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finding monetary relief unavailable under subsection(b)
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CASE NO. 09-31881-EPK CASE NO. 09-35888-EPK (Jointly Administered) ADV. NO. 11-03118-EPK
2019-09-25
IN RE: BRITISH AMERICAN INSURANCE COMPANY LIMITED, Debtor in a Foreign Proceeding. British American Insurance Company Limited, Plaintiff, v. Robert Fullerton, Brian Branker, Ramchand Ramnarine, Lawrence Duprey, Shiva Ramberran, Green Island Holdings, LLC, Charles Pratt, Peter Krieger, and Voyager Development, LLC, Defendants.
Sean T. Cork, Squire Patton Boggs (US) LLP, Miami, FL, Traci H. Rollins, West Palm Beach, FL, for Plaintiff. Kristopher E. Pearson, Brett M. Amron, Esq., Dana R. Quick, Bast Amron LLP, Miami, FL, Robert A. Stok, Esq., Stok Kon + Braverman, Fort Lauderdale, FL, Howard D. Dubosar, Esq., The DuBosar Law Group, P.A., Boca Raton, FL, for Defendants. Brian Branker, Trinidad, WI, pro se.
Sean T. Cork, Squire Patton Boggs (US) LLP, Miami, FL, Traci H. Rollins, West Palm Beach, FL, for Plaintiff.
Kristopher E. Pearson, Brett M. Amron, Esq., Dana R. Quick, Bast Amron LLP, Miami, FL, Robert A. Stok, Esq., Stok Kon + Braverman, Fort Lauderdale, FL, Howard D. Dubosar, Esq., The DuBosar Law Group, P.A., Boca Raton, FL, for Defendants.
Brian Branker, Trinidad, WI, pro se.
ORDER GRANTING SYLVIA BALDINI'S MOTION TO DISMISS NOTICE TO APPEAR
Erik P. Kimball, Judge This Order addresses Sylvia Baldini's Motion to Dismiss BAICO's Amended Notice to Appear With Prejudice . ECF No. 814. In ruling on the motion to dismiss, the Court also considered the filed response and reply. ECF Nos. 883 and 887.
As more fully explained below, the Court rules that none of the fraudulent transfer claims presently stated against Sylvia Baldini may be pursued via notice to appear and that, if the plaintiff were to file a supplemental complaint or independent action against Ms. Baldini, some of the claims would be barred by the applicable statute of repose. For these reasons, the Court will grant the motion to dismiss without prejudice to the filing of a supplemental complaint, or an independent action under chapter 726, Florida Statutes, in a court of competent jurisdiction, consistent with this order.
British American Insurance Company Limited ("BAICO") is the petitioner in this chapter 15 case. Nearly 8 years ago, BAICO filed this adversary proceeding against several defendants, including Lawrence Duprey. In August 2017, the Court entered judgment in favor of BAICO against Mr. Duprey for more than $122 million. Sylvia Baldini is married to Mr. Duprey.
In April 2019, relying on Fed. R. Civ. P. 69(a) and Fla. Stat. § 56.29, BAICO initiated proceedings supplementary against Ms. Baldini. ECF No. 777 (supplementing the motion and affidavit previously filed at ECF No. 669). BAICO alleged that Mr. Duprey transferred more than $170,000 to Ms. Baldini "with (a) the actual intent to hinder, delay or defraud BAICO; or (b) without receiving a reasonably equivalent value in exchange for the transfer or obligation, when Duprey: (1) was engaged or was about to engage in a transaction for which his remaining assets were unreasonably small in relation to the transaction; or (2) intended to incur, or believed or reasonably should have believed he would incur, debts beyond his ability to pay as they became due." ECF No. 777. Later, BAICO amended this request to include an aggregate of $646,500 in alleged fraudulent transfers to Ms. Baldini. ECF No. 843. BAICO sought issuance of a notice to appear directing Ms. Baldini to file an affidavit in response, consistent with Fla. Stat. §§ 56.29 and 56.16. As BAICO had satisfied the formal requirements of Fla. Stat. § 56.29, the Court granted BAICO's motion to issue the notice to appear. ECF Nos. 807 and 863 (as amended).
