Parameswari Veluchamy v. Bank of America, N.A. , 879 F.3d 808 ( 2018 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 15-2902, 15-2908, 15-3815, & 16-3496
IN RE: PETHINAIDU VELUCHAMY and
PARAMESWARI VELUCHAMY,
Debtors.
BANK OF AMERICA, N.A.,
Derivatively on behalf of the estate of
Pethinaidu and Parameswari Veluchamy,
Plaintiff-Appellee,
v.
ARUN K. VELUCHAMY,
ANU VELUCHAMY,
PETHINAIDU VELUCHAMY, and
PARAMESWARI VELUCHAMY,
Defendants-Appellants.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
Nos. 15 CV 2075 and 15 CV 882 — Charles R. Norgle, Judge.
____________________
ARGUED SEPTEMBER 20, 2017 — DECIDED JANUARY 12, 2018
____________________
2 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
Before MANION and KANNE, Circuit Judges, and MILLER,
District Judge. 1
MANION, Circuit Judge. This is an appeal from the district
court’s decisions in bankruptcy adversary proceedings. Pethi-
naidu Veluchamy and Parameswari Veluchamy (collectively
“senior Veluchamys”) earned great wealth in various busi-
nesses. They acquired two banks in the 1990s and merged
them. When this bank suffered financial problems, the senior
Veluchamys personally borrowed and guaranteed loans to-
taling $40 million from a predecessor of Bank of America
(“BoA”). But the loans went into default in 2008, and BoA ob-
tained a judgment against the senior Veluchamys in 2010 for
over $43 million.
The senior Veluchamys filed a bankruptcy petition in
2011, so BoA filed an adversary proceeding against them and
their children, Arun and Anu (collectively “junior Velu-
chamys”), alleging a scheme to hinder, delay, or defraud cred-
itors by attempting to hide tens of millions of dollars from
BoA and other creditors. After a bench trial in 2013, the bank-
ruptcy court determined the evidence established all of BoA’s
major allegations. The Veluchamys and BoA sought review
by the district court, which agreed almost entirely with the
bankruptcy court. The Veluchamys no longer contest the
heart of the lower courts’ conclusions. Instead, they appeal
various particular holdings.
The senior Veluchamys raise three issues on appeal. First,
they argue that turnover to the Estate under 11 U.S.C. § 542
was not the appropriate remedy regarding $5,500,000 they
1 The Honorable Robert L. Miller, Jr., of the United States District Court
for the Northern District of Indiana, sitting by designation.
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 3
claim they transferred to a company in India, particularly
when that company was not joined as a necessary party. Sec-
ond, they challenge the language of the district court’s judg-
ment requiring turnover of 24 pieces of jewelry. Third, they
appeal the district court’s denial of their motion concerning
the trial record.
The junior Veluchamys also raise three issues on appeal.
First, they argue the district court erred in holding them
jointly and severally liable. Second, they challenge the
amount of the Estate’s recovery regarding VMark stock.
Third, they argue the district court erred in reversing the
bankruptcy court regarding Appu Hotels stock.
We affirm the district court on all issues.
I. Background
Several bankruptcy, district, and appellate decisions elu-
cidate the history of the rise and fall of the Veluchamy finan-
cial empire. See Bank of Am., N.A. v. Veluchamy, 535 B.R. 783,
786–92 (N.D. Ill. 2015) (under appeal here); see also In re Velu-
chamy, 524 B.R. 277, 285–306 (Bankr. N.D. Ill. 2014), adopted in
part sub nom. Bank of Am., N.A. v. Veluchamy, 551 B.R. 364 (N.D.
Ill. 2015), and aff’d in part, rev’d in part and remanded sub nom.
Veluchamy, 535 B.R. 783; see also Veluchamy v. F.D.I.C., 706 F.3d
810, 811–14 (7th Cir. 2013).
We focus on facts relevant to the consolidated appeals be-
fore us.
A. Rise and fall
The senior Veluchamys earned great wealth. In 2007, their
self-reported net worth was about $500 million.
4 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
Mr. Veluchamy acquired Security Bank in 1995 and Mu-
tual Bank in 1998. He merged the former into the latter. But
Mutual Bank suffered financial problems. In 2005 the Federal
Deposit Insurance Corporation and the Illinois Department of
Financial and Professional Regulations began investigating
Mutual Bank due to concerns about its loan practices and fi-
nancial condition.
Attempting to rescue Mutual Bank, the senior Velu-
chamys personally borrowed $30 million and personally
guaranteed another loan of $10 million both from a predeces-
sor of BoA. But Mutual Bank continued its decline. The loans
went into default in 2008, and Mutual Bank closed the next
year.
In August 2009, BoA sued the senior Veluchamys and oth-
ers to collect on the outstanding loans. In December 2010, BoA
obtained a judgment against the senior Veluchamys for over
$43 million. BoA then moved to compel the return of assets
fraudulently transferred by the senior Veluchamys to family
and friends.
B. Bankruptcy
Shortly before a hearing on that motion, however, on Au-
gust 16, 2011, the senior Veluchamys petitioned for bank-
ruptcy under Chapter 7, reporting a negative net worth of $55
million. BoA, derivatively as Estate Representative, filed an
adversary proceeding against the senior Veluchamys and
their children, the junior Veluchamys. BoA sought avoidance
and recovery of fraudulent transfers and turnover of estate
property. BoA alleged the senior Veluchamys engaged in an
expansive scheme to hinder, delay, or defraud their creditors,
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 5
mainly by transferring cash and other assets to the junior Ve-
luchamys.
