# Estate of Arlene Townsend v. Steven Berman > Court of Appeals for the Eleventh Circuit · September 18, 2023 · 81 F.4th 1264 URL: https://www.frixlaw.com/law-library/cases/9840491 ## Case - **Court:** Court of Appeals for the Eleventh Circuit - **Decided:** September 18, 2023 - **Citations:** 81 F.4th 1264 - **Precedential status:** Published - **Opinion:** Opinion - **Nature of suit:** NEW - **Cited by:** 7 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9840491 ## Opinion text USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 1 of 139 [PUBLISH] In the United States Court of Appeals For the Eleventh Circuit ____________________ No. 21-10587 ____________________ In re: Fundamental Long Term Care, Inc., Debtor. ___________________________________________________ ESTATE OF ARLENE TOWNSEND, ESTATE OF ELVIRA NUNZIATA, ESTATE OF JAMES HENRY JONES, ESTATE OF JOSEPH WEBB, ESTATE OF OPAL LEE SASSER, ESTATE OF JUANITA JACKSON, Petitioning Creditor, Plaintiffs-Appellants, versus USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 2 of 139 2 Opinion of the Court 21-10587 STEVEN M. BERMAN, Esq., SHUMAKER, LOOP & KENDRICK, LLP, Defendants-Appellees. ____________________ Appeal from the United States District Court for the Middle District of Florida D.C. Docket No. 8:20-cv-00956-VMC, Bkcy No. 8:11-bk-22258-MGW ____________________ Before LAGOA, BRASHER, and TJOFLAT, Circuit Judges. TJOFLAT, Circuit Judge: Section 327(a) of the United States Bankruptcy Code, titled “Employment of professional persons,” states that “the trustee, with the court’s approval, may employ one or more attorneys, ac- countants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee’s duties.” 11 U.S.C. § 327(a). Rule 2014 of the Federal Rules of Bankruptcy Procedure implements the disin- terestedness provision of this section by requiring the trustee, in seeking court approval of the employment of a professional, to USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 3 of 139 21-10587 Opinion of the Court 3 disclose “the person’s connections with the debtor, creditors, [or] any other party in interest.” 1 Fed. R. Bankr. P. 2014(a). The bankruptcy proceeding underlying this case, In re Fun- damental Long Term Care, Inc., was initiated by Wilkes & McHugh, P.A. (“Wilkes”), on December 5, 2011, when it filed an involuntary petition in the Bankruptcy Court for the Middle District of Florida under Chapter 7 of the Bankruptcy Code for relief against Funda- mental Long Term Care, Inc. (“FLTCI”) on behalf of the Estate of Juanita Jackson, deceased. The Jackson Estate, in a wrongful death tort action, had obtained judgments of $55 million against Trans Health, Inc. (“THI”) and Trans Health Management, Inc. (“THMI”) each, on July 22, 2010. In a post-judgment motion, the Jackson Estate obtained a default amended judgment on 1 Fed. R. Bankr P. 2014(a) states that the trustee, in applying for court approval of the employment of a professional, must state: to the best of the applicant’s knowledge, all of the person’s connections with the debtor, creditors, any other party in in- terest, their respective attorneys and accountants, the United States trustee, or any person employed in the office of the United States trustee. The application shall be accompanied by a verified statement of the person to be employed setting forth the person’s connections with the debtor, creditors, any other party in interest, their respective attorneys and account- ants, the United States trustee, or any person employed in the office of the United States trustee. A professional must disclose all connections to parties in interest “that are not so remote as to be de minimis.” In re Fullenkamp, 477 B.R. 826, 834 (Bankr. M.D. Fla. 2011) (quoting In re Leslie Fay Cos., 175 B.R. 525, 536 (Bankr. S.D.N.Y. 1994)). USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 4 of 139 4 Opinion of the Court 21-10587 September 13, 2011, making FLTCI liable for the total $110 million award, along with THI and THMI—which were each liable for their respective $55 million judgment. But the Jackson Estate was unable to collect on the judgments due to a massive “bust-out” scheme 2 designed and executed in March 2006 to avoid paying the judgments. 3 The Chapter 7 case became operative on January 12, 2012, when the Bankruptcy Court issued an “Order of Relief ” after FLTCI—now the Debtor—failed to respond to the Jackson Estate’s Chapter 7 petition. In June 2012, the trustee of the Debtor’s estate (the “Trustee”) employed Steven M. Berman and Shumaker, Loop & Kendrick, LLP (“Shumaker”) 4 as special litigation counsel. They served in that capacity until December 2015, following the distri- bution of the proceeds of a compromise presented to the Bank- ruptcy Court for approval in March 2015. 2 While this opinion later explains the bust-out scheme in detail, see infra part II.B, the gist of the scheme is that, in a series of transactions, THI separated THMI’s assets and liabilities, and then hid those assets. 3 Why Wilkes had the Jackson Estate file a petition for Chapter 7 bankruptcy relief against FLTCI and not THMI and THI will become apparent as this opinion unfolds. 4 Berman was a Shumaker partner. Rule 2014(b) provides in relevant part: If, under the Code and this rule, a law partnership . . . is em- ployed as an attorney . . . or if a named attorney . . . is em- ployed, any partner, member, or regular associate of the part- nership . . . or individual may act as attorney . . . without fur- ther order of the court. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 5 of 139 21-10587 Opinion of the Court 5 On June 4, 2018, Wilkes, representing the creditors of the Debtor’s estate—namely the Jackson Estate and five other Probate Estates (collectively, the “Probate Estates”)—moved the Bank- ruptcy Court nunc pro tunc to disqualify Shumaker as special litiga- tion counsel and require it to disgorge the compensation it had re- ceived for its services. According to Wilkes, when the Trustee em- ployed Shumaker in June 2012, it was not disinterested as required by § 327(a). Moreover, Shumaker failed to timely disclose its “con- nections with the debtor, creditors, [or] any other party in inter- est”—connections that revealed its disinterestedness—as required by Rule 2014. The Bankruptcy Court denied Wilkes’s motion. It did so without an evidentiary hearing and based on the record of the bankruptcy case. 5 5 The Bankruptcy Court described the record of the case prior to March 20, 2014, in a Memorandum Opinion on Motion to Compromise and Motions for Permanent Injunctive Relief as “exceedingly complex.” In re Fundamental Long Term Care, Inc., 527 B.R. 497, 501 n.5 (Bankr. M.D. Fla. 2015). “The Court had nearly 80 days of hearings in this case.” Id. The issues raised in those hearings resulted in 17 reported decisions: In re Fundamental Long Term Care, Inc., 489 B.R. 451 (Bankr. M.D. Fla. 2013); In re Fundamental Long Term Care, Inc., 492 B.R. 571 (Bankr. M.D. Fla. 2013); In re Fundamental Long Term Care, Inc., 493 B.R. 613 (Bankr. M.D. Fla. 2013); In re Fundamental Long Term Care, Inc., 493 B.R. 620 (Bankr. M.D. Fla. 2013); In re Fundamental Long Term Care, Inc., 494 B.R. 548 (Bankr. M.D. Fla. 2013); In re Fundamental Long Term Care, Inc., 500 B.R. 140 (Bankr. M.D. Fla. 2013); In re Fundamental Long Term Care, Inc., 500 B.R. 147 (Bankr. M.D. Fla. 2013); In re Fundamental Long Term Care, Inc., 501 B.R. 770 (Bankr. M.D. Fla. 2013); In re Fundamental Long Term Care, Inc., 501 B.R. 784 (Bankr. M.D. Fla. 2013); In re Fundamental Long Term Care, Inc., 507 B.R. 359 (Bankr. M.D. Fla. 2014); In re Fundamental Long Term Care, Inc., 508 B.R. 224 (Bankr. M.D. Fla. 2014); In re Fundamental Long Term Care, Inc., 509 USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 6 of 139 6 Opinion of the Court 21-10587 The Probate Estates appealed the Bankruptcy Court’s deci- sion. On February 27, 2020, the District Court affirmed the Bank- ruptcy Court’s order except on the issue of whether Berman had committed a disclosure violation pursuant to Rule 2014. The Dis- trict Court then remanded the case to the Bankruptcy Court so it could decide whether Berman violated Rule 2014’s disclosure re- quirements. On remand, the Bankruptcy Court held that Berman’s omissions did not warrant sanctions under Rule 2014. In re Funda- mental Long Term Care, Inc., 614 B.R. 753 (Bankr. M.D. Fla. 2020). On the Probate Estates’ appeal, the District Court affirmed. In re Fundamental Long Term Care, Inc., No. 8:20-cv-956, 2021 WL 222779 (M.D. Fla. Jan. 22, 2021). The Probate Estates now appeal the District Court’s deci- sion, contending that the Bankruptcy Court abused its discretion in denying their motion. With the benefit of oral argument and hav- ing examined the record before the Bankruptcy Court, we affirm. We divide our discussion as follows. In part I, we consider the relevant events that took place prior to the Chapter 7 Trustee’s appointment and the administration of the bankruptcy estate prior to Berman and Shumaker’s employment as special litigation B.R. 387 (Bankr. M.D. Fla. 2014); In re Fundamental Long Term Care, Inc., 509 B.R. 956 (Bankr. M.D. Fla. 2014); In re Fundamental Long Term Care, Inc., 512 B.R. 690 (Bankr. M.D. Fla. 2014); In re Fundamental Long Term Care, Inc., 515 B.R. 352 (Bankr. M.D. Fla. 2014); In re Fundamental Long Term Care, Inc., 515 B.R. 857 (Bankr. M.D. Fla. 2014); In re Fundamental Long Term Care, Inc., 515 B.R. 874 (Bankr. M.D. Fla. 2014). USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 7 of 139 21-10587 Opinion of the Court 7 counsel. 6 Part II begins with the Trustee’s application to employ Berman and Shumaker; it then describes what they learned about the bust-out scheme, Wilkes’s litigation in response to the scheme, and the conflict between the Trustee and counsel for the fraudu- lent transferees over control of the defense strategy in state court. Part III deals with the principal adversary proceedings held in the case, including the Bankruptcy Court’s decision to treat THMI as if it had been included as a debtor in the Jackson Estate’s petition for Chapter 7 relief against FLTCI and the compromises that re- solved those proceedings. Part IV takes up Wilkes’s motion to dis- qualify Shumaker and for disgorgement of the attorney’s fees Shu- maker received, the Bankruptcy Court’s rulings on the motion, and the District Court’s review of those rulings. Part V concerns the present appeal. I. On January 23, 2012, the Bankruptcy Court appointed Beth Ann Scharrer Trustee of the Debtor’s (FLTCI’s) estate. Two days later, the Bankruptcy Court approved her application to employ Al- lan C. Watkins as her general counsel. On February 22, the Trus- tee, through Watkins, moved the Bankruptcy Court to enter an or- der “authorizing the Trustee, on behalf of the [C]hapter 7 estate . . . to borrow up to Ten Thousand Dollars . . . from Wilkes & McHugh, P.A. . . . under 11 U.S.C. § 503(b)(1) as an administrative expense.” The motion stated in relevant part: 6 In this opinion, we refer to Berman and Shumaker interchangeably. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 8 of 139 8 Opinion of the Court 21-10587 No schedules have been filed by the Debtor, and no appearance has been made by counsel for the Debtor. No response was made by or on behalf of the Debtor, and no schedules or statement of financial affairs have been filed. As such, there is little information in the record upon which the Trustee can rely to determine the assets and liabilities of the Debtor. ... Wilkes & McHugh represents a number of creditors asserting claims against the Debtor, including the Es- tate of Juanita Jackson, the petitioning creditor. The Lender [Wilkes] has agreed to loan to the [Debtor’s] Estate up to $10,000.00, allowable as an administra- tive expense under § 503(c)(1) of the Bankruptcy Code. ... The Debtor has not prepared any schedules, list of creditors, or statement of financial affairs. The Trus- tee needs to conduct discovery, including by deposi- tion testimony as necessary, to produce the infor- mation necessary or available. The likely witnesses with knowledge of the Debtor’s business affairs are located out of the State of Florida, so expenses would include travel costs, lodging, and meals as well. Trustee’s Motion for Final Approval of Postpetition Financing at 2– 3, In re Fundamental Long Term Care, Inc., No. 8:11-bk-22258 (Bankr. M.D. Fla. Feb. 22, 2012). The Bankruptcy Court held a hearing on the motion on March 28, 2012, and approved it in an order dated April 6, 2012. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 9 of 139 21-10587 Opinion of the Court 9 At the same time, Wilkes was involved in the prosecution of, or in post-judgment proceedings in, five of the six wrongful death cases it had brought on behalf of the Probate Estates in state courts—five in Florida and one in Pennsylvania. 7 The six Probate Estate plaintiffs were the Probate Estate of Juanita Jackson, 8 whose case had been prosecuted to final judgment pre-petition, and the Probate Estates of Elvira Nunziata, 9 Joseph Webb, 10 James Henry Jones, 11 Opal Lee Sasser, 12 and Arlene Townsend, 13 whose cases were pending trial in state court. 14 THMI was a defendant in all six cases, while THI was a defendant in all the cases except Nunziata. 7 The lawsuits alleged negligence and frequently other tort law theories of recovery. We refer to the theories collectively under a wrongful death rubric. 8 Estate of Juanita Jackson v. Briar Hill, Inc., No. 53-2004CA-003229 (Fla. Cir. Ct. filed July 30, 2004), in the Circuit Court of Polk County, Florida. 9 Estate of Elvira Nunziata v. Pinellas Park Nursing Home, Inc., No. 05-8540CI (Fla. Cir. Ct. filed Dec. 23, 2005), in the Circuit Court of Pinellas County, Florida. 10 Estate of Joseph Webb v. Gainesville Health Center, Inc., No. 01-06-CA-2418 (Fla. Cir. Ct. filed June 16, 2006), in the Circuit Court of Alachua County, Florida. 11 Estate of James Henry Jones v. TFN Health Care Investors, Inc., No. 06-06672 (Pa. Ct. Com. Pl. filed July 17, 2006), in the Court of Common Pleas of Montgom- ery County, Pennsylvania. 12 Estate of Opal Lee Sasser v. Briar Hill, Inc., No. 06CA-3511 (Fla. Cir. Ct. filed Sept. 6, 2006), in the Circuit Court of Polk County, Florida. 13 Estate of Arlene Townsend v. Briar Hill, Inc., No. 53-2009CA-001025 (Fla. Cir. Ct. filed January 29, 2009), in the Circuit Court of Polk County, Florida. 14 We refer to the cases in short-hand, e.g., Jackson, Nunziata, etc. