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In re McCuan

United States District Court, M.D. Florida, Fort Myers Division

March 29, 2017

IN RE WILLIAM P. MCCUAN
v.
JILL MCCUAN, WILLIAM P. MCCUAN, as Co-Trustee of the McCuan Irrevocable Trust, IRA SUGAR, as Co-Trustee of the McCuan Irrevocable Trust, K&M DEVELOPMENT CORPORATION, INC., MDG COMPANIES OF NAPLES, INC., MDG CAPITAL PARTNERS REALTY, INC., MDG CAPITAL PARTNERS FINANCIAL CENTRE, INC., LAKEFRONT NORTH INVESTORS, LP, and MCCUAN IRREVOCABLE TRUST, Appellees. ROBERT E. TARDIF, as Trustee for the Bankruptcy Estate of William P. McCuan, Appellant,

          OPINION AND ORDER

          JOHN E. STEELE, SR. UNITED STATES DISTRICT JUDGE

         This matter comes before the Court on the appeal of the Bankruptcy Court's May 13, 2016 Order Granting Motion to Dismiss [ ] With Prejudice (Doc. #1, pp. 5-6.)[1] Appellant Robert E. Tardif, Jr., the Chapter 7 Trustee for the Bankruptcy Estate of William P. McCuan (the Trustee or appellant) filed an Initial Brief (Doc. #13). Appellees Jill McCuan (Mrs. McCuan), McCuan Irrevocable Trust, William P. McCuan (Debtor), as co-trustee of the McCuan Irrevocable Trust, Ira Sugar, as co-trustee of the McCuan Irrevocable Trust, K&M Development Corporation (K&M), MDG Companies of Naples, Inc., MDG Capital Partners Realty, Inc., MDG Capital Partners Financial Center, Inc. (collectively MDG), Lakefront North Investors, LP (Lakefront) (collectively appellees or appellee-defendants) filed an Answer Brief (Doc. #20). On December 23, 2016, the Trustee filed a Reply Brief (Doc. #23).

         For the reasons set forth below, the Bankruptcy Court's May 13, 2016 Order Granting Motion to Dismiss [ ] With Prejudice (Doc. #1, pp. 5-6) is reversed, and the case is remanded to the Bankruptcy Court for further proceedings consistent with this Opinion and Order.

         I. Relevant Bankruptcy Court Proceedings

         On January 29, 2014, William P. McCuan (Debtor) filed a Voluntary Petition under Chapter 7 of the Bankruptcy Code. (Doc. #4-6, Bankr. Doc. #1.) Robert E. Tradiff was appointed the Chapter 7 Trustee for the bankruptcy estate.

         On January 29, 2016, the Trustee filed a Complaint to Avoid and Recover Fraudulent Transfers and for Related Relief (Doc. #4-11) (the Complaint) against appellee-defendants in an adversary proceeding in the Bankruptcy Court. The twelve-count Complaint sought to avoid and recover numerous allegedly fraudulent transfers made by Debtor which were asserted to be either “actual-intent fraudulent transfers” (Counts I, III, V, VII, IX, XI) or “constructive fraudulent transfers” (Counts II, IV, VI, VIII, X, XII). The counts were brought pursuant to the Bankruptcy Code, 11 U.S.C. §§ 554, 550, and the Florida Uniform Fraudulent Transfer Act (FUFTA). The Complaint alleged the following:

         Debtor filed his Chapter 7 petition on January 29, 2014 (the Petition Date). (Doc. #4-11, ¶ 2.) Jill McCuan (Mrs. McCuan) is Debtor's non-filing spouse. (Id., ¶ 4.)

         In October 2008, Debtor defaulted on substantial obligations he owed to Regions Bank (id., ¶ 17), which were ultimately reduced to judgments exceeding $14.1 million by mid-2011 (id., ¶ 18). Shortly before defaulting in late 2008, Debtor engaged in a series of transactions intended to hinder and delay Regions Bank's anticipated collection efforts, including moving his substantial asserts out of his individual name and into purportedly joint ownership with his wife (id., ¶ 19).

