Central Laborers' Pension Fund et al v. AEH Construction, Inc. et al
Filing
49
OPINION: Plaintiff's Combined Motion and Memorandum to Avoid Fraudulent Transfers Pursuant to 740 ILCS 160/6(b) (d/e 38 ) is set for an evidentiary hearing on October 5, 2015 at 10:00 a.m. in Courtroom 1 in Springfield before U.S. District Ju dge Sue E. Myerscough. Plaintiffs shall notify all affected persons or entities of the hearing. At the hearing, the Court will determine whether the three transfers from AEH to Mr. Hensley were fraudulent transfers. Entered by Judge Sue E. Myerscough on 9/17/2015. (ME, ilcd) Document type - Opinion. Modified on 9/17/2015 (ME, ilcd).
E-FILED
Thursday, 17 September, 2015 04:38:54 PM
Clerk, U.S. District Court, ILCD
IN THE UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
CENTRAL LABORERS' PENSION FUND, CENTRAL )
LABORERS' SUPPLEMENTAL PENSION FUND,
)
CENTRAL LABORERS' WELFARE FUND,CENTRAL )
LABORERS' RETIREE WELFARE FUND, CENTRAL)
LABORERS' ANNUITY FUND, CENTRAL
)
LABORERS' ANNUITY PREMIUM FUND, ILLINOIS )
LABORERS' AND CONTRACTORS' JOINT
)
APPRENTICESHIP & TRAINING PROGRAM,
)
NORTH CENTRAL ILLINOIS LABORERS'
)
HEALTH & WELFARE FUND, CENTRAL ILLINOIS )
LABORERS'-EMPLOYERS' COOPERATIVE
)
EDUCATION TRUST, NORTH CENTRAL ILLINOIS )
LABORERS'-EMPLOYERS' COOPERATIVE
)
EDUCATION TRUST, NORTH CENTRAL ILLINOIS )
MIDWEST REGIONAL ORGANIZING COMMITTEE, )
NORTH CENTRAL ILLINOIS MARKET
)
PRESERVATION FUND, LABORERS' OF ILLINOIS )
VACATION FUND, SOUTHERN AND CENTRAL
)
VACATION FUND, CENTRAL ILLINOIS LEGAL
)
SERVICES FUND, SUBSTANCE ABUSE TESTING )
FUND, LABORERS' LOCAL 362, and LABORERS' )
LOCAL 538,
)
)
Plaintiffs,
)
)
v.
) No. 14-3052
)
AEH CONSTRUCTION, INC., and MID-WEST
)
ILLINOIS CONCRETE CONSTRUCTION, INC.,
)
)
Defendants.
)
OPINION
SUE E. MYERSCOUGH, U.S. District Judge.
Page 1 of 16
This cause is before the Court on Plaintiffs’ Combined Motion
and Memorandum to Avoid Fraudulent Transfers pursuant to 740
ILCS 160/6(b) (d/e 38). The Motion is set for an evidentiary
hearing on October 5, 2015 at 10:00 a.m., at which time Thomas
Hensley may assert his claim in these supplementary proceedings.
I. BACKGROUND
In February 2014, Plaintiffs filed a lawsuit against AEH
Construction, Inc. (AEH) and Mid-West Illinois Concrete
Construction, Inc. (Mid-West) under the Employee Retirement
Income Security Act of 1974 (ERISA). The lawsuit pertains to AEH’s
alleged failure to pay certain contributions on behalf of employees
who are members of the union and participants in Plaintiffs’
employee benefit funds. See Complaint (d/e 1). In Count I,
Plaintiffs allege that AEH owes audit liabilities, delinquent
contributions, report form shortages, liquidated damages and audit
costs in the amount of $22,001.16 as well as other unpaid
contributions and liquidated damages found owing at the time
judgment is rendered. Count II alleges that Mid-West, as the
successor company to AEH, is liable for the delinquent
contributions and costs owed by AEH.
Page 2 of 16
On May 5, 2014, United States Magistrate Judge Tom
Schanzle-Haskins entered an Order of Default against AEH only.
See Order (d/e 12). On June 20, 2014, this Court entered an Order
of Default Judgment against AEH. See Order (d/e 22). The case
remained pending against Mid-West.
