In the

United States Court of Appeals

For the Seventh Circuit

No. 07-4034

FOR YOUR EASE ONLY, INC.,

Plaintiff-Appellant,

v.

CALGON CARBON CORPORATION,

PRODUCT CONCEPTS COMPANY, and

MARK SCHNEIDER,

Defendants-Appellees,

and

HSN, LP,

Intervening Appellee.

Appeal from the United States District Court 

for the Northern District of Illinois, Eastern Division.

No. 02 C 7345—Wayne R. Andersen, Judge.

ARGUED SEPTEMBER 24, 2008—DECIDED MARCH 31, 2009

Before POSNER, WOOD and TINDER, Circuit Judges.

WOOD, Circuit Judge. This case immerses us in the

world of off-shore finance, shadowy relations among
2 No. 07-4034

companies, and allegedly fraudulent transfers, all for the

sake of anti-tarnish jewelry boxes sold on the Home

Shopping Network. For Your Ease Only, Inc. (“FYEO”)

sells these jewelry boxes, and it pursued litigation

against some of its competitors for patent misuse and

tortious interference with business relations. Although

FYEO obtained a $2.19 million default judgment against

the defendants in that suit, it has not managed yet to

collect on its judgment. One defendant, Mark Schneider,

moved to Costa Rica before the final judgment was entered, and Schneider’s wholly owned company transferred its main asset—the right to payments from

HSN, LP (commonly called the Home Shopping Network)—to an entity called Sevenquest, LLC, which (not

so coincidentally) Schneider also owns exclusively.

Sevenquest subsequently transferred the right to HSN’s

payments to Anewco Corp., a company wholly owned

by Schneider’s brother-in-law, Doug Fournier. FYEO

believes that these two transfers are voidable under the

Illinois Uniform Fraudulent Transfer Act (“UFTA”), 740

ILCS 160/1 et seq., but the district court rejected its position. Although HSN appeared only as an observer

before the district court, it filed a motion in this court on

April 23, 2008, for permission to intervene on appeal;

that motion was granted on April 30, 2008, and HSN

has fully participated since then. The other defendantsappellees have chosen to take a pass. We conclude that

additional findings are necessary before it is possible to

decide whether UFTA gives FYEO a right to have the

transfers set aside. We therefore vacate the judgment and

remand for further proceedings.
No. 07-4034 3

I

Six years ago, FYEO sued Mark Schneider, his wholly

owned company Product Concepts Company (“PCC”), and

Calgon Carbon Corporation, for patent misuse and

tortious interference. At some point, Schneider and PCC

stopped responding to the district court’s discovery

orders; their insouciance prompted the district court on

June 27, 2006, to enter a default against them for

$2,120,150.70. Judgment was entered on the default on

February 22, 2007, by which time accruing interest had

increased the total amount to $2,190,550.93.

By the time FYEO’s judgment was entered, PCC’s main

asset was the right to payments from HSN for the latter’s

service in selling PCC’s anti-tarnish jewelry boxes. Schneider, in his capacity as owner of PCC, had executed an

exclusive product merchandising agreement with HSN in

2004. Not long afterward Schneider moved to Costa

Rica. In 2005, Schneider transferred the right to the

HSN business and payments from PCC to Sevenquest.

Judgment in hand, FYEO began to search for assets

belonging to Schneider or PCC. In December 2006, it

subpoenaed Fournier, Schneider’s brother-in-law. The

subpoena informed Fournier of the judgment against

Schneider and PCC and noticed Fournier’s deposition; it

also required him to bring along any records relating

to Schneider, PCC, HSN, or Sevenquest. After receiving

the subpoena, Fournier flew to Costa Rica to see Schneider. On January 11, 2007, Schneider gave Fournier

a letter addressed to HSN; that letter purported to

transfer Sevenquest’s rights under the HSN agreement
4 No. 07-4034

to Fournier’s company, Anewco. At that time, however,

Anewco did not exist. Fournier established it shortly

after his return to the United States.

