Bank of America, N.A. v. Veluchamy

Case Type:
Case Status:
Nos. 15-2902, 15-2908, 15-3815, and 16-3496 (7th Circuit, Jan 12,2018) Published
The Seventh Circuit Court of Appeals affirmed the district court’s ruling, finding the district court did not commit any reversible errors regarding the six main issues on appeal.
Procedural context:
In a bench trial, the bankruptcy court held that the evidence supported plaintiff-appellee’s major allegations of fraud against the defendants-appellants Veluchamy, and ordered, among other things, the turnover of certain funds to the estate under 11 U.S.C. § 542. Both the plaintiff and defendants appealed portions of the bankruptcy court’s decision. The district court affirmed the bankruptcy court’s decision except for the bankruptcy court’s judgment against certain Velachumy defendants regarding a particular stock. The defendants filed a total of four appeals to the 7th Circuit, challenging various particular holdings. These appeals were consolidated before the 7th Circuit. Ultimately, the 7th Circuit affirmed the district court’s decision on all of the subject issues on appeal.
Prior to their Chapter 7 bankruptcy case, the defendants-appellants Veluchamy personally borrowed and guaranteed a series of loans totaling $40 million from the plaintiff-appellee Bank of America. When the defendants defaulted on their loans, the plaintiff Bank sued and obtained a judgment against them for over $43 million. Shortly thereafter, the defendants filed for Chapter 7 bankruptcy, listing a negative net worth of $55 million. The plaintiff Bank filed an adversary proceeding against the defendants and their children (collectively “Veluchamys”), alleging the Veluchamys schemed to defraud creditors by hiding millions of dollars of assets via fraudulent transfers. In a bench trial, the bankruptcy court held, among other things, that the evidence supported plaintiff Bank’s main allegations. Both the plaintiff Bank and defendants appealed portions of the bankruptcy court’s decision, including some of the court’s proposed findings of fact and conclusions of law. The district court adopted the bankruptcy court’s proposed findings and conclusions, and affirmed the entirety of the bankruptcy court’s judgment except for the judgment amount against certain Veluchamys for the Appu Hotels stock, instead raising the judgment from $310,000 to $1,572,147. The Veluchamys filed a total of four appeals to the 7th Circuit, which were consolidated before the Court. On appeal, the Veluchamys raised 6 issues: (i) turnover under 11 U.S.C. § 542 is not the appropriate remedy for the $5.5 million the Veluchamys transferred to their JSM company since there is a legitimate dispute of property ownership of such funds, and the JSM company was not joined as a necessary party under FRCP 19 incorporated by Federal Rule of Bankruptcy Procedure 7019; (ii) the wording of the district court’s judgment, which required turnover of 24 pieces of jewelry, lacked clarity; (iii) the district court abused its discretion when it denied the defendants’ motion to consider the bankruptcy court’s bench trial record; (iv) the district court erred when it held certain Veluchamys jointly and severally liable under theories of aiding and abetting and conspiracy; (v) the amount of the bankruptcy estate’s recovery under 11 U.S.C. § 550 was erroneous regarding the VMark stock; and (vi) the district court erred when it reversed the bankruptcy court’s judgment concerning the Appu Hotels stock. Ultimately, the 7th Circuit affirmed the district court’s decision on all 6 issues.
Manion and Kanne, Circuit Judges, and Miller, District Judge, sitting by designation

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