Court Opinion

ID: 804413
Source: CourtListenerOpinion
Date Created: 2012-07-16 15:32:05+00
Date Added: 2024-06-11T18:00:11.669285
License: Public Domain

Case: 11-12114         Date Filed: 07/13/2012   Page: 1 of 9

                                                                        [DO NOT PUBLISH]

                      IN THE UNITED STATES COURT OF APPEALS

                                   FOR THE ELEVENTH CIRCUIT           FILED
                                    ________________________ U.S. COURT OF APPEALS
                                                                       ELEVENTH CIRCUIT
                                            No. 11-12114                  JULY 13, 2012
                                      ________________________             JOHN LEY
                                                                             CLERK
               D.C. Docket Nos. 8:10-cv-01036-JSM ; 8:05-bk-27381-KRM

In Re: JAMES LOGAN MCMILLIN,

                                                                    Debtor,

__________________________________________________________________

ANGELA STATHOPOULOS,

llllllllllllllllllllllllllllllllllllllll                            Plaintiff-Appellant,

                                                 versus

DAN ALFORD,

llllllllllllllllllllllllllllllllllllllll                            Defendant-Appellee.

                                      ________________________

                                            No. 11-12353
                                      ________________________

               D.C. Docket Nos. 8:10-cv-01036-JSM ; 8:05-bk-27381-KRM
                    Case: 11-12114         Date Filed: 07/13/2012   Page: 2 of 9

In Re: JAMES LOGAN MCMILLIN,

                                                                    Debtor,

__________________________________________________________________

ANGELA STATHOPOULOS,

llllllllllllllllllllllllllllllllllllllll                            Plaintiff-Appellee,

                                                 versus

DAN ALFORD,

llllllllllllllllllllllllllllllllllllllll                            Defendant-Appellant.

                                     ________________________

                          Appeals from the United States District Court
                               for the Middle District of Florida
                                ________________________

                                            (July 13, 2012)

Before DUBINA, Chief Judge, EDMONDSON, Circuit Judge, and GOLDBERG,*
Judge.

PER CURIAM:

I. BACKGROUND

         *
          Honorable Richard W. Goldberg, United States Court of International Trade Judge,
sitting by designation.

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               Case: 11-12114     Date Filed: 07/13/2012   Page: 3 of 9

      Appellant-Trustee Angela Stathopoulos (“Appellant-Trustee”) is the

Trustee for the bankruptcy estate of James Logan McMillan (“Debtor”).

Appellant-Trustee appeals the district court’s judgment affirming the bankruptcy

court’s order in an adversary proceeding she filed. In the adversary proceeding,

the Trustee alleged several causes of action against multiple individuals, including

several fraudulent conveyance claims against Appellee Dan Alford (“Alford”).

      There are many individuals and entities involved in this case. Debtor is a

serial bankruptcy filer. Virtual Trading Group, Inc. (“Debtor/VT”) is a company

that Debtor does not own, but in which Debtor had sufficient control such that the

bankruptcy court found it to be Debtor’s alter ego. Alford owns Bluewater

Trading Company (“BWT”), a Georgia corporation that is not affiliated with

Debtor/VT but that had “partnered” with Debtor/VT in many transactions in the

products-trading business. Alford is also affiliated with the construction company

Southeastern General (“SEG”). Alford does not own SEG; however, he makes

loans to SEG and shares in the company’s profits and losses.

      Two particular transactions form the basis of Appellant-Trustee’s claims

that Alford is liable to the estate for receiving a fraudulent transfer from

Debtor/VT. The first transaction involves the transfer of a sum of money from

BWT to Debtor/VT, and then from Debtor/VT to SEG. The second, and related,

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transaction involves the subsequent transfer of a piece of property (the “Ball

Ground Home”) from SEG to Alford.

       Specifically, on December 10, 2004, less than one year before Debtor filed

his bankruptcy petition, BWT wired $282,000 to Debtor/VT.1 Within hours after

the wire transfer was posted to Debtor/VT’s bank account, Alford accompanied

Debtor to a bank branch and Debtor purchased for Debtor/VT a $280,000

cashier’s check payable to SEG. Debtor/VT did not receive anything in exchange

for its transfer of $280,000 to SEG. Shortly after the date of the wire transfer,

Alford signed a purchase and sale agreement with SEG for the Ball Ground Home.

       Debtor and Alford had a written agreement (the “2004 Agreement”) related

to the transfer of both the money and the property. The agreement, signed by

Alford and Debtor/VT’s owner, provided that Alford agreed to lend Debtor/VT

$280,000 for the right to purchase the Ball Ground Property. Under the

agreement, the title to the property would be in Alford’s name until he had

received repayment in full. If the money had not been fully repaid within sixty

days, then Debtor/VT forfeited any right to the property. However, Debtor did not

repay the money in the agreed-upon time. As a result, Alford took title to the Ball

       1
          The parties acknowledge that $2,000 is sales commission income, which is not in
dispute; thus, the disputed amount is $280,000.

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Ground Property. At the time of trial, Alford had title to the Ball Ground

Property. Although Debtor was living in the property, he never had title to it.

Alford subsequently sold the Ball Ground Property. Appellant-Trustee claims that

either the $280,000 or the Ball Ground Property are property of the Debtor’s

bankruptcy estate.

      The bankruptcy court granted relief to Trustee on most counts relating to the

other individuals, but dismissed the claims against Alford. The bankruptcy court

specifically found that the transfer of $280,000 from Debtor/VT to SEG could not

be avoided as to Alford because (1) the $280,000 was never Debtor’s property,

since neither Debtor nor Debtor/VT had “control” of these funds, and (2) the

$280,000 went to SEG, and SEG had unfettered use of these funds.

