Court Opinion

ID: 3147211
Source: CourtListenerOpinion
Date Created: 2015-10-22 18:27:51.846037+00
Date Added: 2024-06-11T11:55:16.788193
License: Public Domain

FIFTH DIVISION
                                                                            NOVEMBER 20, 2009

                                          No. 1-08-2998

                                         IN THE
                              APPELLATE COURT OF ILLINOIS
                                FIRST JUDICIAL DISTRICT

LESTER MUNSON and JUDITH MUNSON,                      )       Appeal from the
                                                      )       Circuit Court of
               Plaintiffs-Appellees,                  )       Cook County.
                                                      )
       v.                                             )       No. 06 CH 3838
                                                      )
SUSAN RINKE,                                          )
                                                      )
               Defendant-Appellant                    )
                                                      )
                                                      )
(James P. Whitmer,                                    )
                                                      )
               Defendant).                            )       Honorable
                                                      )       Mary K. Rochford,
                                                      )       Judge Presiding.

       JUSTICE TULLY delivered the opinion of the court.

       This appeal arises from a fraudulent transfer action that was commenced by Lester and

Judith Munson against Susan Rinke and her husband, James Whitmer. After a trial, the trial court

entered a judgment in the amount of $38,000 against Rinke on count II, constructive fraud, of

plaintiffs' complaint. On appeal, Rinke contends that: (1) the Munsons' action for fraudulent

transfer was barred as a result of Whitmer's prior bankruptcy proceeding; (2) the Munsons' action

was barred as a matter of law by the doctrine of res judicata; and (3) the trial court's decision was

unsupported by the evidence and therefore made in error.
1-08-2998

       The instant action is related to a separate 1994 action where Whitmer filed a complaint

alleging that the Munsons interfered with certain contracts regarding construction work to be

done on Whitmer's property. Subsequently, in June 1994, the Munsons made a motion for

sanctions against Whitmer pursuant to Supreme Court Rule 137. 155 Ill. 2d R. 137. After

extensive litigation, the circuit court ultimately granted a permanent injunction to prohibit the

construction work that was at issue on Whitmer's property. On May 14, 2001, Whitmer

voluntarily dismissed his complaint and the circuit court denied the Munsons' request for

sanctions. The Munsons appealed the ruling. On November 27, 2002, this court reversed the

trial court's order denying the Munsons' motion for sanctions and ordered the trial court to impose

sanctions upon Whitmer. Whitmer v. Munson, 335 Ill. App. 3d 501 (2002).

       Subsequently, on February 19, 2003, Whitmer transferred the title of his 1994 Ford F-250

pickup truck (Ford) and his 1999 Lincoln Navigator (Lincoln) from himself to his wife, Rinke.

On that same day, Rinke wrote Whitmer a $29,000 check for the purchase of the Lincoln and a

$9,000 check for the purchase of the Ford. Six days later, Rinke deposited a $36,550.37 check

from her individual retirement account (IRA) into her bank account to cover those two checks.

On April 23, 2003, Rinke deposited funds provided by Whitmer in the amount of $36,551 into her

bank account and used those funds to purchase an annuity for $36,550.37 to replace the IRA she

liquidated to purchase the vehicles from Whitmer. On August 14, 2003, in accordance with the

November 27, 2002, appellate court order, the trial court entered judgment in favor of the

Munsons and sanctioned Whitmer in the amount of $173,253.14 in fees and costs incurred.

       In October 2003, Whitmer filed for relief under chapter 11 of the United States

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Bankruptcy Code. On April 28, 2005, the Munsons sought relief in the bankruptcy court pursuant

to section 523(a)(6) of the United States Bankruptcy Code (11 U.S.C. §523(a)(6) (2000)),

seeking a declaration of nondischargeability of the $173,253.14 judgment debt, which was

granted.

       On February 24, 2006, the Munsons (plaintiffs) filed a complaint for avoidance of the

fraudulent transfers of the Ford and Lincoln, which is the underlying action in this appeal. The

complaint claimed that the transfers of the vehicles on February 19, 2003, amounted to actual

fraud or, alternatively, constructive fraud.. Plaintiffs filed their first motion for summary judgment

on September 7, 2006. The motion was based upon Whitmer and Rinke's (defendants) failure to

file timely and proper responses to plaintiffs' requests for admissions of facts. The trial court

ultimately allowed defendants to respond to the requests, rendering the motion for summary

judgment moot. Plaintiffs filed their second motion for summary judgment in November 2007,

arguing that the pleadings revealed that defendants admitted the allegations demonstrating most of

the "badges of fraud." The defendants subsequently responded and filed a cross-motion for

summary judgment. After the matter was briefed, the trial court heard oral arguments and took

the matter under consideration. On June 6, 2008, the trial court denied both plaintiffs' and

defendants' motions for summary judgment in a written opinion. The written opinion rejected

defendants' arguments that plaintiffs' action was barred under res judicata and a trial was set for

September 30, 2008.

