The opinion
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FORT MYERS DIVISION
IN RE: WILLIAM P. MCCUAN,
Debtor.
REGIONS BANK, and ROBERT E.
TARDIF, JR., Trustee for the
Estate of William P. McCuan,
Plaintiffs,
v. Case No: 2:19-cv-317-JES
Bankr. No. 9:14-BK-965-FMD
Adv. No. 9:14-ap-402-FMD
MDG LAKE TRAFFORD, LLC,
MCCUAN IRREVOCABLE TRUST,
WILLIAM P. MCCUAN,
Defendants,
and
MJF ASSOCIATES, LLP, K&M
DEVELOPMENT CORPORATION,
INC., THE MCCUAN EXTENDED
FAMILY TRUST a/k/a THE
MCCUAN FAMILY TRUST, MCCUAN
FAMILY, LLC, THE MCCUAN
IRREVOCABLE TRUST, and JILL
MCCUAN,
Impleaded Third-
Party Defendants.
_____________________________
ROBERT E. TARDIF, JR.,
Trustee,
Plaintiff,
v. Adv. No. 9:16-ap-080-FMD
JILL MCCUAN, MCCUAN
IRREVOCABLE TRUST, WILLIAM
P. MCCUAN as co-trustee of
the McCuan Irrevocable
Trust, IRA SUGAR as co-
trustee of the McCuan
Irrevocable Trust, SUNTRUST
BANK as Investment Manager
of the McCuan Irrevocable
Trust, K&M DEVELOPMENT
CORPORATION, INC., MDG
COMPANIES OF NAPLES, INC.,
MDG CAPITAL PARTNERS REALTY,
INC., MDG CAPITAL PARTNERS
FINANCIAL CENTRE, INC., and
LAKEFRONT NORTH INVESTORS,
LP,
Defendants.
OPINION AND ORDER
This matter comes before the Court on an appeal and cross
appeal after a four-day trial in the Bankruptcy Court of two
consolidated adversary proceedings. In both adversary
proceedings, the plaintiffs asserted that debtor William P. McCuan
made fraudulent transfers to defendants to frustrate the
collection of judgments in excess of $14 million obtained by
Regions Bank, N.A. (Regions Bank). In the first adversary
proceeding, plaintiffs Regions Bank and Robert E. Tardif, Jr., the
Chapter 7 trustee (the Trustee), pursued proceedings supplemental
under Fla. Stat. § 56.29 seeking judgments avoiding certain
transfers alleged to have been fraudulent. In the second
adversary proceeding, the Trustee sought to avoid certain
transfers pursuant to 11 U.S.C. § 544(b) and the Florida Uniform
Fraudulent Transfers Act (FUFTA). After trial, the Bankruptcy
Court entered a judgment mostly in favor of plaintiffs avoiding
certain (but not all) transfers. (Doc. #6-3.)1 Judgment was
entered in favor of Mrs. McCuan. Defendants, including debtor,
appeal the portions of the judgment avoiding three of the
transfers. The cross-appeal relates to the prior Order on Implead
Third Party Defendants’ Motion for Summary Judgment (Doc. #6-37)
and more specifically the Order Denying Motion for Rehearing,
Reconsideration and/or to Alter or Amend Summary Judgment Order
(Doc. #6-49).
I.
Until his death in 2017, debtor William P. McCuan (Debtor or
McCuan) was a real estate developer, investor, and businessman who
owned and/or operated several corporations and limited liability
companies and was the settlor of several trusts. Regions Bank
began a lending relationship with Debtor and his companies in the
1990s and Regions Bank was their main source of financing. Debtor,
but not his wife Jill McCuan, personally guaranteed the companies’
loan obligations to Regions Bank. Debtor periodically submitted
both joint and individual financial statements to Regions Bank,
1 The Court will refer to the District Court docket as “Doc.”,
the Bankruptcy case docket as “Bankr. Doc.”, and the Adversary
Proceeding dockets as “Adv. Doc. 14-402” or “Adv. Doc. 16-80”.
which were used by Regions Bank to underwrite loans and loan
renewals.
As of October 31, 2007, Debtor’s financial statement
reflected that he personally held a 100% interest in “cash and
cash equivalent” with a value in excess of $4.4 million in three
specific investment accounts2 at Brown Investment Advisory and
Trust Company (Brown Investment Co.). As of June 2008, the value
of these Brown Investment Accounts was approximately $3.33
million. Mrs. McCuan had no ownership interest in these funds.
In September 2008 the companies’ debt with Regions Bank was
maturing, but the companies did not have the funds to pay the
loans. Three significant events took place. First, on September
8, 2008, Debtor executed the paperwork to add Mrs. McCuan to the
Brown Investment Accounts as “tenants by the entireties.” Mrs.
McCuan provided no consideration for this. Second, in September
2008, Debtor added Mrs. McCuan’s name to his individual account at
BB&T, which then had a balance in excess of $360,000. Again, no
consideration was given by Mrs. McCuan. Third, also in September
2008, Debtor and his accountant/financial advisor (Ira Sugar) met
with Regions Bank to discuss restructuring the loans due to mature
later in the year. Regions Bank rejected their proposed
2 Accounts ending in -1, -2, and -9, collectively referred to
as the “Brown Investment Accounts.”
restructuring plan. No payments on the loans were made after this
meeting, and the companies went into default.
Beginning in April 2009, Regions Bank filed five lawsuits in
state court to foreclose on collateral and to enforce Debtor’s
personal guaranty, including one referred to as the Lake Trafford
Action. By June 2011, Regions Bank had obtained five judgments
for an aggregate amount of over $14 million.
After the September 2008 meeting with Regions Bank, Debtor
began a series of transfers (highlighted transfers are the subject
of this appeal):
•
On March 20, 2009, Debtor transferred $700,000 from two
of the Brown Investment Accounts (Accounts -1 and -2) to
purchase three certificates of deposits at SunTrust: (1)
a $250,000 CD in the name of “W. Patrick McCuan or Jill
McCuan” and James Gaylor; (2) a $200,000 CD in the name
of MJF; and (3) a $250,000 CD in the name of “Jill McCuan
POD to W. Patrick McCuan” and “MDG Companies”.
•
On July 22, 2009, Debtor transferred $44,000 from Brown
Investment Account-2 to a BB&T account held by McCuan
Trust.
•
On January 1, 2010, Debtor transferred his interest in
an entity known as MDG-Patriot, LLC, which had a value
of $78,000 at the time, to McCuan Family, LLC.
•
On August 17, 2010, Debtor transferred over $971,000
from two Brown Investment Accounts (Accounts -1 and -2)
to SunTrust accounts held jointly by Debtor and his wife.
•
On September 3, 2010 Debtor transferred $1,085,970 from
a Brown Investment Account (Account -1) to a SunTrust
account held jointly by Debtor and his wife.
