Opinion ID: 72669
Heading Depth: 5
Heading Rank: 2

Heading: Without receiving a reasonably equivalent

Text: value in exchange for the transfer or obligation, and the debtor:
business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
should have believed that he or she would 13 incur, debts beyond his or her ability to pay as they became due. Fla. Stat. § 726.105(1). The Levines posit that, notwithstanding the language of this statutory provision concerning fraudulent transfers or transactions, Florida law historically has held legally-created exemptions to be sacrosanct and has declined to place an exempt financial instrument or arrangement –regardless of the motivation of the debtor – within the reach of creditors. The Levines are correct that such a body of decisional law has evolved in Florida, although within the context of the constitutionally-protected homestead exemption rather than the statutorily-created exemption for annuities. In Hill v. First Nat’l. Bank of Marianna, 84 So. 190, 193 (1920), for example, the Florida Supreme Court refused to subject property protected by the homestead exemption to the payment of debts, noting that to do so “would permit defendants to do indirectly what they are enjoined from doing directly, and thereby defeat the beneficial purpose of the law.” Similarly, in Heddon v. Jones, 154 14 So. 891, 891-92 (1934), the Florida Supreme Court again declined to interfere with the homestead exemption regardless of the debtor’s intent: The fact that the appellee may have moved on the homestead property prior to judgment for the express purpose of ‘homesteading’ it is not legal fraud which per se affords ground for holding the homestead claim subordinate to the lien of a judgment rendered in a suit pending prior to the time the homestead character attached. Nor is it material that the property later claimed as a homestead was held out as a possible asset upon which credit was obtained before the homestead attempt was perfected. See also West Fla. Grocery Co. v. Teutonia Fire Ins. Co., 77 So. 209, 212 (1917) (stating that the homestead exemption “applies not only to formal and technical process, but to any judicial proceedings, of law or in equity, which seek the appropriation of the property to the payment of debts.”). The trustee, on the other hand, points to more recent decisional law applying §726.105 specifically to bankruptcy cases analogous 15 to this one: In re Gefen, 35 B.R. 368 (Bankr. S.D. Fla. 1984), for instance, concerned a finding by the bankruptcy court that the debtor had transferred money from an individual retirement account into an annuity for the purpose of defrauding a creditor. In upholding the bankruptcy court’s application of § 726.105, the district court in Gefen noted that [t]he debtor could have chosen numerous investment vehicles with high rates of return for the proceeds of his I.R.A., or he could have applied them toward payment of the Final Judgment, but instead he chose a rollover into a deferred annuity. . . . .... The Court finds that the aforementioned transfer of funds made by the debtor had the legal effect and result of hindering, delaying, or defrauding creditors . . . Accordingly, the transfer of funds is void and of no effect and the trustee may withdraw the cash value of the debtors’ I.R.A . . . . Gefen, 35 B.R. at 372; see also In re Marks, 131 B.R. 220, 222 (S.D. Fla. 1991) (rejecting as lacking merit debtor’s contention that debtor’s “termination of his Keogh accounts and his subsequent use 16 of liquidated funds to purchase the two annuity contracts” did not constitute a transfer subject to Florida prohibition on fraudulent transfers.), aff’d, 976 F.2d 743 (11th Cir. 1992). We note that the sources of authority cited by the Levines and the trustee are, to a degree, in tension: Florida law appears to view exemptions (or more specifically, the homestead exemption, not at issue in this case) as inviolable, regardless of their provenance; Florida courts also, however, have refused to countenance the purchase of an exempt instrument such as an annuity for the purpose -- or with the result -- of defrauding creditors to a bankruptcy estate. While acknowledging this tension, we conclude that the Gefen case more closely resembles the circumstances with which we are confronted in the instant action and effectively should govern our resolution of this issue. Although we must respect the reluctance of Florida courts to interfere with exempt assets, we also must be guided by those courts that have relied on the unambiguous 17 language of § 726.105 to set aside transfers from non-exempt to exempt status when such transfers were effected in order to defraud creditors. The Levines’ citation to precedent regarding the sacred nature of the homestead exemption, while noteworthy, ultimately has little bearing on this case. As is apparent from the complaint, the trustee does not challenge the exempt status of the annuities and does not seek to reverse any rulings as to the exemption; rather, as articulated repeatedly by the trustee, the thrust of this action is to set aside the transfer itself and return the transferred funds to the bankruptcy estate. Although the Levines correctly observe that the distinction between setting aside a transfer as fraudulent and declaring an otherwise exempt asset to be non-exempt achieves, from their perspective, the same outcome, it is also a very real distinction that is provided for by Florida law, as embodied in § 726.105, and that has been applied by both Florida bankruptcy courts and federal district courts. We similarly find that there exists an arguable distinction between the act of transferring funds from 18 non-exempt to exempt