Frances Gecker, Not Individually But Tr. for Emerald Casino, Inc. v. Flynn (In re Emerald Casino, Inc.)

IN RE EMERALD CASINO, INC., Plaintiff, Debtor

FRANCES GECKER, not individually but Trustee for EMERALD CASINO, INC., Plaintiff, v. ESTATE OF KEVIN F. FLYNN, et al., Defendants.

02 B 22977

Bankr. Adv. No. 08 A 00972

No. 11 C 4714

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

June 13, 2018

Chapter 7

Judge Rebecca R. Pallmeyer

MEMORANDUM OPINION AND ORDER

Plaintiff Frances Gecker, the Chapter 7 bankruptcy trustee for Emerald Casino, Inc., has a $219 million judgment against the Estate of Kevin Flynn, Emerald's former CEO. See In re: Emerald Casino, Inc., 867 F.3d 743 (7th Cir. 2017). Because the Estate is worth far less than $219 million, the Trustee hopes to partially satisfy her judgment with assets Kevin previously transferred to third parties. To this end, she issued citations to discover assets to numerous individuals and institutions, including Kevin's surviving spouse Susan Flynn. The Trustee subsequently moved to compel turnover of certain assets in Susan Flynn's possession, but this court denied that motion because the Trustee had not alleged a basis on which Kevin's transfer of the assets to Susan could be voided. See In re Emerald Casino, Inc., No. 11 C 4714, 2018 WL 527925, at *2 (N.D. Ill. Jan. 24, 2018). The Trustee has now filed a "renewed motion" to compel turnover of the same assets, arguing that Kevin fraudulently transferred them to Susan. For the reasons explained below, the Trustee's motion [679] is granted.

BACKGROUND

On August 11, 2017, the Trustee filed a motion to compel Susan Flynn to turn over certain assets that had come to light as a result of the Trustee's citations. These assets consist of (1) an option to purchase 60,000 shares of LKQ Corporation, which LKQ granted to Kevin Flynn on January 9, 2009; (2) 1,261 "restricted share units" (RSUs) of LKQ stock, which LKQ granted to Kevin on May 12, 2011; and (3) 4,078 additional RSUs that LKQ granted to Kevin on May 12, 2013. Kevin was awarded all of these assets pursuant to LKQ's "1998 Equity Incentive Plan," and, on June 3, 2009, he designated Susan Flynn as the primary beneficiary of that plan in the event he died before "receiv[ing]" distributions under the plan to which he was entitled. In re Emerald Casino, 2018 WL 527925, at *2.

Susan Flynn argued in her August 11 motion, and the Trustee conceded, that this beneficiary designation qualifies as a "registration" of the assets in "beneficiary form" pursuant to the Illinois Uniform Transfer on Death (TOD) Security Registration Act, 815 ILCS 10/1-10/12. Under the terms of that statute, ownership of the assets passed to Susan Flynn, outside of probate, immediately upon Kevin's death on August 12, 2013. The Trustee contended that the assets were nevertheless available to satisfy her subsequent judgment against Kevin's estate because the TOD Security Registration Act expressly states that it "does not limit or expand the rights of creditors of security owners against beneficiaries and other transferees under other laws of this State." 815 ILCS 10/9(b). But neither the Trustee's turnover motion nor her reply brief in support of that motion identified any "other law[ ] of this State" that allegedly provided the estate's creditors with a such a right against Susan Flynn (i.e., the beneficiary of the registration). As a result, the court denied the motion. The court did not, however, dismiss the Trustee's citation or supplementary proceeding to enforce the Trustee's judgment against Kevin Flynn's estate.

The Trustee has now filed a "Renewed Motion for Turnover of Fraudulent Transfer of LKQ Stock." [679] In this motion, the Trustee argues that Susan Flynn became the owner ofthe LKQ stock options and RSUs by way of a constructive fraudulent transfer under the Illinois Uniform Fraudulent Transfer Act (UFTA), 740 ILCS 160/1-160/12, and that these assets are therefore available to satisfy the Trustee's judgment.

DISCUSSION

The Illinois UFTA describes circumstances under which a debtor's transfer of assets will be deemed fraudulent:

[a] transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.

740 ILCS 160/6(a). The transferor need not intend for the transfer to hinder his or her creditors in order for the transfer to be voidable under this provision. See Nostalgia Network, Inc. v. Lockwood, 315 F.3d 717, 719 (7th Cir. 2002) ("When a person transfers money or other property to another person without receiving anything in return, and the transferor is insolvent (or made insolvent by the transfer), the transfer is voidable even if there was not intent to hinder creditors.").

