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Wachovia Securities, LLC v Banco Panamericano, Inc.

Case No. 10-1203 (C.A. 7, Mar. 21, 2012)

To recoup about $1.9 million in margin debt from a group of businessmen once dubbed “The ‘Bad Boys’ of Chicago Arbitrage,” Wachovia Securities raised veil piercing and fraudulent transfer claims. That was shrewd because this is a particularly compelling case for both given that the district court’s generally undisputed findings—a convoluted web of entities, insider transactions, and sham loans all designed to avoid financial responsibility—soundly supported the claims.

I. Factual Background



Appellants Leon Greenblatt, Andrew Jahelka, and Richard Nichols embrace a “three men and a telephone” business style. These purported business minimalists own Loop Corp. (also an appellant) as a closely-held corporation for their real estate holdings. Loop incorporated in South Dakota in 1997 with $1,000 in paid-in capital and maintains its principal place of business in Illinois. Greenblatt (Loop’s corporate secretary) owns 50% of Loop. Jahelka (Loop’s president) owns 30%. And Nichols (Loop’s treasurer) owns 20%. Appellant Banco Panamericano, Inc. also incorporated in South Dakota and lists Illinois as its principal place of business. A Greenblatt family trust owns Banco. Greenblatt is Banco’s sole officer, director, and employee.

A focus of this appeal is a $9.9 million line of credit Banco gave Loop on January 3, 2000. In exchange, Loop gave Banco a blanket lien over Loop’s assets (once totaling an estimated $32 million) at a 12% interest rate. A promissory note and a security agreement documented this transaction. Greenblatt signed for Banco and Jahelka signed for Loop. On the same day, a handful of Loop subsidiaries entered into a participation agreement on the line of credit through which they (and other entities associated with the Loop owners) advanced $3 million to Loop. This arrangement gave the subsidiaries senior secured creditor status over Loop’s assets. Greenblatt signed for Banco and the participants and Jahelka signed for Loop. As Greenblatt admitted at trial, the now-creditor subsidiaries also functioned as collateral for the funds they loaned Loop.
 


 

Judge(s): John Tinder
Jurisdiction: U.S. Court of Appeals, Seventh Circuit
Related Categories: Conflict of Laws , Finance / Banking , Shareholder , Torts
 
Circuit Court Judge(s)
David Hamilton
Daniel Manion
John Tinder

 
Trial Court Judge(s)
Virginia Kendall

 

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the terms were quite broad. greenblatt testified that the would then turn around and lend back to loop.” supported the court’s decision: “his flippant, conde- balance at $16 or $17 million and about $1 million in status as a 50% owner of loop and sole owner of banco nal”); in re cole, no. 07-80542, 2007 wl 3302112, at *2 equity,” but without explanation or documentation sel at argument. wachovia also did not allege that loop’s legal fees and loop’s owners could not testify about ilcs 160/5(a). wachovia, 586 f. supp. 2d at 1015-16. yet after the 2002 transfer. wachovia, 586 f. supp. 2d at 1016. million. the district court deemed the documentary ting the creator of a liability and cause of the inability banco, that loop’s source of funding was tightly con- neither party refers to foreign law “in the pre-trial stages,” 16 nos. 10-1203, 10-1227 & 10-1238 removed this suit to federal court on a diversity juris- wachovia initiated arbitration (pursuant to the terms assocs., 419 f.3d 594, 600 (7th cir. 2005) (badges of fraud, that was shrewd because this is a particularly compelling related entity’s line of credit while at the same time with the district court’s decision to apply the veil totaling an estimated $32 million) at a 12% interest rate. margin account in loop’s name. as wachovia is pruden- of incorporation”); 805 ilcs 5/13.05 (prohibiting illinois fraudulent was error as confirmed by wachovia’s coun- hrmi stock plunged prompting wachovia to issue and (2) “circumstances must be such that adherence catholic bishop of chi., 175 f.3d 544, 551 (7th cir. 1999). signed for loop. as greenblatt admitted at trial, the now- iii. conclusion creditor subsidiaries also functioned as collateral for in “compensation” but never issued w-2 forms or other- an insider loan to block payment of a debt while a debt, a circumvention of the principle that when a nos. 10-1203, 10-1227 & 10-1238 25 of law when neither party objected); casio, inc. v. s.m. & r. terms did not require banco’s approval to use the funds dictional basis, answered the complaint, and filed counter- law). as the time to press the choice of law issue passed or attempting to collect, in 2002 banco extended and parent shell game, the district court did not clearly err his efforts to improperly shield loop from its creditors,” id. capitalization, “a corporation becomes a mere liability in re tardy, 18 b.r. 36, 37 (bankr. c.d. ill. 1982); (if “a note 14 nos. 10-1203, 10-1227 & 10-1238 fited from the arrangement. id. here, wachovia in no fied that loaning loop more money maximized “the trolled by one of its owners, and that loop would drain choice of law earlier. and many of the laws upon after trial, struck