Opinion ID: 195734
Heading Depth: 3
Heading Rank: 2

Heading: Reasonableness of the court's factual findings

Text: 31 Defendants argue that there was no reasonable support for the district court's conclusions that (1) the F.D.I.C. was likely to succeed on the merits of its claims, (2) the F.D.I.C. would suffer harm in the absence of the appointment of the trustee, and (3) the balance of harms favored the F.D.I.C. 5 32
33 The F.D.I.C. brings its claims against the Elio Family Trust and the Seaview Realty Trust to avoid fraudulent transfers under 12 U.S.C. Sec. 1821(d)(17). To succeed on such claims, the F.D.I.C. must show that the transfer was made by the debtor of the financial institution within five years of the F.D.I.C.'s appointment as conservator or receiver, and that that debtor voluntarily or involuntarily made such transfer or incurred such liability with the intent to hinder, delay, or defraud the insured depository institution, the Corporation or other conservator, or any other appropriate Federal banking agency. 12 U.S.C. Sec. 1821(d)(17)(A). 34 Because direct evidence of fraudulent intent is often lacking, courts may have to rely on inferences from the circumstances surrounding a transaction, placing particular emphasis on certain indicia or badges of fraud. F.D.I.C. v. Anchor Properties, 13 F.3d 27, 32 (1st Cir.1993). Such indicia may commonly include, without limitation, 35 (1) actual or threatened litigation against the debtor; (2) a purported transfer of all or substantially all of the debtor's property; (3) insolvency or other unmanageable indebtedness on the part of the debtor; (4) a special relationship between the debtor and the transferee; and (5) retention by the debtor of the property involved in the putative transfer. 36 Id. [T]he confluence of several [indicia or badges of fraud] can constitute conclusive evidence of an actual intent to defraud, absent 'significantly clear' evidence of a legitimate supervening purpose. Max Sugarman Funeral Home, Inc. v. A.D.B. Investors, 926 F.2d 1248, 1253-54 (1st Cir.1991). 37 Here, the evidence amply supported the district court's finding that the F.D.I.C. was likely to succeed on the merits of its fraudulent transfer claims against the Elio Family Trust and the Seaview Realty Trust. The transfers were made in late 1990 and 1991. The evidence indicated that by the end of 1990, Carmen Elio was more than $6 million in debt, of which approximately $4.5 million was in default, and that by September 1991 he was also in default on obligations to Boston Trade Bank. There was evidence that these debts remained in default, with interest accruing, and that judgment subsequently entered for $1,257,730.67 on the F.D.I.C.'s action as liquidating agent of Boston Trade Bank. The district court could thus reasonably have found unmanageable indebtedness on Elio's part at the time of the transfers, and could reasonably have inferred that Elio would have been aware that litigation would inevitably follow. 38 It is unquestioned that the transferees had a special relationship with Carmen Elio. The two trusts were both created by Elio; family members served as the trustees of both; his children were the beneficiaries of the Elio Family Trust. 6 Nor do defendants dispute that the transfers were made for no consideration. 39 The court supportably found that the transfers to the trusts were not for legitimate tax planning purposes. Michael Davis, the tax attorney who had prepared the instruments establishing the Elio Family Trust, testified that, although he understood that the trust was being established for tax purposes and was aware of the initial transfer of approximately half of the FH Securities stock to the trust, Carmen Elio did not inform him of the transfer of the remaining stock only two days later. Davis also testified that he was not consulted on or aware of any subsequent transfers to the trust. His testimony also indicated that the stock transfers far exceeded the amount that would have been exempt under the gift tax annual exclusion. Davis speculated that the additional amount could have had other beneficial tax consequences, but conceded that the financial information provided to him by Carmen Elio was insufficient for him to know whether beneficial consequences would occur. Davis testified that he did not recall having seen Elio's 1989 or 1990 tax returns, was unaware to what extent Elio had made any prior gifts that would affect the level of his lifetime gift tax exemption, was not consulted with respect to payment of any gift tax on the transfers to the trust, and was unaware of Elio's transfer of property to the Seaview Realty Trust. The district court reasonably concluded that although counsel formed the trust for conventional gift tax purposes, Carmen Elio had not provided counsel with full and accurate financial information and immediately used the trust as a means to hinder, delay and defraud his creditors. 