In Re Golf 255, Inc.
652 F.3d 806
| 7th Cir. | 2011Background
- Golf 255, Inc. owned a golf course and faced a Chapter 11 bankruptcy petition filed by creditors in October 2006.
- Dunlap testified against the petition; the bankruptcy court granted relief and appointed Robert Eggmann as trustee.
- The trustee sought to sell the golf course; sale was approved over Dunlap’s objections and later closed.
- A deed surfaced allegedly transferring the golf course from Golf to a company tied to Dunlap’s address; trustee sought and obtained an injunction.
- The golf course sale proceeded to a local recreation district for $5 million; proceeds paid creditors in accordance with priorities, insid ers partially paid, outsiders fully paid.
- Jakich and Dunlap filed multiple motions challenging the petition, the sale, and later alleged fraud by Kielty; discovery was resisted and the case moved toward closure in 2010.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Kielty’s conduct constitutes fraud on the court | Jakich and Dunlap claim Kielty’s inflated filings show fraud on the court | Kielty acted as a creditor, not as a court officer or attorney in the petition | Not fraud on the court; mere inflated claims by a creditor do not constitute fraud on the court |
| Whether discovery to prove fraud should have been allowed | Discovery would establish prima facie fraud and justify further investigation | Courts denied discovery; fraud claims lacked merit and timeliness concerns applied | Discovery denial proper; insufficient merit to warrant investigation at this stage |
| Whether the sale could be rescinded under § 363(m) based on alleged fraud | If fraud occurred, sale should be rescinded or revisited | Sale once completed could not be undone under § 363(m) absent a party to the fraud | Sale not rescindable; no party to Kielty’s alleged fraud joined as necessary to reopen sale |
| Whether sanctions for frivolous appeal were warranted | Appellants acted to uncover fraud and pursue legitimate relief | Appeals were groundless, obsessive, and harassing; sanctions justified | Sanctions awarded; trustee to submit precise damages and costs |
Key Cases Cited
- Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (U.S. 1944) (fraud by counsel constitutes fraud on the court)
- Oxxford Clothes XX, Inc. v. Expeditors Int'l of Washington, Inc., 127 F.3d 574 (7th Cir. 1997) (limits on setting aside judgments for fraud on the court)
- Drobny v. Commissioner, 113 F.3d 670 (7th Cir. 1997) (defines fraud on the court and its scope)
- In re Whitney-Forbes, Inc., 770 F.2d 692 (7th Cir. 1985) (discusses narrow scope of fraud on the court)
- In re Edwards, 962 F.2d 641 (7th Cir. 1992) (precedent on bankruptcy-related relief and boundaries)