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 10 of 139 10 Opinion of the Court 21-10587 Within a matter of weeks of her appointment, the Trustee became aware of the circumstances that led to Wilkes filing the Chapter 7 petition against FLTCI on December 5, 2011, and some of the untoward legal consequences that resulted from filing the petition against FLTCI instead of THMI. Importantly, the Trustee learned: (1) On July 22, 2010, an “empty-chair” jury trial 15 was held in Jackson, 16 and the plaintiff obtained verdicts—and then judg- ments—of $55 million against each of THI and THMI. 17 Three 15 An empty-chair trial occurs when the defendant does not participate in the trial. In Jackson, defense counsel for THI and THMI—Quintairos, Prieto, Wood & Boyer, P.A.—moved the court on April 29, 2010, for leave to with- draw as counsel for THI and THMI. The state trial court heard their motion at a pretrial conference on May 18 and granted the motion on June 4. 16 The case was tried on the Jackson Estate’s fifth amended complaint filed on July 31, 2009. The defendants were: Briar Hill, Inc. (the owner and operator of Integrated Health Services at Auburndale a/k/a Auburndale Oaks Healthcare Center, the nursing home in which Juanita Jackson once resided); Lyric Health Care Holdings III, Inc; Lyric Health Care LLC; TFN Healthcare Investors, LLC; IHS Acquisition No. 153, Inc.; Alliance Health Services, Inc.; Integrated Health Services, Inc.; THMI; THI; Daniel H. Beeler; Richard Kuhlmeyer; Rebecca Bachman; and Barbara Brown (the director of nursing at Auburndale Oaks Healthcare Center). Auburndale Oaks and Lyric played a role in the Probate Estates’ motion to disqualify Shumaker as discussed infra part IV. 17 The Florida Second District Court of Appeal subsequently referred to the judgments as “default judgment[s]” handed down “[a]fter [the plaintiff] settl[ed] with eleven defendants.” Fundamental Long Term Care Holdings, LLC v. Estate of Jackson ex rel. Jackson-Platts, 110 So. 3d 6, 7 (Fla. 2d Dist. Ct. App. 2012). USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 11 of 139 21-10587 Opinion of the Court 11 weeks later, on August 13, Wilkes, in an effort to discover THI and THMI’s assets to satisfy the $55 million judgments, moved the trial court pursuant to Florida Rule of Civil Procedure 1.560(b) 18 for an order requiring THI and THMI to complete Form 1.977 as required by that rule. The state trial court granted the motion four days later. Over the next three months, Wilkes noticed several deposi- tions in aid of execution but was unable to discover enough assets to satisfy the judgments. (2) By December 2010, Wilkes discovered why it was unable to obtain satisfaction of the Jackson Estate’s $55 million judgment against THMI. Those in control of THMI had THMI transfer its assets to Fundamental Long Term Care Holdings, LLC (“FLTCH”) in March 2006, in the execution of a fraudulent “bust-out” scheme 18 Rule 1.560 states in pertinent part: (a) In General. In aid of . . . execution the judgment creditor or the successor in interest, when the interest appears of rec- ord, may obtain discovery from any person, including the judgment debtor, in the manner provided in these rules. (b) Fact Information Sheet. In addition to any other discov- ery available to a judgment creditor under this rule, the court, at the request of the judgment creditor, shall order the judg- ment debtor . . . to complete form 1.977, including all required attachments, within 45 days of the order or such other reason- able time as determined by the court. Failure to obey the order may be considered contempt of court. Fla. R. Civ. P. 1.560. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 12 of 139 12 Opinion of the Court 21-10587 that rendered THMI judgment-proof. 19 To obtain satisfaction of the $55 million judgment against THMI, the Jackson Estate would have to sue FLTCH and any other entities that received THMI’s assets as part of the bust-out scheme (collectively, the “Targets”) as fraudulent transferees under Florida’s version of the Uniform Fraudulent Transfer Act (the “UFTA”). 20 (3) The prescriptive period for bringing an action under Flor- ida’s UFTA is four years. See Fla. Stat. § 726.110. 21 Florida’s UFTA 19 The bust-out scheme is discussed at length infra part II.B. 20 Florida’s UFTA, Fla. Stat. § 726.101 et seq., states in relevant part: (1) A transfer made . . . by a debtor is fraudulent as to a credi- tor, whether the creditor’s claim arose before or after the trans- fer was made . . . if the debtor made the transfer . . . : (a) With actual intent to hinder, delay, or defraud any creditor of the debtor; or (b) Without receiving a reasonably equivalent value in ex- change for the transfer . . . and the debtor: ... 2. Intended to incur, or believed or reasonably should have be- lieved that he or she would incur, debts beyond his or her abil- ity to pay as they became due. Fla. Stat. § 726.105. As indicated infra, the parties and the Bankruptcy Court agreed to apply the Florida UFTA rather than the comparable statutes of New York, Pennsylvania, Delaware, or Maryland. 21 Section 726.110 states in relevant part: A cause of action with respect to a fraudulent transfer . . . un- der ss. 726.101-726.112 is extinguished unless action is brought: USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 13 of 139 21-10587 Opinion of the Court 13 22 has a statute of repose, not a statute of limitations. The four-year period in which the Jackson Estate could sue FLTCH and the Tar- gets expired in March 2010. Nonetheless, under Florida’s UFTA, the prescriptive period would extend for one year following the (1) Under s. 726.105(1)(a), within 4 years after the transfer was made . . . or, if later, within 1 year after the transfer . . . was or could reasonably have been discovered by the claimant. 22 In National Auto Service Centers, Inc. v. F/R 550, LLC, the Florida Second Dis- trict Court of Appeal characterized Fla. Stat. § 726.110 as a statute of repose. 192 So. 3d 498, 509 (Fla. 2d Dist. Ct. App. 2016). Because the text of Fla. Stat. § 726.110 refers to extinguishing a cause of action rather than barring the rem- edy, the court of appeal concluded that Fla. Stat. § 726.110 is a statute of repose based on its plain text. Id. at 510. In CTS Corp. v. Waldburger, the United States Supreme Court noted that statutes of limitations are subject to equitable toll- ing, but statutes of repose are not and “generally may not be tolled, even in cases of extraordinary circumstances beyond a plaintiff’s control.” 573 U.S. 1, 9, 134 S. Ct. 2175, 2183 (2014). The Supreme Court explained that because statutes of repose dictate the time period after which a defendant will not face liability, equitable tolling is not applicable: Equitable tolling is applicable to statutes of limitations because their main thrust is to encourage the plaintiff to pursu[e] his rights diligently, and when an extraordinary circumstance pre- vents him from bringing a timely action, the restriction im- posed by the statute of limitations does not further the stat- ute’s purpose. . . . But a statute of repose is a judgment that defendants should be free from liability after the legislatively determined period of time, beyond which the liability will no longer exist and will not be tolled for any reason. Id. at 10, 134 S. Ct. at 2183 (alteration in original) (internal quotation marks and citations omitted). This Court has cited Waldburger favorably for the prop- osition that statutes of repose are not subject to equitable tolling. See Sec’y, U.S. Dep’t of Labor v. Preston, 873 F.3d 877, 883–84 (11th Cir. 2017). USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 14 of 139 14 Opinion of the Court 21-10587 Jackson Estate’s discovery of the fraudulent transfer. Wilkes dis- covered the bust-out scheme on or before December 10, 2010, so the Jackson Estate had—at the latest—until December 10, 2011, to sue FLTCH and the Targets to obtain satisfaction of the Estate’s $55 million judgment against THMI. 23 23 The fraudulent transfer occurred in New York City on March 28, 2006. A New York statute provided a cause of action for voiding the transfer. N.Y. Debt. & Cred. Law § 273. The statute did not have a prescriptive period, so New York courts used the prescriptive period applicable to actions based on fraud, N.Y. C.P.L.R. § 213, as the time bar. Under § 213, suit had to be brought “six years from the date the cause of action accrued” or, if later, “two years from the time the plaintiff . . . discovered the fraud, or could with reasonable diligence have discovered it.” N.Y. C.P.L.R. § 213(8). Unlike Florida, where the UFTA prescriptive period was a statute of repose, New York courts con- sidered the § 213 prescriptive period to be a statute of limitations. See In re Borriello, 329 B.R. 367, 372 (Bankr. E.D.N.Y. 2005). As it turned out, the Bank- ruptcy Court applied the Florida UFTA to THMI’s fraudulent transfer of its assets. The Bankruptcy Court did so on March 20, 2014, in ruling on the suf- ficiency of the fraudulent transfer claims asserted in the second amended com- plaint which the Probate Estates filed in the adversary proceeding they initi- ated against FLTCH and 15 defendants on October 1, 2013. See infra part III. One of the Bankruptcy Court’s rulings denied the defendants’ motions to dis- miss the claims as time-barred. The Bankruptcy Court treated the time bar as an affirmative defense and thus upheld the sufficiency of the Probate Estates’ fraudulent transfer claims. In deciding which state law governed the period for bringing fraudulent transfer claims, the Bankruptcy Court said: There appears to be a dispute about which law applies to the Plaintiffs’ fraudulent transfer claims. According to the Plain- tiffs, the law of Delaware, Florida, Maryland, and New York apply. But the Plaintiffs acknowledge the laws of those states USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 15 of 139 21-10587 Opinion of the Court 15 (4) Once Wilkes discovered that it had been unable to obtain satisfaction of the Jackson Estate’s judgment against THMI be- cause of the bust-out scheme, it had two options. Either the Jack- son Estate, as a THMI judgment creditor, could sue FLTCH and the Targets pursuant to the applicable state fraudulent transfer law, or it could put THMI into Chapter 7 bankruptcy. A trustee of THMI’s estate, then, as a hypothetical THMI judgment creditor, could utilize the “strong arm” power provided by the Bankruptcy Code 24 and sue the transferees of THMI’s assets pursuant to the same state fraudulent transfer law. contain substantially similar elements. So the Court will, as Ventas suggests, analyze the claims under Florida law. In re Fundamental Long Term Care, Inc., 507 B.R. 359, 380 n.25 (Bankr. M.D. Fla. 2014). The Bankruptcy Court applied Florida law without objection. In the end, it did not matter whether Florida or New York law governed. The fraud- ulent transfer claims were either extinguished (under Florida law) or time- barred (under New York law). 2411 U.S.C. § 544 provides in relevant part: (a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any trans- fer of property of the debtor or any obligation incurred by the debtor that is voidable by– (1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 16 of 139 16 Opinion of the Court 21-10587 Wilkes pursued neither option. Instead, on December 10, 2010, Wilkes moved the Jackson state court for leave to implead two of the Targets—Rubin Schron and General Electric Capital Corpo- ration (“GECC”) 25—pursuant to Fla. Stat. § 56.29, 26 for the purpose As the Bankruptcy Court for the Southern District of New York previously explained, Section 544(a) of the [Bankruptcy] Code clothes the trustee with the mantle of a hypothetical judicial lien creditor, unsat- isfied execution creditor, and a bona fide purchase for value as of the date of the filing of the bankruptcy petition. While it is federal law which provides the trustee with his “strong arm” powers, his exercise of those powers is controlled by the sub- stantive law of the jurisdiction governing the property in ques- tion; here, the law of New York. In re Roman Crest Fruit, Inc., 35 B.R. 939, 946–47 (Bankr. S.D.N.Y. 1983) (empha- sis added) (citing In re Euro-Swiss Int’l Corp., 33 B.R. 872, (Bankr. S.D.N.Y. 1983). 25 Wilkes believed that GECC, which was a secured creditor of THI and THMI, may have received loan payments from FLTCH and that Schron was one of FLTCH’s owners. 26 In 2010, § 56.29 provided in relevant part: (1) When any person or entity holds an unsatisfied judgment or judgment lien obtained under chapter 55, the judgment holder or judgment lienholder may file an affidavit so stating, identifying, if applicable, the issuing court, the case number, and the unsatisfied amount of the judgment or judgment lien, including accrued costs and interest, and stating that the exe- cution is valid and outstanding, and thereupon the judgment holder or judgment lienholder is entitled to these proceedings supplementary to execution. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 17 of 139 21-10587 Opinion of the Court 17 of pursuing THMI’s assets. The state court granted the motion and entered an order on December 21, 2010, requiring Schron and GECC to show cause why they should not be held liable for the payment of the $55 million judgment entered against THMI. Schron and GECC removed the § 56.29 proceeding to the United (2) On such plaintiff’s motion the court shall require the de- fendant in execution to appear before it . . . at a time and place specified by the order in the county of the defendant’s resi- dence to be examined concerning his or her property. ... (4) Testimony shall be under oath, shall be comprehensive and cover all matters and things pertaining to the business and fi- nancial interests of defendant which may tend to show what property he or she has and its location. Any testimony tending directly or indirectly to aid in satisfying the execution is admis- sible. A corporation must attend and answer by an officer who may be specified in the order. Examination of witnesses shall be as at trial and any party may call other witnesses. (5) The judge may order any property of the judgment debtor, not exempt from execution, in the hands of any person or due to the judgment debtor to be applied toward the satisfaction of the judgment debt. (6) ... (b) When any . . . transfer . . . of personal property has been made or contrived by defendant to delay, hinder or defraud creditors, the court shall order the . . . transfer . . . to be void and direct the sheriff to take the property to satisfy the execution. Fla. Stat. § 56.29 (effective June 17, 2005–June 30, 2014) (emphasis added). USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 18 of 139 18 Opinion of the Court 21-10587 States District Court for the Middle District of Florida on Decem- ber 30, 2010, on the ground that the proceeding was a separate cause of action, not a proceeding ancillary to Jackson. 