Paloian v. Geneva Seal, Inc,

Filing 44

MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 8/28/12: For the reasons stated in this Memorandum Opinion and Order, the Court grants plaintiff's motions for summary judgment [Bankruptcy Adv. No. 11-2072, docket no. 18; Bankruptcy Adv. No. 11-2073, docket no. 22] and denies Geneva Seal's and Lampert's motions for summary judgment [Case no. 12 C 145, docket no. 35; case no. 12 C 147, docket no. 33]. The Court directs Paloian to submit a draft form of judgment in both cases by no later than the close of business on September 4, 2012 and sets both cases for a status hearing on September 5, 2012 at 9:30 a.m. (mk)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

IN RE:
CANOPY FINANCIAL, INC.,

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Debtor.
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GUS PALOIAN, as Chapter 7 Trustee,
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Plaintiff,
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vs.
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GENEVA SEAL, INC.,
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Defendant.
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GUS PALOIAN, as Chapter 7 Trustee,
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Plaintiff,
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vs.
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LESTER LAMPERT, INC.,
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Defendant.
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Case No. 12 C 145

Case No. 12 C 147

MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
Gus Paloian, as the Chapter 7 Trustee for Canopy Financial, Inc., sued Geneva
Seal, Inc., and Lester Lampert, Inc. in separate adversary proceedings in bankruptcy
court to recover fraudulent transfers received by the defendants from Canopy. In
February 2012, the Court granted defendants’ motions to withdraw the reference to the