The bankruptcy court conducted a week-long bench trial
in June 2013. During this trial, the junior Veluchamys repeat-
edly asserted their Fifth Amendment privilege against self-in-
crimination. The bankruptcy court determined the evidence
at trial established all the major allegations of BoA’s adver-
sary complaint. The bankruptcy court found (and proposed
findings) that the senior Veluchamys fraudulently transferred
$57,857,236 in various assets to the junior Veluchamys, and
hid an additional $5,500,000, stock, and jewelry from credi-
tors. The bankruptcy court found that the senior Veluchamys
disposed of almost all their major assets, gratuitously or for
significantly reduced consideration, before filing for bank-
ruptcy.
The massive, intentional scheme consisted of three parts:
First, the senior Veluchamys transferred millions of dollars to
their children; second, the senior Veluchamys sold stock and
real estate to their children at discounted prices; and third, the
senior Veluchamys gave their remaining cash and assets to
their children and other family members, or hid the assets. To
further this scheme, the senior Veluchamys created false doc-
uments and destroyed authentic ones.
The bankruptcy court entered its corrected judgment, cor-
rected proposed findings of fact and conclusions of law, and
corrected amended memorandum of decision on December
18, 2014.
As relevant to this appeal, the bankruptcy court entered
the following final judgments:
6 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
Count I: Judgment for Estate against Arun for
$7,253,088 and against Anu for $8,867,283, re-
garding the fraudulent transfer of money from
the senior Veluchamys to the junior Velu-
chamys.
Count III: Judgment for Estate against Arun and
Anu for $9,288,977 each, regarding the fraudu-
lent transfer of controlling shares in VMark to
the junior Veluchamys.
Count X: Judgment for Estate against Arun for
$1,866,229 and against Anu for $1,633,364 for
the fraudulent transfer of shares in Appu Hotels
and Dharani Sugars to the junior Veluchamys.
Count XXIII: Judgment for Estate against Arun
and Anu for $155,000 each, regarding the fraud-
ulent transfer of funds used to purchase Appu
Hotels stock for the junior Veluchamys.
As relevant to this appeal, the bankruptcy court also pro-
posed the following findings and conclusions:
Count XVI: Judgment for Estate against the sen-
ior Veluchamys requiring turnover of
$5,500,000.
Count XVIII: Judgment for Estate against the
senior Veluchamys, requiring turnover of jew-
elry.
Counts XX and XXI: Judgment for Estate against
the junior Veluchamys, jointly and severally, for
$57,857,236, aggregating judgments on other
counts and imposing joint and several liability
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 7
based on theories of aiding and abetting and
conspiracy.
C. District court’s rulings
The Veluchamys appealed portions of the bankruptcy
court’s judgment to the district court, and objected to some of
the bankruptcy court’s proposed findings of fact and conclu-
sions of law. The Estate appealed part of the bankruptcy
court’s decision regarding Appu Hotels stock. The district
court entered its judgment and amended opinion and order
on August 27, 2015. The district court adopted the bankruptcy
court’s proposed findings of fact and conclusions of law, and
affirmed in part and reversed in part the bankruptcy court’s
corrected judgment. The district court affirmed the bank-
ruptcy court in all respects save one: the district court raised
the judgment against the junior Veluchamys regarding Appu
Hotels stock from $310,000 to $1,572,147. The district court
also entered various other related orders appealed here.
D. Appeals
The senior and junior Veluchamys filed a total of four ap-
peals on these matters, consolidated here before us. The Velu-
chamys no longer challenge the general conclusion that they
engaged in a broad scheme to defraud creditors of a massive
amount of money. Instead, they appeal various particular
holdings.
The senior Veluchamys concentrate their appellate efforts
on $5,500,000 they claim they transferred to Jaya Velu Spin-
ning Mill, Ltd.’s account at Canara Bank in India in July 2010,
about a year before filing for bankruptcy. The senior Velu-
chamys also appeal the district court’s judgment regarding
8 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
jewelry, and the district court’s denial of their post-trial mo-
tion concerning the trial record.
The junior Veluchamys appeal the district court’s rulings
regarding joint and several liability, VMark stock, and Appu
Hotels stock.
We address these issues in turn.
In general, we review lower courts’ legal conclusions de
novo, and we review their factual findings for clear error. In
re Kempff, 847 F.3d 444, 448 (7th Cir. 2017). A factual finding is
clearly erroneous if we are left with the definite and firm con-
viction that a mistake has been committed. Id.
II. $5,500,000 in India
A. Facts
In July 2010, the senior Veluchamys deposited approxi-
mately $5,500,000 2 in an account nominally held by Jaya Velu
Spinning Mill, Ltd. (“JSM”) at Canara Bank in India. JSM is an
Indian company owned by the Veluchamy family. During lit-
igation, Mr. Veluchamy demonstrated the ability to direct and
control JSM. Indeed, on appeal he acknowledges evidence
that he can exercise control or influence over JSM. Count XVI
sought recovery of the $5,500,000.
2 Despite multiple indications that this figure is an approximation, the par-
ties and the lower courts often refer to it as if it were exact, without the
caveat “approximately.” Since the district court’s judgment flatly refers to
“$5,500,000” as the judgment on Count XVI, with the addition of pre-judg-
ment interest, and since no parties raise any challenges on appeal to the
figure’s roundness, we will not disturb it.
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 9
Mr. Veluchamy testified at trial that he sent the funds to
reduce the lines of credit JSM and Parameswari Spinning Mill,
Ltd. (“PSM,” another Indian company owned by the Velu-
chamy family) had established with Canara Bank. The bank-
ruptcy court did not believe him.
B. Bankruptcy court’s conclusions and recommendations
The bankruptcy court noted the senior Veluchamys intro-
duced no documentation to confirm this testimony. The bank-
ruptcy court also noted the senior Veluchamys produced let-
ters from Canara Bank to their accountant stating their pay-
ments to the bank were equity contributions to JSM, not loan
repayments, yet there is no evidence JSM treated the cash as
equity contributions, and the senior Veluchamys received no
stock of JSM (or PSM) in exchange for the transfer. Moreover,
the bankruptcy court noted the financial records of JSM and
PSM do not account for the deposits and do not indicate any
of the funds were returned to the senior Veluchamys.