Ms. Baldini responded to the notice to appear with the present motion to dismiss. Ms. Baldini argues that certain of the alleged fraudulent transfers were made more than 4 years prior to BAICO's action against her and so BAICO's claims arising from those transfers are barred by the applicable statute of limitations. In the alternative, Ms. Baldini argues that the same statute is a statute of repose, rather than a statute of limitations, and so BAICO cannot state a claim based on the alleged transfers more than 4 years prior to BAICO's pursuit of Ms. Baldini. Ms. Baldini argues that the claims presented by BAICO may only be pursued by supplemental complaint under Fla. Stat. § 56.29(9), rather than via notice to appear, and so the notice to appear must be dismissed for that reason as well.
BAICO points to transfers allegedly made to Ms. Baldini between March 4, 2013 and October 17, 2018. It is not disputed that $260,500 of the alleged transfers were made more than 4 years prior to BAICO's pursuit of Ms. Baldini. The remaining $386,000 in transfers are not subject to the motion to dismiss on the grounds of timeliness.
BAICO's claims against Ms. Baldini directly track the provisions of Florida's fraudulent transfer statute. BAICO seeks recovery from Ms. Baldini incorporating the language of Fla. Stat. §§ 726.105(1)(a) (actual fraud) and 726.105(1)(b) (constructive fraud). If BAICO filed an independent complaint against Ms. Baldini based on these provisions, its claims relating to $260,500 of the alleged transfers would be time-barred. Under Fla. Stat. § 726.110, causes of action arising under section 726.105(1)(a) are extinguished on the later of 4 years after the transfer or 1 year after it could reasonably have been discovered, and causes of action arising under section 726.105(1)(b) are extinguished 4 years after the transfer. BAICO does not dispute that $260,500 of the alleged transfers could have been discovered during the 4 years after they were made, and so the 1 year additional discovery period for claims under section 726.105(1)(a) does not apply.
Ms. Baldini argues that Fla. Stat. § 726.110 is a statute of repose rather than a statute of limitations. Florida's Second District Court of Appeal has so ruled. Nat'l Auto Serv. Ctrs. v. F/R 550, LLC , 192 So. 3d 498 (Fla. 2d DCA 2016). This appears to be the only Florida intermediate appellate decision on the issue and the Florida Supreme Court has not addressed the question. As the Court sees no reason to believe the Florida Supreme Court would disagree with the Second District Court of Appeal, National Auto Service Centers is binding here. McMahan v. Toto , 311 F.3d 1077, 1080 (11th Cir. 2002) ("[T]he rule is that, absent a decision from the state supreme court on an issue of state law, we are bound to follow decisions of the state's intermediate appellate courts unless there is some persuasive indication that the highest court of the state would decide the issue differently.")
If a statute of repose applies, there is no claim at all and it is appropriate to dismiss for failure to state a claim. While the statute of limitations typically is an affirmative defense, it may be raised in a motion to dismiss if it is obvious from the complaint itself that the claim is time-barred. Gonsalvez v. Celebrity Cruises Inc. , 750 F.3d 1195, 1197 (11th Cir. 2013). In this case, it does not matter whether section 726.110 is a statute of repose or a statute of limitations as the outcome is the same.
BAICO did not file an independent complaint against Ms. Baldini. Instead, BAICO relies on the notice to appear procedure set out in Fla. Stat. § 56.29 to bring these claims.
Fla. Stat. § 56.29, in its present form, contains two provisions that could apply here: subsection (3), which addresses turnover of fraudulently transferred personal property for application to payment of an unsatisfied judgment; and subsection (9), which addresses fraudulent transfer claims brought under chapter 726 for application to payment of an unsatisfied judgment.