bankruptcy court. Both Paloian and the defendants have moved for summary judgment
on all of Paloian’s claims. For the reasons stated below, the Court grants Paloian’s
motions and denies defendants’ motions.
Background
Canopy, a Delaware corporation headquartered in Chicago, developed software
used by financial institutions and in the healthcare industry. Canopy developed
software that allowed employers and employees to deposit money into health savings
accounts and pay medical expenses out of them. Vikram Kashyap, Jeremy Blackburn,
and Anthony Banas founded Canopy in 2004. Until 2009, Kashyap acted as CEO and
chairman of the board of directors, Blackburn acted as chief operating officer and
president, and Banas acted as chief technology officer. All three were also members of
Canopy’s board of directors, which also had two outside directors.
Beginning in 2007, Blackburn and Banas began taking money out of Canopy and
purchasing personal items. Among other things, they bought more than thirty sports
cars and luxury vehicles and leased two jets, four houses in Malibu, California, and five
condominiums in Chicago. All of these purchases were concealed from Kashyap and
the other members of the board and were not for business purposes. To finance these
purchases, Blackburn and Banas took money not just from Canopy’s accounts but also
from custodial accounts that Canopy maintained on behalf of its clients who had
established health savings accounts. In total, they took more than $18 million from the
savings accounts.
Canopy was insolvent as early as July 31, 2007, but the actions of Blackburn
and Banas made its financial condition worse. The two created false financial
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statements and operating reports to conceal the purchases they were making and hide
the fact that they were taking money from Canopy as well as the health savings
accounts. They also hoped to attract additional investment. Through these
misrepresentations, Blackburn and Banas were able to convince investors to give
Canopy almost $75 million in 2009.
Two of the purchases made by Blackburn and Banas are the subject of these
cases. In June 2009, Banas purchased an $80,000 engagement ring and a $20,000
watch from Lampert. The ring was for Banas’s girlfriend, and it is unclear if the watch
was for Banas’s own use or a gift for someone else. The invoice for the purchases lists
only Banas’s name, and Lampert was to deliver the jewelry to an address in Los Vegas
that Banas provided. The jewelry was paid for with two wire transfers, in the amounts
of $55,000 and $45,000, from a Canopy account. The statement documenting the
transfers noted that Canopy was the sender. Canopy never authorized or ratified the
wire transfers. Individuals at Lampert knew that Banas worked at Canopy, but they did
not inquire regarding why Canopy paid for the jewelry. In his deposition, however,
David Lampert, a part-owner of Lampert, stated that in his experience people
sometimes use expensive jewelry to create an successful image and help them in
business. Pl. Lampert Reply at 78.
In August 2009, Blackburn purchased six watches, the most expensive of which
was $52,000, and thirty-one watchbands, the most expensive of which was $20,000,
from Geneva Seal. His total bill, as represented on two invoices, was $232,175. The
invoices showed Blackburn as the only purchaser and requested that Geneva Seal ship
the watches and bands to Blackburn’s residence in Malibu. Blackburn did not
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personally pay for his purchases; instead, he arranged a wire transfer from a Canopy
account. Geneva Seal received the wire transfer, and the statement documenting the
transfer stated that the sender was Canopy Financial, not Blackburn. Canopy had not
authorized the transfer, nor did it subsequently ratify the transfer. When Alexander
Kats, the vice president and half owner of Geneva Seal was asked if he had contacted
Canopy to confirm that Blackburn had authority to make the wire transfer, he responded
“I don’t recall.” Geneva Seal Ex. 1 at 87. Kats also testified that Blackburn said he was
the founder of a shoe company, and he could not recall Blackburn ever mentioning
Canopy to him. Id. at 40.
Canopy filed for bankruptcy under chapter 11 on November 25, 2009. The case
was converted to a chapter 7 liquidation, and the bankruptcy court appointed Paloian as
trustee. Paloian began adversary proceedings against Blackburn and Banas and
obtained judgments against both for more than $93 million. Federal prosecutors
charged Blackburn and Banas with wire fraud, and each pleaded guilty. Blackburn
received a sentence of 180 months and was ordered to pay restitution of more than $93
million. He committed suicide before being incarcerated. Banas received a sentence
of 160 months and was ordered to pay restitution of more than $19 million.
Discussion
On a motion for summary judgment, the Court “view[s] the record in the light
most favorable to the non-moving party and draw[s] all reasonable inferences in that
party’s favor.” Trinity Homes LLC v. Ohio Cas. Ins. Co., 629 F.3d 653, 656 (7th Cir.
2010). Summary judgment is appropriate “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of
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law.” Fed. R. Civ. P. 56(a). In other words, a court may grant summary judgment
“[w]here the record taken as a whole could not lead a rational trier of fact to find for the
nonmoving party.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
587 (1986).
Paloian asserts three claims against each defendant, contending that the
payments made by Canopy to Geneva Seal and Lampert are constructively fraudulent
transfers under federal bankruptcy law and two sections of the Illinois Uniform
Fraudulent Transfer Act (UFTA). See 11 U.S.C. § 548(a)(1)(B); 740 ILCS 160/5(a)(2) &
160/6(a). In all three claims, Paloian asserts that by action of Blackburn and Banas,
Canopy transferred funds to defendants at a time when it was insolvent and did not
receive reasonably equivalent value in return. Paloian also argues that Geneva Seal
and Lampert are the initial transferees of the Canopy funds, so that the trustee may
recover the funds from them. See 11 U.S.C. § 550(a)(1); 740 ILCS 160/9(b)(1).
Geneva Seal disputes whether it gave reasonably equivalent value in return for
the funds it received from Canopy. It contends that Blackburn and Canopy were alter
egos, and therefore it provided reasonably equivalent value to Canopy when it gave
Blackburn the watches and watchbands in exchange for the funds from Canopy.
Geneva Seal also claims that it is entitled to a defense provided by the bankruptcy code
and the UFTA because it gave reasonably equivalent value and acted in good faith,
although it fails to recognize that the good faith defense in the UFTA applies only to
actually fraudulent transfers and not to constructively fraudulent transfers. See 11
U.S.C. § 548(c); 740 ILCS 160/9(a); Helms v. Roti (In re Roti), 271 B.R. 281, 295
(Bankr. N.D. Ill. 2002) (§ 548(c) is an affirmative defense whose elements must be
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proved by transferee).
Lampert contends that there is a genuine issue of fact on all of Paloian’s claims
because it gave reasonably equivalent value. Lampert also contends that it is entitled
to summary judgment in its favor on Paloian’s claim under the bankruptcy code
because it gave reasonably equivalent value and acted in good faith. Lampert also
argues that it is entitled to summary judgment on Paloian’s claim under 740 ILCS
160/5(a)(2) because Canopy’s transfer of the funds was not voluntary. Lampert finally
contends that it is entitled to summary judgment on the claim under 740 ILCS 160/6(a)
because Paloian has not demonstrated that there is a creditor who could bring a claim
under that section. See 11 U.S.C. § 544(b)(1).
A.

