Court Opinion

ID: 9942591
Source: CourtListenerOpinion
Date Created: 2024-02-21 16:06:01.644011+00
Date Added: 2024-06-11T13:48:15.591187
License: Public Domain

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
                              FOURTH DISTRICT

            ERIC WURTZEBACH and JENNIFER WURTZEBACH,
                           Appellants,

                                      v.

 FLOORING DEPOT FTL, INC., JOSEPH PRIZZI, and ALEXIS PRIZZI,
                         Appellees.

                    Nos. 4D2023-0476 & 4D2023-0480

                            [February 21, 2024]

   Appeal from the Circuit Court for the Seventeenth Judicial Circuit,
Broward County; David Alan Haimes, Judge; L.T. Case No. CACE17-
001750.

  Alexander O. Soto of Soto Law Group, P.A., Fort Lauderdale, for
appellants.

  C. Edward McGee, Jr., of McGee & Huskey, P.A., Fort Lauderdale, for
appellees.

GROSS, J.

   Appellants Eric and Jennifer Wurtzbach (the “plaintiffs”) are judgment
creditors in a circuit court case.           They instituted proceedings
supplementary against appellees Alexis Prizzi and Joseph Prizzi. The
circuit court entered final judgment in favor of the Prizzis on the fraudulent
transfer claims brought in the proceedings supplementary. We reverse,
holding that the rulings in the underlying lawsuit did not bar the attempt
to collect on a judgment by pursuing fraudulent transfer claims against
the Prizzis.

   Background

   In June 2016, the plaintiffs entered into a written agreement with
“Flooring Depot FTL” to purchase about 3,950 square feet of flooring
materials for $37,800.13, payable in three installments. The parties later
agreed to change the order to more expensive flooring. Flooring Depot
required an additional payment of $8,100, labeled as a “restocking fee”
and an “additional charge.” The plaintiffs paid Flooring Depot in full under
the agreement.

   Flooring Depot ordered the flooring in two batches—2,005.09 square
feet for the first order and a second order for 1,911.83 square feet. The
plaintiffs received the first order but never received the second order.

   The Underlying Lawsuit

     The plaintiffs brought an amended complaint against Flooring Depot
and its principal, Joseph Prizzi, asserting five counts: (I) breach of
contract; (II) breach of the implied covenant of good faith and fair dealing;
(III) conversion; (IV) fraud; and (V) unjust enrichment.

   The essence of the fraud asserted in the underlying lawsuit was that
Flooring Depot and Mr. Prizzi promised the second batch of flooring
without any intention of delivering on that promise.

    At the ensuing bench trial, the plaintiffs sought to pierce the corporate
veil on the ground that Mr. Prizzi took their money “and used it for his own
personal use.” Mr. Prizzi admitted that he “spent $19,502 of the
[plaintiffs’] money, but not on flooring for them.” The plaintiffs also
presented bank statements showing that Mr. Prizzi used business
accounts to pay his personal expenses.

    The trial court ruled for the plaintiffs on the breach of contract,
conversion, and unjust enrichment claims, but found in favor of the
defendants on the other claims. The court did not “see this as a fraud
situation,” but rather found that “when it came time [for the defendants
to] make the second payment, they didn’t have money to do it at that
point.” Still, the court found that it could enter judgment against Mr. Prizzi
in his individual capacity because he “commingled funds paid by
Wurtzebach” and “converted funds paid by Wurtzebach for his own
personal use.” The court entered final judgment against both Flooring
Depot and Mr. Prizzi.

   This Court’s Decision in Flooring Depot I

   On appeal, this court reversed the trial court’s mathematical
calculation of damages and the trial court’s piercing of the corporate veil
to impose personal liability on Mr. Prizzi. Flooring Depot FTL, Inc., v.
Wurtzebach, 330 So. 3d 47, 48 (Fla. 4th DCA 2021) (“Flooring Depot I”).