Subsection (3) of Fla. Stat. § 56.29 provides as follows:
(3)(a) When, within 1 year before the service of process on the judgment debtor in the original proceeding or action, the judgment debtor has had title to, or paid the purchase price of, any personal property to which the judgment debtor's
spouse, any relative, or any person on confidential terms with the judgment debtor claims title and right of possession, the judgment debtor has the burden of proof to establish that such transfer or gift was not made to delay, hinder, or defraud creditors.
(b) When any gift, transfer, assignment or other conveyance of personal property has been made or contrived by the judgment debtor to delay, hinder, or defraud creditors, the court shall order the gift, transfer, assignment or other conveyance to be void and direct the sheriff to take the property to satisfy the execution. This does not authorize seizure of property exempted from levy and sale under execution or property which has passed to a bona fide purchaser for value and without notice. Any person aggrieved by the levy or Notice to Appear may proceed under ss. 56.16 - 56.20.
Subsection (3)(a) creates no substantive claim. It reverses the burden of proof in circumstances where a judgment debtor transferred assets to a spouse, relative, or other person on confidential terms within 1 year before service of process in the original action. It is presumed that transfers to such persons were intended to delay, hinder, or defraud creditors, and the judgment debtor has the burden of proving that they were not.
Subsection (3)(b) provides a narrowly tailored substantive claim based in fraudulent transfer, independent of Florida's primary fraudulent transfer statute contained in chapter 726. Where a judgment debtor has transferred personal property in an effort to delay, hinder, or defraud creditors, the court may declare the transfer void and direct the sheriff to take the property. Subsection (3)(b) does not provide any basis for an award of money damages. The relief is limited to avoiding transfers of personal property, making the property available for satisfaction of the judgment. Based on the text of the statute, the personal property must be the same property that the judgment debtor transferred and must be something identifiable that the sheriff may seize.
In a related matter, BAICO argued that Fla. Stat. § 56.29(6) authorizes this Court to enter a money judgment based on a claim under subsection (3)(b). This interpretation is contrary to the text of section 56.29 taken as a whole. Subsection (2) authorizes supplementary proceedings to pursue property of the judgment debtor in the hands of another and any property, debt, or other obligation due to the judgment debtor, which may be applied in satisfaction of the judgment. Subsection (6) authorizes the court to enter appropriate orders directing levy on and application of such property -- meaning property of the judgment debtor held by someone else and/or property due to the judgment debtor -- in satisfaction of the judgment debt. The relief authorized in subsection (6) is the relief that may be obtained from a proceeding relying on subsection (2). To further this relief, the court may enter "orders, judgments, or writs ... including entry of money judgments ... irrespective of whether such person has retained the property." Fla. Stat. § 56.29(6). In other words, the power to enter money judgments under subsection (6) is limited to claims aimed at recovery of property of the judgment debtor held by another and property payable to the judgment debtor. The power to enter money judgments under subsection (6) does not extend to relief sought under subsection (3)(b). To the contrary, subsection (3)(b) specifically limits the available relief to turnover of the fraudulently transferred personal property to the sheriff. This is consistent with the fact that subsection (3)(b) provides a narrow exception to the requirements of subsection (9) that fraudulent transfer claims be pursued by complaint, in which case money judgments may be obtained consistent with chapter 726.
A court may look to fraudulent transfer case law to ascertain what must be proven under subsection 3(b). Jackson-Platts v. Gen. Elec. Capital Corp. , 727 F.3d 1127, 1136–37 (11th Cir. 2013) (citing Florida cases). But no provision of Florida chapter 726 applies, including the statute of repose.
A judgment creditor may pursue relief under subsection (3)(b) by way of a notice to appear. Subsection (3)(b) establishes a narrow category of fraudulent transfer claims that may be pursued under Fla. Stat. § 56.29 without the need to file a supplemental complaint.
