Central Laborers' Pension Fund et al v. AEH Construction, Inc. et al

Filing 62

OPINION entered by Judge Sue E. Myerscough on 11/16/2015. SEE WRITTEN OPINION. Thomas Hensley is ORDERED to deliver and turn over $22,200 to Plaintiffs. In addition, because judgment has been entered against AEH and in favor of Plaintiffs (d/e 58 ), Plaintiffs may levy execution on the assets transferred or their proceeds. 740 ILCS 160/8(b). (DM, ilcd)

E-FILED

Wednesday, 18 November, 2015 03:23:49 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.
)

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OPINION
SUE E. MYERSCOUGH, U.S. District Judge.
This cause is before the Court to determine the appropriate
remedy for the fraudulent transfers AEH Construction, Inc. (AEH)
made to Thomas Hensley. See Pls. Brief (d/e 57); Hensley’s Brief
(d/e 59). For the reasons that follow, the Court ORDERS Thomas
Hensley to deliver and turn over $22,200 to Plaintiffs. Plaintiffs
may also levy execution on the assets transferred or their proceeds.
I. BACKGROUND
The facts of this case are more fully set forth in this Court’s
previous opinions. See Central Laborers’ Pension Fund v. AEH
Constr., Inc., No. 14-3052, 2015 WL 5996385 (C.D. Ill. Oct. 14,
2015); Central Laborers’ Pension Fund v. AEH Constr., Inc., No. 143052, 2015 WL 5462139 (C.D. Ill. Sept. 17, 2015). In sum,
Plaintiffs obtained a default judgment against AEH in the total
amount of $25,391.66 consisting of audit liabilities, delinquent
contributions, report form shortages, liquidated damages, audit
costs, reasonable attorney’s fees, and costs. See Order of Default
Judgment (d/e 22). Following a Citation to Discover Assets

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hearing, Plaintiffs filed a Motion and Memorandum to Avoid
Fraudulent Transfers Pursuant to 740 ILCS 160/6(b) (d/e 38).
Section 160/6(b) of the Illinois Uniform Fraudulent Transfer
Act provides:
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). This provision is sometimes referred to as an
insider preference claim. Arachnid, Inc. v. Valley Recreation Prods.
Inc., No. 98 C 50282, 2001 WL 1664052, at *6 (N.D. Ill. Dec. 27,
2001).
Plaintiffs alleged that AEH made fraudulent transfers to
Thomas Hensley, who was the president, director, and sole
shareholder of AEH, in the amount of $22,200. Mr. Hensley
asserted that the transfers were past due payments on loans Mr.
Hensley made to AEH.
On October 14, 2015, following a hearing, this Court found
that the transfers from AEH to Mr. Hensley were fraudulent. AEH
Constr., 2015 WL 5996385, at *3 (finding, after a hearing, that Mr.
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Hensley did not rebut the presumption that the transfers were
fraudulent); see also AEH Constr., 2015 WL 5462139, at *4 (finding
Plaintiffs made a sufficient showing that the transfers were
fraudulent and setting the matter for an evidentiary hearing). The
Court found that Plaintiffs’ claim arose before the transfers were
made; the transfers were made to an insider, Mr. Hensley, for an
antecedent debt; AEH was insolvent at the time of the transfers;
and the insider, Mr. Hensley, had reasonable cause to believe that
AEH was insolvent. Id. The Court directed the parties to submit
supplemental briefing on the appropriate remedy for the fraudulent
transfers. Central Laborers’, 2015 WL 5996385 at *3. The parties
have filed supplemental briefs.
II. ANALYSIS
Plaintiffs argue that, because the Court found that the
transfers from AEH to Mr. Hensley were fraudulent and Mr. Hensley
failed to assert a proper defense or claim, Plaintiffs are entitled to
the full $22,200. Plaintiffs ask that the Court order Mr. Hensley to
deliver and turn over $22,200 to Plaintiffs.
Mr. Hensley argues Plaintiffs should not receive the entire
$22,200 and that he should receive an adjustment based upon the
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amounts owed on the loans he made to AEH. Mr. Hensley argues
that the funds transferred were restitution payments made to AEH
by an employee who had stolen money from AEH and that AEH’s
decision to transfer the restitution payments to Mr. Hensley was a
good-faith decision based upon the advice of AEH’s legal counsel.
As such, according to Mr. Hensley, equity demands that he receive
a benefit from the restitution payments.
Mr. Hensley notes that the unpaid principle and interest on
the loans he made to AEH total $312,291. AEH owes Plaintiffs
$25,391.66. Plaintiffs and Mr. Hensley are purportedly the only
creditors of AEH. Therefore, AEH’s debt to Mr. Hensley represents
92.48% of AEH’s total debt ($312,291 plus $25,391.66 equals a
total debt of $337,682.66). Mr. Hensley requests 92.48% of the
$22,200 ($20,530.56). This would entitle Plaintiffs to $1,669.44.
Alternatively, Mr. Hensley requests an adjustment based only
on the unpaid principle which AEH owes Mr. Hensley. The unpaid
principle on his loans to AEH totaled $251,299.17. The unpaid
principle on the loans Mr. Hensley made to AEH represents 90.82%
of AEH’s total debt ($251,299.17 plus $25,391.66 equals a total
debt of $276,690.83). Consequently, Mr. Hensley believes he
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should, in the alternative, receive 90.82% of the $22,200
($20,162.04). This would entitle Plaintiffs to $2,037.96.
The appropriate relief for a fraudulent transfer claim is set
forth in Section 160/8 of the Fraudulent Transfer Act, which
provides in relevant part as follows:
(a) In an action for relief against a transfer or obligation
under this Act, a creditor, subject to the limitations in
Section 9, may obtain:
(1)

