Cohen v. Bucci
| Decision Date | 11 August 1989 |
| Docket Number | No. 89 C 3610,Bankruptcy No. 85 B 14214,Adv. No. 86 A 1029.,89 C 3610 |
| Citation | 103 BR 927 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | Joseph E. COHEN, Trustee, Plaintiff-Appellee, v. Joseph BUCCI, Debtor, Defendant-Appellant. |
Gary E. Dienstag, Springer, Casey, Dienstag & Devitt, P.C., Chicago, Ill., for plaintiff-appellee.
Joel A. Brodsky, Brodsky and Hohxa, Chicago, Ill., for defendant-appellant.
Debtor-appellant Joseph Bucci ("Bucci") appeals from a judgment of the United States Bankruptcy Court for the Northern District of Illinois, 97 B.R. 954, denying him a discharge under Section 727(a)(2)(A) of the Bankruptcy Code. 11 U.S.C. § 727(a)(2)(A). The court has jurisdiction over this appeal under 28 U.S.C. § 158(a) and Bankruptcy Rule 8001(a). Fed.R. Bankr.P. 8001(a).
The relevant facts are not in dispute. On October 22, 1985, Bucci filed a petition for bankruptcy under Chapter Seven of the Bankruptcy Code. 11 U.S.C. § 701 et seq. Bucci's petition listed unsecured debts of $620,193.24 and secured debts of $257,086.72. Cohen Ex. 4. The petition did not list any non-exempt assets. Id. The trustee in Bucci's bankruptcy and the plaintiff-appellee in this action, Joseph Cohen ("Cohen"), promptly filed an adversary action to set aside and avoid pre-bankruptcy transfers of property under 11 U.S.C. § 548(a)(1) and (2). Cohen alleged that Bucci illegally conveyed property to his son and ex-wife pursuant to a divorce decree entered in the Circuit Court of DuPage County, Illinois. Cohen Ex. 2. That property consisted of the following: (1) one-half interest in residential property located in Addison, Illinois; (2) an interest as the sole contract purchaser of the County-Aire Motel in Addison, Illinois, including personal property located in the motel; (3) one-half interest in real property located in Chicago, Illinois; and (4) a 1979 Cadillac automobile. Cohen Ex. 1.
Bucci, represented by counsel, contested the allegations. Cohen Ex. 3. The bankruptcy court found that Bucci engaged in a fraudulent conveyance of property within one year prior to the filing of his bankruptcy petition with the actual intent to hinder, delay or defraud his creditors. Cohen Ex. B. The court found that Bucci violated Section 548(a)(1) and authorized Cohen to reclaim the property. Id. Bucci did not appeal.
After prevailing on his Section 548 claim, Cohen filed a separate action, No. 86 A 1029, to deny Bucci's discharge from bankruptcy. The adversary complaint alleged four grounds for denying the discharge, including a claim under Section 727(a)(2)(A) that Bucci transferred his property with the actual intent to hinder, delay or defraud his creditors. Cohen Brief Ex. A at 1-2. The bankruptcy court found that Bucci illegally conveyed his property in violation of Section 727(a)(2)(A) and denied the discharge. The court based its decision in part on collateral estoppel grounds, holding that its prior order in the Section 548 proceeding precluded Bucci from relitigating the issue of fraudulent intent in the Section 727 proceeding. Bucci appeals the decision. He contends that the bankruptcy court erred in applying the doctrine of collateral estoppel.
This court's authority to review a decision of the bankruptcy court is governed by Bankruptcy Rule 8013. Fed.R.Bankr.P. 8013. Matter of Evanston Motor Co., Inc., 735 F.2d 1029, 1030-1 (7th Cir.1984). Rule 8013 provides district courts with the power to affirm, reverse or modify a bankruptcy order, or to remand for further proceedings. Id. The bankruptcy court's findings of fact are accepted as true unless they are clearly erroneous. Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 574, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985); In re Ebbler Furniture and Appliances, Inc., 804 F.2d 87, 89 (7th Cir.1986); In re Pearson Bros., 787 F.2d 1157, 1161 (7th Cir.1986). Where the issues on appeal involve questions of law or the legal significance accorded to facts, this court is authorized to conduct a de novo review of the record and reach an independent conclusion. In re Ebbler Furniture and Appliances, Inc., 804 F.2d at 89; In re Kimzey, 761 F.2d 421, 423 (7th Cir.1985); Matter of Evanston Motor Co., Inc., 735 F.2d 1029, 1031 (7th Cir.1984); Matter of Supreme Plastics, Inc., 8 B.R. 730, 734 (N.D.Ill. 1980).
