Littman v. Cervac
Filing
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MEMORANDUM Opinion and Order Written by the Honorable Gary Feinerman on 8/18/2015.Mailed notice.(jlj, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
In re KIMBERLY A. LITTMAN,
Debtor.
_____________________________________________
SUSAN K. CERVAC,
Plaintiff-Appellee,
vs.
KIMBERLY A. LITTMAN,
Defendant-Appellant.
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Chapter 7
No. 11-38875
_______________________
14 C 9274
Judge Feinerman
Appeal from: No. 12 A 155
MEMORANDUM OPINION AND ORDER
This appeal is from the bankruptcy court’s award of summary judgment against the
debtor in an adversary proceeding. For the following reasons, the bankruptcy court’s judgment
is vacated and the case remanded for further proceedings.
Background
Except where noted, the background is taken from the bankruptcy court’s opinion. 517
B.R. 847 (Bankr. N.D. Ill. 2014) (reproduced at Doc. 1-11 at 484-85 and Doc. 1-12 at 1-20).
Kimberly Littman (the debtor), Susan Cervac, and Joseph Cervac are the children of
Norma Cervac. In 1999, Norma created a living trust and appointed Kimberly as trustee,
instructing her to administer the trust for the benefit of all three children upon Norma’s death.
Norma died in 2006. In January 2009, Susan and Joseph sued Kimberly, alleging that she
misappropriated trust assets. Around that time, Susan began making phone calls to Kimberly
and Kimberly’s daughters and friends. According to Kimberly, Susan repeatedly accused her of
stealing from their mother’s estate and threatened her with jail. Susan wrote emails to
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Kimberly’s daughter “stating things that no daughter should hear about her mother from her
aunt.” Doc. 12 at p. 7, ¶ 24. Apparently the abuse took its toll. “At the time of the harassment,”
Kimberly says, her “emotional state was very difficult; she was trying to deal with [Susan]’s
issues and … get [Susan] out of her life.” Id. at p. 8, ¶ 35.
In October 2009, Kimberly attended a meeting with her two daughters, her son, a close
friend, and a cousin. Kimberly claims that she agreed to give Susan three storage units’ worth of
furniture, artwork, porcelain, and other family memorabilia. Susan was not present at the
meeting, but she later cleaned out the storage units with the help of several family members,
including Kimberly’s son. Susan placed some of the items from the storage units in an empty
house so they could be staged and sold by Leslie Hindman Auctioneers. This property netted
approximately $3,500. Susan also sold a silver set and some dishware for $1,000 and collected
$1,527 more at garage sales. A few pieces of property were abandoned during the loading
process, including a large steel abstract sculpture by the artist Jene Highstein. See
www.guggenheim.org/new-york/collections/collection-online/artists/bios/1011/
Jene%20Highstein. Kimberly’s son ultimately left the sculpture next to the dumpster because it
was too heavy to load onto the truck; it has since vanished. Some other property, including a
lamp, a statute, and a food processor, remained in Susan’s possession.
Approximately one month after Susan took away the items from the storage units, the
siblings settled their state court lawsuit. Kimberly, who was not represented by counsel, signed
an agreed order prepared by Susan and Joseph’s lawyer. While the parties do not give precise
dates, they agree that the property transfer from Kimberly to Susan predated the agreed order.
Doc. 13 at 10; Doc. 12 at p. 18, ¶ 171. The order provided that, within two years, Kimberly
would pay total restitution to Susan of $49,451.60: $21,286.60 for improperly disbursed estate
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funds; $13,955 for attorney fee and costs; $14,000 for an outstanding loan; and $300 for
landscaping services. Doc. 1-3 at p. 22, ¶¶ 2, 5. The order also provided that Kimberly would
pay Joseph $24,426.60. Doc. 1-3 at p. 22, ¶ 3. The order required Kimberly to “allocate twenty
percent (20%) of her net monthly income to the restitution payments” and “to sell whatever
assets she may have to satisfy” her obligations. Id. at pp. 22-23, ¶¶ 4, 7. Kimberly never sold
any assets or made monthly payments as a percentage of her income. However, in January 2011,
she did assign a portion of two asbestos settlements to Susan.