40 The record supports the finding that Carmen Elio continued to enjoy the benefits of the property even after the transfers were made. There was evidence that the Elio Family Trust made payments on Elio's obligation to Chase Manhattan Bank, and that the trust paid $260,000 directly to Elio; 7 there was also evidence that, even after the Florida property was transferred to the Seaview Realty Trust, Elaine Elio stated that the property was her winter residence, from which the court reasonably inferred that Carmen Elio had use of the property as well. 41 The record supports the district court's finding that Carmen Elio had in the past made false statements regarding his financial condition. His financial statement given to Chase Manhattan Bank on December 31, 1989, did not disclose his debt to Boston Trade Bank or the full amount of his debt to First Service. His financial statement given to Boston Trade Bank on July 15, 1990 did not disclose any of the debt then owed to First Service. Nor, the district court reasonably inferred, had Elio told Attorney Davis of the extent of his substantial debt. 42 As to the proportion of Carmen Elio's property that he had transferred, the district court reasonably found that Elio's own statements on his previous financial statements were not credible, and that there was no evidence of any property other than that which had been transferred. 43 Given the evidentiary support for these several badges of fraud, the district court reasonably concluded that the F.D.I.C. was likely to succeed on the merits of its claims against the two trusts. 44 The F.D.I.C. also sues FH Financial Services on its obligation under the $564,619.35 loan agreement executed July 1, 1991. There is sufficient evidence in the record to show that FH Financial Services undertook this obligation and is currently in default on it. Defendants do not claim otherwise and offer no defense. As a result, the district court was entitled to find that the F.D.I.C. would succeed on the merits of its claim against FH Financial Services. 45
46 The record supports the district court's conclusion that the F.D.I.C. would be harmed if no trustee were appointed--specifically, that the F.D.I.C.'s ability to fulfill its statutory objective of collecting on the assets of the failed banks would be impaired. There was evidence that assets of the Elio Family Trust had been expended on Carmen Elio's behalf, and that Elio had continued to enjoy the benefit of the assets transferred to the Seaview Realty Trust, thus permitting the inference that the assets of the trusts were still within Elio's control. The district court also reasonably found that the F.D.I.C. had been frustrated in its attempts to obtain discovery with respect to the assets of the two trusts and of FH Financial Services, 8 and with respect to the merits. The district court reasonably found that the information previously provided by Carmen Elio himself as to their assets was not credible. 47 At the hearing on February 3, 1994, the court heard representations of counsel that FH Financial Services had once been owned by Carmen Elio, that it may subsequently have been transferred to one of Elio's children, that its present ownership was unknown, that its only known asset was a third mortgage on the Elios' home in Osterville, Massachusetts, that the current state of its business was unknown, and that the F.D.I.C. still sought discovery from it. The court extended the appointment of the trustee to FH Financial Services to verify its assets and ensure its compliance with the court's earlier order. As there was a void of information concerning FH Financial Service's business, assets and ownership, the court could reasonably have found that without the extension of the trustee to FH Financial Services, the F.D.I.C.'s ability to protect its rights and pursue its claim would be impaired. 48 We hold that there is ample evidence of harm in the record to satisfy the reduced standard required by 12 U.S.C. Sec. 1821(d)(18) and (19). 49
50 Finally, the record supports the district court's conclusion that the balance of harms weighed in the F.D.I.C.'s favor. Defendants' contention that the appointment of a trustee would jeopardize the Elio Family Trust's license to sell securities was rejected by the district court and is not pursued on appeal. Defendants cite only the costs of trusteeship itself and the deprivation of ongoing control over their property as sources of harm. Though these harms are not negligible, the district court did not abuse its discretion in finding that they were outweighed by the potential harm to the F.D.I.C.'s ability to protect the assets of the failed banks. Moreover, because the likelihood of plaintiff's ultimate success on the merits is great, less weight is to be given to the defendant's prospective loss. S.E.C. v. World Radio Mission, Inc., 544 F.2d 535, 541-42 (1st Cir.1976). 51