Burton W. Wiand, Partners, L.P. v. Dancing $, LLC
| Decision Date | 27 August 2014 |
| Docket Number | No. 13-10851,13-10851 |
| Parties | BURTON W. WIAND, as Receiver for Valhalla Investment Partners, L.P., Viking Fund, LLC, Viking IRA Fund, LLC, Victory Fund, LTD, Victory IRA Fund, LTD, Scoop Real Estate, L.P., Plaintiff - Appellee Cross Appellant, v. DANCING $, LLC, Defendant - Appellant Cross Appellee. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
[DO NOT PUBLISH]
Non-Argument Calendar
D.C. Docket No. 8:10-cv-00092-EAK-MAP
Appeals from the United States District Court for the Middle District of Florida
Before TJOFLAT, FAY, and ALARCÓN,* Circuit Judges.
In this "clawback" action to recover the fraudulent transfer of purported profits made to investors in various hedge funds during the perpetration of a Ponzi scheme,1 Dancing $, LLC appeals the District Court's grant of summary judgment in favor of Burton W. Wiand (the "Receiver") on his claim under the Florida Uniform Fraudulent Transfer Act ("FUFTA"),2 Fla. Stat. §§ 726.101-726.210. In one of many related clawback actions filed separately against numerous defendants, the Receiver sought to void distributions of profits to Dancing $ from the receivership entities—various hedge funds involved in a Ponzi scheme. The Receiver cross-appeals the District Court's denial of prejudgment interest on the profits the District Court ordered Dancing $ to return to the receivership entities. Following our recent decision in Wiand v. Lee, 753 F.3d 1194 (11th Cir. 2014), we affirm the District Court's grant of summary judgment in favor of the Receiver and reverse and remand with instructions the District Court's denial of the Receiver's request for prejudgment interest.
This case stems from the collapse of a large-scale Ponzi scheme orchestrated by hedge fund manager Arthur Nadel over the course of a decade. From 1999 through January 2009, Nadel, through Scoop Capital, LLC and Scoop Management, Inc. (entities that he created and controlled), together with Christopher Moody and Neil Moody, through Valhalla Management, Inc. and Viking Management, LLC, managed hedge funds including Valhalla Investment Partners, L.P.; Viking Fund, LLC; Victory IRA Fund, LLC; Victory Fund, Ltd.; Victory IRA Fund, LTD; and Scoop Real Estate, LP (collectively, the "Hedge Funds"). Throughout this period, Nadel induced investors to open accounts with the Hedge Funds based on misrepresentations as to the funds' assets and as to the returns the investors would receive.
Nadel controlled the Hedge Funds' investments through Scoop Capital and Scoop Management. Although Nadel performed some trading, he primarily used the principal provided by new and existing investors to benefit himself and to pay distributions to earlier investors in order to maintain an appearance of profitability and legitimate investment activity. Ultimately, Nadel maintained more than 700 investor accounts and raised approximately $350 million from investors.
Nadel controlled the Hedge Funds' trading activity as follows. Nadel transferred investors' money into brokerage accounts for the Hedge Funds and tohis personal accounts. He commingled investors' funds from the Hedge Funds among his personal accounts, which he combined into a single master trading account. From this master account, Nadel purchased securities. Then, he allocated completed trades between the Hedge Funds' brokerage accounts and his personal accounts, typically allocating profitable trades to himself and unprofitable trades to the Hedge Funds. Nadel misrepresented the net asset value and net profits of the Hedge Funds through monthly statements issued to investors, which showed fictitious increases in investor accounts. Investors' funds were used to pay Nadel management and performance-incentive fees based on the inflated performance of the funds shown in the investor statements.
In reality, the Hedge Funds were insolvent as early as 2000 and remained so until January 2009, when the scheme collapsed as a result of the funds' losses and the payment of larger management fees to Nadel. On January 21, 2009, the Securities and Exchange Commission filed an emergency action against Nadel in the U.S. District Court for the Middle District of Florida. SEC v. Nadel, No. 8:09-cv-00087-RAL-TBM (M.D. Fla. 2009). That same day, a Magistrate Judge in the U.S. District Court for Southern District of New York issued a warrant for Nadel's arrest, and eventually a fifteen-count indictment was issued charging Nadel with securities fraud, mail fraud, and wire fraud. United States v. Nadel, No. 1:09-cr-00433-JGK-1 (S.D.N.Y. 2009). Nadel pled guilty to all counts. He was sentencedto 168 months imprisonment and ordered to pay $174,930,311.07 in restitution. Nadel died in prison on April 16, 2012.