•
On September 26, 2011, Debtor transferred $100,000 from
the joint SunTrust account to McCuan Trust.
•
On January 13, 2012, Debtor transferred $100,000 from
this same SunTrust account to K&M.
•
On January 27, 2012, Debtor transferred $91,575 in cash
and $658,682 in other assets from the joint SunTrust
account to an account held by McCuan Trust.
(Doc. #6-3, pp. 9-11.)
On November 18, 2013, the state court in the Lake Trafford
Action entered an order allowing Regions Bank to pursue proceedings
supplementary under §56.29 of the Florida Statutes. In that
proceeding, Reginal Bank asserted that transfers had been made by
Debtor with the intent to hinder, delay, or defraud Regions Bank.
The “look back” period under Fla. Stat. § 56.29(3)(a) for the
avoidance of a transfer is one year from service of the summons
and complaint on the transferor in the underlying action. Debtor
was served in the Lake Trafford Action on April 13, 2009, so the
look-back date for transfers was April 13, 2008.
On January 29, 2014, Debtor filed a petition under Chapter 7
of the Bankruptcy Code. Two adversary proceedings are relevant
to this appeal. On May 8, 2014, the state court proceeding
supplementary was removed to the Bankruptcy Court. On October 3,
2014, third parties were permitted to join the proceedings
supplementary, and a Third-Party Complaint was filed.
On August 27, 2015, the Bankruptcy Court issued an Order on
Implead Third Party Defendants’ Motion for Summary Judgment.
(Doc. #6-37.) In the summary judgment Order, the Bankruptcy Court
found it had no jurisdiction over the Maryland Brown Investment
Advisory & Trust Company accounts -1 and -2. The Bankruptcy Court
found that plaintiffs could not establish the essential element of
their claim that the transfer of debtor’s interests in Little
Harper’s, LLC and Lakefront North Investor’s Limited Partnership
to McCuan Family, LLC occurred after April 13, 2008. Further,
summary judgment was granted because JLM Investment Corp. was not
a party and no relief may be granted as to MJF Associates, LLP.
As to the transfer of debtor’s interest in MDG-Patriot, LLC to
McCuan Family, LLC, the issue was permitted to proceed to trial as
the transfer was not addressed by the motion. The Order granted
partial summary judgment: (1) for Impleader defendants K&M, MJF,
Jill McCuan, McCuan LLC, McCuan Trust, and the McCuan Extended
Family Trust and finding no jurisdiction over the Brown Accounts
-1 and -2; (2) for the transfer of Debtor’s interests in Little
Harper’s, LLC and Lakefront North Investor’s Limited Partnership
to McCuan LLC because plaintiffs could not establish the essential
element of their claim that the transfers occurred after April 13,
2008; and (3) for the transfer of debtor’s interest in MJF to JLM
Investment Corp. because JLM is not a party to the action.
On November 30, 2015, the Bankruptcy Court issued an Order
Denying Motion for Rehearing, Reconsideration and/or to Alter or
Amend Summary Judgment Order. (Doc. #6-49.) The Bankruptcy Court
noted that plaintiffs could not raise issues for the first time on
reconsideration, to wit, that the pledge of the Brown Accounts to
SunTrust was defective or illusory. The Bankruptcy Court further
found that the evidence offered by plaintiffs to refute the
impleaded defendants’ evidence was insufficient to show the
existence of a genuine dispute of material fact. The Bankruptcy
Court found no basis for reconsideration because plaintiffs failed
to meet the burden to show that the transfers of debtor’s ownership
interests in Little Harpers and Lakefront occurred prior to April
13, 2008.
On January 29, 2016, the Trustee commenced an adversary
proceeding seeking to avoid the transfer of assets from the Brown
Investment Accounts as intentional and constructive fraudulent
transfers under 11 U.S.C. § 544(b) and the FUFTA. On May 10, 2017,
the two adversary proceedings were consolidated. The Bankruptcy
Court conducted a trial on June 5, September 11-12, and October
15, 2018, on the consolidated adversary proceedings.
The Bankruptcy Court determined that plaintiffs were entitled
to judgment against defendants MJF, McCuan Trust, and K&M because
the transfers on March 9, 2009, July 22, 2009, September 26, 2011,
January 13, 2012, and January 27, 2012, were made with actual
fraudulent intent and were constructively fraudulent. Judgment was
entered against MJF in the amount of $200,000 (the March 9, 2009
transfer); against McCuan Trust in the amount of $44,000 (the July
22, 2009 transfer), $100,000 (the September 26, 2011 transfer),
and $750,256.85 (the January 27, 2012 transfer); and against K&M
in the amount of $100,000 (the January 13, 2012 transfer). (Id.,
p. 29.) The Bankruptcy Court further found that plaintiffs were
entitled to judgment in the amount of $78,000 against McCuan LLC
based on the transfer of Debtor’s interest in MDG-Patriot, LLC to
McCuan LLC on January 1, 2010. The transfer was deemed avoidable
as an actual and constructive fraudulent transfer. The Bankruptcy
Court concluded, however, that it would be inequitable to enter
judgment against Mrs. McCuan. Final Judgment was entered on May
15, 2019.
On February 13, 2018, the Bankruptcy Court entered an Order
Granting Motion for Reconsideration (Doc. #6-73) and finding that
§ 56.29 authorizes a court to enter a money judgment against a
transferee of a judgment Debtor’s asset even when the bankruptcy
court lacks jurisdiction over the transferred asset.
II. Standard of Review
The district courts have jurisdiction to hear appeals “from
final judgments, orders, and decrees” of the U.S. Bankruptcy Court.
28 U.S.C. § 158(a). When an adversary proceeding is involved, “it
is generally the particular adversary proceeding or controversy
that must have been finally resolved, rather than the entire
bankruptcy litigation.” In re Charter Co., 778 F.2d 617, 621
(11th Cir. 1985). “In bankruptcy, adversary proceedings generally
are viewed as ‘stand-alone lawsuits,’ and final judgments issued
in adversary proceedings are usually appealable as if the dispute
had arisen outside of bankruptcy.” In re Boca Arena, Inc., 184
F.3d 1285, 1286 (11th Cir. 1999). “Under general legal
principles, earlier interlocutory orders merge into the final
judgment, and a party may appeal the latter to assert error in the
earlier interlocutory order.” Myers v. Sullivan, 916 F.2d 659,
673 (11th Cir. 1990).
The legal conclusions of the bankruptcy court are reviewed de
novo, while findings of fact are reviewed for clear error. In re
Globe Mfg. Corp., 567 F.3d 1291, 1296 (11th Cir. 2009). A finding
of fact is clearly erroneous when, “although there is evidence to
support it, the reviewing court on the entire record is left with
a definite and firm conviction that a mistake has been committed.”