Susan Flynn does not dispute that the Trustee was a "creditor" of Kevin Flynn "whose claim arose before" the assets at issue were transferred to her. Nor could she credibly dispute this point. The Illinois UFTA defines a "creditor" as "a person who has a claim," and defines "claim" as "a right to payment, whether or not the right is reduced to judgment." 740 ILCS 160/2(c)-(d) (emphasis added).¹ See also DFS Secured Healthcare Receivables Tr. v. Caregivers Great Lakes, Inc., 384 F.3d 338, 349 (7th Cir. 2004) (interpreting similar language in Indiana UFTA and concluding that a judgment holder was a "present creditor" for purposes ofthat statute even though it "did not receive a court judgment until after the asset transfer" in question). Susan Flynn also does not argue that she received anything of "reasonably equivalent value in exchange for" the relevant assets.

Rather, Susan opposes the Trustee's "renewed motion" on the following grounds: (1) The Trustee's motion is procedurally improper, either (a) because there is no such thing as a "renewed motion" under state or federal law, or (b) because there are no extraordinary circumstances that would justify reconsideration of the court's January 24 order denying the Trustee's original motion; (2) Kevin Flynn did not "make" any "transfer" for the purpose of a fraudulent transfer claim, because the securities at issue passed to Susan by operation of law at Kevin's death; (3) even if Kevin did "transfer" the securities to Susan, Kevin was solvent at the time of the transfer and was not made insolvent by the transfer; and (4) even if the transfer was constructively fraudulent, an order voiding the transfer would simply restore to Kevin's estate an unvested interest equivalent to that which Kevin possessed the moment before he died. This unvested interest would then be unreachable by the Trustee. The court considers these arguments in turn.

I. Alleged procedural impropriety

Susan Flynn first suggests that the court must treat the Trustee's "renewed motion" as a motion to reconsider, subject to the "stringent standards for reconsideration under Rule 60," because no federal or local rule specifically provides for the filing of a "renewed" motion. (Def.'s Resp. Br. 3 n.2.) She then cites caselaw stating that "[r]econsideration is not an appropriate forum for . . . arguing matters that could have been heard during the pendency of the previous motion," Caisse Nationale de Credit Agricole v. CBI Industries, Inc., 90 F.3d 1264, 1270 (7th Cir. 1996), and that "a motion for reconsideration is an improper vehicle . . . to tender new legal theories," Bally Export Corp. v. Balicar, Ltd., 804 F.2d 398, 404 (7th Cir. 1986). According to Susan, "[t]he Trustee fully briefed her original turnover motion when she filed it," and "chose" not to argue in that motion that Susan owns the assets at issue by way of a constructive fraudulenttransfer. (Def.'s Resp. Br. 4-5.) The Trustee cannot now ask the court to "reconsider" her fraudulent transfer argument, as the court never considered it in the first place. Even if it had, Susan continues, the Trustee has not identified any extraordinary circumstances—such as an intervening change in the law or newly discovered evidence—that would justify reconsideration.

The court need not decide whether the prerequisites for reconsideration are satisfied here, because the court is not, in fact, obligated to treat the Trustee's "renewed motion" as a motion for reconsideration. Under Rule 69(a), supplementary proceedings to enforce a money judgment are governed by the law of the forum state, unless an applicable federal statute provides otherwise. Laborers' Pension Fund v. Pavement Maintenance, Inc., 542 F.3d 189, 191 (7th Cir. 2008); Resolution Trust Corp. v. Ruggiero, 994 F.2d 1221, 1226 (7th Cir. 1993). Illinois law, in turn, "leave[s] the procedure to be followed in [supplementary proceedings] largely to the judge's discretion," so long as the requirements of due process are satisfied. Resolution Trust Corp., 994 F.2d at 1226-27. The Illinois supplemental proceedings statute "gives courts broad powers to compel the application of discovered assets or income to satisfy a judgment," and "[i]ts provisions are to be liberally construed." Star Ins. Co. v. Risk Mktg. Grp. Inc., 561 F.3d 656, 662 (7th Cir. 2009) (quoting Kennedy v. Four Boys Labor Svc, Inc., 279 Ill. App. 3d 361, 366, 664 N.E.2d 1088, 1091 (2d Dist. 1996)). Nothing in that statute, or in the related Illinois Supreme Court rule governing supplementary proceedings, expressly prohibits a judgment creditor from filing a second motion to compel turnover of the same assets that were the subject of a previous, unsuccessful turnover motion in the same supplementary proceeding. See 735 ILCS 5/2-1402; ILCS S. Ct. Rule 277. In any event, because "the draftsmen of Rule 69" did not intend "to put the judge into a procedural straitjacket, whether of state or federal origin," this court need not "apply[ ] every jot and tittle of Illinois procedural...