27 Wilkes moved to remand the case under the theory that, un- der Florida law, a § 56.29 proceeding was “a supplementary pro- ceeding . . . and thus was not removable.” Jackson-Platts v. Gen. Elec. Cap. Corp., 727 F.3d 1127, 1132 (11th Cir. 2013). On September 16, 2011, the District Court, on Wilkes’s motion, remanded the pro- ceeding to the state trial court. Schron and GECC timely appealed. Id.at 1133. We reversed the District Court. Id. at 1140. 28 On May 16, 2011, Wilkes moved the Jackson state court for leave to implead FLTCH and 14 other Targets under § 56.29 for the 27 The defendants removed the case under 28 U.S.C. § 1441, asserting diversity jurisdiction under 28 U.S.C. § 1332. 28 The question presented to this Court in Jackson-Platts was whether a § 56.29 proceeding was ancillary to the underlying case, as Wilkes argued, or an inde- pendent cause of action like a case brought under Florida’s UFTA. Jackson- Platts v. Gen. Elec. Cap. Corp., 727 F.3d 1127, 1130 (11th Cir. 2013). We con- cluded that the Florida courts treated a § 56.29 proceeding as a separate cause of action as if brought under Florida’s UFTA: [T]he substance of the [Jackson] Estate’s legal claims is gov- erned by Florida’s [UFTA], which is undoubtedly a substantive statute that imposes liability. . . . Indeed, had the Estate sued [GECC] and Schron in state court under the [UFTA], the lawsuit plainly would have been a “civil action” under [28 U.S.C.] § 1441. Id. at 1137. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 19 of 139 21-10587 Opinion of the Court 19 purpose of asserting fraudulent transfer claims against them. 29 The motion also sought to join FLTCI as a defendant in the case. The state court granted the motion on May 18 and promptly issued an order requiring FLTCH and the Targets to show cause, thus placing the liability burden on the defendants. FLTCI did not ap- pear in response to the show cause order, so on September 13, 2011, the state court—treating FLTCI as an original defendant in the case—entered an amended judgment making FLTCI jointly and severally liable with THI and THMI for their respective $55 million judgments—$110 million total. The Targets named in Wilkes’s May 16 motion objected on several grounds, including that they were beyond the reach of the Florida long-arm statute and that the state court lacked personal jurisdiction over them. The state court overruled their objections and granted Wilkes’s motion. The Targets appealed the jurisdic- tional ruling to the Florida Second District Court of Appeal, and on November 28, 2012, that court affirmed the trial court’s ruling and remanded the case for further proceedings. Fundamental Long 29 In addition to FLTCH, Wilkes’s motion sought leave to proceed against Fundamental Administrative Services, LLC (“FAS”); THI-Baltimore, Inc.; GTCR GolderRauner LLC; GTCR Partners VI, L.P.; Troutman Sanders LLP; Murray Forman; Leonard Grunstein; Edgar Jannotta; and Concepcion, Sexton & Martinez, P.A. Concepcion, Sexton & Martin was a Florida law firm, and its presence eliminated the possibility of diversity jurisdiction. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 20 of 139 20 Opinion of the Court 21-10587 Term Care Holdings, LLC v. Estate of Jackson ex rel. Jackson-Platts, 110 So. 3d 6, 11 (Fla. 2d Dist. Ct. App. 2012). 30 On December 5, 2011, Wilkes looked to the Bankruptcy Court for the Middle District of Florida for assistance. Wilkes had the Jackson Estate file an involuntary petition for Chapter 7 relief against FLTCI, not THMI. 31 Wilkes attached the Jackson Estate’s $110 million judgment against FLTCI to the petition. As of the date of filing, the Jackson Estate was the only estate with a final state court judgment. * * * Commentary The record does not reveal the reason Wilkes selected De- cember 5, 2011, as the date for filing the Chapter 7 petition against FLTCI. It could have been that the one-year extension provided by Fla. Stat. § 726.110 for filing a fraudulent transfer action against FLTCH and the Targets was about to expire. As previously dis- cussed, that one-year period began at some point prior to Decem- ber 10, 2010, when Wilkes, having learned about the transfer of THMI’s assets to FLTCH, moved the Jackson court for leave to 30 The Trustee, and later Shumaker, were of course unaware of the Second District Court of Appeal’s decision until late 2012. From Shumaker and the Trustee’s point of view, a § 56.29 proceeding—like the one brought against Schron and GECC—would be useless as a means of collecting on the Jackson Estate’s judgment against THMI. 31 Wilkes filed a formal appearance for the Jackson Estate the same day along with Stichter, Riedel, Blain & Prosser, P.A. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 21 of 139 21-10587 Opinion of the Court 21 implead Schron and GECC as fraudulent transferees pursuant to § 56.29. Wilkes may have thought that a potential trustee of FLTCI’s Chapter 7 estate, exercising a trustee’s strong-arm power as a hypothetical FLTCI judgment creditor, could pursue FLTCH and the Targets with an UFTA cause of action—the same cause of action the Jackson Estate could bring against the transferees in state court. 32 For that potential trustee to pursue the transferees as a hypothetical FLTCI creditor, the Bankruptcy Court would have to treat FLTCI and THMI as one entity. Treating them as one could not have been part of Wilkes’s litigation strategy at that time. Its steadfast position was that FLTCI and THMI were entirely separate entities. Wilkes had to assume that position to avoid violating the automatic stay that issues as a result of filing a Chapter 7 petition pursuant to 11 U.S.C. § 362(a). So why did Wilkes put FLTCI into bankruptcy instead of THMI? The record yields several possibilities. One was that Wilkes wanted to continue prosecuting the Probate Estates’ wrongful death actions in state court where Wilkes could seek multimillion- dollar jury verdicts. If THMI were in bankruptcy, the automatic stay would bring an end to the state court litigation, and the pros- ecution of the Probate Estates’ wrongful death actions would have to move to the Bankruptcy Court in the form of wrongful death claims against THMI’s estate, the value of which would be decided 32 Or a federal district court exercising diversity jurisdiction under 28 U.S.C. § 1332. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 22 of 139 22 Opinion of the Court 21-10587 by the Bankruptcy Court. See 11 U.S.C. § 502(a). 33 Doing so would diminish the value of the claims, and they would likely be worth significantly less than they would be before a jury. A second possible reason for putting FLTCI, rather than THMI, into bankruptcy could have been the assistance the trustee of the bankruptcy estate could provide Wilkes in its prosecution of the Probate Estates’ actions in state court. The scope of the evi- dence the trustee would be able to discover in marshalling FLTCI’s assets would likely exceed what Wilkes could obtain under state discovery rules. Access to what the trustee uncovered would aid Wilkes in prosecuting the Probate Estates’ claims—and would be helpful to use later in post-judgment proceedings supplementary, such as impleading targets to collect judgments. In exchange for the freedom to have their wrongful death actions prosecuted to the hilt, the Probate Estates paid a price. They gave up their fraudulent transfer claims against FLTCH and the Targets under Florida’s UFTA since those claims became “ex- tinguished” on or before December 10, 2011. As things turned out, 33 11 U.S.C. § 502(a) states in relevant part: (a) A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in inter- est . . . objects. (b) . . . [I]f such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 23 of 139 21-10587 Opinion of the Court 23 though, the Trustee and her special litigation counsel uncovered evidence sufficient to enable the FLTCI estate to make out causes of action against FLTCH and aligned Targets under theories of law other than those the UFTA codifies. * * * The Jackson, Nunziata, and Webb Estates filed claims against the Debtor’s—FLTCI’s—estate on February 22, 2012, in the sums of $110 million, $200 million, and $900 million respectively. 34 The Jones, Townsend, and Sasser Estates filed claims against the Debtor’s estate on March 27, 2012, in the sums of $200 million each. 35 With the exception of the Jackson Estate, none of the Pro- bate Estates had a claim against the Debtor. All of their claims were based on THMI’s (and THI’s) negligence. Nonetheless, Wilkes, as an officer of the court, in filing claims against the Debtor’s estate that appeared to be against THMI rather than the Debtor, effec- tively represented that the claims against the Debtor were derivative 34 At the time the Chapter 7 petition was filed, only the Jackson Estate had a final state court judgment. As of March 6, 2013, however, these three claims were all based on state court judgments. 35 On March 6, 2013, the cases of these three Probate Estates were pending in state court. In Townsend, THI’s counsel had been retained by the THI Re- ceiver after defense counsel (for THI and THMI) had withdrawn per instruc- tions in April 2010. On October 17, 2012, THI, having acquired new counsel, filed a “Motion to Disqualify” the trial judge on the ground of bias against THI. Defendant Trans Healthcare, Inc.’s Motion to Disqualify and Supporting Memorandum of Law, Estate of Arlene Townsend v. Briar Hill, Inc., No. 53- 2009CA-001025, 2012 WL 8139948 (Fla. Cir. Ct. Oct. 17, 2012) USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 24 of 139 24 Opinion of the Court 21-10587 of THMI’s liability. At least, according to the Bankruptcy Court, that is how the Trustee interpreted Wilkes’s representations. In re Fundamental Long Term Care, Inc., 500 B.R. 147, 149–50 (Bankr. M.D. Fla. 2013). If FLTCI’s liability was in fact derivative of THMI’s lia- bility, Wilkes’s continued litigation of the Probate Estates’ cases filed in state court pre-petition would appear to violate the auto- matic stay because the litigation had the effect of increasing the Debtor’s liability post-petition. But Wilkes’s litigation strategy throughout had been, and continued to be, that the Debtor—FLTCI—and THMI were sepa- rate entities: a parent corporation and an independent subsidiary. Accordingly, the Probate Estates’ claims against the Debtor’s estate, if legitimate, must have been based on a theory other than THMI’s conduct, because if the claims were based on a theory that ren- dered the Debtor legally responsible for THMI’s conduct prior to December 5, 2011, Wilkes’s continued litigation of the Probate Es- tates’ wrongful death actions against THMI or its post-judgment proceedings supplementary as a creditor of THMI would be barred by the automatic stay in FLTCI’s bankruptcy. In sum, each Probate Estate had a legitimate claim against two entities. First, each Estate had a claim against the Debtor’s es- tate that existed pre-petition against FLTCI. If allowed, the Bank- ruptcy Court would “determine the amount” of such a claim. 11 U.S.C. § 502(b). Each Estate also had a claim against THMI. The two claims could not both be based on the theory pursued in the USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 25 of 139 21-10587 Opinion of the Court 25 state court wrongful death actions without violating the automatic stay. * * * Commentary As it turned out, the Bankruptcy Court eventually treated THMI as part of the Debtor’s estate and the Probate Estates as hav- ing filed claims against THMI’s (nonexistent) estate. The Bank- ruptcy Court also impliedly afforded the Probate Estates standing, as THMI creditors, to join the Trustee (now in effect acting as trus- tee of two bankruptcy estates—FLTCI’s and THMI’s) in prosecut- ing the surviving claims of the Second Amended Complaint in the adversary proceeding initiated by Wilkes on October 1, 2013. See infra part III. The claims were in two groups. One group consisted of the Trustee’s strong-arm claims against FLTCH and several Tar- gets as fraudulent transferees of THMI’s assets under the Florida UFTA. The other group consisted of the Trustee’s claims against the same defendants as the perpetrators of a variety of torts and breaches of duty committed against THMI and as the successors in interest of THMI. * * * On April 2, 2012, after the Probate Estates’ claims against the Debtor’s estate had been filed, Berger Singerman LLP (“Singer- man”) appeared in the case as the Debtor’s counsel and moved the Bankruptcy Court to convert the Debtor’s Chapter 7 case to a case under Chapter 11 of the Bankruptcy Code. The motion, which stated that FLTCI and THMI had ceased operations six years ago, USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 26 of 139 26 Opinion of the Court 21-10587 represented—among other things—that the $110 million judgment the Jackson Estate obtained against FLTCI in Jackson was invalid because FLTCI never appeared in the case and thus was not within the state trial court’s jurisdiction. Consequently, the Jackson Estate was not a valid judgment creditor of FLTCI, and its filing of the Chapter 7 petition was effectively a nullity. Assuming the petition’s validity, the motion stated that the “Trustee’s strategy and actions [we]re being orchestrated by Wilkes, for the sole benefit of its cli- ents and the firm itself through the ultimate recovery of astronom- ical contingency fees” and that Wilkes was “using the Bankruptcy Case and . . . the powers of the Chapter 7 Trustee to deny THMI representation” in the cases Wilkes had brought against it. 36 On April 3 and 4, after receiving Singerman’s motion to con- vert, the Trustee, armed to a great extent with the information Wilkes provided her, filed motions for leave to conduct Rule 2004 examinations of some of the individuals Wilkes had impleaded in Jackson pursuant to Fla. Stat. § 56.29—including attorneys at Trout- man Sanders, LLP (“Troutman”), the law firm that created the legal 36 If the Bankruptcy Court granted Singerman’s motion, FLTCI would func- tion as a debtor-in-possession with the rights and powers of a Chapter 11 trus- tee. In that capacity, FLTCI itself would be required to perform all except the investigative functions and duties of a bankruptcy trustee. See 11 U.S.C. § 1107. These duties would include accounting for property, examining and objecting to claims, and filing informational reports as required by the court. Id. § 704. In that capacity, FLTCI would play a large part in determining who would be examined under Rule 2004—and to what extent. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 27 of 139 21-10587 Opinion of the Court 27 structure for the bust-out scheme, and other individuals presuma- bly having knowledge of the disposition of THMI’s assets. 