transfer was made... .”), but were not. They argue that the
plaintiffs did not sue until 1995, and nothing in the record
supports an earlier indebtedness. This is rather perverse; indeed,
the 1995 lawsuit, in which Mr. Wabick stipulated to a default
judgment of more than $7 million in the First Bank case, precisely
concerned earlier events, some involving a fraud dating back at
least to 1991. A jury could find that transfers at least from then
on are actionable.
IV.
The defendants’ motion for summary judgment is DENIED.

ENTER LP. ? ID i)

GES, ESaas coal

Elaine E. Bucklo
United States District Judge

Dated: June gY 2002

-13-


Gateway Capital by signing a note, although she could not remember
the amount or the holder of the instrument. Pl. Ex. C, at 55-56, 64.
According to the defendants, the other 50% of Gateway Capital stock
was owned by Larry and Jane Ettner, and this is not disputed.
Neither is it disputed that Larry Ettner and David Wabick ran the
day-to-day operations of Gateway Capital, nor that Mr. Wabick
received a salary of $150,000 a year from the firm. Mr. Wabick
denies ever owning any shares of Gateway Capital, but a rational
jury could believe that this was not true on the strength of his
personal financial statements through 1995, where he said that he
had a substantial ownership interest in this firm. Pl. Exs. F-H.
Mr. Wabick testified that in 1990-1993 he was solvent and had
millions in assets, Def. Ex. 7 at 165, Exs. 15, 16. The plaintiffs
point out that a jury might doubt this because the financial
statements on which Mr. Wabick relies are unaudited, and do not
reflect various liabilities, including a $2,000,000 loan from
Gateway Financial, Pl. Ex. O, and lawsuits relating to Connaught,
a company he controlled, Pl. Ex. V, and the misdeeds of which were
connected to one of his convictions. The plaintiffs say that a
rational jury might infer that Mr. Wabick was actually insolvent or
that his insolvency was imminent as early as 1990. Mr. Wabick
asserts that his assets lost considerable value between 1993 and
1997, and that by 1996, he had no assets and was actually being

supported by his wife. At his deposition, however, he testified that


and 6(a), and a one year rule under 6(b), with no discovery period.?!
However, the defendants waive this argument by stating that the
discovery rule applies to all the plaintiffs’ claims.

Moreover, the plaintiffs argue plausibly that if David Wabick
caused the statute of limitations to run by lying to them about the
ownership. of the assets in question, the defendants are estopped
from asserting the defense of the statute of limitations. The
Illinois courts have said that a party may be equitably estopped
from asserting the statute of limitations “where it would be unjust
to permit the litigant to disavow express and implied statements
upon which another party has relied and which have caused him to
forgo filing his suit.” Smith v. Cook County Hosp., 518 N.B.2d 336,
342 (Ill. App. Ct. 1987):

Basically, the theory provides that a defendant cannot benefit
from his own misconduct. However, the plaintiff cannot show

1 The relevant provision reads in full:

§ 10. A cause of action with respect to a fraudulent transfer
er obligation under this Act is extinguished unless action is
brought:

(a) under paragraph (1) of subsection (a) of Section 5,
within 4 years after the transfer was made or the obligation
was incurred or, if later, within one year after the transfer
or obligation was or could reasonably have been discovered by
the claimant;

(b) under paragraph (2) of subsection (a) of Section 5 or
subsection (a) of Section 6, within 4 years after the transfer
was made or the obligation was incurred; or

(c) under subsection (b) of Section 6, within one year after
the transfer was made or the obligation was incurred.

740 ILCS 160/10.


Wabick’s answer also admitted that Mrs. Wabick acquired her
interests in the MRI center at least partially through Mr. Wabick.
A marginal note following this statement addressed to “Barry,”
apparently Barry Freeman, Mr. Wabick’s attorney, says “[Barry, is
this right? We admit that she acquired the interests through the
efforts and activities or (sic) Dave? If so, what are we denying?
Can we say she acquired them partially through his efforts?],” is
further evidence tying Mrs. Wabick’s interests in these properties
to Mr. Wabick.

