In re Financial Federated Title & Trust, Inc., 01-16553.

• Decision Date: 21 October 2002
• Docket Number: No. 01-16553.,01-16553.
• Citation: 309 F.3d 1325
• Court: U.S. Court of Appeals — Eleventh Circuit
• Parties: In Re: FINANCIAL FEDERATED TITLE & TRUST, INC., Debtor. Ronalee Levy Orlick, Plaintiff-Appellant, v. John W. Kozyak, Defendant-Appellee.

309 F.3d 1325

In Re: FINANCIAL FEDERATED TITLE & TRUST, INC., Debtor Ronalee Levy Orlick, Plaintiff-Appellant, v. John W. Kozyak, Defendant-Appellee.

No. 01-16553.

United States Court of Appeals, Eleventh Circuit.

October 21, 2002.

Susan N. Hayes, J.C. DeBoard & Co., L.P.A., Worthington, OH, for Plaintiff-Appellant.

Kenneth B. Robinson, Rice and Robinson, Arthur Halsey Rice, Arthur, Halsey, Rice & Assoc., Inc., Robert Reynolds, Miami, FL, for Defendant-Appellee.

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

Before CARNES, HILL and KRAVITCH, Circuit Judges.

HILL, Circuit Judge:

Ronalee Levy Orlick appeals a district court order affirming a bankruptcy court final judgment in favor of John W. Kozyak (bankruptcy trustee or trustee) for $1,167,037.19, on three counts of avoidance of payments as fraudulent transfers from Financial Federated Title & Trust, Inc. (FinFed) and American Benefits Services, Inc. (ABS), (collectively, "debtor"), to Orlick under federal and state law.¹ 11 U.S.C. §§ 548(a)(1)(A), (a)(1)(B); 544(b); Uniform Fraudulent Transfer Act, as adopted at Fla. Stat. § 726.101 et seq. (UFTA). Based upon the following, we vacate the order of the district court and remand for jury trial with special instructions.

I. PROCEDURAL AND FACTUAL BACKGROUND

The main case originated in 1999 when the bankruptcy trustee filed a complaint against Orlick and eight other defendants consisting of Orlick's father, Raphael "Ray" Levy, and seven corporations that Levy, and one other individual, either owned or controlled. The trustee sought to recover approximately $14,000,000 that had been transferred by the debtor to the defendants in an alleged Ponzi scheme² involving viaticated life insurance policies.³ The trustee's claims against Orlick were severed from the main case for non-jury trial before the bankruptcy court.

The facts involved in Orlick's case are straightforward. At her father's behest, Orlick began work in 1998 at ABS. She claims that it was agreed that she would be compensated at the rate of one percent (1%) of the gross revenues generated by ABS, similar to commissions paid to brokers. It is not disputed that her responsibilities included organizing the office by computerizing functions, coordinating office networking, performing payroll, commission and banking functions, managing employees and acting as human resource director. Later that year Orlick held herself out to the public as a vice-president of ABS.

Both parties agree that Orlick had a limited educational and professional background. She had graduated from high school and attended one and one-half years of community college. She also had computer and data entry vocational training. Orlick had worked as a bank teller for two years, a temporary bank secretary, a graphics art company receptionist and secretary, and a credit union administrative assistant and teller.

Orlick's percentage-based commissions were paid directly by debtor ABS through a conduit corporation, M&M Associates Trust (M&M), ostensibly for tax purposes. During the approximate eighteen months that she worked at ABS, Orlick was compensated in the amount of $1,167,037.19.

As to Orlick, the original complaint simply sought to void a transfer made to her for ten thousand dollars ($10,000). In her initial answer, Orlick did not request a jury trial. Three months later, an amended complaint was filed. It increased the demand against Orlick from ten thousand dollars ($10,000), to over one million dollars ($1,017,647), and added M&M Associates Trust (M&M) as the party conduit through which Orlick received the money.⁴ In her answer to the amended complaint, Orlick demanded a jury trial.

The bankruptcy trustee filed a motion to strike Orlick's jury demand as untimely under Fed.R.Civ.P. 38. After hearing argument, the bankruptcy court granted the trustee's motion, finding that the amended complaint contained no additional claims or theories of recovery. It concluded that as no new issues were raised in the amended complaint that differed from those alleged in the original complaint, Orlick was not entitled to revoke her original waiver of jury trial.

The case proceeded to a bench trial before the bankruptcy court. It found in favor of the bankruptcy trustee on the fraudulent transfer counts set forth as Counts I, II and III. It concluded that $1,167,037.19 in transfers from the debtor to Orlick were voidable both under the actual fraud and constructive fraud provisions. See Sections 548(a)(1)(A), (a)(1)(B). Furthermore, the bankruptcy court held that Orlick was not entitled as a matter of law to assert the affirmative defense of "for value and in good faith" found in Section 548(c) in defending herself against the three counts. After oral argument, the district court affirmed the order of the bankruptcy court in all respects. This appeal followed.

