Shadur' explained that, according to the Supreme Court, “a receiver or like surrogate cannot
pursue claims that belong, not to the receivership entity as such, but rather to those who may

have an ultimate derivative interest in the estate.” 744 F. Supp. at 1422 (citing Caplin v. Marine

Midland Grace Trust Co. of New York, 406 U.S. 416, 429-34 (1972)). The court then held that a
receiver designated for certain corporate entities could not bring claims on behalf of investors of
the corporations who hoped to recover damages for fraud. The court emphasized: “fraud on
investors that damages those investors is for those investors to pursue - not the receiver,” and “by
contrast, fraud on the receivership entity that operates to its damage is for the receiver to pursue.”
Id, (emphasis in original). This rule was affirmed in Troelstrup v. Index Futures Group, Inc., 130
F.3d 1274 (7th Cir. 1997), in which the Commodities Futures Trading Commission brought suit
against a commodities trader who allegedly defrauded investors. In Troelstrup, the Seventh
Circuit held that the receiver lacked standing to bring a third-party complaint on behalf of the
defrauded investors “because he was not their receiver.” Id, at 1277.

The instant case is analogous to Scholes’ and Troelstrup. While the receiver’s activities

in the instant action are certainly aimed at benefitting Lacrad’s creditors, the receiver was

appointed by this court “as the receiver for Lacrad International Corporation (‘Lacrad’)” and

‘Contrary to defendant’s representation in its memorandum in support of its motion,
Scholes v. Schroeder was decided in the Northen District of Illinois, not in the United States
Court of Appeals for the Seventh Circuit.

2The receiver asserts that Scholes v. Schroeder is inapplicable to the instant case because
of the 7th Circuit’s later decision in Scholes v. Lehman, 56 F.3d 750 (7th Cir. 1995) (“Lehman”),
in which the receiver was found to have standing to bring his claims. Again the court disagrees
with the receiver. The receiver in Lehman had standing to bring his claims because they were
claims belonging to the receivership entity and not to some other third party. Thus, the Seventh
Circuit’s finding in Lehman in no way invalidates Judge Shadur’s conclusion in Scholes that a
receiver cannot bring claims on behalf of an entity that he has not been appointed to represent.

4


to repay First Union,” and by receiving “$1.5 million from Lacrad in 2000 and 2001" although it
“knew that the funds it received were not funds of Lacrad.” “By knowingly receiving the funds
of Lacrad which were unlawfully obtained,” the receiver continues, “defendant committed
fraud.”

In Count XVIM, the receiver alleges that defendant “participated in Lacrad’s scheme to
defraud creditors by receiving payments from Lacrad knowing that they were the proceeds of
fraudulent activities.” By receiving over $4 million from Lacrad, which allegedly came from
“the funds of other creditors procured by Lacrad through the use of false financial statements and
other illicit activities,” the receiver alleges that defendant knowingly participated in Lacrad’s
fraudulent scheme.

In Count XIX, alleging conversion, the receiver asserts that “defendant converted in
excess of $4 million of funds procured from third parties through the fraud of Lacrad.” In Count
XX, alleging fraudulent conveyance, the receiver claims that “the payments defendant received
from Lacrad in the period 1999-2000 constitute fraudulent conveyances in that they were the
proceeds of fraudulent loan activities of Lacrad.” Lastly, in Count XXI, the receiver alleges that
defendant was unjustly enriched “in an amount in excess of $4 million.”

DISCUSSION

In its motion, defendant asserts that the receiver lacks standing to bring these claims. The

court agrees. A receiver can bring claims only on behalf of the entity he has been appointed to

represent. See Scholes v. Schroeder, 744 F. Supp. 1419 (N.D. Ill. 1990). In Scholes, Judge



stands in Lacrad’s shoes for purposes of enforcing Lacrad’s rights.? Thus, the receiver has not
been appointed to represent Lacrad’s creditors, and he therefore cannot bring claims that only
they have standing to bring.

Lacrad has alleged no claim against a creditor such as defendant from whom it borrowed
and repaid money, although Lacrad’s other creditors may have such a claim. The court therefore
finds that the receiver lacks standing to bring the instant claims against defendant. Having
reached that conclusion, the court finds it unnecessary to examine defendant’s proposed 12(b)(6)
and 9(b) bases for dismissal, and grants defendant’s motion to dismiss Counts XVII through
XXI.

CONCLUSION

For these reasons, defendant’s motion to dismiss Counts XVII through XX! is granted.

ENTER: August 14, 2002

Robert W. Gettleman
United States District Judge

In his response to defendant’s motion, the receiver focuses on the court’s statement in its
June 12, 2001, order that the receiver was appointed “on behalf of all the creditors.” However, as
noted above, although the receiver’s actions are aimed to benefit Lacrad’s creditors, the receiver
was clearly appointed “as the receiver for Lacrad,” not as receiver for Lacrad’s creditors or any
other entity.


Minute Order Form (06/97)

United States District Court, Northern District of Illinois

Never Magione Jude Robert W. Gettleman “thant Arsieed Judge

CASE NUMBER 01 C 4296 DATE Aug. 14, 2002
CASE B.E.L.T. v_ Lacrad International Corp., et al
TITLE

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

of the motion being presented.]