As it began to learn about these transactions, FYEO

took the position that the right to the HSN business is

an asset of Schneider and PCC and that it is entitled to

reach the HSN payments to satisfy its judgment. Any

attempted transfer to Anewco, it adds, was voidable

under UFTA. On April 20, 2007, FYEO served HSN with

a third-party citation order to discover assets of

Schneider and PCC. The citation prohibited HSN from

transferring any property or paying any money over to

the judgment debtors. An accompanying citation

notice, which had been filed with the district court, informed HSN that the judgment debtors were Schneider

and PCC. The notice also listed one of Schneider’s last

known addresses as Sevenquest. Finally, in conjunction

with the order and notice, FYEO petitioned the district

court for an order restraining HSN from transferring

property to the judgment debtors or their successor

entities, including Sevenquest and Anewco. The petition

asked the district court to require HSN to deposit any

payments owed to Schneider, PCC, Sevenquest, or Anewco

with the district court.

FYEO’s initial efforts were unavailing. On May 5, 2007,

HSN paid Anewco $84,856. In response, on June 1, 2007,

FYEO amended its petition to include a request for a

turnover order for payments made by HSN to Schneider,

PCC, Sevenquest, or Anewco in violation of the citation.

On June 29, 2007, HSN paid Anewco another $297,360.
No. 07-4034 5

The district court held a hearing in October 2007 on

FYEO’s petition for a turnover order and restraining

order. The court noted that only if the payments to

Anewco were property of Schneider and PCC could it

find that HSN violated the citation. Moreover, the only

way that the payments could still be the property of

Schneider and PCC was if the transfers to Sevenquest and

Anewco were voidable under UFTA. The district court

decided that the first transfer from PCC to Sevenquest

was voidable because it was fraudulent. See 740 ILCS

160/5(a). In support of that conclusion, the court found

that the transaction possessed sufficient “badges of

fraud” to justify a presumption of fraudulent intent: the

transfer was to an insider because Schneider was the

sole owner of both companies; Schneider retained

control of the property; the transfer was concealed by

Schneider’s efforts to avoid discovery; Schneider had

been sued before the transfer; the transfer was of substantially all of Schneider’s assets; Schneider absconded

by moving to Costa Rica; and Schneider was or became

insolvent shortly after the transfer. Neither HSN nor

the Schneider parties dispute this finding.

The district court then addressed the transfer from

Sevenquest to Anewco. Under UFTA, a transfer made

after a fraudulent transfer is voidable unless it is made

to “a person who took in good faith and for a reasonably equivalent value.” 740 ILCS 160/9(a). (This

standard is similar to the one for holders in due course

of negotiable instruments, who must take for value, in

good faith, and without notice of such problems as

forgery, default, dishonor, or inauthenticity. See 810 ILCS
6 No. 07-4034

5/3-302(a).) According to Fournier, he and Schneider

had an oral agreement under which Fournier would

develop the business with HSN, and, in exchange, Schneider would transfer the HSN business to Fournier after

three years. During that three-year period, Fournier

would earn a small commission while Schneider would

receive the profits. They made this oral agreement in 2003

or 2004, apparently because Schneider expected his

move to Costa Rica to hamper his efforts to fulfill the

exclusive contract he had recently signed with HSN. The

district court accepted Fournier’s description of the

transaction and found that Fournier acted in good faith

and paid reasonably equivalent value for the HSN

rights. This is only partly true, at least as far as the

finding of good faith is concerned; Fournier had more

to say than this implies.

Fournier testified that he knew of the judgment

against Schneider and PCC in December 2006, after he

received the subpoena from FYEO and before he

accepted the transfer in January 2007. During his deposition he admitted that he traveled to Costa Rica to effect

the transfer of the business: “The main reason I went

there was to conclude that I’ve done my three years, this

is what we agreed to, I’m sick of your problem, I want

to go on my own, and you promised me this.” Avoiding

the judgment also motivated Fournier to form a new

company, Anewco, to hold the asset:

Q: But it was your purpose in forming Anewco to

attempt to try to isolate yourself from Mr. Schneider’s legal issues, right?

A: Yes, sir. Part of the reason anyway.
No. 07-4034 7

The district court decided that Fournier acted in

good faith because, at the time of the transfer, he did

not have a legal or financial relationship with Schneider.

As the court noted, Fournier did not funnel money to

Schneider and did not maintain a business relationship

with Schneider after the transfer. Schneider, the court

concluded, “was not financially involved and did not

have control over it [the HSN payments].” Last, the

court found that Fournier’s efforts over three years to

develop the HSN business constituted reasonably equivalent value for transfer from Sevenquest. On this basis,

the court held that the transfer to Anewco was not

voidable under UFTA. The right to the HSN payments

was held by Anewco, not the judgment debtors, and

HSN therefore did not violate the citation by making

the payments to Anewco.