Reasonably equivalent value
Geneva Seal contends that Paloian’s claims fail because it provided reasonably

equivalent value in exchange for Canopy’s funds. It also contends that it is entitled to
the defenses provided in the bankruptcy code and the UFTA because it provided
reasonably equivalent value and acted in good faith. Lampert contends that Paloian’s
motion for summary judgment must be denied because there is a genuine issue of fact
regarding whether it provided reasonably equivalent value to Canopy. It also argues
that it is entitled to summary judgment on Paloian’s claims under the bankruptcy code
because it satisfied the defense provided in the code by providing reasonably
equivalent value and acting in good faith.
To support its contention that it provided reasonably equivalent value, Geneva
Seal argues that Blackburn and Canopy were alter egos. Lampert contends that it
provided reasonably equivalent value for three reasons: (1) Banas and Canopy were
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alter egos, (2) Banas had apparent authority to transfer Canopy’s funds, and (3)
Canopy derived business benefits from Banas’s purchase of jewelry.
1.

Alter ego/piercing the corporate veil

As the Court has indicated, Geneva Seal contends that it provided value to
Canopy because Canopy and Blackburn were effectively the same person, so that
providing the watches to Blackburn gave value to Canopy for its funds. Lampert makes
the same argument with regard to Banas. Both defendants seek to pierce the
corporate veil of Canopy and associate it with the individual director who made the
purchases at their stores. They are attempting to reverse-pierce the corporate veil,
namely, to attribute to Canopy dealings they had with individuals associated with
Canopy. See Scholes v. Lehmann, 56 F.3d 750, 758 (7th Cir. 1995).
All parties assume that Illinois law governs any attempt to pierce the corporate
veil of Canopy. Because none of the parties raised a choice of law issue, the Court
could appropriately apply Illinois law. Camp v. TNT Logistics Corp., 553 F.3d 502, 505
(7th Cir. 2009) (applying law of the forum state when parties did not raise choice of law
issue). Canopy, however, is a Delaware corporation, and under Illinois choice of law
rules, the law of the state of incorporation would govern an attempt to pierce the
corporate veil. See Judson Atkinson Candies, Inc. v. Latini-Hohberger Dhimantec, 529
F.3d 371, 378 (7th Cir. 2008). It is unclear whether a district court should use state or
federal choice of law rules when deciding bankruptcy claims, but even under federal
choice of law rules, the law of the state of incorporation controls a corporate
governance claim. See Fogel v. Zell, 221 F.3d 955, 966 (7th Cir. 2000) (assuming that

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federal choice of law rules would follow internal affairs rule for derivative suit). Thus
despite the parties’ waiver of the issue, it appears that Delaware law should govern
whether it is appropriate to pierce Canopy’s corporate veil. The Court concludes,
however, that the result is the same under either Illinois or Delaware law.
Under Illinois law, “a corporation’s veil of limited liability will be pierced only when
there is such unity of interest and ownership that the separate personalities of the
corporation and the individual no longer exist and when adherence to the fiction of
separate corporate existence would sanction a fraud or promote injustice.” Judson
Atkinson, 529 F.3d at 379–80 (alterations and internal quotation marks omitted). Illinois
law permits reverse-piercing the corporate veil, reaching through an individual to the
corporation he controls. See Sea-Land Servs., Inc. v. Pepper-Source, 941 F.2d 519,
521–22 (7th Cir. 1991); Barber v. Prod. Credit Servs. (In re KZK Livestock), 221 B.R.
471, 478 (Bankr. C.D. Ill. 1998). But “[p]iercing the corporate veil is a task which the
courts should undertake reluctantly.” Tower Inv., LLC v. 111 E. Chestnut Consultants,
Inc., 371 Ill. App. 3d 1019, 1033, 864 N.E.2d 927, 941 (2007).
Under Delaware law, the party seeking to pierce the corporate veil must show
that officers or shareholders of the corporation exercised “complete domination and
control” over the corporation. Wallace v. Wood, 752 A.2d 1175, 1183 (Del. Ch. 1999).
“The degree of control required to pierce the veil is exclusive domination and control to
the point that [the corporation] no longer has legal or independent significance of its
own.” Id. at 1184 (ellipses, brackets in original, and internal quotation marks omitted).
“Effectively, the corporation must be a sham and exist for no other purpose than as a

