defraud creditors. The Rogan Children's failure to raise the specific statute of limitations defense has limited Dexia's ability to fully develop the arguments against application of the five-year statute of limitations and highlights why its failure should constitute waiver. For their part, the Rogan Children have not presented any excuse for waiting until after the trial to raise the five-year statute of limitations as an affirmative defense.

In any event, all of this is beside the point if the five-year statute of limitations is inapplicable in this suit, as the district court held. The statute the Rogan Children cite states:

Except as provided in Section 2-725 of the “Uniform Commercial Code”, approved July 31, 1961, as amended, and Section 11-13 of “The Illinois Public Aid Code”, approved April 11, 1967, as amended, actions on unwritten contracts, expressed or implied, or on awards of arbitration, or to recover damages for an injury done to property, real or personal, or to recover the possession of personal property or damages for the detention or conversion thereof, and all civil actions not otherwise provided for, shall be commenced within 5 years next after the cause of action accrued.

*12 735 ILCS 5/13-205. The supplemental proceedings in this case were not an action on a contract or award of arbitration, an action to recover damages for injury to property or to recover the possession of personal property, an action for damages for detention or conversion of such property, or an action not otherwise provided by statute. The proceedings were initiated to enforce and satisfy a previously-obtained money judgment. Thus, the statute specifically governing such proceedings determines the rights and liabilities of the parties. See Fed.R.Civ.P. 69(a); 736 ILCS 5/12-108(a). Dexia obtained a judgment and then issued citations to discover assets within seven years of obtaining that judgment, which is the recognized procedure in Illinois to enforce a judgment and to discover and recover assets that may be applied in satisfaction of the judgment. SeePontikes v. Perazic, 692 N.E.2d 712, 716-17 (Ill.App.Ct.1998). We find no error in the district court's application of the seven-year statute of limitations.

The Rogan Children also argue that Dexia's 2008 motion for turnover of assets in the Domestic Trusts is barred by Florida's statute of repose. Under Florida law, an action based on fraud must be initiated within twelve years after the date of the commission of the alleged fraud, regardless of the date when the fraud was or should have been discovered. Fla. Stat. § 95.031(2)(a). The district court held, we believe correctly, that Dexia's action seeking turnover of Rogan's assets held in the Trusts did not implicate Florida's limitations period for fraud, but was instead governed by the same limitation that applies to the enforcement of judgments. When Dexia initiated supplemental proceedings, it had already obtained a judgment based upon Rogan's fraud. The Rogan Children provide no argument to persuade us that, merely because some of the assets amenable to turnover are held in Trusts that were first established in Florida, the nature of the citation proceedings has been altered or requires application of a separate statute of repose. The only choice of law analysis they make is under Florida law, but Rule 69(a) provides that proceedings supplemental must accord with the procedure of the state where the court is located. The Rogan Children do not advance any choice of law analysis under Illinois law.

We conclude that the statute of limitations and the statute of repose cited by the Rogan Children did not bar the supplemental proceedings.

F. District Court's Findings of Fact

After a bench trial, a district court's findings of fact may only be set aside if they are found to be “clearly erroneous.” Fed.R.Civ.P. 52(a)(6). We reverse only if we are left with a “ ‘definite and firm conviction that a mistake has been committed.’ “ RK Co. v. See, --- F.3d ----, No. 07-3984, 2010 WL 3655946, at *4 (7th Cir. Sep. 22, 2010) (quoting Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985)). When there are two permissible views of the evidence, the district court's choice between them cannot be clearly erroneous. Johnson v. Doughty, 433 F.3d 1001, 1012 (7th Cir.2006). However, we review determinations regarding the application of issue preclusion de novo. See United States v. Thyfault, 579 F.3d 748, 750 (7th Cir.2009).

*13 The Rogan Children challenge the district court's finding that Rogan's fraud began in the early 1990s, and no later than 1993, a finding that was critical to the district court's imposition of a constructive trust on the 1994 bond proceeds. (This finding was not relevant to the district court's determination that Peter Rogan owned the assets in the Trusts.) To make this finding regarding the beginning date of Rogan's fraud, the district court determined that findings from Rogan I, 459 F.Supp.2d 692, precluded relitigation of the issue.

Issue preclusion bars successive litigation of an issue of fact or law actually litigated and resolved in a valid court determination essential to the prior judgment, even if the issue recurs in the context of a different claim. Taylor v. Sturgell, 553 U.S. 880, 892 (2008) (holding that the preclusive effect of a federal-court judgment is determined by federal common law). Preclusion applies if (1) the issue sought to be precluded is the same as that involved in the prior action; (2) the issue was actually litigated; (3) the determination of the issue was essential to the final judgment; and (4) the party against whom estoppel is invoked was fully represented in the prior action. Restatement (Second) of Judgments § 27; Bobby v. Bies, ---U.S. ----, 129 S.Ct. 2145, 2152 (2009) (defining the elements of issue preclusion in federal litigation); Chi. Truck Drivers, Helpers & Warehouse Union (Indep.) Pension Fund v. Century Motor Freight, Inc., 125 F .3d 526, 530 (7th Cir.1997). The Rogan Children assert that issue preclusion does not apply because the propriety of the 1994 sale of EMC was not at issue in Rogan I, and because neither they nor the Trusts were parties in that case.

