United States District Court, N.D. Illinois, Eastern Division
In re CHICAGO MANAGEMENT CONSULTING GROUP, INC. Debtor.
HORACE FOX, as Trustee for the Estate of CHICAGO MANAGEMENT CONSULTING GROUP, INC., Plaintiff-Appellee & Cross-Appellant. DEBRA COMESS and TECHNICALLY DRIVEN INC., & JULIA HATHAWAY and STUDIO OM, LLC, Defendants-Appellants,
MEMORANDUM OPINION AND ORDER
L. ALONSO United States District Judge.
the Court are the consolidated appeals of Julia Hathaway
(Case No. 15 C 8917) and Debra Comess (Case No. 15 C 8921)
and the cross-appeal of Chicago Management Consulting Group,
Inc., (“CMCG”) from the bankruptcy court's
September 3, 2015 amended memorandum of decision on entry of
final judgment and motion for sanctions. (Bankr. Case No.
14-00294 Dkt. 235). CMCG has also filed motions to dismiss
appellants' appeals  and . For the reasons set forth
below, CMCG's motions to dismiss are denied, and the
Court affirms the rulings of the bankruptcy court.
appeals stem from CMCG's voluntary Chapter 7 bankruptcy
case. (Bankr. Am. Mem. at 2.) CMCG provided consulting
services to BP America. (Id.) Hathaway and Comess,
the defendants, were personal friends of CMCG's sole
owner, Frank Novak. (Id.) In 1999, Novak retained
Hathaway and Comess to perform work on behalf of CMCG.
(Id. at 3.) Novak died by suicide in February 2012,
and pursuant to his will and trust, Comess was entitled to
all of Novak's property, including CMCG. (Id.)
Comess retained counsel and filed the bankruptcy proceeding,
in which CMCG's trustee sought: (1) to avoid alleged
fraudulent transfers of CMCG's assets that Novak made to
Comess and Hathaway; and (2) relief from evidence spoliation
and delayed discovery responses. (Id. at 2-3.) On
September 3, 2015, after trial, the bankruptcy court issued
an amended memorandum and judgment in which it found that the
challenged transfers to Hathaway, the challenged retainer
payments to Comess, three payments on Novak's life
insurance policy, and payment to the probate attorney
handling Novak's estate demonstrated an actual intent to
deceive creditors by clear and convincing evidence under
§ 548(a)(1)(B) of the Bankruptcy Code and § 5(a)(2)
of the Illinois Uniform Fraudulent Transfer Act
(“IUFTA”). (Id. at 10-11.) The court
also found that Comess breached her duty to preserve evidence
on Novak's laptop and caused the trustee to incur damages
when he retained a computer expert to determine what had been
deleted from the computer. (Id. at 12.) Finally, the
court held that the trustee was entitled to attorney's
fees and expenses he incurred pursuing delayed discovery from
Comess and Hathaway. (Id. at 15.) Ultimately, the
court awarded the trustee $50, 276.20 against
Comess and $56, 588.06 against
Hathaway. These appeals followed.
Court sits as an appellate court for bankruptcy court
proceedings. See 28 U.S.C. § 158(a)(1). We
review the bankruptcy court's findings of fact for clear
error and its legal conclusions de novo. See In re Miss.
Valley Livestock, Inc., 745 F.3d 299, 302 (7th Cir.
2014). “A finding is clearly erroneous when although
there is evidence to support it, the reviewing court on the
entire evidence is left with the definite and firm conviction
that a mistake has been committed.” In re
Herman, 737 F.3d 449, 452 (7th Cir. 2013) (citation
omitted). If there are two permissible views of the facts, a
court's choice between them cannot be clearly erroneous.
See First Weber Grp., Inc., v. Horsfall, 738 F.3d
767, 776 (7th Cir. 2013).
bankruptcy court's decision to impose sanctions is
reviewed for an abuse of discretion.” In re
Kuttner, 15 C 980, 2015 WL 3578966, at *3 (N.D. Ill.
June 8, 2015) (citing In re Hancock, 192 F.3d 1083,
1085 (7th Cir. 1999)). “Unless the sanctioning court
has acted contrary to the law or reached an unreasonable
result, ” the decision will be affirmed. In re
Rimsat, Ltd., 212 F.3d 1039, 1046 (7th Cir. 2000).
Motions to Dismiss
each side filed their opening briefs, CMCG filed a motion to
dismiss appellants' brief. In support thereof, CMCG
argues that appellants violated the Federal Rules of
Bankruptcy Procedure by not compiling a complete or
sufficient record for the Court to make a meaningful review.
(Mot. to Dismiss at 2.) Specifically, CMCG contends that
appellants have failed to submit relevant trial court
transcripts and exhibits and that their brief lacks a
statement of facts, standard of review, jurisdictional
statement, and statement of the case, as required by the
bankruptcy rules. (Id. at 2-7.) CMCG asks the Court
to dismiss appellants' appeals and award it
attorneys' fees and costs as sanctions. (Id. at
8-9.) Rather than respond to CMCG's arguments, appellants
argue that the trustee did not object to appellants'
designation of record on appeal or procedural defects in
their brief until he filed his motion, and then point out (as
if the Court was unaware) that the trustee has requested and
received several extensions to properly file his record on
appeal, opening brief, and response. (Resp. at 2-3.) Without
citing any authority, appellants assert that the
trustee's objections are untimely and should be
disregarded. (Id. at 3.)
outset, the Court notes that both sides sought extensions and
still failed to provide the Court with a complete,
consolidated record with which to conduct its review. A
review of the dockets in the two cases confirms that both
sides have submitted a statement of issues to be presented
and designated items to be included in the record of
appeal. Despite having to scour the dockets, the
Court has located many of the designated documents and
exhibits and concludes it can conduct a review of
the issues the parties have presented. The Court acknowledges
that the appellants' brief fails to include a statement
of facts, standard of review, and jurisdictional statement,
but does not conclude that such negligence compels dismissal.
