Bel-Bel Intern. Corp. v. Community Bank of Homestead, BEL-BEL

• Decision Date: 15 December 1998
• Docket Number: No. 96-4598,BEL-BEL,96-4598
• Citation: 162 F.3d 1101
• Parties: , 12 Fla. L. Weekly Fed. C 336 INTERNATIONAL CORP., Plaintiff-Appellee-Cross-Appellant, v. COMMUNITY BANK OF HOMESTEAD, Kenneth Graves, Vito Strano, Growers Packing Company, Joseph Torcise, and Codelia Torcise, Defendants-Appellants-Cross-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1101

162 F.3d 1101

33 Bankr.Ct.Dec. 820, 12 Fla. L. Weekly Fed. C 336

BEL-BEL INTERNATIONAL CORP., Plaintiff-Appellee-Cross-Appellant, v. COMMUNITY BANK OF HOMESTEAD, Kenneth Graves, Vito Strano,

Growers Packing Company, Joseph Torcise, and

Codelia Torcise,

Defendants-Appellants-Cross-Appellees.

No. 96-4598.

United States Court of Appeals, Eleventh Circuit.

Dec. 15, 1998.

Rehearing Denied March 8, 1999.

Rudolph H. Aragon, Aragon, Burlington, Weil & Crockett, PA, Miami, FL, Sylvia Walbolt, Carlton, Fields, St. Petersburg, FL, Alan C. Sundberg, Carlton, Fields, Ward, Emmanuel Smith & Cutler, PA, Tallahassee, FL, David Hywel Leonard, Carlton Fields, Tampa, FL, for Community Bank.

Robert M. Hustead, Homestead, FL, for Graves, Strano and Community Bank.

Martin L. Sandler, Sandler & Sandler, Miami, FL, for Growers Packing, Joseph Torcise and Codelia Torcise.

Paul A. Louis, Frank Nussbaum, Sinclair, Louis, Heath, Nussbaum & Zavertnik, P.A., Miami, FL, David A. Freedman, Shapo, Freedman & Fletcher, PA, Miami, FL, for Appellees.

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

Before TJOFLAT and BIRCH, Circuit Judges, and RONEY, Senior Circuit Judge.

TJOFLAT, Circuit Judge:

This case is one of many arising out of the bankruptcy of a Florida tomato farming operation owned by Joe Torcise. ¹ The case before us involves one set of creditors converting property that was pledged as collateral to another creditor. We hold that there is no bar to requiring the converting creditors to return the property they converted, and therefore affirm the judgment of the district court.

I.

Joe Torcise owned two tomato farms--one in Homestead, Florida, and the other in Immokalee, Florida. He also owned Growers Packing Company, which packed his tomatoes and those of several other farmers.

In the late 1980s, Torcise began facing financial difficulties. In response, he started "check-kiting"--he wrote checks from one bank account to another, and then wrote checks from the second account back into the first, thus artificially inflating the balances of both accounts. In November 1988, one of the banks involved in this process--Community Bank of Homestead--discovered the check-kiting, but only after honoring $4.3 million of Torcise's bad checks. In an attempt to recoup its losses, Community Bank persuaded Torcise to sign a promissory note (dated November 18, 1988) for the amount of the overdrafts. The collateral for this note was the accounts receivable (the "receivables") of the Homestead and Immokalee tomato crops for the coming winter and spring, respectively. ²

Torcise also sought to deal with his financial problems through more legitimate means, namely, by seeking new sources of capital. Torcise received unsecured loans from a number of sources, including defendants Kenneth Graves and Vito Strano, and Steven and Sam Torcise ("the Brothers"). Another source of funding was Bel-Bel International Corporation, a small Panamanian corporation created by a Venezuelan family for the purpose of investing in the United States. On November 29, 1988, Bel-Bel loaned $2.5 million to Torcise and his wife, Codelia, secured by a first priority security interest in the Homestead tomato crop for the coming winter--the same crop that Torcise had pledged as collateral to Community Bank. ³ The loan documents included a representation by Torcise that the collateral was unencumbered, and provided that Torcise would not further encumber this collateral without Bel-Bel's consent.

One of the terms of Bel-Bel's loan was that Torcise was to provide a "good standing letter" from his other lenders indicating that his loans were not in default. Bel-Bel received such a letter from Community Bank on December 8, 1988, stating that none of Torcise's loans were in default. Conspicuously absent from the letter was any mention of Torcise's $4.3 million in overdrafts resulting from his check-kiting activity, or of the loan given to cover those overdrafts.

By the end of 1988, Torcise had fully repaid the $4.3 million note to Community Bank (thereby extinguishing Community Bank's claim on the Homestead receivables ⁴), using receipts from the Immokalee fall crop. This speedy repayment, however, strained Torcise's cash flow to the point that it became difficult for him to meet his current operating expenses. Consequently, in March 1989, Torcise lacked the resources to harvest the spring crop at his Immokalee farm, or to keep Growers Packing operating such that any tomatoes picked at Immokalee could be marketed.