       At trial, Whitmer testified that he transferred his two vehicles to Rinke because he wanted

to stop driving due to health reasons and that Rinke needed the cars for her work. However, both

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vehicles remained at the home shared by Whitmer and Rinke.

       Rinke testified that her accountant, Dan Pickart, informed her that the withdrawal from

her IRA to fund the $36,550.37 purchase of Whitmer's vehicles would cause her to incur an

adverse tax penalty. Because of this, Whitmer then borrowed funds from his home equity line at

Northern Trust Bank so that Rinke could refund her IRA. Rinke deposited $36,551 in her bank

account and used the funds to purchase a new annuity to replace the IRA she had previously

liquidated. At trial, defendants claimed that the $36,551 was a loan from Whitmer to Rinke. A

document entitled "Promissory Note" was executed on April 15, 2003, between Rinke and

Whitmer which indicated that Rinke promised to pay Whitmer $36,551 with no interest by paying

"incoming bills due to James Whitmer/Chicago Agency until the debt is paid in full during years

2003 - 2004." Chicago Agency was a business owned solely by Whitmer. However, over the

next two years, Rinke made direct payments to Northern Trust Bank to pay down a home equity

line. Furthermore, Whitmer testified that he was the one who wrote the checks from Rinke's

account to Northern Trust Bank and that he signed Rinke's name on the checks.

       After taking the matter under consideration, the trial court stated that the plaintiffs met

their burden under count II of the complaint, constructive fraud. The trial court entered a

judgment against Rinke in the amount of $38,000, the established value of the vehicles at the time

of the transfers. On October 7, 2008, defendants filed a motion to stay enforcement of the

judgment pending appeal. The motion was granted and an order was entered staying enforcement

of the judgment conditioned upon a $40,000 deposit by Rinke with the clerk of the circuit court.

Rinke deposited the money and this appeal followed.

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       Rinke first contends that plaintiffs' action for fraudulent transfer was barred as a result of

Whitmer's bankruptcy proceeding.

       Rinke argues that because plaintiffs failed to file a claim in Whitmer's bankruptcy court

proceeding, they waived their right to bring the instant action. Primarily, Rinke appears to argue

that creditors must file a proof of claim and that a creditor who does no submit a proof of claim is

unable to collect on that claim. Rinke cites In re Trammel, 197 B.R. 309 (Bankr. W.D. Ark.

1996), in support. However, Trammel does not stand for the proposition for which Rinke cites it

for. Trammel involved an objection by a creditor to a debtor discharge under section 727(a) of

the United States Bankruptcy Code (Code) (11 U.S.C. §727(a) (1994)). The objection was partly

based on prepetition transfers of property within one year of the debtor's bankruptcy filing.

Ultimately, a denial of discharge was deemed warranted. In the case at bar however, no objection

to discharge was made but instead plaintiffs obtained an order determining that their judgment

debt was nondischargeable under section 523 of the Code (11 U.S.C. §523 (2006)).

Furthermore, the plaintiffs acknowledge that they could have brought their fraudulent transfer

claims in bankruptcy court as the creditor did in Trammel. However, plaintiffs argue that their

failure to do so does not bar the instant action. Trammel does not address a situation where a

creditor pursued a fraudulent transfer claim outside of a bankruptcy action as is the case here.

       Rinke also argues that where creditors conceal a fraudulent transfer of the debtor from the

bankruptcy trustee and the trustee is prevented from bringing the fraudulent transfer action, the

action is forever barred. Rinke cites Wilkens v. Simon Brothers, Inc., 731 F.2d 462 (7th Cir.

1984), in support. Wilkens, however, was a case where the United States Court of Appeals

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reversed a district court's affirmance of the trial court's denial of a creditor's late claim. The case

was remanded to the bankruptcy court for a determination of whether the creditor's actions

evidenced an intent to hold debtor liable were sufficient to constitute a de facto informal filing.

Wilkens, mentions that filing periods to participate in a chapter 13 plan for unsecured claims are

"mandatory." Wilkens, 731 F.2d at 464. However, Wilkens did not discuss or involve fraudulent

transfer actions undertaken after a bankruptcy proceeding, as was the case here.