Crawford v. W. Electric Co., Inc., 745 F.2d 1373, 1378 (11th Cir.
1984) (citing United States v. U.S. Gypsum Co., 333 U.S. 364, 395
(1948)); In re Walker, 515 F.3d 1204, 1212 (11th Cir. 2008). Where
a matter is committed to the discretion of the bankruptcy court,
the district court must affirm unless it finds that the bankruptcy
court abused its discretion. Amlong & Amlong, P.A. v. Denny's,
Inc., 500 F.3d 1230, 1238 (11th Cir. 2006). A court abuses its
discretion “if it applies an incorrect legal standard, follows
improper procedures in making the determination”, makes findings
of fact that are clearly erroneous, or applies the law in an
unreasonable or incorrect manner. Collegiate Licensing Co. v. Am.
Cas. Co. of Reading, Pa., 713 F.3d 71, 77 (11th Cir. 2013). “The
abuse of discretion standard allows a range of choices for the
[bankruptcy] court, so long as any choice made by the court does
not constitute a clear error of judgment.” Id. (citation
omitted).
III. Issues on Appeal of Final Judgment
Appellants challenge the Final Judgment only as to three of
the transfers, asserting various errors as to: (1) the purchase of
a $200,000 CD at SunTrust on behalf of MJF by Debtor; (2) the
transfer of $44,000 to the McCuan Trust; and (3) the transfer of
Debtor’s interest in MDG-Patriot, LLC to McCuan Family, LLC. On
the Cross-Appeal, the Trustee argues that the Bankruptcy Court
erred by denying reconsideration of the summary judgment ruling,
and that it erred by granting judgment in favor of Jill McCuan.
A. $200,000 Certificate of Deposit at SunTrust for MJF
On March 20, 2009, Debtor transferred $700,000.00 from two of
the Brown Investment Accounts to purchase three certificates of
deposits (“CDs”) at SunTrust. One of the CDs was in the name of
MJF Associates LLLP for $200,000. (Doc. #6-3, p. 9.) The
Bankruptcy Court found that the transfers from the Brown Investment
Accounts were fraudulent transfers made with intent to hinder,
delay, or defraud Regions Bank; that the transfers were made while
Regions Bank was about to pursue, or had already obtained judgments
against debtor, and debtor was in poor financial condition at the
time of the transfers; and that the Trustee established that Debtor
was insolvent no later than mid-2011, and that Debtor did not
receive reasonably equivalent value in exchange for the transfers.
(Id. at p. 24.)
The FUFTA provides in pertinent part:
(1) A transfer made or obligation incurred by
a debtor is fraudulent as to a creditor,
whether the creditor's claim arose before or
after the transfer was made or the obligation
was incurred, if the debtor made the transfer
or incurred the obligation:
. . .
(b) Without receiving a reasonably equivalent
value in exchange for the transfer or
obligation, and the debtor:
1. Was engaged or was about to engage in a
business or a transaction for which the
remaining assets of the debtor were
unreasonably small in relation to the business
or transaction; or
2. Intended to incur, or believed or
reasonably should have believed that he or she
would incur, debts beyond his or her ability
to pay as they became due.
Fla. Stat. § 726.105(1)(b).
Appellant argues that the Bankruptcy Court erred as a matter
of law when it found this transaction was a fraudulent transfer.
This is so, appellant argues, because the source of the funds –
the Brown Investment Accounts – had already been pledged as
collateral for the letter of credit from SunTrust. Since SunTrust
already had a valid lien on the funds securing the LOC (line of
credit), Appellant argues the funds are not “assets” within the
meaning of the FUFTA. Additionally, because the funds were
subject to control by SunTrust, Debtor was contractually prevented
from withdrawing the funds from the two Brown Investment accounts
if it would result in balances of less than $3.2 million.
Appellants further argue that the asset must be a non-exempt asset
to be subject to a fraudulent transfer action, which excludes
property encumbered by valid liens or otherwise exempt under non-
bankruptcy law. (Doc. #13, p. 20.) Defendants argue that the
Bankruptcy Court ignored its own prior rulings that the Brown
Accounts were fully pledged and encumbered by a valid security
interest to secure the SunTrust line of credit. (Id., p. 24.)
As the Bankruptcy Court had previously discussed at a July
29, 2015, hearing on the motions for summary judgment:
Alternatively, to the extent that Brown
Account 1 and Brown Account 2 were pledged as
collateral to SunTrust Bank, the Stengel case,
129 Fla. 627, requires me to find that
property that is pledged as collateral for a
loan is not subject to a writ of execution in
a proceedings supplementary. Therefore, the
fact that Brown Accounts 1 and 2 were
transferred from the Debtor to the Debtor and
his wife as tenants by the entireties after
they had already been pledged as collateral to
SunTrust is irrelevant.
This is because the re-titling of the accounts
to the tenancy by the entireties form of
ownership is not a transfer that affected
Regions as Regions could never have reached
the pledged accounts to satisfy the judgments
it eventually obtained. That’s In re Kimmel,
131 B.R. 223 at 229, a decision from the
Southern District of Florida Bankruptcy Court
in 1991.
In that case, the court stated that, “A debtor
can only commit fraud on his creditors by
disposing of such property as the creditor
would have a legal right to look for in
satisfaction of his claim.”
(Doc. #6-36, pp. 7-8.) “Under Florida law, property pledged as
collateral for a loan cannot be levied upon by a judgment
creditor.” (Doc. #6-49, p. 7.) The argument by the Trustee that
the Brown Accounts had not been fully pledged was not addressed on
reconsideration as it was not raised at the hearing in the first
instance, and therefore not appropriate without an opportunity to
respond. (Doc. #6-73, p. 9.)
Plaintiffs respond that the value of the Brown Accounts
exceeded the amount of the SunTrust lien at the time of transfer,
and any amount in excess of the SunTrust lien was an “asset”
subject to plaintiffs’ claims. (Doc. #30, p. 33.)
If a lien truly existed, then no funds could
have been transferred in the first instance.
Yet here, Debtor was able to and even
“permitted” to transfer funds. Further, even
if any lien had existed, the SunTrust
agreement represented that the Brown Accounts
collateral was owned solely by Debtor.
(Id., p. 34.)
The Court finds no conflict in the rulings of the Bankruptcy
Court. Brown Investment Account -1 was used as collateral for the
March 2, 2006, $1 million line of credit with SunTrust, and Brown
Investment Account -2 was used in 2008 to increase the line of
credit to $2.15 million. It was after the assets were pledged as
collateral to SunTrust that debtor retitled the Brown Accounts to
add Mrs. McCuan in September 2008, and it was in March 2009, that
the certificates of deposit were purchased from Brown Account -2.
These post-pledge events were irrelevant to the already pledged
funds, as the Bankruptcy Court stated.
