In re Harwell

• Citation: 628 F.3d 1312
• Decision Date: 29 December 2010
• Docket Number: No. 09-14997,09-14997
• Parties: In re: Billy Jason HARWELL, Debtor. Lynn H. Martinez, Plaintiff-Appellant, v. Steven D. Hutton, Steven D. Hutton, P.L., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

628 F.3d 1312

In re: Billy Jason HARWELL, Debtor.
Lynn H. Martinez, Plaintiff-Appellant,
v.
Steven D. Hutton, Steven D. Hutton, P.L., Defendants-Appellees.

No. 09-14997.

United States Court of Appeals,
Eleventh Circuit.

Dec. 29, 2010.

628 F.3d 1313

Lori Virginia Vaughan, Trenam Kemker, P.A., Tampa, FL, for Martinez.

Michael P. Brundage, Hill, Ward & Henderson, P.A., for Appellees.

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

Before HULL and MARCUS, Circuit Judges, and COOKE,^* District Judge.

HULL, Circuit Judge:

In this fraudulent transfer case, Appellant Lynn H. Martinez ("Martinez"), as United States Bankruptcy Trustee, appeals the district court's affirmance of the

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bankruptcy court's grant of summary judgment in favor of Appellees Steven D. Hutton and his law firm, Steven D. Hutton, P.L. ("Hutton"). For the purposes of its summary judgment ruling, the bankruptcy court assumed that attorney Hutton had schemed with debtor Billy Jason Harwell ("Harwell") to have the debtor's funds placed in Hutton's trust account and then distributed to Harwell personally, his family members, and selected creditors.

Despite Hutton's being involved in, and the mastermind of, the debtor Harwell's fraudulent transfer scheme, the bankruptcy court concluded that Trustee Martinez could not recover the funds from attorney Hutton because he was not the "initial transferee" under 11 U.S.C. § 550(a)(1). After review and oral argument, we reverse.

I. FACTUAL BACKGROUND

A. Colorado Judgment Against Debtor Harwell

On July 12, 2005, Thomas Clay Hill ("Hill") obtained a Colorado judgment of $1.396 million against debtor Harwell. On July 27, 2005, Hill filed papers in Sarasota County, Florida attempting to domesticate his Colorado judgment against Harwell. Attorney Hutton represented Harwell in this domestication proceeding.

B. Debtor Harwell's $500,000 in Cash and Promissory Note

At the time the Colorado judgment was entered, debtor Harwell owned interests in two Florida businesses. Harwell was a shareholder of the Center for Endoscopy, Inc. ("CFE"), a Florida corporation, and a member of Sarasota Endo Investors, LLC ("SEI"), a Florida limited liability company. Harwell engaged Hutton and his law firm to represent Harwell in disputes with other investors in CFE and SEI.

On August 11, 2005, debtor Harwell entered into a settlement agreement with SEI and CFE that provided he would receive $100,000 cash within 20 days for his interest in CFE; $400,000 cash within 30 days for his interest in SEI; and a $46,837 promissory note from SEI to Harwell to satisfy SEI's obligations to Harwell and as a return of capital.

On August 26, 2005, debtor Harwell answered post-judgment interrogatories from Hill, but did not disclose the settlement or information about the $546,837 in funds he would get from it. Hutton played no part in answering those interrogatories.

On September 1, 2005, CFE's settlement payment of $100,000 was deposited directly into Hutton's trust account. That same day, at Harwell's direction and with knowledge of Hill's judgment and collection attempts, Hutton disbursed the $100,000 in five checks:

No. Amount Payee

944	$ 35,000	Harwell
945	25,000	Harwell
946	5,000	Christine A. Harwell
(Harwell's wife)
947	25,000	ASC Partners
948	10,000	Steven D. Hutton, P.L. Trust Account
$100,000

Next, Hutton wrote a letter, dated September 6, 2005, to SEI's counsel directing him to make the promissory note payment of $46,837 to Harwell's wife, Christine. On September 9, 2005, SEI made its $400,000 settlement payment directly to Hutton's trust account. That same day, at Harwell's direction, Hutton disbursed the $400,000 in seventeen checks:

No. Amount Payee

962 $ 75,000 1 Harwell

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After these checks were written on September 9, but before they cleared, Hill obtained a turnover order from the Colorado court requiring debtor Harwell to (1) turn over any payments from SEI, and (2) turn over any funds Harwell received after July 12, 2005, that were still within his control.

C. Hill's Garnishment of Hutton's Trust Account

On September 19, 2005, judgment-creditor Hill served attorney Hutton with a writ of garnishment for any amounts held in trust for debtor Harwell. In response, Hutton stopped payment on check Nos. 962 and 971 issued to Harwell and totaling $125,000,² but not on several other checks that had not yet cleared Hutton's trust account and for which funds still remained in Hutton's trust account.

Hutton and debtor Harwell moved to quash Hill's garnishment based on Hill's domestication being defective on technical grounds. The Florida court granted their motion on September 28, 2005.