Rogan I did not concern whether the sale of the hospital or the financing of that sale involved fraud, but the court did consider and determine the latest possible starting point of Rogan's healthcare fraud scheme. 459 F.Supp.2d at 700-01. Examining evidence related to the origins of the fraud and conspiracy, the district court in Rogan I determined that Rogan and several doctors conspired in the early 1990s to arrange referrals to Rogan's hospital in return for kickbacks, resulting in substantial profits for Rogan. Id. at 700; see also id. at 722-24 (describing how from 1993 to 1998 Rogan arranged for EMC to enter into a series of teaching and physician-recruiting contracts with physicians that violated the Stark and Anti-Kickback Statutes and thus knowingly caused EMC to submit false claims to the federal government). That determination regarding Rogan's pre-1995 relationships with co-conspirators and the starting point of the fraudulent activity was essential to the decision that Medicaid and Medicare claims that Rogan caused to be submitted in 1995 and later were false, 31 U.S.C. § 3729(a)(1)-(2). It was also essential to the conclusion that he was a member of the charged conspiracy and committed numerous overt acts in furtherance of the conspiracy, 31 U.S.C. § 3729(a)(3), including negotiating and signing contracts.

*14 It is true that the Rogan Children were not parties in the prior action. However, this does not end the inquiry as there are several recognized exceptions to the general rule that a person who was not a party to a suit has not had a full and fair opportunity to litigate issues in that suit. The district court applied one such exception: the “adequately represented” exception. See Taylor, 553 U.S. at 894-95 (recognizing that, in certain limited circumstances, a nonparty may be bound by a judgment because he was adequately represented by someone with the same interests who was a party to the suit). We agree with the district court's reasoning that Rogan had the same interests in Rogan I as his children (or the Trusts) had in defending against the imposition of a constructive trust in the supplementary proceedings-namely, to persuade the trier of fact that Rogan did not knowingly engage in healthcare fraud. Had Rogan not engaged in such fraud, the Court could not follow to the present day the assets he originally obtained and put into the Trusts, and could not impose a constructive trust. See Schultz v. Schultz, 696 N.E.2d 1169, 1173 (Ill.App.Ct.1998) (“A constructive trust is an equitable remedy imposed against one whom, by some form of wrongdoing such as actual or constructive fraud, ... has been unjustly enriched.”); see also Johnson v. La Grange State Bank, 383 N.E.2d 185, 195 (Ill.1978) (refusing to impose constructive trust on assets where fraud was not established). The government succeeded on its claims under the FCA by showing that Rogan engaged in fraud. Rogan I, 459 F.Supp.2d at 716-17 (including as an element of a claim under the FCA that the defendant caused to be presented to the United States a false or fraudulent claim for payment or made, used, or caused another to make or use a false statement of document); id.at 722 (discussing proof that Rogan caused EMC to submit claims for reimbursement from Medicare and Medicaid for services that were not in compliance with the Stark and Anti-Kickback Statutes and were thus false). The government also established the elements of, and was entitled to recover damages for, common law fraud and unjust enrichment. Id. at 728. Issue preclusion prevents the Rogan Children from challenging the finding that Rogan's fraud began no later than 1993.

In their opening brief on appeal, the Rogan Children list five of the district court's factual findings related to Rogan's ownership of the Trust property that they contend were not supported by competent evidence. However, they fail to make any attempt to show how these findings were clearly erroneous. We need not consider this undeveloped claim, especially in light of the burden a party alleging error bears to demonstrate that a particular factual finding is clearly erroneous. Carnes Co. v. Stone Creek Mech., Inc., 412 F.3d 845, 847 (7th Cir.2005).

G. Constructive Trust

The Rogan Children claim error with respect to the district court's imposition of a constructive trust on the assets held in the Trusts. They admit that the district court traced some property to the Trusts, but argue that the court never determined whether the Trusts still owned any of that property or received property from other sources (aside from the $30,000 in gifts that the court excluded from the turnover order). They contend that “no one knows precisely what the trusts own and, therefore, what assets are subject to a constructive trust.” (Appellant Br. 29.)

