United States v. Sullivan

UNITED STATES OF AMERICA v. JOHN SULLIVAN, Defendant,andDIANE SULLIVAN and DIANESULLIVAN, TRUSTEE OF THEJOSEPH J. SULLIVAN TRUST, Third-Party Respondent.

No. 10 CR 821-1

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

April 21, 2016

Chief Judge Rubén Castillo

MEMORANDUM OPINION AND ORDER

This is a petition brought by the U.S. Government pursuant to Federal Rule of Civil Procedure 69, and the Federal Debt Collection Procedure Act, 28 U.S.C. § 3001 et seq. ("FDCPA"), seeking relief against Diane Sullivan ("Ms. Sullivan") individually and as Trustee of the Joseph John Sullivan Trust, in order to aid in the execution of a criminal restitution judgment that this Court entered against her ex-husband John Sullivan ("Mr. Sullivan"). In response to the United States' petition, Ms. Sullivan requests that the Court dismiss the petition pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(6), and 12(b)(7), or, in the alternative, conduct an evidentiary hearing on the allegations contained in the petition. (R. 383, Resp. at 1.) For the reasons explained below, Ms. Sullivan's motion to dismiss and request for an evidentiary hearing are denied.

BACKGROUND

I. Underlying Criminal Proceedings Against John and Daniel Sullivan

John Sullivan and Daniel Sullivan "are brothers who owned a group of companies that offered remodeling services to homeowners: New Look Home Services, J & D Home Services, A-Z Home Services, and Contract Services." United States v. Sullivan, 765 F.3d 712, 714 (7th Cir. 2014). While the Sullivan brothers "provided honest work on construction jobs when their clients paid in cash," they engaged in an illegal scheme to defraud homeowners who secured loans to remodel their homes. Id. Specifically, "[b]y promising homeowners that they could remodel their homes at a discount, the appellants duped numerous people into refinancing their homes and paying the loan proceeds directly to one of the[ir] . . . companies." Id. With the loan funds in hand, the brothers "left the job sites unfinished and the homeowners' finances in disrepair." Id. To perpetuate their scheme, the Sullivans "targeted neighborhoods on the South and West sides of Chicago." Id. Daniel Sullivan told one of their telemarketers who would cold-call homeowners to look for "elderly, ignorant homeowners," and Mr. Sullivan added that "[t]he more ignorant, the better. Also, the older, the better." Id. Once a lead was secured through mass-advertisements, one of the brothers would visit the homeowners or would send one of their salesmen. Id. at 715. If a homeowner agreed to the remodeling services, Mr. Sullivan would often have the customers "sign blank contracts." Id. In addition, the brothers would refer the homeowners to specific loan officers in order to complete the refinancing. Id. As part of the refinancing, they "required the homeowners to sign letters of direction, so the title companies sent checks directly to [their] . . . companies," and also "required homeowners to sign over the checks because they needed payment before the remodeling work could begin." Id. While subcontractors would begin some of the work, the Sullivans abandoned the jobs beforecompletion. Id. From 2002 to 2006, the Sullivans "collected over $1.2 million from over forty homeowners who were victims of the scheme." Id.

In January 2011, a grand jury returned an indictment charging Daniel and John Sullivan with wire fraud in violation of 18 U.S.C. § 1343. Id. Following a trial, a jury found John and Daniel Sullivan guilty of two counts of wire fraud each. Id. On November 13, 2012, this Court sentenced each of them to 168 months' imprisonment and ordered them to pay restitution in the amount of $710,783.33. (R. 305, Sentencing Order; see also R. 304, Sentencing Order, United States v. Daniel Sullivan, 10-CR-00821-2 (N.D. Ill.).) On appeal, they challenged their sentences. Sullivan, 765 F.3d at 715. On August 28, 2014, the Seventh Circuit affirmed this Court's sentence, including the loss calculation, on all grounds. Sullivan, 765 F.3d 720.

II. Petition for Relief Against Ms. Sullivan

On June 20, 2014, as part of its efforts to collect the restitution owed by Mr. Sullivan, the government filed this petition for relief against his ex-wife, Ms. Sullivan. (R. 374, Pet.)

The government alleges that on March 6, 2000, Mr. Sullivan and his then-wife, Ms. Sullivan, established the Joseph John Sullivan Trust (the "Trust"). (Id. ¶ 23; see also 374-1, Ex. A, Decl. of Trust.) The Trust named Mr. and Ms. Sullivan as donors and Mr. Sullivan as trustee. (Id. ¶ 24.) Their son, Joseph Sullivan ("Joseph"), was the sole beneficiary. (R. 374, Pet.¶ 28.) The government alleges that the Trust was "funded with income and proceeds from" Mr. Sullivan's businesses, and that Ms. Sullivan "has not been employed since 1994." (Id. ¶ 26.) The Trust "provided that during the lifetimes of the Donors, John Sullivan and Diane Sullivan, the Trustee, John, may pay to the Donors all of the net income of the Trust and such part of the principal as the Donors may request." (Id. ¶ 29.) The Trust also provided that "the Donorsreserved the right to revoke, alter, or amend the Trust, in whole or in part, at any time." (Id. ¶ 30.) The Sullivans divorced in 2003. (Id. ¶ 25.)