In September 2011, shortly before the two-year restitution period had run, Kimberly
declared bankruptcy. She listed the $49,451.60 debt to Susan as a disputed claim. In November
and December 2011, Kimberly sent Susan three checks totaling $700, which she later said was
an attempt to stop Susan from further harassing her.
On January 31, 2012, Susan initiated an adversary proceeding to declare the $49,561.60
nondischargeable under 11 U.S.C. § 523(a)(2)(A) (debt obtained by false pretenses or fraud),
§ 523(a)(4) (debt for fraud or defalcation while acting in a fiduciary capacity), and § 523(a)(6)
(debt for willful and malicious injury to another). Kimberly answered Susan’s complaint and
twice moved unsuccessfully to dismiss the adversary proceeding. Kimberly’s counsel then
withdrew. The bankruptcy court instructed Kimberly that she would be responsible for
complying with all procedural rules and deadlines, but agreed to stay the proceedings for 21 days
to give her time to find a new lawyer. Kimberly elected to continue pro se.
Susan moved for summary judgment. The bankruptcy court set a briefing schedule and
once again instructed Kimberly that she was responsible for complying with the court’s
procedural rules. Kimberly did not file a brief in opposition to summary judgment and did not
appear at the status hearing once the briefing schedule was complete. The bankruptcy court
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granted Susan partial summary judgment, finding that $35,241.60—the portion of the debt
attributable to the improperly disbursed funds and attorney fees—was nondischargeable but that
the rest of the debt could be discharged. Doc. 1-8 at 42-48. The court entered judgment for
Susan in the amount of $35,241.60. Doc. 1-12 at 27.
The following day, Kimberly, who had retained new counsel, filed a motion to vacate the
judgment on account of excusable neglect. Her excuse was that she had understood the court to
be ordering her to file her summary judgment response in person, and that she had arrived with
papers in hand only to find a dark courtroom. Kimberly said that she then called chambers and
learned of the post-briefing hearing, but wrote down the wrong date in her journal. When she
finally learned of the correct date, she attempted to retain counsel on short notice but was
unhappy with their proposed retention agreement; she could not attend the hearing herself
because she could not get away from work. Doc. 1-8 at 50-51.
The court denied the motion to vacate, noting that it had warned Kimberly about
following procedural rules and that she had confirmed that she understood the briefing schedule.
Id. at 56-60. Kimberly then filed a second motion to vacate accompanied by a notice of appeal.
The bankruptcy court held a three-day evidentiary hearing at which Susan, Kimberly, Kimberly’s
children, and others testified. Doc. 8 at 1-488. After post-hearing briefing, the court denied the
second motion. 517 B.R. at 860-68. The court credited Kimberly for the value of the property
that Susan had auctioned or sold, but applied those sums to the dischargeable portion of
Kimberly’s debt. Id. at 868. The court also ordered Susan to return any unsold property to
Kimberly. Id. at 868-69.
This appeal followed, with Kimberly, the appellant, once again proceeding pro se.
Jurisdiction is proper under 28 U.S.C. § 158(a)(1), which grants the district court jurisdiction to
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hear appeals from bankruptcy court final judgments entered in cases referred under 28 U.S.C.
§ 157. See Zedan v. Habash, 529 F.3d 398, 402 (7th Cir. 2008) (“[T]he test we have utilized to
determine finality under § 158(d) is whether an order resolves a discrete dispute that, but for the
continuing bankruptcy, would have been a stand-alone suit by or against the trustee .… [T]he
final disposition of any adversary proceeding falls within our jurisdiction.”); Fifth Third Bank v.
Edgar Cnty. Bank & Trust, 482 F.3d 904, 905 (7th Cir. 2007) (“A final resolution of any
adversary proceeding is appealable, as it is equivalent to a stand-alone lawsuit.”).