II

Before we address the merits, a word about appellate

jurisdiction is in order. FYEO is appealing from an order

in a supplemental proceeding to its lawsuit against Schneider, PCC, and Calgon Carbon Corporation. In the underlying case, FYEO obtained a default judgment against

Schneider and PCC, but its claim against Calgon Carbon

Corporation is still pending. We need not concern ourselves with that fact, however, because this appeal is

from a final order in a proceeding to collect on a judgment. That is all that 28 U.S.C. § 1291 requires. See King

v. Ionization Intern., Inc., 825 F.2d 1180, 1184 (7th Cir.

1987). (We note for the record that the district court
8 No. 07-4034

expressly made a finding pursuant to FED. R. CIV. P. 54(b)

that there was no just reason to delay enforcement of

the judgment against Schneider and PCC, and it entered

a final judgment against Schneider and PCC for

$2.19 million on February 22, 2007.)

Because the parties do not dispute the district court’s

finding that the transfer from PCC to Sevenquest was

fraudulent and voidable under 740 ILCS 160/8, the

only question on this appeal is whether the district

court correctly found that the second transfer, from

Sevenquest to Fournier, was made in good faith and

for reasonably equivalent value.

A

A central issue here is whether the transfer to Fournier

was made in good faith, but a precise definition of that

term is hard to come by. UFTA does not supply a definition, and the Illinois courts have not filled this gap by

offering one of their own. In this respect UFTA is similar

to other statutes that require a finding of good faith.

For example, the Bankruptcy Code uses the term

without defining it, and courts have similarly resisted

articulating a precise definition. See, e.g., Moglia v. Universal Auto., Inc., No. 98 C 5915, 2000 U.S. Dist. LEXIS

10420, at *11-12 (N.D. Ill. July 12, 2000) (listing cases addressing good faith in 11 U.S.C. § 548(c)).

It is somewhat easier to identify situations in which

good faith is lacking. Thus, for example, good faith will

probably be lacking if the transferee knows that the
No. 07-4034 9

transfer may be voidable because he knows of an outstanding judgment against the transferor. The Illinois

Court of Appeals has found a lack of good faith where

the transferee knew of a pending lawsuit against the

transferor and accepted the transfer without informing

the plaintiff. Kennedy v. Four Boys Labor Servs., 664 N.E.2d

1088, 1093 (Ill. App. Ct. 1996). Similarly, in a case

decided before the enactment of UFTA, the Illinois

Court of Appeals found a lack of good faith where the

transferee knew of an outstanding judgment and sought

protection should any claim to the transferred property

arise from that judgment. Alan Drey Co. v. Generation, Inc.,

317 N.E.2d 673, 680 (Ill. App. Ct. 1974). In the closely

related area of bankruptcy, this court defined good faith

for purposes of § 550(b) of the bankruptcy code as a

state of mind in which the person is “without knowledge

of voidability.” Bonded Fin. Servs., Inc. v. European Am. Bank,

838 F.2d 890, 897 (7th Cir. 1988). We commented that

knowledge does not require a “complete understanding

of the facts . . . some lesser knowledge will do.” Id. at 898.

FYEO argues that the district court applied the wrong

legal standard for good faith and improperly focused on

the financial and legal relationship between Schneider

and Fournier after the transfer. It is unclear what standard

of good faith the district court applied. If what the

court meant to say, however, was that good faith exists

as a matter of law as long as there is no continuing legal

or financial relationship between Schneider and Fournier

after the transfer, then we must disagree with it. Whether

the transferor receives benefits from the asset after the

transfer or retains control over the asset after the transfer
10 No. 07-4034

is relevant to whether the transfer is fraudulent under

740 ILCS 160/5(b), but it is not the only pertinent fact.

Even though the existence of a continuing legal or financial relationship after the transfer may indicate bad faith,

the lack of such a relationship does not establish good

faith.