Beginning in December 1999, customers started to bring a series of lawsuits against Mr. Sullivan and one of his businesses, New Look Home Services. (Id. ¶¶ 31-34.) The lawsuits were filed, among other locations, in Cook County and the U.S. District Court for the Northern District of Illinois. (Id. ¶ 31.) The complaints sought injunctive relief and damages that they suffered as a result of Mr. Sullivan's fraud. (Id.) In addition, in 2003, the State of Illinois brought a criminal action against John and New Look Home Services, alleging fraud in connection with the home repair business and numerous violations of city and state regulations. (Id. ¶ 35.)

The government alleges that "[s]hortly after the filing of the criminal action by the State of Illinois, the Trust was amended and the Trustee of the Trust was changed to Diane." (Id. ¶ 36.) Specifically, in a handwritten document, allegedly signed on February 14, 2003, John resigned as a donor of the Trust and disclaimed any interest in the Trust. (Id. ¶ 37; see also R. 374-1, Ex. B, Resignation.) On the same date, the Trust was allegedly amended and Diane was named as the trustee of the Trust, and she was also added as a beneficiary of the Trust, in addition to Joseph. (R. 374, Pet. ¶ 38.)

Despite the fact that Mr. Sullivan resigned as donor of the Trust and disclaimed any interest in the Trust, the government alleges that Mr. Sullivan has always had "unfettered access to the Trust assets." (Id. ¶ 40.) The government claims that Mr. Sullivan continued to make "numerous deposits and withdrawals from the account after the disclaimer." (Id.) The government also claims that when "making withdrawals from the Trust bank accounts, John would endorse checks as Joseph Sullivan, but present his driver's license as identification"; the government alleges that Mr. Sullivan's middle name is Joseph and, in 2010, his son Joseph was aminor and did not have a driver's license. (Id. ¶¶ 40-43(a)-(h).) The petition outlines at least eight instances between 2008 and 2010 when Mr. Sullivan allegedly withdrew money from the Trust in amounts ranging from $500 to $100,000. (Id. ¶ 43(a)-(h).) The government further alleges that Mr. Sullivan continues to enjoy the benefits of the Trust assets while incarcerated. From January 5, 2012, to May 25, 2013, the government claims that Ms. Sullivan has deposited a total of $1,366.05 to Mr. Sullivan's Bureau of Prisons account. (Id. ¶ 44.)

On September 28, 2010, the State of Arizona seized a total of $1,024,585.46 from three separate accounts bearing the account name of the "John Sullivan Revocable Trust." (Id. ¶ 46.) The government alleges that the probable cause for the seizure was the theft of $645,000 from one of Mr. Sullivan's fraud victims. (Id.) Two years after the seizure, Ms. Sullivan, Joseph, and the State of Arizona entered into a stipulation of judgment, "which provided that $645,000 from the seized funds was to be transferred to [the fraud victims] . . . , and released from the forfeiture and that the remaining seized funds would be dismissed from the action." (Id. ¶ 49.) Shortly thereafter, the Maricopa County Attorney's Forfeiture Division issued a check made payable to "Diane Sullivan and . . . Anthony Knowles, attorney for Diane Sullivan, Joseph John Sullivan, and The Joseph John Sullivan Revocable Trust" in the amount of $898,098.16. (Id. ¶ 50; see also R. 374-1, Ex. I, Copy of Check.) On December 4, 2012, Ms. Sullivan's attorney issued a check in the amount of $542,839.51 payable to Ms. Sullivan and the Trust. (R. 374, Pet. ¶ 51.) While the funds were originally seized from the Trust checking accounts, Ms. Sullivan deposited the $542,839.51 check directly "into an account in the name of Diane Sullivan." (Id. ¶¶ 51-52.)

Based upon documents produced pursuant to subpoenas and Ms. Sullivan's deposition testimony, on March 7, 2013, "the United States began supplementary proceedings, pursuant to section 2-1402 of the Civil Practices Law (735 ILCS 5/2-1402)." (Id. ¶ 54.) A third-party citationto discover assets (the "Citation") was issued to Ms. Sullivan, and served upon her and her counsel. (Id. ¶ 54.) Ms. Sullivan did not respond or object to the Citation. (Id. ¶ 56.) On September 27, 2013, an amended third-party citation to discover assets (the "Amended Citation") was issued "to Diane, as Nominee for John Sullivan, and as Trustee of the Joseph John Sullivan Trust," and served upon Ms. Sullivan's counsel. (Id. ¶ 57.) In the cover letter to the Amended Citation, the government informed Ms. Sullivan that:

The United States contends that John Sullivan, in an attempt to conceal property from the United States and other creditors, fraudulently transferred

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