it under fed. r. civ. p. 37(b)(2)(a)(ii) nos. 10-1203, 10-1227 & 10-1238 21 flimsy organization to escape personal liability.” laborers’ maintained an arm’s-length relationship among related are insufficient to overcome these findings. evidence supporting the court’s findings, we also do not see idends; corporate insolvency; nonfunctioning corporate were looted after it incurred its margin debt.” id. at 1002. the district court cited evidence that others paid loop’s the complete unity of interest and ownership between the 2000 “guaranty and security agreement” as described tributing the funds (via its subsidiaries) that banco “substantially the same” as illinois’s law, and that where it subsidiaries entered into a participation agreement on that bear so heavily on the listener’s understanding of and its owners so we move to the court’s finding that debts. adhering to loop’s corporate form would banco’s sole officer, director, and employee. forms to loop’s other employees. loop originally appellants fail to show clear error in the district court’s on the district court’s arm’s-length relationship see hofmann v. hofmann, 446 n.e.2d 499, 506 (ill. 1983). to refute the district court’s finding that “loop’s assets failing to respect the corporate form. used the account to buy shares in health risk manage- lants point out that there was a lack of evidence that for the northern district of illinois, eastern division. appellants argue that the district court ignored the to scattered (owned by the loop owners) for $100,000 claim. wachovia also reduced its petition by $140,000 termine whether a unity of interest and ownership tion, it fails to disclose the extent to which” loop’s assets f. supp. 2d at 992. even if the document “had a modicum wachovia securities, llc, “free peek at how” a dispute shakes out); muslin v. we are quite confident that the district court’s findings the district court also found south dakota’s veil-piercing law4 another by the 2002 agreement. yet reading the 2002 would allow loop’s shareholders to leave wachovia loop under the same line of credit. in targeting the held by scattered corp. (owned by the loop owners). to pierce a corporation’s veil knew of and uniquely bene- reliable evidence on the dollar-for-dollar credit theory corporate veil on that alone, went on to consider evidence f.2d at 1376 & n.4; see also in re air crash disaster, 644 f.2d 594, greenblatt had neuhauser trade hrmi stock on various jobs was assisting greenblatt with an investment strategy thing other than actual fraud we will only examine supporting the dollar-for-dollar credit theory existed, not of its business. if loop’s corporate shield was not legitimate. they portray the court’s findings as a mis- dubbed payments to the loop owners as a “return of to determine “actual intent,” the district court con- file timely tax returns (and sometimes not at all), loop was in fact “really a dummy or sham for” its 1002 & n.22, 1020. loop may have maintained solvency south dakota corporations may operate with this degree nos. 10-1203, 10-1227 & 10-1238 17 disputes loop’s $1,000 paid-in capital but appellants capital and maintains its principal place of business in how the differences “change the outcome.” int’l adm’rs, 753 loop and its owners liable for wachovia’s fees. 16. appellants argue that badge (3) does not apply at his boss’s direction, opened a prudential securities conveyance claims prompts veil piercing claims, robert a bench trial in january 2008 on the remainder of banco-loop loan, and the transfers to related entities. number of brokerage accounts. wachovia secs., llc v. jahelka, in the 2002 security agreement’s caption. the 2002 agree- to the district court’s application of illinois law.4 diverting money to themselves and related entities. nos. 10-1203, 10-1227 & 10-1238 5 evidence of both actual and constructive fraud under their involvement in loop and that they met regularly loop’s corporate veil and finding greenblatt, nichols, a scheme aimed at a palpable misuse of bankruptcy, raise[d] transaction was central to wachovia’s veil-piercing of formalities triggered the fraud or promotion of injustice bituminous fire & marine ins. co., 68 f.3d 1016, 1019 we compliment the district court’s thorough and exhaustive3 and the loop-related parties as defendants. in 2005, source, 993 f.2d 1309, 1313 (7th cir. 1991). loop’s failure ment (second) of conflicts of law § 136(2) cmt. h (when fraud were inapplicable or insufficient to raise the fraud fees and costs. wachovia, 586 f. supp. 2d at 1025-26.3 assets, one established by the 2000 transaction and because wachovia disclaimed making a case on any- court also voided as fraudulent transfers banco’s lien transactions was the banco-loop line of credit. this tions further convince[d] the court that he was inten- aware of the variations in demeanor and tone of voice apt to this case, allowing a corporation “to keep assets loan’s terms covered buying hrmi stock but later secured creditor status over loop’s assets. greenblatt to the fiction of separate corporate existence would sanc- debtor.” 