Bressner v. Ambroziak

• Decision Date: 13 August 2004
• Docket Number: No. 03-2768.,03-2768.
• Citation: 379 F.3d 478
• Parties: Kermit J. BRESSNER, Plaintiff-Appellant, v. Shirlee AMBROZIAK, Dennis Ambroziak, Amzo Zip Mailing Services, Inc., an Illinois corporation, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

379 F.3d 478

Kermit J. BRESSNER, Plaintiff-Appellant, v. Shirlee AMBROZIAK, Dennis Ambroziak, Amzo Zip Mailing Services, Inc., an Illinois corporation, et al., Defendants-Appellees.

No. 03-2768.

United States Court of Appeals, Seventh Circuit.

Argued January 13, 2004.

Decided August 13, 2004.

Appeal from the United States District Court for the Northern District of Illinois, Joan Humphrey Lefkow, J George Bullwinkel (argued), Bullwinkel Partners, Chicago, IL, for Plaintiff-Appellant.

Michael J. Chmiel (argued), Chmiel & Matuszewich, Crystal Lake, IL, for Defendants-Appellees.

Before BAUER, MANION, and ROVNER, Circuit Judges.

MANION, Circuit Judge.

Over twenty years ago, Kermit J. Bressner sold his business to Dennis Ambroziak for cash and a note for $342,000 for the balance due. Under Ambroziak's ownership the business failed, and Ambroziak never paid Bressner any money on the note. When Ambroziak filed for bankruptcy, the debt was not discharged. All of Bressner's attempts to collect have failed. Ambroziak claims he has no assets and has had no income for many years, but Ambroziak's wife owns a successful business that Bressner claims Ambroziak manages and from which he derives many benefits. Bressner sued Ambroziak, his wife, and the business in federal court. He now appeals from a series of decisions of the district court dismissing his claim against the defendants for violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq. ("RICO"), as well as claims under Illinois law for civil conspiracy and violation of the Illinois Uniform Fraudulent Transfer Act, 740 ILCS 160/1 et seq. ("UFTA"). The district court also rejected Bressner's request that a constructive trust be imposed upon the assets of two of the defendants, Shirlee and Dennis Ambroziak. Finally, Bressner also appeals the decision of the district court to deny his motion to file a third amended complaint. We affirm.

I.

The facts of this case are drawn from Bressner's second amended complaint. Bressner primarily appeals from the district court's dismissal of the complaint for failure to state claim upon which relief may be granted. Fed.R.Civ.P. 12(b)(6). Accordingly, we accept as true all well-pleaded facts alleged in the complaint and draw all reasonable inferences in Bressner's favor. Dixon v. Page, 291 F.3d 485, 486, (7th Cir.2002).

In March, 1981, Bressner sold his business, Jay's TV, to Dennis Ambroziak for cash and a $342,000 note secured largely by the existing inventory of Jay's TV. No payments have ever been made on this note. Presumably, Bressner did not record a security interest in the inventory, and the assets of Jay's TV were seized to satisfy a third party's loan to Dennis.

On June 30, 1982, Dennis and his wife, Shirlee, filed a joint Chapter 7 petition in bankruptcy. Through an adversary proceeding against Dennis (but not Shirlee), Bressner obtained, in 1985, a judgment of nondischargeability on the 1981 note. Bressner estimates that, with interest, Dennis's debt to him is now approximately $1.2 million.

Sometime after the Ambroziaks' discharge from bankruptcy (other than Dennis's debt to Bressner), Shirlee started her own business, Amzo Zip Mailing Services, Inc. ("Amzo"). Amzo is an Illinois corporation and Shirlee is its sole shareholder. Bressner alleges that Amzo is the successor to a business started by Dennis but unrelated to Jay's TV. According to Bressner, until starting Amzo, Shirlee had no experience in the management or operation of a business. Amzo was initially run out of the basement of the Ambroziaks' 3.5 acre home in Woodstock, Illinois (the "Bull Valley Property"). After the couple's bankruptcy, Shirlee purchased the Bull Valley property in her own name for $470,000 and made substantial improvements to the property after that. The property remains solely in her own name.¹

Amzo has been a successful business. The company now employs approximately 30 people. Since 1996, Amzo has operated out of the Bull Valley property as well as a 46,300 square foot commercial building in Chicago (the "Chicago Property"). The Chicago Property is held in trust with Harris Palatine, N.A. as trustee and Shirlee as the sole beneficiary.

