In the

United States Court of Appeals

For the Seventh Circuit

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No. 04-1812

B.E.L.T., INC., et al.,

Plaintiffs-Appellants,

v.

WACHOVIA CORPORATION,

Defendant-Appellee.

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Appeal from the United States District Court for

the Northern District of Illinois, Eastern Division.

No. 01 C 4296—Robert W. Gettleman, Judge.

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ARGUED NOVEMBER 3, 2004—DECIDED APRIL 5, 2005

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Before FLAUM, Chief Judge, and EASTERBROOK and

SYKES, Circuit Judges.

EASTERBROOK, Circuit Judge. Lacrad International

Corporation borrowed widely during its existence between

1984 and 2002. Lacrad, which among other activities sold

religious products on digital media, did not practice what it

preached; Rodney T.E. Dixon, its former CEO, pleaded guilty

last fall to fraud and money laundering. CoreStates Bank

had given Lacrad a line of credit in 1997 and also provided

Dixon and other managers with credit cards, which they

used profligately. (CoreStates merged into First Union
2 No. 04-1812

National Bank, which has merged into Wachovia Corporation. We follow the parties’ practice and refer to the lender

as First Union.) By 1999, when Lacrad and its managers

owed more than $2 million on the revolving loan and credit

cards combined, First Union had concluded that Lacrad was

a bad risk and stopped making loans, but it accepted

payment on the outstanding balances. Some of Lacrad’s

other lenders contend that they furnished Lacrad with the

money used to pay down the First Union debt, and they

want to recoup these funds.

Applying Illinois law to this suit under the diversity

jurisdiction, the district court concluded that plaintiffs lack

a viable legal theory and dismissed the complaint. 2002

U.S. Dist. LEXIS 23637 (N.D. Ill. Dec. 6, 2002). First Union

was only one of many defendants; once the claims against

all of them had been resolved, and the judgment became

final, plaintiffs appealed with respect to First Union alone.

Like the district court, we assume (given the allegations

in the complaint) that First Union knew by 1999 that

Lacrad was financially unstable and suspected (“knew or

should have known,” the complaint alleges) that mischief

was afoot. Plaintiffs’ principal argument is that First Union

should have told someone—either banking regulators or

fellow lenders—about these suspicions. Had it done so, this

would have led to an investigation (the story goes), and

Lacrad would have collapsed sooner, before plaintiffs sunk

as much money into the venture as they eventually did.

Yet Illinois, like most other states, does not require business ventures to do good turns for their rivals. There is little

good Samaritan tort liability in general, and none that requires businesses to assist their competitors. See generally

Stockberger v. United States, 332 F.3d 479, 480-82 (7th Cir.

2003). Plaintiffs’ claim is weaker than the one rejected in

Cuyler v. United States, 362 F.3d 949 (7th Cir. 2004), which

held that even though Illinois requires people to report
No. 04-1812 3

apparent child abuse to child-welfare officials, failure to do

this does not support a claim by persons who might have

been alerted by such reports not to deal with a babysitter or

other potential abuser. Substitute “banking regulators” for

“child-welfare officials” and you have plaintiffs’ theory. The

only difference—which cuts against our plaintiffs—is that

Illinois law creates a clear duty of notice in child-abuse

cases, while there is no equivalently clear rule requiring

banks to notify regulators about non-banks’ financial

problems, and no duty at all for banks to notify other

lenders.

What’s more, no one is entitled to the benefit of regulatory intervention. See Heckler v. Chaney, 470 U.S. 821

(1985). The regulation to which plaintiffs refer, 12 C.F.R.

§21.11, requires banks to notify the Treasury Department

about “any known or suspected Federal criminal violation.”

It does not create a private right of action for damages. Yet

that’s what plaintiffs want—monetary compensation for

First Union’s (supposed) failure to deem its suspicions grave

enough to notify federal law-enforcement officers. It is unnecessary to canvass this ground in more detail, given our

recent opinion in Cuyler—not to mention the fact that one

Illinois appellate court has rejected a claim, essentially identical to the one plaintiffs make, that banks must protect

other lenders. See Popp v. Dyson, 149 Ill. App. 3d 956, 963,

500 N.E.2d 1039, 1043 (1986). See also Rankow v. First

Chicago Corp., 870 F.2d 356, 366 (7th Cir. 1989).

It is not as if First Union were itself accused of fraud. It

is not any flavor of “fraud” to omit steps that might have protected strangers from your customers’ machinations. Cf.

Cenco Inc. v. Seidman & Seidman, 686 F.2d 449 (7th Cir.

1982). There can be no fraud without a representation made

with intent to deceive, see Ernst & Ernst v. Hochfelder, 425

U.S. 185 (1976), and First Union did not make any representation to the plaintiffs. Nor did it have a duty to speak

up for their benefit. See Eastern Trading Co. v. Refco, Inc.,
4 No. 04-1812

229 F.3d 617, 624 (7th Cir. 2000). To the contrary, state law

instructs banks not to tell other private parties about their

borrowers’ activities. See 205 ILCS 5/48.1(c). The federal

regulation has a similar confidentiality provision. 12 C.F.R.