On May 1, 2015, a Citation to Discover Assets directed to
Thomas Hensley, President of AEH, was issued (d/e 32). On May
29, 2015, Magistrate Judge Schanzle-Haskins1 held a Citation to
Discover Assets hearing. Mr. Hensley appeared. At the conclusion
of the hearing, Judge Schanzle-Haskins continued the citation
generally to allow Mr. Hensley time to produce further
documentation.
On July 13, 2015, Plaintiffs filed a Combined Motion and
Memorandum to Avoid Fraudulent Transfers Pursuant to 740 ILCS
160/6(b) (d/e 38). Upon review of the Motion, this Court entered a
Text Order questioning whether Plaintiffs could pursue proceedings
in aid of execution of a judgment where a final judgment had not
been entered. See August 4, 2015 Text Order. The Court directed
On July 23, 2015, Judge Schanzle-Haskins recused himself from
participation in this matter. The case is now assigned to Magistrate Judge
Jonathan Hawley.
1
Page 3 of 16
Plaintiffs to file a memorandum addressing whether the Court could
proceed on the supplementary proceedings. Id.
On August 17, 2015, Plaintiffs filed a Memorandum (d/e 41)
addressing the issue identified in the Court’s August 4, 2015 order.
Plaintiffs concluded that the Court would need to enter a Rule 54(b)
certification prior to proceeding on the supplementary proceedings.
That same day, Plaintiffs filed the Combined Motion and
Memorandum to Certify the Order of Default Judgment (d/e 42)
pursuant to Rule 54(b) at issue herein. The Court granted the
Combined Motion to Certify in an Opinion filed September 15,
2015. The Court expressly determined, pursuant to Federal Rule of
Civil Procedure 54(b), that there was no just reason to delay in the
entry of a final judgment on the Order of Default Judgment nunc
pro tunc. See Opinion (d/e 47).
Now that a final judgment has been entered, the Court turns
to the pending Combined Motion and Memorandum to Avoid
Fraudulent Transfers Pursuant to 740 ILCS 160/6(b). The
Combined Motion was served upon AEH (through Mr. Hensley,
President of AEH), and counsel for Mid-West. No responses have
been filed.
Page 4 of 16
In the Combined Motion, Plaintiffs contend that AEH made
fraudulent transfers to Mr. Hensley and that the transfers should
be avoided.
II. ANALYSIS
Pursuant to Federal Rule of Civil Procedure 69(a), proceedings
supplemental to a judgment “must accord with the procedure of the
State where the court is located, but a federal statute governs to the
extent that it applies.” Fed. R. Civ. P. 69(a). In Illinois, a judgment
creditor may prosecute supplementary proceedings to discover
assets and compel application of non-exempt assets or income
toward the judgment. 735 ILCS 5/2-1402(a). The judgment
becomes a lien when the citation is served in accordance with the
statute. 735 ILCS 5/2-1402(m). Illinois courts have allowed
fraudulent conveyance actions to be pursued in connection with
supplementary proceedings. See Central Laborers’ Pension Fund v.
Alliance Commercial Concrete, Inc., No. 08-3065, 2014 WL
3376890, at *3 (C.D. Ill. July 10, 2014) (Mills, J.), citing Alan Drey
Co., Inc. v. Generation, Inc., 22 Ill. App. 3d 611 (1974); Meggison v.
Stevens, 21 Ill. App. 3d 505 (1974).
Page 5 of 16
A.
In Light of the Rule 54(b) Certification, this Court Has
Jurisdiction Over the Combined Motion to Avoid
Fraudulent Transfers
As the recitation of the facts above shows, the supplemental
proceedings in this case began in May 2015, before this Court made
its Rule 54(b) finding which rendered the judgment final. Under
Illinois law, supplemental proceedings are not available to creditors
until a final judgment has been entered. Dexia Credit Local v.
Rogan, 629 F.3d 612, 620-21 (7th Cir. 2010) (citing Marble
Emporium, Inc. v. Vuksanovic, 339 Ill. App. 3d 84, (2003);Ill. Sup.
Ct. R. 277(a); 735 ILCS 5/2-1402(a)). This raises the question
whether the supplementary proceedings are void, in which case,
Plaintiffs would have to recommence the supplementary
proceedings by serving a new Citation to Discover Assets.