Discussion
As permitted by Federal Rule of Bankruptcy Procedure 8002(b)(3), Kimberly filed an
amended notice of appeal challenging both the entry of summary judgment and the denial of her
second motion to vacate the judgment. Doc. 1 at 6-7. Although Kimberly’s Rule 8006 statement
of issues lists seventeen different issues on appeal, id. at 16-18, her brief discusses only four,
none of which focus on the summary judgment decision itself. The other thirteen issues are
forfeited. See Batson v. Live Nation Entm’t, Inc., 746 F.3d 827, 833 (7th Cir. 2014) (“[A]s the
district court found, the musical diversity argument was forfeited because it was perfunctory and
underdeveloped.”). Her brief’s contents are lifted almost entirely from proposed findings of fact
and conclusions of law submitted by Kimberly’s previous lawyers on the second motion to
vacate the judgment. Compare Doc. 12 with Doc. 1-11 at 2-33. Specifically, Kimberly contends
that the bankruptcy court should have vacated or amended its judgment because: (1) her transfer
to Susan of property from the storage units was an accord and satisfaction of the underlying debt,
Doc. 12 at 25-29; (2) the state court judgment was the product of moral duress and therefore is
void, id. at 30-31; (3) even if there was no accord and satisfaction, the transfer satisfied the debt
because the property—including the Highstein sculpture, which Kimberly faults Susan for
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losing—was worth more than $46,000, id. at 31-32; and (4) Kimberly’s failure to oppose the
summary judgment motion was due to excusable neglect, id. at 32.
The motion to vacate was brought pursuant to Bankruptcy Rules 9023 and 9024, which
incorporate Civil Rules 59 and 60, respectively. Like Civil Rule 59, Bankruptcy Rule 9023
allows a court to alter or amend a judgment if the movant presents newly discovered evidence or
points to evidence that clearly establishes a manifest error of law or fact. See In re Prince, 85
F.3d 314, 324 (7th Cir. 1996). Rule 60 provides that a “court may relieve a party … from a final
judgment” for a variety of reasons, including that “the judgment has been satisfied, released, or
discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it
prospectively is no longer equitable.” Fed. R. Civ. P. 60(b). Denials of motions under
Bankruptcy Rules 9023 and 9024 are reviewed for abuse of discretion. See Prince, 85 F.3d at
324; In re Childress, 851 F.2d 926, 928 (7th Cir. 1988).
For present purposes, it suffices to discuss only one of Kimberly’s four arguments:
whether the bankruptcy court erred in concluding that there had been no accord and satisfaction
of the underlying debt. Under Illinois law, which the parties agree applies, an accord and
satisfaction “is a contractual method of discharging a debt or claim” that requires “(1) a bona fide
dispute, (2) an unliquidated sum, (3) consideration, (4) a shared and mutual intent to compromise
the claim, and (5) execution of the agreement.” Saichek v. Lupa, 787 N.E.2d 827, 832 (Ill.
2003). The requirement of a bona fide dispute over the debt is important to “insure that the
necessary consideration is present to create the contract.” Lowrance v. Hacker, 866 F.2d 950,
953 (7th Cir. 1989) (Illinois law). In other words, “[a]ccord and satisfaction presuppose that the
parties disputed the amount due but agreed to give and accept something other than that which
they thought was due in order to settle a claim.” Saicheck, 787 N.E.2d at 833. Susan contends
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that the transfer of property was not an accord and satisfaction, but rather a partial payment of
Kimberly’s outstanding debt. Doc. 13 at 18-22.
The bankruptcy court rejected Kimberly’s accord and satisfaction argument on two
grounds. First, the court concluded sua sponte that the Rooker-Feldman doctrine deprived it of
jurisdiction even to consider the argument. 517 B.R. at 862, 864. Kimberly does not mention,
let alone challenge, the bankruptcy court’s Rooker-Feldman analysis. Normally, it would follow
that the bankruptcy court’s decision on this point should be affirmed, for “[i]n situations in which
there is one or more alternative holdings on an issue, … failure to address one of the holdings
results in a waiver of any claim of error with respect to the court’s decision on that issue.”
