Duff v. Central Sleep Diagnostics, LLC
7 Cir. U.S. Court of Appeals Docket No. 13-3837 Opinion September 10, 2015
Investors in Central Sleep sued the company as well as Dachman, its promoter, and others. Their claims included fraud, the Racketeering Influenced and Corrupt Organizations Act (RICO), conversion, fraudulent conveyance, civil conspiracy, and securities fraud. Dachman was also singled out for fraudulent conduct; he spent stolen investor funds on a tattoo parlor, vacations, cruises, a new Land Rover, rare books, personal stock trading, and gambling. The Judge ordered Central Sleep into receivership and issued a stay against “all civil legal proceedings” involving Defendants.
Attorney Goodman had represented the Defendants and obtained a judgment for his unpaid legal fees. He submitted a claim to the Receiver for that amount; but also filed a lien on the proceeds of Dachmans’ separate State Court medical malpractice suit. Neither Goodman nor the Dachmans informed the Receiver or Judge about those proceedings. When the Receiver learned of the malpractice suit he immediately recovered the settlement proceeds and proposed a distribution plan. Goodman objected to the plan and argued that unlike the other creditors he was entitled him to full – rather than pro rata – payment.