Court Opinion

ID: 4212897
Source: CourtListenerOpinion
Date Created: 2017-10-19 16:01:02.699613+00
Date Added: 2024-06-11T14:41:03.545652
License: Public Domain

Case: 17-11368   Date Filed: 10/19/2017   Page: 1 of 12

                                                           [DO NOT PUBLISH]

              IN THE UNITED STATES COURT OF APPEALS

                       FOR THE ELEVENTH CIRCUIT
                         ________________________

                               No. 17-11368
                           Non-Argument Calendar
                         ________________________

                  D.C. Docket No. 8:09-cv-01850-JSM-TBM

KEARNEY CONSTRUCTION COMPANY, LLC,

                                                                         Plaintiff,

                                    versus

TRAVELERS CASUALTY AND SURETY
COMPANY OF AMERICA,

                                                  Defendant-Third Party Plaintiff
                                                                      Appellee,

FLORIDA SOIL CEMENT, LLC., et al,
                                                                       Defendants,

KEARNEY LLC, et al.,
                                                          Third Party Defendants,

FTBB, LLC,

                                                           Third Party Defendant
                                                                       Appellant.
              Case: 17-11368    Date Filed: 10/19/2017    Page: 2 of 12

                           ________________________

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

                                 (October 19, 2017)

Before WILLIAM PRYOR, JORDAN and ROSENBAUM, Circuit Judges.

PER CURIAM:

      FTBB, LLC, appeals the judgment in favor of Travelers Casualty and Surety

Company of America. Travelers initiated a proceeding supplementary to void an

assignment to FTBB of a monetary judgment Regions Bank had against Bing

Kearney. Fed. R. Civ. P. 69(a)(1); Fla. Stat. §§ 56.29, 726.105. The district court

ruled that the assignment was fraudulent and voided the priority lien that FTBB

acquired from Regions. We affirm.

                                I. BACKGROUND

      In December 2007, Kearney’s son, Clayton, obtained in excess of $11

million for injuries he incurred in an automobile accident. Before Clayton collected

the payment, his family formed Moose Investments of Tampa Bay, LLC, to invest

the settlement proceeds. Clayton was named the sole owner of Moose, but his

father served as its co-manager until August 2012. Moose kept its records at the

offices of several Kearney companies and used a company bookkeeper.

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          In January 2011, Kearney formed FTBB as a shelf corporation. FTBB was

owned and managed by Moose.

          Kearney accumulated large debts. On October 28, 2011, Travelers obtained

a judgment against Kearney for $3.7 million, which it executed in September 2014.

When served with a writ of garnishment, USAmeriBank responded that it owed

Kearney $700,022.29. On September 28, 2012, Regions obtained a judgment

against Kearney for $3,407,620.35, and it served a writ of garnishment on

USAmeriBank in May 2013.

          Meanwhile, in March 2012, Moose granted Kearney a line of credit of $5

million at 3 percent annual interest in exchange for his execution of a promissory

note and a security agreement. Kearney drew freely on the line of credit. On

August 12, 2012, Moose filed a Uniform Commercial Code-1 that notified

creditors it had an interest in Kearney’s property.

          On March 17, 2015, Kearney borrowed $3.5 million from a life insurance

policy. Kearney transferred the money to Moose, ostensibly to pay down his line of

credit.

          Later that month, Kearney entered mediations with Regions. James Reed,

Kearney’s attorney, advised Kearney to activate FTBB to purchase the Regions

judgment. On April 8, 2015, Moose transferred $2.625 million to the mediator’s

trust fund. The next day, Clayton executed an operating agreement for FTBB.

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      On April 21, 2015, Regions agreed to sell and assign its judgment against

Kearney to FTBB for $2.625 million. That same day, Reed became a manager of

Moose. On April 22 and 23, Regions assigned its judgment to FTBB, and Moose

paid $2.625 million to Regions. In a side settlement, FTBB agreed to pay, but

Moose paid, $50,000 to Kearney’s wife as a partial reimbursement of costs and

expenses she had incurred during the fraudulent transfer action.

      On April 28, 2015, Kearney directed the attorney for FTBB, Frank Miranda,

to refrain from making any commitments for the company before consulting with

Kearney’s attorney. After the assignment, Regions transferred all execution-related

documents to Kearney’s attorney “at [Kearney’s] request as representative of

FTBB,” despite a provision in the purchase and sale agreement instructing Regions

to deliver the documents to FTBB “in connection with judgment collection

efforts.” Miranda received a copy of Kearney’s request.

      On May 1, 2015, Kearney stipulated to a judgment in favor of Regions in its

garnishment action. Four days later, FTBB was substituted for Regions in the

action, after which FTBB moved for entry of a final judgment. FTBB did not

collect from Kearney’s accounts at USAmeriBank.