avoidance of the transfer or obligation to the
extent necessary to satisfy the creditor’s claim;
***

(b) If a creditor has obtained a judgment on a claim
against the debtor, the creditor, if the court so orders,
may levy execution on the asset transferred or its
proceeds.
740 ILCS 160/8. Section 160/9 provides defenses to a fraudulent
transfer claim and also provides for adjustment of a judgment that
is based on the value of the asset transferred:
(b) Except as otherwise provided in this Section, to the
extent a transfer is voidable in an action by a creditor
under paragraph (1) of subsection (a) of Section 8, the
creditor may recover judgment for the value of the asset
transferred, as adjusted under subsection (c), or the
amount necessary to satisfy the creditor’s claim,
whichever is less. The judgment may be entered against:

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(1) the first transferee of the asset or the person for
whose benefit the transfer was made; or
(2) any subsequent transferee other than a goodfaith transferee who took for value or from any
subsequent transferee.
(c) If the judgment under subsection (b) is based upon
the value of the asset transferred, the judgment must be
for an amount equal to the value of the asset at the time
of the transfer, subject to adjustment as the equities may
require.
740 ILCS 160/9(b), (c) (emphasis added). Under these two
provisions of the Fraudulent Transfer Act, once transfers have been
deemed fraudulent, the creditor may “recover the property
transferred or obtain a money judgment for the value of the assets
transferred, less certain adjustments for the amounts paid by the
transferee [citation omitted].” In re Eckert, 388 B.R. 813, 842
(Bankr. N.D. Ill. 2008) (involving, in part, the sale of property for
less than its fair market value), aff’d, Grochocinski v. Schlossberg,
402 B.R. 825 (N.D. Ill. 2009).
Neither the parties nor this Court have identified an Illinois
court case addressing both an insider preference claim under
Section 160/6(b) and whether the insider is entitled to an
adjustment for any value previously given by the insider to the
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debtor. Because the Uniform Fraudulent Transfer Act is a uniform
act, however, this Court may consider cases interpreting other
states’ versions of the Uniform Fraudulent Transfer Act. Creditor’s
Committee of Jumer’s Castle Lodge, Inc. v. Jumer, 472 F.3d 943,
947 (7th Cir. 2007). Moreover, Illinois’ Uniform Fraudulent
Transfer Act specifically provides that:
This Act shall be applied and construed to effectuate its
general purpose to make uniform the law with respect to
the subject of this Act among states enacting it.
740 ILCS 160/12.
This Court finds persuasive Prairie Lakes Health Care Sys.,
Inc. v. Wookey, 583 N.W.2d 405 (S.D. 1998) and the Uniform
Fraudulent Transfer Act Prefatory Note on which it relies.1 In
Wookey, the court found that the debtors’ transfer of their farm to
their son constituted a fraudulent transfer under South Dakota’s
preferential transfer statute, SDCL 54-8A-5(b) (“5(b)”), which is
identical to 740 ILCS 160/6(b). The court recognized that debtors
are generally allowed to prefer one creditor over another. Id. at 413.
However, the court found that the state’s preferential transfer

