Douglas Kelley v. Steven Stevanovich ( 2022 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 21-2850
DOUGLAS A. KELLEY,
Plaintiff-Appellee,
v.
STEVEN STEVANOVICH,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 18-cv-08394 — John J. Tharp, Jr., Judge.
____________________
ARGUED MAY 26, 2022 — DECIDED JULY 21, 2022
____________________
Before BRENNAN, SCUDDER, and ST. EVE, Circuit Judges.
ST. EVE, Circuit Judge. This case concerns high-end wine
and spirits purchased with funds linked to the now infamous
multi-billion-dollar Petters Ponzi Scheme. In 2015, a bank-
ruptcy court in the District Court of Minnesota entered a
$578,366,822 default judgment for Douglas A. Kelley—the liq-
uidating trustee for Petters Company, Inc.—against Capital
Strategies Fund, Ltd. (“Capital Strategies”), a recipient of the
scheme’s funds. In 2018, Kelley (“the Trustee”) initiated post-
2 No. 21-2850
judgment supplementary proceedings in the Northern Dis-
trict of Illinois against Capital Strategies’ director and invest-
ment manager, Steven Stevanovich, to enforce the judgment
against Capital Strategies. The Trustee claimed Stevanovich
owed Capital Strategies $1,948,670.79 under an Illinois state
law theory of embezzlement. The Trustee presented evidence
that Stevanovich used Capital Strategies’ assets to purchase
wine for his personal use. The district court agreed. It granted
the Trustee’s motion for a turnover order on the briefs, with-
out conducting an evidentiary hearing, and found by a pre-
ponderance of the evidence that Stevanovich embezzled the
funds. Because Stevanovich owed Capital Strategies, and
Capital Strategies owed the Trustee, the Trustee could step
into Capital Strategies’ shoes and collect Stevanovich’s debt.
On appeal, Stevanovich alleges a series of errors, challeng-
ing the district court’s application of procedural and substan-
tive law. We find no error and affirm.
I. Background
In the 2000s, Capital Strategies held tens to hundreds of
millions of dollars belonging to a sole investor, with Steva-
novich at the helm as its sole director. Capital Strategies in-
vested in the multi-billion-dollar Petters Ponzi scheme and
got out before the scheme collapsed in 2008. While some in-
vestors lost everything, Capital Strategies seemingly bene-
fited and earned tens of millions on its investments. To level
the field, the Bankruptcy Code empowers the Trustee to re-
cover funds from investors like Capital Strategies, who other-
wise would profit from the scheme at the expense of other in-
vestors. By the time the Trustee attempted to use these powers
against Capital Strategies, it had dissolved; the Trustee had a
large money judgment against an entity that no longer
No. 21-2850 3
existed. To enforce the judgment, the Trustee turned to Steva-
novich, an Illinois resident, and filed a post-judgment supple-
mentary proceeding in the Northern District of Illinois under
the court’s diversity jurisdiction. See 28 U.S.C. § 1332.
Federal Rule of Civil Procedure 69 instructs courts to ap-
ply state law in post-judgment proceedings. Under Illinois
law, a judgment creditor may recover assets from a third
party if the judgment debtor has an Illinois state law claim of
embezzlement against the third party. 735 ILCS 5/2-
1402(c)(3). Thus, the Trustee could recover the full amount
Stevanovich owed if Capital Strategies had a valid embezzle-
ment claim against Stevanovich. Further, Illinois Supreme
Court Rule 277(a) allows the Trustee to initiate proceedings
against the third-party Stevanovich directly.
In his turnover motion, the Trustee argued that Steva-
novich embezzled Capital Strategies’ funds to purchase high-
end wine for his personal use and transferred the goods to
Stevanovich’s personal wine cellar in Switzerland. The Trus-
tee submitted ample evidence to support his claim. A vendor
attested that he sold the wine to Stevanovich and shipped it
to Switzerland. The vendor stated that Stevanovich placed all
orders personally, and the vendor sent all invoices directly to
Stevanovich. Finally, the vendor’s bank statements indicate
payments for the shipments came from Capital Strategies’ ac-
counts.