*15 Under Illinois law, a constructive trust is imposed to prevent unjust enrichment by imposing a duty on the person receiving the benefit to convey the property back to the person from whom it was received. Martin v. Heinold Commodities, Inc., 643 N.E.2d 734, 745 (Ill.1994) (citingRestatement of Restitution § 160). “[I]t is a restitutionary remedy which arises by operation of law, and is imposed by a court ... in situations where a person holding money or property would profit by a wrong or be unjustly enriched at the expense of another if he were permitted to retain it.” People ex rel. Daley for Use of Cook County v. Warren Motors, Inc ., 483 N.E.2d 427, 430 (Ill.App.Ct.1985) (internal citations omitted); see alsoFTC v. QT, Inc., 605 F.Supp.2d 999, 1008 (N .D.Ill.2009) (stating that a constructive trust is created by the court to avoid unjust enrichment when a party has obtained money to which he is not entitled and in equity and good conscience ought not to retain) (citing Smithberg v. Ill. Mun. Ret. Fund, 735 N.E.2d 560, 565 (Ill.2000)). “ ‘The particular circumstances in which equity will impress a constructive trust are as numberless as the modes by which property may be obtained through bad faith and unconscientious acts.’ “ Warren Motors, 483 N.E.2d at 431 (quoting County of Cook v. Barrett, 344 N.E.2d 540, 545 (Ill.App .Ct.1976)). A party seeking a constructive trust must establish “the existence of identifiable property to serve as the res upon which a trust can be imposed and possession of that res or its product by the person who is to be charged as the constructive trustee.” People ex rel. Hartigan v. Candy Club, 501 N.E.2d 188, 191 (Ill.App.Ct.1986).

The Rogan Children do not deny that Dexia met its initial burden to trace the proceeds of fraud to the Trusts. In other words, Dexia showed that the Rogan Children Trusts received money from the sale of EMC and management fees for services provided by Rogan-controlled entities, or held stock in companies that received this money. On appeal, they argue that since all of the transfers occurred before 2002, Dexia was required to establish what happened to the sale proceeds and management fees after they were transferred to the Trusts. The Rogan Children are, in essence, proposing that since 2002, legitimate funds may have been commingled with the pre-2002 transfers. They do not point to evidence of such commingling or equivocally argue that commingling occurred. Instead, they contend that nobody knows for sure. However, even if such commingling occurred, it would not impose an additional burden of proof on Dexia. See In re Estate of Wallen, 633 N.E.2d 1350, 1360 (Ill.App.Ct.1994) (“[O]nce claimant made a specific showing that the administrator commingled the assets of the corporation with those of the estate, the burden shifted to the administrator to sort out and account for those assets as he was in the best position to know of them.”); De Fontaine v. Passalino, 584 N.E.2d 933, 942 (Ill.App.Ct.1991) (holding that when a trustee commingles his own property with that of the beneficiaries, the burden rests on the trustee to show which property belonged to the trustee before the commingling). In addition, when a trustee has commingled trust funds with his own and subsequently withdrawn sums from the combined fund for his own use, the conclusive presumption is that the trustee withdrew his own funds first, leaving behind the trust funds. People v. Barrett, 90 N.E.2d 94, 98 (Ill.1950); see also In re Comm'r of Banks & Real Estate, 764 N.E.2d 66, 101 (Ill.App.Ct.2001) (stating that where a trustee commingles funds and later withdraws money from the commingled fund, the trust account holder is entitled to enforce his equitable lien upon the funds that remain).

*16 The district court cited various examples of Rogan manipulating trust assets for his purposes, drawing from the Trusts as a single pool of assets without regard for any separation of title or identity of the named beneficiaries. With the exception of a $10,000 gift to each of the Domestic Trusts by a third party, there is neither proof of any legitimate source for the assets of the Trusts to counter the evidence presented by Dexia nor evidence that any person other than Rogan had control over trust assets. Moreover, the reason that Dexia's evidence of transfers pre-dates 2002 is not difficult to understand in the context of this case. In 2001, EMC terminated its contract with Rogan's management companies following its discovery of Rogan's fraud. Additionally, EMC closed in December 2001, and the government initiated litigation against Rogan in May 2002.

The Rogan Children have not pointed to any evidence that would undercut the district court's determinations that the Trusts were funded by Rogan's fraud (and not some legitimate contributor) and that he continued to control those assets once deposited, either directly or through his agents. We find no error in the district's court's imposition of a constructive trust on all but $30,000 of the trust assets.

H. Citation Respondents

Dexia served on Peter Rogan, Judith Rogan, and Fredrick Cuppy citations to discover assets. The Rogan Children argue that there was insufficient evidence that any of these citation respondents held Rogan's property. They assert that neither Peter nor Judith have been shown to be “in possession of any assets held by” the Trusts “which are the property of Peter Rogan.” (Appellant Br. 41 .) Likewise, they assert that no evidence was presented at trial showing that Cuppy was in possession of such assets, and that he was removed as trustee of the Domestic Trusts by order of the district court. The Rogan Children argue that because these third parties did not possess assets of the judgment debtor, the district court had no authority to enter a judgment against them.

