Seventh Circuit Requires Evidentiary Hearing When a Citation Respondent Pays a “Hypothetical” Severance Derived from Expired Options and Offsets Junior Debt

Introduction

United States v. Thomas Lindstrom (7th Cir. Feb. 23, 2026) arises from post-judgment enforcement of a $13,776,518 criminal restitution order entered against Thomas Lindstrom for wire fraud that destroyed David Venkus’s trading firm. Venkus, as the restitution judgment creditor, pursued collection under Federal Rule of Civil Procedure 69(a)(1), which incorporates state enforcement procedure—here, Illinois supplementary proceedings via a citation to discover assets under 735 ILCS 5/2-1402.

The citation was served on Lindstrom’s employer, Ryan Building Group, Inc. (“RBG”), and included a restraining provision barring RBG from transferring non-exempt property belonging to Lindstrom or due to him. After RBG later terminated Lindstrom for embezzlement, it paid him $73,090, described as severance, calculated by taking a “hypothetical” value of Lindstrom’s vested (but unexercised) stock options ($445,633) and subtracting Lindstrom’s debt to RBG ($372,543), even though the options allegedly expired 30 days after termination. RBG remitted only 15% of the severance ($10,963) to Venkus, treating the payment as subject to Illinois’s wage garnishment cap.

The key issues on appeal were whether RBG (1) violated the citation by structuring the severance calculation in a way that effectively preferred its junior, unperfected claim (Lindstrom’s debt to RBG) over Venkus’s senior citation lien, and (2) violated the citation by paying only 15% of the severance under 735 ILCS 5/12-803. The Seventh Circuit reversed the district court’s denial of relief and remanded for an evidentiary hearing.

Summary of the Opinion

  • The Seventh Circuit held that Venkus raised material questions of fact regarding the nature of RBG’s “severance” payment and whether RBG’s conduct frustrated the citation’s restraining provision under 735 ILCS 5/2-1402(f).
  • The court was openly skeptical of the transaction: RBG terminated Lindstrom for stealing yet made a “gratuitous” payment derived from the value of options and netted out a large debt to itself—an outcome that could have the practical effect of sidestepping lien priority.
  • The court therefore reversed and remanded for an evidentiary hearing and any additional discovery the district court deems necessary.
  • On whether severance is “wages” and whether the 15% cap in § 12-803 applies, the Seventh Circuit declined to decide and directed the district court to address those issues first, particularly because Venkus had conceded a statutory point below and later attempted to retreat from it.
  • Attorney’s fees were left open: if the district court finds a citation violation and contempt, it should consider fees as part of the sanction.

Analysis

Precedents Cited

1) Federal enforcement framework and the elements of citation liability

The court grounded the enforcement posture in Federal Rule of Civil Procedure 69(a)(1), which directs federal courts to use the forum state’s supplementary proceedings. It reiterated the standard for holding a third party liable for violating a citation, quoting Mendez v. Republic Bank: the creditor must show an enforceable judgment, proper service of a citation, and that the third party transferred assets of the judgment debtor in violation of the citation’s restraining provision. Only the third element was disputed.

2) What the restraining provision does: “freeze assets,” prevent frustration, punish evasive conduct

The Seventh Circuit emphasized that Illinois’s restraining provision is designed to preserve the status quo:

  • Door Props., LLC v. Nahlawi (quoting Kauffman v. Wrenn) supplied the “freeze assets” conception of § 2-1402(f)(1), reinforced by United States v. Sheth.
  • Bank of Aspen v. Fox Cartage, Inc. articulated the notice-and-consequence model: while a citation is not an injunction, it puts the respondent on notice that transferring property subject to supplementary proceedings can lead to a judgment against the transferee or contempt. BMO Harris Bank N.A. v. Joe Contarino, Inc. was cited in the same vein.
  • Kirchheimer Bros. Co. v. Jewelry Mine, Ltd. supplied the critical rule that the respondent must hold the debtor’s reachable property “in status quo” until rights are determined; the opinion also referenced secondary authority (Illinois Law & Practice, Executions § 112) citing Vendo Co. v. Stoner.
  • Nat’l Life Real Est. Holdings, LLC v. Scarlato was pivotal to the court’s skepticism: it exemplifies how “evasive conduct” that functionally routes value beyond a creditor’s reach can “frustrate the purpose” of § 2-1402 even if the transaction is facially structured to look compliant.

