In re Moore, Bankruptcy No. 82-616-Orl-BK-GP
| Decision Date | 14 May 1984 |
| Docket Number | Adv. No. 83-379.,Bankruptcy No. 82-616-Orl-BK-GP |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Florida |
| Parties | In re Dan Cecil MOORE, Jr., a/k/a Dan C. Moore, a/k/a Dan Moore f/d/b/a Dan Moore and Associates; formerly a partner in Russell, Sheet & Moore, Debtor. William F. LAWLESS, Trustee, Plaintiff, v. Robert ANDERSON, Defendant. |
Michael G. Williamson and Frank M. Wolff, Orlando, Fla., for plaintiff.
Kenneth W. McIntosh and Clayton D. Simmons, Sanford, Fla., for defendant.
William F. Lawless, Maitland, Fla., trustee.
This action was brought by the Chapter 7 trustee to avoid a fraudulent transfer under § 548 of the Bankruptcy Code. We are presented with a threshold question of whether the deposition evidence offered by the debtor and the defendant may be considered. The defendant argues that those depositions, which form virtually the entire body of evidence before the Court in that minimal testimony was taken at trial, may not be considered. The defendant declares that if we are barred from considering that evidence then we must determine that the plaintiff has failed to carry his burden and enter judgment in the defendant's favor.
With respect to the deposition of the defendant, F.R.Civ.Pro. 32(a)(2) provides that, "the deposition of a party . . . may be used by an adverse party for any purpose," including, it seems clear, evidence in chief. The language of Rule 32(a)(2) is explicit and not limited by any other provision.
The defendant argues that the depositions of the debtor, taken while he was (as he continues to be) an inmate at the Lake Correctional Institution, may not be used pursuant to F.R.Civ.Pro. 32(a)(3), which provides in pertinent part for use at trial of a deposition when "(C) that witness is unable to attend or testify because of . . . imprisonment." The defendant argues that in addition to showing the undisputed fact of the witness' imprisonment at the time of the trial, the defendant must show unavailability on account of imprisonment, i.e. that he tried and failed to produce the witness through use of a habeas corpus proceeding authorized by 28 U.S.C. § 2256. We find this argument frivolous. There is some theoretical means by which virtually any living witness, however restricted in movement, might, with sufficient effort and expense, attend a trial. There is no basis for a belief that the rule requires extraordinary effort to establish unavailability. Thus the debtor's deposition testimony, as well as that of the defendant, will be considered.
That testimony establishes that while Dan Cecil Moore was viewed in his community as a successful individual, and had in fact apparently prospered as an insurance salesman, his fortunes had suffered a downturn during the months prior to his becoming involved in the fraudulent scheme which led to his imprisonment and bankruptcy. The financial planning business into which he had entered with two partners had failed. Whether because of the terms of his agreement with those partners or their default, Moore was left with personal responsibility for most or all of the debts of the failed business. While he and his wife apparently had a substantial combined income, he had no savings, had exhausted his available credit, and did not want his wife to know that he was in financial difficulty. He was equally reticent about revealing his problem to friends and associates. When his efforts to obtain loans from out-of-town friends and relations failed, he embarked on a pattern of offering an "investment opportunity" to close friends. He told them that the insurance company with which he was associated as a general agent permitted its agents to invest funds for 10% monthly return. No such opportunity in fact existed, but Moore nonetheless took in substantial funds as investments and quickly began paying interest out of current receipts. From the beginning of the scheme, his indebtedness was always the full amount he had taken in (he told at least some of the investors that their principal would be returned on demand), plus 120% annual interest. Clearly, he was at all times from the point at which he began accepting money in November 1979, to the time he filed for bankruptcy, insolvent, and equally "intended to incur, or believed (he) would incur, debts that would be beyond (his) ability to pay as such debts matured."
Word of the "opportunity" offered by Mr. Moore spread within his community and the amount entrusted to him ultimately rose to approximately one-half million dollars. His conduct amounted to the perpetration of a classic "Ponzi" scheme, which ended with his filing a Chapter 7 petition on June 23, 1982. We find that the defendant became a "client" in early 1980, and was thus one of the earlier investors; he made an initial investment of $20,000, made on April 22, 1982. By the end of that year, he had received $18,000 in "interest," actually the money of later investors, by the end of the year. On December 17, 1980, he invested a second $20,000. In all, the defendant invested $40,000 and received $62,200, including the return of his capital, which he demanded when he began to question the soundness of the debtor's operation. He received $27,200 during the year prior to the filing of the debtor's petition; of that $22,200 is in excess of his investment. The trustee urges that the transfer of that $22,200 meets all of the criteria for fraudulent transfer.
We find no cases decided under the Bankruptcy Code on closely analogous facts. Cases decided under the Bankruptcy Act include Cunningham v. Brown, 265 U.S. 1, 44 S.Ct. 424, 68 L.Ed. 873 (1924), which case grew out of the original "Ponzi" scheme, and Rosenberg v. Collins, 624 F.2d 659 (5th Cir.1980).
While Cunningham was brought and decided under the preference section of the Act § 60, the precursor to § 547 of the Code, Rosenberg was decided under § 67(d) of the Act, the fraudulent transfer provision, which is, for purposes of the case before us, substantially similar to § 547 of the Code.
Rosenberg appears to have been decided on the basis of facts and arguments similar to those before us and holds for the Trustee. For reasons discussed infra, we believe it appropriate to treat Rosenberg as controlling.
The defendant does not contest that the facts of this case fulfill the elements of fraudulent transfer, except in respect of the debtor having received reasonably equivalent value, which takes a transaction out of the fraudulent transfer category under the terms of § 548(a)(2)(A). He also argues that there is an additional factor at work which makes funds held by the defendant non-recoverable to the trustee, i.e. that because the funds were garnered by the debtor as a result of a fraudulent scheme they remain the property not of the estate but of the...
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