United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
CASTILLO, CHIEF JUDGE UNITED STATES DISTRICT
Michael Segal moves for the turnover of corporate stock he
believes is his under the terms of a settlement agreement
reached by the parties. (R. 2172, Segal's Br.) The
government, in turn, seeks reformation of the parties'
agreement arguing that, due to a drafting error, the
agreement failed to properly memorialize the intent of the
parties. (R. 2173, Gov't's Br.) For the reasons
stated below, Segal's request for turnover is granted,
and the government's request for reformation of the
agreement is denied.
facts underlying this long-running criminal case were fully
set forth in several opinions of the U.S. Court of Appeals
for the Seventh Circuit. See United States v. Segal,
811 F.3d 257 (7th Cir. 2016); United States v.
Segal, 644 F.3d 364 (7th Cir. 2011); United States
v. Segal, 495 F.3d 826 (7th Cir. 2007); United
States v. Segal, 432 F.3d 767 (7th Cir. 2005). They are
repeated here only as they pertain to the present dispute. In
brief, Segal and his company, Near North Insurance Brokerage
("NNIB"), were charged in 2004 "with a bevy of
counts including racketeering, mail and wire fraud,
embezzlement, false statements, and conspiracy to impede the
Internal Revenue Service." Segal, 644 F.3d at
365. Both Segal and NNIB were convicted following a jury
trial. Id. NNIB and its parent company, Near- North
National Group, Inc. ("NNNG"), were forfeited to
the government, as were "all assets of these companies,
including all of their interests in other companies."
Segal, 432 F.3d at 776 (emphasis omitted). Segal was
ordered to serve a 121-month prison sentence and to
personally forfeit $30 million to the government.
Segal, 495 F.3d at 830. He appealed. Id.
The Seventh Circuit affirmed his conviction but remanded for
further proceedings on the forfeiture issue. Id. at
830-40. Specifically, the Seventh Circuit had concerns about
potential double-counting if the Court did not account for
personal funds that Segal had "poured back into the
enterprise[.]" Id. at 839. In considering that
issue on remand, this Court reduced Segal's personal
forfeiture obligation to $15 million. Segal, 644
F.3d at 365. Both sides appealed, but the Seventh Circuit
affirmed the revised forfeiture judgment. Id. at
in order to satisfy the forfeiture judgment, the parties
prepared for a hearing scheduled in February 2013 to
determine the ownership and value of approximately $47
million in assets being restrained by the
government-including financial accounts, insurance policies,
stock investments, and partnership interests in real estate
ventures, Chicago sports teams, and other entities-that once
belonged to Segal and NNIB. Segal, 811 F.3d at
259-62. Shortly before the scheduled hearing, the parties
negotiated a stipulated settlement agreement directing the
distribution of the restrained assets. (Gov't' Ex.
Settlement Order 2/13/13.) Segal-by this time out of
prison-"participated actively, indeed aggressively, in
the negotiation of the settlement." Segal, 811
F.3d at 259. In essence, the agreement provided that all
restrained assets were listed on a document attached as
"Exhibit A" and those that were to be returned to
Segal were also listed on "Exhibit B." Id.
at 264. Assets on Exhibit A that were not specifically listed
on Exhibit B would be retained by the government.
Id. On February 13, 2013, this Court entered an
order approving the agreement. (R. 1706, Order.) Upon approval
of the settlement agreement, Segal's $15 million personal
debt to the government was extinguished, and he obtained the
immediate return of approximately $8 million in assets.
was far from the end of the matter, however, because various
disagreements arose about the terms of the settlement,
precipitating several more orders by this Court and another
round of appeals by both Segal and the government. See
Segal, 811 F.3d at 259, As is relevant here, the parties
dispute who is entitled to certain "stock, worth about
$467, 000, in the Rush Oak Corporation, a bank holding
company" (herein "Rush Oak stock").
Id. at 263. Exhibits A and B to the settlement
agreement refer to an asset called "Oak Bank and Trust,
" which the parties agree was to be retained by Segal.
(Gov't Ex. Settlement Order 2/13/13, Exs. A, B.) In
Segal's view, the reference to "Oak Bank and
Trust" in Exhibits A and B also encompassed his interest
in the holding company, such that he is entitled to the Rush
Oak stock under the terms of the parties' agreement. (R.
