In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 01-1428

THE NOSTALGIA NETWORK, INC.,

Plaintiff-Appellee,

v.

BONNIE M. LOCKWOOD,

Defendant-Appellant.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 00 C 2418—Charles R. Norgle, Sr., Judge.

____________

ARGUED SEPTEMBER 27, 2002—DECIDED NOVEMBER 6, 2002

____________

Before POSNER, RIPPLE, and MANION, Circuit Judges.

POSNER, Circuit Judge. Nostalgia Network filed this diversity suit against Bonnie Lockwood to recover more

than $300,000 that she had received from her boyfriend

Merrick Scott Rayle, who owes Nostalgia millions. The

suit claims that the transfer to Lockwood was fraudulent,

and if so then under the Uniform Fraudulent Transfer

Act, in force both in Illinois and Indiana (the two states

that are candidates to furnish the rules of decision in this

diversity suit), Nostalgia is entitled to get the money back

from Lockwood. 740 ILCS 160/8; Ind. Code § 32-18-2-17.
2 No. 01-1428

The district court granted summary judgment for Nostalgia on the ground that Rayle had committed constructive fraud (“fraud in law” as it is termed in the UFTA),

and Lockwood appeals. The suit also charges actual fraud,

“fraud in fact,” but the judge did not rule on that charge;

nor need we, though we note parenthetically that the evidence of actual fraud is overwhelming.

Rayle, a lawyer, provided legal services to Nostalgia in

the early 1990s. Nostalgia sued him in California for legal

malpractice in 1994, and in July of 1999 the court entered

a default judgment against him for $3 million. Two years

earlier he had transferred ownership of an account in

an Indiana bank to himself and Lockwood as joint tenants, and in February 1999 he had transferred his interest

as joint tenant, worth some $60,000, to Lockwood, who

thus became the sole owner of the account. She gave no

consideration for the transfer, or for checks that he endorsed to her and that she deposited in the account before and after the California judgment. By September of

1999 he had transferred to the account, and thus to her,

a total of $343,000.

The following month, Nostalgia sued Rayle in an Indiana state court to enforce the California judgment, and

it attached Lockwood’s account (which Nostalgia at the

time believed was still Rayle’s account) in the Indiana

bank. There was $36,000 left in the account and the Indiana court ruled that the money was Rayle’s—or that if it

was Lockwood’s that it had been “transferred to Ms. Lockwood merely for the purpose of avoiding creditors”—and

ordered it paid over to Nostalgia, which was done. Lockwood had not been named as a defendant in the Indiana suit.

Nostalgia then brought the present suit in Illinois,

where Rayle and Lockwood live, seeking the difference
No. 01-1428 3

($307,000) between the amount that Rayle had transferred

to Lockwood without consideration ($343,000) and the

amount Nostalgia had recovered in the Indiana action

($36,000).

When a person transfers money or other property to

another person without receiving anything in return,

and the transferor is insolvent (or made insolvent by the

transfer), the transfer is voidable even if there was no

intent to hinder creditors. 740 ILCS 160/6(a); Ind. Code

§ 32-18-2-15; In re Liquidation of MedCare HMO, Inc., 689

N.E.2d 374, 380 (Ill. App. 1997); Fire Police City County

Federal Credit Union v. Eagle, 771 N.E.2d 1188, 1191 and n. 3

(Ind. App. 2002). The usual motive for such transfers is

to hinder creditors, but that is difficult to prove and provided the transfer is indeed grauitous creditors are hurt

and the recipient, having paid nothing for what he received, has no very appealing claim to keep the money. The

situation is different if there was consideration for the

transfer, that is, if it was not a gratuity but an exchange.

For if the transferor received equivalent value—in a bona

fide exchange, each party considers itself better off after

than before—his creditors are not hurt and the recipient

of the transfer, having paid for it, would be entitled to

compensation if it were rescinded; so in the end the creditors wouldn’t benefit from the rescission.

The transfers that Rayle made to the account that, previously his, then joint, became Lockwood’s alone were

gratuitous. Lockwood gave him nothing in return for the

transfers—except a place to hide his assets from his creditors, such as Nostalgia; that is what makes this almost

certainly a case of actual as well as constructive fraud.

But there is a complication: Lockwood used much, maybe most, of the money she got from Rayle to pay his personal and business expenses. To the extent that she did
4 No. 01-1428

this, she actually helped the creditors and the transfers

to the account were washes. To see this, imagine that

Rayle has $100,000, owes his creditors $200,000, and one

day transfers $10,000 to the account and the next day

withdraws the $10,000 and uses it to pay one of his creditors. The sequence of transfers would not make the creditors as a whole worse off. It is true that when in our

hypothetical sequence he transferred the money to the

account, he took it out of the reach of the creditors, who

now had an expected deficit not of $100,000 (the $200,000

that they were owed minus $100,000, his assets) but of

$110,000 ($200,000 - $90,000). But when he retransferred

it the next day to one of the creditors he put the creditors

as a whole in exactly the position that they had occupied

on the eve of the first transfer, with an expected deficit

once more of $100,000 ($190,000, what the creditors are

owed after one of them is paid $10,000, minus $90,000,

the debtor’s assets after the two transfers). Of course

the creditors would prefer that he not spend anything on

his own consumption. But the point is only that unless

creditors are fooled or otherwise impeded (as they may

well be—and even if the creditors as a whole are not

made any worse off by the asset shuffle, particular creditors, especially those who are secured or who otherwise

enjoy a higher priority than other creditors, may lose

a valuable entitlement because the debtor paid one of

those other creditors first), it makes no difference whether he spends the money out of his own pocket or someone

else’s pocket.