The Rogan Children's argument is misplaced. The district court did not find that any of these respondents personally possessed assets of Rogan-that was not the relevant inquiry. In ordering the turnover of assets the court found that Dexia was entitled to turnover of the assets of the Trusts (excluding $30,000) because the Trusts themselves held the property of Rogan, the judgment debtor. He funded the Trusts through money fraudulently obtained and never relinquished control of those assets once they were placed in the Trusts. To effectuate turnover, the district court terminated any interests held by the Rogan Children in those Trusts (except for $30,000), ordered any existing trustee to turn over the assets to Dexia, and directed Dexia to file a motion for the appointment of a trustee for any Trust that did not currently have a trustee so that the court could appoint a trustee who would be ordered to turn trust assets over to Dexia.

*17 This order against the Trusts was consistent with the citation that Dexia issued to Cuppy. The citation stated that it was being issued to Cuppy “[i]ndividually, as partner in the law firm of Burke Costanza & Cuppy, and as an agent, trustee, and/or lawyer for any person/entity identified in Rider A.” (Supp.App.168.) Rider A plainly identified the Rogan Children Trusts as entities to which the citation applied. Thus, the Trusts themselves were respondents. In addition, Rogan was a citation respondent. By serving these citations, Dexia perfected its judgment lien on all personal property belonging to Rogan that was in his possession or control, or in the possession or control of the third-party Trusts. 735 ILCS § 5/2-1402(m).

Although the Rogan Children think it important that Cuppy was removed as the trustee prior to the issuance of the turnover order, they present no authority showing that his removal as trustee meant that the Trusts were no longer citation respondents, or that the district court was no longer empowered to compel assets within the Trusts to satisfy the judgment. The district court specifically allowed for the appointment of a new trustee, upon which occurrence the court would order the new trustee to turn over the assets of the Trusts. We find no error.

I. Personal Jurisdiction over Robert Rogan

Robert Rogan argues that we should reverse the district court's judgment against him because the court did not have personal jurisdiction over him. Robert argues that he is a California citizen and has no contacts with Illinois.

For appeal purposes, supplementary proceedings to enforce judgments are treated as separate, free-standing lawsuits. Star Ins. Co., 561 F.3d at 659. Orders within supplemental proceedings are appealable to the same extent as in a regular lawsuit. Id.; see also Laborer's Pension Fund v. City Work Unlimited, Inc., 919 F.2d 491, 493-94 (7th Cir.1990). The district court's July 7, 2009, order to turnover assets of the Rogan Children Trusts, except for $30,000, was a final, appealable order. However, the November 18, 2008, order of the district court that Robert Rogan seeks to appeal is not final and appealable.

On November 18, 2008, the district court denied Robert's motion to dismiss for lack of personal jurisdiction. The district court specifically distinguished between cases in which the party challenging jurisdiction is accused of wrongdoing and cases where the party is believed to be the innocent recipient of fraudulently obtained money. (Appellants' App. 81-88.) Consistent with this distinction, the court's turnover order was not a ruling on Dexia's claim against Robert personally as a fraudulent transferee of trust assets, did not otherwise suggest wrongdoing by Robert, and was not against him individually.

Robert argues that the issue of personal jurisdiction is dispositive because a district court violates due process when it uses a turnover proceeding to adjudicate the property rights of third parties who are not amenable to jurisdiction in that forum, and that the district court's turnover order terminated his interest in the Trusts. (Appellants' Br. 23 (citing Bollore S.A. v. Import Warehouse, Inc., 448 F.3d 317, 324 (5th Cir.2006)(construing Texas's turnover statute in the context of an action to pierce the corporate veil).) This argument appears, in some ways, to be a re-formulation of the argument regarding the scope of supplemental proceedings because it requires that we first find that the turnover order adjudicated Robert's substantive rights or seized his assets. But we have already noted that the district court's order was based on its determination that the Children's Trusts held assets of the judgment debtor because he only nominally placed them in the Trusts and continued to exercise control over the property for his own benefit. In other words, Peter Rogan never actually transferred the assets to the Trusts. Accordingly, property that did not actually belong to Peter Rogan, i.e., $30,000 gifted by a third party, was not impacted by the turnover order. Robert's appearance and participation was not necessary to the entry of the turnover order with respect to this property. Illinois's supplementary proceedings statute contemplates the relief ordered by the district court in this case, and the Rogan Children have pointed to no authority showing that Illinois's statute violates due process.

III. CONCLUSION

*18 Based on the foregoing reasons, we AFFIRM the ruling of the district court.

= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

Join our LinkedIn Group on Asset Protection at http://www.linkedin.com/groups?mostPopular=&gid=3694878

Join our Twitter on Asset Protection at http://www.twitter.com/jay_adkisson

Get our RSS Feed on Asset Protection at http://assetprotectionbook.com/forum/feed
RISER ADKISSON LLP, 100 Bayview Circle, Suite 210, Newport Beach, CA 92660, Ph: 949-200-7284, Fax: 877-296-0678, jay --at-- risad.com - http://www.risad.com - http://www.jayadkisson.com - http://www.captiveinsurancecompanies.com - http://www.eaibook.com - http://www.calejl.com

Purchase our book "Asset Protection: Concepts and Strategies" at
http://www.amazon.com/gp/product/0071432167?ie=UTF8&tag=httpassetproc-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0071432167?
User avatar
Riser Adkisson LLP
Riser Adkisson LLP
 
Posts: 2099
Joined: Thu Nov 13, 2008 8:06 pm
Location: California, Georgia, North Carolina, Oklahoma, and Texas

Re: Dexia Credit -- Asset Protection Scheme Ends In Indictme

Postby Riser Adkisson LLP » Wed Apr 11, 2012 8:43 am

U.S. v. Rogan, 2012 WL 1107836 (N.D.Ill., Slip Copy, March 29, 2012).

United States District Court, N.D. Illinois, Eastern Division.

The UNITED STATES of America, Plaintiff,

v.

Peter ROGAN, Defendant.

and

410 Montgomery, LLC; Jerry Whitlow, individually and as registered agent of 410 Montgomery, LLC; McCorkle Pedigo & Johnson, LLP; and Darby Bank, Garnishees.

No. 02 C 3310.

March 29, 2012.

MEMORANDUM OPINION AND ORDER

JOHN W. DARRAH, District Judge.

*1 Before the Court is Kelley Drye & Warren LLP's ("KDW") Claim and Request for Payment from Escrowed Funds of 410 Montgomery, LLC.

BACKGROUND

On September 29, 2006, the Court entered judgment against Peter Rogan in favor of the United States in the amount of approximately $64.2 million. The judgment was the result of a massive healthcare fraud scheme orchestrated and run by Rogan.FN1 See United States v. Rogan, 459 F.Supp.2d 692 (N.D.Ill.2006); United States v. Rogan, 517 F.3d 449 (7th Cir.2008); see also United States v. Rogan, et. al., 639 F.3d 1106 (7th Cir.2011) ( Rogan ). Rogan has fled the country. To collect the judgment, the United States traced Rogan's assets and discovered that he invested in 410 Montgomery, LLC ("410 Montgomery"), a firm that built housing in Georgia. Rogan, 639 F.3d at 1106.

FN1. Rogan went through elaborate extremes to conceal his ownership of entities that received the proceeds from his activities. Rogan's fraud scheme was perpetrated through Edgewater Medical Center ("Edgewater").

In 1989, an entity that Rogan formed and controlled, Edgewater Operating Company ("EOC"), purchased Edgewater. In 1992, Rogan and his wife, Judith, had set up three trusts in Florida for the benefit of their children (the "Domestic Trusts"). In 1994, EOC was sold to Northside Operating Company ("Northside"), which was created by its parent company, a California-based company called Permian, for the exclusive purpose of purchasing EOC. Rogan and other shareholders of EOC received $31.1 million from the sale of Edgewater. Rogan received approximately $17.4 million, and the remaining shareholders were the Domestic Trusts, which received approximately $4.1 million.

Although Rogan had sold Edgewater to Northside, Rogan retained control of the hospital after the sale through a series of transactions, and he then caused Edgewater to enter into management contracts with two entities that he also controlled, Braddock Management, L.P. ("Braddock") and Bainbridge Management, Inc. ("Bainbridge"). Rogan's ownership interest was concealed through an elaborate scheme of inter-locking financial entities owned by Rogan, Rogan's children, and other entities owned by Rogan. When Rogan operated Edgewater through these entities, the Domestic Trusts received millions of dollars in distributions from the entities.

The United States obtained a writ of garnishment against Rogan's membership interests in 410 Montgomery. The company sold its holdings, paid its secured creditors, liquidated, and placed the money in escrow. After this Court approved distributions for closing costs, the remaining funds came to about $4 million, which is now being held in court-ordered escrow by the Darby Bank (the "Darby Escrow"). The instant dispute arises out of litigation relating to this writ of garnishment.

As will be further discussed below, on July 15, 2010, the Court entered an Agreed Final Disposition Order, ordering the $4 million in the Darby Escrow, with the exception of $173,289.71, to be turned over to the receiver appointed by Judge Kennelly in Dexia Credit Local v. Rogan, et al., No. 02 C 8288 (N.D.Ill.) ( Dexia ). The remaining $173,289.71 was withheld pending adjudication of claims by Diane Whitlow and the Estate of Jerry Whitlow ("the Whitlows"). The Whitlows claimed that they owned a one-third interest in Taylor Row, LLC ("Taylor Row") and that 410 Montgomery owes Taylor Row $475,000. Accordingly, the Whitlows argued they were entitled to a total of $173,289.71 from 410 Montgomery and that this amount should be paid to them from the Darby Escrow. On September 21, 2010, the United States opposed the Whitlows' claim, arguing that the United States had priority over the Whitlows' claims. This Court entered an order holding that because the United States was a judgment creditor and the Whitlows were unsecured creditors, the United States was entitled to the disputed amount.

