879 F.3d 808 (7th Cir. 2018), 15-2902, In re Veluchamy

Docket Nº:15-2902, 15-2908, 15-3815, 16-3496
Citation:879 F.3d 808, 65 Bankr.Ct.Dec. 24
Opinion Judge:Manion, Circuit Judge.
Party Name:IN RE: Pethinaidu VELUCHAMY and Parameswari Veluchamy, Debtors. v. Arun K. Veluchamy, Anu Veluchamy, Pethinaidu Veluchamy, and Parameswari Veluchamy, Defendants-Appellants. Bank of America, N.A., Derivatively on behalf of the estate of Pethinaidu and Parameswari Veluchamy, Plaintiff-Appellee,
Attorney:Abraham Brustein, Derek D. Samz, Attorneys, Dimonte & Lizak, Park Ridge, IL, for Debtors. Devvrat Vikram Sinha, Ariel Weissberg, Attorneys, Weissberg & Associates, Ltd., Chicago, IL, for Defendants-Appellants. Howard J. Roin, Frank Moon Dickerson, III, Thomas S. Kiriakos, Michele Odorizzi, Attorn...
Judge Panel:Before Manion and Kanne, Circuit Judges, and Miller, District Judge.
Case Date:January 12, 2018
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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879 F.3d 808 (7th Cir. 2018)

65 Bankr.Ct.Dec. 24

IN RE: Pethinaidu VELUCHAMY and Parameswari Veluchamy, Debtors.

Bank of America, N.A., Derivatively on behalf of the estate of Pethinaidu and Parameswari Veluchamy, Plaintiff-Appellee,

v.

Arun K. Veluchamy, Anu Veluchamy, Pethinaidu Veluchamy, and Parameswari Veluchamy, Defendants-Appellants.

Nos. 15-2902, 15-2908, 15-3815, 16-3496

United States Court of Appeals, Seventh Circuit

January 12, 2018

Argued September 20, 2017

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Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 15 CV 2075 and 15 CV 882— Charles R. Norgle, Judge.

Abraham Brustein, Derek D. Samz, Attorneys, Dimonte & Lizak, Park Ridge, IL, for Debtors.

Devvrat Vikram Sinha, Ariel Weissberg, Attorneys, Weissberg & Associates, Ltd., Chicago, IL, for Defendants-Appellants.

Howard J. Roin, Frank Moon Dickerson, III, Thomas S. Kiriakos, Michele Odorizzi, Attorneys, Mayer Brown LLP, Chicago, IL, for Plaintiff-Appellee.

Before Manion and Kanne, Circuit Judges, and Miller, District Judge.1

OPINION

Manion, Circuit Judge.

This is an appeal from the district court’s decisions in bankruptcy adversary proceedings. Pethinaidu Veluchamy and Parameswari Veluchamy (collectively " senior Veluchamys" ) earned great wealth in various businesses. They acquired two banks in the 1990s and merged them. When this bank suffered financial problems, the senior Veluchamys personally borrowed and guaranteed loans totaling $40 million from a predecessor of Bank of America (" BoA" ). But the loans went into default in 2008, and BoA obtained a judgment against the senior Veluchamys in 2010 for over $43 million.

The senior Veluchamys filed a bankruptcy petition in 2011, so BoA filed an adversary proceeding against them and their children, Arun and Anu (collectively " junior Veluchamys" ), alleging a scheme to hinder, delay, or defraud creditors by attempting to hide tens of millions of dollars from BoA and other creditors. After a bench trial in 2013, the bankruptcy court determined the evidence established all of

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BoA’s major allegations. The Veluchamys and BoA sought review by the district court, which agreed almost entirely with the bankruptcy court. The Veluchamys no longer contest the heart of the lower courts’ conclusions. Instead, they appeal various particular holdings.

The senior Veluchamys raise three issues on appeal. First, they argue that turnover to the Estate under 11 U.S.C. § 542 was not the appropriate remedy regarding $5,500,000 they claim they transferred to a company in India, particularly when that company was not joined as a necessary party. Second, they challenge the language of the district court’s judgment requiring turnover of 24 pieces of jewelry. Third, they appeal the district court’s denial of their motion concerning the trial record.

The junior Veluchamys also raise three issues on appeal. First, they argue the district court erred in holding them jointly and severally liable. Second, they challenge the amount of the Estate’s recovery regarding VMark stock. Third, they argue the district court erred in reversing the bankruptcy court regarding Appu Hotels stock.

We affirm the district court on all issues.

