Carpenters Pension Fund of Illinois v. Daniel E. Martinak Trust No. 1 et al
MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 12/10/2016: For the reasons stated in the accompanying decision, the Court grants plaintiff's motion to avoid fraudulent transfer and to award attorney's fees and costs [dkt. no. 54]. The Court hereby directs Daniel Martinak to turn over the amount of $41,000 to the plaintiff within three days of entry of this order. Plaintiff is directed to submit a petition setting forth its attorney's fees and c osts by December 23, 2016. The Court denies plaintiff's request for sanctions. The case is set for a status hearing on December 20, 2016 at 9:30 a.m. The hearing on plaintiff's motion to substitute Martinak individually for the defendants [dkt. no. 66] is advanced to that date and time. (mk)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
CARPENTERS PENSION FUND
DANIEL E. MARTINAK TRUST NO. 1, )
and DANIEL E. MARTINAK,
as Trustee of the Daniel E.
Martinak Trust No. 1,
Case No. 13 C 5720
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
The Carpenters Pension Fund of Illinois asks the Court to order Daniel Martinak
to turn over $41,000 to the Fund to partially satisfy its judgment against the Daniel E.
Martinak Trust No. 1 and Martinak as trustee of the Trust, as well as an award of
attorney's fees and costs incurred in trying to collect the judgment. The Fund also
seeks attorney's fees and sanctions against Martinak for giving false testimony during a
The Fund sued the Martinak Trust and Martinak as its trustee for unpaid
contributions under the Employee Retirement Income Security Act (ERISA). The suit
involved an entity named Fox Valley Exteriors, Inc. (FVE), which was a contributing
employer to the Fund. Martinak was FVE's sole shareholder, director, and officer, and
the Trust owned FVE's business premises and leased it to FVE. FVE stopped
contributing to the Fund and advised the Fund of its intent to terminate the agreements
that required it to contribute, but it continued to operate its business. The Fund sent
FVE a notice of withdrawal liability. FVE then filed for bankruptcy. In its lawsuit, the
Fund alleged that FVE and the Trust were under common control and were a single
"employer" for the purpose of collecting FVE's withdrawal liability.
On December 4, 2014, the Court granted summary judgment in favor of the
Fund, finding the Trust and Martinak, as its trustee, jointly and severally liable to the
Fund in the amount of $150,287.57. The Court later added an award of attorney's fees
and costs in the Fund's favor in the amount of $40,476.40. To date, neither the Trust
nor Martinak has made any payment on the amounts due.
After obtaining its judgment, the Fund initiated proceedings to discover assets
that the Martinak Trust or Martinak, as trustee, had to satisfy the judgment. On July 9,
2015, the Fund took Martinak's deposition and learned that Martinak, in his capacity as
trustee, had written a check for $41,000 from the Trust's account that he "presume[d]"
he had made payable to Custom Fabrications Inc. Pl.'s Mot. to Avoid Fraudulent
Transfer, Ex. 3 (Martinak Dep.) at 97-98. He said he owed money to Custom
Fabrications, and "[t]hey were going to sue me." Id. at 98-99. Martinak further testified
that Custom Fabrications was a company owned by his son-in-law. Id. at 51-52.
In an affidavit submitted later, in response to the Fund's motion, Martinak stated
that, in fact, he had made out the $41,000 check from the Trust to himself and that after
he received the check, he made a $40,500 payment to Custom Fabrications. Defs.'
Resp. to Pl.'s Mot. to Avoid Fraudulent Transfer, Ex. 1 (Martinak Affid.) ¶ 13. Martinak
explained this as follows. The Trust owned commercial property in Elgin, consisting of
nine rental units. Id. ¶ 4. Rental income was deposited into the Trust's account, and he
made periodic income distributions to himself. Id. ¶¶ 5-6. In 2013, the Trust was having
trouble making mortgage payments on the property due to vacancies and tenants not
paying rent, so he approached his son-in-law to make up the difference between the
rents collected and the mortgage payment. Id. ¶¶ 7-9. Custom Fabrications entered
into a loan agreement with the Trust and required Martinak to personally guaranty
repayment. Id. ¶ 10. A total of $48,500 was advanced through November 2014. Id.