This judgment was vacated and remanded by the Court of Appeals on May 12, 2011, in Rogan. The Court of Appeals noted:

First, the writ [of garnishment] covers the property 'in which the debtor has a substantial nonexempt interest' which is to say, Rogan's membership units in 410 Montgomery LLC, not the real estate that 410 Montgomery developed. Investors in corporations and LLCs own tradable shares or units; they do not own the company's assets. The separation of investment interests from operating assets is a fundamental premise of business law. Equity investors are residual claimants; they get only what is left after debts have been paid. Second, if we were nonetheless to treat 410 Montgomery's assets as property that Rogan 'co-owned' with other investors (including the banks and Taylor Row), then the law of the state in which the property is located determines how far the writ of garnishment reaches. That's Georgia law-and the parties agree that a writ under Georgia law would not vault equity investor Rogan (and hence would not promote the United States) over creditors' interests.

*2 * * *

[T]he Whitlows are not claiming any of Rogan's assets. As we have emphasized, what Rogan owned was a membership interest in 410 Montgomery LLC. The Whitlows don't want any part of that equity interest; their claim is against the LLC's own assets, in which creditors have entitlements senior to those of equity investors.

Rogan, 639 F.3d at 1107–1108.

The Court of Appeals noted specific issues to be resolved on remand:

Did 410 Montgomery LLC owe a debt to Taylor Row LLC? If so, how much? If it owed money to Taylor Row LLC, why are the Whitlows the right parties to receive that money?

* * *

Georgia does not appear to permit a suit of this nature; direct actions are proper only with respect to an investor's own rights against the LLC or its other members. Southwest Health & Wellness, L.L.C. v. Work, 282 Ga.App. 619, 639 S.E.2d 570 (2006); see also Uniform Limited Liability Company Act sec. 901. Does some other provision of Georgia law permit the sort of direct claim that the Whitlows have presented? Has the United States forfeited any objection to the direct nature of this claim? These and any other material issues are open on remand.

Id. at 1109.

After remand to this Court, on September 22, 2011, KDW filed a claim and request for payment from the Darby Escrow for $106,667.37 in "unpaid fees and expenses incurred for 410 Montgomery's benefit in conjunction with its representation of 410 Montgomery in the above-captioned matter." (Dkt. No. 522 at 2.) The United States filed a response, opposing KDW's claim. Dexia Credit Local ("Dexia") also filed a response, opposing KDW's claim.FN2

FN2. Dexia issued letters of credit securing some $56 million in bond obligations of Edgewater in May 1998. See Dexia Credit Local v. Rogan, 231 F.R.D. 268, 270 (N.D.Ill.2004). Dexia brought suit in November 2004, alleging that Rogan, Braddock, and Bainbridge engaged in a wide-ranging scheme to defraud Edgewater and that these defendants concealed this fraud from Dexia in order to induce Dexia to issue the letters of credit. Id. Dexia ultimately obtained a $124 million judgment against Rogan and, after instituting supplemental proceedings to locate Rogan's assets, succeeded in obtaining a final judgment ordering the turnover to Dexia of nearly all the assets of the Domestic Trusts and terminating the Rogan children's interests in those trusts. Dexia Credit Local v. Rogan, 629 F.3d 612, 616 (7th Cir.2010).

ANALYSIS

The Court of Appeals in Rogan determined the United States is a creditor of Rogan's and therefore claims a garnishment interest in his ownership of membership units in 410 Montgomery. As to the assets of the LLC, the United States is a residual claimant of 410 Montgomery and will only collect on its judgment after 410 Montgomery's debts have been paid. By contrast, the Whitlows are creditors of 410 Montgomery's assets and have priority of their claim senior to the United States.

Accordingly, the issue presently before the Court is whether KDW has a claim against Rogan or 410 Montgomery. If the former, KDW is similarly situated as the United States; if the latter, KDW is in the same position of the Whitlows. However, it is not necessary to resolve this issue FN3—KDW has waived its right to assert a claim for attorneys' fees against 410 Montgomery. KDW has failed to assert a claim for attorneys' fees prior to this Court's ruling that was the subject of the Whitlows' appeal to the Seventh Circuit and that court's ruling and remand. Moreover, KDW was not a party to that appeal, which held in favor of the Whitlows.

