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Another Bust for Execs Who Lost Golf Course

CHICAGO (CN) - The 7th Circuit dealt a double whammy to the former owners of an Illinois golf course, rejecting allegations that creditors had fraudulently inflated their debts to incite an involuntary bankruptcy and ordering sanctions for their frivolous filings.

Golf 255 owned Arlington Greens Golf Course, located in Granite City, before its creditors filed a petition for involuntary Chapter 11 bankruptcy in October 2006.

Once granted, the course sold to the Collinsville Area Recreational District for $5 million. The above-market-value sale paid all outside creditors in full. Inside creditors received partial satisfaction of their claims.

But owners Nick Jakich and Jay Dunlap opposed the sale. A federal judge rejected their multiple motions in opposition, and their appeal was dismissed as moot because the judge had no authority to undo a sale after the fact.

A year and a half later, the pair moved for discovery to investigate fraud in the bankruptcy proceedings. When their motion was denied and the trustee moved to close the case in 2010, they renewed their motion.

Jakich and Dunlap claimed that attorney and former shareholder Michael Kielty had encouraged other creditors to submit inflated claims in the proceedings, thereby increasing the likelihood of an involuntary bankruptcy.

Typical claims of fraud must be discovered within a year to set aside a judgment. But Jakich and Dunlap alleged that Kielty had committed "fraud of the court" that denied them the opportunity to identify the fraud through discovery.

Fraud of the court can include bribery of a judge, jury tampering or fraudulent submissions of a lawyer. Jakich and Dunlap alleged the latter.

Despite his legal background, Kielty was not acting as a lawyer in the case, the court ruled. Any fraud Kielty committed would have been merely as a shareholder, and thus could not avoid the one-year limitation.

Additionally, the bankruptcy trustee, a U.S. trustee, judge and mediator had each already investigated the fraud allegations, and none had found "sufficient merit to warrant protracting the bankruptcy proceeding."

A three-judge panel rejected the appeal and ordered sanctions and monetary damages against Jakich and Dunlap.

"The motions and appeals filed ... have been not only groundless but also obsessive, a form of harassment, unprofessional, and an abuse of the bankruptcy court, the district court and this court," Judge Richard Posner wrote. "They give new meaning to the word pertinacity. This appeal is the culmination and we trust conclusion of an unedifying saga."

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