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vehicle for fraud.” Id.; see also Crosse v. BCBSD, Inc., 836 A.2d 492, 497 (Del. 2003)
(veil piercing claim requires showing that corporation was created to defraud investors
and creditors); Winner Acceptance Corp. v. Return on Capital Corp., No. 3088-VCP,
2008 WL 5352063, at *6 (Del. Ch. Dec. 23, 2008) (calling fraud a “requisite element” of
piercing the corporate veil). Under Delaware law, however, it is not clear if a party can
reverse-pierce the corporate veil. See MicroStrategy Inc. v. Acacia Research Corp.,
No. 5735-VCP, 2010 WL 5550455, at *12 n.90 (Del. Ch. Dec. 30, 2010) (declining to
decide whether reverse-piercing is permissible under Delaware law).
Under either Illinois or Delaware law, piercing the corporate veil requires showing
a unity of interest between Blackburn, Banas, and Canopy and that maintaining the
separate existence of Canopy would sanction fraud or injustice. Even if defendants
could show that there was a unity of interest between the two directors and Canopy,
they have not provided sufficient evidence from which a reasonable fact finder could
find that Canopy’s separate existence would sanction or create a fraud or injustice.
Both defendants argue that maintaining the corporate existence of Canopy
would create an injustice because they would lose money. Specifically, defendants
argue that if they return the funds they received from Canopy, they will lose money
because they are unable to recover from Blackburn and Banas, and the current location
of the jewelry they purchased is unknown. Each defendant also emphasizes that it is a
small jewelry store that cannot readily absorb the losses it would suffer.
As an initial matter, neither defendant has provided any evidence to suggest that
the location of the jewelry is unknown and that it is therefore unrecoverable. Rather,
they merely assert it. Given the dearth of evidence in the record, no reasonable fact
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finder could determine that defendants have no prospects for recovery should they be
required to repay Canopy.
More importantly, the mere fact that defendants stand to lose money is
insufficient to constitute a fraud or injustice requiring the Court to pierce the corporate
veil. In every case where a party seek to pierce a corporation’s veil, that party is
concerned that it will not be paid on a claim. Otherwise there would be no reason to
seek to pierce the corporate veil at all. See Sea-Land Servs., 941 F.2d 522–23; see
Midland Interiors, Inc. v. Burleigh, No. 18544, 2006 WL 4782237, at *4 (Del. Ch. Dec.
19, 2006) (insolvency and inability to pay creditors cannot alone justify piercing the
corporate veil). Therefore, “the courts that properly have pierced corporate veils to
avoid promoting injustice have found that, unless it did so, some wrong beyond a
creditor’s inability to collect would result.” Sea-Land Servs., 941 F.2d 519, 524 (internal
quotation marks omitted); cf. Winner Acceptance Corp., 2008 WL 5352063, at *6 (fraud
element of piercing the corporate veil established when defendants allegedly made
promises to plaintiff that they did not intend to keep and planned to abscond with
corporate assets).
Furthermore, the circumstances of this case ensure that someone will lose
money due to the wrongs of Blackburn and Banas. Defendants focus on the potential
loss to them. They disregard the fact that if they are permitted to retain Canopy’s
funds, they will in effect impose a loss on all of the entity’s other creditors, such as the
people who placed their money in health savings accounts controlled by Canopy from
which Blackburn and Banas took more than $18 million or the people whom Blackburn
and Banas fraudulently persuaded to invest nearly $75 million. The Seventh Circuit has
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stated that “[r]everse piercing is ordinarily possible only in one-man corporations, since
if there is more than one shareholder the seizing of the corporation’s assets to a
shareholder’s debts would be a wrong to the other shareholders.” Scholes v. Lehmann,
56 F.3d 750, 758 (7th Cir. 1995). In this case, there are not only shareholders other
than Blackburn and Banas, but also numerous creditors. The Court finds persuasive
the reasoning of the bankruptcy court in KZK Livestock, which found veil piercing
inappropriate because it would lead to greater injustice. The court noted that in
bankruptcy the interests of other creditors must be considered and that “[t]o permit a
single creditor . . . to keep a substantial payment while other creditors have to share in
the remaining assets would lead to an unfair result.” In re KZK Livestock, 221 B.R. at
479.
Defendants cite Dzikowski v. Friedlander (In re Friedlander Capital Mgmt. Corp.),
411 B.R. 434 (Bankr. S.D. Fla. 2009), as a case that disagreed with the court’s
conclusion in KZK Livestock. In Friedlander, Friedlander loaned money from his
corporation, which was later the debtor in the bankruptcy case, to his ex-wife. Id. at
439. The ex-wife repaid the money by wiring funds to an account of Friedlander’s. Id.
Friedlander gave some of the money back to the debtor but used most of it to pay
personal expenses. Id. The bankruptcy trustee later tried to recover the money from
the ex-wife as a fraudulent transfer, arguing that she had not provided value for the loan
because the loan repayment never made it to the debtor itself. Id. at 440. The court,
applying Connecticut corporate law, concluded that it was appropriate to pierce the
corporate veil because failing to do so would be inequitable to the ex-wife. Id. at