740 ilcs 160/5(a)(1). wachovia had to prove endorses veil piercing to avoid unfair enrichment, permit- (quoting van dorn, 753 f.2d at 565). this prong requires 605 & n.2 (7th cir. 1981) (a conflict must actually exist for finding that they “knowingly assisted [greenblatt] in nos. 10-1203, 10-1227 & 10-1238 13 entities provide them with health benefits. loop also intent to hinder, delay, or defraud any creditor of the tions involved.” id. the party in tower investors seeking internal affairs doctrine. see generally citizens elec. corp. v. banco argues that it held two blanket liens in loop’s fundamental misconception of the arrangement. the shifted the burden to them to prove unreasonableness. hrmi stock collapse. ship among related entities; and whether the corporation (bankr. c.d. ill. nov. 6, 2007) (refinancing or an addi- drey co. v. generation, inc., 317 n.e.2d 673, 679 (ill. app. de novo. see cerros v. steel techs., inc., 288 f.3d 1040, the arbitration against them individually. wachovia not rule “on any fraudulent transfer that was not generally expected to invest some money . . . if they district judge stated near the end of trial that she would of evidentiary value as to loop’s actual initial capitaliza- tionally stipulated to the law by not objecting); restate- lien on substantially all of loop’s assets. given these choice of law to matter). because appellants did not raise this issue in their court realigned the parties with wachovia as plaintiff b. fraudulent transfers office space, equipment, and telephone and fax numbers so even if at certain times loop had additional assets fancy cars, and other such luxuries.” jahelka & nichols ties raised veil piercing and fraudulent transfer claims. lott v. levitt, 556 f.3d 564, 568 (7th cir. 2009) (waiver illinois applies the law of the state of incorporation for fied judgment.” id. (quoting sea-land servs., inc. v. pepper co., 755 f.2d 528, 530-31 (7th cir. 1985) (parties func- tionally shielded any debt loop incurred in the course 2002 agreement “consolidated, amended and restated” form. their financial shell game leaves us quite satisfied their capitalization claim on a one-page summary docu- corporate veil show an utter abuse of the corporate lants contest these findings’ relevance. yet the absence findings, appellants point out that a secured insider loan and loop defaulted. instead of enforcing the loan’s terms corporation for their real estate holdings. loop incorpo- holders had a unity of interest and ownership. the share- nos. 10-1203, 10-1227 & 10-1238 11 we discussed this transaction in in re south beach securities,5 nos. 10-1203, 10-1227 & 10-1238 richard nichols embrace a “three men and a telephone” the court’s finding, that greenblatt’s “flippant, conde- at 993. appellants do not contest any of these findings in addition, loop moved its real estate assets to loop is fraudulent as to a creditor when done “with actual truth,” is based on his credibility and demands “even creating a meticulous paper record.” yet torco found argues that the district court’s ruling threatens to keep way benefited from loop’s arrangement with banco and president and banco’s assistant vice president; and created an appearance of a company capable of covering appellants claimed these payments reduced loop’s continuation of the security interest in the” collateral); involving hrmi. id. wachovia had to make a “substantial showing” that ment purportedly supporting a funding basis of $10 based golf tee time reservation company ez links. appellants’ appeal rests not on showing clear error in losses but meanwhile, the banco loan (extended after a fancy lifestyle complete with extravagant houses, the obligations from the 2000 transaction. cf. schwinder compelling reasons . . . to disapprove” of a court’s choice because the district court held a bench trial, fed. r. civ. to loop. this arrangement gave the subsidiaries senior tionable based on greenblatt’s incentive to create a docu- v. austin bank of chi., 809 n.e.2d 180, 189 (ill. app. ct. signed for loop. on the same day, a handful of loop find that even if it considered the document, it was unre- was drained to support fancy lifestyles. the district tained a unity in interest and ownership between loop lying the district court’s decision to pierce loop’s loop’s corporate veil. between insiders; (3) loop retained possession or control nasdaq halted trading in hrmi. the value of loop’s2 tinder, circuit judge. to recoup about $1.9 million in loop’s assets were not transferred; as just noted, greenblatt-controlled banco financed loop’s operations. which turned out to be “highly questionable.” id. at 988. (quoting van dorn co. v. future chem. & oil corp., 753 frelinghuysen livestock managers, inc., 777 f.2d 1230, 1231 and jahelka personally liable on the judgment. the an entity’s investors to limit their liability and thus en- and a secured inside lender (banco) encumbered what- nos. 10-1203, 10-1227 & 10-1238 7 long before the start of trial, appellants waived objecting form “is used as a cloak or cover for fraud or illegality, gard of loop’s separateness from its owners that opened a promissory note and a security agreement documented share any risk because loop shuttled its assets elsewhere try to justify their failure to provide admissible and various transactions, among much else, didn’t “over- findings show that this case rests on a rather extra- loop’s creditors by ensuring that all of loop’s assets on south dakota law, we would expect them to raise appellants argue that wachovia, as a voluntary we will discuss shortly. see sea-land servs., inc. v. pepper nichols (loop’s treasurer) owns 20%. appellant banco court’s finding that loop diverted its assets to its share- of fraud,” lindholm v. holtz, 581 n.e.2d 860, 863 (ill. app. innocently and efficiently until the wachovia margin they also do not explain how greenblatt could have is owned by nola, llc. nola’s members are the ez links, and ordered appellants to pay wachovia’s comply with loop’s bylaws, or require its attorney and fraud or promote injustice.’ ” hystro prods., 18 f.3d at 1390 loop’s account, but a $1,885,751 debt remained. the “pay lower classes of creditors.” wachovia, 586 f. supp. 2d c. attorneys’ fees the line of credit through which they (and other entities loop incurred the margin debt) encumbered its assets. by litigation waived objecting to choice of law); int’l adm’rs, of looseness, this doctrine doesn’t provide appellants v. status, the banco-loop line of credit, and its representa- without the banco line of credit. loop’s counsel also restatement (second) of conflict of laws § 307 cmt. a (1971) sonally liable for the underlying claim if the corporate tion’s veil and hold the individual investors per- time while asserting illinois law in their briefs to the with related entities. loop moved employees between diverting assets to an owner or other entity to creditor the obligation to banco shortly before or after loop in- “is not wrongful per se.” in re lifschultz fast freight, 132 margin debt from a group of businessmen once dubbed excuses about what the appellants thought was settled itself of its assets when third-party debts arose. loop of corporate minutes and accounting records; failure to tial’s successor-in-interest, we will discuss this account abnormal and off the books. there was no error in the tional loan “involved a renewal of the prior note and a approved by” banco, jahelka acknowledged that the to loop’s separate existence would sanction. tionally evading the truth.” id. at 989. the district court on an asset-free corporation.” id. (citing cases). sidiaries. perhaps there were legitimate tax reasons for margin debt. the 2002 transfer by its terms subsumed functioned as loop’s dominant shareholder. greenblatt illinois. greenblatt (loop’s corporate secretary) owns unquestionably failed to produce in discovery and claimed that its purchase was a “cost” and that the adequate showing. appellants argue that the fee order the district court clearly erred finding that greenblatt value of loop’s assets.” banco advanced loop money ent corporation, enabled the fraud or injustice. on the them nonfunctioning.” wachovia, 586 f. supp. 2d at 1003. loop shareholders used their web of corporations to businessweek.com/1996/32/b34876.htm. its solvency. loop’s accountant testified that loop failing to observe corporate formalities; failing to pay div- for the seventh circuit 2002 transaction as fraudulent, wachovia claimed that in finding loop inadequately capitalized. no one because loop did not retain possession or control of the district court made an unfavorable evidentiary deter- whelmingly establish[] that loop failed to observe corpo- (finding it “manifestly unfair and inappropriate, absent nos. 10-1203, 10-1227 & 10-1238 15 and nichols were nonfunctioning. the contradiction “another example of the defendants’ manipulation of llc v. 111 east chestnut consultants, inc., 864 n.e.2d 927, exists: inadequate capitalization; failing to issue stock; before manion, tinder, and hamilton, circuit judges. wachovia unreasonably lumped time entries together find an inference of loop’s fraudulent intent. see alan associated with the loop owners) advanced $3 million basis of that claim unreliable, lacking a foundation, and encumbered them and loop held itself out as thinly detriment; failing to maintain an arm’s-length relation- undisputed findings—a convoluted web of entities, in- appellants argue that the district court improperly banco panamericano, inc., et al, creditor, must prove actual fraud, citing tower investors, br. 49. wachovia didn’t have to prove that loop’s money neuhauser, 528 f. supp. 2d 834 (n.d. ill. 2007), and held district court granted defendants summary judgment 2004) (when a contract is modified or amended by a been anything but loop’s dominant shareholder because hrmi stock. after hrmi collapsed, loop sold the loan (7th cir. 1995) (internal affairs doctrine is “a choice-of-law loop’s compensation to jahelka and nichols was repay wachovia, citing the loan’s terms, but in reality, mination against them on this issue. appellants staked liable because greenblatt prepared it based on unspec- these findings paint a detailed picture of shareholders “an inherently incredible witness.” id. appellants’ unpre- later that year, greenblatt’s clerk david neuhauser, payments to jahelka and nichols were fraudulent. yet source, 941 f.2d 519, 522-23 (7th cir. 1991). illinois law (failure to disclose). id. at 988. the court went on to from 1999 to 2002 put loop’s capitalization at $1,000. plaintiff-appellee, united states court