During Stevanovich’s 2018 deposition in the bankruptcy
proceedings in the District of Minnesota, the Trustee asked
Stevanovich about these purchases. Stevanovich admitted he
collected wine, and explained that he enjoyed expensive wine
and frequently gave bottles as gifts. He vehemently denied,
however, any memory of the vendor or purchases, despite
4 No. 21-2850
admitting he may have been the only person with signatory
authority over Capital Strategies’ accounts at the time. The
Trustee unsuccessfully attempted to refresh Stevanovich’s
recollection of the events with various pieces of evidence. Ste-
vanovich held firm, even after reviewing the vendor’s state-
ments showing Capital Strategies’ payments ranging from
tens of thousands to hundreds of thousands of dollars. The
Trustee submitted a full transcript of the deposition with his
turnover motion.
Stevanovich’s response to the turnover motion relied
heavily on his own affidavit providing a detailed recount of
the same wine purchases he could not recall just a year before.
He now claimed that the wine purchases were an investment
strategy for Capital Strategies’ sole investor—one of Steva-
novich’s in-laws. Stevanovich chose to store the wine in his
personal wine cellar in Switzerland to cut down on costs. In
2009, Capital Strategies transferred the wine to TGG Capital
Ltd. (“TGG Capital”), a separate investment vehicle belong-
ing to the same sole investor but with which Stevanovich had
no affiliation. In 2012, the sole investor instructed TGG Capi-
tal to auction the wine at Christie’s. Three payments passed
through a third party’s United States escrow account on their
way to TGG Capital’s Bermuda bank account. Stevanovich in-
cluded scant evidence to corroborate his story: escrow state-
ments for the first two payments, wire instructions to the es-
crow agent, and TGG Capital’s statements showing receipt of
all three wires. The escrow documents indicated that Steva-
novich was personally involved in the transactions. None of
the documents provided context for the fund transfers. In ef-
fect, Stevanovich’s defense would succeed or fail on the
strength of his uncorroborated affidavit.
No. 21-2850 5
In reply, the Trustee questioned the veracity of Steva-
novich’s affidavit but suggested that a hearing could resolve
any factual issues. For his part, Stevanovich never requested
a hearing or stated the extent to which he planned to back up
his affidavit with additional testimony or evidence. To the
contrary, he previously asked not to come to court. He also
filed a surreply arguing that no material factual dispute ex-
isted.
The district court ruled on the evidence before it without
conducting a hearing. It first addressed threshold questions
the parties had briefed, including whether the Trustee’s sup-
plementary action was timely. The district court rejected Ste-
vanovich’s argument that the five-year statute of limitations
for embezzlement applied, accruing from the dates of the
wine purchases. See 735 ILCS 5/13-205. Instead, it applied the
seven-year statute of limitations for supplementary proceed-
ings accruing from the date of the bankruptcy court judg-
ment. See 735 ILCS 5/12-108(a); Dexia Credit Local v. Rogan, 629
F.3d 612, 627 (7th Cir. 2010).
Next, the district court explained that to prove embezzle-
ment under Illinois law the Trustee had to show by a prepon-
derance of the evidence that Stevanovich (1) had a special re-
lationship with Capital Strategies, (2) converted Capital Strat-
egies’ property for his own use, and (3) had the intent to em-
bezzle. See People v. Curoe, 422 N.E.2d 931, 941–42 (Ill. App. Ct.
1981). The district court found that the Trustee satisfied each
element. First, Stevanovich was Capital Strategies’ sole direc-
tor and was authorized to use the fund’s bank account at the
time of the purchases. Second, Stevanovich purchased the
wine with Capital Strategies’ funds and had the wine shipped
to his personal wine cellar. Third, the evidence sufficiently
6 No. 21-2850
established intent. Stevanovich never disputed the underly-
ing facts.