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445–46.
Friedlander is distinguishable from the current case. There, the court concluded
that equity favored piercing the corporate veil for two reasons. First, the majority of
creditors of the debtor had received full compensation, and of the remaining three
creditors, one had submitted no documentation to prove the validity of the claim, and
the trustee had objected to the other two. Id. at 445. Here, by contrast, there are no
facts to indicate that the creditors of Canopy have largely been repaid. Second, it was
undisputed that Friedlander’s ex-wife believed that she had received the loan from
Friedlander himself, not the debtor corporation, and so she repaid Friedlander directly.
Id. at 445–46. In this case, the wire transfers that defendants received stated that
Canopy was making payment, not Blackburn or Banas.
Geneva Seal also appears to contend that injustice will result unless the
corporate veil of Canopy is pierced because Blackburn will be unjustly enriched. See
Sea-Land Servs., 941 F.2d at 524 (listing unjust enrichment as one factor that could
justify piercing the corporate veil). Geneva Seal asserts that Blackburn would be able
to benefit from the jewelry he purchased from Geneva Seal without paying if Geneva
Seal is required to repay Canopy’s funds. If Geneva Seal retains the funds, however,
Blackburn will still be unjustly enriched, but that will come at the expense of the other
creditors of Canopy instead. As discussed above, veil piercing doctrine does not hold
that a single creditor’s desire to be paid is sufficient to pierce the corporate veil.
In sum, the Court concludes that no reasonable fact finder could find the
elements of an Illinois or Delaware law veil piercing claim satisfied in this case.
Accordingly, Geneva Seal’s argument that it provided reasonably equivalent value to
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Canopy fails, as does its argument that it is entitled to the good faith defenses under
the bankruptcy code and the UFTA. The Court therefore grants summary judgment in
favor of Paloian on his claims against Geneva Seal.
2.