      On June 1, 2015, Travelers moved for proceedings supplementary in its

garnishment action and to implead FTBB. Travelers served a second writ of

garnishment on USAmeriBank, which responded that it owed Kearney

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$1,158,037.38. Kearney, Moose, and FTBB moved to dissolve the writ and argued

that FTBB had priority over Travelers for garnishment of Kearney’s accounts at

USAmeriBank. Travelers amended its complaint to allege a fraudulent transfer and

requested as relief to void the assignment from Regions to FTBB or to equitably

subordinate the priority FTBB had over Travelers to the USAmeriBank accounts.

      During an evidentiary hearing held by a magistrate judge, Travelers

submitted evidence that Kearney managed his son’s finances and wrote checks

from his son’s bank account and the Moose account. Clayton exhibited little

understanding of the business activities of Moose, the line of credit for his father,

the Regions settlement, or the purpose for FTBB. Kearney testified that his

payment to Moose was unrelated to the Regions settlement and that he benefited

by paying Moose instead of Regions. Kearney stated that he had forgotten most

details involved in the negotiations, but he remembered that, after reaching a

settlement with Regions, he searched for a buyer for the Regions settlement,

Clayton agreed to be the purchaser, and Reed suggested transferring the judgment

to FTBB. Kearney disavowed using FTBB to hinder Travelers from collecting its

judgment.

      Reed testified that he had served numerous years as advisor to the Kearney

family and Kearney’s companies and the principal advisor to Clayton and Moose

and that he served as a manager of Moose and ran the daily operations of FTBB.

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Reed stated that he advised Kearney to settle the fraudulent transfer action with

Regions because, in his opinion, the action was overvalued and FTBB did not have

an expert witness. Kearney and Reed testified that purchasing the Regions

judgment was a good investment for Moose because of the discount in price, the

ability to recouperate about $700,000 from USAmeriBank, the likelihood of

collecting on the judgment, and the protection it provided Moose in relation to its

UCC-1 action against Kearney. Reed stated that FTBB garnished Kearney’s

account at Platinum Bank and collected about $10,000, although the check had yet

to be deposited by FTBB. According to an attorney for Regions, neither Moose nor

FTBB were involved in negotiating the purchase price of the Regions judgment.

      The district court adopted the findings and recommendation of the

magistrate judge to enter a judgment in favor of Travelers. The district court ruled

that the assignment of the Regions judgment was a fraudulent transaction intended

to hinder or defraud Travelers. The district court found that “Kearney, with the

counsel and assistance of James Reed, concocted and orchestrated a scheme” to

“purchase and assign[] . . . the Regions judgment [to] Clayton Kearney’s entities to

place that judgment in the hands of a friendly creditor and thereby block Travelers

from reaching Mr. Kearney’s funds at USAmeriBank.” The district court

discredited Kearney’s explanation for the payment to Moose; rejected the

argument that Clayton decided to purchase the Regions judgment; and regarded

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Moose and FTBB as “insiders” acting at Kearney’s behest. The district court based

its finding on several events. Those events included: the control Kearney exercised

over Clayton’s companies; the line of credit Kearney obtained from Moose;

Kearney’s failure to use the money he withdrew from his life insurance or the line

of credit to pay the Travelers and Regions judgments; Kearney’s “capital

injectment” of $3.5 million to Moose “ten days [after a district court judge

presiding over the Regions garnishment action] found the largest account at

USAmeriBank [containing about $625,000] was . . . not exempt from

garnishment”; Kearney’s use of FTBB; the transfer by Moose, “while flush with

funds,” of the settlement amount to the mediator and its purchase of the Regions

judgment for FTBB, which was penniless; and the control Kearney exercised over

FTBB after the assignment. The district court fashioned the “precise remedy” of

“voiding . . . only the transfer to FTBB of Regions’ priority lien position relative to

the USAmeriBank garnished funds and FTBB’s claim to the same in all pending

collection actions” based on its conclusion that “only the portions of the settlement

agreement between the Kearneys and Regions which were directed toward the

transfer of Regions’ position in the garnishment litigation were intended to hinder

the collection of USAmeriBank funds by outside creditors.”

                          II. STANDARDS OF REVIEW

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      “[A]fter a bench trial [in a supplementary proceeding to void a fraudulent

transfer], we review the district court’s conclusions of law de novo and [its] factual

findings for clear error.” Nat’l Mar. Servs., Inc. v. Straub, 776 F.3d 783, 786 (11th

Cir. 2015) (quoting Crystal Entm’t & Filmworks, Inc. v. Jurado, 643 F.3d 1313,

1319 (11th Cir. 2011)).

                                  III. DISCUSSION

      Under Florida law, which the parties agree applies, judgment creditors have

tools to counteract fraudulent transfers by debtors. The Florida proceedings

supplementary statute states that when a “transfer, assignment or other conveyance

of personal property has been made or contrived by the judgment debtor to delay,

hinder, or defraud creditors, the court shall order the . . . transfer, assignment or

other conveyance to be void . . . .” Fla. Stat. § 56.29(6)(b) (2015). And Florida

gives the district court discretion in fashioning appropriate relief: it “may enter any

orders, judgments, or writs required to carry out the purpose of this section,

including those orders necessary or proper to subject property or property rights of

any judgment debtor to execution and including entry of money judgments against

any impleaded defendant.” Id. § 56.29(9). “Whether a defendant’s actions are

made or contrived to “delay, hinder, or defraud” can be determined with reference

to section 726.105(1)” of the Florida Uniform Fraudulent Transfers Act, Mejia v.