The bankruptcy court concluded the senior Veluchamys
failed to provide any evidence JSM took control of the funds
and became a necessary party under Rule 19. The bankruptcy
court further concluded the evidence established the funds re-
mained on deposit with JSM, subject to direction from the sen-
ior Veluchamys about how they should be treated. Accord-
ingly, the bankruptcy court concluded the funds are property
of the estate, and recommended judgment requiring turnover
of the funds.
C. District court’s rulings
The senior Veluchamys objected to the bankruptcy court’s
recommendation. They argued a turnover action cannot ap-
ply to the $5,500,000 because they relinquished control over
10 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
the money when they sent it to JSM’s bank account in India,
and because JSM was not joined to the action despite being a
necessary party.
The district court overruled that objection because there is
no credible evidence JSM asserted entitlement to the funds or
treated the transfer as a debt payment or equity contribution.
Accordingly, the district court adopted the bankruptcy
court’s proposed findings of fact and conclusions of law, and
ordered the senior Veluchamys to turn over $5,500,000 to the
Estate, plus pre-judgment interest.
D. Arguments on appeal
On appeal, the senior Veluchamys advance several argu-
ments against the turnover order.
First, the senior Veluchamys argue that turnover under 11
U.S.C. § 542 is not the appropriate remedy where, as claimed
here, there is a legitimate dispute about ownership of the
property the trustee seeks to recover. The senior Veluchamys
claim they transferred the $5,500,000 to JSM. They contend
JSM owns the account at Canara Bank that received the
$5,500,000. They argue that because JSM had rights to this
sum, Section 542 turnover is inappropriate.
Second, in a related vein, the senior Veluchamys argue the
bankruptcy and district courts erred by not joining JSM as a
necessary party under Federal Rule of Civil Procedure 19, as
incorporated into adversary proceedings by Federal Rule of
Bankruptcy Procedure 7019.
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 11
The Estate 3 concedes that a Section 542 order requires
proof that the defendant had property of the estate in his pos-
session, custody, or control after filing the bankruptcy peti-
tion. The Estate also concedes that if the debtor relinquished
control of the property by conveying it to a third party before
filing the bankruptcy petition, then the proper way to recover
the property is through a fraudulent-transfer action, rather
than a turnover action.
E. Law and analysis
A Chapter 7 bankruptcy is an exchange. The debtor sur-
renders his assets (subject to limited exemptions not at issue
here) to his bankruptcy estate for equitable distribution to his
creditors. In exchange he receives discharge from his debts
and a fresh start. Palomar v. First Am. Bank, 722 F.3d 992, 995
(7th Cir. 2013).
Section 541(a) provides that the filing of a petition for
bankruptcy creates an estate comprised of a wide range of
property, “wherever located and by whomever held … .” 11
U.S.C. § 541(a). The estate includes “all legal or equitable in-
terests of the debtor in property as of the commencement of
the case.” 11 U.S.C. § 541(a)(1).
Section 521(a)(4) of the Bankruptcy Code requires a debtor
to “surrender to the trustee all property of the estate … .” 11
U.S.C. § 521(a)(4).
Section 542(a) requires “an entity … in possession, cus-
tody, or control … of property that the trustee may use, sell,
3As Bank of America pursues this litigation derivatively as representative
of the bankruptcy estate, we occasionally refer to Bank of America as the
“Estate.”
12 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
or lease [to] deliver to the trustee, and account for, such prop-
erty or the value of such property … .” 11 U.S.C. § 542(a).
True, Section 542 turnover relief generally may not be
used to adjudicate a debtor’s underlying rights in property
when ownership of that property is in dispute. See In re John-
son, 215 B.R. 381, 386 (Bankr. N.D. Ill. 1997) (Turnover under
Section 542 “is not intended as a remedy to determine dis-
puted rights of parties to property. Rather, it is intended as a
remedy to obtain what is acknowledged to be property of the
bankruptcy estate.”). A Section 542 turnover action generally
cannot substitute for a fraudulent-transfer action. In other
words, the representative of a bankruptcy estate cannot use a
Section 542 turnover action to regain the debtor’s interest in
property when he transferred it to someone else before filing
for bankruptcy. See In re Ulz, 388 B.R. 865, 867 (Bankr. N.D. Ill.
2008); see also In re Roti, 271 B.R. 281, 291 (Bankr. N.D. Ill. 2002)
(“[I]f the debtor does not have the right to possess or use
property at the commencement of a case, a turnover action
cannot be a tool to acquire such rights.”).
But here, the senior Veluchamys’ interest in the $5,500,000
at the time they filed the bankruptcy petition is not subject to
legitimate dispute. Both lower courts rejected the Canara ca-
nards, and concluded the purported transfer was a sham. And
nothing has convinced us otherwise.
In July 2010, the senior Veluchamys deposited approxi-
mately $5,500,000 in a Canara Bank account nominally held
by JSM in India. Mr. Veluchamy testified at trial that the funds
were sent to reduce lines of credit that JSM and PSM had es-
tablished with Canara Bank. The bankruptcy court rejected
this explanation.
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 13
The bankruptcy court observed that no documentation
was introduced to confirm this testimony. It also noted that
even though the senior Veluchamys produced letters from
Canara Bank stating that the payments were equity contribu-
tions to JSM (not loan repayments), there is no evidence that
JSM treated the money as an equity contribution.
The bankruptcy court further observed the senior Velu-
chamys received no JSM or PSM stock in exchange for the de-
posits, and the records of JSM and PSM do not account for the
deposits and do not indicate that any portion of them was re-
turned to the senior Veluchamys.
The bankruptcy court determined that the evidence
showed the funds remained on deposit with JSM, subject to
control by the senior Veluchamys. The bankruptcy court also
determined there was no credible evidence JSM took control
of the funds. Instead, the bankruptcy court concluded the
funds are property of the estate, controlled by the senior Ve-
luchamys. Accordingly, it recommended entry of a judgment
requiring turnover of the funds.