of appeals adhering to their “separate identities would ‘sanction a under the ufta includes the “creation of a lien or other of perjury and filed with the illinois secretary of state parties possess a total understanding of all of the transac- records to support their trial position.” wachovia, 586 manages nola through another related entity, teletech. amount of business to be conducted and obligations in diversity cases, we look to the substantive law of the greenblatt to show cause why we should not sanction him. id. changed unless there is some showing of intent to the fathers of greenblatt, nichols, and jahelka. greenblatt is renewed on a debt, the security interest thereon is not on some of wachovia’s claims, wachovia secs., llc v. ing. see clarett v. roberts, 657 f.3d 664, 674 (7th cir. assets; and (5) loop was insolvent or became insolvent case for both given that the district court’s generally in finding banco’s 2002 blanket lien over loop’s assets transaction allowed banco to maintain and extend its ment to support his trial testimony” after wachovia panamericano, inc. also incorporated in south dakota four years of litigating this case. by waiting all that district court also found that common facts formed the tions on the margin account created the false appearance n.e.2d 992, 1005 (ill. app. ct. 2001). without adequate (in addition to loop) as individual respondents who, in badges of fraud, along with the attendant circumstances, macy of the business practices underlying the district holders started raiding the company of its assets. appel- in a liability-free corporation while placing liabilities to meet that liability to escape responsibility, and most which appellants rely were enacted in 2005, long after its debts. we affirm the district court’s piercing of 2011) (argument addressed in two sentences in opening 8 nos. 10-1203, 10-1227 & 10-1238 a floodgate of fraud and injustice that blindly adhering sanction an attempt by loop’s shareholders to set up “a ct. 1994). billing records with each task accounted for and itemized. into 2004. the district court placed the current loan debt to banco on a dollar-for-dollar basis, but the payment of prior indebtedness . . . or other purpose like symptoms of a disease, “are not additive”). banco dering of loop’s assets as paying down the banco loan. of either lien.” banco br. 31. either way, appellants say to be fulfilled.” fiumetto v. garrett enters., inc., 749 f.3d 339, 345 (7th cir. 1997). of course it’s not, but the a focus of this appeal is a $9.9 million line of credit the district court structured its findings on the first holders and related entities after incurring its debt to pierced, its shareholders would be rewarded for using officers; missing corporate records; commingling funds; “were pledged as security for another obligation.” id. ct. 1996). opportunity to respond”). and lists illinois as its principal place of business. a extinguish the original debt nor change the debt except” pension fund, 580 f.3d at 611. appellants argue that v. epa, 535 f.3d 670, 675 (7th cir. 2008) (raising argu- at 1005 n.26, contradicts the court’s finding that jahelka ted). illinois law permits veil piercing when two ted)). banco’s 2002 transaction with loop merely extended, argue the court ignored evidence showing an additional that appellants “magically” produced this document south beach loaned the $2.2 million to nola to buy effectively attacked it. id. greenblatt’s demeanor also equity.” 18 am. jur. 2d corporations § 57 (footnotes omit- jahelka and nichols point out that the district court’s atkinson candies, inc. v. latini-hohberger dhimantec, 529 sidered the factors listed in 160/5(b), known as “badges district court, appellants acquiesced to illinois law. see prevents this “very type of gamesmanship” of seeking a of loop’s decision-making and loop’s failure to keep transaction as anything other than an extension of the capitalization compares “the amount of capital to the interest. brief deemed waived); citizens against ruining the env’t f.3d 371, 378 (7th cir. 2008). yet appellants did not the actions in question occurred. see s.d. codified laws prise out of the assets of his other corporations without gave banco a blanket lien over loop’s assets (once pension fund, 580 f.3d at 612. “shareholders are no exception. for example, one of the ufta-challenged and the compensation payments to jahelka and nichols, businessweek, aug. 5, 1996, available at http://www. (failure to comply with a court order) and 37(c)(1)(c) wachovia, 586 f. supp. 2d at 986. the mere existence of scending air in response to legitimate fact-finding ques- to jahelka and nichols, and certain loop payments to dwell on this factor because appellants ignore that the appeal from the united states district court (and it apparently did given loop’s subsequent diversion the funds they loaned loop. ments.” id. the district court found the document “ques- 6 nos. 10-1203, 10-1227 & 10-1238 exists when a corporation has sufficient equity without courage investment. id. yet courts may pierce a corpora- loaned about $2.2 million in 2001 to south beach, which loop dollar-for-dollar credit on the transfers. appellants meaningfully used their 50% stake in loop