Ruiz, 985 So. 2d 1109, 1112 (Fla. Dist. Ct. App. 2008), which identifies what

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transactions are fraudulent and contains a non-inclusive list of 11 factors that are

indicia of fraud, see Gen. Elec. Co. v. Chuly Int’l, LLC, 118 So. 3d 325, 327 (Fla.

Dist. Ct. App. 2013) (quoting Stephens v. Kies Oil Co., Inc., 386 So. 2d 1289, 1290

(Fla. Dist. Ct. App. 1980)). Because “[c]onsideration may . . . be given to factors

other than those listed,” a reviewing court “may take into account the

circumstances surrounding the conveyance.” Mejia, 985 So. 2d at 1113.

      The district court did not err when it determined that the assignment of the

Regions judgment and its priority lien to FTBB was a fraudulent transfer in

violation of section 56.29. “A transfer made or obligation incurred by a debtor is

fraudulent as to a creditor . . . if the debtor made the transfer or incurred the

obligation.” Fla. Stat. § 726.105(1). Kearney implemented a scheme to acquire an

obligation he had incurred with Regions in order to hinder Travelers. He did so by

making “[t]he transfer or obligation . . . to an insider,” Fla. Stat. § 726.105(2), who

may consist of “[a] relative of the debtor or . . . [his] general partner” or “[a]

corporation of which the debtor is a director, officer, or person in control,” id.

§ 726.102(8). Kearney effectuated his fraud through exploiting his unsophisticated

son, Clayton, and his son’s companies, Moose and FTBB. Kearney controlled

Clayton’s companies, at least indirectly, by issuing instructions to the attorney for

FTBB and through Reed, who served as the manager of Moose and the

administrator of FTBB. Kearney submitted to Moose $3.5 million, which

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coincided dubiously with its payment of $2.625 million for the Regions judgment.

Clayton agreed obliviously to activate FTBB to serve as the straw purchaser of the

Regions judgment. And FTBB used the priority lien it acquired from Regions to

shelter the USAmeriBank account from garnishment by Travelers.

      FTBB argues that Travelers was not hindered because it “remained in

exactly the same position after the Transfer[] that it was immediately before the

Transfer,” but we disagree. Before the Transfer, Travelers had a lien inferior that

entitled it to garnish any of Kearney’s nonexempt assets not collected by Regions

after it satisfied its judgment of $3,407,620.35. Had Kearney satisfied the Regions

judgment with the $3.5 million he transferred to Moose or with money he could

have drawn on his line of credit, Travelers could have garnished the USAmeriBank

account. The Transfer enabled FTBB to do more than step into the shoes of

Regions. The Transfer satisfied the Regions judgment and gave FTBB a priority

lien that it used to protect Kearney’s USAmeriBank account.

      FTBB argues that the assignment, which resulted in “giv[ing] funds to

[Regions] but not to all existing creditors,” a “so-called preferential transfer[][,] is

not fraudulent.” See Jacksonville Bulls Football, Ltd. v. Blatt, 535 So. 2d 626 (Fla.

Dist. Ct. App. 1988). But in Jacksonville Bulls, the debtor exhausted his assets to

satisfy creditors. The debtor paid bona fide creditors using the proceeds of

advantageous sales to two friendly creditors and consented to a judgment in favor

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of a third friendly creditor, who promptly executed its judgment. Id. at 627–28. In

contrast, Kearney shielded his assets from creditors. Although Kearney—through

Moose and FTBB—satisfied his debt to Regions, in so doing, Kearney—through

FTBB—acquired a priority lien that enabled him to retain his nonexempt assets.

      FTBB was not a bona fide creditor. FTBB served solely as the straw

purchaser of the Regions judgment. See In re Miller, 39 F.3d 301, 307 (11th Cir.

1994) (discussing in a bankruptcy case a “bona fide creditor [is] distinguish[able] .

. . from those involving . . . transfers to non-creditors and/or family members,

which merit closer scrutiny”). Its acquisition of the Regions judgment, for which it

did not pay, was intended to benefit Kearney.

       “Under section 56.29(5) a court may fashion an appropriate equitable

remedy to afford a judgment creditor as complete relief as possible,” Amjad

Munim, M.D., P.A. v. Azar, 648 So. 2d 145, 150 (Fla. Dist. Ct. App. 1994), and the

district court exercised its equitable powers to fashion an appropriate remedy for

an unusual fraudulent conveyance. The district court refused to unwind the

transaction between FTBB and Regions, which left the bank, a seemingly innocent

party, undamaged. And the district court punished Kearney for his machinations by

voiding the assignment of the priority lien to FTBB, which restored to Travelers

the ability to garnish the funds in Kearney’s USAmeriBank account.

                                IV. CONCLUSION

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We AFFIRM the judgment in favor of Travelers.

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