In 1999, Mr. Wabick pleaded guilty to mail fraud and to
impeding the functions of the Resolution Trust Corporation (“RTC”).
The “impeding” conviction involved an admission that Mr. Wabick lied
to the RTC about Gateway Capital’s eligibility to bid on certain
loans being sold at auction by the RTC. Pl. Ex. R at 4. He was
sentenced to 22 months in prison for the mail fraud charge, and to
six months for the impeding charge, sentences to run concurrently.
Pl. Exs. S$ and U.

II.

In deciding a summary judgment motion, I “must construe all
facts in the light most favorable to the non-moving party and draw
all reasonable and justifiable inferences in favor of that party.”
Bellaver v. Quanex Corp., 200 F.3d 485, 491-92 (7th Cir. 2000).
Summary judgment is proper if the record shows “that there is no

genuine issue as to any material fact and that the moving party is

-6-


he was financially solid through 1994, and was making a good salary
until 1997, when he “really got nailed.” Def. Ex. 7, at 162. He
resigned as an officer and director but under an agreement of April
1997, he was retained by the Gateway groups as a consultant at a
remuneration of $157,000 a year Pl. Ex. W at 6.

The plaintiffs sued Wabick and First Bank in 1995, Johnstone
v. First Bank, 95 C 2008 (N.D. Ill.). It is undisputed that in 1996,
plaintiffs were advised that Mr. Wabick had no assets and were asked
to consider dismissing him from the lawsuit. There was a similar
exchange in 1997. In 1999, Mr. Wabick stipulated to entry of a
default judgment against him in the amount of $7,040,000.

The defendants assert that, in connection with a bankruptcy
case filed in 1996, In re Janesville Assocs, 96 B 52713 (Bankr. N.D.
Tll.), Mrs. Wabick purchased the Janesville, Wisconsin, Best Western
Hotel. However, the evidence they offer for this is Mr. Wabick’s
testimony, which is that he, Mr. Wabick, took a 75% interest in the
hotel, and that Heyes took the other 25%. Def. Ex. 7 at 80. Mr.
Wabick denies that he transferred an ownership interest in the
Janesville Best Western to Mrs. Wabick. In his answer to the
plaintiff’s complaint, however, he states that Mrs. Wabick somehow
acquired an interest in the hotel at least partially through his
efforts. Pl. Ex, CC @ 20. The defendants state that Mrs. Wabick
also acquired an interest in Great Lakes Imaging, L.L.C., which runs

various Magnetic Resonance Imaging (“MRI”) centers. Id. Mr.

-5-


of limitations started to run at that point and expired in 2000, the
year before they sued.
The determination of when the statute of limitations begins to

1

run “is ordinarily a question of fact for the jury.” In re Apex
Automotive Warehouse, L.P., Nos. 96 B 04594, 96 B 04596, 96 A 1123,
99 C 2537, 2000 WL 220497, at *5 (N.D, Ill. Feb. 18, 2000) (citing
Witherell v. Weimer, 421 N.B.2d 869, 874 (Ill. 1981)). The statement
in question about the ownership of assets would not by itself alert
a reasonable person to the possibility of a fraudulent transfer. In
the context of Mr. Wabick’s repeated assertions that he never owned
any interest in these firms, the statement offered to show that the
plaintiffs should have been on notice, would in fact allay any such
suspicions. To show that a reasonable plaintiff would have been
alerted to a possible fraudulent transfer, the defendants would have
to show that in 1996, when the statement about his financial
condition was made, the plaintiffs had reason to believe that Mr.
Wabick had had an ownership interest in the Gateway companies to
transfer, i.e., that he was lying when he denied it then. The
defendants have not offered such evidence. A jury could conclude
that the plaintiffs had no reasonable belief that there was funny
business going on until well within the statute of limitations.
Read literally, a discovery rule does not apply to the
plaintiff’s claims under sections 5(a) (2) or (6). Those provisions

impose a four year statute of limitations for claims under § 5(a) (2)