or where to an inference or presumption of fraud,” steel co. v. 18 nos. 10-1203, 10-1227 & 10-1238 under, as we shall see, quite suspicious circumstances, of the proposed fees’ reasonableness, the burden shifts is refuted by wachovia’s submission of 114 pages of to produce admissible or reliable evidence to support 24 nos. 10-1203, 10-1227 & 10-1238 that loop would not have sufficient funds to pay their from the arbitration proceeding and the district p. 52(a)(6) requires us to leave findings of fact untouched loop loan to pay wachovia; at greenblatt’s direction, v. mnp corp., 18 f.3d 1384, 1388-89 (7th cir. 1994) found that wachovia proved five: (1) loop incurred to postpone repayment (internal quotation marks omit- banco gave loop on january 3, 2000. in exchange, loop extending loop’s line of credit with banco, the 2002 relationship among related entities. torco oil co. v. innovative thermal corp., 763 f. supp. 1445, which they own an interest. yet the district court’s ableness. cf. spegon, 175 f.3d at 554-55 (discussing relaxed corporate culture and structure, that functioned the theory. loop paid nichols and jahelka $210,500 address choice of law until appearing for trial after prong around the factors illinois courts consider to de- state in which the district court sits, erie r. co. v. tompkins, related entities, altered their titles, and had other related assets before and after the transaction. but a “transfer” debt arose. appellants’ attempt to rehabilitate the legiti- the actual fraud findings. an attempt to recharacterize various transactions and 4 nos. 10-1203, 10-1227 & 10-1238 district court rejected this claim when appellants failed loop gave $386,550 to banco, $20,000 to resource tech- 10 nos. 10-1203, 10-1227 & 10-1238 loop and its owners paint in stark detail a general disre- that the banco-loop loan served as “a vehicle to avoid in illinois, a party who prevails on a veil-piercing claim presumption. see 740 ilcs 160/5(b). the district court greenblatt family trust owns banco. greenblatt is absence of documentation as to loop’s capitalization, the owner of all of its assets before and after the granting appellants argue that loop remained the owner of the inc. v. life ins. co., 753 f.2d 1373, 1378 (7th cir. 1985) that account. greenblatt’s incredible testimony with a document they to repay debt. loop also invested $518,338 in internet- gave him effective control over loop’s assets before and from regulating foreign corporations’ internal affairs); 767, 775 (ill. app. ct. 2005)). the corporate veil allows shield, rather than an independent entity capable of loop’s actual intent by clear and convincing evidence. curred its substantial debt to wachovia; (2) the loan was refused to allow loop to use proceeds from the banco- to the other party to demonstrate the award’s unreason- wachovia. id. at 1006-07. such informalities supported a finding on the first prong own loop corp. (also an appellant) as a closely-held ers’ pension fund v. lay-com, inc., 580 f.3d 602, 610 (7th later agreement, a suit to enforce the agreement “must be tion a fraud or promote injustice.” hystro prods., inc. 942 (ill. app. ct. 2007). but tower investors assumes “the until the hrmi stock it purchased on margin collapsed a single, related transaction” and the “general rule is another note and not in payment, the renewal does not regarding the related issue of loop’s insolvency, appel- charles clark, corporate law § 2.4 (1986), and this case is $3 million participation interest to various loop sub- at 1012. thus, the banco loan preemptively and inten- nology corp. (owned by rumpelstiltskin, which in turn “unless clearly erroneous.” we review legal conclusions the district court’s copious findings detailing appellants’ encumbrance.” 740 ilcs 160/2(l). by increasing and 22 nos. 10-1203, 10-1227 & 10-1238 language stating that the loan’s purpose included “re- ment continued the lien created by the 2000 transaction appellants argue that the “badges of fraud” used by contravenes a district court order that they would only other side of this issue, appellants fail to show where considering loaned funds or encumbered assets. laborers’ representation of their nontraditional, but admittedly was settled. yet greenblatt testified that a document ified banco records, his notes, and “other financial docu- 723 n.e.2d 345, 354 (ill. app. ct. 1999); see also judson rated in south dakota in 1997 with $1,000 in paid-in stock collapse. perhaps this is true, but it does nothing over loop’s assets, loop’s “compensation” payments want the benefit of limited liability.” id. we needn’t that the issue was settled. the district court, finding as though it was always a wachovia account. loop we move on to more uncontested findings appellants try to recharacterize. appellants claim that loop’s lack “the ‘bad boys’ of chicago arbitrage,” wachovia securi-1 3-21-12 morgan marshall indus., inc., 662 n.e.2d 595, 602 (ill. app. diverged, it didn’t change the result. we agree and given the piercing remedy. the district court’s findings regarding provides for a fee award. see fontana, 840 n.e.2d at 783- appellants try to excuse the post-wachovia debt plun- of the property; (4) the transfer was of most of loop’s and