Then, the district court addressed Stevanovich’s affidavit.
It noted that Stevanovich’s story was internally inconsistent.
If Stevanovich had transferred the wine to TGG Capital in
2009, why was he involved in the subsequent transaction? The
affidavit also directly conflicted with Stevanovich’s prior
sworn deposition testimony in the previous adversary pro-
ceeding, and Stevanovich failed to offer any explanation for
the inconsistencies. The district court found it incredible that
Stevanovich could not recall a $2 million transaction with
which he had been intimately involved. Further, Stevanovich
did not present sufficient documentary evidence to support
his affidavit. The district court believed the evidence under-
mined Stevanovich’s story by suggesting he had a personal
stake in the transaction. It concluded that the Trustee met his
burden, and the “negligible weight” of Stevanovich’s affidavit
could not overcome the Trustee’s showing.
The district court further found that Stevanovich did not
present evidence sufficient to create disputes of fact that
would require a hearing. Indeed, Stevanovich did not identify
any disputed issues of fact. The district court granted the
Trustee’s motion and ordered Stevanovich to turn over the
$1,948,670.79 he embezzled from Capital Strategies to pur-
chase wine for his personal use.
Stevanovich moved the district court to vacate its order,
arguing that the district court should have held a hearing and
afforded Stevanovich the opportunity to support his affidavit
in court. Stevanovich suggested that a second look at the evi-
dence would resolve the district court’s concerns and show
that he did not benefit from the wine sale. The district court
No. 21-2850 7
denied the motion. It explained that Stevanovich’s focus on
the 2012 sale was irrelevant—the district court based its find-
ings on the 2006–2008 purchases. Stevanovich simply failed to
refute the Trustee’s evidence for the relevant period. It also
denied Stevanovich’s request for a hearing.
Stevanovich timely appealed the district court’s order
granting the Trustee’s turnover motion. He did not appeal the
district court’s order on his motion to vacate.
II. Discussion
A turnover order is a final judgment that we review de
novo. Nano Gas Techs., Inc. v. Roe, 31 F.4th 1028, 1031 (7th Cir.
2022) (citing Maher v. Harris Tr. & Sav. Bank, 506 F.3d 560, 561–
62 (7th Cir. 2007)).
Stevanovich claims the district court erred when it (1)
found the Trustee’s claim was timely, (2) ruled on the Trus-
tee’s motion without holding an evidentiary hearing, (3) used
the preponderance of the evidence standard of proof for em-
bezzlement, (4) applied Illinois embezzlement law, and (5)
found the evidence sufficient to rule for the Trustee. We con-
sider and reject each argument in turn.
A. Statute of Limitations
Stevanovich initially argues that the district court erred by
applying the seven-year statute of limitations for supplemen-
tary proceedings instead of the five-year statute of limitations
for embezzlement claims. The time for Capital Strategies to
file embezzlement claims against Stevanovich, predicated on
wine purchases between 2006 and 2008, would have expired
between 2011 and 2013. Therefore, Stevanovich maintains, the
Trustee cannot bring a claim that Capital Strategies would be
time-barred from bringing.
8 No. 21-2850
In Dexia Credit Local v. Rogan, we rejected a similar argu-
ment that the statute of limitations for the underlying theory
of recovery applies in supplementary proceedings. 629 F.3d
at 627. The Dexia judgment creditor sought to recover assets
under a theory of constructive trust, which on its own carries
a five-year statute of limitations in Illinois. Id. at 626; see 735
ILCS 5/13-205 (setting a default five-year period for civil
claims not otherwise provided for). The district court applied
the seven-year statute of limitations for a judgment creditor
to enforce a judgment. 629 F.3d at 626; see 735 ILCS 5/12-108.