As of June 30, 2008, just prior to the increase of the line
of credit, Brown Investment Account -2 had an ending market value
of $2,153,351.63. (Doc. #6-101.) On March 20, 2009, the line of
credit had an outstanding balance of $1,438,216.87. (Doc. #13,
p. 15; Doc. #30, p. 22.) As of March 31, 2009, Brown Investment
Account -2 had an ending market value of $1,697,923.81, doc. #6-
103, and by September 30, 2009, an ending market value of
$476,068.85, doc. #6-104. This is after the purchase of the
$200,000 certificate of deposit in the name of MJF. On May 18,
2011, $1,922,489 was used from the joint SunTrust account to pay
the full balance of the line of credit. (Doc. #6-220, ¶ 24.)
“Asset” means property of a debtor, but the
term does not include:
(a) Property to the extent it is encumbered by
a valid lien;
(b) Property to the extent it is generally
exempt under nonbankruptcy law; or
(c) An interest in property held in tenancy by
the entireties to the extent it is not subject
to process by a creditor holding a claim
against only one tenant.
Fla. Stat. § 726.102(2). As noted by plaintiffs, the surplus of
funds in the Brown Investment Accounts are assets that were not
encumbered by a lien, the funds were in debtor’s name only and
non-exempt, and the attempt to convert the Brown Investment
Accounts to TBE was ineffective. Further, the later transactions
to purchase the certificates of deposit and transfer funds to a
joint SunTrust account were clearly made because there was an
amount to transfer, and the transfer was made with intent to hinder
or delay and defraud. Although it is undisputed that the pledged
funds were not reachable by Regions Bank, any remaining assets in
the accounts were reachable and subject to supplementary
proceedings.
B. Transfer of $44,000 to McCuan Trust
On July 22, 2009, debtor transferred $44,000 from Brown
Account -2 to a BB&T account held by McCuan Trust. (Doc. #6-3,
p. 9.) The Bankruptcy Court found that the transfer was made to
insiders of debtor, were concealed, and the transfers divested
debtor of significant non-exempt assets. The Bankruptcy Court
also found that Mrs. McCaun was added to the BB&T Account in
September 2008 when default on the Regions debt was imminent. The
Bankruptcy Court found that Mrs. McCaun’s name was added to hinder,
delay, or defraud Regions. (Id. at pp. 22-23.)
Appellants argue that the Bankruptcy Court failed to consider
that the funds were derived from the fully pledged Brown Investment
Account -2, and it was unrebutted at trial that the funds were
used to satisfy debtor’s car loan, thereby “reducing his
liabilities and improving Debtor’s ability to pay creditors.”
(Doc. #13, p. 25.) Appellants argue that the McCuan Trust received
“no appreciable benefit from the transfer, incidental or
otherwise, besides holding the money for twenty-eight days.”
(Id., pp. 27-28.) Defendants also argue that the source of the
funds came from an account fully pledged for the SunTrust line of
credit and thus the $44,000 is not within the definition of an
“asset.” (Id., p. 28.)
In response, plaintiffs argue that even a transfer in
repayment of a pre-existing debt can constitute a fraudulent
transfer if it was made with actual fraudulent intent, as found by
the Bankruptcy Court. (Doc. #30, p. 34.)
As with the certificate of deposit to MJF, the $44,000 came
from the remaining assets in Brown Investment Account -2 and was
first transferred to a BB&T account held by McCuan Trust on July
22, 2009. (Doc. #6-3, p. 9.) Mrs. McCuan was added to the BB&T
account in September 2008, “when the default on the Regions debt
was imminent.” (Id., p. 23.) Defendants argue that any benefit
to McCuan Trust was “de minimus at best.” (Doc. #13, p. 28.)
Ultimately, the $44,000 was used to satisfy a loan on a car
purchased by debtor in his name in 2008, which was not retitled to
include Mrs. McCuan until December 2009. (Doc. #6-3, p. 9.)
Even if it was beneficial to pay off one particular loan that
reduced the amount owed to secured creditors, it does not follow
that the specific transfer was not done with the intent to defraud
another. The Bankruptcy Court found that the $44,000 transfer was
actually and constructively fraudulent, and therefore subject to
avoidance. Mrs. McCuan was added to the Brown Investment Accounts
and the BB&T account when default was imminent, and she gave no
consideration for having her name added to the Brown accounts.
(Doc. #6-3, pp. 23, 24.)
C. Transfer of MDG-Patriot to McCuan LLC
On January 1, 2010, debtor transferred his interest in an
entity known as MDG-Patriot, LLC to McCuan LLC. Debtor’s
membership interest was valued at $78,000 by the October 31, 2009,
financial statement. (Doc. #6-3, p. 10; Doc. #6-220, ¶ 19.)
Defendants argue that there was no evidence of the value of
debtor’s interest in MDG-Patriot, LLC on the date of the alleged
transfer. It is argued that the defendants did not stipulate that
the value in the October 31, 2009 financial statement was correct
or that the value was the same at the time of the alleged transfer
on January 1, 2010. (Doc. #13, pp. 30 n.5.) Defendants further
argue that “where a debtor transfers an interest in a limited
liability company, the law does not permit avoidance of the
transfer due to the strict statutory procedures for charging
liens.” (Id., p. 33.) Defendants argue that Regions Bank would
never have been entitled to the value of the interest, only the
distributions pursuant to a valid charging lien. (Id., p. 34.)
Plaintiffs respond that the arguments lack merit because
charging orders only apply to the extent a claim exists against a
member, and courts have held that no law permits fraudulently
transferring with impunity an interest in an LLC. (Doc. #30, p.
35.)
The first argument is without merit. The parties’ own
Stipulated Facts in the Joint Pretrial Statement specifically
provides: On January 1, 2010, Debtor transferred his interest in
MDG-Patriot, LLC to McCuan LLC. The Debtor’s October 31, 2009
financial statement states that the value of the debtor’s
membership interest in MDG-Patriot, LLC is $78,000. (Doc. #6-220,
¶¶ 18-19.) Further, it is MDG Companies that provided the
statement of financial condition as of October 31, 2009, indicating
in the Schedule to Statement of Financial Condition the investment
worth of MDG-Patriot, LLC. (Doc. #6-155, p. 6.)
Plaintiffs sought judgment against McCuan LLC “based on the
transfer of the Debtor’s interest in MDG-Patriot, LLC, to McCuan
LLC. (Doc. #6-3, p. 14.) The Bankruptcy Court found that the
transfer was avoidable as an actually and constructively
fraudulent transfer, and remedy under § 726.108, remedies for
creditors including avoidance, were appropriate rather than the
remedy under § 605.0503 of the Florida Statutes, for a charging
order, citing Regions Bank v. Kaplan, 8:16-CV-2867-T-23AAS, 2018
WL 3954344, at *4 (M.D. Fla. Aug. 17, 2018), aff'd, 805 F. App’x
1004 (11th Cir. 2020). (Id., pp. 29-30.)