Subsection (9) of Fla. Stat. § 56.29 provides as follows:
(9) The court may entertain claims concerning the judgment debtor's assets brought under chapter 726 and enter any order or judgment, including a money judgment against any initial or subsequent transferee, in connection therewith, irrespective of whether the transferee has retained the property. Claims under chapter 726 brought under this section shall be initiated by a supplemental complaint and served as provided by the rules of civil procedure, and the claims under the supplemental complaint are subject to chapter 726 and the rules of civil procedure. The clerk of the court shall docket a supplemental proceeding under the same case number assigned to the original complaint filed by the judgment creditor or the case number assigned to a judgment domesticated pursuant to s. 55.01, shall assign a separate supplemental proceeding number, and shall assign such supplemental proceeding to the same division and judge assigned to the main case or domesticated judgment.
Subsection (9) differs from subsection (3) in several important ways. Subsection (9) explicitly incorporates the entirety of chapter 726, Florida's fraudulent transfer statute. This includes section 726.110, the statute of repose.
Unlike subsection (3), subsection (9) incorporates the power to enter a money judgment against any initial or subsequent transferee of the judgment debtor's assets. If a plaintiff seeks a money judgment against an alleged fraudulent transferee from the judgment debtor, the relief may be sought under subsection (9) but not under subsection (3).
When pursuing a fraudulent transfer claim under chapter 726 to facilitate collection on a judgment, Fla. Stat. § 56.29(9) requires the plaintiff to file a "supplemental complaint ... served as provided by the rules of civil procedure." Other than the narrow category of claims that may be pursued under section 56.29(3)(b), a claim based in fraudulent transfer cannot be commenced through the issuance of a notice to appear. Fla. S. Comm. on Judiciary, CS for SB 1042 (2016), Staff Analysis 4 (Jan. 12, 2016) ("To underscore that UFTA claims are distinct from proceedings supplementary, the bill provides that UFTA claims must be initiated by a supplemental complaint and served as provided by the rules of civil procedure.").
Fla. Stat. § 56.29 has explicitly incorporated chapter 726 only since 2014. In the 2014 version of the statute, subsection (5) provided that the court may entertain fraudulent transfer claims under chapter 726 and that "[c]laims under chapter 726 are subject to the provisions of chapter 726 and applicable rules of civil procedure." The incorporation of chapter 726 and the rules of civil procedure differentiated the pursuit of traditional fraudulent transfer claims from supplementary proceedings initiated by notice to appear under the other provisions of section 56.29. In the 2016 amendment, these concepts were moved to subsection (9) and the legislature added an explicit requirement that such claims be brought by complaint. It is not necessary for a judgment creditor to rely on Fla. Stat. § 56.29(9) to pursue a fraudulent transfer claim under chapter 726 to facilitate execution on the judgment. A judgment creditor may file suit against the alleged transferee in a separate action based in chapter 726. The procedure permitted under section 56.29(9) provides the administrative convenience of having the same judge, who is familiar with the underlying facts, also consider and rule on the fraudulent transfer action. The current version of section 56.29(9) requires that the supplemental complaint be assigned to the court and judge who presided over the original action. But, substantively and procedurally, a fraudulent transfer claim pursued under section 56.29(9) is identical to one pursued independently under chapter 726. Both causes of action are subject to the statute of repose in Fla. Stat. § 726.110.
BAICO's notice to appear served on Ms. Baldini must be dismissed for two reasons. First, the relief sought by BAICO may not be pursued by notice to appear under Fla. Stat. § 56.29(3)(b). BAICO must file a supplemental complaint under Fla. Stat. § 56.29(9), or an independent complaint based on chapter 726 in a court of competent jurisdiction. Second, BAICO's action against Ms. Baldini is untimely as to the claims arising from transfers made more than 4 years prior to BAICO's pursuit of claims against Ms. Baldini.