granting wachovia’s attorneys’ fees and costs but wachovia obtained an arbitration award against loop, wachovia’s claims that resulted in the court piercing ment in reply “does not give an adversary adequate a margin call on loop’s account. wachovia liquidated business fails, shareholders are paid last. e.g., lasday v. $15,775 to loop telecom lp (an entity related to loop). f.2d 565, 569-70 (7th cir. 1985)). for the first prong, cir. 2009) (citing fontana v. tld builders, inc., 840 n.e.2d started calling the payments “compensation” after the the district court to give rise to an inference of actual ment, inc. (hrmi) on margin. yet on may 22, 2001, the property transferred in the 2002 transaction. yet appel- this transaction. greenblatt signed for banco and jahelka 2000 agreement with the same blanket lien would be a lants claim that loop was solvent before the hrmi holding the bag for loop’s failed hrmi investment. the banco-loop line of credit also matured at the end of 2001 cmty. bank of e. peoria v. meister bros., inc., 299 n.e.2d wachovia and hinder or delay” its collection of loop’s loop made the transfer “with the actual intent to defraud of the year to decide the accounting treatment for finding that loop’s owners designed its corporate form law used to determine corporate liability). even assuming but the district court rejected the claim that banco gave regarding the other transactions found fraudulent, the vacate the voiding of loop’s payments to ez links. 1451 (n.d. ill. 1991) (posner, j., sitting by designation), 840 n.e.2d at 778. no single factor is determinative. see contrary” or the parties “formed a new agreement”); $10 million loop received at its inception. adequacy of is superficial. the culpability shared by jahelka and signed for banco and the participants and jahelka but scattered never tried to collect. given this ap-5 illinois’s uniform fraudulent transfer act (ufta), 740 as shareholders. but nowhere do they show how they argued september 22, 2010—decided march 21, 2012 do substantial business without sufficient capital to pay relied on banco for money and could not operate which was reduced to a $2,478,418 judgment. the city, 470 u.s. 564, 575 (1985) (citing fed. r. civ. p. 52(a)). brokerage accounts. ct. 1991), to see whether a sufficient number gave “rise 2 nos. 10-1203, 10-1227 & 10-1238 and extended it to cover the new funds banco loaned wachovia knowingly assumed the same risk as loop that banco argues that badge (4) does not apply because see greg burns, the ‘bad boys’ of chicago arbitrage,1 sider transactions, and sham loans all designed to avoid charged in” wachovia’s complaint. thus, the court’s corporate veil, voiding banco’s lien over loop’s assets ct. 1974); see also brandon v. anesthesia & pain mgmt. stock on the open market at greenblatt’s direction through a hourly rates). appellants have not countered wachovia’s in the but “something more than the mere prospect of an unsatis- a. veil piercing to work an injustice, to defend crime, or to defeat an veil piercing claims. e.g., retzler v. pratt & whitney co., with a defense because if loop’s owners actually relied 304 u.s. 64, 78 (1938), including choice of law rules, paredness at trial does not excuse attempting to support serving as collateral for the underlying loan, but this mountain, 855 n.e.2d 243, 251 (ill. app. ct. 2006)). “something less than an affirmative showing of fraud,” defendants-appellants. lants also argue that “loop always remained the title we give a district court’s fee decision great deference of interest and ownership that the separate personalities district court supported its finding with much more. this ordinary attempt to prevent creditors from collecting on it with two affidavits and more than 190 pages of docu- to conform to its bylaws enabled greenblatt’s domination wise reported the payments yet managed to issue w-2 corporations exist separately from their owners. labor- margin debt was “financing.” when given the note’s the value of the stock would decline. but loop did not may recover their fees if the underlying contract (shareholders expect to have the state of incorporation’s §§ 47-1a-732; 47-1a-732.5; 47-1a-1601. appellants cite 50% of loop. jahelka (loop’s president) owns 30%. and so we have nothing to review, although we note that nos. 10-1203, 10-1227 & 10-1238 9 opinion in this matter. mentation. once the petitioning party provides evidence where it was noted that an owner of a “start-up” company and belief in what is said.” anderson v. city of bessemer tions” suggested “he was intentionally evading the according to the district court, neuhauser purchased hrmi2 prong. jahelka and nichols argue that they testified to 20 nos. 10-1203, 10-1227 & 10-1238 and the banco-loop loan arrangement to enable loop to 84. such is the case here and the district court found loop.” id. the district court was quite justified in high- properties, of which loop owns 10% with the remainder i. factual background the district court went wrong finding that “greenblatt’s forms signed by greenblatt and jahelka under penalties of the veil piercing test, noted that it couldn’t pierce the lighting this transaction in determining whether loop expanded the line of credit to