3) Gifts vs. debts: the “gratuitous payment” line-drawing problem

The court treated Door Props., LLC v. Nahlawi as especially instructive because it squarely addresses whether a payment is “property” of the debtor subject to § 2-1402. Door Properties distinguishes:

  • Paying a debtor’s obligation as a true gift (“goodwill or love or familial obligation”)—potentially outside § 2-1402; versus
  • Payment of a “debt” owed to the debtor—reachable because a debt owed to the debtor is the debtor’s property.

The Seventh Circuit used Door Properties to justify remand for fact development here: if RBG’s payment was truly gratuitous, that could cut against Venkus’s theory; but if it was effectively compensation, settlement, setoff, or disguised preference, it could support liability.

4) Fraudulent-transfer concepts as “guidance” for evasive-value-shifting

Although the court acknowledged the fraudulent transfer statutes do not directly govern because RBG is not Venkus’s debtor, it found them instructive to evaluate whether conduct functionally defeats a creditor’s rights:

  • 11 U.S.C § 548(a)(1)(A) (actual intent to hinder/delay/defraud) and the “badges of fraud” approach from Frierdich v. Mottaz, with corroboration from In re Chi. Mgmt. Consulting Grp., Inc. and related intent markers noted in In re Chavin.
  • Illinois’s Uniform Fraudulent Transfer Act (“UFTA”), 740 ILCS 160/5, including the “actual intent” factors in § 5(b), with Seventh Circuit applications such as Wachovia Sec., LLC v. Banco Panamericano, Inc..
  • The “good faith” framing from For Your Ease Only, Inc. v. Calgon Carbon Corp., particularly the observation that good faith likely fails if the transferee knows about an outstanding judgment and voidability risk—useful by analogy to a citation respondent on notice of the restraining provision.

5) Appellate waiver/forfeiture and statutory-interpretation discretion

On the wage-definition question, the court invoked waiver principles from Ross v. Fin. Asset Mgmt. Sys., Inc. and Cintas Corp. v. Perry, and discussed the narrow discretionary exception for pure statutory interpretation from Haroco, Inc. v. Am. Nat’l Bank & Tr. Co. (quoting Amcast Indus. Corp v. Detrex Corp.), as framed in CFPB v. Consumer First Legal Grp., LLC, and applied sparingly per Soo Line R.R. Co. v. Consol. Rail Corp. (quoting In re Sw. Airlines Voucher Litig.). The court declined to exercise that discretion because Venkus had affirmatively conceded the point below.

6) Attorney’s fees via contempt

The court noted § 2-1402(f) permits contempt sanctions for restraining provision violations, and under Illinois law attorney’s fees may be included “as part of the penalty,” citing W. Bend Mut. Ins. Co. v. Belmont State Corp.. It described the contempt burden-shifting framework via Webber v. Zimmerlein.

Legal Reasoning

1) Why “hypothetical” labeling did not resolve the citation-violation question

The district court accepted RBG’s position that because the options had expired (and were thus valued at $0 in December 2023), RBG’s severance calculation was merely “hypothetical” and could not have transferred option value. The Seventh Circuit rejected that as dispositive at the pleadings-only stage: the record presented unresolved factual questions about what RBG actually did and why.

The panel focused on functional effects rather than labels:

  • RBG’s method used the options’ value as the anchor for a payout and then netted out Lindstrom’s debt to RBG—an outcome that resembles a setoff/preference benefitting RBG’s junior, unperfected claim while the senior citation lien remained unsatisfied.
  • The “gratuitous severance” narrative strained plausibility given the circumstances: Lindstrom was terminated for stealing, had massive restitution exposure, and had a history of fraud—facts the court treated as context increasing the need for probing scrutiny.
  • The unexplained features (delays in disclosure, Lindstrom—not RBG—sending the “Options Net Payout” document, the company’s inconsistent characterization of the payment, and the unexplained motivation to pay at all) supported the conclusion that an evidentiary hearing is necessary to determine whether RBG “interfered with” or “frustrated” Venkus’s ability to reach assets.