D. Hutton Disburses $125,000 from His Trust Account

On September 28, 2005, the same day the Florida state court quashed the writ of garnishment, Hutton issued a check on his trust account to the Bank of Commerce for Harwell's remaining $125,000. Hutton personally visited the bank, delivered the $125,000 check, and obtained seven cashier's checks, including three $30,000 checks payable to Harwell's wife, his father, and creditor Montana Tractor, respectively:

No. Amount Payee

6988	$ 15,000	Robert Du[i]tch, Harwell's bankruptcy attorney
6989	7,500	American Express
6990	30,000	Billy C. Harwell, Harwell's father
6991	30,062	.96	Christine A. Harwell, Harwell's wife
6992	9,500	IRS
6993	30,000	Montana Tractor Inc.
6994	3,000	J. Lichlyter
$125,062	.96

In his deposition, Hutton testified that he obtained the seven cashier's checks to make sure the money was out of his trust account in case Hill sought another writ of garnishment. He also testified that these transactions were unusual and departed from the typical handling of client trust funds.

On October 10, 2005, Harwell filed for Chapter 11 bankruptcy protection ³ in the United States Bankruptcy Court for the District of Colorado. Subsequent to that bankruptcy filing, Hutton assisted Harwell in converting the $30,000 cashier's check, No. 6993 payable to Montana Tractor, into a check payable to Harwell personally.

II. PROCEDURAL HISTORY

On November 19, 2005, Appellant Martinez, as Chapter 7 bankruptcy trustee,

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filed a complaint against Hutton in the bankruptcy court in Colorado, seeking relief including Hutton's return of the $500,000 from the SEI and CFE settlements under, inter alia, 11 U.S.C. §§ 548(a)(1)(A) and 550(a)(1). Hutton responded with a motion to transfer the case to Florida, which the bankruptcy court in Colorado granted.

After the transfer to the United States Bankruptcy Court for the Middle District of Florida (hereinafter "bankruptcy court"), Hutton moved to dismiss Trustee Martinez's complaint. The bankruptcy court denied that motion.

Hutton then moved for summary judgment, which the bankruptcy court granted. The bankruptcy court stated the issue as: "Are there theories in which a Chapter 7 Trustee [Martinez] can go after the lawyer for personal liability where the lawyer is the mastermind and facilitator of the fraudulent conveyances"?

For the purposes of its summary judgment ruling, the bankruptcy court expressly assumed that (1) "Mr. Hutton was the mastermind and the marionette that was driving all the pieces of what was a huge fraudulent conveyance of hundreds of thousands of dollars that would have been [otherwise] available for creditors," and (2) that Hutton "managed to coordinate things in a fashion that the settlement was concluded and the money funneled through Mr. Hutton's trust account to various preferred creditors and insiders in either preferential or fraudulent conveyances." Nonetheless, the bankruptcy court determined that Hutton was not an "initial transferee" of Harwell's money under § 550(a)(1) of the Bankruptcy Code because Hutton never had dominion and control over the money Hutton kept in his trust account for Harwell. The effect of this ruling was that Trustee Martinez could not recover the fraudulently-transferred funds from Hutton.

The bankruptcy court also addressed whether Trustee Martinez had cognizable claims against Hutton, under Florida law, for (1) aiding and abetting a fraudulent transfer or (2) civil conspiracy to effect a fraudulent transfer. Citing Freeman v. First Union National Bank, 865 So.2d 1272, 1277 (Fla.2004), the bankruptcy court determined that the Florida Uniform Fraudulent Transfer Act did not allow Trustee Martinez to assert a cause of action against Hutton for either aiding and abetting or civil conspiracy if Hutton was not an "initial transferee" of the money within the meaning of the Bankruptcy Code. The district court affirmed. Martinez v. Hutton (In re Harwell), 414 B.R. 770 (M.D.Fla.2009).

III. STANDARD OF REVIEW

"In bankruptcy appeals, this Court independently examines the factual and legal findings of the bankruptcy court using the same standards as did the district court." Trusted Net Media Holdings, LLC v. The Morrison Agency, Inc. (In re Trusted Net Media Holdings, LLC), 550 F.3d 1035, 1038 n. 2 (11th Cir.2008) ( en banc). We review the bankruptcy court's factual findings for clear error and its legal determinations de novo. Id. Under the familiar standard of Federal Rule of Civil Procedure 56, a movant is entitled to summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a).⁴ Under this standard, the court must view the facts and make all

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reasonable inferences in favor of the nonmoving party. Loren v. Sasser, 309 F.3d 1296, 1301-02 (11th Cir.2002).

IV. DISCUSSION

A. Bankruptcy Code §§ 548 and 550

Under § 548 of the Bankruptcy Code, the bankruptcy trustee "may avoid any transfer ... of an interest of the debtor in property," made within two years before the filing of a bankruptcy petition, if the transfer was made "with actual intent to hinder, delay, or defraud ..." any then- or future creditors. 11 U.S.C. § 548(a)(1)(A) (emphasis added). Section 550(a) then provides that, to the extent that a transfer is...