-8-


Minute Cader Form (06/97)

United States District Court, Northern District of [linois

Name of Assigned Jud; i Sitting Judge if Oth
moe Magistrate Judge Elaine E. Bucklo than Assigned Judge
CASE NUMBER 010577 DATE 6/28/2002
CASE Johnstone, et al. vs. Wabick, et al.
TITLE

of the motion being presented. ]

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

MOTION:
DOCKET ENTRY:
ql) Oo Filed motion of [ use listing in “Motion” box above.]
(2) o Brief in support of motion due
(3) Oo Answer brief to motion due___. Reply to answer brief due.
(4) Oo Ruling/Hearingon____ssetfor___at
(5) oO Status hearing[held/continued to] [set for/re-set for]on___setfor__at
(6) 0 Pretrial conference[held/continued to] [set for/re-set for]on__setfor__——sat__—.
(7) o Trial[set for/re-set for]on____at
(8) im [Bench/Jury trial] [Hearing] held/continued to at.
(9) a This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) [General Rule21 [ FRCP41(a)(1) O FRCP41(a)(2).
ao) oi [Other docket entry] | Enter Memorandum Opinion and Order denying defendants’ motion for

8/14/02. Pretrial conference set for 9/12/02 at 2:00 p.m. Trial set for 10/15/02 at 9:30 a.m.

(11) ff [For further detail see order attached to the original minute order.]

summary judgment. Pretrial order will be due by 7/31/02; and response to any motions in limine by

No notices required, advised in open court.

No notices required.
umber of notices

Docunient;

Notices mailed by judge’s staff.

yyy 0.1 2002

Notified counsel by telephone. date docketed

| Docketing to mail notices

Mail AO 450 form Lyno: . docketing deputy initials
Copy to judge/magistrate judge. 9 igh SId“S‘q.
courtroom Ebro , date ale notice
un ions 9 kd 82 unr 20
initials
Ul Tipp igceived in
Us GA Te si ini



Wabick ever transferred any assets to his wife. The statute requires
that the debtor have an interest in the property transferred, see
740 ILCS 160/7(d), but the undisputed evidence (they say) is that
Mr. Wabick had no interests in the property at issue. As noted, with
respect to Gateway Financial, Gateway Capital, and the Janesville
Best Western, this is not so. On the contrary, the Record Book
identifies Gateway Financial as solely owned by Mr. Wabick, and he
claimed an interest in Gateway Capital in his financial statements
through 1995. He stated in his deposition that he acquired a 75%
interest in the Janesville Best Western. The only asset at issue
where there is any question is Great Lakes Imaging (the MRI
centers). Here the Wabicks’ Answer admits that Mrs. Wabick acquired
her interest in the centers through or partly through the efforts
of Mr, Wabick. This poses at least a material issue of fact as to
whether there was a transfer. The statute defines “transfer” in very
broad terms: “‘([t]ransfer’ means every mode, direct or indirect,
absolute or conditional, voluntary or involuntary, of disposing of

or parting with an asset or an interest in an asset, and includes

arose before or after the transfer was made or the obligation
was incurred, if the debtor made the transfer or incurred the
obligation:

(1) with actual intent to hinder, delay, or defraud any
creditor of the debtor; or
(2) without receiving a reasonably equivalent value in
exchange for the transfer or obligation...