Apparent authority

Lampert contends that it gave reasonably equivalent value to Canopy because
Banas had apparent authority to make the jewelry purchases on Canopy’s behalf.
Apparent authority arises when a principal creates a reasonable
impression to a third party that the agent has the authority to perform a
given act. To prove apparent authority, the proponent must show that (1)
the principal consented to or knowingly acquiesced in the agent’s exercise
of authority, (2) based on the actions of the principal and agent, the third
party reasonably concluded that the agent had authority to act on the
principal[‘s] behalf, and (3) the third party justifiably relied on the agent’s
apparent authority to his detriment. In establishing apparent authority, it is
critical to find some words or conduct by the principal that could
reasonably indicate consent.
Curto v. Illini Manors, Inc., 405 Ill. App. 3d 888, 895–96, 940 N.E.2d 229, 235–36
(2010) (citations omitted). Lampert contends that five facts support the existence of
apparent authority: (1) Banas appeared successful in business, (2) Banas had a
history of buying from Lampert, (3) Banas sometimes communicated with Lampert from
a Canopy e-mail address, (4) Banas was able to make a wire transfer in Canopy’s
name, and (5) Banas was a member of Canopy’s board.
The first two of Lampert’s facts represent actions by Banas, not Canopy, and
thus they cannot help establish apparent authority. Canopy did act in providing Banas
with an e-mail address, but no reasonable fact finder could conclude that the fact that
Banas had a Canopy e-mail address indicated that he had apparent authority to buy
$100,000 in jewelry. Among other things, there are no facts in the record to indicate
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that only high-level employees with substantial authority at Canopy had company e-mail
addresses. The fact that Canopy apparently allowed Banas to arrange for Canopy to
wire transfer funds indicates that he had some amount of authority at Canopy. But the
mere fact that Banas could arrange a wire transfer would not allow a reasonable third
party to conclude that he had authority and approval to make any wire transfer,
especially when it is undisputed that Canopy did not consent to the wire transfer and
that it was not involved in any business involving jewelry.
Finally, Lampert cites that fact that Banas was a director of Canopy as a reason
that a reasonable third party could conclude that he had authority to purchase jewelry.
There is no evidence in the record, however, from which a reasonable jury could
conclude that Lampert knew Banas was a director. David Lampert stated that he
learned that Banas worked at Canopy from conversation and by receiving e-mails from
Banas’s work e-mail address. Pl. Lampert Ex. 1 at 24, 73–74. David Lampert also
testified that Banas told Lampert that he wrote software used by banks. Pl. Lampert
Reply, Ex. A at 23. A reasonable fact finder could not infer from these statements that
Lampert knew that Banas was a director of Canopy, and Lampert has not indicated that
it had any other basis to know that he was. Furthermore, even if Lampert knew that
Banas was a director, that would not give Banas apparent authority to make any and all
purchases on Canopy’s behalf, particularly purchases that had nothing to do with
Canopy’s business. See Crawford Sav. & Loan Ass’n v. Dvorak, 40 Ill. App. 3d 288,
293, 352 N.E.2d 261, 265 (1976) (person answering phone at a business has apparent
authority to conduct usual and ordinary business, but not unusual transactions like
mortgaging a building); see also Rouse Woodstock, Inc. v. Surety Fed. Sav. & Loan
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Ass’n, 640 F. Supp. 1004, 1010 (N.D. Ill. 1986) (bank could not assume that vice
president had broad inherent authority to make decisions absent indications that board
or by-laws have given him authority).
In sum, no reasonable fact finder could conclude from the evidence offered by
Lampert that Banas had apparent authority to purchase the jewelry.
3.

Use of jewelry for business purposes

Finally, Lampert contends that it gave reasonably equivalent value to Canopy for
its funds, because jewelry like that purchased by Banas is often used by business
people to convey an image of success. Therefore, Lampert argues, Canopy received
value from Banas’s use of the jewelry.
At the outset, the Court notes that it doubts that any reasonable fact finder could
conclude that Banas’s purchase of an $80,000 engagement ring for his girlfriend could
provide any business benefit for Canopy. Regardless, Banas has expressly stated that
he did not purchase any of the jewelry for any business purpose, Pl. Lampert Ex. 2 ¶
23, and it is undisputed that Banas did not in fact do anything with the jewelry which
could have benefitted Canopy. Lampert argues that David Lampert testified that in his
“personal business experience, that’s what people use jewelry for is to create
impressions to help them in business. It’s very common.” Pl. Lampert Reply, Ex. A at
78. David Lampert could not, however, provide any reason beyond his general
experience to think that in this case Banas was using the jewelry for Canopy’s
purposes. Id. David Lampert’s general statement that sometimes business people use
jewelry to look successful does not counter Banas’s specific statement that he had no

15

business purpose in buying the jewelry. Lampert’s statement does not create a
genuine issue of fact.
The Court concludes that no reasonable fact finder could find that Banas’s
purchase of the jewelry conveyed any benefit to Canopy. Accordingly, all of Lampert’s
contentions that it provided Canopy with reasonably equivalent value fail, as does its
contention that it is entitled to a good-faith defense on Canopy’s bankruptcy law claim.
The Court therefore grants summary judgment in favor of Paloian on his section
548(a)(1)(B) claim against Lampert.
B.