FN3. It appears that KDW is not similarly situated to the Whitlows. KDW has made no showing that it was representing 410 Montgomery other than as a creditor of the equity interest holders in defending this garnishment action. Actually, Rogan effectively owned all the interest in 410 Montgomery, as more fully set out in this Court's February 5, 2010 Order, (Dkt. No. 468 at 2 (holding that the ownership of 410 Montgomery rested with three trusts that Rogan set up in Belize in 1994 in the name of his three children; however, his children had no knowledge of the existence of these trusts).) There is nothing to suggest that KDW is claiming payment for legal services performed in representing 410 Montgomery as an entity in the ordinary course of 410 Montgomery's business regarding third parties. There is no claim by KDW that demonstrates that it is acting other than to protect the interests of the equity owners of 410 Montgomery, which have been determined to be effectively that of Rogan. And, KDW has not shown why its claim for fees in representing a garnishee in a collection action should be superior to those of a judgment creditor garnishor, such as the United States.

KDW's Failure to Assert a Claim

On March 27, 2008, Frank Cuppy, on behalf of 410 Montgomery, filed a motion to release funds from the Darby Escrow. (Dkt. No. 290.) Cuppy was Rogan's personal friend, attorney, and advisor and assisted Rogan in setting up 410 Montgomery. KDW subsequently filed an appearance on behalf of Cuppy, as well as 410 Montgomery. sec. See Dkt. Nos. 289, 333.)

*3 On July 14, 2008, the United States moved for summary judgment and a garnishment order regarding the 410 Montgomery proceeds in the Darby Escrow. (Dkt. No. 326.) This motion was denied without prejudice and the Court required the United States to serve third parties who had a potential interest in the 410 Montgomery proceeds in the Darby Escrow, pursuant to 28 U.S.C. sec. 3202(c). (Dkt. No. 329 .)

In anticipation of a status conference to be held on March 24, 2009, the United States filed a certificate stating that it had complied with the Court's Order regarding providing notice to interested parties. (Dkt. No. 412.) Importantly, KDW, which was representing Cuppy and 410 Montgomery, was served separately with the notice of garnishment by the United States. ( Id. at 6.)

At the status hearing on March 24, 2009, an attorney from KDW explained that 410 Montgomery had previously filed a motion to release funds from the Darby Escrow and asked, "Is there a date by which the Court would want me to file such a petition [for attorneys' fees]." (Dkt. No. 424 at 5.) In response, the Court continued the matter to April 15, 2009, "for status and scheduling for the time for all parties to file pleadings." (Dkt. No. 424 at 6 .) At the status hearing on April 15, 2009, the Court directed that "all claims be filed on or before 30 days hence." (Dkt. No. 425 at 3.)

Although a number of parties made claims, KDW failed to make a claim for attorneys' fees. At the next status hearing on May 21, 2009, 410 Montgomery withdrew its motion for release of funds from escrow without prejudice to re-file. A schedule for briefing on the United States' motion for summary judgment on its garnishment petition was set. On June 22, 2009, the United States filed its motion for summary judgment. (Dkt. No. 429.) The Whitlows opposed the motion for summary judgment. KDW, however, opposed summary judgment only in its capacity as attorneys for 410 Montgomery.

KDW failed to timely file a claim by the required date set by the Court and specifically did not file a petition for attorneys' fees. The only references to KDW's attorneys' fees appeared in 410 Montgomery's initial Motion and Renewed Motion to Release Funds from Escrow. In the latter, KDW stated, "410 Montgomery has incurred approximately $145,000.00 in legal fees incurred in responding to discovery and litigating this garnishment proceeding." (Dkt. No. 431 para. 19; Dkt. No. 421 at 3.)

The Court granted partial summary judgment in favor of the United States, holding that the United States was entitled to approximately $3.9 million of the funds in the Darby Escrow. (Dkt. No. 468.) As to the remaining funds, the Court denied the motion and scheduled the case for further proceedings. This ruling made no reference to 410 Montgomery's motion to release funds. Subsequently, KDW, on behalf of 410 Montgomery, moved to clarify the order with respect to money allegedly owed to Cuppy's company, Dynamic Alliance. (Dkt. No. 469.) However, the Court subsequently struck KDW's motion because KDW no longer had authority to act on behalf of 410 Montgomery. (Dkt. No. 479.) FN4

FN4. On July 21, 2009, in Dexia v. Rogan, No. 02 C 8288, Judge Kennelly entered a order removing Cuppy and appointing Eugene Crane as Trustee of Rogan's children's domestic and Belizean trusts. On January 22, 2009, Judge Kennelly entered an order granting full control and title of the assets of the Rogan children's domestic and Belizean trusts to the Trustee. Therefore, as a trust-owned entity, 410 Montgomery was under the control of the Trustee. Because the Trustee did not authorize KDW to file the motion, the motion was stricken.