Very little case law exists on this precise issue. The most
similar case is Dexia, 629 F.3d 612, which supports a finding that
the Plaintiffs should not have to recommence the supplementary
proceedings.
In Dexia, the plaintiff obtained a default judgment against
defendant Peter Rogan and his partner companies in May 2007.
Dexia, 629 F.3d at 617. The district court did not make any
Page 6 of 16
findings pursuant to Rule 54(b), despite the fact that the judgment
did not dispose of the claim against one of the defendants,
Bainbridge Management L.P. (Bainbridge LP), who was in
bankruptcy and subject to an automatic stay. Id. at 618.
The plaintiff began supplementary proceedings to locate
Rogan’s assets, and, as part of those proceedings, the plaintiff
served citations to discover assets on the trustee of the Rogan
Children Trusts and the individual adult children (Rogan Children).
Id. at 618. The Rogan Children challenged the plaintiff’s request to
turn over the assets held in the trusts. Id.
During the supplementary proceedings, the district court
discovered that two of the defendants in the plaintiff’s underlying
suit—including Bainbridge LP, the defendant in bankruptcy—held
dual citizenship, which destroyed diversity jurisdiction. Dexia, 629
F.3d at 618. Therefore, the court dismissed those two defendants
pursuant to Federal Rule of Civil Procedure 21 as nondiverse,
dispensable parties. Id. The court also recognized for the first time
that the May 2007 default judgment was not final because it had
not disposed of the claim against Bainbridge LP. Id. The court
ruled, however, that by dismissing the dispensable parties,
Page 7 of 16
including Bainbridge LP, the May 2007 default judgment became
retroactively final as of May 2007. Id.
The Seventh Circuit agreed, finding that Rule 21 dismissals
are retroactive. Id. at 621. The Seventh Circuit also noted that “the
district court’s actions were entirely consistent with considerations
of finality in those situations where a judgment becomes final
during the pendency of an appeal.” Id. at 622. That is, when a
nonfinal order is appealed, the Seventh Circuit allows a district
court to enter a nunc pro tunc order to make the nonfinal order
final and confer jurisdiction on the appellate court. Id. The
Seventh Circuit concluded that the “retroactive application of Rule
21 rendered the judgment final and enforceable against [the]
remaining parties, and the court did not err in allowing the matter
to proceed upon the citations that had already issued.” Id.
While the case sub judice does not involve a Rule 21
dismissal, this case does involve a nunc pro tunc order, which
made the nonfinal order final as of the date it was originally
entered. See, e.g., Brown v. Columbia Sussex Corp., 664 F.3d 182,
190 (7th Cir. 2011) (recognizing that a Rule 54(b) certification
entered nunc pro tunc makes a nonfinal order constructively
Page 8 of 16
appealable as of the date the order was originally entered).
Moreover, nothing would be gained by requiring Plaintiffs re-issue
the Citation to Discover Assets. See, e.g., Local P-171,
Amalgamated Meat Cutters & Butcher Workmen of N. Am. v.
Thompson Farms Co., 642 F.2d 1065, 1074 (7th Cir. 1981)
(“Dismissal of the appeal here because of the belated certification
would be empty paper shuffling”). In fact, the parties acted as
though a final order had been entered—Plaintiffs by proceeding with
supplementary proceedings and AEH by asserting no objection to
supplementary proceedings. Moreover, Mr. Hensley participated in
the citation proceeding and produced documents in response
thereto. See, e.g., Philips Med. Sys., Int’l B.V. v. Bruetman, 791 F.
Supp. 731, 732-33 (N.D. Ill. 1992) (denying motion to quash
citation to discover assets, finding the defendant waived the right to
challenge the citation by responding to the citation, producing
documents, and originally taking the position that the judgment
was a final order).
When this Court entered the nunc pro tunc order, the nonfinal
order was made final as of the date it was originally entered. As a
result, this Court has jurisdiction over Plaintiffs’ Uniform
Page 9 of 16
Fraudulent Transfer Act claim. See Trade Solutions, Inc. v.
Eurovictory Sports, Inc., No. 97 C 1153, 1998 WL 792486 at *5
(N.D. Ill. Nov. 9, 1998) (wherein the district court, after discovering
during supplementary proceedings that the order was not final,
entered an order finding no just reason for delay and concluded
that the court then had jurisdiction over the plaintiff’s Uniform
Fraudulent Transfer Act claim).
