No. 02 C 857 Page 4

supporting the notion that a debt owed to one spouse is in part the property of the other
spouse in an ongoing marriage. Indeed, defendant’s contention, if correct, would require a
debtor to issue one check to a husband and another to a wife for a debt owed to one of them
or be deemed not to have satisfied his obligation, and that is just not so. The admissions
detailed by plaintiff in its supplemental reply memorandum make it clear that Vicki never
advanced her own funds to defendant. If there was no consideration for the notes, then both
the notes and the lien of the trust deeds are nullities. Burke v. Burke, 89 Ill.App.3d 826, 412
N.E.2d 204, 45 Il.Dec. 71 (2d Dist. 1980); Evans v. Berko, 408 IIL 438, 97 N.E.2d 316 (1951);

Codo y. Union National Bank and Trust Co. of Joliet, 54 Ill. App.3d 810, 370 N.E.2d 140, 12

W.Dec. 517 (2d Dist. 1977).

If there was no yalid debt and lien at the time of the assignment, it was a voluntary
transfer when the defendant had not retained sufficient property to pay its obligations, and
it directly impaired the rights of plaintiff. It was made after plaintiffs claim arose and the
debtor became insolvent as a result, i.¢., it could not pay its obligations in the normal course.
The assignment was yoidable for either reason and, accordingly, we vacate the assignment
to Vicki and turn over that interest to the plaintiff to the extent necessary to satisfy the

judgment.”

&. Meco —

JAMES B. MORAN
Stnior Judge, U. S. District Court

Oss &, 2002.

7In the circumstances it is unnecessary to consider two additional contentions why the assignment is
voidable or plaintiff's contention that the trust deeds are not valid against it because they were not recorded
and plaintiff had no notice of them.



No. 02 C 857 Page 3

y, Roan, 218 I.Dec, 124, 668 N.E.2d 608 (IILApp. 4 Dist. 1996). Because the transfer was
made to the wife of the corporate president, Roadway has the burden of showing that the
partial assignment was for reasonably equivalent value. In re Mussa, 215 B.R. 158, 172
(N.D.LIL 1997)

Second, plaintiff claims that it can avoid the partial assignment, pursuant to 740 ILCS
160/6(a), because the transfer was made after plaintiff's claim arose, the transfer was made
without receiving a reasonably equivalent value in exchange for the transfer, and the debtor
became insolvent as a result of the transfer. Plaintiff further claims that it can avoid the
partial assignment, pursuant to 740 ILCS 160/6(b), because the transfer was made after
plaintiff's claim arose, the transfer was to an insider for a purported antecedent debt, the
debtor was insolvent at the time and the insider had reasonable cause to believe that the
debtor was insolvent. Finally, plaintiff claims it can avoid the partial assignment, pursuant
to 740 ILCS 160/5(a)(1), because the transfer was made with actual intent to hinder, delay or
defraud KFS.

We earlier voided the assignment to Vicki to the extent that it was based, without
dispute, upon a debt to Dallas. Defendant had, however, ina supplemental response, claimed
that the balance of the assignment was to satisfy a preexisting debt to Vicki, secured by a valid
lien, and described the purported circumstances by which the indebtedness arose. We asked
plaintiff to respond, and it did so, We are persuaded by that response that the “debt” to Vicki
rests entirely upon the contention that she is entitled to one-half of her husband’s assets and
that, therefore, any debt to Dallas is one-half owed to her. We agree that upon dissolution of
marriage a spouse is generally entitled to share in the marital assets as determined by the

court. But there has been no dissolution of the marriage and we are unaware of any law


