Eleventh Circuit Addresses "For Value" Defense In Ponzi Scheme Fraudulent Transfer Case

In Perkins v. Haines (10-10683), the Eleventh Circuit released a published opinion addressing an issue of first impression in this Circuit. The question addressed is whether "transfers to the investors prior to the collapse of the Ponzi scheme were “fraudulent transfers” under 11 U.S.C. § 548(a)(1)(A)" or whether the transfers were "for value." The court concluded the transfers were "for value" and affirmed the bankruptcy court's holding. Notably, the Securities and Exchange Commission filed an amicus brief in support of the prevailing appellees. Judge Wm. Terrell Hodges, Judge for the Middle District of Florida sitting by designation, wrote the opinion for the court and was joined by Judge Edmondson and Judge Martin. The opinion began:

International Management Associates, LLC, and several related entities (the “Debtors”) were operated as the instruments of a Ponzi scheme. A receiver ultimately filed voluntary petitions in the bankruptcy court seeking relief for each of the Debtors under Chapter 11 of the Bankruptcy Code. A consolidated plan of liquidation was approved and William F. Perkins was appointed as Plan Trustee. The Trustee then instituted a number of adversary proceedings in the bankruptcy court seeking to avoid and to recover distributions that had been made to the investors in the Debtors. The Trustee claimed that transfers to the investors prior to the collapse of the Ponzi scheme were “fraudulent transfers” under 11 U.S.C. § 548(a)(1)(A) and applicable state law. The investors asserted an affirmative defense under 11 U.S.C. § 548(c), claiming that the transfers were “for value.” The Trustee moved for partial summary judgment. The bankruptcy court denied the motion, effectively upholding the availability of the investors’ affirmative defense. The Trustee filed this appeal. It presents an issue of first impression in this Circuit. We affirm.

The court analyzed the law as follows:

With respect to Ponzi schemes, transfers made in furtherance of the scheme are presumed to have been made with the intent to defraud for purposes of recovering the payments under §§ 548(a) and 544(b). See In re AFI Holding, Inc., 525 F.3d 700, 704 (9th Cir. 2008).....For purposes of this appeal, as in the bankruptcy court, it is presumed that all of the Debtors’ transfers to the investor defendants qualify as fraudulent transfers under § 548(a)(1)(A) and applicable state law.

However, § 548(c) provides a transferee with an affirmative defense where the transferee acts in good faith and “[gives] value to the debtor in exchange for such transfer . . . .” The term “value” is defined to include “satisfaction or securing of a present or antecedent debt of the debtor.”.....In the case of Ponzi schemes, the general rule is that a defrauded investor gives “value” to the Debtor in exchange for a return of the principal amount of the investment, but not as to any payments in excess of principal. 

***

The Trustee hangs his hat on a line of cases holding that transfers to redeem an equity investment in an insolvent entity (initially made free of fraud) cannot constitute a transfer “for value.”.....The Trustee contends that these decisions should apply here because the Debtors were all insolvent at the time the transfers to the investor defendants were made, and any such transfers served only to redeem their worthless equity interests. We disagree, and find the argument to be unpersuasive for the simple reason that none of these decisions involved Ponzi schemes. Stated differently, none of the stockholders in those cases were fraudulently induced into making their initial investments so that none possessed fraud claims that would be satisfied in whole or in part by virtue of the later transfers. Each case involved a situation in which an insolvent corporation attempted to pay off its shareholders at the expense of creditors, without receiving any value in return and with no regard for satisfying any possible antecedent debts.

The court affirmed the bankruptcy court's order and concluded:

The Trustee agrees that the investor defendants purchased limited partnerships from the Debtors at a time when the Ponzi scheme was already in operation and a claim for fraud or restitution was created in favor of the investors based on the Debtors’ fraudulent activity. Under AFI Holding and the general rule, later transfers from the Debtors up to the amount of the investment satisfied the investor defendants’ restitution or fraud claims and provided value to the Debtors. The bankruptcy court’s denial of the Trustee’s motion for partial summary judgment is AFFIRMED.