The Ambroziaks' financial affairs and the management of Amzo, according to Bressner, are structured to prevent Bressner from collecting on the outstanding debt. Apparently, Dennis has no income or assets upon which Bressner can collect. Bressner maintains, however, that the success of Amzo is due to the work and efforts of Dennis. According to Bressner, Dennis is the moving force behind the company and the de facto manager of the company's affairs. Although Dennis does not receive a salary, he has access to a company expense account and, of course, is married to, resides with, and enjoys the financial support of Shirlee, whom Bressner refers to as the nominal head of Amzo.

Since starting Amzo, Shirlee has applied for and received loans and lines of credit from several banks. In these applications, Shirlee represented that she enjoyed a monthly income of $12,500 and that she was the sole shareholder, officer, and director of Amzo. She has not, in any of these applications, revealed the extent of Dennis's involvement in the company or, as Bressner alleges, that Dennis is the moving force behind the operation and management of Amzo.

A. Procedural Background

In April 2002, Bressner filed his first complaint in this lawsuit. In that complaint Bressner raised a RICO claim as well as state law claims of civil conspiracy and fraudulent transfer. Bressner also requested that a constructive trust be imposed on the Ambroziaks' joint assets. The district court dismissed Bressner's RICO claim, finding that the facts did not establish the requisite predicate act of bank fraud. Because Bressner had not pleaded diversity jurisdiction, the district court also dismissed, with leave to amend, Bressner's complaint in its entirety. See 28 U.S.C. § 1367.

Bressner returned to the district court again with a "Second Amended Complaint" in January 2003. In that complaint, Bressner, asserting diversity jurisdiction, raised only his state law claims. In response to the defendants' Rule 12(b)(6) motion, the district court, in May 2003, dismissed this complaint. In a ruling in June 2003, the court also denied Bressner's motion for leave to file a "Third Amended Complaint." This complaint would have added a request for a declaratory judgment on the theory that Shirlee and Amzo acted as alter egos of Dennis in his attempt to shield assets from his creditors. This appeal followed.

II.

In this appeal, Bressner challenges the dismissal of his RICO claim, his state law claims, and the denial of his request for the imposition of a constructive trust. Bressner also appeals the denial of his motion for leave to file a third amended complaint. We turn first to Bressner's RICO claim.

A. The RICO Claim

At the heart of his first amended complaint and this appeal is Bressner's claim that the Ambroziaks, through Amzo, have engaged in a pattern of racketeering with the ultimate aim of concealing from Dennis's creditors the true nature Dennis's role in, and the assets he has derived from, Amzo. To establish a RICO claim, a plaintiff must show "'(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.'" Lachmund v. ADM Investor Servs., Inc., 191 F.3d 777, 783 (7th Cir.1999) (quoting Vicom, Inc. v. Harbridge Merchant Servs., Inc., 20 F.3d 771, 778 (7th Cir.1994)). "A pattern of racketeering activity consists, at a minimum, of two predicate acts of racketeering committed within a ten-year time period." Goren v. New Vision Int'l, Inc., 156 F.3d 721, 728 (7th Cir.1998).

Bressner alleged as the predicate acts bank fraud as defined by 18 U.S.C. § 1344. Whether Bressner has properly alleged claims of bank fraud by the Ambroziaks is central to determining whether Bressner has a RICO claim and, as we shall see, whether many of the rest of Bressner's claims can stand. Under federal law, bank fraud involves a scheme or artifice:

(1) to defraud a financial institution; or

(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.

18 U.S.C. § 1344. Thus, to commit bank fraud, the Ambroziaks must have developed a scheme or artifice to defraud a bank or to gain property from a bank through false or fraudulent pretenses, representations, or promises.

Bressner goes to great lengths in his original complaint in an attempt to show how Shirlee Ambroziak's two bank transactions amounted to bank fraud. If so, such fraud could be labeled as two of the predicate acts necessary to establish a pattern of racketeering activity. But, as the district court succinctly noted, "[i]t is obvious that no bank or financial institution has been defrauded by the Ambroziaks." The court went on to note that the loans were made to Amzo, "to which Dennis is a legal stranger." Amzo was not liable for Dennis's debts nor was Dennis liable for Amzo's debts.

The district court properly dismissed Bressner's RICO claim. An essential element of bank fraud is "intent to deceive a bank in order to obtain from it money or other property." United States v. Lane, 323 F.3d 568, 583 (7th Cir.2003) (emphasis added). Bressner claims that the Ambroziaks conspired to deceive the lending banks by not disclosing that it was Dennis, not Shirlee, who was the driving force that made Amzo a successful business. By so bestowing upon Shirlee all of the benefits of Dennis's apparent business talent, Dennis was purposely left with no income or assets in his name that Bressner could attach to satisfy his debt. But the bank fraud statute isn't designed to protect Bressner, it is designed to protect banks. Cf. United States v. Davis, 989 F.2d 244, 246-47 (7th...