Maher v. City of Chicago, 547 F.3d 817, 821 (7th Cir. 2008). This is so even though the
forfeiture involves a question of subject matter jurisdiction. True enough, it is axiomatic that
“[n]o party can waive or forfeit a lack of subject-matter jurisdiction, which [the court] must
enforce even if everyone else has ignored it.” United States v. Adigun, 703 F.3d 1014, 1022 (7th
Cir. 2012) (emphasis added, internal quotation marks omitted); see also Travelers Prop. Cas. v.
Good, 689 F.3d 714, 718 (7th Cir. 2012) (“Jurisdictional objections cannot be forfeited or
waived, of course, for this court has an independent obligation to satisfy itself that federal subject
matter jurisdiction exists.”) (emphasis added, internal quotation marks omitted); Dexia Credit
Local v. Rogan, 602 F.3d 879, 883 (7th Cir. 2010) (“neither the parties nor their lawyers may
waive arguments that the court lacks jurisdiction”) (emphasis added). However, the proponent
of subject matter jurisdiction, as with any party that bears the burden on a particular point, may
forfeit an argument that could have been made to support jurisdiction. See Travelers Prop. Cas.,
689 F.3d at 718 (“[t]he court need not bend over backwards to construct alternative theories to
persuade itself that subject matter jurisdiction exists”); NetworkIP, LLC v. FCC, 548 F.3d 116,
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120 (D.C. Cir. 2008) (“arguments in favor of subject matter jurisdiction can be waived by
inattention or deliberate choice”); W.C. Motor Co. v. Talley, 63 F. Supp. 3d 843, 852 (N.D. Ill.
2014) (same); Cicero-Berwyn Elks Lodge No. 1510 v. Philadelphia Ins. Co., 2013 WL 1385675,
at *2 (N.D. Ill. Apr. 4, 2013) (same). That said, Kimberly is pro se, so some leeway is
warranted, particularly where, as here, the bankruptcy court raised the jurisdictional issue on its
own accord.
The Rooker-Feldman doctrine holds that lower federal courts have no jurisdiction to hear
“cases brought by state-court losers complaining of injuries caused by state-court judgments
rendered before the district court proceedings commenced and inviting district court review and
rejection of those judgments.” Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280,
284 (2005). So phrased, the doctrine does not apply to Kimberly’s post-judgment motion to
vacate in the bankruptcy court. Kimberly did not “bring” a case; rather, she was the defendant in
an adversary proceeding over which the bankruptcy court had already found jurisdiction. 517
B.R. at 851 (stating that the adversary proceeding was a core proceeding under 28 U.S.C.
§ 157(b)). The bankruptcy court nevertheless concluded that Rooker-Feldman applied because
Kimberly’s argument for post-judgment relief would necessarily undermine the validity of the
state court judgment, reasoning:
This argument [i.e., that a transfer of property satisfied a debt later
memorialized in the agreed order] is contrary to the plain language and logical
import of the State Court Judgment. There is no logical interpretation of the
State Court Judgment that does not result in the conclusion that on that date of
the judgment, the Debtor owed the Plaintiff the amounts set forth therein. It
would be meaningless for a court to enter an order memorializing an
obligation that had previously been satisfied.
Put in other terms, what this argument … invite[s] this court to do is conclude
that the State Court erred when it entered the State Court Judgment. Whether
the State Court erred in entering the State Court Judgment despite … the
Transfer … is ‘inextricably intertwined’ with the State Court Judgment itself.
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… That is simply not reviewable in the federal courts, and the Debtor’s
arguments in this regard are therefore rejected on jurisdictional grounds.
Id. at 864 (quoting Kelley v. Med-1 Solutions, LLC, 548 F.3d 600, 603 (7th Cir. 2008)). The
bankruptcy court believed a similar rationale applied to Kimberly’s moral duress argument. Id.
at 862-63.
Kimberly’s motion to vacate did not implicate the Rooker-Feldman doctrine. Recent
Seventh Circuit decisions have cast some doubt on whether the “inextricably intertwined”
standard set forth in Kelly v. Med-1 Solutions is still valid. See Iqbal v. Patel, 780 F.3d 728, 730
(7th Cir. 2015); Richardson v. Koch Law Firm, P.C., 768 F.3d 732, 734 (7th Cir. 2014); cf.