The district court agreed. JSM did not have entitlement to
the funds. The district court determined there is no evidence
JSM treated the transfer as a debt payment because there is no
documentation of the transfer, no payment demands from
JSM’s creditors, and no debt payments to corroborate Mr. Ve-
luchamy’s original story. The district court also determined
there is no evidence JSM treated the money as an equity con-
tribution because there is no evidence of stock issuance by
JSM, and JSM’s records do not account for the receipt or dis-
tribution of the money. Therefore, the district court adopted
the bankruptcy court’s proposals regarding these funds and
14 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
entered judgment ordering the senior Veluchamys to turn
over $5,500,000, plus pre-judgment interest.
In sum, the lower courts concluded the senior Veluchamys
did not transfer ownership of the funds to someone else; ra-
ther, they simply moved the funds to an overseas account
they controlled. Therefore, the $5,500,000 was part of the
bankruptcy estate, and was subject to turnover proceedings
under Section 542.
We review legal conclusions de novo. In re Kempff, 847 F.3d
at 448. We review factual findings for clear error. Houlihan v.
City of Chicago, 871 F.3d 540, 549 (7th Cir. 2017); United States
v. Hach, 162 F.3d 937, 949 (7th Cir. 1998). When “there are two
permissible views of the evidence, the factfinder’s choice be-
tween them cannot be clearly erroneous.” Carpet Serv. Int’l,
Inc. v. Chi. Reg’l Council of Carpenters, 698 F.3d 394, 397 (7th
Cir. 2012) (quoting Nemmers v. United States, 870 F.2d 426, 429
(7th Cir. 1989)).
Section 542(a) requires “an entity, other than a custodian,
in possession, custody, or control, during the case, of property
that the trustee may use, sell, or lease [to] deliver to the trus-
tee, and account for, such property or the value of such prop-
erty … .” 11 U.S.C. § 542(a).
The Bankruptcy Code defines “entity” to include a “per-
son.” 11 U.S.C. § 101(15). The senior Veluchamys do not dis-
pute their qualifications as “an entity.” Debtors are suscepti-
ble to Section 542 turnover proceedings. See Yoon v. Minter-
Higgins, 399 B.R. 34, 42–44 (N.D. Ind. 2008); see also In re Dybal-
ski, 316 B.R. 312, 315 n.6 (Bankr. S.D. Ind. 2004).
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 15
The Bankruptcy Code defines “custodian” as (A) a “re-
ceiver or trustee of any of the property of the debtor, ap-
pointed in a case or proceeding not under this title” or (B) an
“assignee under a general assignment for the benefit of the
debtor’s creditors” or (C) a “trustee, receiver, or agent … ap-
pointed or authorized to take charge of property of the
debtor” to enforce a lien or to administer the property for the
benefit of creditors. 11 U.S.C. § 101(11). Obviously the senior
Veluchamys are not custodians for purposes of the exception
in Section 542(a).
The lower courts determined the evidence established the
$5,500,000 is property of the estate and is controlled by the
senior Veluchamys. Therefore, the senior Veluchamys are lia-
ble to turn over “such property or the value of such property.”
11 U.S.C. § 542(a).
The senior Veluchamys argue they transferred the funds
to JSM before filing for bankruptcy, so they cannot be liable
to turn over the funds under Section 542(a). They argue that
the Estate’s proper course was to seek avoidance under Sec-
tion 548 and recovery under Section 550. They point to Bonded
Financial Services, Inc. v. European American Bank, 838 F.2d 890
(7th Cir. 1988), as the starting point for determining whether
a party is a transferee within the meaning of Section 550.
There, we held that “the minimum requirement of status as a
‘transferee’ is dominion over the money or other asset, the
right to put the money to one’s own purposes.” Id. at 893. In
a later case, we elaborated on the contours of Section 542:
Section 542 is not about the obligations of trans-
ferees. It is about the obligations of persons who
possess, control, or have custody, and these are
normally persons who do not have “the right to
16 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
put the money to [their] own purposes.” A
transferee claims an entitlement to the money;
entities targeted by section 542 do not. The pur-
pose of the section is to empower the trustee in
bankruptcy to get hold of the property of the
debtor, some of which will be in the possession,
custody, or control of third parties.
In re USA Diversified Prods., Inc., 100 F.3d 53, 56 (7th Cir. 1996).
Still, Section 542 turnover may target the debtors themselves;
it is not limited to third parties. See Yoon, 399 B.R. at 42–44; see
also In re Dybalski, 316 B.R. at 315 n.6. After all, in In re USA
Diversified we included the caveat “normally.” And besides,
fundamentally the senior Veluchamys do not now have the
right, over and against the Estate, to put the $5.5 million to
their own purposes, and do not claim such a right.
The issue here is not whether Section 542 turnover or Sec-
tion 521 surrender is the appropriate vehicle for the Estate to
recover the funds. The senior Veluchamys concede—and
more importantly the law provides—that debtors are suscep-
tible to Section 542 turnover actions. The senior Veluchamys
do not argue on appeal that the lower courts erred by granting
Section 542 turnover relief against them regarding the $5.5
million instead of granting Section 521 surrender relief
against them.
The issue here is whether the senior Veluchamys trans-
ferred the funds to JSM such that Section 542 turnover relief
was inappropriate. The lower courts correctly noted that turn-
over actions are not substitutes for avoidance actions, and
found that JSM was not a transferee of the funds. The lower
courts found there was no evidence JSM took control of the
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 17
funds. JSM did not meet the minimum requirement of “do-
minion over the money or other asset.” Bonded Fin. Servs., 838
F.2d at 893. The lower courts found that the evidence estab-
lishes the funds are property of the estate, controlled by the
senior Veluchamys. The lower courts’ determinations would
overcome any presumption of JSM’s ownership raised by the
senior Veluchamys.
