United States District Court, N.D. Illinois, Eastern Division
ROBERT J. SIRAGUSA M.D. EMPLOYEE TRUST (formerly known as Dermatology Association of Bay County, PA, Defined Benefit Plan), ROBERT J. SIRAGUSA, individually, DANA SIRAGUSA, and ROBERT JOSEPH SIRAGUSA, Plaintiffs-Appellants and Cross-Appellees,
ARTURO COLLAZO, Defendant-Appellee and Cross-Appellant
Robert J Siragusa, Dana Siragusa, Julie Siragusa, Robert
Joseph Siragusa, Appellants: Edward J. Whalen, Hedberg,
Tobin, Flaherty & Whalen, P.C., Chicago, IL.
Arturo Collozo, Appellee: David R. Herzog, Herzog & Schwartz,
P.C., Chicago, IL.
OPINION AND ORDER
JORGE L. ALONSO, United States District Judge.
Robert J. Siragusa M.D. Employee Trust, Dr. Robert J.
Dana Siragusa and Robert Joseph Siragusa (collectively,
" the Siragusas" ) appeal to this Court, pursuant
to 28 U.S.C. § 158(a)(1), from a decision of the United
States Bankruptcy Court holding that certain fraud claims the
Siragusas may have against defendant-appellee Arturo Collazo
based on debts he owes to them are not excepted from
discharge under 11 U.S.C. § 523(a)(2)(A) in
Collazo's bankruptcy proceedings. Collazo cross-appeals
from the same decision, which held that certain other of the
Siragusas' potential fraud claims are excepted
from discharge. See Siragusa v. Collazo (In re
Collazo), Bankruptcy No. 12 B 44342, Adversary
Proceeding 13 A 000216, (Bankr. N.D.Ill. Mar. 5, 2014)
(" Opinion" ). For the reasons stated below, the
bankruptcy court's decision is affirmed.
case stems from numerous loans made by Dr. Robert Siragusa,
his practice's pension plan and his children to business
entities controlled by Arturo Collazo, the debtor in these
bankruptcy proceedings. The Court adopts the relevant facts
as set forth by the bankruptcy court in its March 5, 2014
Opinion. See Fed. R. Bankr. P. 8013
(" Findings of facts, whether based on oral or
documentary evidence, shall not be set aside unless clearly
Siragusa, one of Dr. Siragusa's daughters, was a real
estate agent who worked with Collazo. Collazo was in the
business of converting apartment buildings to condominiums
and selling the converted units. Collazo and his business
partner, Jon Goldman, would acquire an apartment building in
the name of an LLC formed for the purpose of holding title to
the various condominium units that would eventually be
created from the apartments. Generally, each such LLC took
the apartment building's address for its name. Collazo
and Goldman were the sole members. They would obtain
construction loans to finance the conversion of the
buildings, and in return they would grant the lenders
mortgages in the resulting condo units.
2002, Julie introduced her father to Collazo, and Dr.
Siragusa sought to invest in some of Collazo's
development projects. According to Dr. Siragusa, Collazo
explained that he sometimes needed short-term financing to
prevent construction delays because his principal
construction lender often required an inspection of the
premises before allowing him to draw on the construction
loan. Dr. Siragusa's loans would provide this short-term
financing, and Collazo agreed to pay Dr. Siragusa back, with
20% interest, from the sale of the converted condo units,
after he repaid the construction lender.
September 10, 2002, Dr. Siragusa loaned $100,000 to 1210 West
Waveland LLC. He also directed the Robert J. Siragusa M.D.
Employee Trust, his pension plan (" Plan" ), to
lend $200,000 to the same entity. 1210 West Waveland LLC
issued promissory notes to Dr. Siragusa and the Plan. The
notes required the LLC to make payments periodically from the
net proceeds of the sale of the condo units, after the
construction lender was repaid, with a final maturity date
independent of the sales.
September 26, 2002, Dr. Siragusa made a $60,000 loan and the
Plan a $140,000 loan to 2801 Seminary LLC. On June 3, 2003,
Dr. Siragusa made a $50,000 loan and the Plan a $145,000 loan
LLC. On November 12, 2003, Dr. Siragusa made a $50,000 loan
and the Plan a $65,000 loan to 1300 Eddy LLC. Dana Siragusa,
Dr. Siragusa's older daughter, made a $20,000 loan to
1300 Eddy LLC. These LLCs all issued promissory notes in
substantially the same form as the Waveland notes.
2003, Collazo and Goldman began to transfer unsold condo
units out of the borrower-LLCs into other LLCs they owned,
and they granted new mortgages on the transferred units to
new lenders. On December 4, 2003, 1210 West Waveland LLC
transferred the three remaining unsold units in the Waveland
development to Art--Man Investments LLC (" Art-Man"
), of which Collazo and Goldman were the sole members. On
April 19, 2004, 643 Barry LLC transferred three unsold units
in the Barry development to Art--Man. 2801 Seminary LLC
transferred its interest in an unsold unit to GoCo
Investments LLC (" GoCo" ) on September 24, 2004.
