Asset Protection Concepts and Strategies by Riser Adkisson LLP

Sham Trust Case - Dexia Credit Local v. Rogan

Trusts are a vital part of asset protection planning. But of course not all trust planning is legitimate. Follows is a case involving allegations that a sham trust was funded for the primary purpose of defrauding creditors, including allegations of fraudulent transfers.

Dexia Credit Local v. Rogan, 2008 WL 4543013 (N.D.Ill.,
Slip Copy Oct. 9, 2008)

United States District Court, N.D. Illinois, Eastern Division.

DEXIA CREDIT LOCAL, Plaintiff,

v.

Peter G. ROGAN, et al., Defendants.

No. 02 C 8288. Oct. 9, 2008.

Scott T. Mendeloff, Abigail Lynn Peluso, Gabriel Aizenberg,
Howrey LLP, Former AUSA, United States Attorney's Office (NDIL), Chicago, IL,
for Plaintiff.

Howard Michael Pearl, Cornelius Moore Murphy, Monika Maria
Blacha, Winston & Strawn LLP, Neil E. Holmen, Walker Wilcox Matousek LLP, Joseph
Andrew Spiegler, Much Shelist Denenberg Ament & Rubenstein, PC, Phillip Stewart
Reed, Debra L. Bogo-Ernst, John Michael Touhy, Sean Patrick Dailey, Vincent J.
Connelly, Mayer Brown LLP, Michael J. O'Rourke, Brian Michael Dougherty, Limo T.
Cherian, Mitchell Bruce Katten, O'Rourke, Katten & Moody, Chicago, IL, for
Defendants.

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge.

*1 Dexia Credit Local holds a judgment against Peter Rogan
in an amount in excess of $124 million. In August 2008, Dexia filed an ex parte
motion for a temporary restraining order and a preliminary injunction, seeking
an order freezing and turning over various assets in the United States and
abroad that it alleges are Rogan's or in his control or that he fraudulently
transferred. In that motion, Dexia alleged that Rogan, in concert with his
attorney Fred Cuppy and others, had engaged in a longstanding scheme to hinder
Dexia and other creditors from executing against his assets. Dexia filed the
motion ex parte based on its allegations that Rogan had taken steps in the past
to hinder Dexia from collecting, including evading court orders, and that if he
became aware of the motion, Rogan likely would take further steps to evade its
intended effect.

Dexia supported the motion with an extensive and voluminous
factual and legal submission. The Court initially heard Dexia's counsel in
camera, albeit on the record, and made findings that permitted Dexia to submit
its materials ex parte. The Court then took Dexia's motion for a temporary
restraining order under advisement. On or about September 2, 2008, the Court
summoned Dexia's counsel for a further in camera court session. During that
session, the Court advised Dexia's counsel that it intended to grant the
requested temporary restraining orders and asked counsel to prepare and submit
the necessary draft orders. Dexia's counsel did so, and the Court signed the
orders on September 4-5, 2008.

The temporary restraining orders the Court entered barred
Peter Rogan, his wife Judith Rogan, and Cuppy from directly or indirectly making
or allowing transfers or other dispositions of various assets. The orders also
froze assets held by certain institutions and entities that, based on Dexia's
submissions to the Court, appeared to be within Rogan's effective control. These
included assets held by certain trusts established for the benefit of Rogan's
children, Brian Rogan, Robert Rogan, and Sara Caitlin Rogan, as well as accounts
in which funds the trusts had transferred to the children were held. Those
accounts included the children's own accounts at certain banks and brokerage
firms.

Rogan's counsel served the temporary restraining orders
upon the enjoined individuals and upon the institutions and entities holding the
accounts the Court had ordered frozen. Following service of those orders, Brian,
Robert, and Sara Rogan each moved to dissolve the orders. Because the orders had
been entered ex parte in the first place, they were of limited duration. See
Fed.R.Civ.P. 65(b)(2). As a result, Dexia's motion for a preliminary injunction
effectively merged with the requests to dissolve the orders. The Court set the
matter down for hearing on the motion for preliminary injunction and directed
Dexia to post a $50,000 bond, which Dexia promptly did.

Facts

An evidentiary hearing is required on a motion for
preliminary injunction only to the extent that the response to such a motion
identifies genuine issues of material fact. See In re Aimster Copyright Litig. (
Appeal of Deep), 334 F.3d 643, 653-54 (7th Cir.2003); Ty, Inc. v. GMA
Accessories, Inc., 132 F.3d 1167, 1171 (7th Cir.1997). "[A]s in any case in
which a party seeks an evidentiary hearing, he must be able to persuade the
court that the issue is indeed genuine and material and so a hearing would be
productive-he must show in other words that he has and intends to introduce
evidence that if believed will so weaken the moving party's case as to affect
the judge's decision on whether to issue an injunction." Ty, 132 F.3d at 1171.
The Rogan children made written submissions to the Court that raised no dispute
about the lion's share of Dexia's factual contentions. Rather, the factual
component of their submissions focused on their contentions that they are
innocent parties who were unfairly harmed by the temporary restraining order and
would be unfairly harmed by a preliminary injunction.