We affirmed, reasoning that the supplementary proceedings
“were initiated to enforce and satisfy a previously-obtained
money judgment … [and] the statute specifically governing
such proceedings determines the rights and liabilities of the
parties.” 629 F.3d at 627.
In defining the scope of supplementary proceedings, the
Dexia Court explained that “[a]s long as the action seeks the
judgment debtor’s assets and does not concern personal lia-
bility, it falls within the scope of a supplementa[ry] proceed-
ing.” Id. at 624 (citing Kennedy v. Four Boys Labor Serv., Inc., 664
N.E.2d 1088, 1092–93 (Ill. App. Ct. 1996)). Furthermore, a
judgment creditor may not initiate supplementary proceed-
ings until they have obtained a favorable judgment. Id. at 620–
21 (citing Marble Emporium, Inc. v. Vuksanovic, 790 N.E.2d 57,
62 (Ill. App. Ct. 2003)). It follows that a judgment creditor who
begins a supplementary proceeding against a third party ex-
ercises his own right to enforce a judgment, not the judgment
debtor’s personal right to pursue the underlying claim against
a third party. The focus is on the transfer itself and the under-
lying claim determines the transfer’s validity. Illinois law
clearly establishes a seven-year statute of limitations from the
date a judgment creditor receives a right to pursue recovery.
No. 21-2850 9
The Trustee received an enforceable money judgment in
2015 and initiated supplementary proceedings in 2018. The
district court properly applied the seven-year statute of limi-
tations for enforcing a money judgment and did not err in
finding the Trustee’s action timely.
B. Evidentiary Hearing
Stevanovich argues the district court erred by granting the
Trustee’s turnover motion without conducting an evidentiary
hearing. We review a district court’s decision to conduct an
evidentiary hearing for abuse of discretion. See Cont’l W. Ins.
Co. v. Country Mut. Ins. Co., 3 F.4th 308, 318 (7th Cir. 2021) (cit-
ing Royce v. Michael R. Needle P.C., 950 F.3d 481, 487 (7th Cir.
2020)). A decision relying on an error of law is itself an abuse
of discretion. See In re Veluchamy, 879 F.3d 808, 823 (7th Cir.
2018) (citing Kress v. CCA of Tenn., LLC, 694 F.3d 890, 892 (7th
Cir. 2012)).
Federal Rule of Civil Procedure 69(a)(1) provides:
A money judgment is enforced by a writ of execution,
unless the court directs otherwise. The procedure on
execution—and in proceedings supplementary to and
in aid of judgment or execution—must accord with the
procedure of the state where the court is located, but a
federal statute governs to the extent it applies.
Generally, a relevant federal civil rule controls “since those
rules have the force of a statute.” Wright & Miller, 12 Fed.
Prac. & Proc. Civ. § 3012 (3d ed. 2022); see Vera v. Rep. of Cuba,
802 F.3d 242, 244 & n.3 (2d Cir. 2015); Office Depot Inc. v. Zuc-
carini, 596 F.3d 696, 700 (9th Cir. 2010). In Resolution Trust
Corp. v. Ruggiero, 994 F.2d 1221 (7th Cir. 1993), we read this
general principle narrowly, concluding that Rule 69 required
10 No. 21-2850
only that the relevant federal rules of execution control, not
all federal rules of procedure or evidence. 994 F.2d at 1226. We
also declined to adopt the inverse—that state rules otherwise
control. Id. Reasoning that the drafters did not intend for Rule
69 to place courts in a “procedural straitjacket, whether of
state or federal origin,” we suggested that federal courts have
some discretion when conducting supplementary proceed-
ings. Id. Ruggiero implies a certain latitude that we have since
clarified.
