The 7th Circuit Court of Appeals has ruled in favor of a Louisville-based creditor suing a Scottsburg farm seeking to collect on a debt, finding the farm failed to raise the appropriate defense in the district court.
The case of Caudill Seed & Warehouse Co., Inc. v. Mark D. Rose and MMR Farms LLC, 16-4072, began in 2007, when landscaping company Rose Seeding & Sodding Inc. began buying products on credit from Caudill Seed & Warehouse Co., a Louisville company. Within two years, Rose Seeding had purchased more than $120,000 in products, but neither the company nor its principal, Mark Rose, paid any of the debt.
Caudill filed suit, but by the time the litigation concluded in favor of Caudill, Rose had given 440 acres of land to MMR Farms LLC, which was owned by Rose’s son, Matt, as part of a “classic fraudulent conveyance.” Rose then filed for bankruptcy, prompting Caudill to begin an adversary proceeding in the bankruptcy and asking the U.S. District Court for the Southern District of Indiana to pull the 440 acres into the estate under 11 U.S.C. Section 548. The bankruptcy trustee made a similar request that was settled for a $100,000 payment, which was approved over Caudill’s objection.
Caudill then asked the district court to deny Rose a discharge, which the court agreed to do, leading to a second settlement. As part of that settlement, Rose promised to pay $100,000 to Caudill, starting with an immediate payment of $15,000. If Rose did not pay the full $100,000, then the agreement called for Caudill to get a judgment for $300,000, less anything already paid toward the debt.
Rose paid the initial $15,000 installment, but failed to pay anything else. Caudill filed a second suit, which led to a default judgment to Caudill for $285,000, which Rose also neglected to pay.
“It’s not that he paid what he could but was unable to satisfy the judgment; it is that he thumbed his nose at Caudill Seed and the federal court, paying nothing at all,” 7th Circuit Court of Appeals Judge Frank Easterbrook wrote.
Caudill then began supplemental collection proceedings, seeking to execute on the land fraudulently conveyed to MMR Farms. Rose and MMR, however, argued the settlement of the bankruptcy trustee’s claim precluded further action to collect on Rose’s debts.
The district court disagreed, finding that “issue preclusion depends on an actual decision, by a judge, that is necessary to the earlier litigation.” MMR, but not Rose, appealed, but the 7th Circuit Court affirmed the district court Friday, with Easterbrook writing that the question of whether the transfer of the 400 acres was a fraudulent conveyance was never actually litigated.
The appropriate legal defense for MMR is release, Easterbrook said, and MMR did point to the bankruptcy judge’s use of the word “release” twice when approving the settlement. But the appellate court noted the judge’s reference to a release was “a release by Rose and MMR Farms of ‘any claims that he/she/it may have against the Bankruptcy Estate.’”
MMR’s counsel sent a letter to the court claiming to have discovered a mutual release decision from December 2012, but the attorney did not ask for that release to be added to the record.
“But it would not have mattered if counsel had added the document to the record or sent it directly to us,” Easterbrook wrote. “…Rose and MMR did not present the defense of release to the district court in this enforcement proceeding; their only defense was issue preclusion. So a potential defense of release was forfeited before the proceedings reached this court.”