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In re Collazo

United States Court of Appeals, Seventh Circuit

April 5, 2016

ARTURO COLLAZO, Defendant-Appellee DANA SIRAGUSA, et al., Plaintiffs-Appellants,

         Argued January 21, 2016

Page 1048

          Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 14 C 5008 -- Jorge L. Alonso, Judge.

         For In the Matter of: ARTURO COLLAZO, Debtor - Appellee: David Robert Herzog, Attorney, Herzog & Schwartz, P.C., Chicago, IL.

         For ROBERT SIRAGUSA, Doctor, individually and as trustee for the Robert J. Siragusa, MD, Employee Benefit Trust, formerly: Dermatology Associates of Bay County, PA, Defined Benefit Trust, Dana Siragusa, Robert Joseph Siragusa, Appellants: Patrick Gerard Cooke, Attorney, Kopon Arido Llc, Chicago, IL.

         Barry A. Chatz, Trustee, Pro se, Chicago, IL.

         Before POSNER, EASTERBROOK, and KANNE, Circuit Judges.


Page 1049

          Posner, Circuit Judge.

          Arturo Collazo was (maybe still is) a real estate developer engaged in buying apartment buildings, mainly although not exclusively in Chicago, and converting the apartments to condominiums that he and his partner, Jon Goldman, would then sell. In 2012 Collazo petitioned for bankruptcy, seeking to discharge his debts to, among others, Dr. Robert J. Siragusa (a physician), Siragusa's employee benefit trust, and Siragusa's three adult children. All five Siragusas joined in filing an adversary action in the bankruptcy proceeding, contending that Collazo was not entitled to a discharge of his debts to them. The bankruptcy judge, however, seconded by the district judge (to whom the Siragusas appealed the adverse rulings of the bankruptcy judge on their claims), allowed all but one of the Siragusas' claims to be discharged. All the Siragusas except daughter Julie appeal to us. The one claim the bankruptcy and district judges held not to be discharged is Collazo's debt to two of Dr. Siragusa's children, Dana and Robert Joseph, concerning a development project in Arizona. Collazo has not appealed that ruling.

         Collazo's modus operandi was to make the nominal owner of each building that he bought a separate LLC owned by Goldman and himself. To finance the conversion of the apartments in the buildings to condos the partners would borrow money from financial institutions and provide security for the loans by mortgaging the properties. But because the lenders were slow to release funds to the partners for their Chicago construction projects, the partners needed short-term financing as well. Daughter Julie happened to work for Collazo and in 2002 she introduced her father to him. Joined by his trust and later by all three children, Dr. Siragusa began making loans to Collazo to help him finance his real estate projects. Collazo promised to repay each loan as soon as he repaid any long-term lenders, and in addition to pay interest to the Siragusas at an annual rate of 17 to 20 percent. In 2002 and 2003 Dr. Siragusa, the trust, and another daughter, Dana, lent Collazo a total of $830,000 for Chicago conversion projects. (Siragusa's other two children were not parties to these loans.)

         Beginning in 2003 and continuing until 2005, Collazo transferred the unsold condo units in the Chicago buildings to other LLCs formed by him and Goldman, and pledged the units as security for additional loans that the partners obtained to help finance their conversion projects. According to the Siragusas, the new lenders didn't realize that Collazo was indebted to Dr. Siragusa, daughter Dana, and the trust for their having financed the acquisition of the properties; the transfer of the units had made the units appear unencumbered by any preexisting debts.

Page 1050

          Collazo testified in the bankruptcy proceeding that he had not intended to transfer unsold condo units when he had borrowed money from the Siragusas years earlier. But if so his intentions changed, for by mid-2005 he had not only transferred all the unsold condo units in the Chicago buildings in which the Siragusas had invested; he had also mortgaged all of them in order to obtain additional funds. He had repaid only some of the money he'd borrowed from the Siragusas, and such repayments as he had made had been tardy. Though unaware of the transfers and subsequent mortgaging of the unsold condo units, Dr. Siragusa was sufficiently alarmed by Collazo's delays in repayment to seek an update from him. ...

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