Caudill Seed & Warhouse Co. In v. Mark Rose
Filed opinion of the court by Judge Easterbrook. AFFIRMED. Frank H. Easterbrook, Circuit Judge; Ilana Diamond Rovner, Circuit Judge and Diane S. Sykes, Circuit Judge. [6862569-1]  [16-4072]
United States Court of Appeals
For the Seventh Circuit
CAUDILL SEED & WAREHOUSE CO., INC.,
MARK D. ROSE,
MMR FARMS LLC,
Appeal from the United States District Court for the
Southern District of Indiana, New Albany Division.
No. 4:15‐cv‐00004‐TWP‐TAB — Tanya Walton Pratt, Judge.
ARGUED APRIL 10, 2017 — DECIDED AUGUST 18, 2017
Before EASTERBROOK, ROVNER, and SYKES, Circuit Judges.
EASTERBROOK, Circuit Judge. Between 2007 and 2009 Rose
Seeding & Sodding, Inc., bought more than $120,000 of
products on credit from Caudill Seed & Warehouse Co.;
Mark Rose, the principal owner and manager of Rose Seed‐
ing, personally guaranteed the debt. Neither Rose Seeding
nor Rose paid any of the debt, and after cutting off deliveries
Caudill Seed filed suit. While the litigation proceeded, Rose
set out to become judgment‐proof. By the time a district
court ruled for Caudill Seed, see Caudill Seed & Warehouse Co.
v. Rose Seeding & Sodding, Inc., 764 F. Supp. 2d 1022 (S.D. Ind.
2010), Rose had given 440 acres of land to MMR Farms LLC,
owned by his son Matt. This was a classic fraudulent con‐
veyance: a transfer for inadequate consideration (none)
while unable to pay one’s debts. Rose followed up by filing
for bankruptcy in 2011, having paid not one penny of Cau‐
dill Seed’s judgment (then over $150,000, including contrac‐
tual attorneys’ fees, and growing at 8% interest).
Caudill Seed began an adversary proceeding in Rose’s
bankruptcy and asked the judge to pull the 440 acres into the
estate under 11 U.S.C. §548. The bankruptcy trustee made a
similar request, which was settled for a payment of $100,000.
The bankruptcy judge approved that settlement over Caudill
Seed’s objection. Caudill Seed then asked the judge to deny
Rose a discharge. Section 727(a)(2) of the Bankruptcy Code
provides that a debtor who transferred property, during the
year before bankruptcy began, with the intent to defeat a
creditor’s recovery, is not entitled to a discharge.
The bankruptcy judge granted Caudill Seed’s motion,
and that decision led to a second settlement. To get a dis‐
charge, Rose reaffirmed his debt to Caudill Seed. He prom‐
ised to pay it $100,000, starting with an immediate $15,000.
The agreement adds that failure to pay the full $100,000 enti‐
tles Caudill Seed to a judgment for $300,000 (less anything
paid toward the $100,000). This reaffirmation agreement led
the bankruptcy judge to discharge Rose’s remaining debts,
other than the debt under the new agreement.
Rose paid the first installment of $15,000 but nothing
more. Caudill Seed might have asked the bankruptcy judge
to rescind the discharge on the ground that Rose was still
attempting to bilk his creditors. Instead, however, Caudill
Seed filed a new suit (under the diversity jurisdiction) based
on the reaffirmation agreement. Rose ignored that suit, and a
default judgment for $285,000 was entered. Predictably, Rose
failed to pay. It’s not that he paid what he could but was un‐
able to satisfy the judgment; it is that he thumbed his nose at
Caudill Seed and the federal court, paying nothing at all.
Next Caudill Seed commenced supplemental collection
proceedings. These depend on state law, see Fed. R. Civ. P.
69(a)(1), and Caudill Seed contended that, under Indiana
law, it is entitled to execute on the land that had been fraud‐
ulently conveyed to MMR Farms. That got Rose’s attention,
and MMR’s too. They do not deny that the transfer was a
fraudulent conveyance, but they insist that the settlement of
the Trustee’s claim in the bankruptcy precludes any further
action to collect Rose’s debts from the value of the 440 acres.