Most importantly, the Illinois cases we cited earlier

show that a transferee who knows about a judgment

against the transferor does not take the asset in good

faith. Here, the facts show that Fournier knew of the

judgment against Schneider and PCC before he accepted

the transfer of the HSN business. Like the transferee in

Kennedy, he knew about not only the pending lawsuit,

but also the actual judgment against Schneider and PCC.

He knew from the subpoena that FYEO was seeking

information about the HSN business. In fact, Fournier

flew to Costa Rica immediately after learning of the

judgment in order to protect “his” HSN business from

the judgment.

The district court erred by focusing on the continuing

relationship between Fournier and Schneider after the

transfer, rather than Fournier’s knowledge of the judgment against Schneider at the time he flew to Costa Rica

to start the process of transferring the business from

Sevenquest to Anewco (a transfer that was not completed

until after his trip). Since Fournier knew that the judgment had been entered and that FYEO was pursuing the

HSN payments, Fournier did not accept the transfer in

good faith. The transfer is therefore voidable under 740

ILCS 160/9.
No. 07-4034 11

B

FYEO argues in the alternative that the transfer is

voidable because Fournier did not pay a reasonably

equivalent value for the HSN business. FYEO points to

Fournier’s testimony that he did not give Schneider

money and challenges the enforceability of the oral agreement. Both arguments lack merit. UFTA does not limit

reasonably equivalent value to money nor to value transferred pursuant to a valid contract. The district court

found that Fournier’s three years of labor to create the

business with HSN was reasonably equivalent to the

value of the business that labor created. We see nothing

clearly erroneous about that finding.

C

The only remaining issue is whether HSN violated the

citation when it accepted the transfer of the jewelry box

agreement from the Schneider entities to Anewco and

thereafter began making its payments to the latter company. Service of a citation puts a lien on “all personal

property belonging to the judgment debtor in the possession or control of the third party or which thereafter

may be acquired or come due the judgment debtor and

comes into the possession or control of the third party to

the time of the disposition of the citation.” 735 ILCS 5/2-

1402(m). If a recipient violates the restraining provision

of a citation and transfers the asset, a court “may enter

judgment against him or her in the amount of the unpaid

portion of the judgment and costs allowable under this

Section, or in the amount of the value of the property

transferred, whichever is lesser.” 735 ILCS 5/2-1402(f)(1).
12 No. 07-4034

HSN paid Anewco for the products it was selling after

it received the citation and FYEO’s petition for a restraining order. HSN argues that expecting it not to pay

Anewco is commercially unreasonable, against public

policy, and unfair, because it would require HSN to

choose between defaulting on its contract with Anewco

and violating the citation. Its argument, however, overlooks the third choice that the law provides: taking a

page from interpleader procedure, HSN could have

arranged to place the payments either in a private escrow

account or in the registry of the court. Indeed, FYEO’s

petition for a restraining order asked the court to order

the latter relief, and so it is obvious that HSN was aware

of this option.

FYEO urges this court to find that nothing remains to

be decided before a turnover order can be entered requiring HSN to pay it $382,216.00, in addition to any additional payments made to Anewco after April 2007. Not

so fast, says HSN. HSN points out that the district court

never determined whether HSN violated the citation

and that unresolved issues of fact should be left to the

district court judge. It points out, for example, that the

citation does not name Anewco, and so there is some

question whether HSN knew that Anewco was, in law,

PCC’s and Sevenquest’s successor in interest. FYEO’s

petition for the restraining order so names Anewco, but

HSN was not required to take FYEO’s word for it. The

record does contain evidence indicating that HSN may

have known that Anewco received the business from

Schneider, because the January 11, 2007 letter was from

Schneider. Further support for that inference can be
No. 07-4034 13

found in the fact that HSN used the same vendor identification number and product identification number for

Anewco as it had used for PCC and Sevenquest. That

said, upon a full hearing HSN may have additional evidence that is pertinent. It is the district court’s role in

the first instance to apply the law to the facts. Door Sys.,

Inc. v. Pro-Line Door Sys., Inc., 126 F.3d 1028, 1032 (7th

Cir. 1997); Robinson v. Sappington, 351 F.3d 317, 338 (7th

Cir. 2003). We therefore remand this case to the district

court to decide whether HSN violated the citation by

transferring the assets of PCC and Schneider to Anewco.

We VACATE the judgment of the district court and

REMAND for further proceedings consistent with this

opinion.

3-31-09