Curtis v. William F. Perkins, in His Capacity of Int'l Mgmt. Assocs., LLC (In re Int'l Mgmt. Assocs., LLC)

• Citation: 781 F.3d 1262
• Decision Date: 19 March 2015
• Docket Number: No. 14–13423,14–13423
• Parties: In re INTERNATIONAL MANAGEMENT ASSOCIATES, LLC, Debtor. George Russell Curtis, Sr. Living Trust, George Russell Curtis, Sr., Betty Curtis, Defendants–Appellants, v. William F. Perkins, in his Capacity as Chapter 11 Trustee of International Management Associates, LLC and its affiliated debtors, Plaintiff–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

781 F.3d 1262

In re INTERNATIONAL MANAGEMENT ASSOCIATES, LLC, Debtor.George Russell Curtis, Sr. Living Trust, George Russell Curtis, Sr., Betty Curtis, Defendants–Appellants

v.William F. Perkins, in his Capacity as Chapter 11 Trustee of International Management Associates, LLC and its affiliated debtors, Plaintiff–Appellee.

No. 14–13423

United States Court of Appeals, Eleventh Circuit.

March 19, 2015.

Jonathan H. Fain, Jonathan H. Fain & Associates, PC, Atlanta, GA, for Defendants–Appellants.

Colin Bernardino, John W. Mills, Burleigh Lavisky Singleton, Kilpatrick Townsend & Stockton, LLP, Atlanta, GA, for Plaintiff–Appellee.

Appeal from the United States District Court for the Northern District of Georgia. D.C. Docket Nos. 1:13–cv–02067–RWS; 08–bkc–06215–PWB.

Before ED CARNES, Chief Judge, HULL and ROSENBAUM, Circuit Judges.

Opinion

PER CURIAM:

George Russell Curtis, Betty Curtis, and the George Russell Curtis, Sr., Living Trust, who are the defendants in this adversary proceeding, appeal the bankruptcy court's judgment, which allowed the bankruptcy trustee to avoid a $200,000 transfer from the debtor, International Management Associates (IMA), to the defendants. See 11 U.S.C. §§ 544(b), 547(b), 548(a)(1)(A)-(B).

I.

Kirk Wright ran IMA and its affiliates, which he claimed were hedge funds but which looked like a Ponzi scheme. The defendants invested $500,000 with IMA from 2002 to 2006. Over that same period, they received $621,000 in disbursements from IMA. The last of those disbursements took place on January 10, 2006, when IMA transferred $200,000 to the defendants.

On March 16, 2006, the bankruptcy trustee, whom a Georgia state court had appointed as IMA's receiver,¹ filed a voluntary petition to place IMA in bankruptcy. As part of that bankruptcy action, the trustee filed a series of adversary proceedings against IMA's investors, including the defendants. In those proceedings, he sought to avoid transfers that IMA had made to those investors shortly before being placed in bankruptcy. The bankruptcy court consolidated all those proceedings for the sole purpose of determining whether IMA was a Ponzi scheme. It held a consolidated hearing to take evidence on that question.

The trustee was the only witness at that hearing. He gave few details about the state of IMA's finances at the time he took control of it. He focused almost entirely on laying the foundation for his documentary evidence. He testified how he had seized IMA's files and, using his training as a certified fraud examiner, had “reconstructed” them to verify their accuracy.

According to the trustee's testimony, the day after the state court appointed him as receiver, he took possession of IMA's offices and their contents, most importantly IMA's documents. He immediately changed the locks and removed any means of remotely accessing IMA's electronic documents. He then worked with the FBI and the SEC to canvass national financial institutions for accounts in the name of either IMA or Wright. He subpoenaed the records of those institutions where he found IMA's accounts. He interviewed IMA's investors. With the help of an international accounting firm, he cross-checked IMA's own documents with those kept by the financial institutions and the investors. He also interviewed IMA's principals and its employees, including its office manager. From them he learned about the procedures used to create IMA's documents. Satisfied as to their reliability, the trustee prepared detailed summaries of them.

At the bankruptcy court's consolidated hearing, the trustee offered those summaries into evidence to prove the state of IMA's finances up to the start of this bankruptcy action. See Fed.R.Evid. 1006 (“The proponent may use a summary, chart, or calculation to prove the content of voluminous writings, recordings, or photographs that cannot be conveniently examined in court.”). He did not offer into evidence the documents underlying those Rule 1006 summaries. The defendants objected to the introduction of the summaries and argued that the underlying documents had not been authenticated and were hearsay not within any hearsay exception. See Fed.R.Evid. 802, 901. The bankruptcy court overruled that objection, specifically concluding that the underlying documents would be admissible under the residual hearsay exception. See Fed.R.Evid. 807.

