Apostolou v. Fisher
| Decision Date | 19 October 1995 |
| Docket Number | No. 94 C 7244.,94 C 7244. |
| Citation | 188 BR 958 |
| Parties | Louis APOSTOLOU, et al., Adversary-Defendants/Appellants, v. Lawrence FISHER, as Trustee of the Estates of Lake States Commodities, Inc., and Thomas W. Collins, Adversary-Plaintiff/Appellee. |
| Court | U.S. District Court — Northern District of Illinois |
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Louis W. Levit, Ross & Hardies, P.C., Chicago, IL, for plaintiff William A. Brandt, Jr., as Trustee of the Estates of Lake States Commodities, Inc. and Thomas W. Collins.
Lawrence Wiley Schad, Beeler, Schad & Diamond, P.C., Chicago, IL, for defendant Louis Apostolou.
Lawrence Wiley Schad, Steven J. Tomiello, Beeler, Schad & Diamond, P.C., Chicago, IL, Edward T. Joyce, Arthur W. Aufmann, Rowena T. Paras, Edward T. Joyce & Associates P.C., Chicago, IL, for defendants Peter Bizios, Gus Cappas, Spiros Chionis, Louis Dimas, Peter Dravilas, Ted Garbis, Irene Garbis, Vasilios Georgopoulos, Dean Glinos, James Glinos, Peter Glinos, Michael Gountanis, Steve Homatas, George Karabelas, Peter Klaritis, Julie Klaritis, Bill Kyriakopoulos, Joseph Lipira, Sandra Lipira, Ted Lykouretzos, Pat Lykouretzos, Gus Manaves, Spiros Mataragas, James Papadakis, Nick Pitsilos, Nick Revelis, Peter Sarantis, Bill Sizopoulos, Pete Spilios, Dorothea Touris, Mimi Tsoutsias, Nicholas Vangel, Paul Velliotis, Gust Vitogiannis, Steve Vitogiannis, Edward T. Joyce, Arthur W. Aufmann, Rowena T. Paras, Stephen B. Diamond.
This bankruptcy appeal1 presents a difficult question, namely, whether individual investors defrauded in a Ponzi scheme2 can maintain a separate cause of action against non-debtor co-conspirators of the now bankrupt estates of Thomas Collins ("Collins") and his fictitious corporation, Lake States Commodities, Inc. ("Lake States")—the debtors. In this appeal, the appellants, defrauded investors known as the "Apostolou Plaintiffs,"3 seek reversal of the bankruptcy court's ruling4 that the federal claims they filed in the district court5 against certain non-debtor co-conspirators of the debtors violate the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362. Appellants also seek dissolution of the injunction entered by the bankruptcy court prohibiting further prosecution of the district court cases.
The bankruptcy court held that the trustee has standing to bring the district court claims and stayed the investors' district court action. In particular, on October 12, 1994, Judge Sonderby ruled that:
Judge Sonderby found that the Seventh Circuit narrowly construes the direct injury requirement in favor of the trustee in suits by creditors who are injured by third parties, holding that a creditor has standing only if it can articulate that it suffered an "additional injury" to the one suffered by the corporation. Otherwise, the creditor's injury is merely derivative and the trustee, acting on behalf of the estate, has exclusive standing to bring suit.
Judge Sonderby held that the trustee in this case has exclusive standing to bring the district court claims asserted by the appellants in this case because she believed that the Ponzi scheme directly injured Lake States, i.e., the non-debtor third-party defendants took actions which resulted in Lake States being stripped of its assets by Collins.6 Apparently, this ruling was based on her conclusion that the facts of this case fall within a line of cases where the creditor plaintiffs' injuries are derivative of those suffered by the bankrupt corporation, relying on Wooten v. Loshbough, 951 F.2d 768 (7th Cir. 1991), rather than both derivative and direct as in Banker's Trust v. Rhoades, 859 F.2d 1096 (2d Cir.1988), cert. denied, 490 U.S. 1007, 109 S.Ct. 1642, 104 L.Ed.2d 158 (1989), because "the monies invested with the debtor as a result of the alleged fraud are property of the estate and actions to reclaim these funds must necessarily belong to the estate." Oral Ruling at 7. Judge Sonderby further found that, Oral Ruling at 8.
