Opinion ID: 2686105
Heading Depth: 3
Heading Rank: 1

Heading: Settlement payments to the Trustee

Text: TD Bank contends that the district court erred in allowing Coquina to claim as damages the amount it agreed to pay in settlement to the RRA estate. We disagree. Shortly before trial, Coquina and the Trustee entered into a settlement agreement under which Coquina agreed to pay the RRA estate $12.5 million upfront and to give the estate a portion of Coquina’s recovery in this case, up to a maximum of $18.6 million. The Trustee agreed in return to release all claims against Coquina or its investors. At trial in this case, Coquina requested, and the jury awarded, $32 million in compensatory damages, $25 million of which was for settlement payments to the Trustee. 15 In GAB Business Services., Inc. v. Syndicate 627, we held that a plaintiff seeking to claim as damages under Florida law the amount paid in settlement to a third party must first prove its “actual or potential liability” to that third party. 809 F.2d 755, 760–61 (11th Cir. 1987). We required proof only of potential liability where the plaintiff informed the defendant of a proposed settlement and the defendant failed to object. See id. at 760. If, however, the defendant was not given an opportunity to review or participate in the settlement, we required “a demonstration of actual as opposed to potential liability.” Id. In either case, we 15 The other approximately $7 million represented Coquina’s actual losses (before the Trustee’s “clawback”) in Rothstein’s Ponzi scheme—i.e., $6.7 million plus interest. 28 Case: 12-11161 Date Filed: 07/29/2014 Page: 29 of 41 said, the plaintiff “could only recover so much of the settlement as it proved was reasonable in amount . . . and a consequence of [the defendant’s misconduct].” Id. at 761 (internal citation omitted). TD Bank’s counsel appeared at the settlement-approval hearing and did not oppose the settlement, even though he had at least two opportunities to do so. Because TD Bank “received adequate protection during the settlement negotiations,” Coquina needed to prove only its “potential liability” to the Trustee. Id. Coquina met this burden. It produced evidence showing that it received $28.1 million from Rothstein within ninety days of RRA’s bankruptcy filing. This amount is, of course, potentially avoidable and recoverable by a bankruptcy trustee as a preferential transfer under 11 U.S.C. § 547. See infra. Coquina has also sufficiently demonstrated that the $25 million it sought and successfully recovered from TD Bank—i.e., the amount Coquina asked the jury to award that was attributable to the settlement with the Trustee—was “reasonable in amount” and was “a consequence of” TD Bank’s alleged misconduct. GAB Bus. Servs., 809 F.2d at 761. “Whether a settlement is reasonable depends upon what a reasonably prudent person in the position of the defendant [here, Coquina] would have settled for on the merits of the plaintiff’s [here, the Trustee’s] claim,” taking into account factors such as “the extent of damages” and “the certainty of liability.” Id. at 761 n.10 (internal quotation marks omitted). Because circuit 29 Case: 12-11161 Date Filed: 07/29/2014 Page: 30 of 41 courts have routinely allowed bankruptcy trustees to “claw back” and recover transfers made to investors of Ponzi schemes within ninety days of the filing of the bankruptcy petition, see, e.g., In re M & L Bus. Mach. Co., 84 F.3d 1330, 1339–40 (10th Cir. 1996); In re Bullion Reserve of N. Am., 836 F.2d 1214, 1216–19 (9th Cir. 1988), Coquina would almost certainly be liable to the Trustee for the entire $28.1 million that it received from Rothstein within ninety days of RRA’s bankruptcy filing. Coquina’s decision to settle with the Trustee, and to seek from TD Bank $25 million in connection therewith, was therefore patently reasonable. Furthermore, the $25 million was clearly a loss to Coquina caused by TD Bank’s tortious conduct. It was approximately $3 million less than the $28.1 million that Rothstein had transferred to Coquina pursuant to the Ponzi scheme that TD Bank aided and abetted, which amount the Trustee could have fully “clawed back” from Coquina because it had been transferred within ninety days before RRA filed for bankruptcy. For the foregoing reasons, Coquina has amply satisfied the requirement of GAB Business Services—i.e., that its settlement with the Trustee was pursuant to its potential liability to the Trustee, that its settlement was reasonable, and that the $25 million amount of the settlement that Coquina sought to recover from TD Bank was a loss to Coquina caused by TD Bank’s aiding and abetting the Ponzi scheme. 