Based on the evidence presented at that consolidated hearing, the bankruptcy court found that IMA was a Ponzi scheme. It then severed the consolidated adversary proceedings and used its Ponzi scheme finding and the trustee's Rule 1006 summaries to adjudicate them individually. In this adversary proceeding, the trustee and the defendants stipulated to three facts: (1) that the defendants had invested $500,000 with IMA; (2) that IMA had disbursed a total of $621,000 to the defendants; and (3) that IMA's last disbursement to them was the $200,000 transfer on January 10, 2006, 65 days before this bankruptcy petition was filed. Based on those stipulated facts, the trustee's Rule 1006 summaries, and the Ponzi scheme finding, the bankruptcy court entered a judgment allowing the trustee to avoid the $200,000 transfer from IMA to the defendants. The defendants appealed that judgment to the district court, which affirmed it. They now appeal it to us.

II.

After the district court reviews a bankruptcy court's judgment, we review that judgment again, independently of the district court. Senior Transeastern Lenders v. Official Comm. of Unsecured Creditors (In re TOUSA, Inc. ), 680 F.3d 1298, 1310 (11th Cir.2012). We review the bankruptcy court's evidentiary rulings, here its decision to admit the trustee's Rule 1006 summaries, only for an abuse of discretion. Walden v. Walker (In re Walker ), 515 F.3d 1204, 1213 (11th Cir.2008) ; United States v. Malol, 476 F.3d 1283, 1291 (11th Cir.2007). Even if the court did commit an abuse of discretion, we will overturn its evidentiary ruling only if the defendants have shown that the ruling had a “substantial prejudicial effect.” Adams v. Austal, U.S.A., L.L.C., 754 F.3d 1240, 1248 (11th Cir.2014) (quotation marks omitted).

The bankruptcy court admitted the trustee's summaries under Federal Rule of Evidence 1006, which allows a party to “use a summary, chart, or calculation to prove the content of voluminous writings, recordings, or photographs that cannot be conveniently examined in court.” The only textual limit placed on the use of summaries is that “[t]he proponent must make the originals or duplicates available for examination or copying, or both, by other parties at a reasonable time and place.” Fed.R.Evid. 1006. The rule does not require the proponent to introduce the underlying documents into evidence, and the trustee did not. But we have held that it is necessary to establish that the underlying documents would have been admissible if the proponent had sought their admission. Peat, Inc. v. Vanguard Research, Inc., 378 F.3d 1154, 1160 (11th Cir.2004).

The defendants objected to the admission of the trustee's Rule 1006 summaries on the ground that the underlying documents were inadmissible hearsay. Because the trustee used the summaries based on the underlying documents to prove the truth of the information contained in those documents, they are hearsay and were not admissible unless covered by a hearsay exception. Fed.R.Evid. 801(c), 802. The bankruptcy court concluded that the underlying documents were admissible under the residual exception to the rule against hearsay. See Fed.R.Evid. 807.

The trustee contends that, even if those documents were not admissible under that hearsay exception, they were admissible under the hearsay exception for “business records.” See Fed.R.Evid. 803(6). As the appellee, the trustee may raise any argument for affirming the bankruptcy court's judgment as long as it is supported by the record—even arguments that are inconsistent with the bankruptcy court's reasoning. See Hamilton v. Southland Christian Sch., Inc., 680 F.3d 1316, 1318 (11th Cir.2012) ; see also Gwynn v. Walker (In re Walker ), 532 F.3d 1304, 1308 (11th Cir.2008) (“We may affirm on any legal ground supported by the record.”). And we must disregard any evidentiary errors and affirm the bankruptcy court's judgment as long as those errors did not have a substantial prejudicial effect. Adams, 754 F.3d at 1248. Assuming the bankruptcy court erroneously applied the residual hearsay exception, that ruling did not have a substantial prejudicial effect if the underlying documents were admissible under the business records exception. See United States v. Williams, 837 F.2d 1009, 1013–14 (11th Cir.1988) (affirming a judgment despite the erroneous admission of a statement under a hearsay exception because the statement was admissible as substantive evidence under another rule of evidence). If the underlying documents were admissible under the business records exception, we must affirm.

The trustee's testimony needed to show two things to establish that the business records exception applied. United States v. Dreer, 740 F.2d 18, 19–20 (11th Cir.1984). First, it needed to show that the underlying documents are authentic. Id. at 20 ; see Fed.R.Evid. 901 –902. Second, it needed to show that they meet the requirements of Rule 803(6). Dreer, 740 F.2d at 20. Whether the trustee's Rule 1006 summaries were admissible depends on whether he made both of those showings for the underlying documents establishing their admissibility under Rule 803(6). See Peat, Inc., 378 F.3d at 1160–61 ; see also United States v. Johnson, 594 F.2d 1253, 1257 (9th Cir.1979) (“[T]he proponent of a summary must demonstrate the admissibility of the underlying writings or records summarized, as a condition precedent to introduction of the summary into evidence under Rule 1006.”) (emphasis added).

A.

The trustee met his authentication burden, which is a light one. See United States v. Lebowitz, 676 F.3d 1000, 1009 (11th Cir.2012) (refusing to disturb an authentication...