37 Singerman immediately objected to the Trustee’s motions. Picking up where it left off in its motion to convert, Singerman had this to say about Wilkes’s involvement in the Trustee’s decision- making: 14. Based on the nature and scope of the 2004 Mo- tions, it is abundantly clear that the Trustee continues to advance a litigation strategy hoisted on her by [Wilkes] on behalf of the Petitioning Creditor and Claimants in this case to deprive the Debtor [FLTCI] and [THMI] of legal representation and available defenses. At the same time, the Trustee is improperly using . . . the 37 Rule 2004 states in subsection (b) in relevant part: The examination of an entity under this rule or of the debtor under § 343 of the [Bankruptcy] Code may relate only to the acts, conduct, or property or to the liabilities and financial con- dition of the debtor, or to any matter which may affect the ad- ministration of the debtor's estate, or to the debtor’s right to a discharge.’ Fed. R. Bankr. P. 2004(b). In subsection (c), Rule 2004 states in relevant part: The attendance of an entity for examination and for the pro- duction of documents or electronically stored information, whether the examination is to be conducted within or without the district in which the case is pending, may be compelled as provided in Rule 9016 for the attendance of a witness at a hear- ing or trial. Fed. R. Bankr. P. 2004(c). USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 28 of 139 28 Opinion of the Court 21-10587 2004 Motions to engage in broad, “fishing expedition” discovery that the Wilkes plaintiffs have been unable to obtain in any other forum. 15. Tellingly, the 2004 Motions each request that the [Bankruptcy] Court order that “interested creditors” be permitted to attend the examinations and “make inquiry.” There is no doubt that the intent of that re- quest is to give Wilkes a broad discovery platform to pursue non-debtor targets in non-bankruptcy forums. The request certainly has nothing to do with the prep- aration of the Debtor’s Schedules or Statements of Financial Affairs. ... 18. Based on the foregoing, the Debtor respectfully submits that the [Bankruptcy] Court should deny the 2004 Motions, without prejudice, or, alternatively, not adjudicate the 2004 Motions pending a ruling on the Motion to Convert. Debtor’s Objections to Motions of Chapter 7 Trustee for Rule 2004 Examinations at 4–5, In re Fundamental Long Term Care, Inc., No. 8:11-bk-22258 (Bankr. M.D. Fla. Apr. 5, 2012) (emphasis added) (footnote omitted). The Bankruptcy Court heard the Trustee’s Rule 2004 mo- tions on April 12, granted the motions with respect to the produc- tion of certain documents, and stated that it would consider the Debtor’s objections to the motions on June 6. On April 24, the Bankruptcy Court denied the Debtor’s motion to convert the case to a Chapter 11 proceeding. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 29 of 139 21-10587 Opinion of the Court 29 * * * Commentary In sum, the Trustee, soon after her appointment, knew that Wilkes: (1) was unable to execute the Jackson judgment against the defendants in state trial court; (2) realized that THMI’s assets had been fraudulently transferred to FLTCH and the Targets; and (3) should have been aware of Florida’s UFTA and its four-year pre- scriptive period. That period began to run at the time of the bust- out scheme in March 2006. It therefore ran out by the time the Jackson Estate received a state court judgment on July 22, 2012. But under the Florida UFTA discovery extension, Fla. Stat. § 726.110, the Jackson Estate had one year from Wilkes’s discovery of the fraud, which occurred on or before December 10, 2012, to bring a fraudulent transfer action under Florida’s UFTA. Still attempting to collect on the Jackson judgment, Wilkes tried to come to a solution. It first tried to bring a Florida UFTA action via a § 56.29 motion to implead but was unable to obtain relief. Wilkes then tried a second option: petitioning for Chapter 7 relief against FLTCI. Wilkes waited to file for this relief until De- cember 5, 2011—five days before the absolute latest the § 726.110 discovery extension would have run for the Probate Estates’ UFTA claims against FLTCH and the Targets. But Wilkes did not place THMI in Chapter 7 bankruptcy—it petitioned the Bankruptcy Court to put FLTCI into Chapter 7 bankruptcy. Wilkes therefore allowed the one-year discovery extension to expire, thus extinguish- ing the Probate Estates’ claims for fraudulent transfer against USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 30 of 139 30 Opinion of the Court 21-10587 THMI. As it turned out, the Trustee later discovered evidence that enabled the Probate Estates to sue FLTCH and the Targets as suc- cessors to THMI, holding them responsible for THMI’s debts, in- cluding the Probate Estates’ judgments. Beyond the statute of repose issue, there was a further issue with Wilkes’s plan. FLTCI had no assets except THMI shares. FLTCI’s Trustee therefore could not pursue FLTCH and the Trus- tees under the UFTA because FLTCI was not itself guilty as a fraud- ulent transferor. So Wilkes’s strategy was two-fold: (1) have the Chapter 7 Trustee in possession of the THMI shares seek evidence of THMI causes of action against FLTCH and the Targets even though such causes of action are not actually property of the es- tate, thus using the Trustee as a discovery platform; and (2) allow the Trustee to obtain evidence Wilkes could use in § 56.29 proceed- ings to implead the Targets and other potential fraudulent transfer- ees in state court. II. A. On June 1, 2012, the Trustee moved the Bankruptcy Court to approve the employment of Steven M. Berman, a partner at Shu- maker, as special litigation counsel. The Bankruptcy Court granted the motion on June 5. The same day, Singerman (the Debtor’s counsel) moved the Bankruptcy Court to dismiss the Chapter 7 case on several grounds, including that Wilkes was abusing the Chapter 7 process in seeking relief against a debtor it knew “ha[d] no business activity, no going concern value, and no employees.” USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 31 of 139 21-10587 Opinion of the Court 31 According to Singerman, Wilkes filed the petition “to further its financial interests in maximizing claims, and facilitating execution of default judgments, against the Debtor, THMI and other third parties regardless of the resulting prejudice to the estate.” Along with the motion to dismiss, Singerman filed two other pleadings that complained that the Trustee, in assisting Wilkes’s prosecution of claims against THMI, was breaching her duty to maximize the Debtor’s estate by enhancing the value of THMI’s shares—which were assets of the Debtor’s estate. The first pleading supplemented the Debtor’s objections to the Trustee’s motions for Rule 2004 examinations discussed above. The second pleading responded to the Trustee’s motion for a protective order regarding the notice of deposition the Debtor served on the Trus- tee on May 23. The gist of the two filings was essentially two-fold. First, the $110 million judgment the Jackson court entered against FLTCI in the proceeding supplementary was invalid because that court lacked personal jurisdiction over FLTCI; therefore, the Jackson Es- tate lacked a valid judgment on which to base its Chapter 7 petition against FLTCI. Second, and as argued in Singerman’s motion to dismiss, the Trustee was breaching her duty to the Debtor’s estate in “acquiesce[ing] to Wilkes in connection with its unrelenting ef- forts to (mis)use this Chapter 7 case to further its financial interests in maximizing claims, and facilitating execution of default judg- ments, against the Debtor, THMI and other third parties regardless of the resulting prejudice to the estate.” USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 32 of 139 32 Opinion of the Court 21-10587 * * * Commentary Singerman’s argument proceeds from two points. The first is that THMI was part of the Debtor’s estate because THMI’s shares were FLTCI’s sole asset. The Trustee was attempting to maximize the value of THMI’s shares, and thus the value of the Debtor’s estate, so that the Jackson Estate’s claim (based on its $110 million judgment against FLTCI) could be paid. The second point is contradictory. Instead of maximizing the value of THMI’s shares to the Debtor’s estate, the Trustee, in acquiescing to Wilkes’s pur- suit of judgments against THMI, was minimizing the value of the shares to the Debtor’s estate. 38 * * * Berman, on behalf of the Trustee, opposed the motion to dismiss in a response filed on June 18. 39 The Trustee lamented that in her investigation into the assets of the Debtor’s estate, “the Debtor and related parties have uniformly and defiantly refused to produce [requested] documentation without broad confidentiality 38 The automatic stay issued in the FLTCI bankruptcy barred Wilkes from prosecuting any pre-petition claims against FLTCI in state court, or from oth- erwise increasing the liability of its bankruptcy estate. At the same time, Wilkes was not barred from prosecuting claims against THMI, which, if they resulted in judgments against THMI, would minimize the value of its shares as assets of the Debtor’s estate. 39 Unless otherwise indicated, all of the Trustee’s pleadings were filed Shu- maker. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 33 of 139 21-10587 Opinion of the Court 33 agreements, all in derogation of th[e] [Bankruptcy] Court’s direc- tives and unquestionably clear statutory law.” Further, the Trustee noted that she “received no substantive responses to her infor- mation requests”—nothing but “rigorous opposition to avoid any flow of even the most basic information” required. In addition to the Trustee, the Probate Estates also opposed the Debtor’s motion to dismiss on several grounds. Among the reasons was that the Debtor had no standing to file the motion, “particularly over the opposition of the Creditors” 40—namely, the Probate Estates. Wilkes stated that “[t]wo of the Creditors, the Es- tate of Elvira Nunziata and the Estate of Joseph Webb, have un- stayed judgments against THMI. The remaining creditors, with the exception of the Estate of Jones,[] have default judgments as to liability against THMI.” 41 Responding to the Probate Estates’ opposition to dismissal, the Debtor stated: [T]his case gives [the Probate Estates] no substantive right they do not already have. Their only aim in fil- ing this case was to shop for a better forum for broader discovery that they cannot get in their chosen 40 Wilkes appended this footnote to that statement: “[T]he Order for Relief is conclusive as to the Debtor that the claim of the Petitioning Creditor, the Es- tate of Juanita Jackson, is an undisputed, non-contingent claim that is owed by the Debtor.” 41 The unstayed judgments that the Nunziata and Webb Estates obtained were the result of empty-chair trials in state court. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 34 of 139 34 Opinion of the Court 21-10587 non-bankruptcy courts, which courts will, in any event, be the ultimate arbiters of the parties’ rights and defenses. This Court and its jurisdiction are being used as a pawn to gain information and for other stra- tegic litigation purposes, not for any legitimate bank- ruptcy purpose. Debtor’s Omnibus Reply to State Court Litigants’ and Trustee’s Oppositions to Debtor’s Motion to Dismiss Chapter 7 Case at 9–10, In re Fundamental Long Term Care, Inc., No. 8:11-bk-22258 (Bankr. M.D. Fla. June 21, 2012) (emphasis in original). Following an evi- dentiary hearing, the Bankruptcy Court denied the motion with- out prejudice on July 6, 2012. At a hearing on June 29, 2012, the Bankruptcy Court in- structed Berman to confer with interested counsel and prepare a draft of an omnibus order establishing discovery procedures and protocol for the production of documents and the examination of witnesses. The Bankruptcy Court considered Berman’s draft, and on July 12, 2012, it incorporated parts of Berman’s draft into the Omnibus Order it entered. The Omnibus Order established the scope of the Trustee’s Rule 2004 examinations and stated that the Trustee should coordinate the date, time, and location of the ex- aminations to allow them to be completed by September 14, 2012. It provided that the examinations and consequent discovery could potentially include other business entities or assets in the Debtor’s estate. On July 19, 2012, the Trustee filed a multi-count complaint for damages in the Circuit Court of Polk County, Florida—where USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 35 of 139 21-10587 Opinion of the Court 35 the lawsuits brought by the Jackson, Sasser, and Townsend Estates had been filed. 42 The complaint charged the defendants with: (1) legal malpractice in abandoning the defense of THI and THMI in Jackson; (2) legal malpractice in failing to respond on behalf of FLTCI to the Jackson court’s May 23, 2011, order to show cause, which allowed the state trial court to enter a $110 million default judgment against FLTCI; and (3) breach of fiduciary duties owed to THMI and FLTCI. 43 On July 20, 2012, the Trustee filed another complaint in the Circuit Court of Polk County, charging the de- fendants with unauthorized practice of law in unlawfully control- ling or directing THMI’s defense in Jackson and in representing themselves as counsel for FLTCI. 44 The defendants in both cases timely removed the cases to the United States District Court for the Middle District of Florida. 45 42 The complaint was filed against: FAS; Kristi Anderson (FAS in-house coun- sel); Alan Grochal, the THI Receiver; two law firms, Tydings & Rosenberg LLP and Quintairos, Prieto, Wood & Boyer, P.A.; and six lawyers of the re- spective firms. 43 The filing of this lawsuit was no doubt prompted by the statements Singer- man made in the Debtor’s April 2 motion to convert the case to a Chapter 11 proceeding and in the filings made on June 5, both referring to the entry of the $110 million default judgment against FLTCI. 44 The defendants in this complaint were FAS, Anderson, and Christine Zack (FAS’s in-house counsel). 45 The cases were removed to the District Court under 28 U.S.C. § 1441 based on diversity of citizenship. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 36 of 139 36 Opinion of the Court 21-10587 Three weeks later, on August 10, 2012, the Debtor— FLTCI—moved the Bankruptcy Court for leave to challenge the Jackson court’s $110 million judgment against it pursuant to Florida Rule of Civil Procedure 1.540(b)(4). 46 The Bankruptcy Court heard the motion on September 7 and denied it without prejudice in a September 25 order. 47 The Debtor renewed the motion on March 6, 2013. 