Neither Illinois nor South Dakota adopted the Uniform Fraudulent Transfer
Act Prefatory Note (1984).
1

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statute, ¶ 5(b), “curtails this privilege if the debtor is insolvent at
the time and the preference is to an insider.” Id., The Wookey
court found that:
The rationale behind ¶ 5(b) “is that an insolvent debtor is
obligated to pay debts to creditors not related to [the
debtor] before paying those who are insiders.” UFTA,
Prefatory Note. This provision attempts to diminish the
unfair advantage insiders sometimes possess when they
are familiar with the debtor’s financial substance. Unlike
its bankruptcy counterpart, however, ¶ 5(b) permits
avoidance not for the benefit of all unsecured creditors,
but only for the benefit of a plaintiff creditor.
Wookey, 583 N.W.2d at 413; see also Farstveet v. Rudolph ex rel.
Eileen Rudolph Estate, 630 N.W.2d 24, 31 (N.D. 2000) (citing
Wookey and finding that the drafters of the Uniform Fraudulent
Transfer Act intended that the preferential transfer provision
diminish “the sometimes unfair advantages insiders possess when
they are familiar with the debtor’s financial status”).
Although Wookey did not address the appropriate remedy for
an insider preference claim, that court’s interpretation of the insider
preference provision provides a persuasive answer to the question
presented in this case. As noted in Wookey, the insider preference
provision prevents an insolvent debtor from paying insider creditors
ahead of other creditors. To allow the insider to receive a benefit
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from the preferential transfer in the form of a pro rata share of the
transfer would defeat the purpose of the statute. See, e.g., Wookey,
583 N.W.2d at 413, n.5 (noting that the avoidance of the transfer is
for the benefit of the plaintiff creditor, not all creditors, and
recognizing that this “shifts the benefit of the preference from the
insider creditor to the plaintiff creditor”); see also, e.g., N.L.R.B. v.
Int’l Measurement & Control Co., Inc., 978 F.2d 334, 338 (7th Cir.
1992) (noting in dicta that a debtor’s payment of past due wages to
insiders when the debtor was insolvent and the insiders knew the
debtor was insolvent “fit . . . . like a glove” Section 6(b) of the
Uniform Fraudulent Transfer Act, for which the remedy would be to
require the preferred creditors to “refund the money to the debtor”).
In light of the purpose of the insider preference provision, the Court
finds that the equities do not warrant an adjustment to account for
the loans Mr. Hensley previously made to AEH. See, e.g., 740 ILCS
160/9(c) (providing that where a judgment is based on the value of
the asset transferred, “the judgment must be for an amount equal
to the value of the asset at the time of the transfer, subject to
adjustment as the equities may require”). AEH was not entitled to
favor insider Mr. Hensley’s antecedent debt over Plaintiffs’ prePage 10 of 12

transfer claim when AEH was insolvent and Mr. Hensley had
reasonable cause to believe AEH was insolvent. Therefore, Plaintiffs
are entitled to the entire $22,200.
Mr. Hensley cites Eckert, 388 B.R. 813, aff’d by Grochocinski,
402 B.R. 825, in support of his argument that he is entitled to an
adjustment. Mr. Hensley points out that the bankruptcy court
imposed damages based on the difference between the fair market
value of the fraudulently transferred property and the amount the
transferee paid to the debtor for the transferred property.
However, Grochocinski did not involve Section 160/6(b), a
preferential payment to an insider creditor on an antecedent debt.
For the reasons cited above, the Court finds that equity does not
warrant any adjustments to Mr. Hensley for the prior loans he
made to AEH.
III. CONCLUSION
For the reasons stated herein, Thomas Hensley is ORDERED
to deliver and turn over $22,200 to Plaintiffs. In addition, because
judgment has been entered against AEH and in favor of Plaintiffs

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(d/e 58), Plaintiffs may levy execution on the assets transferred or
their proceeds. 740 ILCS 160/8(b).

ENTERED: November 16, 2015
FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE

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