Court Opinion

ID: 4912443
Source: CourtListenerOpinion
Date Created: 2021-09-20 21:01:27.865302+00
Date Added: 2024-06-11T08:13:41.090366
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 20-1196
IN RE: CHRISTOS DIMAS,
                                                                Debtor.

CHRISTOS DIMAS,
                                                   Debtor-Appellant,

                                 v.

GEORGE STERGIADIS,
                                                   Creditor-Appellee.
                     ____________________

         Appeal from the United States District Court for the
           Northern District of Illinois, Eastern Division.
           No. 1:18-cv-04129 — Edmond E. Chang, Judge.
                     ____________________

 ARGUED FEBRUARY 25, 2021 — DECIDED SEPTEMBER 20, 2021
               ____________________

   Before EASTERBROOK, WOOD, and KIRSCH, Circuit Judges.
    KIRSCH, Circuit Judge. Christos Dimas appeals a judgment
ordering him to pay his former business partner, George
Stergiadis, for capital contributions Stergiadis made to their
failed business, 1600 South, LLC. Stergiadis’s recovery eﬀort
2                                                 No. 20-1196

began in 2008 when he sued Dimas and their other business
partner, Dean Theo, in Illinois state court. But Dimas’s
bankruptcy ﬁlings—seven petitions in six years—stalled the
suit. Stergiadis ﬁled a proof of claim in the most recent
bankruptcy for the capital contributions. Dimas objected to
the claim, but the bankruptcy court approved it in the amount
of $618,974 after an evidentiary hearing. The court reasoned
that, under Illinois law, the partners had an implied-in-fact
contract to equalize capital contributions to the LLC, and
Dimas thus owed Stergiadis the awarded amount to achieve
equality. The district court aﬃrmed.
    On appeal, Dimas argues that the bankruptcy court misin-
terpreted 1600 South’s operating agreement. Speciﬁcally, he
insists that the operating agreement’s plain language pre-
cludes an implied-in-fact contract to equalize capital contri-
butions. He also contends that the bankruptcy court erred
when it relied on extrinsic evidence to ﬁnd an implied-in-fact
contract existed among 1600 South’s partners. We disagree,
and thus aﬃrm.
                              I
    In 2006, George Stergiadis, Christos Dimas, and Dean
Theo decided to open a fruit market in Libertyville, Illinois.
So the three formed 1600 South LLC, executed an operating
agreement, purchased land on which to build the market, and
began construction. But the 2008 recession created financial
difficulties for 1600 South that stopped construction of the
market and eventually led to the LLC’s dissolution in 2009.
Thus began a protracted fight over the financial obligations
each member owed to the others.
No. 20-1196                                                  3

   One front in that fight, and the one presented here, con-
cerns whether the partners impliedly agreed to equalize their
capital contributions to 1600 South (what we refer to as the
“equalization agreement”). Whether the parties agreed to
equalize capital contributions depends, in large part, on the
1600 South operating agreement (the “Agreement”).
    The Agreement provided that Dimas, Stergiadis, and Theo
were 1600 South’s sole members, each holding a one-third
membership interest in the LLC, and 1600 South’s profits and
losses were shared according to ownership interest (that is,
equally). The Agreement also provided that each member
agreed to make an initial capital contribution on the date of
execution. To that end, the Agreement listed each member’s
name followed by a dollar sign and a blank line. However, in
the executed Agreement, those lines were left blank. If 1600
South needed more capital, the Agreement allowed each
member to loan “monies” to the LLC. The Agreement then
noted that any member “shall not be entitled … to a return on
any capital contribution” except as provided in the Agree-
ment. And, if dissolved, the members “shall look solely to the
assets” of 1600 South “for the return of his … Capital Contri-
bution.”
    The legal battle began in 2008 in Illinois state court when
Stergiadis sued Dimas for breach of contract, asking for dam-
ages in the amount Stergiadis thought Dimas owed him to
equalize the capital contributions to 1600 South. Before the
case was resolved, however, Dimas ﬁled for bankruptcy, trig-
gering the Bankruptcy Code’s automatic stay and pausing the
state court litigation. From 2010 to 2015, Dimas ﬁled six such
petitions, none of which resulted in discharge. In 2016, Dimas
ﬁled his seventh petition and received a discharge that year.
4                                                         No. 20-1196

