Court Opinion

ID: 2769633
Source: CourtListenerOpinion
Date Created: 2015-01-13 22:01:13.818957+00
Date Added: 2024-06-11T10:46:33.174728
License: Public Domain

Case: 13-15349       Date Filed: 01/13/2015      Page: 1 of 12

                                                                                 [PUBLISH]

                 IN THE UNITED STATES COURT OF APPEALS

                            FOR THE ELEVENTH CIRCUIT
                              ________________________

                                    No. 13-15349
                              ________________________

                         D.C. Docket No. 0:10-cv-61555-CMA

NATIONAL MARITIME SERVICES, INC.,

                                                                        Plaintiff-Appellee,
                                            versus

GLENN F. STRAUB,
BURRELL SHIPPING COMPANY, LLC,

                                                                    Defendants-Appellants.

                              ________________________

                      Appeal from the United States District Court
                          for the Southern District of Florida
                             _______________________

                                     (January 13, 2015)

Before WILLIAM PRYOR and JORDAN, Circuit Judges, and WALTER, ∗ District
Judge.

WILLIAM PRYOR, Circuit Judge:

∗
 Honorable Donald E. Walter, United States District Judge for the Western District of
Louisiana, sitting by designation.
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      This appeal requires us to decide whether the district court had ancillary

jurisdiction over a supplementary proceeding to avoid a fraudulent transfer by a

judgment debtor. National Maritime Services, Inc., sued Burrell Shipping

Company, LLC, for amounts owed for management and custodial services

provided for a vessel. After National Maritime obtained a judgment in its favor, it

discovered that Burrell Shipping had transferred all of its assets to its owner, Glenn

F. Straub. National Maritime then initiated a supplementary proceeding, Fed. R.

Civ. P. 69; Fla. Stat. § 56.29(6), to void the transfer, and the district court later

entered a judgment against Straub. Because the district court had ancillary

jurisdiction over this supplementary proceeding and the record supports the finding

of a fraudulent transfer, we affirm.

                                  I. BACKGROUND
      National Maritime filed a complaint in the district court against Burrell

Shipping and Straub for breach of contract and unjust enrichment. The claims

arose from management and custodial services that National Maritime had

provided for the M/V/ Island Adventure, a vessel owned by Burrell Shipping. The

district court had subject matter jurisdiction based on the maritime nature of the

controversy, 28 U.S.C. § 1333. While that action was pending, Burrell Shipping

sold the vessel, its only asset, to a boat scrapper for $2,249,000. Burrell Shipping

then transferred the proceeds of the sale to Straub.

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      Straub is the sole owner of Burrell Shipping and its president, chief

operating officer, and managing member. Straub is also the director and president

of Burrell Industries, Inc. To facilitate the purchase of the vessel, Straub loaned

Burrell Industries $3.2 million in exchange for a promissory note. Burrell

Industries in turn loaned Burrell Shipping $3.2 million by a promissory note.

Burrell Shipping then granted Burrell Industrials a mortgage for the vessel to

secure the promissory note and purchased the vessel from the United States

Marshals Service.

      After a bench trial in June 2011, the district court entered a final judgment in

favor of National Maritime and against Burrell Shipping in the amount of

$99,660.05, plus interest. But the district court ruled that Straub was not

individually liable to National Maritime. National Maritime attempted to execute

on its judgment, but was unsuccessful because Burrell Shipping had no assets.

      National Maritime then initiated a supplementary proceeding against Straub

in “accord[ance] with the procedure of the state where the court is located.” Fed. R.

Civ. P. 69(a). Based on a Florida law that permits a trial court to void a transfer of

property that “has been made . . . by the judgment debtor to delay, hinder, or

defraud creditors,” Fla. Stat. § 56.29(6)(b), National Maritime asked the district

court to void the transfer of proceeds from Burrell Shipping to Straub.

