Court Opinion

ID: 4355553
Source: CourtListenerOpinion
Date Created: 2019-01-02 18:00:19.712264+00
Date Added: 2024-06-11T14:46:19.991790
License: Public Domain

NONPRECEDENTIAL DISPOSITION
                To be cited only in accordance with Fed. R. App. P. 32.1

               United States Court of Appeals
                                For the Seventh Circuit
                                Chicago, Illinois 60604

                            Submitted September 21, 2018 *
                               Decided January 2, 2019

                                        Before

                    MICHAEL S. KANNE, Circuit Judge

                    DIANE S. SYKES, Circuit Judge

                    DAVID F. HAMILTON, Circuit Judge

No. 18-2862

IN RE: EMERALD CASINO, Inc.                    Appeal from the United States District
      Debtor,                                  Court for the Northern District of
                                               Illinois, Eastern Division.
FRANCES GECKER, as Trustee for
Emerald Casino, Inc.,                          No. 11 C 4714
     Plaintiff-Appellee,
                                               Rebecca R. Pallmeyer,
      v.                                       Judge.

ESTATE OF KEVIN FLYNN, et al.,
     Defendants-Appellees.

Appeal of DONALD F. FLYNN,
SHANNON E. FLYNN, and BRENDAN
E. FLYNN,
      Intervenors-Appellants.

      *
          After examining the briefs and record, we have concluded that oral argument is
unnecessary. Thus the appeal is submitted on the briefs and record. See FED. R. APP. P.
34(a)(2).
No. 18-2862                                                                        Page 2

                                        ORDER

       After the Illinois Gaming Board revoked Emerald Casino’s gaming license, the
company filed for bankruptcy. The bankruptcy trustee initiated an adversary
proceeding against several former Emerald officers, directors, and shareholders for
breach of contract and breach of fiduciary duties. The district court found four of those
defendants severally liable, including the estate of Kevin Flynn. The defendants
appealed. In May 2016, while that appeal was pending, the bankruptcy trustee served
citations to discover assets on Susan Flynn (Kevin Flynn’s widow) and others.

       Those citations were necessary, in part, because the Flynns’ financial holdings are
complex. Before we detail some of those holdings, we note that the parties fiercely
dispute many aspects of the structure and legal effect of the trusts. In summarizing the
trusts at issue, we offer no opinion regarding their legality or enforceability.

        Among other assets, the bankruptcy trustee sought information regarding an
appointive trust for which Susan served as trustee. Kevin created and funded the
Appointive Trust via two other trusts. In 1992, Kevin’s father, Donald Flynn, created an
irrevocable trust (with a spendthrift provision) which designated Kevin as the trustee
and initial primary beneficiary. The 1992 trust granted Kevin limited testamentary
power of appointment. In 1995, Kevin created a revocable trust, designating himself as
the sole trustee and beneficiary.

       Kevin’s will directed that the residue of his estate, including the assets in the
1992 trust, be distributed to the trustee of the 1995 trust and then administered as that
document directed. After Kevin’s death, and pursuant to the terms of the 1995 trust,
“approximately $90 million was transferred from the 1992 Trust” to an appointive trust.
(Appellant’s Br. at 9.) The terms of the Appointive Trust directed Susan, the trustee, to
distribute the income and principal as necessary for the health, support, and education
of herself and her four children.

        Susan moved to dismiss the citations. On December 2, 2016, the district court
denied that motion and ordered the movants to comply with the requested discovery.
In its decision, the district court emphasized that it was “not ordering the transfer of
any assets.” (R. 516 at 13.) Rather, with respect to the Appointive Trust, the court simply
intended its ruling to “permit[] the Trustee to … determine whether the Appointive
Trust contains only uncollectable assets.” (Id.)
No. 18-2862                                                                         Page 3

        After the district court’s ruling, the bankruptcy trustee commenced the laborious
process of filing supplemental citations and compelling complete discovery. On August
11, 2017, while the discovery process continued, we held that the defendants were
jointly and severally liable (instead of just severally liable) but affirmed on all other
grounds. Following that appeal, the judgment against the Estate totaled approximately
$220 million. In October 2017 and February 2018, the district court ordered Susan to
produce responsive documents. The third round of document production ended in June
2018. On June 4, 2018, the bankruptcy trustee filed a motion to compel turnover of the
assets in the Appointive Trust. The district court set trial for January 7, 2019, and froze
the Appointive Trust.

        Susan’s adult children, Donald, Shannon, and Brendan Flynn, moved to
intervene on July 30, 2018. They argued that the Turnover Motion threatened their
interests because, if granted, the Appointive Trust would lack assets to support them
and because their mother was not adequately representing their interests. The district
court denied the motion after holding a hearing on August 2, 2018. The hearing
transcript reveals that the district court denied the motion for two reasons. First, the
district court concluded that the children filed the motion at their mother’s request. (R.
805 at 10 (“It sounds like, from the testimony [of Shannon Flynn], that it was her
mother’s idea.”)). Second, the district court wondered “why didn’t the children jump
into this months ago?” (Id. at 12.) When counsel for the children suggested that the
children were unaware of their interests until June 2018, the court summarily denied
intervention. The intervenors appealed several weeks later.