In Star Insurance Company v. Risk Marketing Group Inc., 561
F.3d 656 (7th Cir. 2009), we explained that the supplementary
proceedings should conform to Illinois state law. 561 F.3d at661 (citing Matos v. Richard A. Nellis, Inc., 101 F.3d 1139, 1195
(7th Cir. 1996)). Rule 69 requires federal courts to adopt state
procedure “unless there is an applicable federal statute ex-
pressly regulating the execution of judgments.” Id. (quoting
Maher, 506 F.3d at 563). Two years later, in Bank of America,
N.A. v. Veluchamy, 643 F.3d 185 (7th Cir. 2011), we noted that
Rule 69 requires federal courts to apply state procedure, but
Illinois law regarding supplementary proceedings provides
courts with a broad authority to enforce a judgment. 643 F.3d
at 188 (citations omitted). Federal courts have procedural lee-
way because Illinois law supplies many options for enforce-
ment. Our post-Ruggiero decisions clarify that if Illinois law
requires an evidentiary hearing in supplementary turnover
proceedings, Ruggiero does not empower a federal court to
disregard that requirement unless a federal statute says oth-
erwise.
Stevanovich relies on Illinois Supreme Court Rule 277(e)
and Illinois caselaw to argue that Illinois law requires a hear-
ing. Rule 277(e)’s text indicates that the “hearing” concerns
No. 21-2850 11
the judgment creditor’s “examination of the judgment
debtor,” and the judgment creditor may “elect[] … to conduct
all or a part of the hearing by deposition.” Read contextually,
this language focuses on the judgment creditor’s investigation
into the judgment debtor’s assets, see Ill. Sup. Ct. R. 277(c)
(outlining the examination), and does not support Steva-
novich’s argument.
The Illinois Supreme Court, in Dowling v. Chicago Options
Associates, Inc., 875 N.E.2d 1012 (Ill. 2007), implied that an ev-
identiary hearing is not mandatory in supplementary pro-
ceedings. The Dowling majority noted that the lower court’s
decision not to conduct an evidentiary hearing before ruling
on a turnover motion impacted the standard of review. 875
N.E.2d at 1017. While an evidentiary hearing typically earns
a lower court decision deference on appeal, the lack of a hear-
ing requires de novo review. Id. (citing Nw. Diversified, Inc. v.
Mauer, 791 N.E.2d 1162, 1167 (Ill. App. Ct. 2003)).
Illinois intermediate courts lack consensus on when a
hearing is necessary post-Dowling. Stevanovich directs us to
Workforce Solutions v. Urban Services of America, Inc., 977
N.E.2d 267 (Ill. App. Ct. 2012), where the Court suggested
Rule 277(e) requires an evidentiary hearing unless a party
moves for summary judgment or the parties stipulate to the
facts. 977 N.E.2d at 275–77. Yet four years later, in Xcel Supply
LLC v. Horowitz, 100 N.E.3d 557 (Ill. App. Ct. 2018), another
intermediate court questioned the reasoning in Workforce So-
lutions. 100 N.E.3d at 566–67. The Xcel Supply Court observed
that the Dowling parties never moved for summary judgment
or stipulated to the facts. Id. at 566. It cited multiple post-
Dowling cases where intermediate courts affirmed turnover
orders issued without evidentiary hearings. Id. (citing Urban
12 No. 21-2850
P’ship Bank v. Winchester-Wolcott, LLC, 16 N.E.3d 285, 287 (Ill.
App. Ct. 2014); In re Estate of Zagaria, 997 N.E.2d 913, 920–21
(Ill. App. Ct. 2013)).
Dowling and its subsequent interpretations make clear that
Illinois law does not require an evidentiary hearing in all sup-
plementary turnover proceedings. Although the precise con-
tours of when such a hearing is required are blurred, it is clear
the district court did not err in ruling without a hearing in this
case. It had no reason to conduct a hearing because Steva-
novich failed to present any evidence creating an issue of fact
that necessitated one. Indeed, he even represented that no ma-
terial factual disputes existed.