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      After our decision in Jackson-Platts v. General Electrical Capital

Corporation, 727 F.3d 1127 (11th Cir. 2013), the district court raised sua sponte

the question whether it had subject-matter jurisdiction to entertain the

supplementary proceeding against Straub. After the parties submitted memoranda

of law, the district court ruled that it had subject-matter jurisdiction. The district

court explained that it had “ancillary jurisdiction [because] . . . National Maritime

is seeking assets of the Judgment Debtor, Burrell [Shipping], that are found in the

hands of a third party, Straub.” Nat’l Maritime Servs., Inc. v. Straub, 979 F. Supp.
2d 1322, 1326 (S.D. Fla. 2013).

      The district court found that before the sale of the vessel Burrell Shipping

had never generated its own revenues and had operated on loans or funds provided

by Burrell Industries. When Burrell Shipping sold the vessel, its liabilities

“exceeded its assets by at least $4 million.” Id. To close the sale, Burrell Shipping

had to deliver the vessel to the buyer free of all encumbrances. Burrell Industries

agreed to release the mortgage in exchange for the proceeds of the sale, but the

proceeds were transferred directly to Straub, not Burrell Industries.

      The district court found that Straub is an insider of Burrell Shipping and of

Burrell Industries. The district court also found that Straub “controlled and

received the transfer” and failed to provide consideration for the transfer. Id. The

district court determined that, “[a]t the time of the transfer, Straub was aware or

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should have been aware that Burrell[ Shipping]’s liabilities exceeded its assets, he

was aware or should have been aware of the pending lawsuit against Burrell

[Shipping] and himself, and he was aware or should have been aware that Burrell

[Shipping] owed National Maritime in excess of $90,000.00.” Id.

      The district court ruled that the transfer of proceeds was fraudulent on two

grounds. First, the district court found that the transfer was made with “actual

intent to hinder, delay, or defraud,” Fla. Stat. § 726.105(1)(a). Straub, 979 F. Supp.
2d at 1327–29. Second, the district court found that the transfer was made to an

insider for an antecedent debt when the insider should have known that the debtor

was insolvent, Fla. Stat. § 726.106(2). Straub, 979 F. Supp. 2d at 1329–30. The

district court ruled that the transfer was void and entered judgment against Straub

in the amount of the final judgment against Burrell Shipping.

                         II. STANDARDS OF REVIEW

      Two standards of review govern this appeal. First, we review de novo issues

of subject-matter jurisdiction. Jackson-Platts, 727 F.3d at 1133. Second, “[a]fter a

bench trial, we review the district court’s conclusions of law de novo and the

district court’s factual findings for clear error.” Crystal Entm’t & Filmworks, Inc.

v. Jurado, 643 F.3d 1313, 1319 (11th Cir. 2011) (internal quotation marks and

citation omitted).

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                                 III. DISCUSSION

      This appeal presents two issues. First, we must decide whether the ancillary

jurisdiction of the district court extended to the supplementary proceeding initiated

by National Maritime. Second, we must decide whether the district court erred

when it determined that Burrell Shipping fraudulently transferred the proceeds to

Straub. We address each issue in turn.

A. The District Court Had Subject-Matter Jurisdiction to Hear the Supplementary
                   Proceeding Initiated by National Maritime.

      The parties agree that ancillary jurisdiction is the only possible basis for

subject-matter jurisdiction over the supplementary proceeding. This Court has not

addressed when a supplementary proceeding falls within the ancillary jurisdiction

of a district court. We conclude that the district court had ancillary jurisdiction

over this supplementary proceeding.

      Ancillary jurisdiction exists in two circumstances: “(1) to permit disposition

by a single court of claims that are, in varying respects and degrees, factually

interdependent; and (2) to enable a court to function successfully, that is, to

manage its proceedings, vindicate its authority, and effectuate its decrees.”

Peacock v. Thomas, 516 U.S. 349, 354, 116 S. Ct. 862, 867 (1996) (quoting

Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 379–80, 114 S. Ct. 1673, 1676

(1994)). The latter category encompasses “a broad range of supplementary

proceedings involving third parties to assist in the protection and enforcement of
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federal judgments—including attachment, mandamus, garnishment, and the

prejudment avoidance of fraudulent conveyances.” Id. at 356, 116 S. Ct. at 868

(citations omitted). But ancillary jurisdiction does not extend to “a new lawsuit to

impose liability for a judgment on a third party.” Id. at 359, 116 S. Ct. at 869.

