In re: Chicago Management Consulting Group, Inc., Debtor.
Julia Hathaway, Defendant-Appellant. Horace Fox, as Chapter 7 Trustee for the Estate of Chicago Management Consulting Group, Inc., Plaintiff-Appellee,
September 28, 2018
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 15 C 8917 - Jorge
L. Alonso, Judge.
Ripple, Sykes, and Scudder, Circuit Judges.
Novak tragically took his own life in February 2012. He left
his company, Chicago Management Consulting Group, Inc., to
his close friend Debra Comess. She was not in a position to
manage the struggling firm, so she initiated bankruptcy
proceedings almost immediately after Novak's death.
Chapter 7 Trustee discovered numerous transfers from Chicago
Management Consulting Group's coffers to Comess and Julia
Hathaway-another Novak companion who ran a small yoga studio.
Believing the transfers to be fraudulent under the Bankruptcy
Code, the Trustee sought to reclaim their value for the
Estate. After a bench trial, the bankruptcy judge ruled that
the transfers to Comess and Hathaway were voidable on grounds
of actual and constructive fraud and imposed sanctions on
Hathaway for discovery lapses. The district court affirmed.
settled her case; this appeal concerns the transfers to
Hathaway. She launches several arguments. First, she contends
that the bankruptcy judge committed clear error by ignoring
one of the Trustee's trial exhibits when evaluating the
company's financial health. Second, she challenges the
bankruptcy judge's finding that the company did not
receive reasonably equivalent value in return for its
transfers. Third, she argues that the company did not have
"creditors" under the Illinois Uniform Fraudulent
Transfer Act ("IUFTA" or "the Act") at
the time of the transfers. Finally, Hathaway vigorously
disputes the sanctions ruling.
affirm. As a preliminary matter, Hathaway failed to comply
with multiple rules of appellate procedure. On the merits,
our review of a bankruptcy court's factual findings is
constrained; we reverse only for clear error. Not one of
Hathaway's arguments meets this high bar. The bankruptcy
judge was amply justified when he concluded that the company
was insolvent, the transfers to Hathaway were gratuitous, and
the company had creditors under the Act. And we see no reason
to disturb the imposition of discovery sanctions.
was the sole shareholder of Chicago Management Consulting
Group, an information-technology consulting firm he started
in 1997. His primary client was BP America. By 2008 the
company's solvency was questionable. In February 2012
Novak committed suicide, leaving his company to his good
friend Debra Comess. She was not equipped to run the firm, so
she initiated bankruptcy proceedings, filing a voluntary
Chapter 7 petition in the Northern District of Illinois on
May 2, 2012.
four years prior to the bankruptcy filing, Comess and Julia
Hathaway, another close friend of Novak's, had received
significant payments from the company, though they were not
employees. Hathaway alone received $45, 400.81 between 2008
and 2012. Hathaway runs a small yoga studio, and her email
correspondence with Novak during this period suggests that
the payments were personal, not professional. The emails
document Hathaway's repeated requests for gifts and
payments and Novak's expressions of affection for her and
willing acquiescence in her requests.
Horace Fox brought an avoidance action targeting the
transfers to Comess and Hathaway. He later moved for
sanctions against Hathaway alleging dilatory behavior during
bankruptcy judge determined that the women had indeed
received money from Chicago Management Consult- ing Group and
that Novak typically failed to record the transactions. The
judge also found that the company was insolvent at the time
of the transfers, relying on an accounting expert's
report introduced by the Trustee. The judge rejected
Hathaway's argument that a list of gross receivables
proffered by the Trustee refuted the expert's conclusion.
on, the judge ruled that the company did not receive
reasonably equivalent value in exchange for its transfers to
Hathaway. He based this finding on evidence of Novak's
close personal relationship with her, his habit of paying for
her personal expenses on demand, the lack of evidence that
Hathaway performed any work for the company, the irregularity
and vagueness of her ...