*2 The Court first reviews the facts relevant to the
appropriateness of enjoining Peter Rogan. The Rogan children have contested none
of those facts. Thus, the Court will review them in summary fashion.

In 1989, an entity that Rogan controlled purchased
Edgewater Medical Center, a hospital on Chicago's north side. The
Rogan-controlled entity managed and administered EMC, and Rogan served as EMC's
chief executive officer.

In 1994, EMC was sold to Northside Operating Company. To
finance the purchase, Rogan caused the Illinois Health Facilities Authority to
issue approximately $41 million in bonds. Though he had sold EMC, Rogan retained
control of the hospital after the sale via a series of transactions, and he then
caused EMC to enter into management contacts with two entities that he also
controlled, Braddock Management LP and Bainbridge Management, Inc. In 1997,
Rogan arranged to refinance the bond debt at a lower interest rate, and to this
end, in June 1988 he secured a letter of credit from Dexia guaranteeing
repayment of the bonds. Dexia contends that both during the due diligence
process that led to its issuance of the letter of credit, and after Dexia issued
the letter of credit, Rogan defrauded Dexia by concealing that a significant
portion of EMC's revenue was obtained by fraudulent means, specifically fraud in
connection with claims for Medicare and Medicaid payments.

Eventually EMC's fraud was discovered, and the government
suspended Medicare and Medicaid payments to EMC. This caused EMC to suffer
financial reverses and, eventually, led Dexia to have to pay $55 million on
EMC's behalf to satisfy obligations to bondholders. Dexia was unable to obtain
reimbursement from EMC. It thereafter sued Rogan, Braddock Management, and
Bainbridge Management for fraud, conspiracy, and other torts. In May 2007, Dexia
obtained a default judgment against Rogan and the entities for actual damages of
approximately $53 million, punitive damages of approximately $53 million,
prejudgment interest of approximately $18 million, and costs of approximately
$11,000.

Dexia then instituted proceedings to attempt to collect its
judgment. Both before and after entry of the judgment, Dexia met with stalling,
resistance, and outright evasion from Rogan and others connected with him. It
ultimately obtained documents and other evidence that led it to file, in
mid-August 2008, its motion seeking imposition of temporary restraining orders
and preliminary injunctions against various persons and entities.

At issue in the present proceedings are trusts that Rogan
established for the benefit of his three children. They include three United
States-based trusts established in 1992 and three Belize-based trusts
established in 1997. In 1992, Rogan's children were ages 14, 11, and 8,
respectively. The trusts were initially funded primarily with ownership
interests in Rogan-controlled businesses.

When EMC was sold to Northside Operating Company in 1994,
the children's trusts, which held stock in a Rogan-controlled entity that owned
the hospital, received a total of approximately $4 million from the sale
proceeds of $31 million. The trusts also owned entities that, in turn, owned the
management companies through which Rogan continued to operate EMC following its
sale. During the period when Rogan operated EMC via these entities-1994 through
1997-the children's trusts received millions of dollars in distributions from
the entities.

*3 In 2002, the federal government instituted litigation
against Rogan under the federal False Claims Act concerning the alleged
submission of false Medicare and Medicaid claims for patients referred to EMC.
In that case, Judge John Darrah found that in the early 1990's, Rogan entered
into a conspiracy with another EMC officer and two physicians to pay the
physicians kickbacks and other improper benefits in return for patient
referrals. These referrals, in turn, resulted in substantial profits for Rogan.
See United States v. Rogan, 459 F.Supp.2d 692, 700 (N.D.Ill.2006). Though the
government's lawsuit directly concerned particular false claims submitted from
1995 through 2000, Judge Darrah found that "[t]he conspiracy was evident in the
early 1990s." Id. Based upon other findings by Judge Darrah, it appears that he
concluded the conspiracy began (albeit on an apparently smaller scale) at least
as early as 1993, see id. (findings concerning dealings between Roger Ehmen and
a Dr. Barnabas)-in other words, before the 1994 sale of EMC to Northside
Operating Company that generated proceeds paid to the children's trusts. Judge
Darrah found that the government proved that from 1995 through 2000, Rogan
caused Edgewater to submit over $19 million in false claims to Medicare and
Medicaid. Id. at 727. As indicated earlier, during at least part of that period,
the Rogan children's trusts received significant distributions from the entities
managing the hospital's operations, whose operations were in turn controlled by
Peter Rogan.