2) The remand standard: when factual uncertainty triggers a hearing

The opinion’s operative procedural rule is practical: when a creditor makes a substantial showing that a citation respondent’s transaction could be evasive conduct or a frustration of the restraining provision, the court should not resolve the dispute on briefs alone. The panel cited For Your Ease Only, Inc. v. Calgon Carbon Corp. and Door Props., LLC v. Nahlawi to justify remanding for further fact development and a hearing.

3) The wage-garnishment question was intertwined with factual characterization

The court treated the 735 ILCS 5/12-801 and § 12-803 questions as dependent on how the payment is characterized: whether it was “owed” compensation, a “stock bonus,” a severance required by agreement, or a gratuitous payment potentially outside the citation’s reach. It also flagged Venkus’s concession below and declined to decide the statutory issues without a fuller record and district court analysis.

Impact

  • Heightened scrutiny of value-shifting structures after citation service: The decision signals that third parties served with § 2-1402 citations cannot rely on transactional labels (“hypothetical,” “goodwill,” “severance”) to defeat inquiry where the economic substance suggests potential frustration of lien priority.
  • Greater likelihood of evidentiary hearings in disputed citation-violation disputes: Where a creditor raises concrete red flags—especially netting arrangements that benefit a junior claimant—the Seventh Circuit endorses developing the record rather than deciding on paper.
  • Practical warning for employers and garnishees: If a respondent knows it is restrained and nonetheless structures a payment or setoff that effectively removes value from the debtor’s reachable property, it risks liability and possible contempt sanctions, including attorney’s fees.
  • Open question on Illinois severance and the 15% cap: The opinion does not settle whether a lump-sum severance is subject to § 12-803’s 15% limitation; it pushes that analysis back to the district court, suggesting the issue may turn on “owed” compensation and periodicity arguments, as well as whether the payment is truly severance at all.

Complex Concepts Simplified

Citation to discover assets (735 ILCS 5/2-1402)
A post-judgment tool that lets a creditor question the debtor or third parties to locate non-exempt assets. When served, it creates a lien on covered assets and can restrain transfers.
Restraining provision (§ 2-1402(f))
The “freeze” order: the respondent must not transfer or dispose of the debtor’s reachable property and must preserve it until the court determines rights.
Lien priority
When multiple claims compete for the same value, senior liens get paid first. Here, the parties did not dispute Venkus’s citation lien was senior to RBG’s unperfected claim to Lindstrom’s debt.
Setoff/netting
A method of paying only the “difference” between what A owes B and what B owes A. In enforcement contexts, netting can be problematic if it effectively lets a junior claimant get paid “off the top” ahead of a senior lienholder.
“Gratuitous payment” vs. “debt owed”
A true gift is not necessarily the debtor’s property (and may fall outside § 2-1402), while a payment of a debt owed to the debtor is the debtor’s property and typically reachable by a creditor.
Wage garnishment cap (735 ILCS 5/12-803)
Illinois limits how much of certain earnings can be garnished (often 15% of gross for a workweek). Whether a severance fits within that cap can depend on how the payment is classified and the statute’s structure.
Contempt and attorney’s fees
If the court finds a restraining provision was violated, it can hold the violator in contempt and may award attorney’s fees as part of the sanction.

Conclusion

The Seventh Circuit’s central contribution in United States v. Thomas Lindstrom is a pragmatic enforcement rule: when a citation respondent’s post-citation payment structure appears to shift value, prefer junior interests, or otherwise frustrate the restraining provision—particularly through opaque “hypothetical” calculations tied to expiring equity—courts should not resolve the matter on briefs alone. Instead, an evidentiary hearing (and possibly discovery) is warranted to determine whether the respondent effectively transferred reachable property in violation of 735 ILCS 5/2-1402(f).

The opinion also tees up, without deciding, an important Illinois wage-garnishment issue—whether and when a “severance” payment is “wages” and whether § 12-803’s 15% cap applies—while underscoring that statutory answers may depend on factual characterization (owed compensation vs. gratuitous payment) and procedural posture (concessions and waiver).