Robert Siragusa v. Arturo Collazo
817 F.3d 1047
7th Cir.2016Background
- Collazo, a real-estate developer, borrowed short-term from Dr. Robert Siragusa, Siragusa’s employee-benefit trust, and Siragusa’s three adult children to finance condo-conversion projects; loans carried high interest and promissory notes were signed by LLCs controlled by Collazo.
- Collazo later transferred unsold Chicago condo units into new LLCs he controlled and mortgaged them to obtain further financing; some repayments to the Siragusas were late or incomplete.
- In 2005 Collazo solicited a $1 million investment from the Siragusas for an Arizona project, assuring prompt repayment of Chicago loans (30–60 days) while not disclosing the transfers and new liens; the Arizona borrowing entity never purchased the property and the Siragusas were not repaid.
- Collazo filed bankruptcy in 2012; the Siragusas brought an adversary proceeding alleging fraud and seeking nondischargeability of debts under 11 U.S.C. § 523(a)(2)(A).
- The bankruptcy and district courts held Dr. Siragusa’s and his trust’s fraud claims time-barred under Illinois’ five-year statute of limitations but found Dana and Robert Joseph’s fraud claims (Arizona-related) nondischargeable; Dana’s claim based on fraudulent transfers of Chicago units and the creditors’ request for a money judgment were remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Dr. Siragusa’s and the trust’s fraud claims are time-barred under Illinois law | Siragusa contends fraud claim timely because he discovered injury later | Collazo argues discovery (and thus limitations) occurred by July 2007 | Court: Claims were time-barred; a reasonable investor would have discovered earlier, so limitations expired before bankruptcy filing |
| Whether the debts arise from promissory notes (contract) or from Collazo’s fraud (affecting limitations period) | Siragusas could treat debts as contractual to obtain a longer limitations period | Collazo notes he was not a party to the promissory notes (LLCs signed them), so contract limitations do not apply to him | Court: Siragusas didn’t assert veil-piercing; debts characterized as fraud claims subject to five-year limitations |
| Nondischargeability of Arizona-related debts to Dana and Robert Joseph under § 523(a)(2)(A) | Dana and Robert argue Collazo fraudulently induced loans for Arizona project | Collazo argues he may not have intended fraud when obtaining Chicago loans and limitations issues apply | Court: Debts to Dana and Robert Joseph stemming from fraudulent inducement re Arizona project are nondischargeable |
| Whether transfer of unsold Chicago units to new LLCs constitutes nondischargeable fraud (fraudulent transfer theory) | Dana contends the transfers were fraudulent conveyances that rendered debts uncollectible, creating nondischargeable debt | Collazo and courts found insufficient proof he intended fraud at origination; but transfers might later give rise to fraud | Court: Issue preserved—under McClellan theory transfer-induced fraud may create nondischargeable debt; remanded for further factfinding (Supreme Court’s Husky decision noted) |
| Whether bankruptcy court may enter a money judgment on nondischargeable debts | Creditors seek monetary judgment in bankruptcy court after nondischargeability finding | Collazo questions bankruptcy court’s constitutional/statutory authority (Stern) | Court: Bankruptcy judge should either obtain parties’ consent to enter final judgment or submit proposed findings to the district (Article III) judge per Executive Benefits; remanded to consider these alternatives |
Key Cases Cited
- Knox College v. Celotex Corp., 430 N.E.2d 976 (Ill. 1981) (Illinois discovery rule for accrual of fraud claims)
- McClellan v. Cantrell, 217 F.3d 890 (7th Cir. 2000) (fraudulent conveyance can create a new nondischargeable debt)
- Stern v. Marshall, 131 S. Ct. 2594 (2011) (limits on bankruptcy judges entering final judgment on certain state law claims)
- Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015) (parties may consent to bankruptcy adjudication of certain claims)
- Executive Benefits Insurance Agency v. Arkison, 134 S. Ct. 2165 (2014) (bankruptcy judges may submit proposed findings to district judges for final decision)
- In re McKendry, 40 F.3d 331 (10th Cir. 1994) (distinguishing limitations for state-law debt establishment and Bankruptcy Code dischargeability)
- Joyce v. Morgan Stanley & Co., 538 F.3d 797 (7th Cir. 2008) (application of Illinois limitations and discovery rules under federal review)
- In re Sasson, 424 F.3d 864 (9th Cir. 2005) (abstention and remand to state-court remedies where appropriate)