loop. greenblatt testi- pay fees related to the veil piercing claim. yet the n.1 (7th cir. 1985) (waiting until “a late point in” the opening briefs, they waived any argument on this rul- separate prongs are met: (1) “there must be such unity entities. appellants also do not contest that loop shared court found that loop paid nearly $1.2 million to claims. wachovia dropped the individual respondents on the basis that they went to trial thinking the issue of the brokerage agreement) against loop in 2003 and the court “will usually decide the case” under local of a company capable of covering potential losses on did not know that loop’s assets were encumbered by loop’s subsidiaries to loan loop money through a of “fraud or injustice,” and found that “in spades.” id. business style. these purported business minimalists rate formalities.” wachovia, 586 f. supp. 2d at 994. appel- brought on the modified agreement and not on the origi- nichols is immaterial in determining whether the share- turn, sued wachovia in illinois state court to enjoin 589, 592 (ill. app. ct. 1973) (five notes were intended “as was owned by the loop owners), $2,000 to scattered, to remove unrelated entries. appellants’ argument that holders “are last in line” in a distribution from a because of the court’s familiarity with the case. spegon v. does not mean the district court clearly erred finding in re estate of wallen, 633 n.e.2d 1350, 1357 (ill. app. the same blanket lien over loop’s assets asserted in 2000. extraordinary abuse of the corporate form but on arrangement doesn’t undercut the district court’s finding we affirm the district court’s order piercing loop’s control over loop’s other officers and employees rendered we will too in a moment, but there’s more on the first scending air in response to legitimate fact-finding ques- the district court had more than an adequate basis to meanwhile, loop’s debt to wachovia went unpaid. 1044 (7th cir. 2002). of the corporation and the individual” no longer exist; that where a note is given merely in renewal of a legitimate tax basis or another justification for the court’s veil piercing findings fails. the findings under- principle calling for resort to the law of the firm’s place also named neuhauser, jahelka, nichols, and greenblatt nos. 10-1203, 10-1227 & 10-1238 19 greenblatt did not let loop use the banco loan to supported the court’s conclusion that wachovia main- appellants argue that the district court clearly erred carrying on its own business.” id. adequate capitalization dissolved corporation). also noted that loop’s one-time accountant contra- ii. analysis 586 f. supp. 2d 972, 1004 (n.d. ill. 2008). one of neuhauser’s financial responsibility—soundly supported the claims. wachovia submitted a detailed fee petition and supported $20,000 to telegraph properties (a loop subsidiary), and is a mere façade for a dominant owner. fontana, were fully encumbered by a blanket lien in favor of insiders or related entities. the court also found that inc., 606 f.3d 366, 378 (7th cir. 2010), where we found greenblatt nos. 10-1203, 10-1227 & 10-1238 3 nothing of the district court’s finding that greenblatt’s was hardly a typical insider loan given banco’s sale of a dicted greenblatt’s testimony and that greenblatt was owners. judson, 529 f.3d at 380 (quoting rosier v. cascade greenblatt, the dominant shareholder of both banco and klaxon co. v. stentor elec. mfg., 313 u.s. 487, 496-97 (1941). accountant to record their time; and waiting until the end finding that loop’s $518,338 payment to ez links was relationships with loop’s related entities as somehow greater deference . . . for only the trial judge can be absence of proper corporate records related to the 12 nos. 10-1203, 10-1227 & 10-1238 loop shareholders looted corporate coffers “to indulge capitalized. avoid their responsibilities to wachovia by ensuring ever remained. as the district court found, loop’s shell a debtor makes a transfer or incurs an obligation that weiner, 652 n.e.2d 1198, 1201 (ill. app. ct. 1995) (share- greenblatt’s own admission, loop would generally not but that only marked the point at which loop share- of assets to related entities), the banco line of credit shortly after the transfer. wachovia, 586 f. supp. 2d at 1015- small business owners from lending to entities in “evasive and at times incredible” and that “his orchestration of that this arrangement effectively “resulted in loop con- in finding that loop failed to maintain an arm’s-length serious ethical and perhaps legal concerns.” we ordered holders, by failing to act as they would in a truly independ- an arm’s-length relationship with related entities. the appellants leon greenblatt, andrew jahelka, and naturally financed “the operations of the fledgling enter- loop’s accountant falsely held himself out as loop’s vice basis of similar legal theories. behavior raising fraudulent overriding public policy, or where necessary to achieve a fraudulent transfer, the district court found sufficient adhering to loop’s separate corporate existence nos. 10-1203, 10-1227 & 10-1238 23 no. 04 c 3082—virginia m. kendall, judge. represented that loop was a “dead company.” id. at


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