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    To pierce a corporate veil, we noted, a claimant must prove each of the
following three factors: (1) the shareholder dominated the corporation to
such an extent that the corporation had no independent existence and the
shareholder was the alter ego of the corporation; (2) the corporate form
was used fraudulently or for an improper purpose; and (3) the claimant
was injured as a result. Id. at 49 (citing Seminole Boatyard, Inc. v.
Christoph, 715 So. 2d 987, 990 (Fla. 4th DCA 1998)). Applying this test,
we held that the trial court erred in piercing the corporate veil:

          We find the trial court erred in piercing the corporate veil
      and imposing personal liability on Prizzi. Here, the appellees’
      allegations were insufficient to show that Prizzi engaged in any
      improper conduct. The allegations against Prizzi were that he
      commingled his business and personal assets and used
      business monies to make personal purchases.                These
      allegations, without more, fail to meet any of the three factors
      set forth in Christoph. . . . Because appellees’ allegations and
      evidence were insufficient to allow piercing of the corporate
      veil, the trial court erred in doing so.

Id. at 49–50 (citation omitted). We remanded for the trial court to enter a
corrected judgment solely against Flooring Depot. Id. at 50.

   The Proceedings Supplementary

   During the pendency of the appeal in Flooring Depot I, the plaintiffs filed
a supplemental complaint to institute proceedings supplementary against
Mr. Prizzi and his daughter, Alexis Prizzi.

    One count of the complaint sought to recover for fraudulent transfers
in violation of the Florida Uniform Fraudulent Transfer Act. That count
alleged that Flooring Depot, the insolvent judgment debtor, transferred
assets to the Prizzis or for their benefit, either directly or indirectly, without
receiving reasonably equivalent value, in violation of section 726.106(1) or
726.109(2), Florida Statutes. Specifically, Count I alleged that: (1) money
and other assets were fraudulently transferred to Mr. Prizzi or for his
benefit; (2) judgment debtor funds were used to pay Mr. Prizzi’s personal
expenses, including his alimony; (3) judgment debtor monies were
transferred to Alexis; and (4) watches and other jewelry were given to
Alexis. Alternatively, Count I alleged that these transfers were made with
actual intent to defraud in violation of section 726.105, Florida Statutes.

   Ultimately, the trial court entered summary judgment against the
plaintiffs on the fraudulent transfer count, relying on collateral estoppel

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or res judicata, based on its earlier decision on the fraud count and our
holding in Flooring Depot I that the plaintiffs’ evidence was insufficient to
pierce the corporate veil. The trial court also ruled that the complaint
failed to state a cause of action against Alexis. The trial court later entered
separate final judgments in favor of Mr. Prizzi and Alexis on all claims
brought in the proceedings supplementary.

   Piercing the Corporate Veil and Common Law Fraud Differ from a
Claim under the Fraudulent Transfer Act

    Piercing the corporate veil is not itself a cause of action. Turner Murphy
Co. v. Specialty Constructors, Inc., 659 So. 2d 1242, 1245 (Fla. 1st DCA
1995). Rather, it is a legal doctrine applied to hold a corporation’s
shareholders liable for the corporation’s debts. To pierce the corporate
veil, a claimant must prove three things: (1) the shareholder dominated
the corporation to such an extent that the corporation had no independent
existence, such that the shareholder was the alter ego of the corporation;
(2) the corporate form was used fraudulently or for an improper purpose;
and (3) the claimant was injured as a result. Christoph, 715 So. 2d at 990.
This “showing of improper conduct” requires proof that “the corporation
was actually organized or used to mislead creditors or to perpetrate a fraud
upon them.” Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114, 1119–
20 (Fla. 1984).

    The elements of a claim for fraudulent misrepresentation are: “(1) a
false statement concerning a material fact; (2) the representor’s knowledge
that the representation is false; (3) an intention that the representation
induce another to act on it; and (4) consequent injury by the party acting
in reliance on the representation.” Butler v. Yusem, 44 So. 3d 102, 105
(Fla. 2010).

