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In re Equipment Acquisition Resources, Inc.

United States District Court, N.D. Illinois, Eastern Division

May 15, 2014


Page 702

For William A. Brandt, Jr., not individually but solely in his capacity as Administrator for Equipment Acquisition Resources Inc, Plaintiff: George P. Apostolides, Kevin H Morse, Arnstein & Lehr, LLP, Chicago, IL.

For Horseshoe Hammond LLC, also known as Horseshoe Casino Hammond, Defendant: Catherine L. Steege, LEAD ATTORNEY, David Harvill Hixson, Melissa Megan Root, Jenner & Block LLP, Chicago, IL.

Page 703


Honorable Edmond E. Chang, United States District Judge.

Equipment Acquisition Resources, Inc. (EAR) filed a chapter 11 bankruptcy petition in October 2009. The bankruptcy court confirmed a liquidation plan that appointed William A. Brandt, Jr. as EAR's Plan Administrator. Brandt then brought a fraudulent-transfer action against Defendant Horseshoe Casino to recover $8,278,000 million in payments that EAR's owner, Sheldon Player, and his wife, Donna Malone, made to Horseshoe to pay off their gambling debts.[1] R. 79, Second Am.

Page 704

Compl. ¶ ¶ 51, 56, 60. Horseshoe has filed a summary-judgment motion. R. 96. For the reasons discussed below, the Court grants Horseshoe's motion.

I. Background

In deciding Horseshoe's motion for summary judgment, the Court views the evidence in the light most favorable to Brandt, the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Sheldon Player and his wife, Donna Malone, established EAR as a " doing business as" entity in 1997. Pl.'s Resp. DSOF ¶ 9. EAR refurbished special machinery, manufactured high-end technology parts, and developed processes used to manufacture " high-technology." Id. Initially, Player and Malone ran the company out of the basement in their home. Id. ¶ 10. When they established the company, Malone opened a checking account (as explained later, this account plays a role in the motion) at Buffalo Grove Bank in the name of " Donna Malone doing business as EAR." Id. The account was later transferred to Charter One Bank. Id. But after EAR incorporated, it moved its business operations out of Player and Malone's home and opened business bank accounts in its own name. Id. Starting around 2005, EAR no longer used the Charter One account for business purposes. Id. Instead, Malone continued to use the Charter One account as her personal account, and she was the only authorized signor on the account. Id.

From at least 2005 until October 2009, EAR engaged in a fraudulent leasing scheme of selling equipment at inflated prices and then leasing the equipment back from various lenders. Id. ¶ 11. During this time period, Player and Malone collected nearly $17 million in fraudulent transfers from EAR.[2] Id. Initially, none of EAR's creditors, financial advisors, or senior secured lenders detected this fraud scheme. See id. ¶ ¶ 12, 14, 17. Before EAR filed its Chapter 11 petition, Brandt attended a private meeting of over thirty of EAR's creditors on September 24, 2009. Id. ¶ 13. At that meeting, FTI Consulting, a company that EAR had retained in July 2009 to review its books and records, reported that it had not discovered any indications of fraud at EAR. See id. ¶ 14. It was not until September 29, 2009, five days later, that FTI approached Brandt and advised him that FTI had uncovered evidence of fraud at EAR. Id. ¶ 18. Brandt confirmed that EAR was engaged in this fraudulent scheme in October 2009, and EAR filed a Chapter 11 bankruptcy petition that same month. Id. ¶ ¶ 2, 20.

Page 705

While the fraud scheme was ongoing at EAR, Player and Malone were regular customers at the Horseshoe Hammond casino in Hammond, Indiana. See id. ¶ ¶ 1, 6, 30, 55. Between October 2007 and October 2009, Player and Malone made $8,248,000 in payments to Horseshoe from their personal bank accounts--the amount Brandt seeks to recover in Counts I and II of his complaint. PSOF ¶ 1; Pl.'s Resp. DSOF ¶ 52. And from October 2005 to October 2007, Malone made two payments to Horseshoe from the Charter One account totaling $30,000--the amount Brandt seeks to recover in Count III. PSOF ¶ ¶ 1, 27. Player and Malone made all of these payments to pay off their gambling debts at the casino. See Pl.'s Resp. DSOF ¶ 53.