In an action alleging a fraudulent transfer, a creditor may
obtain an avoidance of the transfer to the extent necessary to
satisfy the creditor’s claim, Fla. Stat. § 726.108(1)(a), or if a
creditor has obtained a judgment on a claim against the debtor,
the creditor “may levy execution on the asset transferred or its
proceeds”, Fla. Stat. § 726.108(2). Unless the limited liability
company has only one member, Fla. Stat. § 605.0503(4), (5), “a
charging order is the sole and exclusive remedy by which a judgment
creditor of a member or member's transferee may satisfy a judgment
from the judgment debtor's interest in a limited liability company
or rights to distributions from the limited liability company.”
Fla. Stat. § 605.0503(3).
In this case, judgment has not yet been obtained, or rather
“Regions is not yet a judgment creditor.” Kaplan, 2018 WL 3954344,
at *4. Therefore, plaintiffs are entitled to a money judgment in
the amount of $78,000.
IV. Issues on Cross-Appeal
Appellee also presents three issues on cross-appeal: (1) the
Bankruptcy Court erred in holding, on summary judgment, that
plaintiffs’ right to recover on the Debtor’s transfer of his
interests in Little Harpers, LLC and Lakefront North Investors
Limited Partnership was time-barred; (2) the Bankruptcy Court
erred by denying reconsideration of the summary judgment ruling;
and (3) the Bankruptcy Court erred by granting judgment in favor
of Mrs. McCuan based on an equitable defense despite expressly
finding that the transfers adding Mrs. McCuan were voidable
transfers.
A. Little Harpers and Lakefront North
Debtor had a membership interest in Lakefront North Investors
Limited Partnership (Lakefront), valued at $7.6 million, and
Little Harpers, LLC (Little Harpers), valued at $2.4 million.
Both were assigned to McCuan LLC. (Doc. #6-28, pp. 1-2.) As of
September 2011, Debtor had transferred his interest in Lakefront
and Little Harper. (Doc. #6-24, p.9.) Debtor testified that he
sold his interest in Lakefront before the October 31, 2008
financial statement was done, and he sold it to an LLC. (Doc. #6-
28, p. 38.) On summary judgment, it was argued as “uncontroverted
fact” that Debtor’s interests were transferred by written
assignment on November 1, 2007. (Doc. #6-20, p. 4; Doc. #6-21.)
Plaintiffs argue that the Bankruptcy Court erred by: (1)
finding no genuine issue of fact existed on the issue of whether
the Little Harpers and Lakefront transfers were subject to
avoidance (Doc. #30, p. 36); and (2) relying on the effective date
of the assignments, Sugar’s deposition testimony, and debtor’s K-
1s and financial statement, and by rejecting plaintiffs’ evidence.
Plaintiffs argue that defendants’ “questionable evidence for which
credibility could not be established” was accepted as true, and
inferences were all drawn in favor of defendants, which is in
direct contravention of summary judgment requirements. (Doc. #30,
pp. 52-53.) Defendants respond that no credibility determinations
were made because there was no basis to question either Debtor or
Sugar’s testimony since they were not in conflict. (Doc. #35, p.
24.)
Plaintiffs take issue with reliance on the date on the
assignments because “at most”, the date is the “effective as of”
date. (Doc. #30, p. 54.) Plaintiffs argue that the record
evidence demonstrates that the assignments were not executed on
November 1, 2007. (Id.) Plaintiffs argue that the effective date
is irrelevant to the issue of when the assignments were executed
because it was never argued that the effective date was the same
day the assignments were consummated. (Id., pp. 55-56.)
Plaintiffs argue that the Bankruptcy Court necessarily determined
that Sugar’s testimony was credible by giving it more weight than
the conflicting evidence provided by plaintiffs. Plaintiffs argue
that neither debtor nor Sugar know the actual date of the
assignments and public record documents show that debtor continued
to hold and manage his interests in Lakefront and Little Harpers
after the “effective date” of the assignments. (Doc. #6-28, p.
3.) Plaintiffs note that the Bankruptcy Court relied on Sugar’s
testimony even though he was found not credible with regard to
other transfers.3 (Doc.#30, p. 26.)
3 In the Consolidated Findings of Fact and Conclusions of Law,
the Bankruptcy Court found: “Under these circumstances, the Court
gives little weight to Sugar’s testimony that it was only
coincidence that Mrs. McCuan’s name was added to the Brown Accounts
and the BB&T Account shortly before Debtor defaulted on the Regions
debt.” (Doc. #6-3, p. 23.)
The relevant testimony by Sugar was in response to “inquiring
as to the actual date, because the actual date is what’s relevant
here for this litigation. And I’m asking you what documents exist
that would show the actual date that this occurred.”
Well, I was physically not involved in signing
this document. I do know that I did receive
copies of these documents in 2007. So I
imagine they were signed in 2007. That is my
assumption, based on what I had seen. But if
you were to say to me, was it signed on
November 3rd? Was it signed on November 2nd?
I don’t know.
(Doc. #6-28, Exh. C, p. 58.)
Defendants argue that Regions failed to offer any evidence in
opposition to summary judgment that would implicate Sugar’s
credibility, and Regions simply argued on rehearing that Sugar’s
credibility had not been demonstrated. (Doc. #35, pp. 23-24.)
“Here, no credibility determination was made, nor should one have
been made because there was no basis to question either Mr.
McCuan’s or Sugar’s testimony, as they did not conflict with each
other, and Regions did not present any evidence to call their
testimony into question.” (Id., pp. 24; see also pp. 41-42.)
Defendants also note that Regions is precluded from raising the
issue for the first time on appeal. (Id., pp. 25, 45-46.)
Defendants produced 2008 K-1s and financial statements
reflecting a 2007 transfer date, doc. #6-32, p. 3, however no
evidence was produced as to when the documents were prepared, doc.
#6-36, p. 10. Plaintiffs produced evidence suggesting they were
not prepared until October 2008. (Doc. #30, p. 24.)
The Bankruptcy Court concluded:
The K-1s and personal financial statements,
whenever they were prepared, will be
consistent with the transfers having taken
place on November 1st, 2007, and the Debtor
will testify that notwithstanding the transfer
of his interest to McCuan Family, LLC, he was
still authorized to execute documents on
Little Harper’s and Lakefront’s behalf.
(Doc. #6-36, p. 13.) Plaintiffs argue: “Given that October 2008
was just after the Regions defaults, and during the same timeframe
in which the bankruptcy court found that Sugar and Debtor were
orchestrating fraudulent transfers to protect Debtor’s assets from
Regions [] the credibility of such documents to establish the date
of execution of the Assignments is virtually nonexistent.” (Doc.