But the discharge was not the end of the story. The United
States Trustee moved to reopen the bankruptcy to recover the
value of an undisclosed property. 1 The bankruptcy court
agreed, and Stergiadis ﬁled a proof of claim in Dimas’s reo-
pened bankruptcy case seeking the same amount he was seek-
ing in the state court litigation. Dimas objected to the claim,
and the bankruptcy court held an evidentiary hearing.
    The hearing shed some light on each partner’s initial con-
tributions to 1600 South. The LLC obtained a $3,690,000 loan
from Broadway Bank to buy and develop the property for the
fruit market. Dimas testified that, at the loan closing, he made
an initial capital contribution of $400,000 to 1600 South, while
Stergiadis contributed $390,000 and Theo contributed
$189,200. In addition, Dimas pledged as collateral for the loan
his 3420 West Devon restaurant property. The Devon prop-
erty’s value is disputed. Dimas asserts that it was worth $1.2
million based on a $2,000,000 valuation in a loan summary
and an existing mortgage on the property of $800,000. The
bankruptcy court also heard evidence on the partners’ other
contributions to 1600 South. Stergiadis furnished $1,058,000
in cash and pledged an unencumbered 59th Street property to
obtain a $425,000 line of credit. The line of credit was ex-
hausted and all $425,000 was put into 1600 South. Dimas, for
his part, paid $135,000 as part of an effort to secure financing
for a construction loan. Dimas testified that he paid Theo
$250,000 for construction costs for the LLC, but 1600 South’s
accountant did not record the payment. Dimas also paid
$32,000 in attorneys’ fees for work related to 1600 South.

1 During his bankruptcy proceedings, Dimas failed to disclose that he was

the sole owner of a restaurant at 3420 Devon.
No. 20-1196                                                              5

    Mark Argianis, 1600 South’s accountant, testified about
the members’ capital contributions. Argianis referenced a
2008 general ledger he prepared that listed each member’s
capital account. The ledger reflected that Dimas contributed
$200,217, Theo contributed $1,094,686.97, and Stergiadis con-
tributed $1,058,487. Argianis then testified that Stergiadis’s
balance should be increased to reflect the $425,000 drawn on
the line of credit Stergiadis secured on the 59th Street prop-
erty and that Theo’s capital account should be reduced by
$320,000 to reflect a $150,000 salary that Theo received for two
years without approval and a $20,000 contribution that Theo
never substantiated. In sum, then, Argianis testified that Ster-
giadis’s contributions totaled $1,483,487, Theo’s totaled
$774,868, and Dimas’s totaled $200,717. Stergiadis’s wife, Ka-
terina, also testified. She recorded Stergiadis’s contributions
to 1600 South and reviewed the bank statements, deposits,
and checks from Broadway Bank. Before Argianis prepared
his ledger, she met with Argianis to discuss the documents in
her possession that related to 1600 South. Adding all contri-
butions together and dividing that sum by three, the “equal-
ized” contribution amount for each member was $819,691.
    The bankruptcy court found that Argianis and Katerina
testified “very credibly,” but found that Dimas had “no cred-
ibility,” noting that he “may have concealed” sale proceeds he
received related to the undisclosed property in his bank-
ruptcy case, pointing to his failure to list his ownership inter-
est in that property in his bankruptcy schedules. 2

2 During his bankruptcy proceedings, Dimas remained the sole share-
holder of a restaurant at 3420 Devon, which he did not disclose in his
bankruptcy case. The property on which the restaurant sat served as col-
lateral for the $3,690,000 Broadway Bank loan. In 2014, as a result of 1600
6                                                          No. 20-1196