This said, we think the inquiry should stop at the first

stage of analysis, that is, should stop after it is determined that the transfer was not supported by consideration. If it was gratuitous, the fact that some or for that matter all of it may later have seeped back to the debtor does

not legitimize the transfer. The statutes make this clear
No. 01-1428 5

(“value [given for a transfer] does not include an unperformed promise made otherwise than in the ordinary

course of the promisor’s business to furnish support to

the debtor or another person,” 740 ILCS 160/4(a); see also

Ind. Code § 32-18-2-13(a)), as does the case law, though it

is sparse. See In re Roti, 271 B.R. 281, 297-98, 303-04 (Bankr.

N.D. Ill. 2002); In re Mussa, 215 B.R. 158, 171-72 (Bankr. N.D.

Ill. 1997); 5 Collier on Bankruptcy ¶ 548.05[1][b], pp. 548-38

to 548-39 (15th ed. 2002). A compelling reason for stopping at the first stage is that the seeping back of the transferred money or property to the transferor is strong

evidence of actual fraud by him. It is one thing to make

a gift; it is another to transfer money to someone whom

you expect to retransfer it to you; the inescapable implication is that you are parking your money in a place where

you hope your creditors won’t know to look. See 740

ILCS 160/5(b)(1),(2); In re Carlson, 263 F.3d 748, 749-50 (7th

Cir. 2001); In re Roti, supra, 271 B.R. at 297-99, 303; In re

Marshall, 198 B.R. 705, 708 (Bankr. N.D. Ohio 1996); In re

Stevens, 112 B.R. 175, 177 (Bankr. S.D. Tex. 1989). It didn’t

make any sense, in the absence of a desire to throw creditors off the scent, for Rayle to give money to Lockwood

to give back to him for living expenses, rather than defraying the expenses directly out of a bank account of his

own. For that matter, it didn’t make any sense for Rayle to

take his name off the formerly joint account with Lockwood when he intended to continue using the money in

it, albeit now it would technically be Lockwood’s money.

Creditors were (or at least one creditor was) hindered

quite literally because, as is apparent from the fact that

Nostalgia did not at first realize that the account was no

longer in Rayle’s name, making Lockwood the custodian

of the money required Nostalgia to find and sue another

person besides Rayle, namely Lockwood.
6 No. 01-1428

Lockwood further argues, however, that the suit is

barred by Indiana’s principles of res judicata because of

the judgment in Nostalgia’s action to seize the balance in

the account. (Indiana’s preclusion principles govern here

because the judgment was entered by an Indiana court;

but there is nothing unique or unusual about its principles, at least so far as bears on this case.) Res judicata

itself (claim preclusion) is clearly inapplicable. Beavans v.

Groff, 5 N.E.2d 514, 516-17 (Ind. 1937); Giffin v. Edwards,

711 N.E.2d 35, 36-37 (Ind. App. 1999); Kirk v. Monroe

County Tire, 585 N.E.2d 1366, 1369 (Ind. App. 1992). Otherwise a judgment creditor would be unable to use separate proceedings to seize property of the debtor that

might be scattered all over the country, or for that matter

the world. What sense would that make? And anyway

Lockwood, having by cooperating in Rayle’s “parking”

scheme forced Nostalgia to bring a second suit, is equitably estopped to plead res judicata in order to block that

suit. See Warner Cable Communications, Inc. v. City of Niceville, 581 So.2d 1352, 1355 (Fla. App. 1991).

But might not the doctrine of collateral estoppel apply if

as Lockwood argues the Indiana state court determined

that Rayle was the owner of the account? For if he was

the owner, doesn’t this mean that in transferring money

to the account either directly or by endorsing checks to

Lockwood for deposit in the account he was transferring

the money to himself rather than to Lockwood, and so

she was not the recipient of a fraudulent transfer? The

court did not say, however, that Rayle was the owner of

the account; it said that he was the owner of the money in

the account. That ruling, far from being inconsistent with

the ruling of the district court in the present case, is implicit in it. When a court deems a transfer fraudulent

and orders the transferee to cough it up, it is ruling that

the transfer is ineffectual; that the transferor failed actu-
No. 01-1428 7

ally to divest himself of ownership of the money transferred. The money in Lockwood’s account thus was really

Rayle’s. He was the equitable owner, she merely the holder

of bare legal title—and the current equitable owner of

Rayle’s assets, in succession to Rayle, is his creditor Nostalgia. See Beavans v. Groff, supra, 5 N.E.2d at 516-17; Giffin

v. Edwards, supra, 711 N.E.2d at 36-37.

Lockwood’s final appeal is to the doctrine of judicial

estoppel, which forbids a party who has prevailed on

one ground in a litigation to repudiate that ground in

seeking additional relief in a subsequent suit. See United

Rural Electric Membership Corp. v. Indiana Michigan Power

Co., 716 N.E.2d 1007, 1010-11 (Ind. App. 1999); Wabash

Grain, Inc. v. Smith, 700 N.E.2d 234, 237-38 (Ind. App.

1998); DeVito v. Chicago Park District, 270 F.3d 532, 535 (7th

Cir. 2001). Lockwood argues that Nostalgia, having won

the Indiana suit by arguing that Rayle owned the bank

account, should not now be heard to argue that, no, it was

Lockwood who owned the account. What we have said

scotches this argument. The issue was never who owned

the account, but who owned the money in it, and Nostalgia has been consistent in arguing that Rayle did.

AFFIRMED.

A true Copy:

Teste:

 _____________________________

Clerk of the United States Court of 

Appeals for the Seventh Circuit 

USCA-02-C-0072—11-6-02