U.S. v. Resnick

• Decision Date: 02 February 2010
• Docket Number: No. 08-4039.,08-4039.
• Citation: U.S. v. Resnick, 594 F.3d 562 (7th Cir. 2010)
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Adam R. RESNICK, Defendant, and Domenic Poeta, Third-Party Respondent-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

594 F.3d 562

UNITED STATES of America, Plaintiff-Appellee, v. Adam R. RESNICK, Defendant, and Domenic Poeta, Third-Party Respondent-Appellant.

No. 08-4039.

United States Court of Appeals, Seventh Circuit.

February 2, 2010.

Joseph A. Stewart (argued), Office of the United States Attorney, Chicago, IL, for Plaintiff-Appellee.

Eric S. Palles (argued), Ravitz & Palles, Chicago, IL, for Third-Party Respondent-Appellant.

Leslie Ann Gerardo, Office of the United States Attorney, Washington, DC, for Defendant.

Before POSNER, MANION, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

This case presents issues arising from the government's efforts to collect a criminal's financial obligations to the government from a third who received money from the in solvent Adam Resnick pled guilty to one count of wire fraud under 18 U.S.C. § 1343 for his role in a check-kiting scheme that caused the failure of Universal Federal Savings Bank. Under the plea agreement, Resnick would serve prison time and owe approximately $9.75 million in restitution to Universal's insurer, the Federal Deposit Insurance Corporation ("FDIC"). Resnick was insolvent, so the government invoked the supplemental procedures authorized by 18 U.S.C. § 3613 to collect some of the money from Domenic Poeta.¹ Poeta was a bookie to whom Resnick paid significant sums of money to satisfy illegal gambling debts. After a bench trial in which Resnick testified and Poeta did not, the district court entered judgment for the government for $848,197.63 ($647,211.00 in check transactions from Resnick to Poeta, plus prejudgment interest of $200,986.63) under theories of fraudulent transfer under the Federal Debt Collection Procedure Act ("FDCPA") and common-law unjust enrichment. Poeta has appealed, and we affirm.

I. The Facts

Adam Resnick carried out a check-kiting scheme that led to the collapse of Universal Federal Savings Bank. With the help of two co-Antonette and Terrence Navarro, Resnick obtained signatory rights to a checking account at Universal, circumvented Universal's regulations, and gained access to millions of dollars. By the time the bank finally failed, Resnick had stolen approximately $10.5 million. The FDIC stepped in to protect depositors by paying approximately $9.75 million to cover the losses.

In the criminal prosecution against Resnick and the Navarros, Resnick reached a plea agreement with the government. Under the agreement, the district court sentenced Resnick to 42 months in federal prison and ordered him to pay $10,457,825.60 in total restitution, including $9,750,545.60 to the FDIC.

The government has been able to recover only a fraction of the restitution judgment against Resnick. Throughout his check-kiting scheme, Resnick held few assets and was insolvent. With each illicit withdrawal from Universal, Resnick became indebted to Universal for the amount of fraud proceeds he obtained. Accordingly, the government has sought to trace the proceeds of the scheme to recover the restitution owed by Resnick.

A significant portion of the funds that Resnick stole from Universal went toward feeding his remarkable gambling habit, including money that Resnick paid to appellant Domenic Poeta to satisfy illegal gambling debts. The government presented to the district court 16 checks totaling $647,211. All were drawn by Resnick on his Universal bank account and were made payable either to Poeta himself or to "cash" and were negotiated by Poeta.

Based on the criminal judgment against Resnick, the government initiated third-party proceedings against Poeta under the original criminal caption. Federal law allows the government to collect financial obligations under criminal judgments by using federal and state procedures for collecting civil judgments. 18 U.S.C. § 3613(a). On April 9, 2007, the government served a citation to discover assets directed to Poeta pursuant to Federal Rule of Civil Procedure 69 and 735 Ill. Comp. Stat. 5/2-1402. Pursuant to the citation, Poeta appeared in person with counsel on August 23, 2007 to be examined under oath as to Resnick's assets. When questioned about his gambling operations and his association with Resnick, Poeta repeatedly invoked his Fifth Amendment privilege against self-incrimination.