    A claim for fraudulent transfer under the Florida Uniform Fraudulent
Transfer Act (“FUFTA”) is a separate and distinct cause of action from
common law fraud. See, e.g., Gulf Coast Produce, Inc. v. Am. Growers, Inc.,
No. 07-80633-CIV, 2008 WL 660100, at *6 (S.D. Fla. Mar. 7, 2008)
(distinguishing fraudulent transfer claims from common law fraud claims).
Unlike common law fraud claims, fraudulent transfer claims are often
“asserted against a person or entity that did not deal directly with the
plaintiff in the challenged transaction.” Id. As such, “the plaintiff
generally possesses little or no information about the alleged fraudulent
transfer other than it occurred.” Id. “This is in stark contrast to a common
law fraud claim where a plaintiff alleges that a defendant made a material
false statement or omission directly to the plaintiff.” Id.

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    A fraudulent transfer claim under section 726.106(1) focuses not on
false representations made to a plaintiff but on the unfairness of the
transfer to a judgment creditor:

      A transfer made or obligation incurred by a debtor is
      fraudulent as to a creditor whose claim arose before the
      transfer was made or the obligation was incurred if the debtor
      made the transfer or incurred the obligation without receiving
      a reasonably equivalent value in exchange for the transfer or
      obligation and the debtor was insolvent at that time or the
      debtor became insolvent as a result of the transfer or
      obligation.

§ 726.106(1), Fla. Stat. (2016). “A debtor who is generally not paying his
or her debts as they become due is presumed to be insolvent.” §
726.103(2), Fla. Stat. (2016).

   Section 726.106(1) “does not require intent.” Levin v. Ethan Allen, Inc.,
823 So. 2d 132, 136 (Fla. 4th DCA 2002). Thus, section 726.106, Florida
Statutes (2016), is often referred to as a “constructive fraud” statute. See,
e.g., In re Vilsack, 356 B.R. 546, 553 (Bankr. S.D. Fla. 2006).

   The Fraudulent Transfer Count Was Not Barred by Res Judicata

    Under the doctrine of res judicata, “a judgment on the merits of a
controversy is conclusive as to the parties and their privies and will bar a
subsequent action between the same parties on the same cause of action.”
Youngblood v. Taylor, 89 So. 2d 503, 505 (Fla. 1956). Res judicata bars
relitigation of a claim if the following four elements are satisfied: “(1)
identity of the thing sued for; (2) identity of the cause of action; (3) identity
of the persons and parties to the actions; and (4) identity of the quality or
capacity of the persons for or against whom the claim is made.” Jasser v.
Saadeh, 103 So. 3d 982, 984 (Fla. 4th DCA 2012) (citation and internal
quotation marks omitted).

   The requirement of identity of the cause of action is established if “the
facts or evidence necessary to maintain the suit are the same in both
actions.” Tyson v. Viacom, Inc., 890 So. 2d 1205, 1209 (Fla. 4th DCA
2005). Even if the facts “may overlap to a degree,” this does not necessarily
mean that the second lawsuit will be barred by res judicata. Id. at 1210.

   Here, res judicata did not bar the plaintiffs’ claim for fraudulent
transfers in the supplemental complaint. The element of identity of the
cause of action is not present. The underlying lawsuit asserted a cause of

                                       5
action for fraudulent misrepresentations and sought to pierce the
corporate veil, while the supplemental complaint alleged that Flooring
Depot fraudulently transferred funds to the Prizzis while it was insolvent
and without receiving reasonably equivalent value. The fraudulent
transfer claim was not within the issues framed by the pleadings in the
underlying suit. The factors necessary to establish a section 726.106
fraudulent transfer claim are different from those essential to proving
common law fraud or piercing the corporate veil.

   We acknowledge there were facts common to both actions. The
plaintiffs sought to use Flooring Depot’s payment of Mr. Prizzi’s personal
expenses to support the fraud claim and to pierce the corporate veil. The
lesson of Flooring Depot I was that this evidence—without more—was
insufficient to pierce the corporate veil. The opinion’s use of the phrase
“improper conduct” has a specific meaning in reference to piercing the
corporate veil—it refers to conduct using the corporate form in a way that
is misleading or fraudulent to creditors. See Sykes, 450 So. 2d at 1120.
Our statement in Flooring I that the plaintiffs failed “to show that Prizzi
engaged in any improper conduct” meant only that the plaintiffs failed to
demonstrate that Mr. Prizzi engaged in the type of improper conduct
necessary to pierce the corporate veil. The Flooring Depot I decision did
not rule that the transfers at issue did not occur.