46 Rule 1.540 states in pertinent part: (b) Mistakes; Inadvertence; Excusable Neglect; Newly Dis- covered Evidence; Fraud; etc. On motion and upon such terms as are just, the court may relieve a party or a party’s legal representative from a final judgment, decree, order, or pro- ceeding for the following reasons: ... (4) that the judgment, decree or order is void. Fla. R. Civ. P. 1.540. 47 The dispositive portion of the order reads: The Debtor’s Motion is DENIED without prejudice condi- tioned on the Trustee (i) following through on obtaining an extension of the deadline for filing a motion under Florida Rule of Civil Procedure 1.540 in the action pending in Polk County Circuit Court, styled Estate of Juanita Amelia Jackson v. Briar Hill, Inc., et al., Case No. 2004-CA-3229; and (ii) meeting and con- ferring in person with the [THI] Receiver, Alan Grochal. Order Denying Debtor’s Motion for Leave to Challenge Judgments and Claims at 1, In re Fundamental Long Term Care, Inc., No. 8:11-BK- 22258 (Bankr. M.D. Fla. Sept. 7, 2012). USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 37 of 139 21-10587 Opinion of the Court 37 The Omnibus Order temporarily resolved the disputes re- sulting from the Trustee’s efforts to conduct Rule 2004 examina- tions of several Targets. The Omnibus Order gave the Trustee the right to conduct discovery regarding: (i) the Debtor’s assets and li- abilities; (ii) control of the Debtor’s assets and operations; (iii) po- tential avoidance actions; and (iv) the possibility of including other business entities or assets in the Debtor’s bankruptcy estate. The Trustee’s mission, as she saw it, was to identify, secure, and recover hundreds of millions of dollars (if not more than one billion dol- lars) as the owner of THMI assets in the form of tort claims—in- cluding claims for legal malpractice, 48 breach of fiduciary duties, and fraud. According to the Bankruptcy Court, the Trustee’s mis- sion was “really no secret to anyone involved in this case. . . . [T]he Trustee . . . openly stated what her goal [wa]s.” In re Fundamental Long Term Care, Inc., 500 B.R. 147, 151 (Bankr. M.D. Fla. 2013). * * * Commentary The property of the Debtor’s bankruptcy estate included “all legal or equitable interests of the debtor in property,” 11 U.S.C. § 541(a)(1), such as causes of action belonging to the debtor. 5 Col- lier on Bankruptcy ¶ 541.07 (16th ed. 2022). The Debtor’s estate did not extend, however, to THMI’s assets, including THMI’s causes of action. See Kreisler v Goldberg, 478 F.3d 209, 214 (4th Cir. 48 The multi-count lawsuits the Trustee filed in the Circuit Court of Polk County in July 2012 were part of the Trustee’s mission. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 38 of 139 38 Opinion of the Court 21-10587 2007) (“The fact that a parent corporation has an ownership inter- est in a subsidiary, however, does not give the parent any direct in- terest in the assets of the subsidiary.”) (emphasis in original); In re Com. Mortg. & Fin. Co., 414 B.R. 389, 395 (Bankr. N.D. Ill. 2009) (“As a general rule, property of the estate includes the debtor’s stock in a subsidiary, but not the assets of the subsidiary.”). As the owner of 100% of THMI’s stock, though, the Trustee had full control of THMI. In seizing THMI’s tort claims, which were the only assets THMI possessed, the Trustee treated THMI as if it were dissolved and its tort claims had become part of the Debtor’s estate. After the Bankruptcy Court consolidated FLTCI and THMI at the trial of the principal adversary proceeding in this case, THMI’s assets were part of the bankruptcy estate. B. The Rule 2004 examinations, coupled with information pro- vided by Wilkes and what Berman learned about the bust-out scheme, led the Trustee to file claims she believed aided her mis- sion. Before turning to the claims themselves, we explain the bust- out scheme. 49 1. THI was incorporated under Delaware law in 1998. Through subsidiaries, it operated nursing homes, assisted living 49 The description of the bust-out scheme draws on Chief Judge Williamson’s summary from the Bankruptcy Court’s opinion in In re Fundamental Long Term Care, Inc., 507 B.R. 359, 365–71 (Bankr. M.D. Fla. 2014). USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 39 of 139 21-10587 Opinion of the Court 39 facilities, and long-term acute care hospitals across the United States. THMI provided a wide variety of administrative services to THI’s operating subsidiaries. A private equity group referred to as the “GTCR Group” provided THI’s initial funding. 50 Between 1998 and 2005, the GTCR Group invested $37 million of its own capital in THI. Ven- tas, Inc. (“Ventas”) loaned THI $55 million followed by another $22 million, with the stock of THI and THMI serving as collateral. GECC eventually assumed the $55 million loan. The GTCR Group controlled THI’s Board of Directors and was instrumental in the company’s day-to-day management and administration. Early in 2003, the GTCR Group decided to increase THI’s nursing home operations. Integrated Health Services (“Inte- grated”), one of the nation’s largest nursing home operators, was in bankruptcy in Delaware, and the GTCR Group planned on ac- quiring its assets out of bankruptcy. To do that, the GTCR Group restructured THI. First, it created THI Holdings, LLC (“THI Hold- ings”), exchanging the GTCR Group’s 83% stock interest in THI for an equal percentage of THI Holdings’s shares. Second, THI Holdings created two new subsidiaries: THI of Baltimore, Inc. (“THI-Baltimore”) and THI of Baltimore Management, LLC (“THMI-Baltimore”). With the restructuring in place: (1) THI Holdings became the parent of two wholly owned subsidiaries, 50 The GTCR Group consisted of GTCR VI Executive Fund; GTCR Fund VI, LP; GTCR Associates VI; GTCR Partners VI, LP; and GTCR Golder Rauner, LLC. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 40 of 139 40 Opinion of the Court 21-10587 THI and THI-Baltimore; (2) THI became the parent of the wholly owned subsidiary THMI; and (3) THI-Baltimore became the parent of the wholly owned subsidiary THMI-Baltimore. With this restructuring, the GTCR Group intended to repli- cate the old THI structure for holding the Integrated assets it planned on acquiring. THI-Baltimore, operating as THI had, would operate the acquired nursing homes, and THMI-Baltimore, functioning as THMI had, would provide the management services for the homes. But the GTCR Group failed to acquire the Integrated nurs- ing homes. It was outbid by ABE Briarwood (“Briarwood”). THI- Baltimore was not out of the picture for long, however. It was soon able to strike a deal with Briarwood because Briarwood was not a licensed nursing home operator. Briarwood leased or subleased the former Integrated homes to THI-Baltimore to operate. THI- Baltimore then contracted with THMI-Baltimore to provide the management services for the homes. THI-Baltimore would be profitable, the GTCR Group thought, because the income gener- ated by its nursing home operations would more than offset the rent it paid Briarwood and the management fees paid to THMI- Baltimore. 51 51 THMI-Baltimore lacked a staff, so it used THMI’s employees and equip- ment (and other assets) to provide management services to the newly acquired Integrated nursing homes. THMI therefore shared in the revenue THMI-Bal- timore received from THI-Baltimore for providing the services. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 41 of 139 21-10587 Opinion of the Court 41 The arrangement with Briarwood coupled with THI’s oper- ations seemed successful. By mid-2003, THI was reporting gross annual revenues of $1 billion and a net annual income of $6 mil- lion. In reality, however, THI had sustained a $29 million loss and was on the verge of defaulting on the Ventas and GECC loans. GECC and Ventas therefore took steps to protect their positions. First, GECC and Ventas forced THI to enter into a series of forbearance agreements at a substantial cost in fees to THI. Sec- ond, GECC took control of THI’s bank accounts. Pursuant to the terms of the loan agreement between GECC and THI, THI’s cash flowed through a series of lockboxes and sweep accounts. After GECC learned of misrepresentations in THI’s financial reporting, GECC began “trapping cash” in the sweep accounts. It instructed the Bank of New York, which kept THI’s deposits, to capture all of the money held in THI’s accounts. THI gave GECC control of a large portion of its assets. At the same time, it deprived itself of the ability to pay its bills and jeopardized patient care in its nursing homes. A lawsuit brought against the GTCR Group, Edgar Jan- notta (associated with the GTCR Group), and THI alleged that they were conspiring to divert money loaned to certain nursing home facilities to pay the obligations of other facilities. By early 2006, THI and THMI were defendants in over 150 lawsuits—among them, the wrongful death actions Wilkes had brought on behalf of the Jackson Estate in 2004 and the Nunziata Estate in 2005. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 42 of 139 42 Opinion of the Court 21-10587 As the Jackson litigation was progressing and other cases like it were about to be filed, THI and THMI’s boards of directors con- sidered whether seeking protection in bankruptcy would be in the best interests of the companies, their employees, and their credi- tors. In January 2005, they authorized the companies to file for bankruptcy. The GTCR Group overruled their decision. After con- sulting counsel at Troutman, 52 the GTCR Group decided to take a different approach and execute a bust-out scheme to preserve the THI conglomerate and keep its assets intact. 2. The bust-out scheme was carried out in three phases. The initial phase involved closing two transactions simultaneously in March 2006. In the first transaction, THI Holdings sold THMI’s assets, as well as its shares of THI-Baltimore, to FLTCH for $9.9 million—far less than their fair market value. As of January 2006, those assets had been valued at more than $183 million. In the second transaction, THI sold its shares of the now- assetless THMI 53 to FLTCI for $100,000. FLTCI therefore acquired all of THMI’s liabilities but none of its assets. Troutman—where Leonard Grunstein, who held an interest in FLTCH, 54 was a part- ner—had incorporated FLTCI just months before. FLTCI’s sole 52 On July 1, 2020, Troutman Sanders merged with Pepper Hamilton to be- come Troutman Pepper Hamilton Sanders LLP. 53 THI owned 100% of THMI’s issued and outstanding shares of stock. 54 Murray Forman, an investment banker, also held an interest in FLTCH. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 43 of 139 21-10587 Opinion of the Court 43 shareholder was Barry Saacks, an elderly graphic artist who was not aware that he owned FLTCI or that it acquired stock in THMI. After acquiring the THMI assets, FLTCH rebranded them and continued generating millions in profits without the burden of THMI’s liabilities. Within six months, THMI-Baltimore changed its name to Fundamental Clinical Consulting, LLC (“FCC”) and took over the operations of the former Integrated nursing homes, and Fundamental Administrative Services, LLC (“FAS”) 55 was cre- ated to take over the administrative services under the manage- ment contracts previously held by THMI-Baltimore. All of THMI’s employees became employees of either FCC or FAS, depending on whether the employee provided operational aid, clinical support, or administrative services. THMI and FLTCI became defunct following the March 2006 closings, but THI remained an active corporation until the GTCR Group launched the second phase of the bust-out scheme, winding down THI. The GTCR Group launched the second phase in November 2007 when it sold a THI entity for $4.7 million. Three months later, the GTCR Group sold the remaining THI properties (except for one facility in Maryland) to Omega Healthcare Investors, Inc. and CommuniCare Health Services. As part of the latter transaction, CommuniCare acquired THI’s right to operate those properties. 55 FLTCH was FAS’s sole member. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 44 of 139 44 Opinion of the Court 21-10587 The GTCR Group received nearly $48 million from the sale. The proceeds of the sales were used to pay off THI’s creditors. In January 2009, the GTCR Group had THI petition a Mar- yland state court on behalf of itself and 143 subsidiaries—but not THMI—for appointment of a receiver. The Maryland court granted THI’s petition and the same day appointed a receiver, who was subsequently replaced by Alan Grochal, an attorney in the law firm that filed the petition. The purpose of the receivership was to obtain a stay in the litigation of Wilkes’s cases while the receiver- ship was ongoing. With the receivership underway, the GTCR Group executed the third—and final—phase of the bust-out scheme: concealing the March 2006 transactions. The transactions had to be concealed long enough for the statute of limitations to run on a fraudulent transfer suit against FLTCH. 56 The prescriptive period for an action to void a fraudulent transfer was four years in Florida and Delaware and six years in New York. Prior to the trial of the adversary pro- ceeding in this case in October 2014, the parties—with the 56 The lawyers counseling the GTCR Group apparently assumed that Wilkes would not pursue FLTCH until Wilkes had obtained a judgment in the earliest of the Probate Estate cases it had brought, Jackson, and that with the judgment in hand, Wilkes would file an UFTA action against FLTCH and any of the recipients of THMI’s assets. As it turned out, those lawyers were correct— Wilkes did not pursue FLTCH with an UFTA claim until after it filed an ad- versary complaint against FLTCH and others in the FLTCI bankruptcy case on October 1, 2013. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 45 of 139 21-10587 Opinion of the Court 45 Bankruptcy Court’s consent—agreed to apply the Florida UFTA, Fla. Stat. § 726.101 et seq. In an effort to ensure that the prescriptive period would run before Wilkes established that its clients’ negligence claims were meritorious and thus could support a free standing UFTA cause of action, the GTCR Group had to take control of THI and THMI’s defense in those cases in order to delay their completion. The re- ceivership order had given the receiver the right to defend THMI in Wilkes’s cases even though THMI was not one of the THI sub- sidiaries included in the THI receivership. In June 2009, as a delay tactic, Grochal (the THI Receiver) filed an action, Trans Health Care, Inc. v. Creekmore, in the Circuit Court of Miami-Dade County for the domestication of the receivership in Florida. 