#30, p. 60) (citation omitted).
Plaintiffs pointed out that debtor continued to sign
documents on behalf of Little Harpers and Lakefront in 2008 and
beyond, “and even represented himself to be the ‘General Partner
of Lakefront’ and the ‘managing member’ of Little Harpers in such
documents. (Doc. #30, p. 24.) Plaintiffs presented evidence that
debtor certified on November 20, 2007 that his financial
information reflecting his ownership in Little Harpers and
Lakefront was true and correct. (Id., p. 60.) Plaintiffs also
presented evidence that debtor signed Resolutions on behalf of
Little Harpers and Lakefront in October 2008. (Id., pp. 60-61.)
Plaintiffs argue that there was nothing to indicate that
debtor was signing on behalf of McCuan LLC as general manager.
Rather, plaintiffs argue, debtor signed as “MGP” with various
titles under his signature. Plaintiffs take the position that the
Bankruptcy Court improperly drew inferences in favor of
defendants. (Id., p. 61.) Additional evidence presented was a
Deed signed by debtor in 2010 as “General Partner” of Lakefront,
and also another Deed on behalf of Little Harpers as a managing
member. (Id., p. 62.)
Plaintiffs argue that the Bankruptcy Court erroneously
imposed a burden on them to prove that the statute of limitations
defense did not exist. Plaintiffs argue that nothing in Fla.
Stat. § 56.29 imposes an express burden to prove that the transfer
occurred within one-year prior to service of the original
complaint, and that generally, a statute of limitations is an
affirmative defense. (Id., pp. 64, 66.)
On summary judgment, defendants took the position that the
transfers of debtor’s interests in Little Harper’s and Lakefront
took place in November 2007, outside the one-year look-back period,
and plaintiffs took the position that the transfer took place
within the one-year look-back period so after April 13, 2008.
(Doc. #6-36, pp. 9-10.)
The Bankruptcy Court summarized the standard of review as
follows:
In ruling on a motion for summary judgment,
the Court must view the evidence in the light
most favorable to the plaintiff. The Eleventh
Circuit has consistently held that summary
judgment is appropriate if the movant shows
that there is no genuine dispute as to any
material fact and the movant is entitled to
judgment as a matter of law.
The moving party may meet its burden of proof
to show that there are no genuine issues of
material fact by demonstrating that there is
a lack of evidence to support the essential
elements on which the nonmoving party will
bear the burden of proof at trial. That’s Blow
v. Virginia College, 2015 Westlaw 4503337, a
decision dated July 24th, 2015; Moton v.
Cowart, 631 F.3d 1337 at 1341, an Eleventh
Circuit decision from 2011. And the Moton case
of course, and all of these cases, citing
Celotex Corp. v. Catrett, 477 U.S. 317, 322 to
23, which is a 1986 Supreme Court case.
(Id., p. 11.) The Bankruptcy Court found that plaintiffs
presented no evidence that the transfers took place after April
13, 2008, “other than a few lines of deposition testimony, what
they argue is the inconclusive dating of the assignments, and the
fact that after the effective date of the assignments, the Debtor
signed documents on behalf of Little Harper’s and Lakefront.”
(Id., p. 12.) The Bankruptcy Court found that Little Harper’s
assignment is clearly dated November 1, 2007, and the Lakefront
assignment has a typewritten statement that is dated November 1,
2007, and therefore the dates are not ambiguous. Both assignments
were witnessed by the same person, but plaintiffs did not offer
the person’s testimony on the issue of the date of execution.
(Id.)
While it is admittedly convenient for Debtor
and Defendants to maintain that the date of
execution of the assignments was November 1st,
2007, they have demonstrated that there is a
lack of evidence to support the essential
element that Plaintiffs must prove at trial.
(Id., p. 13.) The Bankruptcy Court found that the transfers were
more than four years prior to the bankruptcy filing and therefore
not subject to avoidance. (Id.) The Bankruptcy Court found that
the statute of limitations set forth in the Uniform Fraudulent
Transfer Act does not apply to proceedings supplementary and denied
summary judgment. (Id., p. 14.)
On reconsideration, the Bankruptcy Court noted that it relied
upon the deposition testimony of Sugar, “who stated: I do know
that I did receive copies of these documents [referring to the
Debtor’s assignments dated as of November 1, 2007] in 2007. So I
imagine they were signed in 2007.” (Doc. #6-49, p. 8.) The
Bankruptcy Court concluded that the testimony established that the
assignments were executed in 2007 and prior to April 13, 2008.
(Id.) The Bankruptcy Court further concluded that the deeds and
tax exemption forms were irrelevant because by February 2009,
Regions had notice of the assignments. The Bankruptcy Court found
that the documents relied upon by plaintiffs did not refute Sugar’s
testimony, and therefore did not show the presence of a genuine
issue of material fact. The Bankruptcy Court also noted that
plaintiffs took no steps to depose the third-party witness to the
assignments. (Id., p. 9.) The Bankruptcy Court concluded that
the “mere scintilla of evidence” submitted in support of
plaintiffs’ position was insufficient. (Id., p 13.)
Reconsideration was denied.
“Our law is also clear that an appellate court reviews a
bankruptcy court's grant of summary judgment de novo.” In re
Optical Techs., Inc., 246 F.3d 1332, 1334 (11th Cir. 2001)
(collecting cases). Just like the district court, a bankruptcy
court “shall grant summary judgment if the movant shows that there
is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
Rule 56 applies in adversary proceedings. Fed. R. Bankr. P. 7056.
“[S]ummary judgment is proper “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to judgment
as a matter of law.” In re Optical Techs., Inc., at 1332
(citations omitted).
A party asserting that a fact cannot be or is
genuinely disputed must support the assertion
by:
(A) citing to particular parts of materials in
the record, including depositions, documents,
electronically stored information, affidavits
or declarations, stipulations (including
those made for purposes of the motion only),
admissions, interrogatory answers, or other
materials; or
(B) showing that the materials cited do not
establish the absence or presence of a genuine
dispute, or that an adverse party cannot
produce admissible evidence to support the
fact.
Fed. R. Civ. P. 56(c)(1).
The Bankruptcy Court determined that plaintiffs could not
establish the essential element of their claim that the transfers
occurred after April 13, 20084, and granted summary judgment in
favor of defendants as to the Little Harper and Lakefront
transfers. The Bankruptcy Court applied the correct standard of
review as noted above, and clearly considered the K-1s, financial
statements, and other evidence presented by plaintiffs.
Nonetheless, the Bankruptcy Court found that the evidence simply
did not create a genuine issue of fact surrounding the November
2007 date of the assignments.
It was not error “to charge Plaintiffs with producing
evidence”, doc. #30, p. 65 (emphasis in original), as the burden
falls upon plaintiffs as the non-movants to respond with evidence
4 This date is one year prior to the service of the summons
and complaint in the Lake Trafford action filed originally in state
court. (Doc. #6-3, p. 12.)
to show that there exists a genuine issue of material fact, Fed.
