In re: Golf 255, Inc.

Hon. Joan Humphrey Lefkow of the Northern District å
of Illinois, sitting by designation.
In the
United States Court of Appeals
For the Seventh Circuit
No. 10-3732
IN RE:
GOLF 255, INC.
Debtor.
APPEAL OF:
NICK JAKICH and JAY DUNLAP.
Appeal from the United States District Court
for the Southern District of Illinois.
No. 3:10-cv-00529-GPM—G. Patrick Murphy, Judge.
ARGUED APRIL 15, 2011—DECIDED JULY 22, 2011
Before POSNER and MANION, Circuit Judges, and LEFKOW,
District Judge.å
POSNER, Circuit Judge. Nick Jakich and Jay Dunlap
owned a corporation the principal asset of which was a
golf course. In October 2006 the corporation’s creditors
filed a petition to have Golf (as we’ll call the corporation)

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2 No. 10-3732
declared bankrupt under Chapter 11 of the Bankruptcy
Code. Dunlap testified in opposition to the petition, but
the bankruptcy court granted it and appointed as trustee
Robert Eggmann. He filed a motion for permission to
sell the golf course. The motion was granted, again over
opposition by Dunlap. Jakich and Dunlap filed repeated
motions opposing sale but all were denied. A deed sur-
faced, apparently signed by Jakich, purporting to transfer
the golf course from Golf to a company the address of
which is the same as Dunlap’s address. Trustee Eggmann
obtained an injunction against the transfer on the
ground that it would violate both the automatic stay
in bankruptcy and the sale order.
The bankruptcy judge approved the sale of the golf
course to a local recreation district for $5 million. The
sale closed in March of 2007 and the proceeds were suffi-
cient to pay all creditors of Golf, other than insiders,
their claims in full, while insider creditors, who in-
cluded Jakich but not Dunlap, received substantial
partial satisfaction of their claims. Dunlap and Jakich
appealed from the bankruptcy judge’s sale order, but the
district court dismissed the appeal in June 2007 as moot
because the bankruptcy judge, having approved the
sale, had no authority to undo it. 11 U.S.C. § 363(m).
Dunlap filed motions in the bankruptcy court to remove
the trustee and dismiss the bankruptcy proceeding. The
bankruptcy judge denied the motions, as he did similar
motions filed by Dunlap and Jakich the following year.
Represented by attorney Steven T. Stanton, who entered
the case in August 2008, almost a year and a half after

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No. 10-3732 3
the sale of the golf course, Dunlap and Jakich moved for
leave to conduct discovery to establish whether the bank-
ruptcy proceeding and sale had been fraudulent. The
bankruptcy judge denied that motion too. More than a
year later they filed motions asking the bankruptcy
judge to rescind the sale and to investigate—by ordering
production of documents from parties to the bankruptcy
proceeding (see Fed. R. Bankr. P. 2004)—fraud allegedly
committed by Michael Kielty. Kielty had been a share-
holder of Golf, had been involved in its management, and
indeed seems to have been for a time in control of the
company. But he had left it, and was an outsider
creditor when, along with three other creditors of Golf,
he signed the petition to declare the company bankrupt.
The bankruptcy judge construed these as motions
under Rule 60 of the civil rules (made applicable to bank-
ruptcy proceedings by Bankruptcy Rule 9024) to set
aside his grant of the petition for bankruptcy and
approval of the sale of the golf course.
Eggmann, acknowledged by lawyer Stanton at argu-
ment to be “an honorable man,” had investigated the
charge of fraud and found it to be groundless. And
Eggmann told us at argument without being con-
tradicted that the U.S. Trustee for the Southern District
of Illinois had likewise investigated the charge of fraud
and likewise found it to be groundless. In any event
fraud is a ground for setting aside a judgment only if
the motion seeking that relief is filed within a year after
the judgment—unless the fraud is “fraud on the court.”
See Fed. R. Civ. P. 60(b)(3), (6), (c)(1), (d)(3). Jakich and
Dunlap claimed that it was. The bankruptcy judge dis-

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4 No. 10-3732
agreed, and having disagreed denied relief because if
Kielty’s alleged conduct was construed as simple fraud
rather than fraud on the court they had waited too long
to complain.
In 2010 Eggmann moved to close the bankruptcy
case. Jakich and Dunlap objected, again asking the bank-
ruptcy judge to investigate their charge of fraud against
Kielty. The judge refused and ordered the case closed
because nothing remained to be done: the golf course
had been sold and the creditors had been paid in accor-
dance with their priorities. Jakich and Dunlap appealed.
The district judge affirmed, precipitating this appeal.
The appellants’ opening brief states that creditor Kielty
had “contrived the involuntary bankruptcy proceedings
as part of a ‘fraud on the court.’ Employing his knowl-
edge and experience as an attorney, Kielty manipulated
the parties and the court system to force the emergency
sale of [the] golf course to the purchaser (and under
terms of) his choosing.” Jakich and Dunlap argued that
they were denied an opportunity to conduct the dis-
covery that would have established the validity of their
allegations, or to present evidence that their lawyer,
Stanton, had already obtained that would have estab-
lished the prima facie accuracy of the allegations and
made a compelling case for the bankruptcy court’s per-
mitting them to conduct further discovery.
The term “fraud on the court” is not defined in Rule 60
or elsewhere in the federal rules, and the definition
most often offered by the courts (including our own)—
that it consists of acts that “defile the court,” e.g., Drobny