    Following the hearing, the bankruptcy court rejected Di-
mas’s objection and allowed Stergiadis’s claim, awarding
$618,974. The court held that the members had an implied
equalization agreement concerning all capital contributions to
1600 South. The court noted that Illinois law recognizes im-
plied contracts, and Dimas’s choice to list a “$32,000 equaliz-
ing contribution claim as an asset against his former partners”
in his 2010 bankruptcy was evidence of such a contract. The
court also rejected Dimas’s argument that the claim amount
should be reduced because Dimas had pledged his ownership
interest in the 3420 Devon property as collateral, finding that
Dimas did not make direct cash contributions to the partner-
ship.
    Dimas appealed to the district court, and the district court
aﬃrmed. In doing so, the district court held that the bank-
ruptcy court properly relied on extrinsic evidence to ﬁnd an
equalization agreement. The court ﬁrst discussed the blank
lines in the Agreement under the initial contributions provi-
sion. It noted that the initial contributions provision was am-
biguous, but that this ambiguity did not render the Agreement,
as a whole, ambiguous (such that reference to extrinsic evi-
dence was justiﬁed). Nevertheless, the court reasoned that the

South’s dissolution, MB Financial (which had acquired Broadway Bank)
foreclosed on 3420 Devon, which was sold at auction for $810,000 to
Jimmy Boussis. But even after the foreclosure sale, Dimas still owned and
operated the restaurant business on the 3420 Devon property. About one
month after Dimas received his discharge, Boussis sold the 3420 Devon
property for about $2 million, and Dimas vacated the restaurant. $825,000
of the sale proceeds were transferred to Dimas. The facts surrounding this
transfer are cloudy (to be generous).
No. 20-1196                                                      7

Agreement was incomplete; accordingly, the bankruptcy
court appropriately—under Illinois law—considered extrin-
sic evidence to hold that the members entered into the equal-
ization agreement. In support, the district court pointed to the
absence of an integration clause in the Agreement and noted
that nothing in the Agreement “suggest[s] that the document
constitutes the entire agreement among the parties.” It also
highlighted Dimas’s admission that the members had entered
into a side agreement to reimburse Dimas for legal fees he
paid on behalf of 1600 South. And the court relied upon the
Agreement’s loan provision, which noted that members “will
later agree on the terms of loans made” to 1600 South “for fur-
ther capital contributions.”
                                II
    Dimas challenges the bankruptcy court’s interpretation of
the Agreement and its factual finding that the members en-
tered into an equalization agreement. “[W]e review the bank-
ruptcy court’s factual findings for clear error and the legal
conclusions of both the bankruptcy court and the district
court de novo.” In re Chlad, 922 F.3d 856, 861 (7th Cir. 2019); see
Ojeda v. Goldberg, 599 F.3d 712, 716 (7th Cir. 2010) (“When re-
viewing a question that had its origination in a bankruptcy
court, as opposed to in a district court, our review focuses on
the bankruptcy court's actions.”). A factual finding is clearly
erroneous only where we are “left with the definite and firm
conviction that a mistake has been committed.” In re Velu-
chamy, 879 F.3d 808, 814 (7th Cir. 2018). “Where there are two
permissible views of the evidence, the factfinder’s choice be-
tween them cannot be clearly erroneous.” Brnovich v. Demo-
cratic Nat’l Comm., 141 S. Ct. 2321, 2349 (2021) (quotation omit-
ted).
8                                                              No. 20-1196