§21.11(k).

Although plaintiffs cite some decisions for the proposition

that anyone who receives funds from a perpetrator of fraud

must use that money to make good the losses suffered by

other victims, none of them was rendered by an Illinois

court (or for that matter a court of any other state). They

are federal district-court decisions, which under Erie have

no authoritative force—and these decisions also lack persuasive force, because they do not explore rules of state law

that might support their conclusions. It seems to us, moreover, that plaintiffs misunderstand even these non-authoritative decisions. The opinions to which plaintiffs refer speak

of the duties of one who receives the “fruits” of a fraud, which

could occur when the operator of a Ponzi scheme rewards

some of the early investors with exorbitant returns, inducing them to shill for the venture. See, e.g., In re Lake State

Commodities, 936 F. Supp. 1461, 1478 (N.D. Ill. 1996). See

also United States v. Frykholm, 362 F.3d 413 (7th Cir. 2004).

Being paid for services rendered is a different thing entirely.

Someone who sells a car at the market price to Charles

Ponzi is entitled to keep the money without becoming liable

to Ponzi’s victims for the loss created by his scheme. First

Union loaned money to Lacrad at the market price, in the

ordinary course of its business, and is presumptively

entitled to keep the repayment.

We say presumptively because the best description of what

happened here is a preference among creditors. Lacrad

retired the First Union debt while leaving other creditors in

the lurch. A trustee in bankruptcy could have avoided some

or all of the preferential transfer under 11 U.S.C. §547.

Lacrad is not a debtor in bankruptcy, however, so the avoiding powers under the Bankruptcy Code are unavailable.
No. 04-1812 5

(The parties could not inform us why Lacrad was liquidated

outside bankruptcy.) Calling the receipt of a preference

“unjust enrichment” does not change matters; a preference

by any other name is still a preference and cannot be

recovered outside bankruptcy. See Nostalgia Network, Inc.

v. Lockwood, 315 F.3d 717, 719 (7th Cir. 2002). Anyway,

repayment of a loan is not “unjust” enrichment.

A fraudulent conveyance may be recovered independent

of a bankruptcy proceeding, see 740 ILCS 160/8, but plaintiffs’ claim under Illinois’ implementation of the Uniform

Fraudulent Transfer Act founders on the statutory text.

Lacrad was insolvent when it paid First Union, but provision

of “reasonably equivalent value” (740 ILCS 160/5(a)(2))

prevents calling a transfer a fraudulent conveyance unless

that transfer occurred “with actual intent to hinder, delay,

or defraud any creditor of the debtor” (§160/5(a)(1)). Repayment of an antecedent loan comes within the “reasonably equivalent value” rule—which is just another way of

saying that preferential transfers differ from fraudulent

conveyances. See In re Liquidation of MedCare HMO, Inc.,

294 Ill. App. 3d 42, 50-54, 689 N.E.2d 374, 380-82 (1997);

Crawford County State Bank v. Doss, 174 Ill. App. 3d 574,

579, 528 N.E.2d 436, 439 (1988).

So did Lacrad repay First Union “with actual intent to

hinder, delay, or defraud any creditor of the debtor”? The

district judge found the complaint inadequate to allege

fraud, which must be pleaded with particularity under Fed.

R. Civ. P. 9(b). Although intent may be pleaded generally,

the other elements of fraud require details—details that

were missing from the complaint and remain missing on

appeal. Plaintiffs contend, for example, that “Lacrad used

false financial statements to conceal their [sic] true financial status”, but this has nothing to do with its motive in

paying First Union.

Recall that the gist of plaintiffs’ contention is that Lacrad

prolonged the fraud, borrowing more money until it finally
6 No. 04-1812

collapsed. Paying First Union did not enable Lacrad to stay

in business longer; distribution of assets may have made it

thirsty for capital, but it also reduced the time it could stay

afloat. Plaintiffs have not pointed to any decision from

Illinois (or any other state) that treats a comparable payment of a third-party creditor (paying corporate insiders

and their cronies is altogether different), which dealt with

the debtor at arms’ length, as a fraudulent conveyance on

the theory that paying an antecedent debt evinces “actual

intent to hinder, delay, or defraud any [other] creditor of

the debtor”.

Plaintiffs do contend that the events demonstrate “badges

of fraud,” see §160/5(b), but the events they allege differ from

those that the statute covers. For example, §160/5(b)(3)

deems it evidence of fraud that the transfer or obligation was

concealed. Plaintiffs say that Dixon’s fraud was concealed,

which is true enough, but the debt to First Union, and the

transfers in payment of that debt, were disclosed and transparent. And so on.

This was, or could have been, a case about preferential

transfers on the eve of bankruptcy. Because Lacrad never

became a debtor in bankruptcy, however, preferences among

creditors cannot be reversed; and in the end this is nothing

but a preference. Plaintiffs’ other arguments have been

considered but do not require discussion.

AFFIRMED
No. 04-1812 7

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—4-5-05