57 No. 2009CA- 11513, 2013 WL 11015914 (Fla. Cir. Ct. June 19, 2013). Grochal im- mediately sought a stay of the actions Wilkes was prosecuting against THI and THMI. The circuit court granted the domestica- tion of the receivership but denied Grochal’s application for a stay, leaving the decision whether to grant a stay to the state courts in which Wilkes’s cases were pending. To reiterate, the four-year prescriptive period for filing an ac- tion to void the March 2006 sale of THMI’s assets to FLTCH and any other recipients of the assets would expire in March 2010. Gro- chal, aware of that fact and the status of Wilkes’s cases, directed 57 Creekmore was a Wilkes client. None of Wilkes’s cases were pending in Miami-Dade County. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 46 of 139 46 Opinion of the Court 21-10587 the lawyers that the receivership had retained to defend THI and THMI in Wilkes’s cases to withdraw their representation in April 2010—just over four years after the March 2006 transactions had closed and 16 months after the receivership’s creation. The lawyers defending THI and THMI in Jackson withdrew their representation of the defendants with leave of court on May 18, 2010. The case went to trial before a jury on July 22, 2010, with- out the lawyers’ presence. It was thus an empty-chair trial and re- sulted in verdicts of $55 million each against THI and THMI. Judg- ments were entered accordingly. * * * Commentary In a nutshell, the bust-out scheme involved THMI’s assets and liabilities being split into two separate entities. FLTCH got the assets. FLTCI got the liabilities. If they could get away with it, THI’s owners could enjoy THMI’s money without being subject to THMI’s legal liabilities. It goes without saying that this is wrong. That is why fraudulent transfer statutes exist. The bust-out scheme continued by attempting to avoid liability under those statutes. Namely, the powers that be in the THI corporate family orches- trated a defense strategy that allowed the UFTA prescriptive period to run without alerting potential creditors like Wilkes’s clients that something untoward was going on behind the scenes. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 47 of 139 21-10587 Opinion of the Court 47 3. In a way, the bust-out scheme continued through the bank- ruptcy proceedings in the Trustee’s conflict with the Debtor— FLTCI—FLTCH, and the Targets over the representation of THI and THMI in Wilkes’s state court proceedings. After Wilkes put FLTCI into bankruptcy in December 2011, the Targets realized that the withdrawal of defense counsel in Wilkes’s wrongful death ac- tions was unwise. Although they appeared to have solid time bar defenses to Wilkes’s fraudulent transfer actions in the form of post- judgment motions under Fla. Stat. § 56.29, Wilkes’s litigation strat- egy was of considerable concern. After obtaining multimillion- dollar verdicts in empty-chair jury trials, Wilkes would use the evi- dence the bankruptcy trustee uncovered to reinforce its § 56.29 mo- tions or support an adversary proceeding in the FLTCI bankruptcy. To bring the empty-chair trials to an end and reduce their § 56.29 exposure, the Targets concluded that they had to provide defense counsel for THI and THMI in Wilkes’s cases. In a memorandum opinion issued on March 20, 2015, the Bankruptcy Court recalled the steps they took: [T]he targets decided to provide a defense for THI and THMI as an outer firewall to any liability to the Probate Estates. In an effort to ensure the remaining cases did not go undefended, the targets entered into a settlement agreement with the THI Receiver [Gro- chal] on January 5, 2012. Under the January 2012 agreement, FAS—one of the targets—agreed to defend THI, the THI Receiver, and USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 48 of 139 48 Opinion of the Court 21-10587 the THI receivership estate from any claims arising out of the negligence or wrongful death cases filed by the Probate Estates. FAS agreed to deposit $800,000 in escrow to fund the costs of that defense. GECC— one of THI’s lenders who was also a target—likewise agreed to contribute up to $200,000 toward the de- fense costs. FAS fairly immediately delegated the duty to defend THI back to the THI Receiver, and the THI Receiver immediately set out to retain counsel for THI and THMI. In re Fundamental Long Term Care, Inc., 527 B.R. 497, 504 (Bankr. M.D. Fla. 2015). As the Bankruptcy Court pointed out, however, the Receiver didn’t act soon enough: Newly retained counsel for THMI attempted to ap- pear on the company’s behalf on the morning of trial in the case filed by the Nunziata Estate. But the court in that case would not let counsel appear. Likewise, the court in the case filed by the Webb Estate would not let newly retained counsel appear for either THI or THMI. Because the state courts would not let newly retained counsel appear on behalf of THI and THMI, both of those cases proceeded to empty-chair trials, and the juries ultimately returned more than $1 billion in verdicts combined. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 49 of 139 21-10587 Opinion of the Court 49 Id. (footnote omitted). 58 By the time Berman and Shumaker joined the Trustee’s team, lawyers retained by the THI Receiver—Gro- chal—were actively representing THI and THMI in Wilkes’s wrongful death cases. At the same time, the Trustee was seeking access to their litigation files. The THI Receiver objected, so Ber- man moved the Bankruptcy Court for an order requiring the Re- ceiver to show cause why the files should not be produced. The 58 The verdict against THMI in Nunziata, which was tried on January 9, 2012, was $60 million in compensatory damages and $140 million in punitive dam- ages. Almost immediately after the entry of judgment, Wilkes moved the court ex parte for an injunction against FLTCH, FAS, Forman, Grunstein (all Targets), the THI Receiver, and his attorney—none being parties in the case— that “purport[ed] to prohibit the [THI] Receiver and his ‘agents and assignees’ from challenging in any court anywhere in the country any aspect of the [Nunziata] Estate’s entitlement to collect on its judgment.” Trans Health Mgmt., Inc. v. Nunziata, 159 So. 3d 850, 856–57 (Fla. 2d Dist. Ct. App. 2014). The state court granted the injunction. THMI, represented by Shumaker, ap- pealed the judgment, and the enjoined parties appealed the injunction. The Second District Court of Appeal dismissed THMI’s appeal under Fla. Stat. § 607.1622(8) because THMI had been dissolved for failure to file an annual report. Id. at 855. The Second District Court of Appeal also vacated the in- junction because it “was issued without notice to any of the nonparties, with- out the issuance of process on any of them, and without the presentation of admissible evidence.” Id. at 858. In a consolidated appeal, FAS challenged a pretrial discovery order finding that it “had committed a fraud on the court.” Id. at 854. The Second District Court of Appeal quashed the order because it “was not based on evidence admitted at a properly noticed evidentiary hear- ing.” Id. at 859–60. The judgment in Webb was reversed and the case was remanded for further proceedings. Trans Health Mgmt., Inc. v. Webb ex rel. Webb, 132 So. 3d 1152 (Fla. 1st Dist. Ct. App. 2013) (per curiam). USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 50 of 139 50 Opinion of the Court 21-10587 Receiver did not dispute that the Trustee should generally have ac- cess to THMI’s books and records, but he claimed that the lawyers’ litigation files were privileged. In re Fundamental Long Term Care, Inc., No. 8:11-bk-22258, 2012 WL 4815321, at *2 (Bankr. M.D. Fla. Oct. 9, 2012) (internal quotation marks omitted). He also took the position that he had the exclusive right to control the defense of any claims against THMI. Id. This was so, he said, because he had assumed the obligation of defending THMI “to ensure that no THMI obligation might by default exhaust the limited assets of the THI estate to the detriment of THI’s other creditors.” Id. (internal quotation marks omitted). The Bankruptcy Court held a hearing on the Receiver’s ob- jection on September 27, 2012, and on October 9, 2012, the Bank- ruptcy Court issued an order stating that the Trustee—as the sole shareholder of the Debtor’s wholly owned subsidiary—should have (i) access to the books and records relating to the Debtor and its subsidiary (including any litigation files); and (ii) the right to control THMI activities (including the right to assert any attorney-client privilege, to the extent it exists, on THMI’s behalf ). Id. at *11. On October 29, 2012, the THI Receiver appealed that order and promptly moved the Bankruptcy Court to stay its order pend- ing the appeal. Wilkes opposed the motion, alleging that FLTCI was merely “a shell and its purchase of THMI was a sham transac- tion designed to benefit a few wrongdoers by transferring the USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 51 of 139 21-10587 Opinion of the Court 51 valuable assets of THMI, lodging the liabilities in a shell company, and concealing the whole scheme from the creditors.” Wilkes went on to allege that the Receiver was an integral part of the scheme: In January 2012, sixteen parties including General Electric Capital Corporation, Inc., GTCR, Ventas, Ru- bin Schron, Leonard Grunstein, Murray Forman, and the state court receiver for THI, entered into a specific agreement, memorializing an extant conspiracy, to fund a massive effort to conceal discovery of the facts related to their fraud. The signatories attempted to gain legitimacy for these efforts by using the color of the state law receivership of THI. Creditors’ Opposition to Motion of Alan M. Grochal for Stay Pend- ing Appeal at 3–4, In re Fundamental Long Term Care, Inc., No. 8:11- bk-22258 (Bankr. M.D. Fla. Nov. 5, 2012). Wilkes concluded by say- ing that “the Debtor and the other ‘interested parties’ have no standing in this case.” The Bankruptcy Court heard the motion on November 16, 2012, and took it under advisement. The day before, unbeknownst to the Trustee and the Bankruptcy Court, FLTCH and FAS sued THMI in the Southern District of New York for a declaration that the fraudulent transfer claims Wilkes was attempting to prosecute via its § 56.29 post-judgment motions in Nunziata and Webb—which had resulted in jury verdicts and judgments of $200 million and USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 52 of 139 52 Opinion of the Court 21-10587 $900 million, respectively—were time-barred. 59 Fundamental Long Term Care Holdings, LLC. v. Trans Health Mgmt., Inc., No. 1:12-cv- 8339 (S.D.N.Y. filed Nov. 15, 2012). Six days later, the lawyer who brought that action also filed a complaint for Christine Zack (a FAS in-house counsel) against Shumaker in the Southern District of Ohio, seeking unrelated relief. Zack v. Shumaker, Loop & Kendrick, LLP, No. 2:12-cv-1075 (S.D. Ohio filed Nov. 21, 2012). Before the defendants were served with process in those cases, the Trustee decided to take over THMI’s defenses in the Wilkes cases. On December 10 and 21, 2012, Shumaker moved the appellate courts in Webb and Nunziata, where THMI’s appeals were pending, to appear as appellants’ counsel in place of the lawyers the THI Receiver had retained. Then, on December 27, 2012, the Trus- tee, having notice of the federal district court cases in New York and Ohio, sought to enjoin their prosecution by commencing an adversary proceeding against FLTCH, FAS, and Zack with a two- count complaint. 60 59 The complaint alleged that the post-judgment motions were time-barred under the laws of Delaware, Florida, Maryland, New York, and Pennsylvania. 60Count I was lodged against Zack and Count II was against FLTCH and FAS. The complaint alleged that following the entry of the Omnibus Order on July 12, the Respondents in concert with the Debtor and other interested parties, ha[d] undertaken a concerted effort to undermine the Trustee’s ad- ministration of this case with the sole purpose of reducing the potential exposure of third parties, including FLTCH and FAS, who were clearly involved in the fraudulent efforts to place the USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 53 of 139 21-10587 Opinion of the Court 53 On January 4, 2013, the Bankruptcy Court entered an order denying the THI Receiver’s motion to stay the Bankruptcy Court’s October 9, 2012, ruling pending the THI Receiver’s appeal to the District Court for the Middle District of Florida. 61 Although it de- nied the motion, the Bankruptcy Court ordered counsel for the Trustee, the Receiver’s counsel, and counsel hired by the Receiver Debtor and THMI’s [assets], exceeding more than $700 Million in value, beyond the reach of creditors. Complaint for Temporary and Permanent Injunctive Relief at ¶ 24, Scharrer v. Zack, No. 8:12-ap-1198 (Bankr. M.D. Fla. Filed Dec. 27, 2012). The complaint also alleged that “according to an FAS representative’s recent 2004 Examina- tion testimony, FAS is paying various sets of lawyers more than $500,000 per month just in connection with the instant bankruptcy case, related litigation, oppositions, and discovery.” Id. at ¶ 19. The complaint further alleged that in filing suit against THMI in the Southern District of New York, FLTCH and FAS sought to “avoid consideration and resolution by this Court of the very issues the Trustee is statutorily obligated to investigate [as] authorized by this Court.” Id. at ¶ 31. According to the Trustee, Zack’s suit against Shumaker alleged that Shumaker’s representation of the Trustee “constituted an abuse of process.” Id. at ¶ 34. The Trustee contended that Zack filed the suit “shortly after th[e Bankruptcy] Court cautioned Zack’s counsel against pursuing various re- quests for sanctions against lawyers and other parties,” id. at ¶ 33, at a hearing in which the Bankruptcy Court “denied Zack’s Motion for Sanctions and sug- gested that all parties would be well served focusing on the merits of the bank- ruptcy case and avoiding. . . personal attacks and reflexive assertions of rights to sanctions.” Id. at ¶ 35. 