R. Civ. 56(c). The Court finds that the correct standard of review
for a summary judgment was applied.
Plaintiffs argue that the plain language of Fla. Stat. § 56.29
provides that when a transfer is more than one year before service,
it is the creditor’s burden of proof to establish that a transfer
was made to delay, hinder, or defraud creditors, not that the
transfer is time-barred.
When, within 1 year before the service of
process on the judgment debtor in the original
proceeding or action, the judgment debtor has
had title to, or paid the purchase price of,
any personal property to which the judgment
debtor's spouse, any relative, or any person
on confidential terms with the judgment debtor
claims title and right of possession, the
judgment debtor has the burden of proof to
establish that such transfer or gift was not
made to delay, hinder, or defraud creditors.
Fla. Stat. § 56.29(3)(a). It is the burden of the debtor to prove
that the transfer or gift was not made to delay, hinder, or defraud
creditors, id., and the Bankruptcy Court stated that “Defendants
must prove that the transfers were not made to hinder, delay, or
defraud creditors in the 56.29 Proceeding.” (Doc. #6-3, p. 21.)
“As amended in 2014 and 2016, [56.29] now specifically permits
claims under chapter 726 in a proceeding supplementary. But those
claims are subject to chapter 726 and the rules of civil
procedure.” Uoweit, LLC v. Fleming, 300 So. 3d 1201, 1205 (Fla.
4th DCA 2020), review denied, No. SC20-1513, 2020 WL 7334275 (Fla.
Dec. 14, 2020).
The court may entertain claims concerning the
judgment debtor's assets brought under chapter
726 and enter any order or judgment, including
a money judgment against any initial or
subsequent transferee, in connection
therewith, irrespective of whether the
transferee has retained the property. Claims
under chapter 726 brought under this section
shall be initiated by a supplemental complaint
and served as provided by the rules of civil
procedure, and the claims under the
supplemental complaint are subject to chapter
726 and the rules of civil procedure.
Fla. Stat. § 56.29(9). A cause of action regarding a fraudulent
transfer is extinguished unless:
(1) Under s. 726.105(1)(a), within 4 years
after the transfer was made or the obligation
was incurred or, if later, within 1 year after
the transfer or obligation was or could
reasonably have been discovered by the
claimant;
. . . .
Fla. Stat. § 726.110. “This statute extinguishes claims under the
UFTA long before a claim in a proceeding supplementary is
extinguished.” Uoweit, 300 So. 3d at 1203.
The Bankruptcy Court noted: “In any event, even if a claim
were made under Chapter 726, the transfers at issue were more than
four years prior to the bankruptcy filing and are not subject to
avoidance.” (Doc. #6-36, p. 13.) On the other hand, the
Bankruptcy Court stated: “Just to put that issue to rest, the
statute of limitations set forth in the Uniform Fraudulent Transfer
Act does not apply to proceedings supplementary under Section
56.29(6).” (Id., p. 14.) The Bankruptcy Court relied on Biel
Reo, LLC v. Barefoot Cottages Dev. Co., LLC, 156 So. 3d 506, 510
(Fla. 1st DCA 2014) and Zureikat v. Shaibani, 944 So. 2d 1019,
1023 (Fla. 5th DCA 2006). Biel interpreted the 2012 version of
56.29, and it has since been amended to incorporate the provisions
of chapter 726. Therefore, the Bankruptcy Court, at least in
part, relied on a case that pre-dates the incorporation of the
UFTA. The reliance was harmless however, since the transfers were
found to not be subject to avoidance even if examined under chapter
726.
B. Mrs. McCuan
Plaintiffs argue that the Bankruptcy Court erred by not
avoiding the Brown Account transfers and BB&T account transfers.
Plaintiffs argue that the ruling is inconsistent with Fla. Stat.
§ 56.29, and that a money judgment should have been entered against
Mrs. McCuan to carry out the purpose of the statute. (Doc. #30,
pp. 67-68.)
The Bankruptcy Court found that the evidence did not show
that the Brown Accounts possessed the unities required to establish
tenants by the entireties property. The Brown Accounts were
opened in debtor’s name, and Mrs. McCuan was added in 2008 during
the look-back period of Fla. Stat. § 56.29. (Doc. #6-3, p. 17.)
The evidence also did not show that the funds in the Brown Accounts
were traceable to tenants by the entireties property because the
deposits made to the accounts could have been withdrawn, replaced,
or mingled with other non-tenants by the entireties funds. (Id.,
p. 18.) The Bankruptcy Court concluded, because the Brown
Accounts were not funded with TBE property or traceable to TBE
assets, that the subsequent transfers from the Brown Accounts did
not constitute transfers of TBE assets that would not be avoidable.
(Id., p. 19.)
The Bankruptcy Court found a number of factors present
indicating actual and constructive fraud, and as relevant here,
Debtor maintained control of the assets after
the transfers. The transfers began in
September 2008, with the addition of Mrs.
McCuan to Debtor’s Brown Accounts and the BB&T
Account. Mrs. McCuan testified in a deposition
that she was not involved in managing the
Brown Accounts, that she did not direct any
disbursements from the accounts, that she did
not recall why any of the transactions had
been made, and that she had never seen any
statements from the accounts. Although Mrs.
McCuan later testified at trial that she
understood the Brown Accounts to hold
retirement funds and that she had made
decisions with respect to the investments, the
Court gives this testimony little weight in
view of its conflict with her earlier
testimony.
. . . .
Debtor added Mrs. McCuan to the Brown Accounts
and the BB&T Account in September 2008, when
the default on the Regions debt was imminent.
Specifically, Debtor and Sugar met with
Regions that same month to discuss
restructuring the Regions debt, and
unsuccessfully proposed a restructuring plan
for the loans.
. . . .
[T]he totality of the circumstances show that
Mrs. McCuan’s name was added to the Brown
Accounts and the BB&T Account to hinder,
delay, or defraud Regions.
(Id., pp. 22-23.) (footnotes omitted). The Bankruptcy Court found
that debtor did not receive “reasonably equivalent value in
exchange for the transfers. Debtor testified that Mrs. McCuan
gave no consideration in exchange for having her name added to the
Brown Accounts.” (Id., p. 24.)
Despite finding that debtor added Mrs. McCuan to the Brown
Accounts and the BB&T account with intent to hinder, delay, or
defraud Regions, the Bankruptcy Court found no evidence of
fraudulent intent by Mrs. McCuan or that she ever exercised any
control over the assets in the accounts, whether while at Brown
Company or BB&T or when the funds were transferred to other joint
accounts. (Id., p. 25.)