2019, Segal's Mot.) The government disagreed, arguing
that the Rush Oak stock was always considered a separate
asset by the parties, and that they mutually agreed this
asset was to be retained by the government. (R. 2041,
Gov't's Mot.) The government acknowledged, however,
that the Rush Oak stock was not actually listed on Exhibit A
(representing the assets to be retained by the government),
which the government attributed to an oversight at the time
the agreement was drafted. (Id.)
Court initially sided with Segal and ordered the turnover of
this asset. Segal, 811 F.3d at 264. The government
appealed, however, and the Seventh Circuit held that further
proceedings were required to consider whether the omission of
the Rush Oak stock from Exhibit A was a "mutual mistake
of fact"-in other words, that "both parties assumed
the stock would be retained by the government but in the rush
of drafting and redrafting of the settlement agreement had
failed to mention it." Id. If that was the
case, the Court would be permitted to reform the parties'
agreement to reflect their true intent. Id.
Accordingly, the Seventh Circuit reversed and remanded for an
evidentiary hearing on this issue. Id. at 264-65.
January 23 and 24, 2018, the Court conducted that evidentiary
hearing. (R. 2162, Min. Entry; R. 2163, Min. Entry.) The
parties submitted numerous exhibits and presented testimony
from Thomas Moriarty, a former special investigator with the
U.S. Attorney's Office who drafted the exhibits to the
settlement agreement; Marc Martin, one of Segal's former
attorneys who was involved in negotiating the settlement; and
Marsha McClellan, former chief of the Anti-Money Laundering
and Organized Crime Sections of the U.S. Attorney's
Office who oversaw the forfeiture of Segal's assets. (R.
2164, Hr'g Tr. at 1-203; R. 2165, Hr'g Tr. at
evidence adduced at the hearing showed that, following the
entry of the original forfeiture judgment in 2003, Moriarty
began working with criminal case agents to locate Segal's
assets. (R. 2164, Hr'g Tr. at 10-12.) This process
continued during the appeal, remand, and entry of the revised
forfeiture judgment. (Id. at 10-19.) When the
process began, Moriarty obtained a preliminary list of assets
from a revenue agent who had information concerning both
Segal's and NNIB's assets. (Id. at 12.) The
government also issued subpoenas to the managers,
shareholders and/or corporate officers of entities that owned
some or all of Segal's restrained assets to obtain
ownership and financial information. (Id. at 12,
116; R. 2165, Hr'g Tr. at 214-15.) McClellan oversaw this
subpoena process. (R. 2165, Hr'g Tr. at 215.) As a result
of the subpoenas that were issued, information came in about
Segal's assets from various entities. (Id. at
215-18.) Moriarty oversaw the process of gathering that
information and he organized and listed that information in
Excel spreadsheets. (R. 2164, Hr'g Tr. at 13-14, 116.) He
prepared and updated these spreadsheets, which he referred to
as "schedules, " on a regular basis. (Id.
the assets that Moriarty received information about were
Segal's interests in Rush Oak Corporation and Oak Bank
Corporation, both of which were subject to the freeze orders
entered by this Court shortly after the 2004 jury verdict.
(Id. at 26, 27.) Moriarty first spoke with Robert
Sullivan ("Sullivan"), the president of both
corporations, about these assets in 2005. (Id. at
25-26.) Their conversation dealt with the subpoenas that had
been served by the government. (Id. at 25.) Moriarty
had additional conversations with Sullivan in 2006 and 2007,
and also had written communications with Sullivan when he was
trying to determine the value of Rush Oak Corporation stock
and Oak Bank Corporation stock to put on his asset schedules.
(Id. at 26, 28-29, 31; Gov't's Ex. Moriarty
3.) During these communications, Sullivan told Moriarty that
Oak Bank Corporation and Rush Oak Corporation are two
separate companies. (Gov't's Ex. Moriarty 3; R. 2164,
Hr'g Tr. at 118; R. 2165, Hr'g Tr. at 219.) As of
June 14, 2006, Moriarty knew that Rush Oak Corporation and
Oak Bank Corporation were two separate entities. (R. 2164,
Hr'g Tr, at 29, 118.) Moriarty understood from these
communications that Rush Oak Corporation was a holding
company that owned the stock of Oak Bank Corporation.
(Id. at 118, 144.)
schedule of assets, Moriarty had a "generic"
category he referred to as "partnerships."