We find no reversible error regarding the application of
Section 542 turnover proceedings to the $5,500,000, or regard-
ing any other determinations about this sum, because on de
novo review we find no legal errors, and because on clear-
error review we find the underlying factual determinations
about these funds were not clearly erroneous.
Similarly, we find no reversible error regarding the refusal
to join JSM as a required party. The senior Veluchamys argue
on appeal that both the bankruptcy court and the district
court erroneously concluded JSM was not a required party
under Rule 19(a)(1)(B).
Rule 19(a) governs persons required to be joined if feasi-
ble, and provides in part:
A person who is subject to service of process
and whose joinder will not deprive the court of
subject-matter jurisdiction must be joined as a
party if:
(A) in that person’s absence, the court can-
not accord complete relief among existing
parties; or
18 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
(B) that person claims an interest relating
to the subject of the action and is so situ-
ated that disposing of the action in the per-
son’s absence may:
(i) as a practical matter impair or
impede the person’s ability to pro-
tect the interest; or
(ii) leave an existing party subject to
a substantial risk of incurring dou-
ble, multiple, or otherwise incon-
sistent obligations because of the in-
terest.
FED. R. CIV. P. 19(a)(1). Bankruptcy Rule 7019 incorporates
Rule 19 for adversary proceedings. FED. R. BANKR. P. 7019.
The senior Veluchamys, as the parties advocating for join-
der of JSM, had the initial burden to establish JSM’s interest. 4
4 The bankruptcy court cited American General Life & Accident Insurance Co.
v. Wood, 429 F.3d 83, 92 (4th Cir. 2005), for the proposition that the party
advocating for joinder has the initial burden to establish the absent per-
son’s interest. On appeal, the Estate echoes this citation, and adds a cita-
tion to Citizen Band Potawatomi v. Collier, 17 F.3d 1292, 1293–94 (10th Cir.
1994), for the proposition that a person without an interest in the subject
property was not an indispensable party required to be joined. The senior
Veluchamys on appeal cite Hood ex rel. Mississippi v. City of Memphis, Tenn.,
570 F.3d 625, 628 (5th Cir. 2009), for the related proposition that the party
advocating for joinder has the initial burden of demonstrating that the ab-
sent person is necessary. For the sake of clarity, we confirm that in this
Circuit the party advocating for joinder generally has the initial burden to
establish the absent person’s interest.
We have also observed that in some circumstances the absent party
itself must claim an interest relating to the subject matter of the lawsuit.
Davis Cos. v. Emerald Casino, Inc., 268 F.3d 477, 483–84 (7th Cir. 2001) (citing
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 19
But after trial, the bankruptcy court determined “the senior
Veluchamys failed to provide any evidence that JSM took
control of the funds and so became a necessary party. Rather,
the evidence establishes that the funds are property of the es-
tate, controlled by the senior Veluchamys … .” Veluchamy, 524
B.R. at 325. Similarly, the district court observed that the sen-
ior Veluchamys “presented no credible evidence that JSM
took title to the funds.” Veluchamy, 551 B.R. at 374. Therefore,
the senior Veluchamys failed to meet their initial burden un-
der Rule 19(a) to establish JSM’s interest in the funds.
Nearly 25 years ago, we noted we had no clearly estab-
lished standard of review for joinder under Rule 19(a). Bourne
Co. v. Hunter Country Club, Inc., 990 F.2d 934, 937 (7th Cir.
1993). Nearly a decade ago we noted we still had yet to decide
whether to review decisions applying Rule 19 de novo or for
abuse of discretion. Askew v. Sheriff of Cook Cty., Ill., 568 F.3d
632, 634 (7th Cir. 2009). In those cases and others, we left the
question open because its resolution would not control. Here,
we again leave the question open for the same reason. Re-
gardless of whether the standard of review for decisions ap-
plying Rule 19(a) should be de novo or abuse of discretion, the
standard of review for factual determinations germane to
Rule 19(a) is clear error. See Houlihan, 871 F.3d at 549.
In this case, the Rule 19(a) analysis turned on the factual
determination that there was no evidence JSM took control of
the funds as necessary to become a required party. We review
United States v. Bowen, 172 F.3d 682, 689 (9th Cir. 1999), for the proposition
that where the absent party was aware of the action and claimed no inter-
est, the district court did not err in finding joinder unnecessary).
20 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
this factual finding for clear error, and we find none. Besides,
even under de novo review we find no error.
As we find no reversible error regarding the $5.5 million,
we affirm.
III. Jewelry
The senior Veluchamys also challenge the district court’s
judgment regarding turnover of 24 pieces of jewelry. The sen-
ior Veluchamys do not challenge the basic requirement that
they turn over the jewelry. Instead, they challenge the judg-
ment’s wording.
Count XVIII sought recovery of jewelry. The bankruptcy
court recommended finding that the jewelry is estate property
and recommended ordering the senior Veluchamys to turn
over the jewelry to the Estate. In a footnote, the bankruptcy
court added: “To the extent that the jewelry is not available to
be returned, the senior Veluchamys would be required to pay
its value—as listed in the insurance policies—to their bank-
ruptcy estate.” Veluchamy, 524 B.R. at 325 n.28.
In turn, paragraph 9 of the district court’s judgment orders
the senior Veluchamys:
to turn over either (i) the twenty-four (24) pieces
of jewelry listed on pages 22 through 24 of the
Corrected Proposed Findings of Fact and Con-
clusions of Law … entered by the Bankruptcy
Court on December 18, 2014; or (ii) the equiva-
lent cash value of the twenty-four (24) pieces of
jewelry … .
(Doc. 33, Judgment in 1:15-cv-882, at 3.)