Art-Man and GoCo granted new mortgages on the units to Cole
Taylor Bank and Rainbo Assets in exchange for additional
Goldman explained at trial, the purpose of these transfers
was to create a " liquidity event." Once the condos
were transferred to entities with clean balance sheets,
Collazo and Goldman could take out new loans, using the
transferred condo units as collateral, in order to make
payments to investors as they came due or pay off any
outstanding construction debts that might prevent units from
being sold. (Trial Tr. at 238-40.) Collazo testified that he
never had any intention, at the time the notes held by the
Siragusas were made, to transfer unsold units to other
entities in order to generate additional financing.
30, 2004, 1210 West Waveland LLC fully paid its notes to Dr.
Siragusa and the Plan, eight months past due. On December 11,
2004, 2801 Seminary LLC made a partial payment of $110,000 on
its notes, also eight months past due. When, in early 2005,
with the Seminary notes still only partially paid and the
Barry and Eddy notes in default, Dr. Siragusa sought an
update from Collazo, Collazo told him that the developments
had encountered construction delays.
16, 2005, one of the Eddy units sold (unbeknownst to Dr.
Siragusa), but none of the proceeds were applied to the Eddy
notes. On July 1, 2005, 1300 Eddy LLC transferred three
unsold Eddy units to PRJ Properties (" PRJ" ),
another Collazo and Goldman entity, and PRJ granted a new
mortgage to Cole Taylor Bank. By July 2005, all of the unsold
units in the buildings in which the Siragusas had invested
had been transferred to business entities that owed no legal
obligations to the Siragusas, and Collazo and Goldman had
mortgaged the units to obtain additional loans.
fall of 2005, Collazo and Goldman spoke with Dr. Siragusa
about loans for a new development in Arizona. (Trial Tr. at
42.) According to Dr. Siragusa, Collazo and Goldman stated
that the outstanding loans related to the Chicago properties
would be repaid after the remaining condo units were sold,
and they expected all remaining units to sell in the next 30
to 60 days. They did not disclose that the remaining units
had been transferred to entities that owed no debt to the
Siragusas, that these units were still encumbered by
mortgages, or that proceeds from the sales of some units had
been diverted to other investments rather than used to make
payments on the Siragusas' notes. Dr. Siragusa asked if
some of his children could invest in the project, and Collazo
assented. ( Id. at 44-45.) On November 22, 2005, CG
Development LLC, another Collazo/Goldman
entity, issued an $800,000 note to the Plan and a $200,000
note to Dana, Julie and their brother, Robert Joseph, in
exchange for loans to finance the Arizona project. Both notes
promised 20% interest and matured in November 2007.
the next several years, Collazo sold off the remaining
Chicago condo units, but, due to the vast mortgage debt that
had accumulated, the sales yielded either no net proceeds or
only a fraction of what the Siragusas were owed, and no
payments were made to the Siragusas. Julie testified that she
brokered the sale of the last of the Eddy units in July 2007,
and she called her father to celebrate. Dr. Siragusa,
however, seemed irritated by the news, telling Julie that he
was invested in that building and she needed to tell him when
the Eddy units were sold.
Arizona notes matured on November 27, 2007, but no payment
was made. The following summer, Dana, a practicing attorney,
began communicating directly with Collazo and Goldman
regarding repayment of the outstanding debts. In January
2009, Dana received a settlement proposal that provided for
payments from the sale of condo units. Dana was alarmed to
discover that the proposal referred to units in buildings the
Siragusas had not invested in. Looking into the matter more
deeply, Dana discovered that the borrower-LLCs had
transferred all their units to other entities and the units
had already been sold.
Siragusas continued to pursue a settlement with Collazo, and
they attempted to negotiate a forbearance and tolling
agreement with him, but they never entered into any such
agreement. Collazo filed for Chapter 7 bankruptcy on November
7, 2012, and the Siragusas filed proofs of claim for fraud
and contractual debts under the promissory notes. The
Siragusas then filed this adversary proceeding to determine
whether their claims were non-dischargeable under 11 U.S.C.
§ 523(a)(2)(A) because they were based on debts for
money obtained by false pretenses, false representation or
fraud. The bankruptcy trustee filed a report of no
distribution, and the bankruptcy case was closed on December
20, 2013, although the bankruptcy court had not yet issued a
ruling on the Siragusas' adversary proceeding.
bankruptcy court held a trial in this adversary proceeding in
October 2013, and it issued an order on March 5, 2014. The
court determined that the claims related to the loans to the
Seminary, Barry and Eddy LLCs (hereafter, " the Chicago
loans" ) were dischargeable because, at the time the
loans were made, Collazo had no intent to transfer the units
out of the borrower entities or take any other action to
prevent the Siragusas from collecting on the notes, and his
representations to Dr. Siragusa were therefore not false or
fraudulent. (Opinion at 6-7, 19.) The court observed that
Collazo paid the Waveland notes even after all remaining
Waveland units had been transferred out of the 1210 West
Waveland LLC, rendering the entity judgment-proof. (
Id. at 7.) The court concluded that, as ...