It is easy to see why the bankruptcy judge reached this result. According to the trustee, Lake States currently possesses approximately 2 million dollars of the defrauded investors' funds, two percent of the 100 million the trustee asserts was taken by Collins during the course of the Ponzi scheme. The investors concede that they purchased an interest in the "Lake States pool" and thus stand as creditors of the now bankrupt corporation administered by the trustee. As creditors of Lake States, these investors' injuries are common:7 they stem from the same fraudulent actions taken by Collins and his co-conspirators to pool money in the corporation, misuse the corporation for fraudulent purposes and then loot the corporation for personal gain, leaving it bankrupt. To allow the creditors to bring individual suits against the non-debtor third-party co-conspirators who have not yet disappeared (as Collins did) would, in the bankruptcy judge's opinion, subvert one of the principle goals of bankruptcy: to permit the trustee to marshall the estate's remaining assets for equitable distribution among all the creditors, rather than permitting the swiftest creditors to obtain a judgment at the expense of other creditors with equally compelling claims.
On October 21, 1994, a final judgment was entered on these rulings, pursuant to Fed.R.Bankr.P. 7054(a). This appeal is taken from that judgment, and this Court has appellate jurisdiction under 28 U.S.C. § 158(a). The order appealed from was entered in a "core" proceeding within the meaning and purview of 28 U.S.C. § 157(b). In all appeals from such orders, conclusions of law are reviewable de novo and findings of fact will not be set aside unless clearly erroneous. Fed.R.Bankr.P. 8013. This appeal comes to us on stipulated facts (with one exception).8 The Court therefore has conducted a de novo review and finds that the bankruptcy court's legal rulings should be reversed and the injunction lifted.
The Court is aware that these equitable policies favor the result reached by the bankruptcy judge. Equity, however, follows the law, Amazing Enterprises v. Jobin, 136 B.R. 271, 278 (1992), and after considerable review, this Court must conclude that the legal principles set out above, when applied to the stipulated facts of this case, do not warrant the judgment entered by the bankruptcy judge.
In 1984, Thomas Collins incorporated Lake States for the alleged purpose of trading commodity futures for its own account. Amended Complaint9 ("AC") ¶ 20. Sometime between 1984 and 1986, Collins and his accomplices began receiving customer funds and pooling those funds for the purpose of trading commodity futures, even though none of them were registered with the Commodities Futures Trading Commission ("CFTC") as futures commission merchants ("FCMs") or commodity pool operators ("CPOs"). AC ¶ 21. At the same time, Collins began making the trading decisions for the investors' funds even though he was not registered with the CFTC as a commodity trading advisor ("CTA"). AC ¶ 22. Collins pooled these funds in what the parties refer to as the "Lake States pool." AC ¶ 21. Although Lake States was a corporation validly formed by Collins for the legal purpose of trading commodities futures, the fact that Collins did not register the corporation or its employees with the CFTC made the pooling of investor funds to trade commodity futures for its own accounts illegal. AC ¶ 125. In other words, Lake States never did any legitimate business as a futures commodity merchant, nor did it operate as a legitimate trading pool. AC ¶¶ 26, 125-127. Instead, Lake States, owned by Collins and his co-conspirators, operated merely as its own investor by trading commodities with several accounts at Geldermann Inc. ("Geldermann"), a registered FTM and legitimate trading pool. AC ¶¶ 8-9.
The scheme, as alleged by the Apostolou Plaintiffs, went something like this: Lake States maintained a public office in Rolling Meadows, Illinois, which prominently displayed the Lake States sign and electronic commodities tickers. AC ¶¶ 7, 25. Inside the office, most of the commodity pool sellers and other employees were stationed in computer-equipped offices where they regularly transacted business with Lake States pool investors. AC ¶ 25. These investors regularly visited the Lake States office where Collins and his co-conspirators, operating as de facto CPOs, were soliciting, receiving and trading customer funds. Id. When Collins and his accomplices received...
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