The bankruptcy court's order, the briefs filed in the case and the Eleventh Circuit's opinion can be viewed at the links below:

• Bankruptcy Court's Order Denying Motion for Summary Judgment;
• Bankruptcy Court's Order Certifying Direct Appeal;
• Initial Brief;
• Answer Brief;
• Bronner's Answer Brief;
• Reply Brief;
• S.E.C.'s Amicus Brief; and
• Opinion.

Supreme Court Upholds Ban On Certain Lawyer Advice In Bankruptcy

The Supreme Court released its opinion today in Milavetz, Gallop & Milavetz, P. A. v. United States.  Justice Sotomayor wrote the opinion for the Court and stated:

Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA or Act) to correct perceived abuses of the bankruptcy system. Among the reform measures the Act implemented are anumber of provisions that regulate the conduct of “debt relief agenc[ies]”—i.e., professionals who provide bankruptcy assistance to consumer debtors. See 11 U. S. C. §§101(3), (12A). These consolidated cases present the threshold question whether attorneys are debt relief agencies when they provide qualifying services. Because we agree with the Court of Appeals that they are, we must also consider whether the Act’s provisions governing debt relief agencies’ advice to clients, §526(a)(4), and requiring them to make certain disclosures in their advertisements, §§528(a) and (b)(2), violate the First Amendment rights of attorneys. Concluding that the Court of Appeals construed §526(a)(4) too expansively, we reverse its judgment that the provision is unconstitutionally overbroad. Like the Court of Appeals, we uphold §528’s disclosure requirements as applied in these consolidated cases.

Articles can be found at the following links: Reuters; Wall Street Journal Law Blog; and the New York Times.

Bankruptcy Automatic Stay Does Not Impact Co-Defendants

In Puig v. PADC Marketing, LLC, et al (3D09-2094), the Third District granted certiorari and quashed an order indefinitely staying a case.  The opinion discusses the impact of a bankruptcy filing and the automatic stay over co-defendants.

The trial court entered an "order denying plaintiffs’ motion to compel the deposition of R. Donahue Peebles and granting an indefinite stay of this entire action against all defendants pending the completion of the bankruptcy proceeding of only one defendant, PADC Marketing, LLC."  The court stated:

The filing of a bankruptcy petition imposes an automatic stay under the United States Bankruptcy Code. See 11 U.S.C. § 362. The bankruptcy stay is imposed by Congress, protects the debtor, and is triggered by the filing of a voluntary or involuntary petition. The scope of the automatic stay, however, does not include the non-debtors, Collins Avenue and Peebles. As a result, the only way that this action could be properly stayed is through the discretionary power of the lower court. A stay for an indefinite time frame (through the bankruptcy proceeding), like what happened here, is overbroad and improper.

Although the scope of the automatic stay under section 362 is broad, the clear language of section 362(a) stays actions only against a “debtor.”....The language of section 362 refers only to actions against the debtor and does not relate to any other interparty claims....Both federal and state courts in Florida have followed the general rule that the United States Bankruptcy Code generally stays proceedings against the debtor alone, in this case, PADC, which is the only party to this matter that has sought protection from the bankruptcy court.

Debtor's Keogh Plan Exempt In Bankruptcy Under § 222.21(2)(a)(1), Florida Statutes

In In re Baker: Baker v. Tardif (09-13144-HH), the Eleventh Circuit released a published decision and reversed the decision of the Bankruptcy Court and the District Court. The Eleventh Circuit held that the debtor's Keogh plan was exempt under Florida law. Fla. Stat. § 222.21(2)(a)(1).

The bankruptcy court concluded that Baker could not claim the exemption under section 222.21(2)(a)(1) because she was the “sole shareholder and sole ‘participant’ in the Keogh plan.”  The Opinion notes:

After a debtor files for bankruptcy, she is entitled to retain certain assets as exempt from the bankruptcy estate. Although the bankruptcy code provides exemptions, a state may opt out of those exemptions and provide alternative exemptions. 11 U.S.C. § 522(b).

***

Florida law shields from the claims of creditors some assets deposited in retirement and profit-sharing plans. Section 222.21 exempts from the bankruptcy estate money, assets, and any interest in a plan in which the debtor is an owner, participant, or beneficiary and that has been preapproved by the Internal Revenue Service as exempt from taxation under section 401(a) of the Internal Revenue Code.