Based upon these facts, which the Rogan children do not
contest, the children's trusts have been funded, in significant part, with
assets that fairly may be considered to be the proceeds of fraud. On the other
hand, Dexia does not appear to contend, and it has not shown at this juncture,
that all of those funds were the proceeds of fraud.

In its submission in support of its motion for temporary
restraining order and preliminary injunction, Dexia offered evidence tending to
show that following the establishment and funding of the children's trusts,
Rogan continued to exercise control over the trusts and the assets they held. In
the current proceedings, the children have not challenged Dexia's contention in
that regard. For this reason, the Court, again, reviews this evidence in summary
fashion.

First, Rogan's personal attorney, Fred Cuppy, played a
direct role in administering the children's trusts. In 1999, Cuppy, in his role
as trustee, received on the trusts' behalf a distribution of a little over $1.2
million from Braddock Management LP; immediately caused the trusts to "loan"
$1.35 million to Boulevard Management, Ltd.; and Boulevard, via the assistance
of Troy Myers (another Peter Rogan attorney), in turn transferred $1.2 million
to Rogan himself. This sum was transferred ostensibly to pay off a promissory
note, though no documents evidencing the note have surfaced. See Dexia Ex. 349 ¶
46 & attached Ex. KK. The Court reasonably may infer, and does infer, that Rogan
and Cuppy used the children's trusts on this occasion to facilitate a
significant payment to Rogan via a circuitous route which, the Court infers, was
employed to try conceal payment to Rogan of what amounted to a very large cash
distribution from entities in which he had no significant ownership interest of
record.

*4 Dexia's evidence also reflects that Rogan controlled and
controls certain investments that appeared on the surface to be owned by the
children's trusts. These include various real estate developments in Savannah,
Georgia. Dexia's evidence also reflects that Cuppy caused the children's trusts
and a Bahamian trust established by Rogan to invest in the same Rogan-related
enterprises. Indeed, in 2002, Cuppy caused an entity that was, on paper, owned
entirely by the children's Belize-based trusts to transfer nearly $1 million to
an entity from which Rogan and Cuppy drew money for Rogan's benefit. Finally,
Dexia has offered evidence tending to show that David Miller, an employee of
Rogan, administered transactions pertaining to assets that, on their surface,
were owned entirely by the children's trusts.

Robert and Sara Rogan submitted signed but unsworn
statements in support of their motion to dissolve the temporary restraining
order and, in effect, in opposition to Dexia's motion to convert that order to a
preliminary injunction. Because the statements are unsworn, they are of no real
benefit to the Rogan children. But even an unsworn statement may be used by an
opposing party, see Fed.R.Evid. 801(d), and the statements are beneficial to
Dexia in certain respects. Specifically, certain of the statements confirm that
the Rogan children have received significant distributions from the trusts. Sara
Rogan stated that she has "received periodic distributions" from a trust, the
last a $25,000 distribution in July 2008; Brian Rogan made a similar statement
(which he later repeated in a sworn affidavit). Robert Rogan says nothing in his
unsworn statement about his receipt of funds from the trusts. It appears from Dexia's submissions and from the arguments of counsel for the children that each
of the children has at least one bank account as well as a securities account.

In later-submitted sworn affidavits, which Dexia has not
sought to dispute and which the Court appropriately may consider, Brian Rogan
recounts his employment history. After graduating from college in 1983, he went
to work for ABF Freight Systems in its management training program, worked there
for a little over two years, and received a salary, which he deposited into a
personal account at Chase Bank. He left ABF to go to work for Hoover Creek
Plantation in a management role, receiving a salary of $60,000, which he
deposited into a personal account at Wachovia Bank on which his mother Judith
Rogan is also, it appears, a signatory. He opened an account at Bank of America
in Chicago in August 2008 when he resumed his education.

Brian states in a sworn affidavit that he has received
distributions from a trust established in his name-in amounts he does not
disclose beyond the reference to $25,000 mentioned above-and that he has
invested that money "in part" in a securities account at TD Ameritrade. He used
funds "given to me from my trust" to pay for his wedding in September 2007. He
states that he has not transferred any funds to Peter Rogan.

*5 Dexia has also submitted its own evidence regarding
benefits the Rogan children have received from the trust, the accuracy of which
the children do not contest. A trust of which Robert Rogan is the beneficiary
purchased and owns the residence into which he moved in 2003; Cuppy was Robert's
primary contact in facilitating the acquisition. Robert has also received from
one or both of the trusts established for his benefit living expenses and funds
for the purchase of a car.

Dexia has also submitted evidence reflecting that between
2004 and 2006, Judith Rogan transferred over $548,000 to her daughter Sara or
for Sara's benefit. Dexia contends, with supporting evidence, that Peter Rogan
has been the sole source of all funds to which Judith has had access. The Rogan
children do not contest Dexia's contention. They likewise have not contested
Dexia's contention that Judith has acted as Peter Rogan's alter ego, a
contention amply supported by evidence Dexia has submitted to the Court. As a
result, it has been established, at least for purposes of the present motion,
that the $548,000-plus that Sarah has received or benefitted from was
transferred, in effect, by Peter Rogan (via Judith Rogan as his alter ego).

