In re: Margaret Kempff, Debtor-Appellee. Appeal of: Brian K. Farley.
February 23, 2016
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 14 C 9810 -
Thomas M. Durkin, Judge.
Wood, Chief Judge, and Sykes and Hamilton, Circuit Judges.
Kempff s ex-husband Bart embezzled more than $1 million from
his employer while the two were still married. To evade
detection, he attempted to replenish the stolen funds,
borrowing $400, 000 from his friend Brian Farley on the ruse
that the money would be used for a real-estate development.
As security for the loan, Bart gave Farley a third-priority
lien on the couple's home, forging Margaret's
signature on the note and mortgage.
effort to cover his tracks did not succeed. His employer
discovered the embezzlement and reported it to police; he was
eventually convicted of felony theft. In the meantime,
Margaret divorced him and the couple's home went into
foreclosure. Farley filed a cross-claim in the foreclosure
action seeking to enforce his lien, but the sale of the home
did not yield nearly enough to cover even the first mortgage.
Margaret filed for bankruptcy while the foreclosure was
pending, which stayed Farley's claim.
then filed an adversary complaint challenging Margaret's
eligibility for a Chapter 7 discharge. He claimed that she
made a fraudulent transfer after filing her bankruptcy
petition and made multiple false statements in her bankruptcy
schedules. Margaret testified at trial that these were
innocent mistakes. The bankruptcy judge credited her
testimony and rejected each of Farley's contentions, and
the district court affirmed that decision. We do the same.
Farley's arguments for overturning the bankruptcy
judge's ruling are most charitably described as
ill-considered. The decision rests on the judge's
acceptance of Margaret's testimony as credible.
Credibility determinations are almost never disturbed on
appeal. Farley gives us no good reason to do so here.
Kempff, an attorney, was general counsel for a luxury home
builder in suburban Chicago. Over time he embezzled
approximately $1.2 million from his employer. In early August
2007, he launched a desperate scheme to avoid detection by
surreptitiously replenishing the stolen money. To that end he
asked Brian Farley, also an attorney, to lend him $400, 000,
ostensibly for a real-estate development. In exchange Bart
offered Farley a security interest on the real-estate project
and a second mortgage on the home he and Margaret owned.
August 8 Bart signed a note and mortgage, and Farley wrote
him a check for $400, 000. Bart had concealed his fraudulent
activity from his wife, so Margaret wasn't present for
this transaction. Bart assured Farley that she was willing to
sign and promised to obtain her signature on the loan
documents. He then used the money to partially restore the
stolen funds. On August 21 Bart and Margaret closed on a bank
loan secured by a second mortgage on their home. Two days
later, Bart forged Margaret's signature on the Farley
loan documents and sent them back to Farley, clearing the way
for him to record the mortgage. Farley did so, but by then it
was third in order of priority.
all this was unfolding, Bart's employer learned of the
embezzlement. On August 21-the same day he and Margaret
closed on the bank loan-Bart was fired. Things unraveled
quickly after that. Several of Margaret's relatives
loaned the couple sizable sums in the hope that Bart could
repay his employer and avoid prosecution. To no avail; the
State's Attorney charged him with felony theft, and he
was eventually convicted and disbarred. Meanwhile, the lender
holding the first mortgage on the couple's home initiated
foreclosure proceedings. Farley filed a cross-claim against
Bart and Margaret in the foreclosure action, but the proceeds
of the home sale were insufficient to cover even the first
mortgage. The nonpriority lienholders received
the foreclosure action was pending, Margaret filed a petition
for bankruptcy, which automatically stayed Farley's claim
against her. Farley turned to the bankruptcy court for
relief, filing an adversary action challenging Margaret's
eligibility for a Chapter 7 discharge. He raised many
grounds; only two remain relevant here. Farley accused
Margaret of transferring property "with intent to
hinder, delay, or defraud a creditor" after the date of
her bankruptcy petition. 11 U.S.C. § 727(a)(2). He also
alleged that she "knowingly and fraudulently" made
false statements in her bankruptcy filings. Id.
bankruptcy judge held a three-day bench trial on Farley's
claims. Margaret testified that she did not authorize the
postpetition transfer and that the inaccurate statements in
her bankruptcy filings were innocent mistakes or
misunderstandings. The judge credited her testimony, found
that she lacked fraudulent intent, and rejected Farley's
claims. The district court upheld this ruling, and Farley has