***

The district court ruled that Baker’s Keogh plan had to be maintained under the Employee Retirement Income Security Act for Baker to claim an exemption under section 222.21(2)(a)(1), but we disagree.

***

In 2005, the Florida Legislature amended section 222.21 to provide that an exempt plan does not have to comply with the Employee Retirement Income Security Act....We reverse the judgment that Baker’s Keogh plan had to comply with the Employee Retirement Income Security Act to qualify for an exemption under section 222.21(2)(a)(1). Section 222.21(2)(a)(1) requires that a profit-sharing plan qualify under section 401(a) of the Internal Revenue Code, not that the plan comply with the Employee Retirement Income Security Act.

The briefs can be found at the following links:

Initial Brief;

Amicus Brief of Nixon Peabody in support of Appellee;

Reply to Nixon Peabody Amicus Brief;

Amicus Brief of Real Property Probate & Trust Section of The Florida Bar In Support Of Appellants.

"TOUSA bidding process, breakup fee approved" - Starwood's $61 Million Dollar Stalking Horse Bid Moves Forward

Paul Brinkman published an article today titled "TOUSA bidding process, breakup fee approved" which can be found at both msn.com and The South Florida Business Journal.  Discussed is a hearing today during which Southern District of Florida Bankruptcy Judge John Olson allowed Starwood Land Ventures's $61 million dollar stalking horse bid to go forward with a $1.8 million dollar breakup fee to Starwood if the bid is not successful.  The article states:

Starwood’s attorney, Ivan Reich of Gray Robinson, said the company has already spent $900,000 evaluating the purchase since June.  “This is a substantial purchase in a market that is basically not moving, as your honor knows,” Reich said.

*Disclaimer: GrayRobinson is involved in this action.

A Lis Pendens Is Sufficient To Preclude Trustees Attempt To Avoid Transfer If Filed Outside Of Ninety Day Preference Period

In Wells Fargo Funding v. Gold, -- F. Supp. 2d --, 09-cv-00817, 2009 WL 4110257 (E.D. Va. Nov. 24, 2009), United States District Court Judge Liam O'Grady relied upon a decision from the Bankruptcy Court for the Southern District of Florida in affirming a decision under review.  The decision from the Southern District Bankruptcy Court, In re Matthew J. Whitehead, III, 399 B.R. 570 (Bankr. S.D. Fla. 2009), was previously discussed HERE on this blog.  In the Gold case, the court stated:

Judge Mitchell then went on, however, to reconcile his holding that a lis pendens is not itself a transfer with the applicability of § 547 by holding that any transfer that would arise from the lis pendens necessarily relates back to the date of the filing of the lis pendens. Tr. 31-33. In doing so, Judge Mitchell looked to In re Whitehead, a bankruptcy decision from the Southern District of Florida applying Florida law, for this relation-back proposition. 399 B.R. 570 (Bankr. S.D. Fla. 2009).

On this point the Court affirms the reasoning of Judge Mitchell. It is clear that the purpose of § 547, like the trustee's other avoidance powers under the Code, is to encourage an expedient and just disposition of the debtor's estate and to “discourage unusual action by either the debtor or his creditors during the debtor's slide into bankruptcy.” S. Rep. No. 989, 95th Cong., 2nd Sess. 88 (1978). Entangling the estate with unmerited claims to property and evasive disposals of property are thus frowned upon by the Code.

To this end, Judge Mitchell's specific reliance on In re Whitehead is telling. Tr. at 33-34. In that case, the bankruptcy judge in the Southern District of Florida held that a lis pendens did function as an avoidable transfer under § 547. This was because although Florida precedent, like Virginia's, held that a lis pendens did not create a lien, “the express provisions of 11 U.S.C. § 547(e)(1) do not require that a lien be created in order for an interest in the property to be transferred.” Id. at 573. Rather, “by putting the world on notice of his equitable claim to the properties, [the party filing the lis pendens] acquired an interest superior to that of a hypothetical future bona fide purchaser” which suffices under § 547. Id. In other words, filing a lis pendens certainly does not create a lien, but it is a “consequential action” which § 547 permits the trustee to avoid, provided it occurs within the requisite 90-day period. Id. As such, although Judge Mitchell did hold that a lis pendens is not a “transfer,” his ultimate reliance on § 547 aligns itself well with the underlying purposes of the Bankruptcy Code and the Virginia recording statute.