Aside from the brief references in the Rogan children's
statements and the evidence regarding Robert Rogan cited above, Dexia has
offered no evidence-at least none the Court can locate in the voluminous
submissions-regarding exactly when the Rogan children received transfers from
the trusts. That is, however, unsurprising; Dexia did not have ready access to
records regarding deposits and withdrawals from the children's accounts, and the
Court was advised during the hearings on the present motion that, with the
exception of Brian Rogan, the Rogan children had not produced any meaningful
quantity of records regarding those accounts. That aside, however, the evidence
submitted is sufficient, at least for purposes of a preliminary injunction
motion, to permit a reference that the transfers from the trusts to the
children, and from Judith Rogan to Sara, occurred in or after 1997, when the
Dexia debt was incurred, and that a significant portion of those transfers
occurred after Dexia filed this lawsuit.

Discussion

1. Preliminary issues

The Rogan children challenge the Court's entry of the
temporary restraining orders without notice. The Court has previously explained
the basis for its determination to enter the orders ex parte and continues to
believe that determination was correct. In any event, however, the Rogan
children have been heard fully on the issue of the restraining orders' extension
and on the motion for preliminary injunction. Their challenge to the ex parte
nature of the restraining orders is now effectively moot.

The Court also rejects the Rogan children's challenge to
the initial entry of the temporary restraining orders without requiring Dexia to
post a bond. The Court subsequently ordered Dexia to post a bond, and Dexia
promptly complied. This challenge is thus likewise moot.

*6 Brian Rogan contends it is inappropriate for the Court
to enter an injunction against him because he is not a party to the underlying
suit. The Court notes initially that it did not enjoin the Rogan children
personally, nor has Dexia asked the Court to do so. Rather, the Court was asked
to preclude financial institutions from transferring certain assets on the
ground that they are, in fact or in effect, Peter Rogan's assets. The requested
orders unquestionably affect the interests of the Rogan children, but the fact
is that they themselves have not been enjoined personally.

In any event, Illinois' statutory provisions relating to
post-judgment collection proceedings, which apply in federal court pursuant to
Federal Rule of Civil Procedure 69(a), specifically permit a court to "enjoin
any person, whether or not a party to the supplementary proceedings, from making
or allowing any transfer or other disposition of, or interference with, the
property of the judgment debtor not exempt from the enforcement of a judgment."
735 ILCS 5/2-1402(f)(2). Illinois Supreme Court Rule 277(a), which governs
citation proceedings, likewise permits a proceeding to be "against the judgment
debtor or any third party the judgment creditor believes has property of or is
indebted to the judgment debtor." That is the primary basis upon which Dexia has
proceeded in this matter-its contention that third parties hold property that
actually is Peter Rogan's, even though it is held under some other guise.

The Rogan children also challenge the propriety of venue in
this District. Again, it is important to note that they are not personally the
object of any restraining order or of the requested preliminary injunction.
Rather, the Court has entered orders directed at persons and institutions
holding assets reasonably believed to be those of Peter Rogan, who has a
judgment against him that was entered in this District. In any event, as Dexia
argues, the Rogan children likely have waived any objection to venue by
intervening in this proceeding. See, e.g., Asbury Glen/Summit Ltd. P'ship v.
Southeast Mortgage Co., 776 F.Supp. 1093, 1096 (W.D.N.C.1991); Commonwealth
Edison Co. v. Train, 71 F.R.D. 391, 394 (N.D.Ill.1976). Even were that not the
case, venue is proper here. Ths current proceedings are supplementary,
post-judgment collection proceedings that arise from the Court's entry of a
judgment against Rogan. The events that gave rise to the "cause of
action"-namely Dexia's collection efforts-took place in this District. So even
if venue must be determined separately for post-judgment proceedings, it has
been established.

2. Merits of Dexia's motion

The Court turns next to the merits of Dexia's motion for a
preliminary injunction. To prevail on its motion, Dexia must show that it has a
likelihood of success on the merits and that it lacks an adequate remedy at law
and will suffer irreparable harm if the injunction is not granted. FoodComm
Int'l v. Barry, 328 F.3d 300, 303 (7th Cir.2003). If Dexia meets these
requirements, the Court must balance the harm to Dexia if an injunction is not
issued against the harm to opposing parties if it is issued, and must also
consider the interests of others, including the public. Id. This balancing
"involves a sliding scale analysis: the greater [the movant's] chances of
success on the merits, the less strong a showing it must make that the balance
of harm is in its favor." Id.