Necessity of voluntary transfer
Lampert contends that Paloian’s claim under 740 ILCS 160/5(a)(2) fails because

Canopy’s transfer of the funds was not voluntary. That section of the UFTA does not
mention voluntariness. It states only that “[a] transfer . . . is fraudulent . . . if the debtor
made the transfer . . . (2) without receiving a reasonably equivalent value in exchange
for the transfer” and the debtor had unreasonably few assets or was insolvent. Id.
Further, the UFTA’s definition section defines transfer to mean “every mode, direct or
indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with
an asset or an interest in an asset.” Id. § 160/2(l) (emphasis added). Based upon the
clear language of the UFTA, the statute covers involuntary as well as voluntary
transfers.
Lampert cites a statement by the Seventh Circuit that a claim under section
160/5(a)(2) requires proof that “the debtor made a voluntary transfer.” GE Capital Corp.
v. Lease Resolution Corp., 128 F.3d 1074, 1079 (7th Cir. 1997). This statement, which

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the court made while listing all of the elements of a claim under section 160/5(a)(2), is
dicta. There was no issue in GE Capital regarding whether the challenged transfer was
voluntary. The transfer in question had occurred as part of the settlement of a class
action lawsuit. Thus there was no issue of whether the transferor had voluntarily made
the transfer, unlike in the current case, where Banas effectively stole money from
Canopy. Id. at 1077.
In addition, the Illinois Supreme Court case cited by the Seventh Circuit as
authority for its list of the elements of a section 160/5(a)(2) claim does not require the
transfer to be voluntary. Gendron v. Chicago & N.W. Transp. Co., 139 Ill. 2d 422, 438,
564 N.E.2d 1207, 1215 (1990). The other three cases cited by the Seventh Circuit are,
like Gendron, decisions under an older version of the Illinois fraudulent transfer statute
that was replaced by the current statute in 1990. Id. at 437, 564 N.E.2d at 1214; see
Bay State Milling Co. v. Martin (In re Martin), 145 B.R. 933, 946 (Bankr. N.D. Ill. 1992);
Aluminum Mills Corp. V. Citicorp N. Am., Inc. (In re Aluminum Mills Corp.), 132 B.R.
869, 888 (Bankr. N.D. Ill. 1991); Anderson v. Ferris, 128 Ill. App. 3d 149, 153, 470
N.E.2d 518, 521 (1984).
These cases also appear to be using the term voluntary in an unusual way.
Anderson, for example, states that constructive fraud requires “a voluntary gift” and
then says that because a party received no consideration for a conveyance, “the
transfer is deemed voluntary.” Anderson, 128 Ill. App. 3d at 153, 470 N.E.2d at 521.
Anderson seems to use the term voluntary to mean something like “not for equivalent
value.” Gendron cites to Anderson, but instead of saying that a voluntary gift is

17

required, the court required “a transfer made for no or inadequate consideration.”
Gendron, 139 Ill. 2d at 438, 564 N.E.2d at 1215.
In light of the clear language of the UFTA and the Illinois Supreme Court’s
determination that under the older Illinois statute no voluntary transfer was required, the
Court determines that the Illinois Supreme Court would not interpret the UFTA to
require a voluntary transfer. See BMD Contractors, Inc. v. Fid. & Deposit Co. of Md.,
679 F.3d 643, 648 (7th Cir. 2012) (when applying state law, court must determine how
state supreme court would decide the issue).
Lampert cites several other cases in which a court has stated that a voluntary
transfer is required. KHI Liquidation Tr. v. Wisenbaker Builder Servs. (In re Kimball Hill
Inc.), 449 B.R. 767, 782 (Bankr. N.D. Ill. 2011); Grochocinski v. Schlossberg (In re
Eckert), 388 B.R. 813, 841 (Bankr. N.D. Ill. 2008); Apollo Real Estate Inv. Fund IV, LP
v. Gelber, 403 Ill. App. 3d 179, 194, 935 N.E.2d 963, 976 (2010). In none of these
cases was the voluntariness of the transfer a contested issue. None of the courts
discussed the meaning of or rationale for a purported voluntariness requirement. In
light of the clear language of the UFTA, the Court respectfully disagrees with the
conclusions of the bankruptcy judges and concludes that the Illinois Supreme Court
would decide the issue differently than did the Illinois Appellate Court. See BMD
Contractors, 679 F.3d at 648 (“If the state supreme court has not spoken on a particular
issue, then decisions of the intermediate appellate court will control unless there are
persuasive indications that the state supreme court would decide the issue differently.”)
In sum, under section 160/5(a)(2) of the Illinois UFTA, there is no requirement for

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the transfer to be voluntary. Accordingly, the Court grants summary judgment in favor
of Paloian on his claim against Lampert under that section.
C.

