Siragusa v. Collazo (In re Collazo)

• Decision Date: 01 July 2019
• Docket Number: Case No. 12 B 44342,Adversary No. 13 A 00216
• Parties: In re: ARTURO COLLAZO, Debtor. ROBERT J. SIRAGUSA, individually and as Trustee for the ROBERT J. SIRAGUSA, MD EMPLOYEE BENEFIT TRUST (formerly, Dermatology Associates of Bay County, P.A., Defined Benefit Trust); DANA SIRAGUSA; JULIE SIRAGUSA; and ROBERT JOSEPH SIRAGUSA, Plaintiffs, v. ARTURO COLLAZO, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

In re: ARTURO COLLAZO, Debtor.ROBERT J. SIRAGUSA, individually and as Trustee for the ROBERT J. SIRAGUSA,MD EMPLOYEE BENEFIT TRUST (formerly, Dermatology Associates of Bay County, P.A., Defined Benefit Trust);DANA SIRAGUSA; JULIE SIRAGUSA; and ROBERT JOSEPH SIRAGUSA, Plaintiffs, v. ARTURO COLLAZO, Defendant.

Case No. 12 B 44342

Adversary No. 13 A 00216

UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

July 1, 2019

Chapter 7

Honorable Deborah L. Thorne

Proposed Findings of Fact & Conclusions of Law

Introduction & Procedural Background

This matter comes before the court upon remand from the Seventh Circuit Court of Appeals. Siragusa v. Collazo (In re Collazo), 817 F.3d 1047, 1054 (7th Cir. 2016). On remand, this court was directed to answer two questions. See S & P, Inc. v. Pfeifer, 189 B.R. 173, 180 (N.D. Ind. 1995) (discussing the scope of a mandate from the Court of Appeals), aff'd, 78 F.3d 587 (7th Cir. 1996).

First, does Dana Siragusa ("Dana") have an actual fraud claim against Arturo Collazo ("Collazo") under section 523(a)(2)(A) of the Bankruptcy Code? Collazo, 817 F.3d at 1053 ("Should the [Supreme] Court agree with our analysis in the McClellan case, Dana will be entitled on remand to resuscitate her fraud claim."); see also Husky Int'l Elecs., Inc. v. Ritz, 136 S. Ct. 1581, 1590 (2016) (agreeing with the analysis in the McClellan case); McClellan v. Cantrell, 217 F.3d 890 (7th Cir. 2000).

Second, what is the amount of the already-found-to-be nondischargeable debt that Collazo owes to Dana and Robert Joseph Siragusa ("Robert Joseph")? Collazo, 817 F.3d at 1053 ("But the judge had, and on remand should consider, two other alternatives, because the entry of a monetary judgment after a finding of nondischargeability is 'related to [a] case[ ] under title 11.'"); see also Siragusa v. Collazo (In re Collazo), No. 12 B 44342, 2014 WL 866075, at *11 ("Relying on Collazo's false representation, Dana and Robert Joseph transferred $200,000 to a Collazo-owned LLC for his benefit, and none of this has been returned to them. Therefore, there is a debt owed to Dana and Robert Joseph, and it was, in fact, caused by Collazo's false representation."); Collazo, 817 F.3d at 1049 ("The one claim the bankruptcy and district judges held not to be discharged is Collazo's debt to two of Dr. Siragusa's children, Dana and Robert Joseph, concerning a development project in Arizona. Collazo has not appealed that ruling."). That debt is based on a $200,000 loan that Dana and Robert Joseph made to a Collazo-owned LLC in connection with Collazo's proposed Arizona project. See Collazo, No. 12 B 44342, 2014 WL 866075, at *11.

Prior to the scheduled trial on Dana's actual fraud claim (the first question described above), the parties settled. This settlement happened in late January / early February of 2019 and has not yet been reflected on the docket. That left only the issue as to the amount of the nondischargeable debt owed to Dana and Robert Joseph (the second question described above). These proposed findings of fact and conclusions of law address the proper amount of that debt.

Factual Background

In November of 2005, Dana and Robert Joseph loaned $200,000 to CG Development, an entity owned and controlled by Collazo and his business partner. Collazo, No. 12 B 44342, 2014 WL 866075, at *1, *4. As established by the unrebutted declarations submitted, Robert Joseph loaned $150,000, while Dana loaned $50,000. See Docket Nos. 184, 191, 194. Collazo induced the CG Development loan by way of a false statement, namely a statement that other loans relating to projects in Chicago would be repaid within 30 to 60 days from the proceeds of the sale of certain condo units. Collazo, No. 12 B 44342, 2014 WL 866075, at *10. That statement was false at the time it was made because, among other things, the condo units were owned by entities owing no obligation to the Siragusas, and the units were also encumbered by mortgages. Id. CG Development did not pay back any part of the fraudulently induced $200,000 loan. Id. at *11. The bankruptcy court's conclusion that this fraud-based debt owed to Dana and Robert Joseph is nondischargeable under section 523(a)(2)(A) was never disturbed on appeal. Collazo, 817 F.3d at 1049. The only lingering question is the debt's amount.