740 ILCS 160/5(a).

-11-


mere misconduct, but must be able to show that the defendant
said or did something to lull or induce the plaintiff to delay
the filing of his claim until after the limitations period has
run.
Id. Nor does estoppel require a lie. A defendant “is estopped from
asserting a statute of limitations if the plaintiff's failure to act
within the statutory period results from reasonable reliance on the

a”

defendant's conduct or representations. Dever v. Simmons, 684
N.E.2d 997, 1001 (Ill. App. Ct. 1997) (citing Witherell v. Weimer,
515 N.E.2d 68 (Ill. 1987)). “An intent to mislead, deceive, or delay
is not necessary.” Id. Here, the jury could conclude that the
defendants’ statements caused the plaintiffs reasonably not to act
within the statutory period, and, moreover that Mr. Wabick lied to
them, and so may. not profit by his own wrong. I deny summary
judgment under the statute of limitations on the claims involving
the Gateway companies. The parties may argue the statute of
limitations at trial, but if the jury believes that Mr. Wabick lied
or otherwise caused the plaintiffs to allow the statute of
limitations to run, then as a matter of Illinois law the statute of
limitations defense would be estopped.
IIr.

There is no evidence to support the plaintiffs’ section 5

claim,* the Wabicks contend, because there is no evidence that Mr.

2 The provision states:

A transfer made or obligation incurred by a debtor is
fraudulent as to a creditor, whether the creditor's claim

-10-


entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c);
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

The defendants argue that plaintiffs’ fraudulent transfer
claims regarding: Gateway Financial and Gateway Capital are time-
barred. The Illinois Uniform Fraudulent Transfer Act, 740 ILCS
160/1. Section 10 of the Act, which sets forth the time period in
which a claim for relief must be brought, provides that a cause of
action under the statute must be brought “within 4 years after the
transfer was made .. . or, if later, within one year after the
transfer . . . was or could reasonably have been discovered by the
claimant.” 740 ILCS 160/10(a). The defendants argue that the
relevant triggering events were the acts whereby Mrs. Wabick
invested in Gateway Financial and Gateway Capital. Mrs. Wabick, they
say, had 100% of the stock of Gateway Financial on its inception in
1990, and 50% of the stock of Gateway Capital from its formation in
1992. Since the plaintiffs sued in 2001, they must proceed under the
“discovery” clause. Illinois uses a reasonable person standard for
discovery for the purposes of a fraud claim. See Knox College v.
Celotex Corp., 430 N.E. 2a 976, 980-81 (Ill. 1981). The defendants
rely on the undisputed fact that during the First Bank litigation
in 1996 and again in 1997, the plaintiffs were informed that Mr.
Wabick had no assets and that Mrs. Wabick owned the family assets.
The defendants argue that, for this reason, a reasonable person

would have been on notice that Mr. Wabick was broke, and the statute

-7T-


operation,” while Heyes was described as being “responsible for
property sales . . . and is in charge of the hotel, office, and
retail properties” for Gateway Financial. Pl. Ex. B at 4-5.

Mr. Wabick stated in his deposition that he began working for
Gateway Financial beginning in or about 1991. The plaintiffs dispute
this as evasive in view of the cited evidence indicating that his
involvement was closer than that suggests, and indeed the deposition
testimony is not specific about when he “started working” for
Gateway Financial. Def. Ex. 7, at 9. After Mr. Wabick began working
for Gateway Financial, Mr. Wabick undisputedly received a salary of
$75,000 a year. Mr. Wabick denied under oath that he ever had an
ownership interest in Gateway Financial, stating that it was owned
by Mrs. Wabick. Def. Ex. 8, at 9-11. However, as noted, the evidence
from the Record Book indicates otherwise.

Gateway Capital was formed in June 1992. The defendants state
that Patricia Wabick owned 50 shares of Gateway Capital. The
plaintiffs do not. dispute this, although they contend that David
Wabick caused the shares to be issued to her after he formed the
company, see Pl. Ex. R, at @ 8.a, and they offer evidence that Mr.
Wabick claimed a financial interest in Gateway Capital through 1995,
see Pl. Ex. F at 3, G at 1, H at 1. The defendants claim that Mrs.
Wabick also gave a promissory note in a nominal amount as
consideration for her Gateway Capital shares, which note is not

offered in evidence. Mrs. Wabick testified that she “invested” in


ownership interests in several firms he had started or acquired by
or that she had acquired due to his efforts and not her own.
Although virtually every issue of fact is in dispute, Mr. and Mrs.
Wabick move for summary judgment on the grounds that the plaintiffs’
claims are time barred and unsupported by evidence. I deny the
motion.