Martinak stated that the $41,000 check that he had issued to himself from the Trust's
account represented rents collected from tenants, and he then used $40,500 from this
amount to make a loan payment to Custom Fabrications. Id. ¶ 13. Martinak also
produced what he claimed is a handwritten loan agreement between the Trust and
Custom Fabrications. 1
The Fund contends that the transfer from the Trust's account was a fraudulent
conveyance and should be set aside. The Fund also seeks an award under ERISA of
attorney's fees incurred in trying to collect the judgment. Finally, the Fund contends that
Martinak committed perjury about the $41,000 check during his deposition and should
be sanctioned in the amount of the attorney's fees incurred by the Fund in taking his
deposition and for other work the Fund had to do to prepare the motion.
In response, Martinak and the Trust argue that the $41,000 constituted income
from the property, which they argue was an asset of Martinak individually, not an asset
of the trust or held by Martinak in his capacity as trustee. Accordingly, Martinak and the
Given the Court's resolution of the present motion, it need not address the Fund's
contention that the purported loan agreement is a sham created after the fact.
Trust argue, the judgment cannot be collected from these funds. They also argue that
the $41,000 was used to pay a legitimate debt of the Trust. Finally, Martinak and the
Trust contend that Martinak did not commit perjury, and thus imposition of sanctions
would be inappropriate.
The Fund initiated post-judgment proceedings under Federal Rule of Civil
Procedure 69(a), which states that "[t]he procedure on execution [of a money
judgment]-and in proceedings supplementary to and in aid of judgment or executionmust accord with the procedure of the state where the court is located . . . ." The
relevant Illinois statute states that a judgment creditor is "entitled to prosecute
supplementary proceedings for the purposes of examining the judgment debtor or any
other person to discover assets or income of the debtor not exempt from the
enforcement of the judgment." 735 ILCS 5/2-1402(a). In order for the judgment creditor
to proceed against a party who is not the judgment debtor—in this case, Martinak
individually—the record must contain evidence showing that the third party possessed
assets of the judgment debtor. Lange v. Misch, 232 Ill. App. 3d 1077, 1081, 598 N.E.2d
412, 415 (1992). When such assets are discovered, a court may "compel any person
cited other than the judgment debtor to deliver up the assets to satisfy the judgment or
enter any order or judgment against the person cited that could be entered in a
garnishment proceeding." O'Connell v. Pharmaco, Inc., 143 Ill. App. 3d 1061, 1067,
493 N.E.2d 1175, 1179 (1986). Section 2-1402 is "construed liberally, not only
providing for the discovery of a debtor's assets and income, but also vesting the courts
with broad powers to compel the application of discovered assets or income to satisfy a
judgment." City of Chicago v. Air Auto Leasing Co., 297 Ill. App. 3d 873, 878, 232 Ill.
Dec. 46, 697 N.E.2d 788, 791 (1998) (internal quotation marks omitted).
The Fund argues that Martinak's transfer of the $41,000 to himself as the Trust's
beneficiary constituted a fraudulent conveyance. To show that a conveyance was
fraudulent in law, a creditor must show that (1) the debtor transferred property for no
consideration (2) while facing an existing debt, (3) leaving the debtor with insufficient
assets to pay the debt. See, e.g., Stoller v. Exchange Nat. Bank of Chi., 199 Ill. App. 3d
674, 683, 557 N.E.2d 438, 444 (1990).
Martinak and the Trustee argue that the $41,000 was not the Trust's property
because it was income from the Trust's property, which they say belonged to Martinak
individually. There is a basic problem with this argument: it is not what the trust
instrument says. The declaration of trust says that the trustee:
is hereby authorized, in the sole discretion of the Trustee, to distribute to
the Grantor the whole or any part of the net income and/or principle of the
Trust Estate, as the Trustee deems desirable for the best interest of the
Grantor, it being the intention of the Grantor that the Trustee be as liberal
as possible in the distributions to or on behalf of the Grantor, even to the
extent of fully executing the Trust Estate and terminating the interests of
Martinak Affid., Ex. A, art. 5.B. In other words, the trust doesn't entitle Martinak
individually to the income from the trust; rather it authorizes the trustee (also Martinak)
to distribute it to him in the trustee's discretion. Thus Martinak, wearing his individual
hat, would get the income only if Martinak, wearing his trustee hat, chose to give it to
him(self). The difference between discretion and entitlement undermines Martinak's
argument that the income from the property didn't actually belong to the Trust to begin
with. The Court also notes that, as the Fund argues, the $41,000 at issue in this case,
which was paid after the judgment was entered against the Trust, was the only payment
to Martinak individually out of the Trust's bank account after it was opened. This further
undermines the argument that the income only belonged to the beneficiary and never
belonged to the Trust.