Jurisdiction & Authority

Jurisdiction to hear this matter exists. See 28 U.S.C. §§ 1334(b), 157(a), N.D. Ill. L.R. 40.3.1(a); see also Collazo, 817 F.3d at 1053 (holding that "related to" jurisdiction exists under 28 U.S.C. § 1334(b)). In light of this court's limited mandate on remand, it will submit proposed findings of fact and conclusions of law to the District Court for that court to review de novo. See Collazo, 817 F.3d at 1053-54 (outlining the "two other alternatives" for the bankruptcy judge on remand); Fed. R. Bankr. P. 9033; see also 28 U.S.C. § 157(c)(1); Exec. Benefits Ins. Agency v. Arkison, 573 U.S. 25 (2014).¹

Discussion

The total amount of the debt owed is purely a question of substantive nonbankruptcy law, here Illinois law.² See, e.g., In re Cupit, 514 B.R. 42, 56-57 (Bankr. D. Colo. 2014), aff'd, 541 B.R. 739 (D. Colo. 2015); In re Dawson, 507 B.R. 348, 357 (Bankr. D. Utah 2014); In re Johnson, 485 B.R. 642, 647 (Bankr. D. Colo. 2013); see also Collazo, 817 F.3d at 1051-52 (noting that the establishment of the debt itself is governed by state law); In re Roland, 294 B.R. 244, 249 (Bankr. S.D.N.Y. 2003).³

I. The Principal Amount of Damages

The substantive nonbankruptcy law debt owed here is based on common law fraud, not on a contract. See, e.g., Weatherford v. Fishback, 4 Ill. 170, 173-74 (1841) ("[F]raud or deceit, accompanied with damage, is a meritorious cause of action."); see also Collazo, 817 F.3d at 1051-52 (noting that the debts owed to the Siragusas are based on fraud and not on any applicable contracts); Collazo, No. 12 B 44342, 2014 WL 866075, at *7 ("It is true that the Siragusas cannot assert Collazo's liability on the basis of the contractual obligation of the borrower-LLCs without proving the necessity for piercing the LLC veil. However, the Siragusas and the Employee Trust assert common law fraud claims based on specific representations made by Collazo.") (emphasis added). Where one fraudulently induces another to lend money to another, the damages to the lender are equal to the amount of money lent with interest thereon from the time of the loan until the time of judgment. Home v. Walton, 7 N.E. 100, 101 (Ill. 1886); Commercial Nat. Bank of Peoria v. Fed. Deposit Ins. Corp., 476 N.E.2d 809, 815 (Ill. App. Ct. 1985) ("[T]he measure of damages for a fraudulently induced loan [is] the sum of money lent plus interest for the time that plaintiff was deprived of possession."); accord Black v. First Fed. Sav. & Loan Ass'n of Fargo, N. Dakota, F.A., 830 P.2d 1103, 1114 (Colo. App. 1992).

The actual amount of money lent here was $200,000, and there is no doubt in this case that the Siragusas are out that amount of money. Not a cent was ever repaid, and the note matured over 10 years ago. Collazo, No. 12 B 44342, 2014 WL 866075, at *11 ("Relying on Collazo's false representation, Dana and Robert Joseph transferred $200,000 to a Collazo-owned LLC for his benefit, and none of this has been returned to them.") (emphasis added). The Siragusas are therefore entitled to at least $200,000 from Collazo.

II. Prejudgment Interest

There is also the matter of interest. The court can only award interest in limited circumstances, however.

A. An Award of Legal Prejudgment Interest under an Applicable Contract or Statute?

First, the court may award interest if an agreement or statute provides for interest. Tri-G, Inc. v. Burke, Bosselman & Weaver, 856 N.E.2d 389, 412 (Ill. 2006). Here, there is an agreement, but it is between the Siragusas and CG Development, not between the Siragusas and Collazo. No attempt has been made to hold Collazo personally liable for CG Development's contractual obligations, such as by piercing the corporate veil or by asserting an alter ego theory. Collazo, 817 F.3d at 1051-52; Collazo, No. 12 B 44342, 2014 WL 866075, at *7. Interest therefore can be awarded here neither on the basis of, nor at the rate set in, the CG Development note. See Schwitters v. Springer, 86 N.E. 102, 103 (Ill. 1908) (noting that it was error to instruct the jury to look to the note rate of interest where the defendant was not liable on the notes and was only liable to the plaintiff based on fraud and deceit); accord In re Weaver, 579 B.R. 865, 907-08 & n.19 (Bankr. D. Colo. 2018).

A statute exists, however, that has been held to cover this type of case (a fraud case where the damages are liquidated and easily ascertainable). 815 ILCS 205/2; Sheth v. SAB Tool Supply Co., 990 N.E.2d 738, 761 (Ill. App. Ct. 2013); Obermaier v. Obermaier, 470 N.E.2d 1047, 1054 (Ill. App. Ct. 1984); Forrester v. State Bank of E. Moline, 363 N.E.2d 904, 909-10 (Ill. App. Ct. 1977); Pfeffer v. Farmers State Bank of Schaumburg, 263 Ill. App. 360, 373 (1931). The statute provides for interest at 5% per annum. See 815 ILCS 205/2.

Because there is no applicable contract between the parties,⁴ this statute alone provides the basis for an award of prejudgment interest in this case unless Collazo is correct that this court should award equitable prejudgment interest at some other rate. It is to that question that the court now turns.

B. An Award of Equitable Prejudgment Interest?

Collazo argues that the correct interest rate to use is one based on alternative investments that could have been made with the money. Since this argument rests neither on statute nor on contract, Collazo must be arguing for the court to make an equitable award of prejudgment interest. See Tri-G, 856 N.E.2d at 412. The court can only make an equitable award of interest on a claim that is substantively equitable, or one that sounds in equity. See id. (looking to the "substance of the claim"); ...