         Prior to the Petition Date, Debtor individually owned an investment account at Brown Investment Advisory and Trust Company ending in number ***601-1 (the Brown Account), which had assets in excess of $1 million. (Id., ¶ 20.) In September 2008, one month before defaulting on the Regions Bank debt, “Mrs. McCuan's name was added to the Brown Account for no consideration.” (Id., ¶ 21.) The Complaint alleges that this was “a transparent effort by the Debtor to hinder and delay Region's collection efforts by converting his non-exempt asserts in the Brown Account into exempt tenancy by the entirety (TBE) assets jointly owned by the McCuans.” (Id., ¶ 21.) The Complaint further asserts “[a]s to the Brown Account, however, any assertion of TBE ownership would fail as a matter of law because the addition of Mrs. McCuan to an account already owned by the Debtor did not have the unity of time and/or other unities required to establish TBE ownership.” (Id., ¶ 21.)

         After adding Mrs. McCuan's name to the Brown Account, Debtor began transferring substantial non-exempt [from the Trustee's perspective] assets from the Brown Account to other accounts. (Id., ¶ 22.) The Complaint specifically alleges the following such transfers were fraudulent: (1) on or about August 17, 2010, Debtor transferred over $500, 000 from the Brown Account into an account in the names of Debtor and Mrs. McCuan (id., ¶ 23); (2) on or about September 3, 2010, Debtor transferred assets in excess of $1 million from the Brown Account to a Suntrust account held in the names of Debtor and Mrs. McCuan (id., ¶ 24); (3) on or about September 26, 2011, Debtor transferred $100, 000 from the Suntrust Account to the McCuan Irrevocable Trust (id., ¶ 25); (4) on January 13, 2012, Debtor transferred $100, 000 from the Suntrust Account to an account held by K&M Development Corporation, Inc. (id., ¶ 26); and (5) on January 27, 2012, Debtor transferred $91, 575 in cash and assets worth over $650, 000 from the Suntrust Account to an account held by the McCuan Irrevocable Trust (id., ¶ 27). The various counts of the Complaint seek to avoid the specific transfers and recover the value of the transfers for the bankruptcy estate, asserting that the transfers consisted of non-exempt property even though they came from the Brown Account because the Brown Account was never TBE property.

         The Complaint also alleges fraudulent activity in connection with Debtor's line of credit at Suntrust Bank. The Complaint alleges that in the four years prior to the Petition Date, five separate transfers totaling $628, 000 were made from Debtor's line of credit to K&M, MDG, MDG Capital Partners, or Lakefront (id., ¶ 28). Additionally, on or about May 18, 2011, Debtor used $1, 922, 489 from the Suntrust account, consisting of proceeds of the Brown Account, to pay down the line of credit (id., ¶ 29). The effect of this was to funnel the $628, 000 from the line of credit to entities owned or controlled by Debtor, and then pay down the line of credit with non-exempt Brown Account assets. (Id.) The Complaint seeks to recover the funds Debtor drawn from the LOC and disbursed to defendants, but does not seek recovery of any funds that repaid the line of credit.

         On March 2, 2016, appellee-defendants filed their Motion to Dismiss [ ] (Doc. #4-12) arguing, as relevant to this appeal, that (1) the claims are barred by the statute of limitations because the transfers all fall outside the 4 year period; and (2) the claims against MDG Companies of Naples, Inc., MDG Capital Partners Realty, Inc., MDG Capital Partners Financial Centre, Inc. and Lakefront North Investors, LP fail because there were no transfers of assets or interests in an asset since a line of credit is not an asset.[2]