30 Case: 12-11161 Date Filed: 07/29/2014 Page: 31 of 41 Against these points, TD Bank makes several arguments that we find unpersuasive. We reject as meritless TD Bank’s first argument that Coquina failed to show that its settlement payments to the Trustee constituted losses attributable to TD Bank’s misconduct. The $25 million that Coquina was awarded in this case was clearly attributable to the Trustee’s claim “clawing back” and recovering for the RRA estate the preferential transfers made by Rothstein to Coquina as part of the Ponzi scheme. Second, TD Bank asserts that the settlement amount was “inherently unreasonable” because a portion of the settlement was conditioned on Coquina’s recovery in this case. TD Bank has not cited, and our research has not found, any case from Florida that addresses a similar situation involving a conditional settlement like the one in this case. Florida case law, however, shows beyond doubt that “settlements are highly favored and will be enforced whenever possible.” Robbie v. City of Miami, 469 So. 2d 1384, 1385 (Fla. 1985); accord Antar v. Seamiles, LLC, 994 So. 2d 439, 442 (Fla. Dist. Ct. App. 2008). We therefore conclude that it is unlikely that the Florida Supreme Court would adopt the bright-line rule posited by TD Bank, given that an absolute bar against indemnity for conditional settlements could “force [plaintiffs] to turn down advantageous settlement offers.” Trs. of the Univ. of Pa. v. Lexington Ins. Co., 815 F.2d 890, 901–02 (3d Cir. 1987) (applying Pennsylvania law and upholding 31 Case: 12-11161 Date Filed: 07/29/2014 Page: 32 of 41 the validity of conditional settlements “subject to the requirements of good faith and reasonableness”); cf. Hitt v. Cox, 737 F.2d 421, 426 (4th Cir. 1984) (applying Virginia law and recognizing that parties negotiating the conditional portion of two-tiered settlements “no longer have adverse interests,” but holding that conditional settlements are “presumptively,” not inherently, unreasonable). Third, TD Bank argues that Coquina’s losses resulting from the settlement are too speculative to support an award of damages. TD Bank points out that, under the settlement agreement, Coquina has an allowed unsecured claim in the bankruptcy case for amounts paid pursuant to the settlement. In other words, at the time of trial, there was a possibility that some or all of the settlement payment from Coquina would be returned to Coquina by the RRA estate. It is true that a plaintiff cannot recover for losses that are speculative or uncertain. See Aldon Indus., Inc. v. Don Myers & Assocs., Inc., 517 F.2d 188, 191 (5th Cir. 1975) (applying Florida law). 16 But to our knowledge, no court has held that an amount of loss is speculative just because the loss resulted from the surrender of a preference and the injured party has an unsecured claim in the bankruptcy case for the property surrendered. We cannot conclude that this factor indicates that the damages awarded by the jury were speculative. 16 The Eleventh Circuit in an en banc decision, Bonner v. City of Pritchard, 661 F.2d 1206, 1209 (11th Cir. 1981), adopted as precedent the decisions of the former Fifth Circuit rendered prior to October 1, 1981. 32 Case: 12-11161 Date Filed: 07/29/2014 Page: 33 of 41 We therefore conclude that the district court properly permitted Coquina to claim as damages the amount that it paid—and will pay upon prevailing in this case—in settlement to the RRA estate. The evidence sufficiently established that the $25 million that Coquina sought, and that the jury awarded, in connection with the settlement was reasonable in amount and was attributable to TD Bank’s alleged misconduct. We note, however, that post-trial developments suggest that: (1) the RRA estate has returned a substantial portion of the $12.5 million that Coquina had already paid pursuant to the settlement; (2) the balance of the $12.5 million will likely be returned to Coquina in the near future; and (3) the portion of Coquina’s recovery from this case that the estate would receive under the settlement may also be returned. Consequently, there is the possibility of a double recovery by Coquina—recovering $25 million from TD Bank as damages in this case and receiving $25 million from the RRA estate from the unsecured claim in the bankruptcy case. There is already a Rule 60(b) motion pending in the district court raising the issue of whether the damage award should be reduced in light of these post-trial developments. We believe that the Rule 60(b) proceeding is the proper vehicle for resolving this and related issues. If the district court determines that a reduction in compensatory damages is appropriate, the court should also consider whether a proportionate reduction of punitive damages is required.