*7 The Rogan children did not challenge Dexia's motion to
enter preliminary injunctions against the domestic and foreign trusts of which
the children are the beneficiaries and have thus forfeited any challenge to
those orders. In any event, the Court properly entered preliminary injunctions
against the children's trusts based on Dexia's contention, not challenged by the
children and on which Dexia has established a reasonable likelihood of success,
that the trusts are alter egos of Peter Rogan.

To pierce the veil of the trusts, Dexia must show that they
and Rogan have such a unity of interest that their separate personalities no
longer exist, and that there are circumstances such that continuing to recognize
their separateness would sanction a fraud or promote injustice. See, e.g., Van
Dorn Co. v. Future Chem. & Oil Corp., 753 F.3d 565, 569-70 (7th Cir.1985). A
trust may be considered to be the alter ego of a judgment debtor if the debtor
used the trust's assets for his own benefit and exercised authority over the
trust's assets. See, e.g., In re Turner, 335 B.R. 140, 147 (Bankr.N.D.Cal.2005),
reaff'd on reconsideration, 345 B.R.2006 (Bankr.N.D.Cal.2006). The factors
considered include whether there was a close personal relationship between the
transferor and the trust; the transferor received consideration for the
transfer; the trust was created to shield the transferor's assets from creditors
and the transfer was made in anticipation of incurring debts or in anticipation
of collection activity; the transferor continued to enjoy the benefits of the
property following transfer; the transferor contributed all or just part of the
trust's assets; and there was commingling of management and record keeping of
the assets of the transferor and the trust. See, e.g., United States v. Schaut,
No. 97 C 4114, 2001 WL 1665314, at *3 (N.D.Ill.Dec.28, 2001); In re Maghazeh,
310 B.R. 5, 18-19 (Bankr.E.D.N.Y.2004); Turner, 335 B.R. at 147.

Even had the Rogan children contested Dexia's request for
preliminary injunctions against the trusts, the Court would have concluded that
Dexia established a reasonable likelihood of success on the merits on its claim
that the trusts are Peter Rogan's alter egos. There is no question that a close
relationship exists between the transferor (Rogan) and the trusts (whose
beneficiaries are Rogan's children) and that Rogan contributed all of the assets
that the trusts hold without receiving any consideration in return. In addition,
administration of the trusts was under the control of Cuppy, Rogan's personal
attorney. The evidence Dexia presented reflects that Cuppy was wearing at least
two hats and that he acted in concert with Peter Rogan and with Rogan's
interests in mind as much as, and perhaps more so than, the interests of the
trust beneficiaries. And in at least some significant instances, recounted
earlier, the trusts' assets were used for the benefit of Rogan himself, without
regard to the interests of the trust beneficiaries. To that extent, at least,
trusts amounted to a facade that effectively allowed Rogan to direct the
disposition of their assets as though he had never parted with them to begin
with.

*8 Based on the current record, there is some question
whether the children's trusts (in possible contrast to certain other trusts
Rogan established) were set up in anticipation of Rogan incurring any particular
debt or in anticipation of any particular collection activity. But there is
evidence, not disputed by the Rogan children, that Cuppy marketed himself as
being in the business of setting up asset protection devices, including offshore
trusts, for persons like Peter Rogan with substantial wealth. It is fair to
infer that Rogan established the children's trusts for that purpose, even if not
to try to evade any particular debt or creditor.

In sum, Dexia provided ample evidence-none of it contested
by the Rogan children-establishing a reasonable likelihood of success on its
contention that the children's trusts were Peter Rogan's alter egos.FN1 For this
reason (in light of the other preliminary injunction factors discussed below),
it was and is appropriate to freeze the assets of the trusts.

FN1. The same is true with regard to Judith Rogan, as noted
above; the children, and in particular Sara Rogan, have not challenged Dexia's
contention in that regard.

That by itself does not, however, entitle Dexia to freeze
accounts into which funds that the trusts (or Judith Rogan) have distributed to
the children have been deposited. The effect of the alter ego finding is a
determination that the trusts' assets and those of Judith Rogan were, in effect,
still Peter Rogan's own assets. But that does not definitively determine whether
Dexia has shown a reasonable likelihood of success on its contention that the
funds Rogan's alter egos transferred to the children are assets that Dexia is
entitled to recover-or, at present, to hold in place pending its attempt to
recover them.

The Court does not understand Dexia to contend that the
Rogan children themselves have acted as Peter Rogan's alter egos-and even if
Dexia could be understood as making such a contention, it not established a
reasonable likelihood of success on that particular point. There is no
indication in the current record that any of the Rogan children were anything
other than innocent beneficiaries of their father's largesse. Peter Rogan may
have gained via fraud the lion's share of the assets he transferred to the
trusts, but there is no indication that the children participated in the fraud
or knew of its existence. Nor is there any evidence that any of them-in contrast
to, for example, their mother Judith Rogan-were involved in any effort to funnel
assets back to Peter Rogan or to permit the assets in the trusts to be used for
his benefit. To put it another way, although Rogan, via the instrumentality of
the trusts, conferred significant assets on his children without receiving
consideration in return, there is no evidence that Rogan retained control over
those assets after they were transferred to the children.