Dawaji v. Kohlhoss, 2014 WL 4913741, at *3 (N.D. Ill. Sept. 30, 2014) (noting that the Seventh
Circuit has not abandoned the standard), on appeal, No. 14-3238 (7th Cir.). But regardless, even
under Kelly, an argument is not inextricably intertwined with a state court judgment just because
the argument implies that the judgment was wrong. That is, the Rooker-Feldman doctrine does
not apply merely because a claim “denies a legal conclusion that a state court has reached in a
case to which [s]he was a party.” GASH Assocs. v. Vill. of Rosemont, 995 F.2d 726, 728 (7th
Cir. 1993). Rather, “[t]he determination of whether a federal claim is ‘inextricably intertwined’
hinges on whether it alleges that the supposed injury was caused by the state court judgment, or,
alternatively, whether the federal claim alleges an independent prior injury that the state court
failed to remedy.” Brown v. Bowman, 668 F.3d 437, 442 (7th Cir. 2012). The bankruptcy court
did not attempt this analysis. Nor is it clear how it could have. Kimberly’s motion to vacate did
not allege any injury from the state court judgment; it merely contended that debt underlying the
bankruptcy court’s judgment had already been satisfied. Cf. Bryan v. Erie Cnty. Office of
Children & Youth, 752 F.3d 316, 321 (3d Cir. 2014) (noting, with respect to Rule 60(b)(5), that
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“jurisdiction to enforce a judgment necessarily includes the jurisdiction to declare the judgment
satisfied”).
The bankruptcy court understandably was concerned that Kimberly not be permitted to
use the discharge proceedings as a means of circumventing the state court judgment. Yet the
doctrinal solution to that concern is preclusion, grounded in 28 U.S.C. § 1738, not RookerFeldman. See First Weber Grp., Inc. v. Horsfall, 738 F.3d 767, 772 (7th Cir. 2013) (“A state
court judgment is entitled to the same preclusive effect in federal court as that judgment would
have in state court. … This rule applies with equal force to bankruptcy cases.”). “Equating the
Rooker-Feldman doctrine with preclusion is natural; both sets of principles define the respect
one court owes to an earlier judgment. But the two are not coextensive.” GASH Assocs., 995
F.2d at 728; see also Arnold v. KJD Real Estate, LLC, 752 F.3d 700, 706 (7th Cir. 2014)
(“Courts often confuse Rooker-Feldman cases with cases involving ordinary claim or issue
preclusion.”).
In re Bulic, 997 F.2d 299 (7th Cir. 1993), which involved a family feud similar to Susan
and Kimberly’s, illustrates the point. Bulic involved a dispute between siblings; a state court
judgment followed by bankruptcy; an adversary proceeding to declare the debt
nondischargeable; and an attempt by the debtor to call the state court judgment into question.
The Seventh Circuit rejected the debtor’s argument that “the issue of the validity and amount of
Ivan’s [the creditor’s] claim must be re-examined by the bankruptcy court,” explaining:
Even if the bankruptcy court’s equitable powers are great, there are limits to
that authority. One of them is 28 U.S.C. § 1738, the statutory clause requiring
that state court judgments be given full faith and credit in federal courts as
they would in the state that issued them. Thus, the bankruptcy court was
required to find that the Bulics owed Ivan Bulic the amount entered in the
state court judgment, since Indiana courts would find that judgment
preclusive.
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Id. at 304 (citations omitted). To similar effect, see Adams v. Adams, 738 F.3d 861 (7th Cir.
2013), which expressly rejected the creditor’s Rooker-Feldman argument, id. at 864 n.2, but
concluded that underlying state court judgments precluded the debtor from arguing that the
obligation had been fully satisfied or procured by duress or fraud. Id. at 864-66.
The bankruptcy court’s alternative ground for rejecting Kimberly’s accord and
satisfaction defense is that even if it had jurisdiction, “the briefest of inquiries into the law of
accord and satisfaction” showed that the argument failed on the merits. The bankruptcy court
reasoned:
Under Illinois law, “an ‘accord and satisfaction’ is an agreement between
parties which settles a bona fide dispute over an unliquidated sum.” In re W.