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No. 10-3732 5
v. Commissioner, 113 F.3d 670, 677-78 (7th Cir. 1997);
Appling v. State Farm Mutual Automobile Ins. Co., 340 F.3d
769, 780 (9th Cir. 2003); Harbold v. Commissioner, 51 F.3d
618, 622 (6th Cir. 1995); Kupferman v. Consolidated
Research & Mfg. Corp., 459 F.2d 1072, 1078 (2d Cir. 1972)
(Friendly, C.J.); 12 Moore’s Federal Practice § 60.21[4], p. 60-
56 and n. 20 (3d ed. 2011)—though vivid, doesn’t
advance the ball very far. Drobny’s full definition
advances it a little farther: “ ‘that species of fraud which
does, or attempts to, defile the court itself, or is a fraud
perpetrated by officers of the court [i.e., lawyers] so
that the judicial machinery can not perform in the
usual manner its impartial task of adjudging cases.’ ” 113
F.3d at 677-78 (emphasis omitted) (quoting Kenner
v. Commissioner, 387 F.2d 689, 691 (7th Cir. 1968),
which in turn was quoting an earlier edition of the
Moore treatise).
The problem of definition arises from the fact that a
motion to set aside a judgment on the ground of fraud
on the court has no deadline. It must therefore be
defined narrowly lest it “become an open sesame to
collateral attacks, unlimited as to the time within
which they can be made by virtue of the express pro-
vision in Rule 60(b) [now 60(d)] on this matter, on civil
judgments.” Oxxford Clothes XX, Inc. v. Expeditors Int'l
of Washington, Inc., 127 F.3d 574, 578 (7th Cir. 1985); see
also Drobny v. Commissioner, supra, 113 F.3d at 678. The
question is, how narrowly? To answer this question we
need to consider what kind of fraud ought to be a ground
for setting aside a judgment perhaps many years after it
was entered. The answer is the kind of fraud that ordi-

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6 No. 10-3732
narily couldn’t be discovered, despite diligent inquiry,
within a year, and in some cases within many years—cases
in which there are no grounds for suspicion and the
fraud comes to light serendipitously. Examples are
bribery of a judge or exertion of other undue influence
on him, jury tampering, and fraudulent submissions by
a lawyer for one of the parties in a judicial proceeding,
such as tendering documents he knows to be forged or
testimony he knows to be perjured. See Oxxford Clothes XX,
Inc. v. Expeditors Int’l of Washington, Inc., supra, 127 F.3d
at 578; In re Whitney-Forbes, Inc., 770 F.2d 692, 698 (7th
Cir. 1985); Baltia Air Lines, Inc. v. Transaction Management,
Inc., 98 F.3d 640, 642-43 (D.C. Cir. 1996); Root Refining Co.
v. Universal Oil Products Co., 169 F.2d 514, 534-35 (3d
Cir. 1948); 12 Moore’s Federal Practice, supra, § 60.21[4],
pp. 60-56 to 60-59.
One might not think that a lawyer’s being complicit in
a fraud would make it harder to detect the fraud within
a year of final judgment. But whereas perjury by wit-
nesses is a known danger and lawyers for the adverse
party have ways of countering it through discovery,
other investigatory means, and cross-examination,
perjury and other outright fabrications by lawyers are
less common and more difficult to ferret out (lawyers
are not witnesses, and therefore are not subject to cross-
examination). That is the practical reason why a lawyer’s
perjury is deemed fraud on the court but simple perjury
by a witness (perjury not suborned by a lawyer in the
case) is not. See, e.g., Hazel-Atlas Glass Co. v. Hartford-
Empire Co., 322 U.S. 238, 245 (1944); Gleason v. Jandrucko,
860 F.2d 556, 559-60 (2d Cir. 1988); Bulloch v. United
States, 763 F.2d 1115, 1121 (10th Cir. 1985) (en banc);