        Relevant to our analysis is Casey National Bank v. Roan, 282 Ill. App. 3d 55 (1996). In

Casey, a judgment creditor brought an action that sought to set aside the debtors' transfer of

property to their children as a fraudulent conveyance. This court held that the debtor's discharge

of personal liability for the judgment debt after the bankruptcy proceeding did not affect the

creditors' ability to bring a subsequent fraudulent transfer action in state court. The instant case

involves a similar situation, except that in Casey, the creditors were allowed to pursue a

subsequent fraudulent transfer action on a discharged debt whereas the plaintiffs in this case are

pursuing a nondischargeable debt. However, this is a distinction which we do not find to be

harmful to plaintiffs' action.

        Also instructive is Klingman v. Levinson, 158 B.R. 109 (N.D. Ill. 1993). In Klingman,

certain creditors sought to set aside an alleged fraudulent conveyance. The debtor moved for

summary judgment, arguing that the creditors had no standing once a bankruptcy petition was

filed and thus their claims were barred. However, the court held:

        "[F]raudulently transferred property does not become property of the bankruptcy estate

        until there has been a judicial determination that the property was fraudulently transferred.

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             ***. [t]he commencement of bankruptcy gives the trustee the right to pursue

        fraudulently conveyed assets to the exclusion of all creditors. [Citation]. However, the

        trustee does not retain this exclusive right in perpetuity. The trustee's exclusive right to

        maintain a fraudulent conveyance cause of action expires and creditors may step in (or

        resume actions) when the trustee no longer has a viable cause of action." Klingman, 158

        B.R. at 113.

In the instant case, the bankruptcy court adjudicated plaintiffs claim to be nondischargeable.

During the bankruptcy proceedings, the bankruptcy trustee was aware of the vehicle transfers

and, at the time, had the exclusive right to pursue the fraudulently conveyed assets. However, the

trustee ultimately did not pursue the action and therefore the plaintiffs were allowed to step in and

pursue the fraudulent conveyance cause of action. Accordingly, we find that plaintiffs were not

barred from pursuing this instant action based on the prior bankruptcy proceeding.

        In the alternative, Rinke next contends that plaintiffs' action was barred as a matter of law

by the doctrine of res judicata.

        Under the doctrine of res judicata, a final judgment on the merits rendered by a court of

competent jurisdiction acts as a bar to a subsequent suit between the parties involving the same

cause of action. River Park, Inc. v. City of Highland Park, 184 Ill. 2d 290, 302 (1998). The

following three requirements must be satisfied for the doctrine of res judicata to apply: (1) there

was a final judgment on the merits rendered by a court of competent jurisdiction, (2) there is an

identity of cause of action, and (3) there is an identity of parties or their privies. River Park, Inc.,

184 Ill. 2d at 302.

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       Rinke primarily relies on Stoll v. Gottlieb, 305 U.S. 165, 83 L. Ed. 104, 59 S. Ct. 134

(1938), arguing that the United States Supreme Court overruled the Illinois Supreme Court where

it failed to apply res judicata to an order of discharge of a debtor. In Stoll, the bankruptcy court

approved a reorganization plan for a debtor which discharged certain bonds and cancelled the

guarantees attached to them. The approval provided that all creditors of the debtor be bound by

the order. William Gottlieb, a creditor to the debtor who was to benefit from the guarantees,

brought an action in the state court to enforce the very guarantee the bankruptcy court cancelled.

Gottlieb also sought to vacate or modify the order cancelling the guarantee and filed a petition to

that effect; however, the bankruptcy court subsequently denied the petition. In the state court

action, the debtor defended by arguing that the orders of the bankruptcy court barred Gottlieb's

action under res judicata. The state court rejected the debtor's argument and granted relief to

Gottlieb. This court reversed and was in turn reversed by our supreme court. The United States

Supreme Court subsequently reversed our supreme court (thus vacating Gottlieb's state court

judgment), and found for the debtor citing the doctrine of res judicata.

       We find Stoll to be readily distinguishable. In the instant case the fraudulent transfer

claims were never raised in the bankruptcy court. The bankruptcy court in Stoll, however,

specifically addressed the guarantees which Gottlieb later disputed. Furthermore, the debtor in

Stoll was party to all relevant proceedings whereas Rinke was not a party to the bankruptcy

proceedings but instead was the subject of the instant fraudulent transfer action. In Stoll, all

requirements regarding the applicability of res judicata were satisfied. In the instant case, there is

no identity of parties. Furthermore, there is arguably no identity of a cause of action nor a

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relevant final judgment on the merits. For those reasons, we do not find that the doctrine of res

judicata is applicable here.

        In another alternative argument, Rinke contends that the trial court's decision was

unsupported by the evidence and therefore made in error.