II. STANDARD OF REVIEW

As "the district court in reviewing the decision of a bankruptcy court functions as an appellate court, we are the second appellate court to consider this case." Capital Factors, Inc. v. Empire for Him, Inc. (In re Empire for Him, Inc.), 1 F.3d 1156, 1159 (11th Cir.1993). We review questions of law, whether made by the bankruptcy court or by the district court, under a de novo standard. Id. citing Equitable Life Assurance Soc. v. Sublett (In re Sublett), 895 F.2d 1381, 1383 (11th Cir.1990). As the district court makes no fact findings in its function as an appellate court, our review is de novo. Id. at 1384. We review the findings of fact made by the bankruptcy court for clear error. Rush v. JLJ, Inc. (In re JLJ, Inc.), 988 F.2d 1112, 1116 (11th Cir.1993).

III. DISCUSSION

A. Introduction

Orlick raises four issues on appeal. We discuss only two: (1) whether the district court improperly denied her right to jury trial in granting the trustee's motion to strike jury demand; and (2) whether the district court erred in holding, as a matter of law, that Orlick was not entitled to assert the affirmative defense of "for value and in good faith" found in Section 548(c) in defending against the fraudulent transfer counts of I, II and III.⁵

B. Right to Jury Trial

Orlick demanded a jury trial in her answer to the trustee's amended complaint. At hearing on the trustee's motion to strike her jury demand, the bankruptcy court found, and the district court agreed, that the amended complaint raised no new issues upon which Orlick could demand a jury. We disagree.

Fed.R.Civ.P. 38(b) provides in relevant part:

Any party may demand a trial by jury of any issue triable of right by a jury by (1) serving upon the other parties a demand therefor in writing at any time after the commencement of the action and not later than 10 days after the service of the last pleading directed to such issue, and (2) filing the demand as required in Rule 5(d). Such demand may be indorsed upon a pleading of the party.

In her memorandum in opposition to the trustee's motion to strike jury demand, Orlick contended that:

The Trustee asserts, incorrectly, that the Amended Complaint did not add any new issues or facts as to the Trustee's claims against Defendant Orlick. In fact, Defendant Orlick has gone from defending a claim against her for $10,000 (original Complaint) to defending a claim against her for $1,017,647.00 (Paragraph 13 of the Amended Complaint). Clearly this is a difference that warrants a reassessment as to the considerations of requesting a jury trial. This addition of a claim for over a million dollars more than the original complaint is certainly a new factual issue and alleges a new theory of recovery as to this Defendant.

We agree.

This issue is not one of first impression in this circuit. In LaMarca v. Turner, 995 F.2d 1526 (11th Cir.1993), this court held that where new plaintiffs raised new issues and claims, defendant's initial waiver of a jury did not preclude him from making an effective jury demand with respect to the new issues and new claims. Id. at 1545-46. See Burns v. C. Lawther, 44 F.3d 960 (11th Cir.1995); Borgh v. Gentry, 953 F.2d 1309, 1311 (11th Cir.1992)("[A] court's discretion [to deny a jury trial] is very narrowly limited and must, wherever possible, be exercised to preserve jury trial." (quoting Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 510, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959))); Guajardo v. Estelle, 580 F.2d 748 (5th Cir.1978)(even if a party has waived its right to a trial by jury, that right may be revived, at least as to newly asserted claims, upon the filing of an amended complaint which raises new issues); Moore v. United States, 196 F.2d 906, 908 (5th Cir.1952)(amended complaint did not revive any waived right to jury trial because it did not raise any new issues which carry a Seventh Amendment right to jury trial).

Here the trustee's original complaint simply sought to void a transfer made to Orlick for $10,000, claiming that she would not be able to demonstrate the provision of services sufficient to earn that amount.⁶ Because the relatively nominal amount claimed in the original complaint did not warrant a jury trial, it is not surprising that a jury demand was not made.

After being lulled into waiving her right to jury trial, the trustee then presents Orlick with an entirely new, more sophisticated, case. The amended complaint "raises the ante" one hundredfold, from $10,000 to $1,017,647.00, contending now that these allegedly voidable sums passed through a conduit corporation, M&M, added as a new defendant. The case has changed. Orlick must now defend herself against her alleged legal incapacity to show any entitlement to $10,000 in funds, to defending herself against a claim that amounts paid to her were far greater than she would ever be entitled to receive. This is an entirely different case with new issues that force new methods of defense.⁷ See LaMarca, 995 F.2d at 1545-46. As to this new case, Orlick's right to a jury trial is revived....