Southern District of Florida Bankruptcy Court: "Notice of Entry of Bankruptcy Administrative Orders 09-6, 09-7, 09-8 & Notice of Amended Federal Rules"

The United States Bankruptcy Court for the Southern District of Florida issued a "Notice of Entry of Bankruptcy Administrative Orders 09-6, 09-7, 09-8 & Notice of Amended Federal Rules."

You can view the Notice here and the new rules at the links below:

09-6;

09-7; and

09-8.

Creditors Try To Force Rothstein, Rosenfeldt & Adler Into Bankruptcy - Emergency Hearing Scheduled For Thursday

An involuntary bankruptcy petition has been filed seeking to force Scott Rothstein's law firm into bankruptcy.  Mr. Rothstein was previously discussed here.   Judge Raymond B. Ray was assigned the case.  The actual petition can be found at this link.  The creditors filing the petition are Bonnie Barnett, Roger Wittenberns, Aran Development, Inc. and Universal Legal.  The creditors also filed an emergency motion to appoint an interim chapter 11 trustee, which can be viewed below.

RRA - Emergency Motion for Appointment of Interim Chpt 11 Trustee

The emergency motion has been set for hearing on November 12, 2009 at 9:30am.  The notice of hearing can be found here.  

Update:

An article in the Miami Herald about the filing can be found here; in the South Florida Business Journal here; and at the Daily Pulp here.

"Ninth Circuit Creates Split Re Meaning of 'Actual Damages' in 11 U.S.C. s. 362(k)(1)"

Split Circuits has a post about a recent Ninth Circuit decision creating a circuit split regarding the meaning of actual damages in  11 U.S.C. s. 362(k)(1).  The post is below:

Ninth Circuit Creates Split Re Meaning of "Actual Damages" in 11 U.S.C. s. 362(k)(1)

Per Sternberg v. Johnston, --- F.3d ----, 2009 WL 3381162 (9th Cir. Oct. 22, 2009):

Sternberg also argues that the bankruptcy court erred in calculating Johnston's damages because it awarded attorney fees not only for the work associated with remedying the stay violation but also for the subsequent adversary proceeding in which Johnston sought to collect damages for the stay violation. We agree. . . . The relevant statute, 11 U.S.C. § 362(k)(1), states that “an individual injured by any willful violation of a stay ... shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages.” . . .

[W]e conclude that the plain meaning of “actual damages” points to a different result. The dictionary defines “actual damages” as “[a]n amount awarded ... to compensate for a proven injury or loss; damages that repay actual losses.” BLACK'S LAW DICTIONARY 416 (8th ed.2004). Following this definition, the proven injury is the injury resulting from the stay violation itself. Once the violation has ended, any fees the debtor incurs after that point in pursuit of a damage award would not be to compensate for “actual damages” under § 362(k)(1).

We recognize that the Fifth Circuit appears to have held to the contrary: “The lower courts in our Circuit have concluded that it is proper to award attorney's fees that were incurred prosecuting a section 362(k) claim [,]” and “[w]e adopt the same reading of section 362(k) and therefore agree.” Young v. Repine (In re Repine), 536 F.3d 512, 522 (5th Cir.2008). We do not create a circuit split lightly. But the above-quoted language is all the court said on the issue. Without more, we are hard-pressed to find this decision persuasive.

Social Security Administration Liable for Violations of Automatic Stay in Bankruptcy Court

The Daily Business Review reported today that a U.S. Bankruptcy Judge in New York held that the Social Security Administration was not immune from being liable for emotional distress damages after they allegedly violated the automatic stay sent demand letters to someone who had filed for bankruptcy. The decision, In re Griffin, was issued by U.S. Bankruptcy Judge Diane Davis in the Northern District of New York and can be found here.

At the Supreme Court...

The Supreme Court granted certiorari in United Student Aid Fund v. Espinosa (08-1134). The Court will decide: whether an individual who owes a student loan may wipe out the debt — at least partly — in a bankruptcy without showing that the debt posed an “undue hardship.” [From the SCOTUS Blog].