(Id. at 17.) Moriarty included limited liability
companies, corporations, and other entities in this category
even though they were not actually partnerships.
(Id.) For example, he listed "Rush Oak Bank and
Trust" as a partnership, even though he knew from
Sullivan's letter that Rush Oak Corporation and Oak Bank
Corporation were actually separate corporations, and that
neither was a partnership. (See id.; Gov't's
Exs. Moriarty 1, 4, 6.) Moriarty never actually listed either
"Rush Oak Corporation" or "Oak Bank
Corporation" as an asset in his schedules. (R. 2164,
Hr'g Tr. at 119, 128-29.) Instead, he used a variety of
terms to refer to these corporations in the many schedules he
prepared. Originally, he referred to these corporations
simply as "Oak Bank." (R. 2165, Hr'g Tr. at
257.) He later characterized the assets simply as "Rush
Oak Bank and Trust, " even though he understood that
there was "no asset that's truly named Rush Oak Bank
and Trust." (R. 2164, Hr'g Tr. at 120;
Gov't's Exs. Moriarty 1, 4, 6.) Moriarty thought that
"Rush Oak Bank and Trust" was "some sort of
bigger bank than Oak Bank." (R. 2164, Hr'g Tr. at
118.) In his mind, Rush Oak Corporation was a "bank
holding company or something like that." (Id.,
at 19.) He believed that Rush Oak Corporation "was
associated with Oak Bank, and Oak Bank was associated with
Rush Oak." (Id. at 118.)
asset schedule he prepared in September 2012, Moriarty listed
"Rush Oak Bank and Trust" as a
"partnership" worth $467, 000. (Id. at 44;
Gov't's Ex. Moriarty 1.) In January 2013, Moriarty
updated his schedule again in anticipation of the upcoming
evidentiary hearing, which was to be held in early February
2013. (R. 2164, Hr'g Tr. at 58-59; Gov't Ex. Moriarty
6 at GSAO76.) Moriarty testified that his January 2013 asset
schedule was intended to represent the "universe"
of Segal and NNIB assets that had been restrained by this
Court. (R. 2164, Hr'g Tr. at 16, 108.) In the January
2013 schedule, he again referred to an asset called
"Rush Oak Bank and Trust" and listed it as a
partnership owned by Segal. (Gov't Ex. Moriarty 6.)
Moriarty's January 2013 schedule also identified the cash
dividends paid on the Oak Bank Corporation stock ($3, 240),
although the schedule did not list the Oak Bank Corporation
stock itself as an asset or provide a value for this stock.
(See Gov't Ex. Moriarty 6 at GSA 073; R. 2164,
Hr'g Tr. at 119, 128-129.) Moriarty acknowledged that he
"made a mistake" by failing to list Oak Bank
Corporation and Rush Oak Corporation separately in his 2007,
2009, and 2013 schedules, and by failing to list Oak Bank
Corporation as an asset on the January 2013 schedule. (R.
2164, Hr'g Tr. at 32.)
the month of January 2013, the parties engaged in extensive
settlement negotiations. (R. 2164, Hr'g Tr. at 68-71,
129.) During their negotiations, the parties used
Moriarty's January 2013 schedule and a January 2013
Consolidated Schedule of Assets, referred to as "CATS,
" which was an internal record "kept by the asset
forfeiture paralegals [in the U.S. Attorney's Office] in
conjunction with the U.S. Marshals Service."
(Id. at 22; see also Id. at 129, 184; R.
2165, Hr'g Tr. at 235; Gov't Ex. Moriarty 2.).
Accordingly to Moriarty, the CATS schedule was updated
"whenever the Marshals Service received some sort of
distribution, sale of asset or a check." (R. 2164,
Hr'g Tr. at 23.) The CATS schedule lists the dividends
totaling $3, 240 received from "Oak Bank, " but
this schedule does not list the stock itself as an asset, nor
does it list Rush Oak Corporation or its stock as assets.
(Gov't Ex. Moriarty 2.)
various settlement discussions, the government offered to
settle with Segal by giving him $8 million in assets as well
as forgiving his $15 million forfeiture obligation, in
exchange for the forfeiture of all other restrained assets.
(R. 2164, Hr'g Tr. at 68-71.) The government told Segal
and his attorneys that Segal could take any assets listed in
Moriarty's January 2013 asset schedule up to ...