Appeal from Bankruptcy Case No. 09 B 27094
The opinion of the court was delivered by: Judge George M. Marovich
MEMORANDUM OPINION AND ORDER
Appellants Coactiv Capital Partners, Inc. ("Coactiv") and First Chicago Bank and Trust ("First Chicago") filed separate appeals from one decision of the bankruptcy court to enjoin their separate suits against Rudolph Trebels ("Trebels") and Mark Langs ("Langs"). The Court has consolidated the cases. For the reasons set forth below, the decision of the bankruptcy court is affirmed.
After IFC Credit Corporation ("IFC") filed a chapter 7 bankruptcy petition, Trustee David P. Leibowitz (the "Trustee") filed an adversary proceeding against Trebels and Langs. Trebels founded IFC in 1988 and was the President and CEO until June 2009. Langs began working at IFC in 2003 and served at Chief Financial Officer from March 2006 until June 2009. After filing the adversary proceeding, the Trustee sought and obtained from the bankruptcy court an order enjoining other litigation (four separate lawsuits) filed against Trebels and Langs. Among the four lawsuits enjoined by the bankruptcy court are cases filed by appellants Coactiv and First Chicago.
According to the allegations in the Trustee's adversary complaint, IFC was a general equipment lessor that leased healthcare, industrial and technological equipment to its customers.
The Trustee alleges that, while Trebels and Langs were at the helm of IFC, they caused IFC to enter several misguided and/or fraudulent transactions and that they diverted IFC funds to pay for personal expenses.
The first such transaction began in late 2003 and involved a company called Norvergence. Norvergence planned to sell voice over internet protocol ("VOIP") telecommunications via its "Matrix Box." Norvergence asked IFC to finance the Matrix Box equipment for customers. IFC agreed.
Problems soon arose with the Norvergence transaction. By February 2004, customers who were already being billed by IFC began reporting to IFC that Norvergence had not installed their telephone service. When IFC's Credit Committee (which was charged with using credit underwriting standards to determine whether certain transactions were too risky for IFC to enter or continue) investigated, it learned that the Federal Trade Commission had banned from the telecommunications industry the brother of Norvergence's President due to the fact that the brother had "slammed" customers (i.e., converted their phone service to new carriers without permission). Even as the delinquency rates on Norvergence accounts increased, Trebels caused IFC to increase the number Matrix Boxes it financed. Ultimately, in June 2004, Norvergence filed for bankruptcy protection, and IFC lost more than $15,000,000.00.
Another troubling transaction was IFC's transaction with Wildwood Industries, Inc. ("Wildwood"). In late 2007 or early 2008, IFC began considering a transaction in which it would lease equipment to Wildwood. While conducting due diligence before the transaction, IFC's Credit Committee discovered several facts that suggested Wildwood was operating a fraudulent scheme. The first was that Wildwood continually solicited financing. The second was that although Wildwood claimed to be one of the largest manufacturers in the Bloomington/Normal area of Illinois, the interest rates it paid were unusual for a manufacturer of its purported size. The third fact was that Wildwood had recorded multiple leases for single pieces of equipment.
Despite the red flags, IFC proceeded with the Wildwood transaction, which turned out to be a Ponzi scheme. Members of IFC's Credit Committee warned Trebels and Langs of the red flags they discovered while doing due diligence, but Trebels and Langs ignored the warnings. In fact, Trebels and Langs decided the Wildwood transaction did not require the approval of the Credit Committee, because Wildwood was a syndicated transaction (one for which IFC would solicit external funding). Trebels and Langs directed IFC employees to solicit financial institutions to finance the lease transactions for Wildwood. They were successful, and other financial institutions, including First Chicago and Coactiv, financed the equipment leases. The equipment, however, did not exist. Wildwood was a Ponzi scheme, and it filed a petition for protection under the Bankruptcy Code. IFC was exposed to $5,000,000.00 in liability for breach of contract with respect to the financial institutions it solicited to finance the Wildwood leases.
The Trustee also alleges that Trebels used IFC to enrich himself to IFC's detriment. The Trustee alleges that Trebels created an entity, R&L holdings, that leased office space to IFC at above-market rates. According to the Trustee's complaint, IFC used Arnstein & Lehr for various legal matters, and Trebels used Arnstein & Lehr for personal matters. Trebels directed Arnstein & Lehr to bill IFC for his personal legal work, and Trebels directed IFC to pay the bills. Trebels also used IFC credit cards to pay for such personal expenses as club memberships, water sports, event tickets, airline tickets for his wife and children, personal cable bills, restaurant meals, jewelry, golf equipment and charitable donations. IFC paid for most of those credit card purchases. In addition, Trebels put his wife and two sons on IFC's payroll for two years, during which they performed little or no work.
Based on these allegations, the Trustee asserts claims against Trebels and Langs for breach of fiduciary duty and unjust enrichment. The Trustee, however, is not the only entity to have filed suit against Trebels and Langs. First Chicago and Coactiv also filed separate suits against Trebels and Langs.
Coactiv filed suit in June 2010 against Trebels, Langs, Lee Trebels ("Mrs. Trebels") and IFC Capital Funding I, LLC ("IFC"). IFC is an entity apparently created to buy some of IFC's leases from IFC. Coactiv's suit arose out of several ...