The Supreme Court also granted certiorari in Stop the Beach Renourishment v. Florida (08-1151). SCOTUS Blog described the issue in Stop the Beach as follows: "the Court will consider putting constitutional limits on states’ authority to restore storm-eroded beaches along the ocean or lakeshores, when such action modifies private property boundary lines." The decision under review, from the Supreme Court of Florida, can be found here.

The Court also agreed to hear a case "it had agreed to decide, but did not resolve, six years ago: when two companies agree to send their disputes to arbitration, may a court order that process to go forward as a class action, if the contract says nothing on that issue. The issue arises anew in Stolt-Nielsen S.A., et al., v. Animalfeeds International Corp. (08-1198)." [From the SCOTUS Blog].

A couple other orders from the Supreme Court are described by the SCOTUS Blog and quoted below:

"The Court, in another of Monday’s orders, invited the U.S. Solicitor General to offer the federal government’s views on an issue under the bankruptcy law’s Chapter 13 — what is the formula bankruptcy courts are to use in deciding how much a Chapter 13 debtor has available to pay creditors who hold no security, when a repayment plan is being fashioned. There is no deadline for the S.G.’s response. The case is Hamilton, Trustee, v. Lanning (08-998).

Among the cases the Court refused to hear on Monday was a constitutional dispute over the federal government’s powers to set aside federal and state laws that interfere with the building of the long fence on the U.S.-Mexico border, part of an effort to restrict drug traffic and thwart terrorist movements. The Court had turned aside that controversy a year ago (07-1180). This time, the Justices examined the new case at eight separate private meetings, then still came to the conclusion that it would not rule on it. The case is El Paso County, et al., v. Napolitano (08-751). As usual, the Court offered no explanation for denial of review.

In another denial, the Court refused to hear a claim that anti-Castro sentiment was so rampant in the Miami, Fla., area that a group of five Cubans could not get a fair trial there on charges of spying for that government. The case had stirred a strong international reaction. It was Campa, et al., v. U.S. (08-987)."

Supreme Court Vacates Stay in Chrysler Case

The Supreme Court vacated the stay entered by Justice Ginsburg allowing the Chrysler sale to move forward. Apparently, the sale could be complete as early as Wednesday morning. A copy of the order can be found here. Notably, the Court specifically limited its ruling by stating "Our assessment of the stay factors here is based on the record and proceedings in this case alone."

The Court stated:

A denial of a stay is not a decision on the merits of the underlying legal issues. In determining whether to grant a stay, we consider instead whether the applicant has demonstrated "(1) a reasonable probability that four Justices will consider the issue sufficiently meritorious to grant certiorari or to note probable jurisdiction; (2) a fair prospect that a majority of the Court will conclude that the decision below was erroneous; and (3) a likelihood that irreparable harm will result from the denial of a stay." Conkright v. Fommert, 556 U. S. ___, ___ (2009) (slip op., at 1–2) (GINSBURG, J., in chambers) (internal quotation marks and alterations omitted). In addition, "in a close case it may be appropriate to balance the equities," to assess the relative harms to the parties, "as well as the interests of the public at large." Id., at ___ (slip op., at 2)(internal quotation marks omitted)

SCOTUS Blog on the Temporary Stay in the Chrysler Case

The text below was posted on the SCOTUS Blog a few minutes ago and describes the temporary stay of the Chrysler sale.

The original post can be found here.
___________________

Context for the temporary stay order

Troy D. Cahill, counsel in Akin Gump’s Supreme Court and appellate practice, writes this explanation of the temporary stay order. Prior to joining Akin Gump, Troy served as staff attorney in the Supreme Court’s Office of the Clerk. While there, he assisted in the disposition of emergency applications for interim relief.

The temporary stay order entered by Justice Ginsburg is the conventional and relatively common way by which an Individual Justice maintains the status quo pending the ultimate determination of a stay application. While most often used to maintain the status quo pending the receipt of a response, temporary stay orders are sometimes issued by an Individual Justice to allow the Justice (or the full Court if the matter is ultimately referred to the full court for disposition) additional time to consider and act on an application for stay to which a response has been filed.