*4 Subsequently, the Court entered two turnover orders. (Dkt. Nos. 489 and 503.) The first turnover order ordered that the $4 million (except for $173,289.71) of the Darby Escrow be turned over to the United States (the "First Turnover Order"). (Dkt. No. 489.) KDW did not appeal this Order. The First Turnover Order became final, pursuant to Federal Rule of Civil Procedure 54(b), on August 24, 2010. On September 21, 2010, the Court entered a second turnover order for $173,289.71, which resolved the issue of priority of the Whitlows' claim in favor of the United States (the "Second Turnover Order"). (Dkt. No. 503.) As discussed above, the Whitlows appealed this Second Turnover Order; this Order was vacated and the case was remanded for further proceedings regarding the Whitlows' claim. Subsequently, KDW filed the Motion presently before the Court, which is styled as a "claim and request for payment."

Accordingly, to the extent KDW seeks attorneys' fees from the funds that were subject to the First Turnover Order, it has waived its request for the following reasons: (1) KDW failed to make a claim in response to the required date set by the Court; (2) KDW did not contest the United States' motion for summary judgment on its garnishment action against 410 Montgomery; (3) KDW failed to contest the First Turnover Order, which directed almost all of the Darby Escrow to the United States pursuant to Rule 54(b); and (4) KDW failed to appeal this First Turnover Order. The finality of the Court's Rule 54(b) Order would be undermined by allowing KDW to pursue its claim.

Furthermore, that 410 Montgomery briefly mentioned legal fees it owed to KDW, as discussed above, does not support KDW's claim: these references do not constitute a claim or petition for attorney's fees by KDW. Moreover, the nature of the legal services which are the basis of KDW's legal fees mentioned in 410 Montgomery's Renewed Motion to Release Funds from Escrow are evidence that KDW represented the equity interest holders in 410 Montgomery in defending against the garnishment action by the United States rather than any third-party creditor of the LLC, as mentioned above.

KDW Was Not a Party to the Appeal which Resulted in Favor of the Whitlows

KDW, as a non-appealing party, cannot benefit from the Whitlows' successful appeal. Therefore, to the extent KDW seeks attorneys' fees from the remaining funds—the funds at issue in the Second Turnover Order—it failed to appeal the Second Turnover Order and has thereby waived any claim to attorneys' fees from these funds. Here, KDW's claim is expressly based on the Seventh Circuit's decision regarding only the competing interests in the funds between the Whitlows and the United States of the Second Turnover Order and in the amount of $173,289.71.

Even if KDW were a party in this case, it cannot claim rights based on the holding in the Whitlows' successful appeal.FN5 Cf. Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 400, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981) (observing the "generally accepted rule in civil cases that where less than all of the several co-parties appeal from an adverse judgment, a reversal as to the parties appealing does not necessitate or justify a reversal as to the parties not appealing.") (citation and internal quotation marks omitted); Marin Piazza v. Aponte Rogue, 909 F.2d 35, 39 (1st Cir.1990) (holding that non-appealing plaintiffs could not benefit from reversal of judgment against the plaintiffs who did appeal, even though error had been found in judgments against all parties); see also 20 Moore's Fed. Practice sec. 304.11[3][c] ("A distinct issue arises with respect to separate appeals where parties are aligned in interest, and one party appeals but the other does not. Can the non-appealing party benefit from the result on appeal? The Supreme Court has answered this question in the negative.").

FN5. KDW is not a party to this case; as mentioned above, it was provided with notice of garnishment by the United States. It was not until September 22, 2011, after the Seventh Circuit's decision, that KDW filed an appearance in this case on its own behalf. (Dkt. No. 521.)

CONCLUSION

*5 For the reasons set forth above, KDW's Claim and Request for Payment from Escrowed Funds of 410 Montgomery [522] is denied.


= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

Join our LinkedIn Group on Asset Protection at http://www.linkedin.com/groups?mostPopular=&gid=3694878

Join our Twitter on Asset Protection at http://www.twitter.com/jay_adkisson

Get our RSS Feed on Asset Protection at http://assetprotectionbook.com/forum/feed
RISER ADKISSON LLP, 100 Bayview Circle, Suite 210, Newport Beach, CA 92660, Ph: 949-200-7284, Fax: 877-296-0678, jay --at-- risad.com - http://www.risad.com - http://www.jayadkisson.com - http://www.captiveinsurancecompanies.com - http://www.eaibook.com - http://www.calejl.com

Purchase our book "Asset Protection: Concepts and Strategies" at
http://www.amazon.com/gp/product/0071432167?ie=UTF8&tag=httpassetproc-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0071432167?
User avatar
Riser Adkisson LLP
Riser Adkisson LLP
 
Posts: 2099
Joined: Thu Nov 13, 2008 8:06 pm
Location: California, Georgia, North Carolina, Oklahoma, and Texas


Return to Asset Protection News and Tidbits

Who is online

Users browsing this forum: No registered users and 2 guests