In response to this problem, Community Bank arranged a complex financing scheme with Torcise and some of his creditors. Community Bank lent a total of $3.55 million to Strano ($1.5 million), Graves ($750,000), and the Brothers ($1.3 million). These individuals then gave the money to Torcise. Over $3.2 million of this money was immediately returned to Strano, Graves, and the Brothers as partial repayment for pre-existing debts. ⁵ Community Bank then created a "lock-box" account into which the receivables for Torcise's Homestead crop would be deposited. Sixty percent of this account was to be used to repay the $3.55 million loan from Community Bank; the remaining forty percent was to be released to Torcise for use in harvesting the Imokalee crop. ⁶ At the time that this arrangement was made, all of the participants were aware that the receivables from Torcise's Homestead crop had been pledged previously to Bel-Bel.

Between April 6 and May 24, 1989, approximately $5 million in receivables from the Homestead crop was deposited into the lock-box account. Of this amount, almost $3.6 million was used to repay the Community Bank loan.

The Bel-Bel note came due on June 1, 1989. Torcise was unable to pay. Consequently, Bel-Bel agreed to extend Torcise's repayment schedule through August 18. Torcise was still unable to pay. Bel-Bel then filed suit in the Southern District of Florida on November 13, 1989, against Torcise and his wife, Growers Packing Company, Community Bank, Graves, and Strano. ⁷ A few weeks later, Torcise, his wife, and Growers Packing Company filed for Chapter 11 bankruptcy. ⁸ The bankruptcy judge granted relief from the automatic stay of litigation proceedings against the bankrupts, and allowed Bel-Bel's suit to proceed. ⁹

Following a bench trial, the district court found Torcise and his wife liable to Bel-Bel for payment of the $2.5 million note. Torcise was also found liable for fraudulent inducement based on his representation that the Homestead tomato crop was unencumbered, when it had in fact previously been pledged to Community Bank as collateral for the $4.3 million note to cover Torcise's overdrafts. In addition, the court found that Bel-Bel still had a security interest in the Homestead crop receivables, and therefore that Bel-Bel could demand those receivables from Community Bank, Graves, and Strano in repayment of Torcise's debt. ¹⁰ The district court additionally found these defendants liable for impairment of collateral, tortious interference with the contractual relationship between Bel-Bel and Torcise, civil conversion, and conspiracy to commit these torts. ¹¹ Finally, Community Bank was held liable for fraudulent nondisclosure, based on its failure to disclose Torcise's overdrafts in the "good standing letter."

The defendants were held jointly and severally liable for compensatory damages, consisting of principal and accrued interest on the $2.5 million note at the time the lock-box account was created, and prejudgment interest at the statutory rate from the date of the creation of the lock-box account to the date on which the district court entered its "findings of fact and conclusions of law." ¹² In addition, punitive damages were assessed against Community Bank ($300,000), Graves ($50,000), and Strano ($50,000).

All defendants appeal, and Bel-Bel cross-appeals. Parts II and III of this opinion dispose of some preliminary matters raised by the defendants--claims that the district court lacked subject matter jurisdiction and that the case should have been dismissed for failure to join necessary parties. Part IV addresses the substantive appeals of Community Bank, Graves, and Strano, focusing on the district court's holding that they are liable for conversion. Part V discusses the issues raised by Torcise on appeal, and part VI discusses Growers Packing's claim that the judgment against it is void. Finally, part VII addresses the issues raised by Bel-Bel's cross-appeal.

II.

The defendants' initial challenge to the district court's decision is that the parties in this case are not completely diverse, and thus the district court lacked subject matter jurisdiction over the case. Federal jurisdiction in this case is premised on diversity of citizenship. See 28 U.S.C. § 1332(a) (1994). Diversity jurisdiction requires that the plaintiff be a citizen of a state (or nation) different from that of any of the defendants. See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806). For purposes of diversity jurisdiction, a corporation is "a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U.S.C. § 1332(c)(1) (1994). A corporation's principal place of business is determined by looking at the "total activities" of the corporation. See Village Fair Shopping Ctr. Co. v. Sam Broadhead Trust, 588 F.2d 431, 434 (5th Cir.1979). ¹³

Defendants concede that Bel-Bel is incorporated in Panama (and is therefore a Panamanian citizen) and that none of the defendants are Panamanian citizens. Defendants argue, however, that Bel-Bel's principal place of business is Florida, and therefore Bel-Bel, in addition to being a Panamanian citizen, is a Florida citizen. The defendants point out that Bel-Bel's only investment was in Florida, that Bel-Bel maintained a bank account in Florida, and that Bel-Bel had an accountant and attorneys in...