DEXIA CRÉDIT LOCAL v. ROGAN (November 24, 2010)

Peter Rogan was apparently engaged in a large Medicare and Medicaid fraud scheme in the 1990s through Edgewater Medical Center, a hospital he owned in Chicago. In a government False Claims Act case, a federal district court concluded that Edgewater submitted over $19 million in false claims. Dexia Crédit Local ("Dexia") also sued Rogan and his partners after it was forced to pay $55 million to Edgewater's bondholders under a letter of credit. Rogan defended that suit for years but eventually fled to Canada (but see). Dexia obtained a $124 million default judgment (see an earlier opinion and intheiropinion). Meanwhile, Rogan's entities had funneled millions of dollars to Florida and Belizean trusts he set up for each of his three children. Rogan's lawyer was the trustee of each of the trusts. Dexia started supplementary proceedings against the trusts by serving the trustee. During those proceedings, the district court dismissed two parties in the underlying litigation after it was discovered that their presence in the case destroyed diversity. After a bench trial, Judge Kennelly (N.D. Ill.) granted Dexia's motion to turn over the assets of the trusts. Alternatively, the court imposed a constructive trust on the trust's property. The Rogan children (the "Children") appeal.

In their opinion, Seventh Circuit Judges Kanne and Williams and District Judge Springmann affirmed. The Children raised numerous arguments on appeal, each of which was considered and rejected by the Court. First, the Court rejected the argument that diversity jurisdiction was lacking because LaSalle Bank, an Illinois corporation, assumed part of Dexia's risk. Dexia is a corporation formed under the laws of France. The Court rejected the notion that Dexia and La Salle operated together as some form of unincorporated association. Next, the Children argued that the were invalid because the underlying judgment was not final when those proceedings were commenced. It is true that the underlying judgment was not final when the supplementary proceedings were commenced, due to the bankruptcy status of one of the non-diverse parties. However, the non-diverse parties were dismissed retroactively. The Court concluded that the complaint in the supplementary proceedings should be read as if the non-diverse parties were never a part of the case. The district court therefore did not err in allowing the case to proceed. Third, the Children asserted that the district court had no authority to adjudicate their property rights. The Court disagreed with the premise of the argument. The district court was not adjudicating the Children's property rights. The supplementary proceedings alleged that the trusts contained assets of Rogan, the judgment debtor. The district court agreed -- it did not exceed its authority in so doing. Next, the Court rejected the Children's argument that they were entitled to a jury trial. The Court focused on the nature of the remedy. Because the relief sought and obtained was purely equitable, the Children were not entitled to a jury. Fifth, the Children argued that Illinois' five-year statute of limitations for constructive trusts applied, that the limitations period began to run when Dexia filed suit, and that Florida's 12-year statute of repose for fraud actions also barred the proceedings. The Court disagreed, holding that Illinois' seven-year statute for enforcement of judgments applied and that Florida law did not apply. Next, the Court agreed with the district court that issue preclusion prevented re-litigation of the factual finding by the district court in the False Claims Act case that Rogan's fraud began no later than 1993. Issue preclusion applies when the issue is the same, when it was actually litigated, when the finding was essential to the judgment, and when the party against whom it is to be applied was represented in the prior action. Although the Children were not parties to the prior proceeding, the Court concluded that the "adequately represented" exception applied since their interests coincided with their father's. Next, the court affirmed the district court's imposition of the constructive trust, notwithstanding a suggestion that legitimate funds could have been commingled. Once Dexia met its burden, it was up to the Children or the Trustee to provide evidence of any commingling. Finally, the Court rejected the Children's challenges to the form of the citation and Robert's challenge to personal jurisdiction.