Again, Stevanovich’s only support was his affidavit, and
the district court assigned little weight to his claims. We ob-
served at oral argument that the district court’s approach ech-
oed the sham-affidavit rule. “In this circuit the sham-affidavit
rule prohibits a party from submitting an affidavit that con-
tradicts the party’s prior deposition or other sworn testi-
mony.” Perez v. Staples Cont. & Com. LLC, 31 F.4th 560, 569 (7th
Cir. 2022) (quoting James v. Hale, 959 F.3d 307, 316 (7th Cir.
2020)). The rule posits that “a genuine issue of material fact
cannot be conjured out of nothing.” James, 959 F.3d at 316.
Though the district court stopped short of making a sham-af-
fidavit finding, the rule’s principles are applicable here.
A weak affidavit—of questionable veracity, lacking cor-
roborating evidence, and contradicting prior sworn deposi-
tion testimony—is insufficient to meaningfully refute the
Trustee’s showing that Stevanovich used Capital Strategies’
funds to buy wine for his own use. The Trustee submitted un-
contested facts, supported by the evidence, with his motion.
No. 21-2850 13
Stevanovich’s minimal response would not caution a judge to
sua sponte hold a hearing before ruling.
Significantly, Stevanovich never asked for a hearing. In his
appellate briefs and at oral argument, Stevanovich claimed he
could not have anticipated that the district court would treat
the Trustee’s turnover motion in the same manner as a Fed-
eral Rule of Civil Procedure 56 motion for summary judg-
ment. We disagree. It is reasonable that a successful turnover
motion brings a level of finality to the proceedings. See Ruggi-
ero, 994 F.2d at 1227 (rejecting a similar argument where the
record appeared complete and there were no issues of mate-
rial fact). Stevanovich should have recognized the importance
of developing the evidentiary record before the district court
ruled. His briefing below suggests he believed he had done
enough. Stevanovich cannot gamble on a poorly developed
affidavit then ask for a second chance after he loses.
C. Standard of Proof
Stevanovich next argues that the district court should have
applied the clear and convincing standard of proof to deter-
mine whether the Trustee proved Stevanovich embezzled
funds from Capital Strategies. Stevanovich admits that Illinois
law does not identify a specific standard of proof. He turns
instead to Supreme Court cases that pre-date the United
States Bankruptcy Code. See Maggio v. Zeitz, 333 U.S. 56 (1948);
Oriel v. Russell, 278 U.S. 358 (1929). In both decisions, the Su-
preme Court applied the clear and convincing standard to
turnover orders against bankrupt debtors. Maggio, 333 U.S. at
64; Oriel, 278 U.S. at 362. The Trustee suggests we borrow the
preponderance of the evidence standard for Illinois conver-
sion claims. See Bill Marek’s The Competitive Edge, Inc. v. Mick-
elson Grp., Inc., 806 N.E.2d 280, 285 (Ill. App. Ct. 2004).
14 No. 21-2850
We have previously stated that “unless the governing stat-
ute (or … rule) specifies a higher burden, or the Constitution
demands a higher burden because of the nature of the indi-
vidual interests at stake, proof by a preponderance of the ev-
idence will suffice.” Ramirez v. T&H Lemont, Inc., 845 F.3d 772,
778 (7th Cir. 2016) (citing Grogan v. Garner, 498 U.S. 279, 296
(1991); Herman & MacLean v. Huddleston, 459 U.S. 375, 389
(1983)); see also Conley v. United States, 5 F.4th 781, 795–96 (7th
Cir. 2021) (restating this principle in the 28 U.S.C. § 2255 ha-
beas corpus context). This default standard allocates risk of
error equally between the parties and reflects that typically
only money is at stake. Ramirez, 845 F.3d at 778 (citing Herman
& MacLean, 459 U.S. at 390). “Any other standard expresses a
preference for one side’s interests.” Herman & MacLean, 459
U.S. at 390.
The Supreme Court has identified preponderance of the
evidence as the default standard in numerous civil contexts.