B.
The Court Sets the Fraudulent Transfer Act Claim For a
Hearing
The Uniform Fraudulent Transfer Act provides that certain
transfers made by a debtor are fraudulent:
A transfer made by a debtor is fraudulent as to a creditor
whose claim arose before the transfer was made if the
transfer was made to an insider for an antecedent debt,
the debtor was insolvent at that time, and the insider had
reasonable cause to believe that the debtor was insolvent.
740 ILCS 160/6(b). The Fraudulent Transfer Act defines a creditor
as “a person who has a claim” and a debtor as “a person who is
liable on a claim.” 740 ILCS 160/2(d), (f). A claim is defined as “a
right to payment, whether or not the right is reduced to judgment . .
. .” 740 ILCS 160/2(c). Pursuant to 740 ILCS 160/8(a)(1), a
creditor may obtain “avoidance of the transfer or obligation
Page 10 of 16
necessary to the extent necessary to satisfy the creditor’s claim.” In
addition, where a judgment creditor has obtained judgment against
a debtor, “the creditor, if the court so orders, may levy execution on
the asset transferred. 740 ILCS 160/8(a)(1); 740 ILCS 160/8(b).
Plaintiffs assert that AEH made fraudulent transfers to Mr.
Hensley. The transfers at issue are: (1) Check No. 4101 from AEH
to Mr. Hensley in the amount of $8,000 dated July 14, 2014; (2)
Check No. 4102 from AEH to Mr. Hensley in the amount of $8,000
dated July 14, 2014; and (3) Check No. 4103 from AEH to Mr.
Hensley in the amount of $6,200 dated July 14, 2014.2 See
Combined Mot., Ex. A. Plaintiffs contend that all of the criteria for
fraudulent transfers under 740 ILCS 160/6(b) exist.
The Court finds that Plaintiffs have made a sufficient showing
such that Mr. Hensley must be given notice of the proceedings and
an opportunity to appear and assert his claim prior to an entry of
judgment avoiding the transfers. Meggison, 21 Ill. App. 3d at 509
(“The statutes and rules which govern supplementary proceedings
all contemplate that a third party claiming an interest in the
Although additional sums were transferred to Mr. Hensley following the
default judgment, Plaintiffs recognize that only $22,200 is within the statute of
limitations for fraudulent transfers under 740 ILCS 160/6(b).
2
Page 11 of 16
property involved must be given a ‘trial as in other cases’; hence,
must be given a full opportunity to present and maintain his or her
claim”) (citations omitted); Dexia, 629 F.3d at 625 (finding that third
parties challenging the turnover order were not entitled to a jury
trial as opposed to a bench trial in supplemental proceedings
because the relief sought was equitable); Alliance Commercial, 2014
WL 3376890 at *6 (finding that the transfer of vehicles showed an
actual intent to hinder, delay or defraud but setting the matter for a
hearing to determine whether the transfers were fraudulent
transfers).
First, Plaintiffs’ claim arose before the transfer was made. The
Fraudulent Transfer Act defines a claim as
a right to payment, whether or not the right is reduced to
judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured.
740 ILCS 160/2(c). Plaintiffs demanded $22,313.56 from AEH as
early as December 13, 2012. See Combined Motion, Ex. B (d/e 382). AEH acknowledged the claim on January 9, 2013. Id. Exhibit
C. On June 20, 2014, the Court entered the Order of Default
Page 12 of 16
Judgment. The transfers occurred on July 14, 2014. Clearly,
Plaintiffs’ claim arose before the transfers were made.
Second, the transfers were likely made to an insider. If the
debtor is a corporation, the Fraudulent Transfer Act defines an
“insider” to include a director, officer, or person in control of the
debtor. 740 ILCS 160/2(g)(2)(A)-(C). The transfers were made by
AEH to Mr. Hensley. Mr. Hensley was both a director and an officer
of AEH. See Combined Motion, Ex. D, Illinois Secretary of State
Corporation File Detail Report.