(10)

MOTION:

DOCKET ENTRY:

qa fa Filed motion of [ use listing in “Motion” box above.]

(2) im} Brief in support of motion due

(3) Oo Answer brief to motiondue___. Reply to answer briefdue___.

4 Oo Ruling/Hearingon____setfor___——at__—,

(5) a Status hearing held and continued to

(6) Qo Pretrial conference[held/continued to] [set for/re-set for]on___set for at.
(7) o Trial[set for/re-set for]on_____at

(8) im [Bench/Jury trial] [Hearing] held/continued to__aat.

(9) q This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

CIFRCP4(m) (General Rule 21 CIFRCP41(a\(1) OO FRCP41(a)(2).

M = [Other docket entry) Memorandum opinion and order entered.

Accordingly, defendant’s motion to dismiss counts XVII through XX] is granted.

® for further details see order attached

No notices required, advised in open court.

No notices requit
equired umber of nations

Notices mailed by judge’s staff.

Notified counsel by telephone AUG,.1,9..2002

raral Ary
Docketing to mail notices. Junea 4 MELStg

Mail AO 450 form. 4 initials \ AY

Prunny
Copy to judge/magistrate judge. ral thy
courtroom bee the date mailed notice
Gps deputy’s
initials

Date/time received in
central Clerk’s Office mailing deputy nial



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

B.E.L.T., INC. , EUROPEAN AMERICAN
BANK, AMERICAN EQUIPMENT LEASING,
THE CIT GROUP/EQUIPMENT FINANCING,
INC., REGIONS BANK and WINTHROP
RESOURCES CORPORATION,

Plaintiffs,

)

)

)

)

)

)

)

)
v. )
)
LACRAD INTERNATIONAL CORPORATION, _ )
an Illinois corporation and RODNEY T.E. DIXON, )
DARCAL DIXON, GLENN E. MILLER, KIM W. )
MILLER, BETHEL COMMUNITY OUTREACH )
MINISTRIES, CHENISE WHITEHEAD, FIRST)
UNION NATIONAL BANK, FEED THE )
CHILDREN, INC., BISHOP LEO LEWIS, E.C. _)
REEMS MINISTRIES, CHRISTIAN JEW )
FOUNDATION, KIMBERLY STRATTON )
JEHOVAH JIREH MUSIC, ALBERT )
DEGENOVA, TOTAL PERIPHERALS, INC., )
MICHAEL WHITFIELD, JAMES T. BORDEN, _)
NU-CONCEPTS MARKETING, LIVINGSTONE )
ENTERPRISES, ROBERT SMALLWOOD, )
DANIEL WEATHERSPOON, BISHOP NORMAN )
WAGNER and MT. CALVARY PENTECOSTAL )
CHURCH, JIM JOHNSON and COMPAK )
CORPORATION, PACIFIC ATLANTIC )
LEASING, a/k/a El Camino, DELTA HARDMAN, )
JAMES FOSTER, TRICIA’S FASHIONS, UNICO )
DESIGNS, LTD., DIVINE ORDER and WILLIAM )
BLANK,

wer

Defendants.

DOCKETED

AUG 18 ogg

No. 01 C4296

Judge Robert W. Gettleman

MEMORANDUM OPINION AND ORDER

Plaintiffs and the court-appointed receiver for Lacrad Int. Corp. (“Lacrad”), Alex Moglia

(“the receiver”), filed a 44-count fourth amended complaint, alleging various types of fraud,

as


fraudulent conveyance, and unjust enrichment claims against a number of individuals and
entities, In Counts XVII-XXI of the complaint, the receiver seeks recovery against First Union
(“defendant”) for the alleged receipt of funds fraudulently obtained from Lacrad, as well as for
fraud, scheme to defraud, fraudulent conveyance, conversion, and unjust enrichment. Defendant
has filed a motion to dismiss Counts XVII through XXI for lack of standing or, in the alternative,
for failure to state a claim pursuant to Fed.R.Civ.P. 9(b) and 12(b)(6). For the following reasons,
defendant’s motion is granted.
BACKGROUND

Defendant is a national bank. In 1997, defendant extended a credit line in excess of $2
million to Lacrad and issued corporate credit cards to several Lacrad employees. Between 1998
and 2000, Lacrad accumulated more than $4 million in credit card charges. Within this period,
Lacrad came to be in arrears to defendant for over $2 million, but managed to make consistent
payments toward the debt. According to the receiver, Lacrad’s business during this period
consisted of conducting fraudulent schemes. The receiver alleges that defendant became a
creditor when Lacrad amassed debt on the cards, and that defendant continued to accept Lacrad’s
payments toward the debt after learning that they consisted of money fraudulently obtained from
other creditors. By continuing to collect these payments, and by failing to report Lacrad’s
allegedly illegitimate business scheme, the receiver contends, defendant allowed Lacrad to
continue to fraudulently obtain money from its other creditors, or, at the very least, to continue to
fraudulently convey the funds it had already received from other creditors.

Specifically, in Count XVI, the receiver alleges, on information and belief, that

defendant committed fraud by giving Lacrad “time to generate funds from its unlawful schemes