Central Laborers' Pension Fund et al v. AEH Construction, Inc. et al
Filing
55
OPINION entered by Judge Sue E. Myerscough on 10/13/2015. SEE WRITTEN OPINION. Plaintiffs' Combined Motion and Memorandum to Avoid Fraudulent Transfers Pursuant to 740 ILCS 160/6(b) (d/e 38 ) is GRANTED. The Court finds the July 14, 2014 tr ansfers from AEH to Mr. Hensley were fraudulent. The parties shall submit supplemental briefing on the appropriate remedy for the fraudulent transfers. Plaintiffs shall file their supplemental brief on or before October 21, 2015. Mr. Hensley shall file his supplemental brief on or before October 29, 2015. (DM, ilcd)
E-FILED
Wednesday, 14 October, 2015 02:31:22 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 9
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). On October 5, 2015, this Court held an
evidentiary hearing on the Motion. Following the hearing, the Court
took the matter under advisement. The Court now GRANTS the
Motion.
I. BACKGROUND
The background of this case is more fully set forth in this
Court’s September 17, 2015 Opinion (d/e 49). In sum, 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 June 2014, Plaintiffs obtained a default judgment against
AEH. See Order of Default Judgment (d/e 22); see also Opinion
(d/e 47) (amending June 20, 2014 Order of Default Judgment to
include language that there was no just reason to delay in the entry
of a final judgment on the Order of Default Judgment nunc pro
Page 2 of 9
tunc). In May 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-Haskins 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 the Combined Motion and
Memorandum to Avoid Fraudulent Transfers Pursuant to 740 ILCS
160/6(b) (d/e 38) at issue herein. In the Motion, Plaintiffs contend
that AEH made fraudulent transfers to Mr. Hensley in the amount
of $22,200 on July 14, 2014 and that those transfers should be
avoided.
In an Opinion dated September 17, 2015, this Court found
that Plaintiffs made a sufficient showing that AEH made fraudulent
transfers to Mr. Hensley such that an evidentiary hearing must be
set. See Opinion (d/e 49). On October 5, 2015, the Court held the
evidentiary hearing.
At the hearing, Mr. Hensley testified that he was the sole
shareholder of AEH since late 1900, early 2000. Other evidence
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shows Mr. Hensley was also a director and an officer of AEH. See
Combined Motion, Ex. D, Illinois Secretary of State Corporation File
Detail Report.
Mr. Hensley testified that he made three loans to AEH and
that promissory notes were prepared for each of the loans. The first
loan was made in November 2008 in the amount of $145,628.52 at
7% interest. AEH agreed to repay the loan by making monthly
payments of $2,820.60 per month to Mr. Hensley. See Ex. 1, Loan
Amortization.
The second loan was made on November 1, 2011 in the
amount of $9,000 at 6% interest. AEH agreed to repay the loan by
making monthly payments of $398.89. See Ex. 2, Loan
Amortization.
The third loan was made in January 2012 in the amount of
$190,000 at 6 percent interest. AEH agreed to repay the loan by
making monthly payments of $2,109.39. See Ex. 3, Loan
Amortization.
Mr. Hensley testified that AEH did not make all the monthly
payments on the loans and none of the loans had been paid in full.
In addition, as of March 20, 2012, AEH owed Mr. Hensley
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$55,411.72 in unpaid principal on Loan 1, $7,573.79 in unpaid
principal on Loan 2, and $188,313.66 in unpaid principal on Loan
3. Although Mr. Hensley initially testified that AEH did not make
any payments on the loans after March 20, 2012, he later clarified
that there could have been two or three payments made after March
2012 and through the summer. He did not receive any payments
from AEH on any of the loans after December 2012 until July 2014.
In July 2014, Mr. Hensley received $22,200 from AEH for past
due payments on the loans. The source of the funds was restitution
paid to AEH by AEH’s former bookkeeper who had been convicted of
embezzling from AEH.
