801 F.3d 833
7th Cir.2015Background
- Investors sued Central Sleep Diagnostics and promoter Kenneth Dachman for fraud; a federal court appointed a receiver in Nov. 2010 and entered a broad stay of related civil proceedings.
- Adam Goodman, a former Central Sleep attorney and creditor for unpaid fees (~$28,205), obtained state-court default judgments and later filed a claim with the federal receiver.
- Goodman and the Dachmans violated the federal stay by prosecuting a state medical-malpractice suit and by Goodman filing a judgment lien on that suit’s proceeds; neither informed the receiver or the district court.
- The Buyer malpractice case settled for $305,000; the receiver froze the proceeds, brought them into the receivership estate, and proposed a pro rata distribution plan excluding postjudgment interest, costs, and certain collection fees.
- The district court rejected Goodman’s claim to priority on the Buyer proceeds, set a $250,000 supersedeas bond for any appeal (which Goodman did not post), approved the distribution, and the estate was fully disbursed. Goodman appealed.
- The Seventh Circuit affirmed the district court, held Goodman’s arguments frivolous, and granted the receiver leave to seek Rule 38 appellate sanctions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Priority of state-court lien on Buyer settlement | Goodman: his state-court lien was "perfected" and entitled him to priority over receivership | Receiver: proceeds were part of receivership; lien was obtained in violation of the federal stay and is subordinated | Court: Affirmed receivership priority; lien disregarded because obtained in breach of stay and receiver had superior equitable claim |
| Mootness / equitable mootness of appeal | Goodman: requests reversal to reopen receivership and recover full claim | Receiver: distribution and termination of receivership make appeal moot or at least equitably moot | Court: Not constitutionally moot but equitable concerns and finality weigh against disturbing consummated distribution; proceeded to merits but found appeal frivolous |
| Exclusion of postjudgment interest and costs from claim amount | Goodman: state judgment entitles him to interest and costs to be paid in receivership | Receiver: equitable distribution should treat claimants equally; such extras were excluded to avoid advantaging those who litigated outside stay | Court: District court did not abuse discretion; exclusion was reasonable to equalize claimants affected by stay |
| Confidentiality of claimants’ identities | Goodman: identities should be public; secrecy improper | Receiver: claimant identities submitted in camera; limited confidentiality protects victims | Court: District court’s confidentiality decision was within its discretion; Goodman’s challenge lacked merit |
| Sanctions under Rule 38 | — | Receiver: appeal is frivolous and sanctionable | Court: Appeal frivolous and sanctionable; receiver may submit affidavit of damages for Rule 38 sanctions |
Key Cases Cited
- United States v. Dachman, 743 F.3d 254 (7th Cir.) (related criminal convictions and factual background)
- SEC v. Wealth Mgmt. LLC, 628 F.3d 323 (7th Cir. 2010) (discusses equitable mootness in receivership/bankruptcy plans)
- United States v. Segal, 432 F.3d 767 (7th Cir.) (equitable mootness and difficulties of unwinding distributions)
- In re Vlasek, 325 F.3d 955 (7th Cir.) (equitable relief and receivership remedies)
- In re UNR Indus., 20 F.3d 766 (7th Cir.) (distinguishing equitable mootness contexts)
- Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373 (U.S. 1985) (Full Faith and Credit Act and preclusion principles)
- McCoy v. Iberdrola Renewables, Inc., 769 F.3d 535 (7th Cir.) (standard for appellate Rule 38 sanctions)