11 U.S.C. § 727(a)(2)(A). The gravamen of both Section 548(a)(1) and Section 727(a)(2)(A) is "intent to hinder, delay or defraud." 11 U.S.C. §§ 548(a)(1), 727(a)(2)(A). The bankruptcy judge applied the doctrine of collateral estoppel to preclude Bucci from relitigating the issue of fraudulent intent. Cohen Brief Ex. A. The court reasoned that because Bucci transferred property with the intent to hinder, delay or defraud his creditors in violation of Section 548(a)(1), he acted with the intent required by Section 727(a)(2)(A). Id. at 5-13.
There is no dispute that collateral estoppel applies in bankruptcy discharge proceedings. Brown v. Felsen, 442 U.S. 127, 139 n. 10, 99 S.Ct. 2205, 2213 n. 10, 60 L.Ed.2d 767 (1979); Combs v. Richardson, 838 F.2d 112, 115 (4th Cir.1988); Klingman v. Levinson, 831 F.2d 1292, 1294-96 (7th Cir.1987). For collateral estoppel to apply, four requirements must be met: (1) the party against whom estoppel is asserted must have been a party to the prior adjudication and actively participated in the litigation; (2) the issue that forms the basis for estoppel must have been actually litigated and determined on the merits; (3) the determination of the particular issue must have been necessary or essential to the court's judgment; and (4) the issue to be precluded is identical to the issue in the former action. Klingman, 831 F.2d 1292, 1295 (7th Cir.1987); Gilldorn Savings Ass'n v. Commerce Savings Ass'n, 804 F.2d 390, 392 (7th Cir.1986); Garza v. Henderson, 779 F.2d 390, 393 (7th Cir. 1985). The purpose of collateral estoppel is to prevent duplicative litigation. Gilldorn Savings Ass'n, 804 F.2d at 392, citing Bowen v. United States, 570 F.2d 1311, 1322 (7th Cir.1978). The party asserting estoppel has the burden of establishing which factual or legal issues were actually litigated and determined in a prior action. Gilldorn Savings Ass'n, 804 F.2d at 393; Frye v. United Steelworkers of America, 767 F.2d 1216, 1220 (7th Cir.1985).
The bankruptcy judge properly applied the doctrine of collateral estoppel to Bucci's case. First, the adversaries in both proceedings are the same. In each case, Cohen sued Bucci. Cohen Brief Ex. A and B. In each proceeding, Bucci was represented by counsel and actively participated in the litigation. Id.
The second element of collateral estoppel is also present. The bankruptcy judge properly found that the issue of fraudulent intent was actively litigated and determined on the merits in the Section 548 proceeding. Cohen Ex. A at 9-10. The court in the Section 548 proceeding uncovered several badges of fraud, including (1) Bucci's failure to disclose during his divorce proceedings that he was a party-defendant in several lawsuits; (2) the lack or inadequacy of consideration underlying the transfers; (3) a familial relationship among the parties to the transfer; (4) Bucci's retention of possession, benefit and use of the transferred property; and (5) the general chronology of events. Cohen Brief Ex. B at 18-24. The findings of fact entered by the bankruptcy court are thorough, uncontroverted and unquestionably probative of fraudulent intent. The issue of Bucci's intent was actively litigated and determined on the merits in the Section 548(a)(1) litigation. See Cohen Ex. A at 9-10.
The finding of fraudulent intent was necessary and essential to the bankruptcy court's judgment. Actual intent is an element of the trustee's cause of action under Section 548(a)(1). In re Parameswaran, 50 B.R. 780, 785 (S.D.N.Y.1985); In re Garcia, 88 B.R. 695, 700 n. 11 (Bankr. E.D.Pa. 1988) citing Phillips v. Wier, 328 F.2d 368, 371 (5th Cir.1964) and Springmann v. Gary State Bank, 124 F.2d 678, 681 (7th Cir.1941). Without a finding of fraudulent intent supported by clear and convincing evidence, the bankruptcy court could not have entered its judgment. Id.
And finally, the bankruptcy court properly found that the issue of intent under Section 727(a)(2)(A) is identical to the issue of intent under Section 548(a)(1). The statutory sections are identically worded; each requires proof of intent to hinder, delay or defraud. Significantly, courts faced with issue preclusion in the context of a bankruptcy discharge proceeding and a divorce decree have uniformly concluded that a finding of fraudulent intent in a prior Section 548(a)(1) action is controlling for purposes of Section 727(a)(2)(A):
Having determined that the debtor\'s transfer of his interest in...
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