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 21
The senior Veluchamys claim the judgment is silent re-
garding the proper remedy if they turn over some pieces of
jewelry but other pieces are unavailable for turnover. They ar-
gue the district court erred by failing to incorporate footnote
28 of the bankruptcy court’s corrected proposed findings,
which the district court adopted in full. They claim that since
they already assisted in the turnover of two pieces of jewelry,
the judgment bars them from turning over the equivalent cash
value of any of the remaining pieces. They worry about being
held in contempt of court if they turn over 23 pieces of jewelry
but the final piece is missing.
But this is preposterous. Even if paragraph 9 lacks precise
clarity, a court would not follow the senior Veluchamys’
strained gloss. Besides, the judgment expressly adopts the
bankruptcy court’s corrected proposed findings in this re-
gard, so footnote 28 can sufficiently embelish paragraph 9 if
necessary in the future.
The district court committed no reversible error regarding
the jewelry or the denial of the relevant motion to reconsider.
IV. Trial Record
Finally, the senior Veluchamys argue the district court
abused its discretion by denying their motion asking it to con-
sider the trial record from the bankruptcy court. They argue
the district court could not have fulfilled its duty to conduct a
de novo review.
But the senior Veluchamys admit they did not arrange for
the transmission of any record to the district court, despite
Bankruptcy Rule 9033(b)’s requirement that the objecting
party transmit the record. The senior Veluchamys
22 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
acknowledge the validity of the general rule relied on by the
district court in denying the post-trial motion—that a law-
yer’s inadvertence is not a basis to grant relief under Rules 59
or 60 5—and they have not offered any sufficient reason to
temper this rule here. See Choice Hotels Intern., Inc. v. Grover,
792 F.3d 753, 754–55 (7th Cir. 2015). So we affirm the district
court.
V. Joint and Several Liability
We turn to the junior Veluchamys. They first argue the dis-
trict court erred in holding them jointly and severally liable.
Count XX of the Estate’s amended complaint sought im-
position of joint and several liability upon the junior Velu-
chamys under a theory of aiding and abetting. Count XXI
sought imposition of joint and several liability against them
under a theory of conspiracy. The bankruptcy court pro-
posed—and the district court imposed—judgment in favor of
the Estate on both counts, holding the junior Veluchamys
jointly and severally liable.
The junior Veluchamys argue on appeal that the Bank-
ruptcy Code and Illinois law preclude joint and several liabil-
ity under theories of aiding and abetting and conspiracy. But
the Estate asserts they waived these arguments by failing to
raise them in either the bankruptcy court or the district court.
It is well established that a party waives the right to argue
an issue on appeal if he failed to raise that issue before the
lower court: “It is axiomatic that an issue not first presented
5 Incorporated into adversary proceedings in bankruptcy by Federal Rules
of Bankruptcy Procedure 9023 and 9024.
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 23
to the district court may not be raised before the appellate
court as a ground for reversal.” Christmas v. Sanders, 759 F.2d
1284, 1291 (7th Cir. 1985). “[A] question not presented to the
lower court will not be considered upon appeal.” Towle v. Pul-
len, 238 F. 107, 111 (7th Cir. 1916) (citing Harding v. Giddings,
73 F. 335 (7th Cir. 1896)). A party “waive[s] the ability to make
a specific argument for the first time on appeal when the party
failed to present that specific argument to the district court,
even though the issue may have been before the district court
in more general terms.” Fednav Int’l v. Cont’l Ins., 624 F.3d 834,
841 (7th Cir. 2010).
In reply to the waiver assertion, the junior Veluchamys ar-
gue they did oppose joint and several liability below. But that
argument misses the mark. The Estate does not base its
waiver assertion on a lack of any opposition below by the jun-
ior Veluchamys to joint and several liability. Rather, the Estate
bases its waiver assertion on the junior Veluchamys’ failure to
raise below the specific arguments regarding joint and several
liability they now raise for the first time on appeal. The junior
Veluchamys do not show on appeal that they raised these par-
ticular arguments below, or point to any place in the record
where they made such arguments below.
Instead, they claim their appeal raises important legal is-
sues that should survive based on “narrow exceptions to the
general rule barring consideration of new arguments on ap-
peal ‘where jurisdictional questions are presented or where,
in exceptional cases, justice demands more flexibility.’”
Huntzinger v. Hastings Mut. Ins., 143 F.3d 302, 308 (7th Cir.
1998) (quoting Stern v. United States Gypsum, Inc., 547 F.2d
1329, 1333 (7th Cir. 1977)). But the junior Veluchamys have
not presented sufficient reasons demonstrating this is such an
24 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
exceptional case as to justify invoking the narrow exceptions.
Moreover, they have not asserted that these legal arguments
were unavailable to them below, and they have not offered
any other sufficient explanation for advancing them for the
first time only on appeal.
Finally, the Estate asserts it would suffer prejudice if the
junior Veluchamys’ new arguments survived waiver because
the Estate might have developed a different record or might
have pursued a different litigation strategy had the junior Ve-
luchamys presented the arguments below. For example, the
Estate argues that had it known the junior Veluchamys would
challenge its right to seek joint and several liability, the Estate
could have presented even more evidence showing how each
of the junior Veluchamys benefited from various transactions,
regardless of who was the initial transferee of a particular as-
set. The junior Veluchamys offer no adequate reply to the Es-
tate’s prejudice arguments.
We conclude the junior Veluchamys waived their argu-
ments against joint and several liability, and we affirm.
VI. VMark Stock
A. Bankruptcy proceedings
Count III of the Estate’s amended complaint claimed the
senior Veluchamys fraudulently transferred their majority
ownership interest in VMark to the junior Veluchamys when
the senior Veluchamys caused VMark to issue 1,540,000 vot-
ing shares and 6,384,600 non-voting shares to the junior Velu-
chamys in August and September 2009. Count III sought
avoidance of the transfers pursuant to 11 U.S.C. §§ 544(b)(1)
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 25
and 548(a)(1) and recovery from the junior Veluchamys pur-
suant to 11 U.S.C. § 550(a).
