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INDIANA NAT. BANK v. GAMBLE

October 19, 1984

THE INDIANA NATIONAL BANK, PLAINTIFF,
v.
ROBERT N. GAMBLE, M.D., AND CHURCH OF CHRISTIAN LIBERTY, DEFENDANTS, V. UNITED STATES OF AMERICA, INTERVENOR, V. GOLF MILL STATE BANK, THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: Getzendanner, District Judge:

  MEMORANDUM OPINION AND ORDER

The plaintiff, Indiana National Bank, originally instituted this action in the Circuit Court of Cook County to set aside as fraudulent the conveyance by defendant Robert N. Gamble of his residence at 9 Beechnut Drive, South Barrington, Illinois to the Church of Christian Liberty. The United States, asserting a tax lien on the property, intervened in that action and had the case removed to this Court pursuant to 28 U.S.C. § 1441. The matter is now before the court on the motions of the United States and Indiana National Bank for summary judgment. For the reasons stated below, both motions are granted.

Factual Background

For the purposes of the present motion, the facts will be interpreted in the light most favorable to the defendant. However, as the following summary will show, the material facts of this case are not in dispute. Dr. Robert N. Gamble is a cardiac, thoracic, and vascular surgeon, who began religious training with the Church of Christian Liberty in 1972. In 1974, Dr. Gamble became ordained as a minister of the Church and a member of the Order of John Calvin the Reformer. Gamble's relationship with the Church involves several complex financial arrangements. As part of his ordination, Gamble underwent a vow of poverty which required him to transfer all his and his immediate family's assets (except for his personal library) and to assign all his future income to the Church. In exchange, Gamble received assurances of a monthly stipend to cover all the family's bills, such as the mortgage and insurance on the Beechnut property, utility payments and grocery bills. Under this arrangement, Gamble's family remains substantially free to dispose of his income as they see fit.

Gamble's financial system with the Church also involves use of two corporations. In 1976, Gamble entered into an agreement with R.V. Tatooles Associates Service Corporation whereby his salary was assigned directly to the Order on a monthly basis. In September 1983, Gamble formed the John Knox Surgery Corporation, in which Gamble is president, his wife vice-president and secretary, and their daughter treasurer. Gamble is the only physician presently associated with Knox. Under this new arrangement, Gamble receives no salary. The corporation's funds remaining after expenses are paid are sent to the Order as a fee for Gamble's services, and the Order continues to provide the Gambles with a monthly allowance.

On June 15, 1976, Gamble and his wife executed a trust deed to purchase the Beechnut property. The mortgage on this property was, and still is, held by the third-party defendant, Golf Mill State Bank. According to Gamble, the Order provided the funds for the down payment; title was taken in his and his wife's name, however, because Golf Mill refused to finance any purchases under the Church's name. Although Gamble denies that he ever "owned" the Beechnut property, Gamble admitted having signed the trust deed and the loan application to Golf Mill along with accompanying documents relating to the loan. These documents identify Gamble as one of the co-obligors on the mortgage, and as the record owner of the property.

On July 1, 1977, title to the Beechnut property was conveyed by quit-claim deed from the Gambles to the Church. The stated consideration for the conveyance was $10.00. According to Gamble, this consideration was never paid, but the Gambles did receive an oral assurance that the Church would cover all future mortgage payments, along with payments for matters such as food, utilities, and clothing. Gamble further testified that this conveyance was made voluntarily. Gamble did not notify Golf Mill of the quit-claim transfer since they had previously refused to deal with the Church. The Gambles pay no rent for the use of the house. The mortgage coupons and the insurance are still in his and his wife's names. Gamble has assigned to Mrs. Helen Koerner, his mother-in-law, the task of writing the monthly mortgage checks, which are drawn on her personal checking account. Mrs. Koerner is the only member of Gamble's household who is not subject to his vow of poverty.

At the time that Gamble made the quit-claim transfer, he was in default on three promissory notes issued to plaintiff Indiana National Bank in the amounts of $2,692.57 dated December 12, 1973; $7,304.75 dated December 22, 1972, and $2,798.93 dated June 15, 1973. Consequent to the above default, on or around October 16, 1975, the Bank filed suit against Gamble in Minnesota state court to collect on the notes, plus interest, costs and attorney fees. Due to his religious convictions and the ecclesiastical position of the Order regarding legal counsel, Gamble did not contest the suit, and judgment was rendered against him on September 1, 1977 in the amount of $18,037.80. Gamble has testified that the summons and complaint in that case had been served on him in Minnesota, that he was aware of the lawsuit, and that he was aware of the judgment rendered. The Bank later filed suit against Gamble in Cook County to register its Minnesota judgment in Illinois. Gamble was again aware that he had been made a defendant in that case but again did not appear, and the Bank obtained a registration of the judgment on October 20, 1978.