       The decision of the Supreme Court in Peacock is instructive. After the

plaintiff in Peacock won a judgment against his employer, the plaintiff initiated a

supplementary proceeding to pierce the corporate veil of his employer to reach

assets of a third party. Id. at 351–52, 116 S. Ct. at 865–66. The Supreme Court

held that ancillary jurisdiction did not extend to the supplementary proceeding

because the effect of the plaintiff’s claim would be “to impose liability for a money

judgment on a person not otherwise liable for the judgment.” Id. at 351, 116 S. Ct.

at 865. As the Court explained, the claim was more than an attempt “to force

payment . . . or to void postjudgment transfers.” Id. at 357 n.6, 116 S. Ct. at 868

n.6.

       In contrast with Peacock, the district court had ancillary jurisdiction over

this supplementary proceeding because National Maritime sought to disgorge

Straub of a fraudulently transferred asset, not to impose liability for a judgment on

a third party. Unlike the defendant in Peacock, Straub is not personally liable for

the judgment against Burrell Shipping. Id. at 351, 116 S. Ct. at 865. Straub’s

liability is limited instead to the proceeds that Burrell Shipping fraudulently

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transferred to him. If the value of the transferred proceeds was less than the value

of the judgment against Burrell Shipping, National Maritime would have no

recourse against Straub for the excess amount. The claim asserted by National

Maritime is not “a new lawsuit [that] impose[s] liability for a judgment on a third

party.” Id. at 359, 116 S. Ct. at 869.

      Our decision follows the approaches of other authorities. Both the Second

and Ninth Circuits have upheld the exercise of ancillary jurisdiction in this

circumstance, Epperson v. Entm’t Express, Inc., 242 F.3d 100, 103–07 (2d Cir.

2001); Thomas, Head & Griesen Emps. Trust v. Buster, 95 F.3d 1449, 1453–55

(9th Cir. 1996), and the First and Tenth Circuits have suggested in dicta that they

would reach the same conclusion, Ellis v. All Steel Const., Inc., 389 F.3d 1031,

1034 (10th Cir. 2004); U.S.I. Props. Corp. v. M.D. Const. Co., 230 F.3d 489, 498

(1st Cir. 2000). Our decision also comports with the ruling in Dewey v. West

Fairmont Gas Coal Company, where the Supreme Court approved of the exercise

of ancillary jurisdiction over a claim to avoid a fraudulent transfer of assets to a

third party. 123 U.S. 329, 332–33, 8 S. Ct. 148, 150 (1887). Although the claim to

avoid the fraudulent transfer in Dewey was asserted before the entry of a judgment

against the transferor, id. at 332, 8 S. Ct. 149–50, we see no reason why the result

should be different when the claim is asserted after the entry of a judgment. See

Buster, 95 F.3d at 1455. “[T]he fact that the joinder . . . took place after judgment

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is not dispositive of whether the court has jurisdiction to effectuate its judgment by

recapturing the judgment debtor’s fraudulent conveyances.” Id.; see also Swift &

Co. Packers v. Compania Colombiana Del Caribe, S.A., 339 U.S. 684, 694–95, 70
S. Ct. 861, 867–68 (1950) (“The basis of admiralty’s power is to protect its

jurisdiction from being thwarted by a fraudulent transfer, and that applies equally

whether it is concerned with executing its judgment or authorizing an attachment

to secure an independent maritime claim.”).

      Straub argues that our holding in Jackson-Platts establishes that any

supplementary proceeding brought under section 56.29(6) is a new action that

seeks to impose new liability on a third party, but we disagree. Jackson-Platts did

not foreclose the exercise of ancillary jurisdiction in this circumstance. Although

we described the supplementary proceeding in Jackson-Platts as a “‘suit[]

involving a new party litigating the existence of a new liability,’” 727 F.3d at 1135

(quoting Butler v. Polk, 592 F.2d 1293, 1296 (5th Cir. 1979)) (alteration in

original), that description does not apply to this supplementary proceeding. In

Jackson-Platts, the plaintiff brought the supplementary proceeding to impose

liability for the entire judgment on new defendants who had conspired to strip the

original defendants of all of their assets. Id. at 1132. In contrast, National Maritime

sought to recover only a fraudulently transferred asset from a third party.