I. Background

Several bankruptcy, district, and appellate decisions elucidate the history of the rise and fall of the Veluchamy financial empire. See Bank of Am., N.A. v. Veluchamy, 535 B.R. 783, 786-92 (N.D.Ill. 2015) (under appeal here); see also In re Veluchamy, 524 B.R. 277, 285-306 (Bankr. N.D.Ill. 2014), adopted in part sub nom. Bank of Am., N.A. v. Veluchamy, 551 B.R. 364 (N.D.Ill. 2015), and aff’d in part, rev’d in part and remanded sub nom. Veluchamy, 535 B.R. 783; see also Veluchamy v. F.D.I.C., 706 F.3d 810, 811-14 (7th Cir. 2013).

We focus on facts relevant to the consolidated appeals before us.

A. Rise and fall

The senior Veluchamys earned great wealth. In 2007, their self-reported net worth was about $500 million.

Mr. Veluchamy acquired Security Bank in 1995 and Mutual Bank in 1998. He merged the former into the latter. But Mutual Bank suffered financial problems. In 2005 the Federal Deposit Insurance Corporation and the Illinois Department of Financial and Professional Regulations began investigating Mutual Bank due to concerns about its loan practices and financial condition.

Attempting to rescue Mutual Bank, the senior Veluchamys personally borrowed $30 million and personally guaranteed another loan of $10 million both from a predecessor of BoA. But Mutual Bank continued its decline. The loans went into default in 2008, and Mutual Bank closed the next year.

In August 2009, BoA sued the senior Veluchamys and others to collect on the outstanding loans. In December 2010, BoA obtained a judgment against the senior Veluchamys for over $43 million. BoA then moved to compel the return of assets fraudulently transferred by the senior Veluchamys to family and friends.

B. Bankruptcy

Shortly before a hearing on that motion, however, on August 16, 2011, the senior Veluchamys petitioned for bankruptcy under Chapter 7, reporting a negative net worth of $55 million. BoA, derivatively as Estate Representative, filed an adversary proceeding against the senior Veluchamys and their children, the junior Veluchamys. BoA sought avoidance and recovery of fraudulent transfers and turnover of estate

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property. BoA alleged the senior Veluchamys engaged in an expansive scheme to hinder, delay, or defraud their creditors, mainly by transferring cash and other assets to the junior Veluchamys.

The bankruptcy court conducted a week-long bench trial in June 2013. During this trial, the junior Veluchamys repeatedly asserted their Fifth Amendment privilege against self-incrimination. The bankruptcy court determined the evidence at trial established all the major allegations of BoA’s adversary complaint. The bankruptcy court found (and proposed findings) that the senior Veluchamys fraudulently transferred $57,857,236 in various assets to the junior Veluchamys, and hid an additional $5,500,000, stock, and jewelry from creditors. The bankruptcy court found that the senior Veluchamys disposed of almost all their major assets, gratuitously or for significantly reduced consideration, before filing for bankruptcy.

The massive, intentional scheme consisted of three parts: First, the senior Veluchamys transferred millions of dollars to their children; second, the senior Veluchamys sold stock and real estate to their children at discounted prices; and third, the senior Veluchamys gave their remaining cash and assets to their children and other family members, or hid the assets. To further this scheme, the senior Veluchamys created false documents and destroyed authentic ones.

The bankruptcy court entered its corrected judgment, corrected proposed findings of fact and conclusions of law, and corrected amended memorandum of decision on December 18, 2014.

As relevant to this appeal, the bankruptcy court entered the following final judgments: Count I: Judgment for Estate against Arun for $7,253,088 and against Anu for $8,867,283, regarding the fraudulent transfer of money from the senior Veluchamys to the junior Veluchamys.

Count III: Judgment for Estate against Arun and Anu for $9,288,977 each, regarding the fraudulent transfer of controlling shares in VMark to the junior Veluchamys.

Count X: Judgment for Estate against Arun for $1,866,229 and against Anu for $1,633,364 for the fraudulent transfer of shares in Appu Hotels and Dharani Sugars to the junior Veluchamys.

Count XXIII: Judgment for Estate against Arun and Anu for $155,000 each, regarding the fraudulent transfer of funds used to purchase Appu Hotels stock for the junior Veluchamys.

As relevant to this appeal, the bankruptcy court also proposed the following findings and conclusions: Count XVI: Judgment for Estate against the senior Veluchamys requiring turnover of $5,500,000.

Count XVIII: Judgment for Estate against the senior Veluchamys, requiring turnover of jewelry.

Counts XX and XXI: Judgment for Estate against the junior Veluchamys, jointly and severally, for $57,857,236, aggregating judgments on other counts and imposing joint and several liability based on theories of aiding and abetting and conspiracy.

C. District court’s rulings

The Veluchamys appealed portions of the bankruptcy courts judgment to the district court, and objected to some of the bankruptcy courts proposed findings of fact and conclusions of law. The Estate appealed part of the bankruptcy courts decision regarding Appu Hotels...

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