Dordevic v. Paloian, No. 22-2500 (7th Cir. 2023)
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Jelena filed for Chapter 7 bankruptcy. The Trustee sued her mother, Jorgovanka, in a “turnover” proceeding, 11 U.S.C. 542, to recover a stake in a company registered in Jorgovanka’s name. The Trustee successfully argued before the bankruptcy court that Jorgovanka served as Jelena’s nominee—a party who holds title for another’s benefit. The court ruled that equitable ownership of the stake in the company belonged to Jelena, and was subject to turnover to the bankruptcy estate.
The district court and Seventh Circuit affirmed, rejecting Jorgovanka’s argument that the bankruptcy court incorrectly applied a preponderance of the evidence standard of proof, rather than clear and convincing evidence. A preponderance standard applies unless particularly important individual interests are involved or the estate’s theory for property turnover imposes a higher standard of proof. Neither situation exists here. The bankruptcy court did not clearly err in finding that the Trustee had met his burden of establishing Jelena’s equitable ownership. The court properly considered the close personal relationship, the consideration given for the property, the anticipation of collection activity, the failure to record the conveyance, and the transferor’s continued control over the property. Because Jorgovanka presented a colorable legal argument, the court declined to award sanctions.
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