                                      A
    Dimas first argues that the Agreement’s plain language
prohibits 1600 South’s members from entering into an equal-
ization agreement because the terms unambiguously provide
that a member’s exclusive remedy for return of their capital
contributions was 1600 South’s assets. According to Dimas,
the bankruptcy court thus erred when it considered extrinsic
evidence to find an equalization agreement among the mem-
bers. Alternatively, Dimas asserts that the Illinois Limited Li-
ability Corporation Act’s default rules govern, and those rules
foreclose an implied equalization agreement. 3
                                      1
     We review the bankruptcy court’s interpretations of the
Agreement de novo. Sourus L.L.C. v. Bolson Materials Int’l
Corp., 905 F.3d 1009, 1011 (7th Cir. 2018). The parties agree
that Illinois law governs. Under Illinois law, courts must in-
terpret a contract with the “primary objective” of giving “ef-
fect to the intention of the parties.” Thompson v. Gordon, 948
N.E.2d 39, 47 (Ill. 2011). When a party attempts to offer evi-
dence extrinsic to a written agreement to explain the parties’
intent, Illinois courts look to two rules—the four corners rule
and the parol evidence rule—to decide whether to consider
the evidence. Eichengreen v. Rollins, Inc., 757 N.E.2d 952, 956
(Ill. App. 2001). Illinois courts apply the four corners rule “in

3 Under Stern v. Marshall, 564 U.S. 462 (2011), bankruptcy judges lack the
constitutional power to enter a final judgment on a state law claim. See
also Matter of Anderson, 917 F.3d 566, 573 (7th Cir. 2019). Stern arguments,
however, can be forfeited, see Wellness Int’l Network, Ltd. v. Sharif, 575 U.S.
665, 679 (2015), and neither party raised Stern before the bankruptcy court,
the district court, or this court. So we do not address it here.
No. 20-1196                                                      9

cases where a contract is facially unambiguous and contains an
express integration clause.” Id. at 956–57. Because the Agree-
ment does not contain an express integration clause, we apply
the parol evidence rule.
     Under the parol evidence rule, a court must generally ex-
clude “evidence of understandings, not reflected in a writing,
reached before or at the time of [a written agreement’s] exe-
cution which would vary or modify its terms.” J & B Steel Con-
tractors, Inc. v. C. Iber & Sons, Inc., 642 N.E.2d 1215, 1217 (Ill.
1994). But, to invoke the rule, the written agreement must be
a “fully integrated writing,” Geoquest Prods., Ltd. v. Embassy
Home Ent., 593 N.E.2d 727, 730 (Ill. App. 1992); that is, the
written agreement is the “complete and unambiguous agree-
ment of the parties.” Ireland v. Esposito, 417 N.E.2d 738, 743
(Ill. App. 1981); see Armstrong Paint & Varnish Works v. Cont’l
Can Co., 133 N.E. 711, 713 (Ill. 1921); see Eichengreen, 757
N.E.2d at 957–58. To determine whether a written agreement
is fully integrated, a court may only look to that agreement. J
& B Steel Contractors, Inc., 642 N.E.2d at 1218–19 (reaffirming
Armstrong Paint). And whether an agreement is fully inte-
grated is the “threshold question for the application” of the
parol evidence rule. Pecora v. Szabo, 418 N.E.2d 431, 436 (Ill.
App. 1981).
    The plain language of the Agreement does not demon-
strate that it was the complete expression of 1600 South’s
members’ agreement. As discussed, the Agreement lacks an
integration clause and the plain language of the Agreement
does not convince us that it was the complete agreement of
the members. Take, for example, the Agreement’s loan provi-
sion. That provision states that loans to 1600 South would be
made “on terms and conditions to be agreed upon by [1600
10                                                          No. 20-1196

South] and the Members.” The phrase “to be agreed upon”
expresses an intention to reach an arrangement for which the
Agreement does not explicitly provide. And take the initial
contributions provision. By providing lines next to each mem-
ber’s name, the Agreement contemplated that each member
would provide a stated and agreed-upon amount of initial
capital contributions to 1600 South. But, of course, those lines
were left blank.
    The provisions Dimas identifies do not persuade us other-
wise. Dimas points to a provision in the Agreement that limits
members’ recovery upon dissolution, and argues that because
this provision is not ambiguous, the door is not open for ex-
trinsic evidence. 4 While this provision is not ambiguous, it
does not foreclose the possibility that members could also
agree to equalize contributions. So alone, that provision can-
not provide a basis to exclude extrinsic evidence on the sepa-
rate topic of whether capital contributions must be equalized.
In sum, the bankruptcy court did not err when it considered
evidence extrinsic to the Agreement.
                                    2
    Dimas argues in the alternative that the Illinois LLC Act
prohibits an implied equalization agreement, pointing to 805
ILL. COMP. STAT. 180/10-10(a) and (d). But those provisions
concern the “debts, obligations, or liabilities of the company,”
not of the members. Although Dimas characterizes Stergi-
adis’s claim as an attempt to recover contributions Stergiadis
made to 1600 South in order to invoke these provisions,