The bankruptcy court found the Estate proved the VMark
stock was transferred to the junior Veluchamys with the in-
tent to hinder, delay, or defraud creditors. The bankruptcy
court concluded that by causing VMark to sell a controlling
interest to the junior Veluchamys, the senior Veluchamys
fraudulently transferred their control and income rights to
their children for less than fair value.
Having found fraud, the bankruptcy court turned to an
analysis of various options for relief. The bankruptcy court
thoroughly considered various valuation methods. It con-
cluded that VMark’s value in August 2009 (around the time
of the sales) was $57,767,275. It further concluded, based on
the percentages of VMark stock transferred to the junior Ve-
luchamys, that each of them was liable for $9,288,977. The
bankruptcy court entered judgment accordingly. Finding the
Estate established the elements of its collective liability theo-
ries of aiding and abetting and conspiracy, the bankruptcy
court proposed the entry of joint and several liability against
the junior Veluchamys on Count III for $18,577,954.
B. District court’s conclusions
After a thorough review, the district court concluded the
bankruptcy court correctly determined the value of the
VMark stock issued to the junior Veluchamys was
$18,577,954. Accordingly, the district court entered judgment
on this count against them, jointly and severally, in that
amount.
26 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
C. Arguments on appeal
On appeal, the junior Veluchamys do not challenge the
basic conclusion that their parents fraudulently transferred
control over VMark by causing it to issue additional stock to
the junior Veluchamys. Instead, they argue that under Section
550, the Estate’s recovery is limited to the value of the in-
creased ownership received by a transferee through a stock
issuance that effectively diluted the Estate’s interest in the cor-
poration. The junior Veluchamys argue the relief should only
make the Estate whole; it should only return the Estate to its
position before the fraudulent transfers occurred. They argue
relief should focus on what the Estate lost, not on what the
transferees received. Offering alternative calculations, the
junior Veluchamys argue the Estate is entitled at most to
$12,476,577 for the VMark fraud.
D. Law and analysis
When a transfer is avoided, Section 550(a) of the Bank-
ruptcy Code allows the trustee to recover the property trans-
ferred or “the value of such property” from the transferee. 11
U.S.C. § 550(a). The bankruptcy court had discretion to decide
whether to order recovery of the property or recovery of its
value. The bankruptcy court decided to award the value. The
junior Veluchamys do not challenge that decision on appeal.
Nor do they challenge the valuation of VMark as of August
2009.
Instead, they appeal the determination of the value of the
property transferred. Section 550(a) does not define “value.”
The bankruptcy court thoroughly analyzed various valuation
methods, and scrutinized the approaches offered by the par-
ties’ experts. The bankruptcy court determined that the value
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 27
of VMark in August 2009 was $57,767,275. The bankruptcy
court then determined, based on percentages of shares fraud-
ulently transferred, that the junior Veluchamys were each lia-
ble for $1,375,438 for the August 2009 stock transfers, and that
they were each liable for $7,913,539 for the September 2009
stock transfers. Thus the bankruptcy court entered judgment
against each junior Veluchamy for $9,288,977 regarding
Count III. The bankruptcy court also found establishment of
the elements of collective liability, so it proposed the entry of
joint and several liability against the junior Veluchamys on
Count III for $18,577,954. The district court agreed, and en-
tered judgment accordingly.
The parties disagree about the standard of review. The
junior Veluchamys claim the district court “committed a legal
error in applying the facts to the law”—not the phrase’s cus-
tomary formulation—so the de novo standard applies. Alter-
natively, they argue the question involves a mix of law and
facts, so the de novo standard still applies. But the Estate
urges us to apply abuse-of-discretion review because a bank-
ruptcy court has broad discretion in determining what rem-
edy to employ under Section 550, including what value to as-
cribe to the property.
Neither party cites a Seventh Circuit case directly on point.
The junior Veluchamys cite Freeland v. Enodis Corp., 540 F.3d
721, 729 (7th Cir. 2008), for the proposition that we review
mixed questions of law and fact de novo. But the Freeland
court did not review a Section 550 value determination de
novo as a mixed question of law and fact. And, as the Estate
notes, we have reviewed mixed questions of law and fact de-
void of constitutional issues for merely clear error. Muham-
mad-Ali v. Final Call, Inc., 832 F.3d 755, 760 (7th Cir. 2016).
28 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
For its part, the Estate offers a case countdown from the
Tenth, Ninth, and Eighth Circuits, but does not reach us. We
agree that the proper standard of review of a bankruptcy
court’s value determination under Section 550(a) is abuse of
discretion, with clear-error deference to factual findings. In-
deed, in their reply the junior Veluchamys concede we gener-
ally review valuations for clear error. See In re Vitreous Steel
Prods. Co., 911 F.2d 1223, 1232 (7th Cir. 1990). They offer no
contrary binding authority, and they do not attempt to ad-
dress or distinguish In re Keeley & Grabanski Land P’ship, 531
B.R. 771, 776 (B.A.P. 8th Cir. 2015) (“Because § 550(a) is per-
missive and expressly provides for alternative remedies, we
review the bankruptcy court’s decision as to whether the [sic]
award recovery of the property, or its value, and its determi-
nation of value, for abuse of discretion.”).
Abuse of discretion is a highly deferential standard.
“Abuse of discretion means a serious error of judgment, such
as reliance on a forbidden factor or failure to consider an es-
sential factor.” Powell v. AT&T Commc’n, 938 F.2d 823, 825 (7th
Cir. 1991). A lower court “abuses its discretion when it com-
mits an error of law or makes a clearly erroneous finding of
fact.” Kress v. CCA of Tenn., LLC, 694 F.3d 890, 892 (7th Cir.
2012).