        “Rule 24 provides two avenues for intervention, either of which must be pursued
by a timely motion.” Grochocinski v. Mayer Brown Rowe & Maw, LLP, 719 F.3d 785, 798
(7th Cir. 2013). We consider four factors in determining whether a motion is timely: “(1)
the length of time the intervenor knew or should have known of his interest in the case;
(2) the prejudice caused to the original parties by the delay; (3) the prejudice to the
intervenor if the motion is denied; (4) any other unusual circumstances.” Sokaogon
Chippewa Cmty. v. Babbitt, 214 F.3d 941, 949 (7th Cir. 2000). “We review the district
court’s decision on timeliness for an abuse of discretion.” Reich v. ABC/York-Estes Corp.,
64 F.3d 316, 321 (7th Cir. 1995).

        The initial question is when the Flynn children knew or should have known of
their interest in this supplemental proceeding. They argue that the bankruptcy trustee’s
exploratory efforts to evaluate potential assets did not necessitate intervention. Rather,
the movants contend that the threat to their interests did not materialize until the
No. 18-2862                                                                           Page 4

bankruptcy trustee filed the Turnover Motion. But our cases articulate a different
standard for measuring timeliness. “We determine timeliness from the time the
potential intervenors learn that their interest might be impaired.” Reich, 64 F.3d at 321
(emphasis added); see also Heartwood, Inc. v. U.S. Forest Serv., Inc., 316 F.3d 694, 701 (7th
Cir. 2003) (same). When a putative intervenor learns of an interest in a case but decides
against intervention, they run the risk of an adverse outcome down the road. See
Grochocinski v. Mayer Brown Rowe & Maw, LLP, 719 F.3d 785, 798 (7th Cir. 2013)
(affirming the denial of a motion to intervene as untimely because the movant knew the
district court granted discovery on the defense but did not move to intervene until after
the court granted summary judgment); Sokaogon Chippewa Cmty. v. Babbitt, 214 F.3d 941,
949 (7th Cir. 2000) (“If the [intervenor] wanted a voice in the litigation, it should have
asked the district court to allow it to intervene much sooner.”). The intervenors took
that risk here. The May 2016 citations and district court’s December 2016 order both
made clear that the bankruptcy trustee intended to seek turnover of the assets in the
Appointive Trust. Given their manifest interest in the Appointive Trust assets and their
mother’s extensive involvement in the supplemental bankruptcy proceedings, the
movants should have known of their interest from at least December 2016.

       The next two considerations involve the prejudice to the existing parties and
proposed intervenors. The bankruptcy trustee argues that intervention would prejudice
it because the time for discovery has passed and trial is imminent. While the
bankruptcy trustee received an opportunity to depose some of the intervenors during
discovery, the scope of questioning would likely have been broader if they had been
parties. And intervention would likely require an adjournment of trial, especially if the
court reopens discovery.

        The movants argue that the district court’s order will prejudice them because
they will be unable to raise a contingent counterclaim and defense. Specifically, if the
bankruptcy trustee succeeds in arguing “that the transfer of assets from the 1992 Trust
to the Appointive Trust made those assets subject to creditors,” then the intervenors
will argue that “the transfer was void under the provisions of the 1992 Trust and, as a
result, the assets should revert back to the 1992 Trust.” (Appellant’s Br. at 38.) Susan is
not a beneficiary of the 1992 Trust. For that reason, the movants assume that Susan
cannot raise this argument herself, but that assumption is unsupported. First, Susan
has, in fact, already raised that argument. (See R. 785 at ¶ 30.) Second, Susan and her
children share the “same ultimate objective.” Meridian Homes Corp. v. Nicholas W. Prassas
& Co., 683 F.2d 201, 205 (7th Cir. 1982). They wish to maintain the assets in the
Appointive Trust, and if not in the Appointive Trust then within the family. Finally, to
No. 18-2862                                                                          Page 5

the extent there is a question regarding whether Susan possesses standing to make this
argument, that issue is presently unresolved. The bankruptcy trustee believes Susan
does have standing (because she is the legal guardian of her fourth, minor, child) and the
district court has not opined on this issue. The intervenors’ assertion of prejudice is thus
theoretical. See Southmark Corp. v. Cagan, 950 F.2d 416, 418 (7th Cir. 1991) (“[T]he court
below has not yet decided that [the defendant] has no standing to pursue these claims,
and it is premature to assume that it will do so.”). At present, the bankruptcy trustee
would suffer more prejudice from intervention than the movants will suffer from denial
of intervention.

       Finally, the district court was within its discretion to conclude that there were
unusual circumstances which supported denial of the motion. The request for
intervention came several years into protracted and contentious bankruptcy
proceedings. The intervenors admitted that they moved to intervene at their mother’s
suggestion. (R. 805 at 5.) In fact, the motion to intervene came six weeks after the district
court found that another of Kevin Flynn’s asset transfers—this one to Susan directly—
was constructively fraudulent. See In re Emerald Casino, Inc., No. 11 C 4714, 2018 WL
2967020 (N.D. Ill. June 13, 2018). Against this factual backdrop, the district court could
have reasonably concluded that the motion to intervene represented an attempt to delay
and obstruct proceedings, not a good-faith attempt to vindicate unrepresented interests.

       Because the motion to intervene was untimely, the district court did not abuse its
discretion by denying it. AFFIRMED.