See Conley, 5 F.4th at 794–95 (providing overview of Supreme
Court precedent); Ramirez, 845 F.3d at 777–78 (same). Rele-
vant here, the Grogan Court applied the default preponder-
ance standard to dischargeability exceptions under the Bank-
ruptcy Code. 498 U.S. at 286. The Code excepts from discharge
assets the debtor received through “actual fraud.” Id. at 281–
82; see 11 U.S.C. § 523(a)(2)(A). Acknowledging the balance of
interests outlined in Herman & MacLean, the Grogan Court ex-
plained that a debtor does not have “an interest in discharge
sufficient to require a heightened standard of proof.” 498 U.S.
at 287. The Grogan Court also noted that Congress’s decision
to exclude debts for fraud reflected both creditors’ interests to
recover and broader policy interests. Id. Applying clear and
convincing evidence “would have favored the interest in giv-
ing perpetrators of fraud a fresh start over the interest in
No. 21-2850 15
protecting victims of fraud.” Id. The preponderance of the ev-
idence standard properly balanced these competing interests.
Id.Stevanovich’s reliance on Maggio and Oriel is not persua-
sive. Both cases considered an outdated procedure super-
seded by the Bankruptcy Code. Grogan’s treatment of the
analogous fraud exception to discharge proceedings suggests
the Court would not adopt Maggio’s and Oriel’s reasoning if it
heard those cases today. In In re Meyers, 616 F.3d 626 (7th Cir.
2010), we observed that Grogan’s default rule would likely ex-
tend to turnover actions also brought pursuant to the Code.
616 F.3d at 630. Post-Grogan, only one of our sister circuits has
relied on Maggio or Oriel’s reasoning in turnover actions, both
times in unpublished opinions. In re Ramirez, 605 F. App’x 361,
364 (5th Cir. Mar. 30, 2015) (applying to Securities Exchange
Commission receivership case); In re Norris, 1997 WL 256808,
at *8 (5th Cir. Apr. 11, 1997) (applying to turnovers under the
Bankruptcy Code). Conversely, the Tenth Circuit held
Grogan’s preponderance standard applied to prove a debtor’s
transfers were willful violations of an automatic bankruptcy
stay. In re Johnson, 501 F.3d 1163, 1169–70 (10th Cir. 2007); see
11 U.S.C. § 362(k)(1). We agree with the Tenth Circuit’s ap-
proach. The preponderance of the evidence standard also ap-
propriately balances the parties’ competing interests over
what is at stake in the litigation.
Though this case concerns a turnover order in a state law
supplementary proceeding, the balance of interests between
the parties remains the same as with federal bankruptcy pro-
ceedings. Because the Illinois statute does not provide a
higher standard of proof for recovery, a third party’s interest
to avoid turnover does not outweigh the judgment creditor’s
16 No. 21-2850
interest to recover when the third party has embezzled funds
from the judgment debtor. Applying the clear and convincing
evidence standard would favor the third party’s interests to
keep the funds over the judgment creditor’s interests to re-
cover the same for the victims. Therefore, the default rule con-
trols: the judgment creditor need only prove embezzlement
by a preponderance of the evidence.
Stevanovich claims that he has a personal interest in not
being labeled an embezzler. Perhaps this is a natural conse-
quence of the Trustee proving his case. Though the supple-
mentary proceeding concerned the Trustee’s right to recover,
the inquiry necessarily required the district court to assess
Stevanovich’s actions. Both state and federal law provide
many theories that a judgment creditor may prove to recover
assets from a judgment debtor or third party. That some the-
ories may carry negative connotations does not itself provide
a basis for applying a heightened standard of proof.