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    B. The District Court Did Not Err When It Concluded that Burrell Shipping
           Fraudulently Transferred the Proceeds of the Sale to Straub.

      Straub argues that the district court erred when it ruled that the transfer of

the proceeds was fraudulent. To determine whether a transfer is fraudulent within

the meaning of section 56.29(6)(b), Florida courts look to the Uniform Fraudulent

Transfer Act, id. §§ 726.101–.112. Morton v. Cord Realty, Inc., 677 So. 2d 1322,

1324 (Fla. Dist. Ct. App. 1996). The Act provides that a preferential transfer to an

insider is void if the “claim arose before the transfer was made, . . . the transfer was

made to an insider for an antecedent debt, the debtor was insolvent at that time, and

the insider had reasonable cause to believe that the debtor was insolvent.” Fla. Stat.

§ 726.106(2). The district court found that all of these conditions were met, Straub,
929 F. Supp. 2d at 1330, and Straub does not contest these findings.

      Straub argues that National Maritime failed to establish that the transfer was

made “without reasonably equivalent value,” but this argument misses the boat.

Reasonably equivalent value is not an element of proof under section 726.106(2) or

any associated defenses, see Fla. Stat. § 726.109. Although subsection (1) of

section 726.106 provides that a transfer is fraudulent if it occurred “without

receiving a reasonably equivalent value,” subsection (1) is unrelated to whether a

transfer to an insider is fraudulent under subsection (2). Id. § 726.106.

      Straub also argues that the transfer is not voidable because he gave “new

value” for the transfer, id. § 726.109(6), but this argument too fails. Section
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726.109(6) provides that a transfer to an insider is not voidable “[t]o the extent the

insider gave new value to . . . the debtor after the transfer was made.” Id. §

726.109(6). Straub presented no evidence that he gave any value after the transfer

was made; he instead proved only that he released the antecedent debt. But section

726.109(6) applies when an insider gives new value after a transfer. See Unif.

Fraudulent Transfer Act § 8 cmt. 6 (2006) (explaining that section 726.109(6) “is

adapted from § 547(c)(4) of the Bankruptcy Code, which permits a preferred

creditor to set off the amount of new value subsequently advanced against the

recovery of a voidable preference”).

      The district court did not err. The record supports its decision that the

transfer to Straub was a fraudulent transfer to an insider, Fla. Stat. § 726.106(2).

And we need not address whether the transfer alternatively was fraudulent because

Burrell Shipping “inten[ded] to hinder, delay, or defraud,” id. § 726.105(1)(a).

                                IV. CONCLUSION

      We AFFIRM the judgment in favor of National Maritime and against

Straub.

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JORDAN, Circuit Judge, concurring.

      I join the Court’s opinion in full. Although there is language in Jackson-

Platts v. General Electric Capital Corp., 727 F.3d 1127, 1134-39 (11th Cir. 2013),

which can be read as cutting against a finding of ancillary jurisdiction here, the

case is distinguishable because the plaintiff there, though seeking to void a

fraudulent transfer, wanted to hold the new parties liable for the entire underlying

judgment. Here, as the Court points out, National Maritime’s claim against Mr.

Straub in the supplementary proceeding was limited to the value of the

fraudulently transferred assets. We should not read Jackson-Platts more broadly

given that the Supreme Court has twice held that district courts have jurisdiction to

entertain ancillary proceedings challenging fraudulent transfers by defendants. See

Swift & Co. Packers v. Compania Colombiana Del Caribe, S.A., 339 U.S. 684,

690-95 (1950) (fraudulent transfer of vessel which had been attached pre-judgment

in initial admiralty action); Dewey v. West Fairmont Gas Coal Co., 123 U.S. 329,

332-33 (1887) (pre-judgment fraudulent transfer of assets to non-diverse

defendant).

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