United States v. Resnick, 08-4039 (7th Cir. 2010)

This case presents issues arising from the government’s efforts to collect a criminal defendant’s financial obligations to the government from a third party who received money from the insolvent defendant.

Defendant Adam Resnick pled guilty to one count of wire fraud under 18 U.S.C. § 1343 for his role in a check-kiting scheme that caused the failure of Universal Federal Savings Bank. Under the plea agreement, Resnick would serve prison time and owe approximately $ 9.75 million in restitution to Universal’s insurer, the Federal Deposit Insurance Corporation.

Resnick was insolvent, so the government invoked the supplemental procedures authorized by 18 U.S.C. § 3613 to collect some of the money from appellant Domenic Poeta. Poeta was a bookie to whom Resnick paid significant sums of money to satisfy illegal gambling debts.

After a bench trial in which Resnick testified and Poeta did not, the district court entered judgment for the government for $ 848,197.63 ($ 647,211.00 in check transactions from Resnick to Poeta, plus prejudgment interest of $ 200,986.63) under theories of fraudulent transfer under the Federal Debt Collection Procedure Act (“FDCPA”) and common-law unjust enrichment.

Poeta has appealed, and we affirm.

I. The Facts

In the criminal prosecution against Resnick, Resnick reached a plea agreement with the government. Under the agreement, the district court sentenced Resnick to 42 months in federal prison and ordered him to pay $ 10,457,825.60 in total restitution, including $ 9,750,545.60 to the FDIC.

The government has been able to recover only a fraction of the restitution judgment against Resnick. Throughout his check-kiting scheme, Resnick held few assets and was insolvent. With each illicit withdrawal from Universal, Resnick became indebted to Universal for the amount of fraud proceeds he obtained. Accordingly, the government has sought to trace the proceeds of the scheme to recover the restitution owed by Resnick.

A significant portion of the funds that Resnick stole from Universal went toward feeding his remarkable gambling habit, including money that Resnick paid to appellant Domenic Poeta to satisfy illegal gambling debts. The government presented to the district court 16 checks totaling $ 647,211. All were drawn by Resnick on his Universal bank account and were made payable either to Poeta himself or to “cash” and were negotiated by Poeta.

Based on the criminal judgment against Resnick, the government initiated third-party proceedings against Poeta under the original criminal caption. Federal law allows the government to collect financial obligations under criminal judgments by using federal and state procedures for collecting civil judgments. 18 U.S.C. § 3613(a).

On April 9, 2007, the government served a citation to discover assets directed to Poeta pursuant to Federal Rule of Civil Procedure 69 and 735 Ill. Comp. Stat. 5/2-1402. Pursuant to the citation, Poeta appeared in person with counsel on August 23, 2007 to be examined under oath as to Resnick’s assets. When questioned about his gambling operations and his association with Resnick, Poeta repeatedly invoked his Fifth Amendment privilege against self-incrimination.

The government then filed a petition for relief against Poeta, alleging that Resnick had defrauded Universal of approximately $ 10.5 million and had used some of that money to pay Poeta for illegal gambling debts. The petition alleged that the transfers from Resnick to Poeta were fraudulent because they were not supported by consideration (an illegal gambling contract provides no value), and that Resnick was insolvent and indebted to his victim Universal at the times of the transfers.

The government alleged both intentional fraudulent transfer and constructive fraudulent transfer under 28 U.S.C. §§ 3304(b)(1)(A) and (B)(ii), respectively. The government later added a third theory of unjust enrichment. As a remedy, the government  sought $ 647,211, plus prejudgment interest.

Poeta’s answer to the government’s petition failed to deny any facts relevant to the government’s theories of recovery. Poeta either admitted the allegations, claimed insufficient information to admit or deny them, or invoked his Fifth Amendment privilege against self-incrimination.

Given the perceived lack of factual dispute, the government filed a motion for judgment on its petition. Poeta responded by filing a motion to strike the government’s motion. Poeta argued that Resnick never rightfully owned the money that he transferred to Poeta, from which Poeta concluded that the money was not properly the subject of a fraudulent transfer claim. Poeta also argued that he had not received sufficient discovery from the government to defend the claims against him.

On June 6, 2008, the district court held a trial to resolve the pending matters. The government offered the testimony of Adam Resnick and six exhibits. Poeta called three witnesses but did not testify himself. The district judge heard oral argument on June 30 and July 2, 2008. On July 23, 2008, the district judge orally announced that he was finding for the government for the full amount sought, $ 647,211 plus prejudgment interest of $ 200,986.63, for a total of $ 848,197.63. The district court entered this judgment in writing on July 31, 2008, but then vacated that judgment on August 6, 2008.