BAICO seeks relief against Ms. Baldini solely under Fla. Stat. § 56.29(3)(b). ECF No. 883 n. 5. Fla. Stat. § 56.29(3)(b) has two components that negate BAICO's ability to rely on it here. First, subsection (3)(b) requires proof that the judgment debtor acted intentionally to delay, hinder, or defraud creditors. A claim under subsection (3)(b) is an intentional fraud claim rather than a constructive fraud claim. BAICO alleges, in part, that the transfers made to Ms. Baldini are avoidable as constructively fraudulent transfers. ECF No. 777 at 1-2 (alleging both actual and constructive fraud, using language identical to Fla. Stat. §§ 726.105(1)(a) and (1)(b) ). To the extent BAICO's claims against Ms. Baldini are based on a theory of constructive fraud, they cannot be pursued by notice to appear under Fla. Stat. § 56.29(3)(b). Second, the only remedy provided in subsection (3)(b) is an order voiding the transfer and directing "the sheriff to take the property to satisfy the execution." Fla. Stat. § 56.29(3)(b) (emphasis added). This provision permits the Court to order execution on specified personal property that was transferred by the judgment debtor. In its detailed motions and briefs, BAICO does not even suggest that the alleged payments to Ms. Baldini are traceable such that the sheriff could execute on specified accounts. Instead, it appears that BAICO seeks a money judgment against Ms. Baldini, a remedy not permitted via a notice to appear under subsection 3(b). To pursue these claims, BAICO may file a supplemental complaint under subsection (9) or may file an independent complaint against Ms. Baldini under chapter 726 in a court of competent jurisdiction.
BAICO's claims arising from alleged transfers more than 4 years prior to BAICO's pursuit of Ms. Baldini, aggregating $260,500, are barred by the statute of repose contained in Fla. Stat. § 726.110. BAICO may not pursue these claims.
Ms. Baldini seeks dismissal of the notice to appear, in its entirety, with prejudice. The Court will not go so far. If BAICO has a claim against Ms. Baldini arising from any of the alleged transfers made not more than 4 years before BAICO's pursuit of Ms. Baldini, BAICO may pursue such claims either by filing a supplemental complaint as required by Fla. Stat. § 56.29(9) or by filing an independent action under Fla. Stat. chapter 726 in a court of competent jurisdiction. The Court will grant the motion to dismiss without prejudice to pursuit of such claims. The Court makes no ruling as to whether any such supplemental complaint or independent action would relate back to BAICO's initial pursuit of supplementary proceedings here.
Much of the case law cited by the parties in their briefs is not helpful to the Court as it was issued prior to the 2014 and 2016 amendments to Fla. Stat. § 56.29. Nevertheless, the Court will address one particular decision that both parties discussed in their briefs.
In Biel Reo, LLC v. Barefoot Cottages Dev. Co. LLC , 156 So. 3d 506 (Fla. 1st DCA 2014), the court considered whether the statute of limitations provided in chapter 726 applied to bar proceedings supplementary brought under then subsections (5) and (6) of Fla. Stat. § 56.29. The language of subsection (5) considered by the Biel Reo court is now included at the beginning of subsection (6). This provision addresses recovery of property of the judgment debtor held by another and does not implicate fraudulent transfer law. The language of subsection (6) then considered by the Biel Reo court is now included, with only stylistic changes, in subsection (3) of section 56.29. Thus, Biel Reo addressed the applicable statute of limitations for claims under current Fla. Stat. § 56.29(3).
In Biel Reo , two individuals had guaranteed a corporate loan. Biel Reo, LLC , 156 So. 3d at 507. Immediately after the corporate borrower defaulted, the individuals "transferred millions of dollars into newly established irrevocable family trusts" with their spouses as trustees. Id. After obtaining judgments against the guarantors, the lender pursued proceedings supplementary against the trustees of the family trusts. Id. The trial court ruled that the statute of limitations applicable to fraudulent transfers barred the suits against the trustees. Id. The Biel Reo court reversed, ruling that proceedings supplementary to pursue avoidance of "felicitous transfers of personal property to spouses," under what is now Fla. Stat. § 56.29(3), are not subject to the limitations period applicable to fraudulent transfer claims generally but "may be initiated by a judgment holder for the life of the judgment." Id.