4The provision in the Agreement reads, “Upon dissolution, the Members
shall look solely to the assets of the Company for the return of his or her
Capital Contribution.”
No. 20-1196                                                         11

Stergiadis’s equalization claim seeks recovery from its mem-
bers, not from 1600 South. So we reject Dimas’s argument
based on the Illinois LLC Act.
                                  B
    Dimas next argues that several of the bankruptcy court’s
factual findings were clearly erroneous. Specifically, he con-
tends that the bankruptcy court had insufficient evidence to
find that there was an equalization agreement; that, when de-
termining each member’s contributions to 1600 South, the
court failed to credit Dimas with the value of the pledged
property at 3420 Devon while giving credit to Stergiadis for
the $425,000 drawn on the 59th Street property line of credit,
and should not have considered Stergiadis’s claim amounts
that lacked documentation; that the court incorrectly found
Dimas not credible; that the equalization agreement essen-
tially, and improperly, reforms the Agreement; and that the
bankruptcy court admitted inadmissible evidence at the evi-
dentiary hearing. Dimas did not raise his reformation or ad-
missibility of evidence arguments below and gives no reason
why we should address them now. See Henry v. Hulett, 969
F.3d 769, 785–86 (7th Cir. 2020) (en banc). We address Dimas’s
remaining arguments in turn. 5
                                  1
   Dimas’s insufficient evidence argument proceeds in two
parts. First, Dimas asserts that an implied contract must have
the same elements as an express contract, and the bankruptcy
court’s fact findings do not support each element. Second,

5 The district court and both parties address these arguments under the
clear error standard. We do as well.
12                                                 No. 20-1196

Dimas argues that Illinois courts generally disfavor finding an
implied contract when an express contract exists.
     On the first argument, Dimas contends, in essence, that the
bankruptcy court’s finding that Dimas attempted to extract
equalized contributions for $32,000 in attorneys’ fees he paid
on behalf of 1600 South does not support the inference that
the members entered into an equalization agreement. But the
entire record below counsels otherwise. Dimas testified that
he sought equal contributions from Stergiadis and Theo for
the $32,000 payment, noting that it was based on an agree-
ment to divide that contribution into equal shares among the
members. There was testimony from Argianis, supported by
1600 South’s K-1s, that the members divided equally the prof-
its, losses, and capital, and the bankruptcy court found Argi-
anis’s testimony very credible. And, of course, Stergiadis tes-
tified that the members had an implied equalization agree-
ment. So we reject Dimas’s argument.
     Dimas’s second argument improperly relies on a general
principal that Illinois policy disfavors implied covenants to
suggest that Illinois law disfavors finding an implied equali-
zation agreement. See Beraha v. Baxter Health Care Corp., 956
F.2d 1436, 1441–42 (7th Cir. 1992) (collecting cases). Although
this argument presents a question of law, Dimas presents it
under a challenge to the bankruptcy court’s factual findings.
And he frames it under a clear error standard of review, so
any argument for an alternative standard of review on this
issue is forfeited. No matter the standard, we reject the argu-
ment. Dimas asks the court to generalize a narrow policy in
Illinois law, disfavoring finding implied covenants within ex-
press contracts, and hold that it applies broadly to disfavor
any implied agreements. Dimas offers no case to support that
No. 20-1196                                                     13

