In re Roti
| Decision Date | 07 January 2002 |
| Docket Number | Bankruptcy No. 99 B 15306.,Adversary No. 00 A 01179. |
| Parties | In re James P. ROTI, Debtor. Brenda Porter Helms, not individually, but as Trustee, Plaintiff, v. Barbara Roti, Julie Marie Nelmark and Ann Greco, Defendants. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
Jeffrey W. Finke, Chicago, IL, for Plaintiff/Trustee.
Bruce de'Medici, Law Offices of Bruce de'Medici, PC, Oak Park, IL, for Defendants.
Brenda Porter Helms, The Helms Law Firm, P.C., Wheaton, IL, Trustee.
This matter comes before the Court on the second amended complaint filed by Brenda Porter Helms, not individually, but as Chapter 7 case trustee (the "Trustee") of the estate of James P. Roti (the "Debtor") against Barbara Roti,1 Julie Marie Nelmark and Ann Greco (collectively the "Defendants"). For the reasons set forth herein, the Court grants judgment in favor of the Trustee and against Defendants Julie Marie Nelmark and Ann Greco pursuant to Count I of the complaint. Each Defendant is ordered under 11 U.S.C. § 542 to turn over to the Trustee the sum of $29,850.00, plus prejudgment interest of $1,695.04 from December 22, 2000 through January 7, 2002. In addition, the Court enters judgment in favor of the Trustee and against Defendants Julie Marie Nelmark and Ann Greco under Counts II and III of the complaint. The Court holds that the transfers made by the Debtor to the Defendants were fraudulent pursuant to 11 U.S.C. § 548(a)(1)(A) and 11 U.S.C. § 548(a)(1)(B). Under 11 U.S.C. § 550(a)(1), the Trustee may recover those transfers in the sum of $29,850.00 from each Defendant for the benefit of the Debtor's estate, plus prejudgment interest of $1,695.04 from December 22, 2000 through January 7, 2002. Finally, the Court enters judgment in favor of the Trustee and against Defendants Julie Marie Nelmark and Ann Greco under Counts IV, V and VI of the complaint. The Court holds that the transfers from the Debtor to the Defendants were fraudulent pursuant to 740 ILCS 160/5(a)(1), 160/5(a)(2) and 160/6(a). Under 11 U.S.C. § 544(b)(1), the Trustee may recover those transfers in the sum of $29,850.00 from each Defendant for the benefit of the Debtor's estate, plus prejudgment interest of $1,695.04 from December 22, 2000 through January 7, 2002.
The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(E) and (H).
Many of the underlying facts are undisputed and have been stipulated to by the parties. On November 6, 1996, American National Bank (the "Bank") filed a lawsuit against the Debtor seeking $428,170.75. On May 7, 1997, the Debtor executed a personal financial statement listing total assets of $838,779.00 and total liabilities of $1,059,767.00, resulting in a negative net worth of $220,988.00. See Trustee's Exhibit No. 2.
In the period 1997-1999, Act 10, Ltd. ("Act 10") was an Illinois corporation whose sole shareholder was the Debtor. During that period, Act 10, Ltd. did not do any business. Advantage Floor Machine Company ("Advantage") was an Illinois corporation which was incorporated on December 29.1997. The Debtor was its sole shareholder. Hild Floor Machine Co. ("Hild") was an Illinois corporation whose sole shareholder was the Debtor. On September 6, 1997, the Debtor withdrew $100,000.00 from his Dean Witter securities account and deposited the proceeds in the bank account of Act 10, Ltd. See Trustee's Exhibit No. 3.
On September 11, 1997, the Bank obtained a judgment against the Debtor and Hild in the amount of $428,170.75. See Trustee's Exhibit No. 5. In an attempt to enforce that judgment, on December 21, 1997, the Bank served a citation to discover assets on the Debtor, which was returnable on January 26, 1998. See Trustee's Exhibit No. 6. On January 23, 1998, the Debtor filed his first Chapter 7 petition which listed one creditor — the Bank. See Trustee's Exhibit No. 7. That same date, Hild filed a Chapter 11 petition. That case was converted to Chapter 7 on March 19, 1998. The Debtor's case was dismissed on May 8, 1998.
On June 2, 1998, the Bank filed a motion to compel a citation examination of the Debtor in the state court case. See Trustee's Exhibit No. 9. On September 30, 1998, a rule to show cause was entered against the Debtor in that case. See Trustee's Exhibit No. 10.