In the Chrysler case, Justice Ginsburg was faced with a definitive deadline (4 p.m. today) by which she or the Court needed to act or else the Indiana benefit funds and other applicants would be irreparably harmed. Given that the last response brief was not filed until Monday morning, given the significance of the underlying challenge to the government’s power to deal with the economic crisis, and given that Justice Ginsburg may have wanted to allow the applicants a reasonable opportunity to reply to the arguments made in response to their stay application, it is not surprising that Justice Ginsburg issued a temporary stay to permit herself additional time to consider the arguments and determine whether to refer the matter to the full court and whether to vote to grant or deny the stay request.

Temporary stays, like the one issued by Justice Ginsburg in the Chrysler case, may find their most frequent use in relation to capital cases in which a State refuses to delay a scheduled execution in order to permit the Court a reasonable time within which to act on a pending application for stay of execution. Confronted with the choice of permitting an execution to proceed despite the existence of a pending potentially meritorious stay request or granting a temporary stay to allow the Court a reasonable opportunity to consider and act on the stay application, the Circuit Justice will issue a temporary stay of execution to be lifted or continued upon the Justice’s (or the Court’s) ultimate decision on the pending application.

While the Chrysler case obviously is not a capital case, the same factors that compel an Individual Justice to issue a temporary stay in those cases, apply with equal force to the circumstances presented by the Indiana benefit fund and other applicants. The issuance of a temporary stay by Justice Ginsburg ought not be seen as a radical departure from Court procedure or read as in indication of how Justice Ginsburg intends to act on the application. Instead, the temporary stay order should simply be read for what it is - an interim order meant to maintain the status quo until Justice Ginsburg (or the full Court if the matter is referred) has considered and ruled on the application.

Relitigation in Florida Courts a Matter Determined in US Bankruptcy Court is not Permitted

In Manrique v. Universal Finance of Miami, Inc. (3D08-1697), the Third District held that "Relitigation of the matters determined in the United States Bankruptcy Court is not permitted."

Eleventh Circuit Affirms Order Enjoining Litigant from Bringing Action

In Thomas v. Blue Cross & Blue Shield (08-15395), the Eleventh Circuit affirmed Judge Moreno's order permanently enjoining the appellant from bringing suit against Blue Cross. The decision discusses a number of different legal theories including claim preclusion, the impact of a bankruptcy stay, laches, equitable challenges, the power of a court to adjudicate issues not raised and issues raised for the first time on appeal.

Facts

Judge Moreno issued the injunction based upon the judgment entered in a prior case pending before him. The prior case, Love, et al. v. Blue Cross Blue Shield Ass’n, et al., No. 03-21296-CV (S.D. Fla. Apr. 19, 2008), "alleged that Blue Cross cheated doctors by devising ways to delay, diminish, and deny properly requested payments based on their cost instead of medical necessity. In 2007 Blue Cross agreed to settle the case for $130,000,000 and an agreement to change many of its business practices. Most notably, Blue Cross agreed to use medical standards and scientific evidence in making its “medical necessity” determinations. The settlement agreement also included a release designed to prevent doctors who were members of the plaintiff class from pursuing further claims based on the same actions by Blue Cross. Notices of the preliminary Love settlement were mailed to Dr. Jemsek and the Jemsek clinic in July 2007. A summary notice was also published in USA Today, the Wall Street Journal, the Journal of the American Medical Association, and the American Medical News. Neither Dr. Jemsek nor the Jemsek clinic opted out of the plaintiff class. Accordingly, they were bound by the settlement agreement when the district court issued its final approval in April 2008."

"The district court’s order enjoined Jemsek from bringing, against any Blue Cross defendant, claims that: [A]re, were, or could have been asserted against any of the Released Parties by reason of, arising out of, or in any way related to the facts, acts, events, transactions, occurrences, courses of conduct, business practices, representations, omissions, circumstances, or other matters referenced in the [Love] Action, or addressed in the Settlement Agreement, whether any such Claim was or could have been asserted by any Releasing Party on its own behalf or on behalf of other Persons . . . . This includes, without limitation and as to Released Parties only, any aspect of any fee for service claim submitted by any Class Member."