status and the exempt nature of the transferred funds. Where, as in this case, there is an allegation that the transfer itself was fraudulent and should therefore be set aside (as opposed to an allegation that the transfer was fraudulent and the assets therefore should be declared non-exempt), § 726.105 may properly be invoked. c. Legislative amendments The Levines next argue that, because a 1993 amendment to the Florida Code anticipates precisely the circumstance present in this case, we necessarily must infer that, prior to the enactment of this amendment, the legislature had not provided a remedy for this type of fraud. The amendment to which the Levines refer indeed addresses the conversion of an asset from non-exempt to exempt status and states, in pertinent part: Any conversion by a debtor of an asset that results in the proceeds of the asset becoming exempt by law from the claims of a 19 creditor of the debtor is a fraudulent asset conversion as to the creditor, whether the creditor’s claim to the asset arose before or after the conversion of the asset, if the debtor made the conversion with the intent to hinder, delay, or defraud the creditor. Fla. Stat. § 222.30(2). Although the language of this provision, enacted after the events giving rise to this action occurred, embraces the allegations set forth in the trustee’s complaint, we decline to assume or infer from this fact alone that, prior to the amendment’s enactment, the Florida legislature did not intend a remedy to exist for fraudulent transfer of funds from non-exempt to exempt status; in fact, at least one court has held that, prior to the adoption of § 222.30, the statutory provision at issue in this case, § 726.105, governed any type of fraudulent transfer including those transfers resulting in exempt funds. In re Davidson, 178 B.R. 544 (S.D. Fla. 1995), involved the debtors’ transfer of funds held in a non-exempt joint bank account to an exempt annuity one day before final judgment 20 entered against the debtors in a pending lawsuit. In reversing the bankruptcy court’s order overruling the trustee’s objection to the debtors’ claimed annuity exemption, the district court noted: Because Section 222.30 only applies to a transfer or conversion occurring on or after October 1, 1993, and the Annuity purchase in this case occurred prior to this date, the Bankruptcy Court concluded that: At the time this case was initiated, there was no Florida law providing that a debtor forfeits her right to an exemption as a consequence for fraudulent conduct. This legal conclusion is incorrect in light of the following statutes. Florida Statutes § 726.105 and § 726.108, effective at the time of the Annuity purchase, would appear to enable Ameritrust to avoid the transfer or Annuity purchase. Id. at 552 (internal citation omitted). We conclude, as did the district court in Davidson, that prior to the adoption of § 222.30, § 726.105 governed allegations of fraudulent transfers regardless of whether the challenged transfers resulted in exempt assets. Given the tension in the decisional law, 21 identified earlier, concerning the absolute nature of exemptions and the possibility of distinguishing the act of transferring funds from their eventual exempt status, thereby avoiding transfers that create exemptions we construe § 222.30 to be an effort by the legislature to provide a clearer, more direct remedy to fraudulent transfers of the sort alleged in this case. Moreover, § 222.30 expressly adopts the definitional section from § 726 “unless the application of a definition would be unreasonable.” Fla. Stat. § 222.30(1). This explicit cross-referencing of the two statutory provisions further suggests not only that they are to be read in tandem but, more importantly, that § 222.30 is a subset of the causes of action outlined in § 726. We determine that the legislative amendment embodied in § 222.30 does not preclude reliance on § 726.105 regarding causes of action that accrued prior to the amendment’s enactment. d. Statute of Limitations 22 We briefly address the Levines’ contention that the trustee is barred from contesting the exempt status of the annuities by virtue of the applicable statute of limitations. The Federal Rules of Bankruptcy Procedure mandate that objections to listing of property to be claimed as exempt must be filed within thirty days after the creditors’ meeting. Fed. R. Bank. P. 4003. As previously noted, however, the trustee in this action does not seek to contest the exemptions per se; rather, this is an adversary action filed pursuant to 11 U.S.C. § 544, which permits the trustee to “avoid any transfer of the property of the debtor . . . .” 11 U.S.C. § 544(a). The Bankruptcy Code provides that an adversary action filed under this provision may be filed within two years after the entry of the order for relief. See 11 U.S.C. § 546(a)(1)(A). It is undisputed that the trustee has complied with the two-year limitation on the filing of this action. Having determined that the statute of limitations governing objections to exemptions does not control this case, we conclude 23 that the trustee’s action to contest the transfer of funds is not time-barred. e. Factual determinations Finally, our independent review of the record indicates that the bankruptcy court did not clearly err in finding that the Levines purchased the annuities in question with the intent to hinder or defraud a known creditor. In determining whether a debtor actually intended to hinder, delay, or defraud a creditor, a bankruptcy judge may consider, inter alia, whether: (a) The transfer or obligation was to an insider. (b) The debtor retained possession or control of the property transferred after the transfer.