On February 4, 1999, ten checks each in the amount of $9,950.00 were issued to the Debtor by the Northern Trust Company from Roseland Limited Partnership ("Roseland") funds. See Trustee's Group Exhibit No. 18. Roseland was a family partnership in which the Debtor was a general partner and Defendants Ann Greco and Julie Marie Nelmark, his daughters, were limited partners. Also on February 4, 1999, fourteen other Roseland partners, including the Defendants, were each issued one check from the Northern Trust in the amount of $99,500.00. See Trustee's Group Exhibit No. 19 and Exhibit No. 20.
On February 24, 1999, the Debtor was served with the rule to show cause in the state case. See Trustee's Exhibit No. 14. On February 27, 1999, Defendant Ann Greco deposited in her bank account three Northern Trust Company checks each in the amount of $9,950.00 which the Debtor had endorsed over to her. See Trustee's Exhibit Nos. 21C, 21D and 21E. She was told by the Debtor that he could not open a bank account and he asked her to use her account to pay his expenses. Ann Greco did not enter into any written agreement with the Debtor at or after the date the Debtor delivered to her the three checks totaling $29,850.00. Also on February 27, 1999, Defendant Julie Marie Nelmark deposited in her bank account three Northern Trust checks each in the amount of $9,950.00 which the Debtor had endorsed over to her. See Trustee's Exhibit Nos. 22B, 22C and 22D and Defendants' Exhibits A and B. Like her sister, Julie Marie Nelmark was asked by the Debtor to use her account to pay his expenses. She did not enter into any written agreement with the Debtor at or after the date he delivered to her the three checks totaling $29,850.00.
On March 2, 1999, a body attachment for contempt of court was issued by the state court against the Debtor. See Trustee's Exhibit No. 15. He was sent notice on March 23, 1999, by the Cook County Sheriff, that a warrant for his arrest had been issued. On April 9, 2001, at the Debtor's request, Defendant Ann Greco wrote a check on her own bank account payable to the Debtor in the amount of $10,000.00. April 27, 1999, was the deadline for the Debtor to turn himself into the custody of the Cook County Sheriff or face arrest in the state court case. See Trustee's Exhibit No. 16.
On May 12, 1999, the Debtor filed the second and current Chapter 7 petition. See Trustee's Exhibit No. 25. On May 25, 1999, at the Debtor's request, Defendant Julie Marie Nelmark wrote a check on her bank account payable to Act 10 in the amount of $15,000.00. See Defendants' Exhibit C. On June 17, 1999, at the Debtor's request, Defendant Julie Marie Nelmark wrote a check on her bank account payable to Advantage in the amount of $14,000.00. Id. On June 23, 1999, at the Debtor's request, Defendant Ann Greco wrote a check on her bank account payable to the Debtor in the amount of $22,000.00. See Defendants' Exhibit G. The Debtor endorsed that check over to his former spouse, Defendant Barbara Roti. Id.
On August 11, 1999, the Debtor filed his Schedules in the bankruptcy case, which listed $521,275.00 in assets and $970,686.00 in liabilities. See Trustee's Exhibit No. 26. Neither the Schedules nor the answers to his Statement of Financial Affairs, which have never been amended, mention any of the funds resulting from the six Northern Trust Company checks delivered by the Debtor to the Defendants. Id.
The Debtor received $148,491.32 from Roseland during calendar year 1999. According to the Debtor, he spent $112,095.05 during the period January 28, 1999, to November 2, 1999. See Defendants' Exhibit H.
On December 22, 2000, the Trustee filed the instant adversary proceeding. The Trustee seeks to avoid and recover the proceeds of the six checks transferred from the Debtor to the Defendants in the sum of $9,950.00 per check, for a total of $29,850.00 against each Defendant, plus prejudgment interest from December 22, 2000 through December 22, 2001. Pursuant to the second amended complaint, the Trustee seeks the following relief: (1) turnover of the subject transfers pursuant to 11 U.S.C. § 542; (2) avoidance of the transfers as fraudulent under 11 U.S.C. §§ 548(a)(1)(A) and 548(a)(1)(B); and (3) avoidance of the transfers as fraudulent under 11 U.S.C. § 544 and 740 ILCS 160/5(a)(1), 160/5(a)(2) and 160/6(b).
The Defendants deny that they were transferees who had control over the check proceeds. Further, they assert that they acted in good faith, and that the Debtor received reasonably equivalent value for the challenged transfers because they transferred the proceeds either to the Debtor or to others at his direction. The Court held an evidentiary hearing and thereafter took the matter under advisement.
The Debtor admitted that he spent $112,000.00 over the nine month period in 1999 in maintaining his home and boat, but did not pay on the judgment obtained by the Bank because he "had to live first." He contended that he relied on his attorney's advice when he filed his Schedules, which included Schedule J, listing his current monthly expenses totaling an average of $6,155.00 per month as of June 12, 1999. He admitted receiving a $100,000.00 check from his securities account (...
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