61 On December 21, 2012, the Trustee moved the District Court to dismiss the appeal. On September 12, 2013, the District Court entered an order stay- ing the appeal “pending a resolution by the Bankruptcy Court of the interrela- tionship between THMI and FLTCI.” USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 54 of 139 54 Opinion of the Court 21-10587 to represent THMI in the Wilkes cases to confer so the Trustee could “evaluate the positions she will take on behalf of THMI in the Wilkes Litigation.” Regarding the current representation of THMI, the Bankruptcy Court provided that: The law firms who have made appearances on behalf of THMI are authorized to continue to defend the Wilkes Litigation to prevent prejudice to THMI’s rights and to ensure that defaults are not entered or permitted to remain in place uncontested (including prosecuting appeals with respect to previously en- tered judgments) against THMI until the Trustee ei- ther (i) authorizes existing THMI counsel to continue to represent THMI; or (ii) obtains substitute counsel (who enters his or her appearance in each Wilkes Lit- igation matter) and releases existing THMI counsel from any further obligations. ... In any event, the Trustee shall take any and all actions necessary to ensure that disputed claims are de- fended, including prosecuting appeals with respect to previously entered judgments. Order Denying Motion for Stay Pending Appeal at 2, In re Funda- mental Long Term Care, Inc., No. 8:11-bk-22258 (Bankr. M.D. Fla. Jan. 4, 2013). The Bankruptcy Court also stated that “[a]ny substantive information regarding the personal injury claims and defenses shared with the Trustee during the . . . conferences will not be shared with the Petitioning Creditors or their counsel absent fur- ther order of this Court.” Id. at 3. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 55 of 139 21-10587 Opinion of the Court 55 The same day this order was entered, FLTCH and FAS moved the Bankruptcy Court to enter an order disqualifying Shu- maker as Trustee’s counsel on the ground that Shumaker had a conflict of interest in favor of Wilkes. 62 The motion alleged that Wilkes had brought the Chapter 7 case for two reasons: The first reason was to remove THMI’s defense against the plaintiffs’ outrageous claims from compe- tent counsel that serves only THMI’s interest, and place it under the control of counsel with loyalties to the plaintiffs and their counsel. The second reason was to obtain a trustee, with the mantle of independ- ence and court appointment, to assist in collecting THMI’s bogus liabilities from unrelated third par- ties. . . . This case and this Court are being used to perpetrate a gross violation of fundamental due pro- cess, and [Shumaker’s] representation of THMI is critical to pulling it off. Joint Motion of Fundamental Administrative Services, LLC and Fundamental Long Term Care Holdings, LLC for an Order (A) Dis- qualifying Shumaker, Loop & Kendrick LLP as Counsel to Trans Health Management, Inc. Due to Conflict of Interest, and (B) Granting Related Relief at 3, In re Fundamental Long Term Care, Inc., No. 8:11-bk-22258 (Bankr. M.D. Fla. Jan. 4, 2011). 62 Contrast this motion with the motion for disqualification and disgorgement Wilkes will later bring, which argues that Shumaker had a conflict of interest against Wilkes. See infra part IV. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 56 of 139 56 Opinion of the Court 21-10587 On January 30, 2013, the Bankruptcy Court, “having heard argument of counsel for the Trustee, FAS, and FLTCH,” entered an order denying FLTCH and FAS’s motion to disqualify Shu- maker. The order stated that the Bankruptcy Court would conduct a status conference on February 4, 2013, “at which time the Trustee shall report to the Court the status of pending state court litigation and appeals involving the Debtor or THMI,” and the “current rep- resentation of the Debtor and THMI in such cases.” The Bank- ruptcy Court required that prior to the status conference, the Trus- tee and the THI Receiver confer about “the prior and future repre- sentation of THMI.” On February 5, 2013, FLTCH and FAS ap- pealed that order to the District Court. Meanwhile, on January 23, 2013, the Bankruptcy Court granted the Trustee’s motion for a preliminary injunction barring FLTCH and FAS from prosecuting their declaratory judgment ac- tion in the Southern District of New York and barring Zack from proceeding with her case in the Southern District of Ohio. On March 7, 2013, the Debtor—FLTCI—renewed the mo- tion it had filed on August 10, 2012, pursuant to Florida Rule of Civil Procedure 1.540(b)(4), challenging the $110 million judgment entered against it as void. 63 One day earlier, on March 6, the 63 The same day, the Debtor objected to the Jackson Estate’s $110 million claim on the ground that the judgment had been obtained via extrinsic fraud. The Bankruptcy Court overruled the objection on June 21, 2013, following an evidentiary hearing. In re Fundamental Long Term Care, Inc., 500 B.R. 140 (Bankr. M.D. Fla. 2013). USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 57 of 139 21-10587 Opinion of the Court 57 Trustee moved the Bankruptcy Court to authorize and direct me- diation of all claims. On March 19, 2013, FLTCH and FAS jointly responded to the Trustee’s motion. They repeated their concern from the hearing on their motion seeking Shumaker’s disqualifica- tion. Their concern was that Shumaker would enter into “collusive settlements of the six [wrongful death] actions with [Wilkes] ‘to set THMI’s liabilities at amounts that . . . are going to be astronomical windfalls to the plaintiffs . . . set in stone behind closed doors.’” “In the mediation envisioned by the Trustee, there will be no party ar- guing to the mediator that THMI or the Debtor has zero liability to these plaintiffs.” The Bankruptcy Court heard the motion on March 26 and granted it over the objections of the Debtor, FLTCH, and FAS, appointing a retired bankruptcy judge as mediator. 64 On June 6, 2013, following five days of mediation, the Trus- tee filed an expedited motion to compromise the claims that the Sasser, Jones, and Townsend Estates had brought against THMI in state court and filed as claims against the Debtor’s estate in the bankruptcy proceeding. 65 In Sasser and Jones, THMI and the 64 As a result of the Bankruptcy Court’s September 12, 2013, decision, the me- diation ended. 65 Also on June 6, 2013, the Trustee and Kristi Anderson jointly moved to com- promise the claims brought in the lawsuits filed against FAS and Anderson (and others) on July 19 and 20, 2012. FLTCH and FAS objected to the com- promise. In a memorandum opinion issued on June 21, 2013, the Bankruptcy Court overruled the objection and approved the compromise. FLTCH and FAS appealed the ruling on June 27, 2013. FAS voluntarily dismissed the appeal on March 11, 2014. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 58 of 139 58 Opinion of the Court 21-10587 Debtor stipulated to a claim for compensatory damages of $5 mil- lion and punitive damages of $5 million—a total of $20 million be- tween the two cases. In Townsend, THMI and the Debtor stipulated to a claim for compensatory damages of $10 million and punitive damages of $10 million. The Trustee filed an amendment to her expedited motion to compromise on July 10. The Trustee’s motion was met with vehement opposition by FLTCH, FAS, FCC, THI Holdings, the THI Receiver, GECC, and the Debtor on a variety of substantive and procedural grounds. The objections led to reciprocal exchange of documentary evi- dence. The Trustee produced documents on which she and Shu- maker relied in determining that the settlement proposed was in the best interests of the bankruptcy estate. The objectors produced documents supporting their objections. The Bankruptcy Court heard the Trustee’s motion on July 10–12, 2013, and on July 12 the Bankruptcy Court entered an order approving the compromise. The order was perfunctory. The trial date in Townsend was looming and the Bankruptcy Court wanted its ruling to serve as notice well in advance of the trial. The Bank- ruptcy Court anticipated that the parties would agree on a super- seding replacement order. As a precaution, the Debtor, joined by the Receiver, appealed that July 12 order to the District Court, as did FAS and FCC. On December 18, 2013, the District Court re- versed the July 12 order and remanded the matter to the Bank- ruptcy Court with the instruction that it reconsider the settlements after it concluded the adversary proceeding and resolved the issue USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 59 of 139 21-10587 Opinion of the Court 59 of the identity of interest between FLTCI and THMI, if any. The District Court observed that many of the issues plaguing the Bank- ruptcy Court were “created because the creditors placed [FLTCI] into bankruptcy as the debtor, rather than its subsidiary THMI against which the [Probate Estates] have causes of action.” As in- dicated infra part III, the Bankruptcy Court resolved this issue by treating THMI and FLTCI as one entity for Chapter 7 purposes. On July 30, 2013, FLTCH and FAS moved the Bankruptcy Court for authority either to transfer their New York declaratory action to the Middle District of Florida with referral to the Bank- ruptcy Court or, in the alternative, to dismiss the New York action without prejudice and refile it in the Bankruptcy Court. On August 2, FLTCH and FAS supplemented their motion to include a request for injunctive relief “based on the flagrant misconduct of the [Townsend] Estate and its counsel, Wilkes,” that took place follow- ing the jury trial in Townsend and entry of judgment for the Town- send Estate on July 29, 2013. What Wilkes had done in Townsend after the entry of judg- ment was described by the Florida District Court of Appeal in Gen- eral Electric Capital Corp. v. Shattuck, 132 So. 3d 908 (Fla. 2d Dist. Ct. App. 2014). On July 29, 2013—after the state court had entered a default against THI and a jury returned a verdict against THI of USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 60 of 139 60 Opinion of the Court 21-10587 $1.1 billion ($1 billion of which was for punitive damages)—the trial court entered judgment against THI. 66 Two days later, the [Townsend E]state filed a “motion to alter and amend the judgment to conform with ev- idence at trial.” The motion asked the court to add the sixteen Appellants to the final judgment pursuant to Florida Rule of Civil Procedure 1.530(g). The mo- tion was served only on the attorney for the THI [R]eceiver, not on any of the sixteen Appellants. Later that same day the trial court, without soliciting re- sponses or holding a hearing, granted the motion and entered the amended final judgment at issue in these proceedings. The amended judgment added the six- teen Appellants as judgment debtors, jointly and sev- erally liable for the damages award “based on the evi- dence adduced at trial” demonstrating that they were “the real parties in interest.” Id. at 910–11. 67 66 The Townsend case was tried after the trial judge denied THI’s motion to recuse on the ground of bias. FLTCH and FAS’s August 2 supplement to their July 30 motion stated that the “heavily one-sided damages trial was riddled with procedural and substantive errors, and the verdict will be appealed and is very unlikely to withstand appellate review.” 67 The 16 appellants included: FLTCH; FAS; THI-Holdings; THI-Baltimore; GECC; GTCR Golder Rauner, LLC; GTCR Fund VI, L.P.; GTCR Partners VI, L.P.; GTCR VI Executive Fund, L.P.; GTCR Associates VI; Edgar D. Jannotta, Jr.; Murray Forman; Leonard Grunstein; Ventas; Ventas Realty, L.P.; and Rubin Schron. The Second District Court of Appeal reversed the judgment and re- manded the case for further proceedings. Shattuck, 132 So. 3d at 914. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 61 of 139 21-10587 Opinion of the Court 61 The Bankruptcy Court heard the motion to transfer on Au- gust 20, 2013, and took it under advisement. As it turned out, a ruling was unnecessary since the purpose of the motion was ac- complished when the Bankruptcy Court entertained FLTCH and FAS’s statute of limitations defense at the trial of the principal ad- versary proceeding (initiated by the Probate Estates) in September and October 2014 as affirmative defenses to the Probate Estates’ claims. See In re Fundamental Long Term Care, Inc., 507 B.R. 359, 384 (“Denial of the motions to dismiss [as time-barred] is without prej- udice. The Defendants are free to raise the statute of limitations as an affirmative defense.”). On September 3, 2013, the District Court decided FLTCH and FAS’s appeal of the Bankruptcy Court’s January 30, 2013, order denying their motion to disqualify Shumaker. The District Court did so with these observations: Appellants contend the [T]rustee has a direct conflict with making decisions for [THMI] even though the debtor [FLTCI] owns 100% of the stock in THMI. Be- cause of this asserted conflict, Appellants contend [T]rustee’s counsel, [Shumaker], also has a conflict. ... This asserted conflict is occasioned because of the un- usual posture of this case. This is an involuntary bankruptcy brought by a creditor of THMI’s parent corporation. By putting THMI’s parent corporation [FLTCI,] in bankruptcy rather than THMI, the USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 62 of 139 62 Opinion of the Court 21-10587 creditors are allowed to continue to pursue litigation against THMI. Since THMI is not the debtor, it does not receive any of the benefits of bankruptcy, such as an automatic stay of civil litigation against it. Therefore, civil liti- gation has been proceeding against THMI outside the control of the Bankruptcy Court. The [T]rustee has been making decisions (such as allowing “claims”) for THMI as if THMI were in bankruptcy. It is apparent that a decision needs to be made whether in fact THMI and the Debtor should be treated as the same entity under theories of alter ego, substantive consolidation, or other legal or equitable theory. If so, THMI should be brought into the bank- ruptcy as a debtor which would afford it the benefits of bankruptcy as well as the burdens. If THMI is not to be treated as the same entity as the debtor, then the litigation against THMI may be moot in this bank- ruptcy estate and the issues involved in this appeal may become moot. Order of Remand at 1–2, In re Fundamental Long Term Care, Inc., No. 8:11-bk-22258 (Bankr. M.D. Fla. Sept. 5, 2013). The District Court therefore remanded the case with the instruction that the Bank- ruptcy Court determine at the earliest practical time whether “THMI should be brought into the bankruptcy case as a debtor.” * * * Commentary USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 63 of 139 21-10587 Opinion of the Court 63 The District Court observed the obvious. Other than the Jackson Estate, none of the Probate Estates had a claim against the Debtor. Their claims were against THMI, an entirely separate en- tity. And they could not be allowed in the Debtor’s estate. That is why it was necessary that the Bankruptcy Court consider THMI, qua separate entity, as a bankrupt entity together with FLTCI. * * * The Bankruptcy Court followed the District Court’s lead on September 12, 2013. In a Memorandum Opinion, the Bankruptcy Court held that the Bankruptcy Court was the proper forum for Wilkes’s fraudulent transfer claims. In re Fundamental Long Term Care, Inc., 500 B.R. 147 (Bankr. M.D. Fla. 2013). In doing so, the Bankruptcy Court addressed Wilkes’s argument that the Probate Estates should be allowed to continue their state court litigation: In asking the Court not to enjoin their efforts in state court, the creditors argue the Court should be guided by the Trustee’s judgment as to what is in the best in- terests of the estate. That is not quite right. The Court is first and foremost guided by the Bankruptcy Code. And the Bankruptcy Code grants this Court exclusive jurisdiction over property of the estate. There is no question in the Court’s mind that contin- uation of the proceedings supplementary—given the Estate of Nunziata’s acknowledgement that the assets that were allegedly transferred to the “targets” belong to THMI—is an attempt (even if unintentional) to ob- tain or take control of property of the estate, and that alone warrants requiring the creditors [the Probate USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 64 of 139 64 Opinion of the Court 21-10587 Estates] to pursue any fraudulent transfer or alter ego claims in this Court. Id. at 160. The Bankruptcy Court then set a hearing to set “the parameters of a single proceeding—involving the Trustee, the creditors, and the ‘targets’—for resolving any fraudulent transfer and alter ego claims.” Id. The Trustee, as a hypothetical creditor of THMI, could not mount fraudulent transfer causes of action against FLTCH and the Targets unless THMI was in bankruptcy. * * * Commentary As evidenced by the various disputes over control of THMI’s defense strategy, the Chapter 7 proceeding pitted Wilkes, the Pro- bate Estates, the Trustee, and Shumaker against FLTCI, FLTCH, and the Targets. III. A. On October 1, 2013, the Probate Estates initiated an adver- sary proceeding in the Bankruptcy Court against 16 entities and in- dividuals with a two-count complaint for declaratory relief. 