In 2007, when they first started gambling at Horseshoe, both Player and Malone applied for credit at the casino. Id. ¶ ¶ 32, 48. On their applications, Player and Malone represented that they had substantial assets. Id. ¶ ¶ 33, 49. Player disclosed that he still owed $490,000 on a mortgage, and Malone represented that she had $400,000 of debt arising from credit cards and a mortgage. Id. Both Player and Malone listed EAR as their employer. Id. In addition to reviewing their credit applications, Horseshoe ran credit checks on both Player and Malone. Id. ¶ ¶ 35, 50. These credit checks revealed that Player and Malone had no past-due accounts, many open and current lines of credit, and an established history of paying their debts to casinos. Id. ¶ ¶ 36, 38, 50. But the credit checks also revealed that Player and Malone's credit applications understated their real estate debt by over $2 million. PSOF ¶ 2; see also R. 115-2, Pl.'s Exh. 2C at HCH-00976, HCH-00987; Pl.'s Exh. 2D at HCH-00652; Pl.'s Exh. 2E at HCH-00706. Horseshoe nevertheless still extended credit to Player and Malone. See PSOF ¶ ¶ 2-3.

Initially, Player requested and received $25,000 in credit from Horseshoe. Pl.'s Resp. DSOF ¶ 42. But over time, Horseshoe increased Player's credit line to $450,000. PSOF ¶ 10. After this increase, the amount of credit that Horseshoe had extended to Player exceeded the average balance of the personal checking account that Player had on file with the casino. Id. ¶ 11; Def.'s Resp. PSOF ¶ 11.

The payments that Player and Malone made to Horseshoe were primarily to pay off " markers" that they took out to gamble. Pl.'s Resp. DSOF ¶ 6. Markers are advances, in the form of chips, against a customer's line of credit. PSOF ¶ 4. When a customer wants to obtain chips, he can sign a " marker," which is a check drawn against the account that the casino has on file for that customer; the casino then agrees not to deposit the " marker" check for a set period of time. Id. ¶ 5. Even though customers do not have to pay back the markers immediately, Horseshoe nevertheless encourages customers to pay off their markers (as much as possible) at the end of each gambling day. Id. ¶ ¶ 6-7. For example, if a customer obtains $10,000 in chips with a marker and then loses $6,000 gambling, the customer could take the remaining $4,000 in chips to the cashier to pay down the marker by that $4,000. Id. ¶ 8. The customer then has the set period of time to pay off the remaining $6,000 balance on the marker. Id. ¶ 9. In this case, Player was occasionally late paying back his markers, and in March, April, and May 2009, Horseshoe suspended his credit line until he became current. Id. ¶ 34.

According to one of Brandt's experts, from 2007 to 2009, Player purchased $9,775,500 in chips, won $1,413,414, lost $3,237,500, and redeemed $1,700,400 in chips. Id. ¶ 23. Given these records, the expert believes that Player lost more than

Page 706

he won and accumulated a " hoard" of chips worth $6,251,300 that he paid for by check. See R. 116-3, Pl.'s Exh. 23, Seddio Report at 8-9; see also R. 112, Pl.'s Resp. Br. at 5, 13-14 (arguing that these chips " disappeared" or " vanished" ). The expert opines that Horseshoe should have recognized Player's behavior as an attempt to launder money through the casino. See Seddio Report at 9.

Brandt also claims that Player's gambling activity raised " red flags" about the source of his funds. See R. 116-11, Pl.'s Exh. 31, Rose Report at 13-15 (listing sixteen " red flags" ). For one, Player's primary residence was in Wyoming, yet he spent hundreds of hours a year gambling at Horseshoe, which is in Indiana: around 572 hours in 2007, 873 hours in 2008, and 720 hours in 2009. PSOF ¶ 12. Player also " walked with chips" : he would leave the casino with his chips, without exchanging them for cash or to pay down markers. Id. ¶ ¶ 13, 18. Horseshoe discourages this practice and temporarily suspended Player's credit line when it caught him engaging in this practice. Id. ¶ ¶ 13, 15-16. Player was also known for " passing chips," or giving chips to other customers. Id. ¶ 22; [3] Pl.'s Resp. DSOF ¶ 63. This activity is suspicious in certain circumstances; for example, it could be a sign that customers are trying to structure their transactions with the casino so that they fall below the $10,000 threshold for completing a currency transaction report (CTR). PSOF ¶ 21; Def.'s Resp. PSOF ¶ 21. Brandt argues that all of these ...

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