Court Error – Bankruptcy – Sanctions

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7^th Circuit Court of Appeals

Case Name: Chicago Management Consulting Group, Inc., et al. v. Julia Hathaway

Case No.: 17-2354

Officials: RIPPLE, SYKES, and SCUDDER, Circuit Judges.

Focus: Court Error – Bankruptcy – Sanctions

Frank Novak tragically took his own life in February 2012. He left his company, Chicago Management Consulting Group, Inc., to his close friend Debra Comess. She was not in a position to manage the struggling firm, so she initiated bankruptcy proceedings almost immediately after Novak’s death. The Chapter 7 Trustee discovered numerous transfers from Chicago Management Consulting Group’s coffers to Comess and Julia Hathaway—another Novak companion who ran a small yoga studio. Believing the transfers to be fraudulent under the Bankruptcy Code, the Trustee sought to reclaim their value for the Estate. After a bench trial, the bankruptcy judge ruled that the transfers to Comess and Hathaway were voidable on grounds of actual and constructive fraud and imposed sanctions on Hathaway for discovery lapses. The district court affirmed.

Comess settled her case; this appeal concerns the transfers to Hathaway. She launches several arguments. First, she contends that the bankruptcy judge committed clear error by ignoring one of the Trustee’s trial exhibits when evaluating the company’s financial health. Second, she challenges the bankruptcy judge’s finding that the company did not receive reasonably equivalent value in return for its transfers. Third, she argues that the company did not have “creditors” under the Illinois Uniform Fraudulent Transfer Act (“IUFTA” or “the Act”) at the time of the transfers. Finally, Hathaway vigorously disputes the sanctions ruling.

We affirm. As a preliminary matter, Hathaway failed to comply with multiple rules of appellate procedure. On the merits, our review of a bankruptcy court’s factual findings is constrained; we reverse only for clear error. Not one of Hathaway’s arguments meets this high bar. The bankruptcy judge was amply justified when he concluded that the company was insolvent, the transfers to Hathaway were gratuitous, and the company had creditors under the Act. And we see no reason to disturb the imposition of discovery sanctions.

Affirmed

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Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.