The District Court in the SEC action appointed Burton W. Wiand as the Receiver and charged him with, among other things, recovering fraudulent transfers of money traceable to investors in the Hedge Funds for the benefit of the Hedge Funds and their creditors, including the defrauded investors. Pursuant to this mandate, the Receiver identified investors in Nadel's scheme that received distributions in excess of their principal investment, and demanded return of these "false profits." Many settled pre-suit. The Receiver then filed suit against those benefited investors who refused to settle, including Dancing $.
Dancing $ is a Montana LLC having 136 members. On January 13, 2010, the Receiver sued Dancing $ in the U.S. District Court for the Middle District of Florida. The complaint sought to recover Dancing $'s "false profits" via two claims: (1) avoidance of fraudulent transfers pursuant to FUFTA, under theories of actual fraud,3 Fla. Stat. § 726.105(1)(a), and constructive fraud,4 Fla. Stat.§§ 726.105(1)(b) and 726.106(1); and (2) unjust enrichment. Dancing $ invested a total of $675,000 in 2006 and 2007 in Hedge Funds Valhalla Investment Partners and Scoop Real Estate, and received distributions from these funds in 2008 totaling $782,172.11. Thus, the Receiver sought to recover the difference, $107,172.11 in "false profits."
On March 23, 2012, the Receiver filed an omnibus motion for partial summary judgment in this and many of the other substantially similar clawback cases5 on several key issues: (1) whether Nadel operated the Hedge Funds as a Ponzi scheme from 1999 to January 2009; (2) whether, consequently, every transfer of an asset from a Hedge Fund during that time was made with actual intent to hinder, delay, or defraud creditors of Nadel so as to establish Dancing $'s (and the other clawback defendants') liability for the Receiver's FUFTA claim under Fla. Stat. § 726.105(1)(a); (3) whether each of the Hedge Funds was insolvent from 1999 to January 2009 so as to establish liability under Fla. Stat. §§ 726.105(1)(b) and 726.106(1); and (4) alternatively, whether Nadel's guilty pleaestablished that the transfers of assets from the Hedge Funds were made with actual intent to hinder, delay, or defraud Nadel's creditors. On September 28, 2012, the Receiver filed another motion for summary judgment against Dancing $, again seeking to establish liability under FUFTA, or, in the alternative, on the unjust enrichment claim, and also seeking to establish the amount of that liability, a judgment in the amount of $107,172.11, plus prejudgment interest.
On November 29, 2012, the Magistrate Judge issued a report and recommendation ("R & R") on the Receiver's summary judgment motions, which the Magistrate Judge treated as merged for decisional purposes. The R & R recommended that the District Court grant summary judgment for the Receiver on the FUFTA claim based on a finding that Dancing $ had failed to create triable issues of fact on whether a Ponzi scheme controlled by Nadel existed at the time of the distributions to Dancing $, and whether these distributions were therefore avoidable under FUFTA because they were made with the actual intent to defraud creditors. The R & R noted that Dancing $ did not dispute the Receiver's calculations as to the amount of the transfers it had received, and recommended that the District Court award the Receiver a judgment in the amount of $107,172.11. The R & R also recommended denying an award of prejudgment interest to the Receiver on equitable grounds. The R & R did not address the Receiver's alternative unjust enrichment theory.
On January 23, 2013, the District Court issued an order adopting the R & R. Wiand v. Dancing $, LLC, 919 F. Supp. 2d 1296 (M.D. Fla. 2013). The District Court granted summary judgment in favor of the Receiver and entered a final judgment in the amount of $107,172.11, denying prejudgment interest. Id. at 1301-02. Dancing $ timely appealed.
We review the District Court's grant of summary judgment de novo. Ellis v. England, 432 F.3d 1321, 1325 (11th Cir. 2005) (per curiam). We review the District Court's decision to refuse or reduce prejudgment interest for abuse of discretion. Blasland, Bouck & Lee, Inc. v. City of N. Miami, 283 F.3d 1286, 1298 (11th Cir. 2002).
Under FUFTA's actual fraud provision—the theory upon which Dancing $'s liability hinged—a "transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation . . . [w]ith actual intent to hinder, delay, or defraud any creditor of the debtor." Fla. Stat. § 726.105(1)(a). Thus, FUFTA requires "[1] a creditor to be defrauded, [2] a debtor intending fraud, and [3] a conveyance of property which is applicable by law to the payment of the debt due." Johnson v. Dowell, 592 So. 2d1194, 1196 (Fla. 2d Dist. Ct. App. 1992). A "creditor" is "a person who has a claim," Fla. Stat. § 726.102(5), and "claim" is defined as "a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured,...
To continue reading
Request your trial