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Fifth Third Bank v. Racine Motorsports

May 28, 2010

FIFTH THIRD BANK, A MICHIGAN BANKING CORPORATION, PLAINTIFF,
v.
RACINE MOTORSPORTS, LTD., A WISCONSIN CORPORATION, AND SCOTT DARVILLE, AN INDIVIDUAL, DEFENDANTS.



The opinion of the court was delivered by: Joan Humphrey Lefkow United States District Judge

Hon. Joan H. Lefkow

OPINION AND ORDER

Fifth Third Bank ("Fifth Third") brought suit against Racine Motorsports, Ltd. ("RML") and Scott Darville ("Darville") arising from alleged fraudulent transfers that occurred between Emily, Inc. ("Emily") and Darville and RML.*fn1 Counts I, II, and III allege fraudulent transfer against Darville under the Illinois Uniform Fraudulent Transfer Act ("IUFTA"), codified at 740 Ill. Comp. Stat. § 160/5(a) et seq. Counts IV, V, and VI allege fraudulent transfer against RML under the IUFTA. Counts VII, VIII, and IX allege fraudulent transfer against RML and Darville jointly under the IUFTA. Fifth Third moves separately to strike Darville's answer and either for judgment on the pleadings against RML or to strike RML's answer. For the reasons set forth below, Fifth Third's motion for judgments on the pleadings [#32] is granted as to liability, and its motion to strike Darville's answer [#34] is granted.

BACKGROUND

Emily, an Illinois corporation, entered into a series of promissory notes on April 24, 2007 with Fifth Third by which Fifth Third provided a line of credit to enable Emily to purchase new and used motor vehicles for sale or lease. In exchange, Emily promised to repay Fifth Third the principal balance with interest. Fifth Third also extended an open line of credit to Emily under other loan agreements through which Emily was entitled to purchase inventory and other assets. Under these loan agreements, Fifth Third holds a lien on all Emily's assets and therefore has a security interest in all of Emily's cash and accounts.

On November 18, 2008, Emily executed an agreement with Fifth Third (the "turnover agreement") by which Emily acknowledged and agreed that it was in default under the loan agreements and transferred all its assets to Fifth Third. Under the turnover agreement, Emily admitted that its default was "a result of knowingly and intentionally False Statements Emily, through Ott, and Ott made to [Fifth Third] regarding the value of assets for which [Fifth Third] advanced monies under various of the Notes. . . . [and] for misappropriation and fraudulent transfer of funds received from [Fifth Third]." Ex. A to Turnover Agreement, attached as Compl. Ex. A. Emily acknowledged that, at the time of the turnover agreement, the outstanding amount it owed Fifth Third was $30,560,060 in principal, and $55,166.21 in interest, future interest, and Fifth Third's fees and costs.

Fifth Third alleges that Emily fraudulently transferred money to RML and Darville as part of a "scheme to defraud lending institutions into lending massive amounts to Emily, and to subsequently transfer the borrowed funds to third parties." Id. at ¶ 22. On November 3, 2009, this court entered a default judgment against RML because it failed to timely answer the complaint and failed to appear for a scheduled status hearing. See Dkt. No. 17. Fifth Third subsequently submitted affidavits offering to prove-up damages. In a minute order issued on January 17, 2010, this court found that Fifth Third failed to present prima facie evidence of either its right to relief against RML or the amount of damages owed. See Dkt. No. 27. As a result, this court ordered RML to answer the complaint.

Counts I, II, and III involve alleged fraudulent transfers made by Emily to Darville. Counts I and II allege that, through a series of checks, Emily transferred $306,394.60 to Darville with the intent to defraud Fifth Third and without receiving reasonably equivalent value in exchange, in violation of 740 Ill. Comp. Stat. § 160/5(a)(1)-(2). Moreover, Count III alleges that a portion of these transfers ($154,194.50) were made after Fifth Third's claims against Emily arose, at a time when Emily was, or as a result became, insolvent, in violation of 740 Ill. Comp. Stat. § 160/6(a). In his answer to the complaint, Darville asserted his Fifth Amendment right against self-incrimination to virtually all of Fifth Third's allegations, claiming his answer might tend to incriminate him. Darville admitted only that "Fifth Third is a Michigan banking corporation incorporated in the state of Michigan, and licensed to do business in Illinois," that "Fifth Third maintains its principal place of business in Cincinnati, Ohio," and that he is an adult. Darville Answer ¶¶ 1, 3.

Counts IV and V allege that, through a series of checks, Emily fraudulently transferred $2,197,078.51 to or for the benefit of RML with the intent to defraud Fifth Third and without receiving reasonably equivalent value in exchange, in violation of 740 Ill. Comp. Stat. § 160/5(a)(1)-(2). Count VI alleges that a portion ($865,000) was transferred after Fifth Third's claims against Emily arose, at a time when Emily was, or as a result became, insolvent, in violation of 740 Ill. Comp. Stat. § 160/6(a). RML did not respond to the substantive allegations against it, claiming that because Darville is "the only agent of [RML] having knowledge and information sufficient to form a belief about the truth of [the] allegation[s] and he is asserting his rights against self-incrimination, [it] cannot answer [the] allegation[s]." E.g., RML Answer ¶ 55.

Counts VII and VIII allege that, through a series of checks, Emily fraudulently transferred $891,371.02 to Hawthorne Credit Union for the benefit of Darville and/or RML with the intent to defraud Fifth Third and without receiving reasonably equivalent value in exchange, in violation of 740 Ill. Comp. Stat. § 160/5(a)(1)-(2). Count IX alleges that a portion of these transfers ($452,928.11) were made after Fifth Third's claims against Emily arose, at a time when Emily was, or as a result of became, insolvent, in violation of 740 Ill. Comp. Stat. § 160/6(a).

ANALYSIS

I. Judgment on the Pleadings

The legal standard for reviewing a judgment on the pleadings is identical to the standard used for a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Guise v. BWM Mortgage, LLC, 377 F.3d 795, 798 (7th Cir. 2004). "Therefore, viewing all of the facts in a light most favorable to the non-moving party, the district court may only grant the motion if it is beyond doubt that the non-movant can plead no facts that would support his claim for relief." U.S. v. Wood, 925 F.2d 1580, 1581 (7th Cir. 1991) (citations omitted). Although the court may not look beyond the pleadings and "all uncontested allegations to which the parties had an opportunity to respond are taken as true," the court "may take into consideration documents incorporated by reference to the pleadings." Id. at 1581-82 (citations omitted.)

RML does not contest an entry of judgment on the issue of liability but challenges the amount of damages that should be awarded. RML's Resp. ¶¶ 8-10. Ordinarily, when liability is uncontested or default has been entered, damage assessments can be made without a separate hearing if they are liquidated or capable of easy calculation. Merrill Lynch Mortgage Corp. v. Narayan, 908 F.2d 246, 253 (7th Cir. 1990) (citation omitted). Given that this court previously found that Fifth Third failed to adequately prove up damages, judgment on the pleadings with respect to damages is improper. Thus, this matter will again be set for a prove up hearing. RML is directed to identify the amount of damages it disputes, at which point Fifth Third may elect not to pursue recovery of the disputed portion, as it indicates it may be ...


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