The district court asked the government to submit draft findings of fact and conclusions of law, and the government did so. Poeta filed objections and submitted an alterative set of findings and conclusions, seeking setoff from the final judgment for money he had paid to Resnick in gambling winnings. Poeta later filed supplemental proposed conclusions of law in which he advanced for the first time the affirmative defenses of contributory negligence and failure to mitigate damages.

On September 24, 2008, the district court issued its Findings of Fact and Conclusions of Law. The district court found that the government had established Poeta’s liability on the alternative theories of constructive fraudulent transfer and unjust enrichment.

The court declined to decide whether Resnick was ever the “lawful owner” of the funds he transferred to Poeta. If he was the owner, the district court reasoned, the government could recover for fraudulent transfer, and if he was not, the government could recover for unjust enrichment.

Poeta moved to alter or amend the judgment pursuant to Federal Rule of Civil Procedure 59(e). His motion reargued the issues of ownership, mitigation of damages, and contributory negligence. The motion also asserted for the first time that the post-judgment supplementary proceedings were not the appropriate vehicle for adjudicating the government’s claims and had denied him due process of law. The district court denied this motion, and Poeta has appealed.

II. Ownership and Fraudulent Transfer Under the FDCPA

To establish Poeta’s liability for constructive fraudulent transfer under the FDCPA, the government was required to show that the judgment debtor Resnick:

ma[de] the transfer . . . without receiving a reasonably equivalent value in exchange for the transfer or  obligation; [and]     intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.  28 U.S.C. § 3304(b)(1)(B)(ii).

Resnick’s payments to Poeta satisfied the  first element because an illegal gambling obligation has no legal value. Under Illinois law, all obligations incurred through illegal gambling are null and void, and any such obligation may be set aside and vacated. Illinois Loss Recovery Act, 720 Ill. Comp. Stat. 5/28-1, 28-7. The second element was also satisfied because Resnick certainly should have believed that he was incurring debts beyond his ability to pay when he defrauded Universal of millions of dollars, in large part to feed his gambling habit.

Poeta does not dispute these two elements, but he argues that Resnick made no “transfer” to him within the meaning of the FDCPA because Resnick never legally owned the (stolen) money he paid to Poeta.

The FDCPA specifies that a “transfer is not made until the debtor has acquired rights in the asset transferred.” 28 U.S.C. § 3305(4). Poeta argues that since Resnick acquired the money through fraud, he was never the legal “owner” of any funds that he transferred from the Universal account. Therefore, the argument goes, section 3305(4) places Resnick’s payments to Poeta outside the scope of the FDCPA, so that Poeta cannot be found liable on a fraudulent transfer theory.

The FDCPA’s fraudulent transfer provisions are not written in terms of legal and rightful ownership. The key statutory inquiry here is whether Resnick had “rights in the asset transferred.”

There is no doubt that Resnick fraudulently obtained the money he transferred to Poeta. His fraud does not mean that he lacked any “rights” in the money, including the power to transfer it. As a practical matter, he had full power to draw on the Universal account and to transfer the money to others. Resnick used this power to defraud the bank, but this power was obtained by observing the legal formalities. Poeta’s assertion that Resnick was not a legal signatory is incorrect–while Resnick skirted Universal’s private rules for obtaining drawing authority, nothing in the record indicates that his drawing authority itself was illegal. It was his use of that authority that was criminal.

We find that the requirement of “rights in the asset transferred” was satisfied here because Resnick had possession of the money he delivered to Poeta.

The fact that the victims of the fraud had greater rights in the assets that were transferred does not work to shield Poeta from this collection effort. It would be odd to interpret the statute, enacted to provide a remedy for the benefit of one of those victims, to give greater rights to someone in Poeta’s position–a bookie receiving stolen money from a criminal–than to others who receive money without giving adequate consideration in more innocuous circumstances.

Although Resnick was not the legal and rightful owner of the funds transferred in the course of his fraudulent scheme, he had the legal right to draw on the account at Universal and the power to transfer the funds at issue, subject to the rights of victims to pursue remedies later. Resnick’s transfers of money to Poeta fall within the scope of the FDCPA, and Poeta is liable to the government for the constructively fraudulent transfers. This court need not reach the district court’s alternative theory of unjust enrichment.

The judgment of the district court is AFFIRMED.

For the full opinions visit the 7th Circuit Court of Appeals Web Site

For more about Chicago Criminal Defense Attorney Michael J. Petro, visit www.mjpetro.com.

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