D. Illinois Embezzlement Law
Stevanovich argues that the district court misapplied Illi-
nois embezzlement law when considering the evidence. Ste-
vanovich concedes that the district court articulated the right
legal standard, taking exception only to how the district court
then used that standard. He suggests that Illinois law re-
quired the Trustee to show more than receipt or control over
property to prove the second element of conversion for per-
sonal use. See People v. Ervin, 174 N.E. 529, 531 (Ill. 1930); Sey-
mour v. Williams, 618 N.E.2d 966, 972 (Ill. App. Ct. 1993); Curoe,
422 N.E.2d at 941–42. He also argues that Illinois law required
the Trustee to show some level of concealment or secrecy to
prove intent to embezzle. See People v. Parker, 189 N.E. 352,
363–64 (Ill. 1934). Stevanovich claims the evidence shows he
No. 21-2850 17
placed the orders openly as an investment for the sole inves-
tor, sold the wine, and did not keep the proceeds from the
sale. He submits the district court’s ruling for the Trustee on
this record proves a miscomprehension of Illinois law.
Stevanovich mischaracterizes the district court’s decision.
The district court found that Stevanovich used Capital Strate-
gies’ funds to purchase wine for his own use. Contrary to Ste-
vanovich’s claim that his affidavit provides the only evidence
of intent, the Trustee’s evidence supports the inference that
Stevanovich purchased the wine for his own enjoyment. He
personally placed the orders, paid from Capital Strategies’ ac-
counts, then moved the wine to his personal wine cellar. Ste-
vanovich ran a small operation for a sole investor, siphoning
money in incremental transactions over a two-year period
from a fund at times worth hundreds of millions. This record
supports a reasonable inference of concealment or secrecy. See
Curoe, 422 N.E.2d at 942–43 (“Defendant’s testimony that he
had no intention to permanently deprive the heirs of their
property is not decisive … ‘[a] guilty intent is necessarily in-
ferred from the voluntary commission of … an act’” (quoting
Spalding v. People, 49 N.E. 993, 999 (Ill. 1898)). The district court
properly applied Illinois law.
E. Sufficiency of the Evidence
Finally, Stevanovich challenges the sufficiency of the evi-
dence. He argues that his affidavit and supporting documents
establish that Stevanovich acted on behalf of the sole investor.
As we previously explained, Stevanovich’s affidavit and sup-
porting documents carry little weight. In contrast, the Trustee
submitted competent, undisputed evidence to support his
claim.
18 No. 21-2850
To recap, under Illinois law, the Trustee needed to estab-
lish by the preponderance of the evidence that Stevanovich (1)
had a special relationship with Capital Strategies, (2) con-
verted Capital Strategies’ property for his own use, and (3)
had the intent to embezzle.
First, Stevanovich does not contest that he had a special
relationship with Capital Strategies because he served as its
sole director.
Second, the evidence supports conversion for personal
use. The wine vendor provided an affidavit attesting that Ste-
vanovich personally placed the orders and had the wine
shipped to his home in Switzerland. The vendor’s records in-
dicate payments for the wine came from Capital Strategies’
bank account. At the time, Stevanovich was the only author-
ized signatory on its account. Given Stevanovich’s penchant
for collecting wine, these facts sufficiently show Stevanovich
converted Capital Strategies’ funds to buy wine for his own
enjoyment.
Third, the evidence also supports Stevanovich’s intent.
Stevanovich is a wine connoisseur and sophisticated money
manager. The evidence shows that he purchased the wine for
himself and sent it to his home. There is no credible evidence
that he acted on behalf of the sole investor instead of himself.
Ten years later, under oath, he claimed ignorance. This is suf-
ficient to infer intent.
The district court did not err in finding that the Trustee
satisfied all three elements of embezzlement by the prepon-
derance of the evidence.
No. 21-2850 19
III. Conclusion
Stevanovich had his opportunity to contest the Trustee’s
claims that Stevanovich owed Capital Strategies money under
a theory of embezzlement. If Stevanovich had more evidence
or argument to present at a hearing, he should have included
it in his briefing. The district court properly applied the law
to the record before it.
AFFIRMED