        After reviewing Rinke's argument, it is evident that she has confused the grounds for

which the trial court based its judgment. Plaintiffs' complaint consisted of two counts, with count

I alleging actual fraud and count II alleging constructive fraud. The trial court explicitly stated

that it entered judgment as to count II, constructive fraud, of plaintiffs' complaint and therefore

did not need to consider count I. The trial court specifically relied on section 5(a)(2) of the

Uniform Fraudulent Transfer Act (Act) (740 ILCS 160/5(a)(2) (West 2006)) in rendering its

decision. On appeal, Rinke primarily argues that the trial court's decision was erroneous because

it failed to consider certain factors listed in section 5(b) of the Act. Rinke goes into considerable

detail in discussing the various factors listed under section 5(b). However, section 5(b) clearly

states that the listed factors are to be considered when one is "determining actual intent under

paragraph (1) of subsection (a)." 740 ILCS 160/5(b) (West 2006). The trial court did not base

its decision on section 5(a)(1) regarding actual fraud, but instead on section 5(a)(2), a separate

provision involving constructive fraud and unrelated to the factors listed in section 5(b). Because

Rinke's argument on appeal addresses an allegation that was not considered by the trial court, we

cannot consider it.

        However, despite Rinke's confusion in her argument on appeal, we will briefly address the

trial court's finding of constructive fraud.

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       This court applies a manifest weight of the evidence standard in reviewing a trial court's

factual findings. Loznam v. Putnam, 379 Ill. App. 3d 807, 820 (2008). A finding is against the

manifest weight of the evidence "only when an opposite conclusion is apparent or when the

findings appear to be unreasonable, arbitrary, or not based on the evidence." Eychaner v. Gross,

202 Ill. 2d 228, 252 (2002). Section 5(a)(2) provides that a transfer by a debtor can be fraudulent

if the debtor made the transfer "without receiving a reasonable equivalent value in exchange for

the transfer," and the debtor "intended to incur, or believed or reasonably should have believed

that he would incur, debts beyond his ability to pay as they became due." 740 ILCS 160/5(a)(2)

(West 2006).

       In the instant case, there was no argument that the trial court was ordered by this court to

impose Rule 137 sanctions against Whitmer in a separate action. After this court's order but prior

to the trial court's imposition of actual sanctions, Whitmer and Rinke engaged in a series of arm's-

length transactions. Whitmer transferred two vehicles to Rinke for consideration provided by her

IRA. However, Whitmer later borrowed against his home equity line and provided funds to Rinke

so that she could avoid a tax penalty by refunding the IRA she had previously liquidated. The two

subsequently executed a promissory note where Rinke was to pay Whitmer back the loaned funds

over the next two years with no interest. Rinke then allowed Whitmer to control her bank

account to pay the promissory note. Furthermore, although the promissory note indicated that

the debt was to be repaid by paying certain bills of Whitmer's company, funds were instead used

to pay down Whitmer's equity line. Essentially, Whitmer incurred more debt due to these

transactions, all of which occurred shortly after sanctions were ordered against Whitmer and

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shortly prior to Whitmer declaring bankruptcy. The trial court found that, under those

circumstances, constructive fraud was established under section 5(a)(2). After reviewing the

circumstances, we do not find that the trial court's factual determinations and decision were

against the manifest weight of the evidence. Accordingly, we find that the trial court did not err

here.

        For the foregoing reasons, we affirm the judgment of the circuit court of Cook County.

        Affirmed.

        TOOMIN, P.J., and FITZGERALD SMITH, J., concur.

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            REPORTER OF DECISIONS - ILLINOIS APPELLATE COURT

            LESTER MUNSON, and JUDITH MUNSON,

                            Plaintiffs-Appellees,

                                                     v.

            SUSAN RINKE,

                              Defendant-Appellant

            (James P. Whitmer,

                             Defendant).

                                                    No. 1-08-2998

                                            Appellate Court of Illinois
                                            First District, Fifth Division

                                                NOVEMBER 20, 2009

            JUSTICE TULLY delivered the opinion of the court:

            TOOMIN, P.J., and, FITZGERALD SMITH, J., concur.

                                 Appeal from the Circuit Court of Cook County

                                       HONORABLE MARY ROCHFORD

            Susan E. Rinke, pro se, 365 North Canal Street, of Chicago, Illinois.

            Bradley J. Axel, Robert J. Slobig, Of Counsel, Torshen Slobig, Genden,
            Dragutinovich& Axel, Ltd., 105 West Adams Street, Suite 3200, of Chicago, Illinois for
            Defendant-Appellee

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