         On April 28, 2016, after briefing was closed, the Bankruptcy Judge announced her decision granting the motion to dismiss and dismissing the Complaint with prejudice. The Bankruptcy Court made the following findings relevant to this appeal: (1) The Trustee was seeking to avoid allegedly fraudulent transfers of funds from the Brown Account (Doc. #4-20, p. 5); (2) “[i]n September 2008, the Brown Account was retitled from Debtor's individual name to Debtor and his wife as tenants by the entirety” (id., p. 6); (3) The Trustee alleges that 2010 and 2012 transfers from the Brown Account to other parties controlled by Debtor and to repay a line of credit with SunTrust Bank are avoidable as fraudulent transfers (id.); (4) Debtor filed his Chapter 7 petition on January 29, 2014, and therefore the four-year look-back period for avoidance of fraudulent transfers under Chapter 726, Florida Statutes, relates to transfers which took place after January 29, 2010 (id.); (5) there is another pending adversary proceeding (Adv. No. 14-402) which was removed from state court seeking supplementary proceedings under Florida Statute § 56.29 in which the Trustee joined as a party plaintiff (id.); and (6) under § 56.29 the Court may avoid certain transfers made within one year prior to a defendant being served with process, which in this case was transfers by Debtor after April 13, 2008 (id.).

         The Bankruptcy Court recognized that the linchpin of the Trustee's efforts to avoid the transfers was paragraph 21 of the Complaint. The Bankruptcy Court read a portion of paragraph 21 into the record: “As to the Brown Account, however, any assertion of TBE ownership would fail as a matter of law because the addition of Mrs. McCuan to an account already owned by the Debtor did not have the unity of time and/or other unities required to establish TBE ownership.” (Doc. #4-20, p. 7.) The Bankruptcy Court then stated: “However, the Trustee's complaint does not seek a judicial declaration that the Brown account was not, after September 2008, owned by Debtor and his wife as TBE.” (Doc. #4-20, pp. 7-8.)

         The Bankruptcy Court continued, stating that “[i]f the Brown account was owned as TBE in 2008, then the 2010 and 2012 transfers from the exempt account are not avoidable as fraudulent transfers.” (Id., p. 8.) The Bankruptcy Court also stated that the Florida Supreme Court decision in Sneed v. Davis, 135 Fla. 271, 184 So. 865 (Fla. 1938), had held that a debtor “cannot commit fraud on his creditors by disposing of exempt property that the creditor had no legal right to look to for satisfaction of its claim.” (Doc. #4-20, p. 8 (citing Sneed, 135 Fla. at 276)).

         The Bankruptcy Court stated that it accepted as true the Trustee's allegations that Mrs. McCuan was added to the Brown Account in September 2008. The Bankruptcy Court also took judicial notice of the allegation in the Amended Interpleader Complaint (Adv. No. 9:14-ap-402-FMD, Doc. #4-8, ¶ 17), in which “the Trustee alleges that on or about September 8, 2008, Debtor transferred the subject Brown account from his sole name to tenants by the entirety with his wife, Jill McCuan.” (Doc. #4-20, p. 8.)

         The Bankruptcy Court found, contrary to the argument of the Trustee and a case from the Southern District of Florida, [3] that it was generally accepted in the Middle District of Florida that the addition of a spouse to an existing account satisfies the six unities for TBE ownership[4]. The Bankruptcy Court found that while the 2010 and 2012 transfers alleged in the Complaint did fall within the statute of limitations for a Chapter 726 action, the claims were wholly dependent on finding that the September 2008 transfer from Debtor to himself and his wife as TBE was either a fraudulent transfer or ineffective to create the TBE ownership. (Id., p. 10.) The Bankruptcy Court found that the Complaint sought neither the avoidance of the September, 2008 transfer, nor a judicial determination on the issue of TBE ownership. (Id.) The Bankruptcy Court held, as a matter of law, that the September 2008 transfer of the Brown Account from Debtor to himself and his wife as TBE was outside the four year reach-back period of Chapter 726[5][and ...


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