The Court therefore turns to the requirements for establishing a conveyance
fraudulent in law. The first question is whether the conveyance of the $41,000 was
made for no consideration. It was. Martinak, as trustee, conveyed the funds to himself,
as individual. There was no preexisting debt or obligation, as the Court has discussed.
Martinak and the Trust contend that the payment was made to Custom Fabrications to
partially repay a loan made to help the Trust make its mortgage payments. But the
Trust did not pay anything to Custom Fabrications; it gave the money to Martinak.
Martinak is attempting to maintain the arguable façade that the Trust is a legitimate
device and not simply a way to defraud creditors, but he has to live with the actions he
took, and here he paid the money directly to himself—in what he now calls an income
distribution—not to a creditor of the Trust.
Second, it is undisputed that Martinak wrote the check to himself while there was
a preexisting debt of the Trust, namely the judgment in this case. In his deposition,
Martinak testified that he knew that there was a judgment against the Trust but chose to
make the distribution anyway. Martinak Dep. at 97-99.
Finally, it is undisputed that after the transfer of the $41,000.00 from the Trust
account to Martinak's personal account, the Trust’s bank account had a zero balance.
For these reasons, the Court concludes that the transfer of the $41,000 from the
Trust's bank account constituted a fraudulent conveyance to Martinak. The conveyance
is set aside, and Martinak is ordered to turn over $41,000 to the Fund in partial
satisfaction of the judgment in this case.
The Fund requests an award of attorney’s fees and costs associated with
enforcing the judgment. Under 29 U.S.C. § 1132(g)(2)(D), the Fund is entitled to
recover its reasonable attorney's fees and costs. This includes fees incurred in
collecting a judgment. As the Seventh Circuit has aptly explained, "[i]t would make no
more sense to deny attorney's fees for efforts to collect a judgment than it would to deny
them for efforts to defend a judgment on appeal." Free v. Briody, 793 F.2d 807, 809
(7th Cir. 1986). The Fund's collection effort has been successful, so the Court grants
the Fund's request for post-judgment fees.
Sanction against Martinak individually
The Fund also requests imposition of sanctions on Martinak individually for giving
false testimony during his deposition. The Fund asserts that Martinak committed
perjury when he testified that he wrote the Trust's $41,000 check to Custom
Fabrications Inc., when in fact he wrote the check to himself. A district court "has
inherent authority to sanction conduct that abuses the judicial process." Montano v. City
of Chicago, 535 F.3d 558, 563 (7th Cir. 2008). As the Seventh Circuit did in Montano,
the Court will defer to the federal statutory definition of perjury: "false testimony
concerning a material matter with the willful intent to provide false testimony, rather than
as a result of confusion, mistake, or faulty memory." Id. at 564. It's a close call in this
case, but Martinak hedged his deposition answer just enough to slip by: he testified that
he "would presume [that the check] was made out to Custom Fabrications." Martinak
Dep. at 98 (emphasis added). There is no evidence that he had, before the deposition,
re-reviewed the check, which he had issued about 90 days earlier. And Martinak made
(albeit a year later) what amounts to a correction by submitting an affidavit in connection
with the present motion stating that he had written the check to himself. Under the
circumstances, the Court finds the requisite intent to be lacking, though perhaps just
For the reasons stated above, the Court grants plaintiff's motion to avoid
fraudulent transfer and to award attorney's fees and costs [dkt. no. 54]. The Court
hereby directs Daniel Martinak to turn over the amount of $41,000 to the plaintiff within
three days of entry of this order. Plaintiff is directed to submit a petition setting forth its
attorney's fees and costs by December 23, 2016. The Court denies plaintiff's request
for sanctions. The case is set for a status hearing on December 20, 2016 at 9:30 a.m.
The hearing on plaintiff's motion to substitute Martinak individually for the defendants
[dkt. no. 66] is advanced to that date and time.
MATTHEW F. KENNELLY
United States District Judge
Date: December 10, 2016
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