Blue Cross sued the doctor in North Carolina and the doctor responded by filing bankruptcy, removing the action to the North Carolina bankruptcy court and filing nine compulsory counterclaims in the North Carolina bankruptcy court. In response, Blue Cross moved the Florida district court to enjoin the doctor from bringing the action.

Claim Preclusion

“In order for claim preclusion to apply, four elements are required: (1) a final judgment on the merits; (2) rendered by a court of competent jurisdiction; (3) identity of the parties; (4) identity of the causes of action."

***

An “identical factual predicate” requires only a common nucleus of operative fact.

***

"We hold that Dr. Jemsek’s counterclaims and the Love action, both of which arise out of Blue Cross’ conniving to deny, diminish, or delay payment for covered services based on cost instead of medical necessity, share the same operative nucleus of fact."

Claims Not Before the Court

"But “even when the court does not have power to adjudicate a claim, it may still approve release of that claim as a condition of settlement of an action before it...Given a broad enough settlement agreement— which it clearly was—and provided that Jemsek had notice of it and an opportunity to opt out, it is perfectly acceptable for the Love action to preclude his claims, even if they could not have been part of that action itself.

Bankruptcy Court's Automatic Stay

"Next, Dr. Jemsek contends that the district court’s injunction against his counterclaims should not be enforced because it violated the automatic stay in his bankruptcy case...Under the plain language of the [11 U.S.C. § 362(a)(1–3)], Jemsek’s counterclaims against Blue Cross are not “against the debtor,” and thus were not subject to the automatic stay...Therefore, the bankruptcy stay created by § 362 did not “cement” Jemsek’s claims into his sealed estate and thereby shield them from the Florida district court’s order in the Love action. Jemsek’s counterclaims were not stayed, so there is no reason why the judgment in the Love action could not foreclose them...

Nor did the Florida district court improperly “exercise control over property of the estate” under § 362(a)(3) by requiring Jemsek to choose whether to opt out of the Love action. Given that his counterclaims, though they may be “property of the estate,” were not stayed by the automatic bankruptcy stay, they were open to possible defeat by Blue Cross’ defenses. It would not make sense under a plain reading of the statute to treat raising a defense against a non-stayed counterclaim as an “exercise of control over property.”

Arguments Raised for the First Time on Appeal

“Arguments raised for the first time on appeal are not properly before this Court.” Hurley v. Moore, 233 F.3d 1295, 1297 (11th Cir. 2000); see also Blue Cross Blue Shield of Alabama v. Weitz, 913 F.2d 1544, 1549 (11th Cir. 1990).

Florida's Attorney General Files Objection to Chrysler's Attempt to Terminate Dealership Agreements

Florida's Attorney General Bill McCollum "filed a formal objection to Chrysler’s attempts to terminate existing dealership agreements under the U.S. Bankruptcy Code." An article about the objection can be found here and the actual objection here.

Chrysler dealers in Broward and Miami-Dade county have also objected [here].

Testifying in Subsequent Proceeding About Attorney Client Communications Waives Privilege in Subsequent Action

In S & I Investments v. Payless Flea Market, Inc. (4D08-3478), the Fourth District held that the petitioner had waived the attorney client privilege.

After defending petitioners in a legal proceeding, counsel in the original proceeding filed a lawsuit in federal court for unpaid legal fees. Petitioners defended the lawsuit for attorneys fees and gave a deposition at which there were no privilege objections made.

The circuit court held that petitioners had waived privilege.

"An order improperly compelling discovery of information protected from discovery by the attorney-client privilege is reviewable by certiorari."

***

Where a client sues her attorney for malpractice and voluntarily discloses her communications with the attorney, the client waives the attorney-client privilege as to those subjects disclosed... A client may voluntarily disclose confidential communications through testimony...Here, the client testified at the deposition and admits that she did not assert any claim of privilege at the deposition. She voluntarily gave testimony in a contested proceeding, recorded by both a videographer as well as a court reporter. She waived the privilege. 'Usually waiver in one proceeding is waiver in all proceedings.'