We conclude the bankruptcy court did not abuse its dis-
cretion (or commit clear error) in deciding to award the value
of the VMark stock, in selecting or applying a valuation
method, or in determining the value. The methodology and
calculations employed by the bankruptcy court were reason-
able. We also conclude the district court did not err in affirm-
ing the bankruptcy court.
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 29
VII. Appu Hotels Stock
A. Bankruptcy proceedings
The bankruptcy court found that on August 2, 2010, Mrs.
Veluchamy and her children made transfers to Appu Hotels
as follows:
1) $310,000 from Mrs. Veluchamy to Appu Hotels,
2) $361,103.20 from Arun to Appu Hotels, and
3) $310,814 from Anu to Appu Hotels.
These transfers total $981,917.20. Appu Hotels then issued
shares as follows:
1) none to Mrs. Veluchamy,
2) shares worth $1,147,172.39 to Arun, and
3) shares worth $1,096,833.58 to Anu.
The values of these shares total $2,244,005.97.
A subscriber list presented by Appu Hotels shows the jun-
ior Veluchamys received new shares. The bankruptcy court
noted that the amounts for which the junior Veluchamys were
credited substantially exceeded the amounts traceable to their
own deposits. The bankruptcy court also noted that Mrs. Ve-
luchamy received no new stock in connection with her de-
posit, and the senior Veluchamys failed to identify any con-
sideration for the deposit.
The most reasonable conclusion from this evidence, ac-
cording to the bankruptcy court, was that Mrs. Veluchamy’s
deposit was partial consideration for the new stock issued to
the junior Veluchamys. The negative inference drawn from
the junior Veluchamys asserting their privilege against self-
30 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
incrimination when asked if their parents gave them funds to
purchase stock in Appu Hotels bolstered this conclusion.
Accordingly, the bankruptcy court found Mrs. Veluchamy
fraudulently transferred estate property worth $310,000 to the
junior Veluchamys, through Appu Hotels. The bankruptcy
court entered judgment against the junior Veluchamys for
$155,000 each (and proposed the imposition of joint and sev-
eral liability against the junior Veluchamys for $310,000 on
this issue).
B. District court’s conclusions
Before the district court, both the junior Veluchamys and
the Estate challenged these findings and conclusions regard-
ing the Appu Hotels stock. The district court rejected the chal-
lenge lodged by the junior Veluchamys, and they do not at-
tempt to resurrect it before us on appeal.
For its part, the Estate argued the bankruptcy court did not
account for the full value of the fraudulent transfer. The Estate
argued the bankruptcy court did not address approximately
$1.3 million. The numbers listed above show this gap. Mrs.
Veluchamy and her children transferred $981,917.20 to Appu
Hotels but her children received shares worth approximately
$1.3 million more: $2,244,005.97. Where did this $1.3 million
come from? The Estate argued the senior Veluchamys were
the source of this sum. None of the Veluchamys answered the
question. The junior Veluchamys invoked the Fifth Amend-
ment when asked about the source. Mrs. Veluchamy claimed
she did not know if she and her husband provided all the
money for the junior Veluchamys to receive the shares.
The district court recognized that the junior Veluchamys
did not bear the burden to prove the unaccounted-for money
Nos. 15-2902, 15-2908, 15-3815, & 16-3496 31
was not fraudulently transferred. But the district court con-
cluded that their assertion of the privilege against self-incrim-
ination, combined with the unchallenged subscription list,
permitted a negative inference that additional fraudulently
transferred property paid for a portion of the excessive shares
the junior Veluchamys received. Moreover, in their post-trial
brief, the junior Veluchamys did not dispute the Estate’s as-
sertion that fraudulently transferred funds accounted for the
entire subscription.
The bankruptcy court properly found that the value the
junior Veluchamys received substantially exceeded the
amounts they contributed. But the court only awarded the Es-
tate the $310,000 traced from Mrs. Veluchamy to Appu Ho-
tels, and did not make a finding regarding the full value of the
stock issued to the junior Veluchamys. Accordingly, the dis-
trict court concluded the bankruptcy court committed clear
error by not awarding the full amount, and the district court
amended the judgment on this issue to award the Estate
$1,572,147 against the junior Veluchamys, jointly and sever-
ally. This figure corresponds with the total value of the rele-
vant shares received by the junior Veluchamys less their con-
tributions. (The bankruptcy court dealt with their contribu-
tions in Count I.)
C. Arguments on appeal
On appeal, the junior Veluchamys argue the district court
erred in reversing the bankruptcy court regarding the Appu
Hotels stock. They argue the district court effectively held
they had to prove the shares they received were not fraudu-
lent conveyances when the Estate should have had the bur-
den. We disagree.
32 Nos. 15-2902, 15-2908, 15-3815, & 16-3496
D. Law and analysis
The district court specifically recognized the Estate had
the burden, and concluded it met it. The junior Veluchamys
did not contest that all the transfers to Appu Hotels for the
shares at issue were fraudulent. Nor did the junior Velu-
chamys challenge the accuracy of the subscription list. They
invoked the Fifth Amendment regarding the source of the
funds. The district court was permitted to draw negative in-
ferences from the assertions of this privilege. See Greviskes v.
Univs. Research Ass’n, Inc., 417 F.3d 752, 758 (7th Cir. 2005).
Contrary to the junior Veluchamys’ claim, the bankruptcy
court did not find that the missing $1.3 million was not the
product of a fraudulent transfer. Rather, the bankruptcy court
simply did not address the issue. The record indicates the
bankruptcy court thought it included the remaining balance
in addressing other counts, but in fact it did not include that
amount. The district court discovered the omission and in-
cluded the amount in the final analysis.
We agree with the district court that it was clear error not
to award the full amount of the fraudulent transfers to the Es-
tate, so we affirm the district court.
VIII. Conclusion
As the district court did not commit reversible error re-
garding any matters presented to us, we affirm.
AFFIRMED.