Biel Reo was issued in December 2014. The court noted that section 56.29 had been amended effective only a few months prior to the decision, but stated that the parties had not argued that the amendment affected the issues before the court. Id. at 509 n.3. It is hard to understand how the 2014 amendments to section 56.29 were not considered in the Biel Reo ruling. In then subsection (5), for the first time, the Florida legislature specifically incorporated "the provisions of chapter 726 and applicable rules of civil procedure" in connection with "claims concerning the judgment debtor's assets brought under chapter 726". Fla. Stat. § 56.29(5) (2014) (effective July 1, 2014), as amended by ch. 2014-182, § 17, at 6, Laws of Fla. The explanation seems to be that the court in Biel Reo did not consider the claim before it to arise under chapter 726, but instead under the more limited provisions of then subsection (6), now contained in subsection (3). It appears that the cash transfers in question were the only assets placed in the newly formed family trusts and so were identifiable personal property potentially subject to execution.
In the end, Biel Reo stands for the proposition that a claim pursued under current Fla. Stat. § 56.29(3)(b) is not subject to the statute of repose provided for fraudulent transfer actions, found in Fla. Stat. § 726.110. Such a claim may be pursued at any time during the viability of the judgment, no matter how long ago the transfer occurred. Under the rule in Biel Reo , a person obtaining a judgment today may pursue the recipient of a transfer made by the judgment debtor at any prior time, even decades before, if that transfer was made with actual intent to "delay, hinder, or defraud creditors." Fla. Stat. § 56.29(3)(b). It is difficult to imagine the Florida Legislature intended this outcome or that the Florida Supreme Court would today condone such an expansive application of the statute. In this case, however, it is not necessary for the Court to accept or reject the rule of Biel Reo as it appears BAICO did not present a claim permitted under Fla. Stat. § 56.29(3)(b).
The analysis of Biel Reo is complicated by the fact that section 56.29 has been amended multiple times, before and after Biel Reo . The court in Biel Reo did not consider then recently enacted amendments relevant to the court's analysis. More recent amendments even more explicitly exclude fraudulent transfer claims under chapter 726 from the notice to appear procedure otherwise applicable under the statute. Some of the decisions cited by the court in Biel Reo arise from facts that would not support the outcomes ordered in those decisions under the present version of section 56.29. In addition, certain decisions cited in Biel Reo in turn rely on relatively ancient Florida Supreme Court opinions that do not appear fully aligned with the propositions for which they are cited.
In its response, BAICO argues that the Court's concern is unfounded as the plaintiff must "have had a claim against the debtor when the transfer was made" to pursue relief under subsection (3)(b). ECF No. 883 at 5. There is nothing in subsection (3)(b) to support this argument. The statute requires that there be intent to delay, hinder, or defraud "creditors." The Florida legislature employed the term "judgment creditor" a number of times in section 56.29, so the use of the more expansive term "creditors" was intentional. Subsection (3)(b) does not require proof that the judgment debtor intended to delay, hinder, or defraud the judgment creditor itself. The plaintiff need only prove that the judgment debtor intended to delay, hinder, or defraud creditors, then in existence or to come. In the context of fraudulent transfer claims brought by so-called subsequent creditors, historically, there is support for the contention that there must be some connection between the debtor's fraudulent intent in making a transfer and the later harm to the creditor seeking to avoid the transfer. Mukamal v. Nat'l Christian Charitable Found., Inc. (In re Palm Beach Fin. Partners, L.P.) , 598 B.R. 885 (Bankr. S.D. Fla. 2019). But even if this limitation narrows the universe of creditors who may seek relief under subsection (3)(b), it does not allay the Court's concern as such creditors may nonetheless seek to avoid very aged transfers.
For the foregoing reasons, the Court ORDERS and ADJUDGES as follows:
1. Sylvia Baldini's Motion to Dismiss BAICO's Amended Notice to Appear With Prejudice [ECF No. 814] is GRANTED to the extent provided herein.
2. The notice to appear issued pursuant to ECF No. 807, as amended by ECF No. 863, is DISMISSED without prejudice to British American Insurance Company Limited seeking other relief against Sylvia Baldini, in this Court or in another court of competent jurisdiction, consistent with this Order.