See In re Stotler and Co., 166 B.R. 114, 117 (N.D.
Ill. 1994) (court considered appellant's appeal even
though he “failed to brief [the] appeal according to
the bankruptcy rules” and found that deficiencies in
appellant's briefing led the court to affirm the
bankruptcy court's ruling). Accordingly, the
trustee's motions to dismiss are denied.
and Comess's Appeal
their statement of issues presented, Hathaway and Comess
challenge the following bankruptcy court rulings: 1) whether
CMCG was insolvent at the time of the transfers at issue; 2)
whether CMCG received value for those transfers; 3) whether
CMCG had creditors within the meaning of the statute during
the entire four-year period at issue; 4) whether sanctions
were appropriate; and 5) whether finding Comess liable for
spoliation was appropriate. (Appellants' Br. at 1-2.) In
his response, the trustee contends that none of bankruptcy
court's findings were clearly erroneous. (Trustee's
Resp. at 3-4.) In their reply, the appellants clarify their
position that the bankruptcy court ignored substantial
evidence of solvency, improperly shifted the burden regarding
transfers for value, disregarded the standards for spoliation
of evidence, and imposed sanctions where there was no
prejudice. (Appellants' Reply at 1.) and . The
trustee's designations are in Case No. 15 C 8917 ,
,  and in Case No. 15 C 8921  and . The Court
notes that the trustee filed two motions in 15 C 8917 for
leave to file certain exhibits under seal  and .
Those motions were granted  and . As best as the
Court can tell, the trustee never filed those exhibits on the
record even though he did file a letter  he sent to the
bankruptcy court asking that court to place exhibits on the
dockets of the district court cases. The Court received two
flash drives from the trustee that contain certain exhibits.
To the extent those exhibits are not filed on the dockets in
Case Nos. 15 C 8917 and 15 C 8921, the Court has not
appellants contend that the bankruptcy court erred when it
found CMCG insolvent during the relevant time frame
(2008-2012). They argue that the accountant expert who
prepared the insolvency report knew it would benefit the
trustee to make a finding of insolvency and assert that she
only reviewed CMCG's business records of liabilities, not
assets. (Appellants' Br. at 2-3.) They contend that one
of the trustee's exhibits, unlike the QuickBooks entries
on which the accountant relied, contradicts the expert's
report and reflects that CMCG was solvent throughout the
relevant time frame. (Id. at 4-6.) Citing very
little and out-of-Circuit) authority, appellants also argue
that the expert report does not tie CMCG's financial
condition to the dates of the transfers as required.
(Id. at 6.) Ultimately, the appellants contend that
the accountant's report did not provide an accurate
depiction of CMCG's financial condition throughout the
four-year time period. (Id. at 7.) The trustee
counters that it was not clearly erroneous for the bankruptcy
court to reply on the trustee's expert witness's
testimony that CMCG was insolvent at all relevant times
because hers was the only expert testimony presented on the
issue. (Trustee's Resp. at 8.) The trustee asserts that
it is improper for the Court to consider appellants'
counsel's opinion about fact issues related to
insolvency. (Id. at 9.) The trustee also argues that
the appellants present no legal authority prohibiting the
court from relying on the expert's report or any evidence
that CMCG was operating at a net profit on any given date.
(Id. at 10.)
is a question of fact, and the bankruptcy court has broad
discretion to determine insolvency.” Grochocinski
v. Schlossberg,402 B.R. 825, 836 (N.D. Ill. 2009).
According to the IUFTA and the Bankruptcy Code, “a
debtor is insolvent if the sum of [its] debts is greater than
all of [its] assets at a fair valuation.” In re CF
Graphics, Inc., No. 06 B 00459, 2009 WL 2215089, at *10
(N.D. Ill. July 21, 2009) (quoting 740 ILCS 160/3(a) and
citing 11 U.S.C § 101(32)). The bankruptcy court relied
on the QuickBooks data maintained by Novak and the accountant
expert to determine CMCG's financial condition during the
relevant time period. (Bankr. Am. Mem. at 3.) Further, the
court overruled defendants' challenges to the
expert's determination that CMCG's assets were less
than its outstanding liabilities during the relevant period.
(Id. at 3-4.) This Court notes that the appellants
have copied and pasted the post-trial briefs they submitted
in the bankruptcy court proceeding into the briefs they
submitted in this proceeding. Compare Post-Trial
Arg. of Julia Hathaway Case No. 15 C 8917 [6-2] at 48-51;
73-77 and Post-Trial Arg. of Debra Comess Case No. 15 C 8921
[7-2] at 41-44; 86-90 with Appellants' Br. at
2-7. To their regurgitated arguments, the appellants add a
few sentences asserting that the bankruptcy court missed the
point and that solvency should not be determined by comparing
CMCG's total assets to its total liabilities but rather
whether there was any cash or accounts receivable not
accounted for in the accountant's analysis of CMCG's
QuickBooks data. (Appellants' Br. at 7.) The bankruptcy
court dismissed a similar objection as misguided, reasoning
that the chart on which appellants urge this Court to rely
reflects only accounts receivable at monthly intervals and
does not compare CMCG's total asset value ...