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No. 10-3732 7
12 Moore’s Federal Practice, supra, § 60.21[4][c], pp. 60-59 to
60-63.
The difference between simple perjury and perjury (or
the equivalent, such as a forged exhibit) suborned or
committed by counsel is illustrated by the Supreme
Court’s decision in Hazel-Atlas Glass Co. v. Hartford-Empire
Co., supra. When Hartford-Empire’s application for a
patent on a machine for pouring molten glass into
molds was faring badly in the Patent Office, lawyers for
Hartford, together with Hartford officials, wrote an
article extolling the invention and paid an expert to sign
it, of course without disclosing to the Patent Office or
Hazel-Atlas the true authors. The patent was granted, and
Hartford sued Hazel-Atlas for infringement, lost in the
district court, but persuaded the court of appeals to
reverse—in part by directing the court to the article; for
the court quoted copiously from it in its opinion in
favor of Hartford. 322 U.S. at 240-42. The Supreme Court
held that the conduct of Hartford’s counsel was fraud
on the court.
The case was unusual, as we noted in In re Met-L-
Wood Corp., 861 F.2d 1012, 1018 (7th Cir. 1988), because
the fraud was directed in the first instance at the Patent
Office rather than a court. But the district court and
court of appeals were defrauded when counsel used
the fraudulent article to bolster his client’s case in
those courts.
The contention that Kielty committed fraud on the
court is baseless. Kielty is a lawyer, but he was not func-
tioning in that capacity when he signed the petition to

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8 No. 10-3732
declare Golf bankrupt. He was acting just as a creditor.
A creditor who makes false representations in a bank-
ruptcy proceeding, or encourages others to do so, is no
different from a lying witness in any other case; and a
witness’s lies are not fraud on the court unless a lawyer
in the case is complicit in them.
Kielty is accused of having encouraged his fellow
outsider creditors to submit inflated claims in the bank-
ruptcy proceeding; for the greater Golf’s apparent debts,
the more likely the bankruptcy judge would be to grant
the petition for involuntary bankruptcy, as the outsider
creditors wanted him to do (and as he did). Although
Jakich and Dunlap contend that Golf was not insolvent
when the petition by the outsider creditors was filed, that
contention was definitively resolved against them in
an order by the bankruptcy judge of February 6, 2007,
noting that the record “clearly established” that Golf
was insolvent. But as a signer of the bankruptcy peti-
tion Kielty did participate in forcing Golf into an involun-
tary bankruptcy, and as owners Jakich and Dunlap
would have preferred a voluntary Chapter 11 bank-
ruptcy. For then the bankruptcy judge might at their
urging have permitted Golf to remain in operation as a
debtor in possession, and that would have given the
owners a shot at avoiding—more realistically, post-
poning—liquidation and being paid salaries by the
corporation in the meantime. Involuntary bankruptcy
turned out to be the right move for Kielty and the other
outsider creditors (maybe for the insider creditors as
well) because the recreation district paid more for the
golf course than its estimated market value; as a result, all

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No. 10-3732 9
of Golf’s outsider creditors were paid in full and the
insider creditors received substantial partial satisfaction
of their claims.
Still, orchestrating the submission of claims that
Kielty knew to be inflated, which would make Golf’s
financial position look worse than it was and increase
the likelihood of a liquidation, would be a fraud by
Kielty. But it would not be fraud on the court; and any-
way the bankruptcy trustee, Eggmann (“an honorable
man,” lawyer Stanton acknowledges), the U.S. Trustee,
the bankruptcy judge, the district judge, a mediator,
and others who have looked into the fraud allegations
have uniformly found none of them to have suffi-
cient merit to warrant protracting the bankruptcy pro-
ceeding—especially as it is now four years since the
golf course was sold.
The only relief the bankruptcy judge could give Jakich
and Dunlap, moreover, would be to rescind the bank-
ruptcy sale, and that would be improper unless the recre-
ation district were a party to Kielty’s alleged (but un-
proved and probably nonexistent) fraud. 11 U.S.C.
§ 363(m); see also In re Edwards, 962 F.2d 641 (7th Cir.
1992); In re Chicago, Milwaukee, St. Paul & Pacific R.R., 799
F.2d 317, 329-31 (7th Cir. 1986); In re Trism, Inc., 328
F.3d 1003, 1006 (8th Cir. 2003); In re Mann, 907 F.2d 923,
926 (9th Cir. 1990). And of that there is no evidence—
though Jakich and Dunlap would like both Eggmann
and the U.S. Trustee to investigate the possibility.
The motions and appeals filed, many by Stanton,
on behalf of Jakich and Dunlap have been not only ground-

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10 No. 10-3732
less but also obsessive, a form of harassment, unprofes-
sional, and an abuse of the bankruptcy court, the
district court, and this court. They give new meaning to
the word pertinacity. This appeal is the culmination
and we trust conclusion of an unedifying saga. The
trustee has moved for sanctions under Rule 38 of the
appellate rules, which authorizes an award of “just dam-
ages and single or double costs to the appellee” if
the appeal was frivolous. The appellants have not re-
sponded to the motion. We grant it and direct the
trustee to submit a request for a specific amount of dam-
ages and costs.
The judgment of the district court is
AFFIRMED.
7-22-11

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