The government then filed a petition for relief against Poeta, alleging that Resnick had defrauded Universal of approximately $10.5 million and had used some of that money to pay Poeta for illegal gambling debts. The petition alleged that the transfers from Resnick to Poeta were fraudulent because they were not supported by consideration (an illegal gambling contract provides no value), and that Resnick was insolvent and indebted to his victim Universal at the times of the transfers. The government alleged both intentional fraudulent transfer and constructive fraudulent transfer under 28 U.S.C. §§ 3304(b)(1)(A) and (B)(ii), respectively. The government later added a third theory of unjust enrichment. As a remedy, the government sought $647,211, plus prejudgment interest.

Poeta's answer to the government's petition failed to deny any facts relevant to the government's theories of recovery. Poeta either admitted the allegations, claimed insufficient information to admit or deny them, or invoked his Fifth Amendment privilege against self-incrimination.

Given the perceived lack of factual dispute, the government filed a motion for judgment on its petition. Poeta responded by filing a motion to strike the government's motion. Poeta argued that Resnick never rightfully owned the money that he transferred to Poeta, from which Poeta concluded that the money was not properly the subject of a fraudulent transfer claim. Poeta also argued that he had not received sufficient discovery from the government to defend the claims against him.

On June 6, 2008, the district court held a trial to resolve the pending matters. The government offered the testimony of Adam Resnick and six exhibits. Poeta called three witnesses but did not testify himself. The district judge heard oral argument on June 30 and July 2, 2008. On July 23, 2008, the district judge orally announced that he was finding for the government for the full amount sought, $647,211 plus prejudgment interest of $200,986.63, for a total of $848,197.63. The district court entered this judgment in writing on July 31, 2008, but then vacated that judgment on August 6, 2008. See R. 142, 143, 144. The district court asked the government to submit draft findings of fact and conclusions of law, and the government did so. Poeta filed objections and submitted an alternative set of findings and conclusions, seeking setoff from the final judgment for money he had paid to Resnick in gambling winnings. Poeta later filed supplemental proposed conclusions of law in which he advanced for the first time the affirmative defenses of contributory negligence and failure to mitigate damages.

On September 24, 2008, the district court issued its Findings of Fact and Conclusions of Law. The district court found that the government had established Poeta's liability on the alternative theories of constructive fraudulent transfer and unjust enrichment. The court declined to decide whether Resnick was ever the "lawful owner" of the funds he transferred to Poeta. If he was the owner, the district court reasoned, the government could recover for fraudulent transfer, and if he was not, the government could recover for unjust enrichment. Also on September 24, 2008, the district court entered a new judgment against Poeta for the total sum of $848,197.63. See R. 155, 156, 157.

Poeta moved to alter or amend the judgment pursuant to Federal Rule of Civil Procedure 59(e). His motion reargued the issues of ownership, mitigation of damages, and contributory negligence. The motion also asserted for the first time that the post-judgment supplementary proceedings were not the appropriate vehicle for adjudicating the government's claims and had denied him due process of law. The district court denied this motion, and Poeta has appealed.

II. Ownership and Fraudulent Transfer Under the FDCPA

To establish Poeta's liability for constructive fraudulent transfer under the FDCPA, the government was required to show that the judgment debtor Resnick:

ma[de] the transfer ... without receiving a reasonably equivalent value in exchange for the transfer or obligation; [and]

intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.

28 U.S.C. § 3304(b)(1)(B)(ii).

Resnick's payments to Poeta satisfied the first element because an illegal gambling obligation has no legal value. Under Illinois law, all obligations incurred through illegal gambling are null and void, and any such obligation may be set aside and vacated. Illinois Loss Recovery Act, 720 Ill. Comp. Stat. 5/28-1, 28-7. The second element was also satisfied because Resnick certainly should have believed that he was incurring debts beyond his ability to pay when he defrauded Universal of millions of dollars, in large part to feed his gambling habit. Poeta does not dispute these two elements, but he argues that Resnick made no "transfer" to him within the meaning of the FDCPA because Resnick never legally owned the (stolen) money he paid to Poeta.

The FDCPA specifies that a "transfer is not made until the debtor has acquired rights in the asset transferred." 28 U.S.C. § 3305(4). Poeta argues that since Resnick acquired the money through fraud, he was never the legal "owner" of any funds that he transferred from the Universal account. Therefore, the argument goes, section 3305(4) places Resnick's payments to Poeta outside the scope of the FDCPA, so that Poeta cannot be found liable on a fraudulent transfer theory.²

The FDCPA's fraudulent transfer provisions are not written in terms of legal and rightful ownership. The key statutory inquiry here is whether Resnick had "rights in the...