Dexia contends that it can levy on the assets that the
Rogan children have received from the trusts via a theory that the children are
Peter Rogan's nominees. A judgment creditor may levy upon property held in the
name of someone other than the judgment debtor if the debtor engaged in a legal
fiction by placing title to the property in the hands of someone else while, in
actuality, retaining all or some of the benefits of ownership. See, e.g.,
Richards v. United States, 231 B.R. 571, 578 (E.D.Pa.1999). In determining
whether a person-in this case, each of Rogan's children-is a nominee for a
debtor, courts consider factors such as whether the person paid consideration
for the property, whether the property was given to the person in anticipation
of a suit or liability, whether the judgment debtor exercises control of the
property after its transfer, whether there is a family or other close
relationship between the debtor and the transferee, whether the debtor has the
benefits of the property after the transfer, and whether the debtor maintains
the property after the transfer. See, e.g., Richards, 231 B.R. at 579, see also,
United States v. Reed, 168 F.Supp.2d 1266 (D.Utah 2001). See generally Dexia
Mem. Relating to Peter G. Rogan Irrevocable Trust at 24 n. 49 (citing cases),
cited in Dexia Resp. to Opp. of Brian Rogan, et al. to Mot. for Prelim.
Injunction at 5 n. 5.

*9 In this case, certain of these factors cut in favor of a
"nominee" finding, and others cut in the opposite direction. The Rogan children
paid neither Peter Rogan nor the trusts or Judith Rogan any consideration, and
there is obviously a family relationship between the children and their father.
In addition, it appears that the children received significant distributions
after it had become apparent that Rogan had potential or even actual liabilities
to Dexia. And as discussed earlier, Dexia has offered evidence giving rise to a
reasonable inference that the entire purpose of the children's trusts was to
allow Rogan to continue, irrespective of his obligations to creditors, to funnel
to his children unlimited sums of money, a good deal of it obtained by fraud. On
the other hand, there is no indication that Peter Rogan maintained any degree of
control over the children's funds after they received distributions from the
trusts (or Judith Rogan) or that he obtained any benefit from the funds they
received.

In the Court's view, the most significant factor in the
analysis of Dexia's nominee theory concerns the transferor's access to or
control over the assets following their transfer: as noted earlier, the thrust
of the nominee doctrine concerns the debtor's placement of paper title in the
hands of someone else while actually retaining some or all of the benefits of
ownership. Though Dexia has shown, sufficiently for present purposes, that Peter
Rogan retained the benefits of ownership regarding assets held in the children's
trusts, it has not shown that he had any of the benefits of ownership over
assets that the trusts (or Judith Rogan) had transferred to the children. For
this reason, the Court concludes that Dexia has not shown, on the present
record, a reasonable likelihood of success on its contention that the children
themselves hold assets as Peter Rogan's nominee.

Dexia also appears to contend that Peter Rogan's transfers
(via his alter egos) of assets to the children amounted to fraudulent
conveyances that may be unwound under Illinois law. A fraudulent transfer by an
alter ego entity properly may be treated as a fraudulent transfer by the
judgment debtor. See In re Turner, 335 B.R. at 147 (citing Fleet Credit Corp. v.
TML Bus Sales, Inc., 65 F.3d 119, 121-22 (9th Cir.1995)). The focus is on the
intent of the transferor, not that of the transferee.

Dexia has established a reasonable likelihood of success on
its contention that most, if not all, of the transfers made by Peter Rogan's
alter egos to the children amount to fraudulent conveyances under Illinois law.
Contrary to the suggestion of the children, it appears that a judgment creditor
may assert a fraudulent conveyance claim in the context of post-judgment
collection proceedings and need not file a separate lawsuit; that is how it was
done in Hong Kong Electro-Chemical Works, Ltd. v. Less, 539 F.3d 795 (7th
Cir.2008).

Under Illinois law, a debtor's transfer of an asset before
or after a creditor's claim arose is fraudulent if the transfer was made "with
actual intent to hinder, delay, or defraud any creditor of the debtor." 740 ILCS
160/5(a). In determining whether "actual intent" exists, a court is to consider
whether:

*10 - the transfer was to an insider;

- the debtor retained possession of control of the property
after transfer;

- the debtor had been sued or threatened with suit before
the transfer;

- the transfer was of substantially all the debtor's
assets;

- the debtor absconded;

- the debtor removed or concealed assets;

- the debtor received consideration reasonably equivalent
to the value of the asset transferred;

-the debtor was insolvent or became insolvent shortly after
the transfer;

-the transfer was made shortly before or after a
substantial debt was incurred;

-the debtor transferred the essential assets of a business
to a lienor who transferred the assets to an insider of the debtor.