Existence of creditors
In its initial brief, Lampert argued that it was entitled to summary judgment on

Paloian’s claim under 740 ILCS 160/6(a) because a claim under that section requires “a
creditor whose claim arose before the transfer was made.” Id. Lampert assumed in its
opening brief that it was the creditor to which the statute referred and contended that
Paloian’s claim fails because it had no claim before Banas transferred Canopy’s funds.
As Paloian argued in his response, however, the trustee is the creditor referred to by
that section of the UFTA. See In re Roti, 271 B.R. 281, 304–05 (creditor is the person
asserting fraudulent transfer claim). Consequently, in Lampert’s reply it changed its
argument and asserted that Paloian’s claim failed because there was no specific
creditor who had a claim before the time of the transfer. See 11 U.S.C. § 544(a)
(trustee can avoid any transfer that an existant creditor with an unsecured claim may
avoid under state law).
Lampert has forfeited this argument by failing to present it until its reply brief.
See Carter v. Tennant Co., 383 F.3d 673, 679 (7th Cir. 2004); In re Sulfuric Acid
Antitrust Litig., 231 F.R.D. 320, 329 (N.D. Ill. 2005). The Court notes that Lampert’s
initial argument was poles apart from its current contention. Lampert initially asserted
that it was the creditor referred to by section 160/6(a), but now it asserts that there is no
identified creditor under that section.
Even if not forfeited, Lampert’s contention fails on the merits. Because the

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trustee can avoid any transfer that a creditor with an allowable unsecured claim can
avoid, Paloian need only show that there is some unsecured creditor whose claim arose
before the transfer was made. Under the UFTA, a claim is “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). It is undisputed that Canopy was insolvent as early as July 31,
2007. Therefore, at that time there must have been a larger amount in claims against
the corporation than it had in assets. Because “creditor means a person who has a
claim,” id. § 160/2(d), by definition, there must have been creditors who had claims at
that time.
Paloian has also presented an unrebutted expert report stating that Canopy was
insolvent on June 30, July 22, and October 9, 2008. Pl. Lampert Ex. 5 at 22–23.
Further, on July 15, 2009, just over a month after Banas wired funds to Lampert,
Paloian’s expert reported that Canopy had $67 million more in liabilities than in assets,
making it very unlikely that no unsecured creditor had a claim against Canopy at the
time of the transfer. Id. at 22. It is also undisputed that between 2008 and 2009,
Banas and Blackburn took $18 million from the health savings accounts of Canopy’s
clients. All of those clients would also have claims against Canopy, some portion of
which must have arisen in 2008, before the transfer to Lampert. Based on this
evidence, no reasonable fact finder could conclude that there were no unsecured
creditors at the time of Banas’s transfer to Lampert.
Lampert contends that at least some of the claims have not been allowed by the
bankruptcy court. 11 U.S.C. § 502. To give the trustee a right to recovery under the
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UFTA, however, claims need not be allowed, but only allowable. Id. § 544(b)(1). In
bankruptcy, all claims are “deemed allowed, unless a party in interest . . . objects.” Id. §
502(a). Lampert does not contend that any and all of the claims that existed against
Canopy on the day Lampert received the wire transfer will be objected to by a party in
interest.
In sum, the Court grants summary judgment in favor of Paloian on his claim
against Lampert under section 160/6(a) of the UFTA.
Conclusion
For the reasons stated above, the Court grants Paloian’s motions for summary
judgment [Bankruptcy Adv. No. 11-2072, docket no. 18; Bankruptcy Adv. No. 11-2073,
docket no. 22] and denies Geneva Seal’s and Lampert’s motions for summary
judgment [Case no. 12 C 145, docket no. 35; case no. 12 C 147, docket no. 33]. The
Court directs Paloian to submit a draft form of judgment in both cases by no later than
the close of business on September 4, 2012 and sets both cases for a status hearing
on September 5, 2012 at 9:30 a.m.

s/ Matthew F. Kennelly
MATTHEW F. KENNELLY
United States District Judge
Date: August 28, 2012

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