Mr. Hensley testified that at some point,1 Farmers &
Mechanics Bank (F&M Bank) declared certain loans AEH had with
the bank to be in default. AEH and F&M entered into a workout
settlement, which cured the default. AEH was not in default on the
loans it had with F&M Bank when it transferred $22,200 to Mr.
Hensley in July 2014. Mr. Hensley relied on legal counsel before
Evidence submitted by Plaintiffs in support of their motion show that the
default occurred in January 2013. See Combined Motion, Ex. H.
1
Page 5 of 9
he, in his capacity with AEH, transferred the $22,200 to himself as
payment on the three loans.
According to Mr. Hensley, AEH ceased its core operation—
general construction work—in October or November 2012. Through
the winter, AEH continued to do snow plowing. At the end of
January, beginning of February 2013, AEH opened an additional
corporate checking account at Mid-West Bank of Western Illinois.
AEH ceased operations in the first part of March 2013. The Illinois
Secretary of State Corporation File Detail Report shows that AEH
was involuntarily dissolved on August 8, 2014. See Combined
Motion, Ex. D.
II. ANALYSIS
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); see also, e.g., In re Kimmell, 480 B.R. 876, 885
(Bankr. N.D. Ill. 2012) (discussing fraudulent transfer provisions
and noting that “[i]t is generally acceptable for a solvent individual
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to give away his property as gifts to whomever he pleases. But
where such an individual is insolvent, the true economic interest
being given away is his creditors’ not his own”).
As noted above, this Court previously found that Plaintiffs
made a sufficient showing that the transfers were fraudulent and
set the matter for an evidentiary hearing. At that hearing, Mr.
Hensley defended the transfers on essentially two grounds. First,
Mr. Hensley asserted that AEH was not insolvent when the
transfers were made. Second, even if the Court voids the transfers,
AEH owes Mr. Hensley over $315,000. Because there is no
evidence of other debt besides the debt owed to Plaintiffs, the
majority of the transferred funds should still go to Mr. Hensley.
The Fraudulent Transfer Act defines the circumstances under
which a debtor is considered insolvent, including the following:
(a) A debtor is insolvent if the sum of the debtor’s debts is
greater than all of the debtor’s assets at a fair valuation.
(b) A debtor who is generally not paying his debts as they
become due is presumed to be insolvent.
740 ILCS 160/3(a), (b). The Act defines a debt as “liability on a
claim.” 740 ILCS 160/2(e). A claim is a “right to payment, whether
or not the right is reduced to judgment, liquidated, unliquidated,
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fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured.” 740 ILCS 160/2(c).
The evidence presented shows that prior to the July 2014
payments by AEH to Mr. Hensley, AEH had defaulted on multiple
loans it had received from F&M Bank, which caused the bank to
call the loans immediately due and payable. Although the default
was cured by the workout agreement, AEH had not made any
payments on the loans made by Mr. Hensley to AEH since at least
the summer of 2012. Because AEH was not paying its debts to Mr.
Hensley as they became due, AEH is presumed to have been
insolvent when the July 2014 payments were made, and the
presumption has not been rebutted.
The Court, however, agrees with Mr. Hensley that Plaintiffs
may not be entitled to the entire $22,200. The parties have not
briefed the issue of whether the Court can apportion the $22,200
between what appear to be the only two creditors of AEH.
Therefore, the parties shall submit additional briefing on the proper
remedy for the fraudulent transfer.
Page 8 of 9
III. CONCLUSION
For the reasons stated herein, Plaintiffs’ Combined Motion and
Memorandum to Avoid Fraudulent Transfers Pursuant to 740 ILCS
160/6(b) (d/e 38) is GRANTED. The Court finds the July 14, 2014
transfers from AEH to Mr. Hensley were fraudulent. The parties
shall submit supplemental briefing on the appropriate remedy for
the fraudulent transfers. Plaintiffs shall file their supplemental
brief on or before October 21, 2015. Mr. Hensley shall file his
supplemental brief on or before October 29, 2015.
ENTERED: October 13, 2015
FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE
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