740 ILCS 160/5(b).

In this case, though Peter Rogan did not retain control
over the assets after they were transferred to his children, the transfers were
made to "insiders" (immediate family members); at least some of them were
concealed via the circuitous routing of transfers via offshore trusts; at least
some of the transfers were made after Dexia filed or threatened suit; Rogan left
the country for Canada; Dexia has shown that he concealed significant assets via
other trusts and similar devices; he became insolvent in the sense of not having
assets sufficient to satisfy his obligations; and he received no consideration
for the transfers. Whether or not these particular transfers constituted all or
substantially all of his assets, the evidence is sufficient to show a reasonable
likelihood of success on Dexia's contention that at least some the transfers to
the children amounted to fraudulent conveyances. This leads to a conclusion that
some significant portion of the assets contained in the children's personal bank
and securities accounts-precisely how much is less than crystal clear-are there
as a result of fraudulent conveyances.

The Rogan children argue that they should not be penalized
because their father chose to provide for them. There is, of course, nothing
wrong with providing for one's children. But that does not mean that a debtor is
entitled to dispose of his assets (via alter egos, as Rogan did) as he
wishes-even to support his children-while evading his obligations to creditors.

The Rogan children also argue that they are entirely
innocent of the fraud that Rogan was found, via the default judgment, to have
perpetrated upon Dexia. They contend, to paraphrase one of their lawyers, that
the sins of the father should not be visited upon his children. The Court
certainly ascribes to this as a matter of principle. That said, the law permits
transfers by a debtor to family members to be undone under appropriate
circumstances. On the other hand, the Rogan children's innocence vis-a-vis the
underlying fraud factors into the Court's consideration of the balance of harms,
a matter the Court will take up shortly.

Finally, on the issue of likelihood of success, the Court
briefly addresses the issue of constructive trust. "The doctrine of constructive
trust is an equitable remedy based on fairness. A court may impose a
constructive trust on property acquired through fraud or theft, with the victim
as beneficiary ...." Hong Kong Electro-Chemical Works, Ltd. v. Less, 539 F.3d
795, 800 (7th Cir.2008). Dexia has established a reasonable likelihood of
success on its contention that at least some portion of the assets held in the
children's trusts, and thus some portion of the assets transferred to them, was
obtained by fraud and thus is subject to imposition of a constructive trust.
That is a further basis upon which Dexia may seek to levy on the funds
transferred to the children.

*11 The Court next turns to the other factors in the
preliminary injunction analysis. Dexia has established that, absent a
preliminary injunction, it risks irreparable injury for which it lacks an
adequate remedy at law. Dexia holds a substantial judgment against Rogan but has
been unable to collect. Given the dilatory and obstructive tactics that Rogan
and others acting in concert with him have used to hinder Dexia's collection
efforts (which Dexia has convincingly shown and which the Rogan children do not
address, let alone dispute), it is likely that, given the opportunity, Rogan
will take steps to make the trust assets similarly unavailable. A significant
risk of transfer beyond the court's jurisdiction of the assets of a judgment
debtor that might be used to satisfy the judgment against him qualifies as
irreparable injury. See, e.g., Tri-State Generation & Transmission Ass'n v.
Shoshone River Power, Inc., 805 F.2d 351, 355 (10th Cir.1986); In re Feit &
Drexler, Inc., 760 F.2d 406, 416 (2d Cir.1985); cf. SEC v. Lauer, 52 F.3d 667,
671 (7th Cir.1995) (potential for dissipation of assets belonging to another
amounts to irreparable injury).FN2 And once the assets are dissipated or removed
from the jurisdiction of the Court-of which there is a significant risk-Dexia
would lack any reasonably adequate means to levy on those assets. This is
sufficient to establish the lack of an adequate legal remedy.

FN2. In Grupo Mexicano de Desarrollo S.A. v. Alliance Bond
Fund, Inc., 527 U.S. 308, 119 S.Ct. 1961, 144 L.Ed.2d 319 (1999), the Supreme
Court held that prior to entry of a money judgment, a district court lacks the
authority to issue a preliminary injunction to prevent a defendant from
transferring assets in which no lien or equitable interest is claimed. That
decision has no bearing on this case, for at least two reasons: Dexia already
has a judgment against Rogan, and its citation to discover assets issued to
Rogan gave it a lien on his assets. See, e.g., Pontikes v. Perazic, 295
Ill.App.3d 478, 484, 229 Ill.Dec. 723, 692 N.E.2d 712, 717 (1998). Furthermore,
as discussed earlier, Illinois' post-judgment procedure specifically permits a
court to enjoin transfer or disposition of property of the judgment debtor-and,
as the Court has concluded, Dexia has established a reasonable likelihood of
success on its claim that the assets the children's trusts hold and those the
trusts transferred to the children are in effect Peter Rogan's property.