[I]f, as here, the property transferred is an
intangible asset (such as a bank account or an
investment account) and the non-debtor spouse
did not take any control of the asset, even
for “necessities,” it is difficult for the
Court to envision entering a judgment against
the non-debtor spouse, no matter how ill-
intentioned the debtor was, for the value of
accounts transferred.
(Id., p. 26.) It was noted that “Plaintiffs’ assertions reflect”
an acknowledgement of little or no control over the accounts by
Mrs. McCuan. (Id., p. 27.)
The Bankruptcy Court concluded:
Here, applying a “spirit of fairness,
justness, and right dealing,” and taking a
“flexible, pragmatic, equitable approach,”
the Court finds, on the specific facts
presented, and considering the transactions
between Debtor and Mrs. McCuan in their
entirety, that it would be inequitable to
enter judgment against Mrs. McCuan for the
value of the assets in the Brown Accounts as
of September 2008, which was calculated as
$2,759,050.00, or the value of the BB&T
Account as of September 2008, which was
calculated as $387,000.00.
Consequently, with respect to Plaintiffs’
claims against Mrs. McCuan, judgment should be
entered in favor of Defendant, Jill McCuan,
and against Plaintiffs.
(Id., p. 28.)
Plaintiffs argue that Mrs. McCuan was added as a tenant-by-
entirety, which can afford a spouse the legal right to equally
control property. (Id., p. 72.) Plaintiffs argue that Mrs.
McCuan had the legal right to exercise control over the accounts
even if she did not do so. “It also merits mention that most of
the Brown Accounts assets were transferred to a SunTrust Account
held jointly by Debtor and Mrs. McCuan, or to the McCuan Trust for
which Mrs. McCuan was a beneficiary.” (Id., p. 73.)
Defendants argue in response:
Here, Regions meticulously and thoroughly argued
that at no time were the Brown Accounts or their
contents ever tenancy by the entireties
property. Based upon that argument, with which
the Bankruptcy Court agreed, there is no legal
basis to enter judgment against Mrs. McCuan for
the funds and assets within the accounts, as by
Regions’ own argument, she never took a tenancy
by the entireties interest in them.
(Doc. #35, pp. 30-31) (emphasis in original).
Plaintiffs argue that Mrs. McCuan was not a “mere conduit.”
(Id., p. 71.) Defendants respond that the arguments are
irrelevant because the Bankruptcy Court did not characterize Mrs.
McCuan as a ‘mere conduit’. (Doc. #35, p. 36 n.6.) Even if the
mere conduit affirmative defense was applicable, plaintiffs argue
that defendants never raised or proved this defense or its
applicability. (Id., pp. 73-74.) Therefore, it is argued that
the Bankruptcy Court’s sua sponte application of the defense is an
independent basis for reversal. (Id., p. 75.) Defendants argue,
“even in the face of actual fraud,” it was not reversible error to
limit recovery upon consideration of the equities. (Id., p. 33.)
Although a TBE could give Mrs. McCuan certain rights as the
spouse, this is only so if the TBE is valid. “When property is
held jointly by a husband and wife, it is presumed to be held as
a tenancy by the entirety unless specifically delineated
otherwise, “as long as the account is established by husband and
wife in accordance with the unities of possession, interest, title,
and time and with right of survivorship.” In re McCuan, 569 B.R.
511, 518 (M.D. Fla. 2017) (citing Beal Bank, SSB v. Almand &
Assocs., 780 So. 2d 45, 58 (Fla. 2001). In this case, the
Bankruptcy Court did not find that the unities were present and
therefore the TBE was not formed. As a result, plaintiffs cannot
successfully argue that Mrs. McCuan was granted equal control over
the property because the transfers were essentially nullified.
Plaintiffs argue that Mrs. McCuan was treated as a mere
conduit, and the exception was applied even though the defense was
not raised. Defendants respond that the arguments are irrelevant
because the Bankruptcy Court did not characterize Mrs. McCuan as
a ‘mere conduit’. (Doc. #35, p. 36 n.6.)
The Bankruptcy Court stated: “In the context of evaluating
a fraudulent transfer recipient’s assertion of the mere conduit
defense under § 548 of the Bankruptcy Code, two courts have stated
that the defense is “‘based on, and defined by, equity,’
requir[ing] the Court to take ‘a flexible, pragmatic, equitable
approach,’ considering a transaction in its entirety, rather than
focusing in on the particular transfer in question.” (Doc. #6-3,
p. 28.)
“The mere conduit or control test is a judicial creation that
is not based in statutory language, but is an exception based on
the bankruptcy courts' equitable powers.” In re Harwell, 628 F.3d
1312, 1322 (11th Cir. 2010). “The control test, then, as adopted
by this circuit, simply requires courts to step back and evaluate
a transaction in its entirety to make sure that their conclusions
are logical and equitable. This approach is consistent with the
equitable concepts underlying bankruptcy law.” In re Chase &
Sanborn Corp., 848 F.2d 1196, 1199 (11th Cir. 1988). “As we read
it, the conduit rule presumes that the facilitator of funds acts
without bad faith, and is simply an innocent participant to the
underlying fraud.” In re Int'l Admin. Servs., Inc., 408 F.3d 689,
705 (11th Cir. 2005).
Although the Court could not dismiss a complaint on its face
based on an affirmative defense, the Bankruptcy Court could
consider the issue on summary judgment, or in this case after
trial. Perlman v. Bank of Am., N.A., 561 F. App'x 810, 814 (11th
Cir. 2014). In this case, the Bankruptcy Court concluded based
on the transactions taken in their entirety, that it would be
inequitable to enter judgment against Mrs. McCuan for the value of
the assets. (Doc. #6-3, p. 28.) This conclusion was reached
after hearing all the evidence, and under the purview of the
Bankruptcy Court’s equitable powers to apply the exception.
Although debtor’s actions were not innocent, there was no evidence
presented of bad faith on behalf of Mrs. McCuan such that judgment
would be appropriate against her.
Accordingly, it is hereby
ORDERED:
1. The Bankruptcy Court's Consolidated Findings of Fact and
Conclusions of Law are affirmed as to the three issues
raised by Appellants-Defendants.
2. The Bankruptcy Court's Consolidated Findings of Fact and
Conclusions of Law, Order on Implead Third Party
Defendants’ Motion for Summary Judgment, and Final Judgment
are affirmed as to the three cross-issues raised by
Appellees-Plaintiffs.
3. The Clerk shall transmit a copy of this Opinion and Order
to the Clerk of the Bankruptcy Court and close the
appellate file.
DONE and ORDERED at Fort Myers, Florida, this 15th day
of June 2023,
VP <x A p
VAY = Pe
E. STEELE
SHNIOR UNITED STATES DISTRICT JUDGE
Copies:
Clerk, Bankr. Ct.
Counsel of Record
Hon. Caryl E. Delano