   Similarly, the plaintiffs’ fraud claim in the underlying suit was based
on the theory that Flooring Depot and Mr. Prizzi took the plaintiffs’ money
and knowingly made false promises while not intending to fully perform
under the Agreement. Flooring Depot’s payment of Mr. Prizzi’s personal
expenses was circumstantially probative of his fraudulent intent. The trial
court’s ruling on the fraud claim focused on whether plaintiffs carried their
burden of proving that Mr. Prizzi knowingly made false statements
regarding Flooring Depot’s willingness to fulfill its contractual
responsibilities. This fraud claim did not adjudicate the nature of the
transfers under the Fraudulent Transfer Act.

    “Fraud” is a chameleon legal term, drawing meaning from the context
where it is used. Essentially, common law fraud and piercing the
corporate veil require a showing of misleading conduct—either a knowing
misrepresentation to establish fraud, or improper conduct in the sense
that “the corporation was actually organized or used to mislead creditors
or to perpetrate a fraud upon them,” necessary to pierce the corporate veil.

   By contrast, a fraudulent transfer claim under section 726.106
operates under a constructive fraud theory. The plaintiffs’ fraudulent
transfer claim required only proof that Flooring Depot made the transfers

                                     6
while it was insolvent and without receiving reasonably equivalent value
in return. This claim was not adjudicated in the underlying lawsuit or in
Flooring Depot I. 1

   The Fraudulent Transfer Count Was Not Barred by Collateral
Estoppel

   “Collateral estoppel requires that: (1) the identical issue was presented
in a prior proceeding; (2) the issue was a critical and necessary part of the
prior determination; (3) there was a full and fair opportunity to litigate the
issue; (4) the parties to the prior action were identical to the parties of the
current proceeding; and (5) the issue was actually litigated.” Marquardt v.
State, 156 So. 3d 464, 481 (Fla. 2015).

   Here, collateral estoppel does not bar the plaintiffs’ fraudulent transfer
claim under section 726.106(1). Several elements of collateral estoppel are
not present here. Whether the transfers from Flooring Depot to the Prizzis
constituted fraudulent transfers under section 726.106(1)—that is,
whether the transfers were made while Flooring Depot was insolvent and
without reasonably equivalent value—is not the identical issue presented
in the underlying proceeding. Moreover, as noted above, this issue was
not “actually litigated” in the prior proceeding. Rather, the issues in the
underlying proceeding concerned whether Flooring Depot and Mr. Prizzi
committed actual fraud and whether to pierce the corporate veil.
Accordingly, collateral estoppel did not bar the plaintiffs’ fraudulent
transfer claim under section 726.106(1).

   The Supplemental Complaint Stated a Cause of Action Against
Alexis

    Finally, we hold that the supplemental complaint stated a cause of
action for a fraudulent transfer against Alexis. See Ferguson Enters., Inc.
v. Astro Air Conditioning & Heating, Inc., 137 So. 3d 613, 615 (Fla. 2d DCA
2014) (holding that a complaint tracking the language of sections 726.105
and 726.106 sufficiently stated a claim of fraudulent transfer); In re 45
John Lofts, LLC, 599 B.R. 730, 747 (Bankr. S.D.N.Y. 2019) (pointing out
that at the pleading stage “a plaintiff is not required to give a ‘dollar-for-
dollar accounting’ of the transfers at issue”).

1 As to Alexis, the “identity of the parties” element of res judicata was also absent.

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   Conclusion

   We reverse the order granting summary judgment on the fraudulent
transfer claims, as well as the ensuing final judgments as they pertain to
the fraudulent transfer claims, and remand to the circuit court for further
proceedings. Our reversal is limited to the fraudulent transfer count of
the supplemental complaint, which was the only count fully briefed on
appeal.

   Reversed and remanded.

KLINGENSMITH, C.J., and CONNER, J., concur.

                           *         *        *

   Not final until disposition of timely filed motion for rehearing.

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