Third, the transfers were likely made for an antecedent debt
(i.e., a debt that occurred prior to Plaintiffs’ claim). Mr. Hensley had
three outstanding shareholder loans to AEH dated October 14,
2008, November 1, 2011, and January 1, 2012. See Combined
Mot., Ex. E. The antecedent debts were incurred before Plaintiffs’
December 13, 2012 claim (which was reduced to judgment June 20,
2014). As of March 20, 2012, AEH owed Mr. Hensley $55,411.72
for Shareholder Note 1, $7,573.79 for Shareholder Note 2, and
$188,313.66 for Shareholder Note 3. Id. Mr. Hensley also
indicated that check Nos. 4101, 4102, and 4103 were “for payment
of past due notes made to AEH by Tom Hensley.” Id. Ex. G.
Page 13 of 16
Therefore, the payments represented by check Nos. 4101, 4102,
and 4103 appear to be for payment of an antecedent debt.
Fourth, Plaintiffs have presented evidence that AEH was
insolvent at the time the transfer was made. The Fraudulent
Transfer Act presumes that a “debtor who is generally not paying
his debts as they become due” is insolvent. 740 ILCS 160/3(b).
AEH defaulted on multiple loans it had from Farmers and
Mechanics Bank (F & M Bank). On January 22, 2013, F & M Bank
sent AEH a letter advising that the Bank had declared a default on
the AEH business loan as of January 18, 2013 and accelerated the
balances due. Exhibit H. The nature of the default on the business
loan included failing to make timely payments on the loan. Id.
Plaintiffs assert that after the declaration of default, AEH
opened a new checking account and used the new account to winddown the corporate affairs of AEH. Mot. ¶ 23. Plaintiffs also assert
that, during this time, AEH effectively ceased operations due to the
company’s default. Id. ¶ 24. In April 2013, AEH, Mr. Hensley, and
F &M Bank reached a Workout Settlement Agreement, which largely
resolved AEH Construction, Inc.’s default. Id. The Illinois Secretary
of State Corporation File Detail Report shows that AEH was
Page 14 of 16
involuntarily dissolved on August 8, 2014 (one month after the
transfers at issue herein). The Court finds that this evidence all
suggests that AEH was insolvent when the transfers were made.
Finally, Plaintiffs have presented evidence that Mr. Hensley,
an insider, had reasonable cause to believe the debtor was
insolvent. As the sole shareholder and director, as well as the
President, Secretary, and Treasurer of AEH, Mr. Hensley had
reasonable cause to believe that AEH was insolvent. See Mot. to
Dismiss, Exhibit D (wherein Mr. Hensley identifies himself as the
sole shareholder, director, and President, Secretary, and Treasurer
of AEH). Moreover, Mr. Hensley was involved in the F&M Bank
default process and reached a settlement with F&M Bank.
As noted above, a judgment creditor may obtain “avoidance of
the transfer or obligation to the extent necessary to satisfy the
creditor’s claim”, and, where a judgment creditor has obtained
judgment against a debtor, “the creditor, if the court so orders, may
levy execution on the asset transferred.” 740 ILCS 160/8(a)(1); 740
ILCS 160/8(b). Plaintiffs state they are willing to provide Mr.
Hensley with an opportunity to appear and assert his claim in the
supplementary proceedings. After such proceeding, the Court
Page 15 of 16
would have the power to avoid the transfers to the extent necessary
to satisfy, in part, Plaintiffs’ claims if the Court finds the transfers
fraudulent. N.L.R.B. v. Int’l Measurement & Control Co., Inc., 978
F.2d 334, 338 (7th Cir. 1992) (finding conveyance fraudulent under
section 6(b) of the Uniform Fraudulent Transfer Act where that the
defendant paid off debts to insiders when the defendant was
insolvent and the insiders knew the defendant was insolvent).
III. CONCLUSION
For the reasons stated herein, Plaintiff’s Combined Motion
and Memorandum to Avoid Fraudulent Transfers Pursuant to 740
ILCS 160/6(b) (d/e 38) is set for an evidentiary hearing on October
5, 2015 at 10:00 a.m. in Courtroom 1 in Springfield before U.S.
District Judge Sue E. Myerscough. Plaintiffs shall notify all affected
persons or entities of the hearing. At the hearing, the Court will
determine whether the three transfers from AEH to Mr. Hensley
were fraudulent transfers.
ENTERED: September 17, 2015
FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE
Page 16 of 16
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?