Also at the time of the quit-claim transfer, Gamble's 1975 income taxes were being audited. The I.R.S. notified Gamble that his 1975 return was being examined by letter dated March 25, 1977. On May 5, Gamble was sent a Report of Individual Tax Audit Changes. Although Gamble's testimony is somewhat conflicting on the matter of receiving these documents, Gamble admitted to mailing a response to the District Director in Edina, Minnesota on May 16, 1977, in which he requested an appointment to discuss the audit.

On May 19, 1978, Gamble filed a petition with the Tax Court for a redetermination of the deficiency in his 1975 income taxes. The Tax Court dismissed Gamble's petition for want of prosecution, and found that there was a deficiency in Gamble's 1975 income tax in the amount of $7,840.66. On July 13, 1981, the Secretary of the Treasury assessed $11,129.71 in unpaid taxes and interest against Gamble. Gamble has refused to pay the assessment, and a Notice of Federal Tax Lien was filed with the Cook County Recorder's office on January 20, 1982. The Government now requests this court to set aside the conveyance, to reduce its tax assessment against Gamble to judgment, to determine the validity of its lien, and to order that the Beechnut property be sold by a proper officer of the Court with the proceeds to be distributed to the various parties in order of priority.

Illinois Law of Fraudulent Conveyance

The law underlying this case is well-settled. Under Ill.Rev.Stat., ch. 59, § 4, "[e]very gift, grant, conveyance, assignment or transfer of, or charge upon any estate . . . made with the intent to disturb, delay, hinder or defraud creditors or other persons . . . shall be void as against such creditors, purchasers, and other persons." The Illinois courts have divided transfers voidable under this section into two categories: fraud in law and fraud in fact. Tcherepnin v. Franz, 457 F. Supp. 832, 836 (N.D.Ill. 1978); Harris v. Aimco, Inc., 66 Ill.App.3d 60, 62, 22 Ill.Dec. 823, 825, 383 N.E.2d 631, 633 (5th Dist. 1978); Wilkey v. Wax, 82 Ill.App.2d 67, 70, 225 N.E.2d 813, 814 (1st Dist. 1967). To prove fraud in fact, the plaintiff seeking to set aside a transfer must demonstrate an actual intent to hinder creditors. However, a voluntary transfer which is made without consideration or which directly impairs the rights of creditors "will be regarded as fraudulent in law, irrespective of the honesty of the grantor's motives." First Security Bank v. Bawoll, 120 Ill.App.3d 787, 76 Ill.Dec. 54, 59, 458 N.E.2d 193, 198 (2d Dist. 1983). See also Capitol Indemnity Corp. v. J.H. Keller, 717 F.2d 324, 327 (7th Cir. 1983) (transfer without consideration constructive fraud and void under Illinois law); Tcherepnin, 457 F. Supp. at 836 (fraudulent intent immaterial in fraud in law cases).

To sustain a claim of fraud in law, a creditor must prove three elements: (1) a voluntary gift; (2) an existing or contemplated indebtedness; and (3) failure of the debtor to retain sufficient assets to pay the indebtedness. Tcherepnin v. Franz, 475 F. Supp. 92, 96 (N.D.Ill. 1979) (Tcherepnin II); Mills v. Susanka, 394 Ill. 439, 448, 68 N.E.2d 904, 909 (1946). Because actual intent to impair creditors is irrelevant, the presumption of fraud in such cases can be rebutted only by if the debtor shows that he retained sufficient property to pay his or her obligations, Tcherepnin, 457 F. Supp. at 840, or that adequate consideration was given for the transfer. Harris v. Aimco, Inc., 66 Ill. App.3d 60, 62, 22 Ill.Dec. 823, 825, 383 N.E.2d 631, 633 (5th Dist. 1978). If the presumption of fraud is successfully rebutted, then the creditor must prove actual intent to defraud. Till v. Till, 87 Ill.App.2d 358, 361, 231 N.E.2d 641, 643 (1st Dist. 1967).

In the present case, the United States and Indiana National Bank have offered the following to demonstrate that Gamble's quit-claim conveyance of his Beechnut Drive home should be deemed fraudulent. First, Gamble has testified that the transfer was voluntary in all respects. The property was purchased one year before the transfer for $127,000, but was quit-claimed for a mere $10.00, a manifestly inadequate consideration. Under Illinois law, which this court is bound to follow, a ...


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