Rose and MMR maintained that the settlement establishes a
kind of issue preclusion that blocks recovery.
The district court rejected that argument, observing that
issue preclusion depends on an actual decision, by a judge,
that is necessary to the earlier litigation. 2016 U.S. Dist. LEXIS
153204 (S.D. Ind. Nov. 4, 2016). MMR has appealed; Rose has
not. (Matt Rose also purports to appeal, but he was not a
party in the district court.)
We agree with the district court’s conclusion. As the
American Law Institute puts it: “When an issue of fact or
law is actually litigated and determined by a valid and final
judgment, and the determination is essential to the judg‐
ment, the determination is conclusive in a subsequent action
between the parties, whether on the same or a different
claim.” Restatement (Second) of Judgments §27 (1982) (blacklet‐
ter text). Whether the transfer of the 440 acres was a fraudu‐
lent conveyance was not actually litigated and decided in the
bankruptcy. Instead the Trustee’s claim was settled. There
was no judicial decision other than one approving the set‐
tlement—which the judge did on the ground that creditors
were $100,000 to the good. The decision to approve the set‐
tlement does not resolve the question whether a fraudulent
conveyance occurred. The closest the bankruptcy court came
to resolving the subject was the decision in Caudill Seed’s fa‐
vor denying Rose a discharge under §727(a)(2).
A litigant who invokes a settlement is not relying on is‐
sue preclusion. The appropriate legal defense is release.
When approving the settlement, the bankruptcy judge twice
used the word “release”; it follows from this, MMR main‐
tains, that any fraudulent‐conveyance action has been re‐
leased by the Trustee—and as the Trustee represented all of
the bankruptcy estate’s creditors, the release would bind
Caudill Seed. That’s possible, of course, but it sure would
help to see the document to learn what, exactly, was re‐
leased. Yet MMR did not quote the release or include it in the
We did a little digging and found the bankruptcy judge’s
order approving the settlement. This order indeed refers to a
release—a release by Rose and MMR Farms of “any claims
that he/she/it may have against the Bankruptcy Estate.” We
did not find the release itself, but if the bankruptcy judge’s
description is correct then Rose and MMR Farms remain ex‐
posed to an order undoing the fraudulent conveyance, just
as the district court held.
At oral argument the bench asked counsel for MMR
whether it is the recipient, rather than the giver, of a release.
Counsel was unable to point to any document in the record
that releases MMR from a fraudulent‐conveyance action; in‐
deed, counsel conceded that the trustee had not released
MMR. Four days later, however, counsel sent the court a let‐
ter stating that this concession is incorrect and that “after re‐
viewing the file” he discovered a mutual release dated De‐
cember 2012 in which the Trustee releases Rose and MMR
from all known and unknown claims arising out of or relat‐
ed to the fraudulent‐conveyance action.
Counsel did not submit a copy of the release with the let‐
ter but offered to provide it on request. The proper next step
would have been to ask the district court to add this docu‐
ment to the record and transmit it to the court of appeals.
That was not done. The asserted release still is not in the rec‐
ord. But it would not have mattered if counsel had added
the document to the record or sent it directly to us.
Release is an affirmative defense. Fed. R. Civ. P. 8(c)(1).
Affirmative defenses must be raised in a party’s responsive
pleading. Rose and MMR did not present the defense of re‐
lease to the district court in this enforcement proceeding;
their only defense was issue preclusion. So a potential de‐
fense of release was forfeited before the proceedings reached
this court. Rose and MMR, who concocted a fraudulent
transfer, tried to stiff Rose’s creditors, played games with the
bankruptcy court in order to get a discharge without keep‐
ing the promise on which the discharge depended, and then
thumbed their noses at the proceeding to enforce the reaf‐
firmation agreement, have run out of chances.
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