      Appellant-Trustee appealed the bankruptcy court’s ruling, arguing that the

bankruptcy court erred when it concluded that neither Debtor nor Debtor/VT ever

had control of the funds. The district court reversed the bankruptcy court’s

finding as to control over the $280,000, concluding that Alford had failed to rebut

the presumption that the funds in Debtor/VT’s bank account belonged to the

Debtor. However, the district court ultimately affirmed the judgment in Alford’s

favor, stating that the Trustee had not proven the Debtor’s insolvency.

      Appellant-Trustee brought this appeal, arguing that because the district

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court reversed on the control issue, the case must be remanded to the bankruptcy

court for it to reconsider the fraudulent conveyance counts against Alford. On

cross-appeal, Alford argues that the district court erred in determining that the

bankruptcy court was clearly erroneous in finding that neither Debtor nor

Debtor/VT had control of the money in Debtor/VT’s bank account. We hold that

the bankruptcy court did not err in concluding that neither Debtor nor Debtor/VT

had control of the funds. Because our holding on the issue of control renders

Appellant-Trustee’s appeal moot, we do not address Appellant-Trustee’s claims.

II. STANDARD OF REVIEW

      This Court reviews conclusions of law de novo and reviews findings of facts

for clear error. In re Int’l Pharm. & Disc. II, Inc. v. Tabas, 443 F.3d 767, 770

(11th Cir. 2005). A finding of fact is not clearly erroneous unless, considering all

of the evidence, this Court has “the definite and firm conviction that a mistake has

been made.” Id.

III. DISCUSSION

      Appellant-Trustee filed an adversary proceeding alleging several causes of

action for avoidance of fraudulent transfers under 11 U.S.C. § 548. The purpose

of avoiding fraudulent transfers is to prevent the debtor from diminishing funds

that are generally available for distribution to creditors. Consequently, there is a

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presumption that “any funds under the control of the debtor, regardless of the

source,” are the debtor’s property, “and any transfers that diminish that property

are subject to avoidance.” In re Sanborn & Chase Corp., 813 F.2d 1177, 1181

(11th Cir. 1987). However, presuming ownership in situations of alleged

fraudulent transfers “poses the distinct danger that creditors could receive a

windfall in the form of funds that simply passed through the debtor’s possession

but in fact were not property of the debtor.” Id.

      In In re Chase & Sanborn Corp., this Court established a “control test” for

determining when funds provided to a debtor by a third party become property of

the debtor so that an allegedly fraudulent transfer of the funds to a noncreditor is

subject to avoidance under 11 U.S.C. § 548. 813 F.2d at 1181–82. In a fraudulent

transfer situation, “more is necessary to establish the debtor’s control over the

funds than the simple fact that a third party placed the funds in an account of the

debtor with no express restrictions on their use. Id. at 1181.

      The control test is a “very flexible, pragmatic one; in deciding whether the

debtors had controlled property subsequently sought by their trustees, ‘the court

must look beyond the particular transfers in question to the entire circumstance[s]

of the transactions.’” Nordberg v. Societe Generale, 848 F.2d 1196, 1199 (11th

Cir. 1988) (quoting In re Chase & Sanborn Corp., 813 F.2d at 1181–82). In

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looking at the entire circumstances of the transactions, courts have considered the

source of the funds, which party primarily benefits from the challenged

transactions, and whether the debtor has the power to designate which party will

receive the funds and the power to actually disburse the funds. See In re Bankest

Capital Corp., 374 BR 333, 338 (Bankr. S.D. Fla. 2007) (following and applying

the test established in In re Chase & Sanborn).

      After hearing all testimony and evaluating the evidence and the credibility

of key witnesses, the bankruptcy court concluded that neither the Debtor nor

Debtor/VT had sufficient control of the funds. The bankruptcy court found that

the $280,000 was only in Debtor/VT’s bank account for a few hours, the time it

took to obtain a cashier’s check payable to SEG. The bankruptcy court reasoned

that neither the Debtor nor Debtor/VT had the power to designate which party

would receive the funds, and neither had the power to disburse the funds because

the funds were specifically designated under the terms of the 2004 Agreement.

Further, the bankruptcy court specifically found that the $280,000 was not money

that BWT owed to the Debtor or to Debtor/VT.

      BWT wired the money to Debtor/VT. Thus, the source of the funds was

BWT, Alford’s company. Once the funds were in Debtor/VT’s account, Debtor

obtained a cashier’s check for $280,000 payable to SEG, the construction business

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in which Alford had an interest. Debtor/VT did not receive any consideration for

this transfer of money.

        Shortly thereafter, Alford received a quitclaim deed to the residence.

Hence, the eventual use of the funds was to purchase the Ball Ground residence.

Alford benefitted most from the money transfer, and the transfer was done at his

direction. The Debtor and Debtor/VT merely facilitated the transfer of the funds

and the “actual connection between the funds and the debtor was quite tangential.”

In re Chase & Sanborn, 813 F.2d at 1182.

        The bankruptcy court correctly applied the control test. Applying the

control test to the facts found by the bankruptcy court, the transfer is not

avoidable. Thus, the bankruptcy court correctly determined that the funds were

never under the Debtor/VT’s control and were not part of Debtor’s estate.

IV. CONCLUSION

        The Court REVERSES the district court order with respect to its

determination regarding the issue of control over the funds and reinstates the

bankruptcy court judgment. Thus, Appellant-Trustee’s appeal is dismissed as

moot.

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