Side Cmty. Hosp., Inc., 112 B.R. 243, 255 (Bankr. N.D. Ill. 1990)
(Schmetterer, J.). In order to prove an accord and satisfaction exist, a party
must prove by a preponderance of the evidence: (i) “a dispute between the
parties”; (ii) “a tender with the explicit understanding of both parties that it
was in full payment of all demands”; and (iii) “an acceptance by the creditor
with the understanding that the tender is accepted in full payment.” Id. The
Debtor has not shown that there is an objective basis for either a factual or a
legal dispute as to the validity of a debt. W. Side Cmty. Hosp., Inc., 112 B.R.
at 253 (citing In re Busick, 831 F.2d 745, 750 (7th Cir. 1987)). Mere assertion
of the existence of a dispute, however, does not establish it. Sherman v.
Rokacz, 538 N.E.2d 898 (Ill. App. 1989).
517 B.R. at 865 (citations shortened).
The bankruptcy court’s conclusion rests on the view that Kimberly could not merely
assert the existence of a bona fide dispute over the debt at the time of the property transfer. Yet
Susan conceded this element of the accord and satisfaction doctrine in the adversary proceeding,
and does so again on appeal. Doc. 13 at 19 (“Appellant knew there was a debt owed to Appellee.
… The only dispute was the amount owed.”); Doc. 1-11 at 469 (same). Settled law holds that a
dispute over the amount owed satisfies the first element of accord and satisfaction. See Saicheck,
787 N.E.2d at 833 (“[a]ccord and satisfaction presuppose that the parties disputed the amount
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due”); Morel v. Coronet Ins. Co., 509 N.E.2d 996, 1000 (Ill. 1987) (“accord and satisfaction
requires certain factual findings, such as a bona fide dispute over an amount due”).
In sum, the bankruptcy court erred in holding that the Rooker-Feldman doctrine
foreclosed Kimberly’s accord and satisfaction defense, and also in holding that Kimberly had not
established a bona fide dispute over the amount of the debt. It is true that courts have significant
leeway to grant or deny post-judgment relief. See Bakery Mach. & Fabrication, Inc. v.
Traditional Baking, Inc., 570 F.3d 845, 858 (7th Cir. 2009) (stating that the decision involves
“discretion piled on discretion”). But a decision cannot stand when it “is premised on an
incorrect legal principle or a clearly erroneous factual finding.” In re KMart Corp., 381 F.3d
709, 713 (7th Cir. 2004); see also Colon v. Option One Mortg. Corp., 319 F.3d 912, 916 (7th
Cir. 2003) (“a court necessarily abuses its discretion when its decision is based solely on an
erroneous conclusion of law”). So the case will be remanded, although this decision does not
foreclose the bankruptcy court from denying Kimberly’s motion to vacate on any of the other
grounds presented by Susan.
Conclusion
For the foregoing reasons, the bankruptcy court’s judgment is vacated and the case
remanded for further proceedings. The court notes that any arguments other than the four that
Kimberly actually pressed in this appeal have been forfeited and are outside the scope of the
remand. See United States v. Adams, 746 F.3d 734, 744 (7th Cir. 2014) (“The law of the case
doctrine is a corollary to the mandate rule and prohibits a lower court from reconsidering on
remand an issue expressly or impliedly decided by a higher court absent certain circumstances.
Thus, the law of the case doctrine precludes a defendant from raising an argument not raised
during his first appeal.”) (internal quotation marks and citation omitted); Kovacs v. United States,
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739 F.3d 1020, 1024 (7th Cir. 2014) (“A court to which a case has been remanded may address
only the issue or issues remanded, issues arising for the first time on remand, and issues that
were timely raised but which remain undecided.”); United States v. Husband, 312 F.3d 247, 250
(7th Cir. 2002) (“[T]his court does not remand issues … when those issues have been waived or
decided.”).
August 18, 2015
United States District Judge
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