***

To the extent that the communications at petitioner’s deposition were relevant to the breach of duty between the lawyer and client, the communications were not protected by the privilege. § 90.502(4)(c), Fla. Stat. By testifying without objection in the deposition, petitioner waived any remaining attorney-client privilege.

***

The Fourth District also addressed the bankruptcy filing by one of the petitioners. The court held: "Petitioners filed a Notice of Filing Suggestion of Bankruptcy under Chapter 11 in this court on October 31, 2008, advising that an involuntary petition was filed against S & I. Although we acknowledge that the case is automatically stayed as to S & I, no stay is in effect as to petitioner Richmond."

Another Published Bankruptcy Decision from the Eleventh Circuit

In Elizabeth Chira v. Jose Saal (07-15897), the Eleventh Circuit issued a 17 page published opinion written by Judge Dubina affirming the district court and the bankruptcy court. Patrick S. Scott of GrayRobinson, P.A. was counsel of record for the appellee so I will only quote the court's opinion:

Denis and Elizabeth Chira acquired the Sheldon Beach Hotel in 1978 and operated the hotel together for over 20 years. In 1999, the couple decided to part ways, and for the past 10 years, Denis and Elizabeth have been locked in bitterly contested litigation over control of the hotel in both state and federal court. The Chiras’ state court divorce proceeding resulted in the formation of a contract for purchase of the hotel between a divorce court-appointed receiver and José Saal. Before this purchase contract was executed, the Chiras found themselves in federal court by way of Denis’s Chapter 7 bankruptcy case. The bankruptcy court approved a settlement agreement between José Saal and the Trustee of Denis’s bankruptcy estate, which calls for the performance of the Saal purchase contract, and the district court affirmed the bankruptcy court’s order. For the reasons that follow, we affirm the district court’s judgment affirming the bankruptcy court’s approval of the sale of the hotel to José Saal.

***

Bankruptcy Rule 9019(a) provides that “[o]n motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement.” In this circuit, a bankruptcy court evaluating a proposed settlement must consider:

(a) The probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; (d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises. In re Justice Oaks II, Ltd., 898 F.2d 1544, 1549 (11th Cir. 1990) (quoting Martin v. Kane (In re A & C Prop.), 784 F.2d 1377, 1381 (9th Cir. 1986)). Courts consider these factors to determine “the fairness, reasonableness and adequacy of a proposed settlement agreement.” In re A & C Prop., 784 F.2d at 1381.

Although the bankruptcy court did not explicitly consider all four of the Justice Oaks factors in its order approving the settlement agreement, we conclude that the bankruptcy court did not abuse its discretion by approving the settlement agreement.

Detailed Eleventh Circuit on Preferential Transfers

In Carrier Corp. v. Buckley (08-11098) Judge Cudahy wrote a detailed published opinion. (Judge Richard D. Cudahy is a Seventh Circuit Judge sitting on the Eleventh Circuit by designation.) The opinion goes into detail about "ordinary course of business," "preferential transfers" and other bankruptcy theories.

The opinion explains the issues in great detail but concludes the trustee was entitled to recover the preferential transfer and:

1.) The payments were not in the ordinary course of business (and an explanation of this issue); and

2.) A trustee is not entitled to recover prejudgment interest when it recovers preferential transfers. However, an award of prejudgment interest is appropriate in the bankruptcy court's discretion.

Lis Pendens Effectuated Transfer Outside Preference Period

In a decision released in January, In re Matthew J. Whitehead, III, 399 B.R. 570 (Bankr. S.D. Fla. 2009), the judgment creditor argued that the lis pendens filed at the start of the underlying state court action brought the judgment outside the preference period. Judge Olsen in the Bankruptcy Court for the Southern District of Florida held the "[i]n accord with 11 U.S.C. § 547, Fla. Stat. § 48.23, and applicable case law, I find the Notices of Lis Pendens to have effectuated a transfer of the property outside of the statutory preference period." Therefore, the creditor was granted relief from the automatic stay.

The decision is below:

•In re Matthew J. Whitehead, III, 399 B.R. 570 (Bankr. S.D. Fla. 2009)

*Disclaimer: Jeffrey Kuntz and/or GrayRobinson, P.A. were involved in the above-referenced action.