Dexia likewise faces a risk of irreparable injury for which
it lacks an adequate legal remedy from the dissipation of the funds the children
have obtained via fraudulent conveyances or which they hold in constructive
trust for Dexia as the creditor of Peter Rogan. By all indications, in
particular the arguments made by their attorneys, the children do not have
significant assets beyond those that Dexia has asked the Court to freeze.
Allowing the children unfettered access to those assets thus necessarily will
lead to their dissipation.

Though Dexia risks irreparable harm absent a preliminary
injunction, the children, who as far as the Court can determine are innocent
beneficiaries of Peter Rogan, unquestionably will be harmed by entry of the
requested injunction. The bottom line is that if the requested injunction is
issued as Dexia request, they will lack access to funds that otherwise would be
available to them for the expenses of daily living, not to mention legal fees
they may have reasonably incurred in attempting to seek relief from the Court's
prior orders. But because a preliminary injunction is an equitable remedy, the
Court does not see this as an "all or nothing" proposition. By allowing the
Rogan children access to the funds in their bank accounts-which are minimal to
begin with-and to some portion of the funds in their securities accounts,
subject to the Court's oversight, the Court can mitigate the harm they would
suffer from a preliminary injunction without depriving Dexia of a nearly-full
measure of the remedy it seeks.

*12 Having considered and balanced the appropriate factors,
the Court grants Dexia's motion for a preliminary injunction FN3 against the
accounts at issue in which, it appears from the evidence, the Rogan children
hold funds transferred from their trusts or from Judith Rogan, with the
following exceptions and conditions. First, the amounts currently in any
checking or savings accounts held at banks that are currently the subject of the
temporary restraining orders will be unfrozen, and the Rogan children may use
those funds to pay reasonable and necessary expenses. Second, counsel for Dexia
and the Rogans are directed to meet and to promptly (i.e. within the next three
business days) come up with a mechanism that will permit each of the children to
obtain, if he or she wishes, $25,000 (net of anticipated capital gains and other
taxes as well as commissions) from his or her securities account that is
currently the subject of the temporary restraining orders. The children may open
new bank accounts in which they may deposit these funds and any others that the
Court may hereafter permit them to access from the securities accounts; they
will be required to disclose those accounts to Dexia and execute consents
permitting Dexia's counsel to obtain records from any such accounts. The funds
thus withdrawn may be used for ordinary and necessary expenses of the account
holder. The Court is allowing the Rogan children to use these funds-both those
from their regular checking accounts and the $25,000 from their securities
accounts-upon the express condition that the funds cannot be transferred
directly or indirectly to or for the benefit of Peter Rogan, Judith Rogan, Fred
Cuppy, or anyone working for or acting in concert with any of them. The children
are directed to report to the Court and to Dexia's counsel with specificity, in
documents to be filed under seal, how any of these funds have been expended or
transferred, by the close of business on the Friday of each week so long as they
still retain any amount of these funds. The Court wishes to make it clear that
it will not tolerate any variance from or noncompliance with these directives
and will not hesitate to impose severe sanctions, including a contempt finding,
upon a showing of such noncompliance. The Court expects counsel to cooperate in
drafting and proposing the order or orders necessary to carry out the Court's
rulings.

FN3. This may, in effect, require modification of
previously-entered orders rather than entry of an entirely new order. The Court
will leave the mechanics of this to counsel in the first instance.

Because the Court has relaxed the terms of the restraining
orders, it believes that the bond currently posted by Dexia with regard to the
Rogan children and Judith Rogan is adequate and need not be increased or
otherwise modified.

The Court will entertain an appropriate request for
expedited discovery, to the extent that has not already been directed by prior
orders in this case, to facilitate prompt disposition of Dexia's claims to any
funds in the Rogan children's accounts that will remain frozen. These matters
will be set for trial or any other necessary evidentiary hearing at a prompt
date to be set at the upcoming status hearing. The Court will also entertain
requests by the Rogan children for further withdrawals from their securities
accounts but will do so only upon submissions verified under oath, and subject
to inquiry by the Court and Dexia's counsel, demonstrating good cause for the
nature and amount of any expenditures they propose to make.

Conclusion

*13 The Court grants Dexia's motion for a preliminary
injunction, extending to the accounts held by Brian Rogan, Robert Rogan, and
Sara Caitlin Rogan, on the terms and conditions stated in the body of this
decision. The case is set for a status hearing on October 16, 2008 at 9:30 a.m.
Proposed draft orders are to be submitted to the Court, in hard copy, by no
later than 12:00 p.m. on October 15, 2008. 

Labels: asset protection, creditor, fraudulent transfer, sham trust