68 Count I alleged that six of the defendant parties assumed the debts 68 The defendant parties were: GECC; FAS; THI-Baltimore; GTCR Golder Rauner, LLC; FLTCH; Murray Forman; Leonard Grunstein; Rubin Schron; Ventas, Inc; Ventas Realty, LP; GTCR Fund VI, LP; GTCR Partners VI, LP; GTCR VI Executive Fund, L.P.; GTCR Associates VI; Edgar D. Jannotta, Jr; and THI-Holdings. Each count rested on 502 paragraphs of allegations. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 65 of 139 21-10587 Opinion of the Court 65 and liabilities of THI, THMI, and FLTCI as successors to those en- tities. Count II alleged that eleven of the defendant parties were the alter egos of THI, THMI, and FLTCI and therefore assumed their debts and liabilities. On October 24, 2013, the Trustee moved the Bankruptcy Court pursuant to Federal Rule of Bankruptcy Procedure 7024 69 for leave to intervene as a party plaintiff to bring additional claims that constitute the property of the Debtor’s estate. 70 The Bank- ruptcy Court granted the motion on October 31 and, on November 18, the Trustee filed a Complaint in Intervention which added a Count III to the Probate Estates’ complaint “to substantively con- solidate THMI into the Debtor’s bankruptcy estate.” Count III al- leged that “[t]there is such a unity of interest and ownership be- tween FLTCI and THMI that the independence of each corpora- tion had, in effect, never begun, and therefore adherence to the fic- tion of separate identities serves only to defeat justice.” The next day, in a Memorandum Opinion on Motions for Temporary Injunction and Motion to Approve Compromise, the 69 The Trustee stated in her motion that Rule 9024incorporates Federal. Rule Civil Procedure 24. But actually, Rule 7024 incorporates that rule, which al- lows intervention by a party that “has a claim or defense that shares with the main action a common question of law or fact.” Fed. R. Civ. P. 24(b)(1)(B). 70 On November 13, 2013, in a Memorandum Opinion on the Trustee’s Mo- tion to Enlarge Time Period to Bring Avoidance and Other Actions, the Bank- ruptcy Court extended the two-year limitations periods in sections 108 and 546 of the Bankruptcy Code to April 13, 2014. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 66 of 139 66 Opinion of the Court 21-10587 Bankruptcy Court concluded that “THMI’s fraudulent transfer and alter ego claims (if any) potentially belong to the estate” and en- joined the Probate Estates “from pursuing any proceedings supple- mentary or other collection efforts that could conceivably affect property of the estate.” In re Fundamental Long Term Care, Inc., 501 B.R. 770, 774, 784 (Bankr. M.D. Fla. 2013). The Bankruptcy Court also denied a motion to compromise made by the Trustee (involv- ing the claims of the Sasser, Jones, and Townsend Probate Estates) because one of its provisions would allow the Probate Estates to maintain their lawsuits against THMI, suggesting that the Bank- ruptcy Court viewed lawsuits against THMI as affecting property of FLTCI. Id. at 784. The Probate Estates amended their adversary complaint on December 19, 2013. This pleading consisted of 228 pages with 1201 paragraphs and 22 counts. It was a typical shotgun complaint in that each count incorporated all preceding paragraphs of the com- plaint such that Count XXII was an amalgamation of all counts. On March 14, 2014, the Bankruptcy Court, in a Memoran- dum Opinion on Motions to Dismiss, identified the counts and the claims they asserted. According to the Bankruptcy Court: The twenty-two counts in the complaint can be bro- ken down into eight claims for relief: one count for substantive consolidation by the Trustee (Count I), two counts for breach of fiduciary duty (Counts II & III), four counts for aiding and abetting a breach of fiduciary duty (Counts IV–VII), one count for succes- sor liability (Count VIII), two counts for piercing the USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 67 of 139 21-10587 Opinion of the Court 67 corporate veil (Counts IX & X), three counts for alter- ego liability (Counts XI–XIII), eight counts for (actual or constructive) fraudulent transfer (Counts XIV– XXI), and one count for conspiracy to commit a fraudulent transfer (Count XXII). In re Fundamental Long Term Care, Inc., 507 B.R. 359, 372 (Bankr. M.D. Fla. 2014). * * * Commentary Before passing on the sufficiency of any of the counts, though, the Bankruptcy Court shared the frustration Judge Mer- ryday expressed on November 8, 2013, in reviewing a complaint Wilkes filed in the Middle District of Florida on behalf of the Jack- son Estate against McGraw-Hill Companies, Inc.; Standard & Poor’s Financial Services, LLC; Credit Suisse Securities (USA), LLC; and Credit Suisse First Boston Mortgage Securities Corporation. See Jackson-Platts v. McGraw-Hill Cos., No. 8:13-cv-850-T-23MAP, 2013 WL 6440203, at *1 (M.D. Fla. Nov. 8, 2013). This complaint alleged that “the [Jackson] Estate holds a $110 million judgment against [THI], and [THMI] . . . which is uncollected.” Id. The com- plaint and charged the defendants with an expansive and enduring conspiracy among an ar- ray of conspirators, including S & P and Credit Suisse, who together allegedly undertook “a shell game” ef- fected by a scheme the complaint denominates a “Propco–Opco–Oldco” (P–O–O) business structure, designed to “loot the assets” of the THI entities, USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 68 of 139 68 Opinion of the Court 21-10587 among many other targets, and—as part of an “un- lawful and improper professional liability and general liability claim reduction strategy”—designed to ren- der the THI entities unable to satisfy the [Jackson] Es- tate’s judgment. The conspiracy allegedly sought to further the malevolent purpose of capturing enor- mous profit for the conspirators at the expense of nursing home occupants. Id. Judge Merryday described the complaint as “a confusing, am- biguous, generalized, conclusory, and uninformative (and intermit- tently melodramatic) paper” and dismissed it. 71 Id. at *4, *6. 71 The judge said a bit more: The complaint requires considerable energy to read with pa- tience and to attempt to understand with confidence. Alt- hough alleging an encompassing, malevolent, and predatory scheme, the complaint provides to the disinterested reader lit- tle or nothing on which to conclude that the allegations arise from a sound factual basis or, more to the point, that the pleader has even the least notion that the allegations arise from a sound factual basis. The constant attribution of acts to “the Defendants” and “the Co–Conspirators” disguises much infor- mation necessary to glean the meaning, if any, of the allega- tions. The almost entire absence of allegations of time, place, and manner and the pertinent absence of the identity of the particular actors is wholly disabling to the disinterested reader. These omissions are so impairing and so obvious that the dis- interested reader tends to doubt their inadvertence. Jackson-Platts v. McGraw-Hill Cos. , 2013 WL 6440203, at *4. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 69 of 139 21-10587 Opinion of the Court 69 On December 6, 2013, Wilkes voluntarily dismissed the case. 72 * * * Nevertheless, despite the deficiencies in this amended com- plaint, the Bankruptcy Court, “(particularly given the two years it ha[d] spent dealing with all of these parties in the main bankruptcy case) [wa]s able to glean the meaning of the critical allegations— albeit not without considerable energy.” In re Fundamental Long Term Care, Inc., 507 B.R. at 386. In ruling on the motions, the Bankruptcy Court indicated how it viewed the case. To the Bankruptcy Court, it was obvious that the main thrust of this case is the Plaintiffs’ claims for fraudulent transfer. In all, the Plaintiffs allege a total of eight counts for fraudulent transfer against the De- fendants (Counts XIV–XXI). ... The complaint unquestionably states claims for fraudulent transfer against THI–Baltimore and FLTCH. ... [T]he facts of the complaint plausibly allege that the transfer of THMI’s assets to FLTCH was for the ben- efit of Forman and Grunstein since they owned FLTCH—a closely held company. 72 Wilkes dismissed the case pursuant to Fed. R. Civ. P. 41(a)(1). USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 70 of 139 70 Opinion of the Court 21-10587 Id. at 380–81. In essence, the Bankruptcy Court viewed the Probate Estates’ sprawling and tangled amended complaint as simply a fraudulent transfer action. That said, it was clear to the Bank- ruptcy Court that the plaintiffs “fail[ed] to state a claim for relief under any alter-ego or veil-piercing theories.” Id. at 386. Plaintiffs did, however, state claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraudulent transfer, conspiracy to commit fraudulent transfer, and successor liability against a va- riety of defendants. Id. The Bankruptcy Court dismissed the remaining claims with- out prejudice and with leave to amend. Id. It granted leave with the expectation that the amendment would cure the many defects of the amended complaint. Id. In passing on the sufficiency of the claims asserted in the amended complaint, the Bankruptcy Court did not consider the defendants’ argument that the claims were time-barred. It stated that the defendants’ statute of limitations grounds for dismissing the adversary proceeding would be treated as affirmative defenses and addressed later See id. at 384. On April 4, 2014, the Probate Estates filed a second amended complaint with 32 claims—more claims than were contained in the first amended complaint. Instead of rehabilitating the dismissed claims and curing the previous complaint’s defects, the second amended complaint: (1) incorporated several hundred paragraphs of the first amended complaint by reference; (2) repleaded five claims the Bankruptcy Court had dismissed in their entirety; (3) USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 71 of 139 21-10587 Opinion of the Court 71 offered a new, but largely repetitive, restatement of several claims; and (4) added four new claims against several defendants. The defendants responded to the second amended com- plaint by filing motions to dismiss. 73 On June 26, 2014, the Bank- ruptcy Court dismissed the following claims: “alter ego liability (Count 23), aiding and abetting against Schron (Count 26), abuse of process (Count 27), conspiracy to commit abuse of process (Count 28), negligence (Count 29), fraudulent transfer against Schron (Count 30), civil conspiracy against GECC (Count 31), and avoidance of a post-petition transfer (Count 32).” The Bankruptcy Court then gave the plaintiffs seven days to file another amended complaint restating the claims that had not been dismissed. In the end, the claims that survived were: (1) a claim for sub- stantive consolidation of THMI and FLTCI; (2) two claims of breach of fiduciary duty; (3) six claims of aiding and abetting breach of fiduciary duty; (4) a request for declaratory relief against FLTCH, FAS, and THI-Baltimore on a successor liability theory; (5) 73 While the motions were pending, on June 2, 2014, the Trustee commenced an adversary proceeding against Troutman in the Bankruptcy Court. The complaint alleged the following: Count I, a claim for negligence in abandoning FLTCI in Jackson resulting in a $110 million judgment; Count II, negligence in failing to inform FLTCI and its sole shareholder of their right to independent counsel in connection with the March 2006 transaction—the bust-out scheme—in which FLTCI acquired THMI; Count III, fraudulent concealment of the harm the March 2006 transaction could cause FLTCI; Count IV, fraud— participating in a scheme that defrauded FLTCI, THMI, and their creditors; and Count V, negligent supervision of a Troutman employee. USCA11 Case: 21-10587 Document: 47-1 Date Filed: 09/18/2023 Page: 72 of 139 72 Opinion of the Court 21-10587 one claim each of actual and constructive fraudulent transfer; and (6) one claim of civil conspiracy to commit fraudulent transfer. The Bankruptcy Court concluded that “any further attempts by the Plaintiffs to amend their complaint would be futile or unfairly prej- udicial to the Defendants.” In re Fundamental Long Term Care, Inc., 512 B.R. 690, 707 (Bankr. M.D. Fla. 2014). On August 26, 2014, as the Bankruptcy Court and the parties were preparing for a trial on the remaining claims of the second amended complaint, the Bankruptcy Court denied the defendants’ motions for summary judgment without a hearing in a two-page order. 74 The trial of the case began on September 22, 2014. It ended fifteen days later, on October 7. On December 16, the Bankruptcy Court tentatively announced the following findings of fact and con- clusions of law: (1) FLTCI and THMI are consolidated and oug [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9840491. Public record. Not legal advice.