much broader principle, and we decline to extend the princi-
ple so broadly here.
                                2
    Dimas next contends that the bankruptcy court erred in
finding him not credible. We are “especially deferential to-
ward [the] trial court’s assessment of witness credibility.”
First Weber Grp. v. Horsfall, 738 F.3d 767, 776 (7th Cir. 2013).
    The only reason Dimas offers for disturbing the bank-
ruptcy court’s credibility assessment is that the court was mis-
informed about the circumstances of his prior bankruptcies.
In support, he asks us to take judicial notice of the fact that his
former attorney in those bankruptcies has been recom-
mended for disbarment. But we need not resolve Dimas’s re-
quest concerning his former representation. The bankruptcy
court premised its credibility determination on Dimas’s fail-
ure to disclose more than $800,000 in assets in the present
bankruptcy, not his former attorney’s conduct in the previous
bankruptcy filings. We have no reason to disturb the bank-
ruptcy court’s finding that Dimas “had no credibility.”
                                3
    Finally, Dimas contends that, assuming the existence of an
implied equalization agreement, the bankruptcy court erred
in calculating the value of those contributions. Specifically,
Dimas insists that he should receive credit for $1.2 million re-
lated to the 3420 Devon property’s value because it was
pledged in 2006 to secure the Broadway Bank loan for 1600
South and Stergiadis got credit for what Dimas claims is a
similar contribution.
   But the contributions are not similar. Neither party dis-
putes that Dimas initially pledged his 3420 Devon property as
14                                                  No. 20-1196

collateral for the Broadway Bank loan or that Stergiadis
pledged his 59th Street property to obtain a $425,000 line of
credit. But that’s where the similarity ends. The entire line of
credit on Stergiadis’s property was drawn and all the funds
went into 1600 South. This is why Argianis testified that Ster-
giadis should receive a $425,000 credit to his capital contribu-
tion account. Dimas, meanwhile, merely used the 3420 Devon
property as collateral for the Broadway Bank loan. He did not
contribute any capital drawn from the value of the property.
Furthermore, while both properties were sold when 1600
South went under, Dimas does not dispute that all the pro-
ceeds from the 59th Street property went to the Broadway
Bank loan, whereas the proceeds from the 3420 Devon prop-
erty were used to cover that property’s first mortgage. Unlike
Stergiadis, who pledged a property that was unencumbered,
there was no excess value in Dimas’s property to contribute
to the 1600 South loan after it sold in foreclosure at a sum cov-
ering only the first mortgage. So the bankruptcy court did not
clearly err when it credited Stergiadis with a $425,000 capital
contribution but did not credit Dimas for a $1.2 million con-
tribution.
    Dimas insists that because the 3420 Devon property
changed hands again after the foreclosure sale for a higher
value, he should get credit at this higher valuation as part of
his capital contribution. But this proof is not relevant to the
capital contribution calculations. First, this latter sale in-
cluded both the restaurant and the real property at 3420
Devon. This difference could account for the higher price, and
Dimas provides no evidence to the contrary, so it sheds no
light on what the pledged property was worth separately. But
even if it did, at no point did 1600 South draw any equity from
this property, at any valuation. And nor did that higher
No. 20-1196                                                  15

valuation get reflected at the time it would have mattered: at
the foreclosure sale when proceeds would have gone to the
loan for 1600 South. Any transaction after this sale would not
be to the benefit of 1600 South (indeed, Dimas pocketed
$825,000 and 1600 South got nothing), and so the valuation in
a latter transaction is irrelevant. In sum, there is no evidence
that any proceeds from that latter sale ever went toward sat-
isfying 1600 South’s loan with Broadway Bank. Dimas pro-
vides no argument to the contrary.
    Dimas’s second argument fares no better. Although the
contributions Dimas identifies from Stergiadis to 1600 South
are absent from the accountant Argianis’s general ledger, Ka-
terina testified that Stergiadis made each contribution and
presented some documentary evidence of at least one of them.
As discussed, the bankruptcy court found Katerina a credible
witness, and credited her testimony. Dimas offers no compel-
ling reason why that credibility determination was clearly er-
roneous. So we reject his argument concerning Stergiadis’s
capital contributions.
                                                     AFFIRMED