I.

In June 1990, an Illinois corporation called Gateway Financial
was formed. The defendants offer certain documents signed by
Patricia Wabick identifying her as the “sole owner of record,” Def.
L.R. 56.1 Statement, Ex. 1, 3, 4. The plaintiffs contend that David
Wabick was the sole owner of record, and submit in support the
Record Book of the corporation produced in discovery, which so
identifies him. Pl. L.R. 56.1 Statement, Ex. 1, at 13. This is an
admission of a party-opponent. Mrs. Wabick testified that she gave
a promissory note in a nominal amount as consideration for the
purchase of Gateway Financial’s shares. The note is not offered in
evidence.

The defendants say that David Heyes was hired to run the day-
to-day operations of Gateway Financial. There is some evidence that
supports this, see Pl. Ex. D at 38 (Mr. Wabick states that Heyes
“was hired to run the company full time.”), but there is also
evidence to the contrary. The “Gateway Companies” self-description

states that Mr. Wabick was a “Principal” and “responsible for their


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

ROBERTS JOHNSTONE, derivatively
on behalf of TARRAGON REALTY
INVESTORS, INC., a Nevada
corporation, and JOHN PEDJOE
derivatively on behalf of
TRANSCONTINENTAL REALTY
INVESTORS, INC., a Nevada
corporation,

DOCKETEI

JUL 0 1 200

Plaintiffs,

v No. 01 ¢ 0577

DAVID J. WABICK, an individual;
and PATRICIA WABICK, an
individual,

Defendants, and

TARRAGON REALTY INVESTORS,
InNc., a Nevada corporation, and
TRANSCONTINENTAL REALTY
INVESTORS, INC., a Nevada
corporation,

Nominal Defendants

MEMORANDUM OPINION AND ORDER
David J. Wabick is a convicted felon. His guilty pleas for
mail fraud and impeding the function of the Resolution Trust
Corporation concern crimes that directly or indirectly relate to the
civil law suit I consider here. The plaintiffs contend that,
threatened with lawsuits, burdened with debt, and ultimately facing
a $7 million fraud judgment, David Wabick fraudulently transferred

to his wife Patricia Wabick various assets, including stock or


payment of money, release, lease, and creation of a lien or other
encumbrance.” 740 ILCS 160/2(1). Bxcept for insolvency, discussed
below, the defendants do not dispute the other “badges of fraud,”
id. § 160/5(b) (including transfer to an insider, retention of
control over assets, purported transfers involving substantially all
of defendant’s assets).

Section 6 of the Fraudulent Transfer Act requires that “the
debtor fhave] made the transfer or incurred the obligation without
receiving a reasonably equivalent value in exchange for the transfer
or obligation and the debtor was insolvent at that time. . . .” 740
ILCS 160/6(a). The defendants argue that there is insufficient
evidence to conclude that Mr. Wabick was insolvent at the time of
his purported fraudulent transfers because he testifies that he was
worth “millions” and making a good salary. However, the plaintiffs
offer evidence that Mr. Wabick’s financial statements failed to
report a two million dollar liability loan in the form of a loan
from Gateway Financial, and that he faced legal problems at the time
of Gateway Financial’s inception, see, e.g., Pl. Ex. R @ 8(d) and
{g) (indicating, e.g., that a Connaught loan of $1.65 million
personally guaranteed by Mr. Wabick was in default in January 1990).

The defendants contend, further, that the section 6 claims must
fail because the plaintiffs must have been creditors at the time of
the transfers, 740 ILCS 160/6 (a) (“A transfer made . .. by a

debtor is fraudulent as to a creditor whose claim arose before the

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