Minute Ordeg Form (06/9

United States District Court, Northern District of Illinois

(>

C me of Assigned Judge James B. Moran Sitting Judge if Other
or Magistrate Judge . than Assigned Judge
vA CASE NUMBER 02 C 857 DATE 8/26/2002
CASE Knights Franchise Systems, Inc. Vs. Roadway Inn-Bloomington, Inc.
TITLE
[In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
Memorandum Opinion and Order
DOCKET ENTRY:
(1) a Filed motion of [ use listing in “Motion” box above.]
(2) 0 Brief in support of motion due
(3) Oo Answer brief to motion due . Reply to answer brief due
(4) Q Ruling/Hearing on set for at
(5) Oo Status hearing[held/continued to] [set for/re-set for] on set for at
(6) Oo Pretrial conference{held/continued to] [set for/re-set for] on set for at :
(7) a} Trial[set for/re-set for] on at
(8) Oo {Bench/Jury trial] [Hearing] held/continued to at
(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) CO Local Rule 41.1 CFRCP41(a)(1) ( FRCP41(a)(2).
(0) «=o (Other docket entry] Enter Memorandum Opinion and Order. Plaintiff's motion to avoid
defendant’s alleged fraudulent transfer to Vicki Cook Muhs and for turnover order is granted.
dl) @ [For further detail see order attached to the original minute order.]
No notices required, advised in open court,
No notices required number of notices:
Notices mailed by judge's staff.
: AUS 9° p 200
Notified counsel by telephone oe hanced BUS
UY | Docketing to mail notices.
v¥_| Mail AO 450 form. ting deputy intals va
Copy to judge/magistrate judge.
C3 1! " date ied notice
courtroom
WAH deputy's
initials —— ‘
* Date/time'received in
central Clerks Office naling deputy initats



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

KNIGHTS FRANCHISE SYSTEMS, )
INC., )
)

Plaintiff/ )

Judgment Creditor, )

)

vs. ) No. 02 C 857

)

ROADWAY INN-BLOOMINGTON, )
INC., )
)

Defendant/ )

Judgment Debtor. )

MEMORANDUM OPINION AND ORDER

Plaintiff Knights Franchise Systems, Inc. (KFS) sued defendant Roadway Inn-
Bloomington, Inc. (Roadway) on June 29, 2000, in the Central District of Iinois. On June
18, 2001, while the suit was pending, Roadway sold the hotel and related facilities, its only
asset, to Mansehra Corp. and Umaraj Hospitality, Inc. for $1,435,000. $295,000 was paid at
closing and disbursed to various creditors. The balance of $1,140,000 was secured by a
mortgage and a note, On that same day Roadway made a partial assignment of the mortgage
and the note as follows:

1. $507,293.04 to Vicki Cook Muhs, the wife of Dallas E. Muhs, Roadway’s president,
payable at $4,613.22 per month from September 1, 2001 to July 31, 2006, with a balloon
payment of $454,832.98 on July 31, 2006.

2. $314,525.66 to P K Management, Inc., a corporation largely owned by Dallas Muhs’
sister, Betty Potasnak, payable at $2,477.95 per month, October 1, 2001 to July 31, 2001, with

a balloon payment of $275,687.42 on July 31, 2006.


No, 02 C 857 Page 2

3. $73,196.63 to Betty Potasnak, payable at $665.64 per month, September 1, 2001 to
July 31, 2006, with a balloon payment of $65,626.91 on July 31, 2006.

That left, we believe, $244,984.67 owing to Roadway, and that is payable at $1,081.60
per month, with a balloon payment of approximately $212,011,76 on July 31, 2006.

Summary judgment on liability was entered for KFS on December 12, 2001, with an
initial judgment for $166,704.89 on January 3, 2002, and an amended judgment of
$206,254.26 on March 26, 2002. Plaintiff sought a turnover order with respect to the money
payable directly to Roadway and also an order vacating the assignment of Vicki Cook Muhs
(Vicki) and turning over that interest to the extent necessary to satisfy the judgment. The
amounts now payable to Roadway and to Vicki are presently being paid into escrow, pending
resolution of plaintiff’s motion. There was, apparently, no objection to a turnover order with
respect to the Roadway asset, and it was so ordered. But that largely postpones payment until
2006, and with post-judgment interest compounding it may not provide full recovery even
then,’ Thus KFS seeks to vacate the partial assignment to Vicki. It contends that it was a
fraudulent transfer within the meaning of the Uniform Fraudulent Transfer Act (UFTA), 740
ILCS 160/1 et seq., for four separate reasons, First, it claims that Roadway made a voluntary
transfer without receiving reasonably equivalent value in exchange at a time when the debtor
had incurred obligations elsewhere and had not retained sufficient property to pay its
obligations. It is enough that another claim or other claims are outstanding, whether or not
it has matured or is disputed. Fraudulent intent is presumed, and a conveyance may be
avoided when it is a voluntary transfer which is made for no or inadequate consideration, and

which directly impairs the rights of creditors. 740 ILCS 160/5(a)(2); Casey National Bank

‘It is unclear how, or if, the payment to Roadway were made prior to the escrow order, as, we are
told, Roadway’s bank account closed in July 2001,