-
USCA1 Opinion
November 16, 1994
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
______________________
No. 94-1248
FEDERAL DEPOSIT INSURANCE CORPORATION, AS
LIQUIDATING AGENT FOR BOSTON TRADE BANK,
Plaintiff, Appellee,
v.
CARMEN W. ELIO AND ELAINE J. ELIO INDIVIDUALLY, AS
TRUSTEE OF THE ELIO FAMILY TRUST AND AS TRUSTEE OF THE
SEAVIEW REALTY TRUST, ETC. AL.,
Defendants, Appellants.
_______________
ERRATA SHEET ERRATA SHEET
The opinion of this Court issued on November 10, 1994, is
amended as follows:
Cover sheet: Change spelling of "Andrea Perander-Sweet" to
"Andrea Peraner-Sweet."
Page 12. The last line should read: . . . the debtor of
the financial institution within five years of the F.D.I.C.'s
. . .
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 94-1248
FEDERAL DEPOSIT INSURANCE CORPORATION, AS
LIQUIDATING AGENT FOR BOSTON TRADE BANK,
Plaintiff, Appellee,
v.
CARMEN W. ELIO AND ELAINE J. ELIO INDIVIDUALLY, AS
TRUSTEE OF THE ELIO FAMILY TRUST AND AS TRUSTEE OF THE
SEAVIEW REALTY TRUST, ETC., ET AL.,
Defendants, Appellants.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Mark L. Wolf, U.S. District Judge] ___________________
____________________
Before
Torruella, Chief Judge, ___________
Campbell, Senior Circuit Judge, ____________________
and Carter,* District Judge. ______________
____________________
Stephen F. Gordon, with whom Stanley W. Wheatley and Gordon & _________________ ___________________ ________
Wise were on brief for appellants. ____
Jonathan W. Fitch, with whom Andrea Peraner-Sweet, Sally & Fitch, _________________ ____________________ _____________
Ann S. Duross, Assistant General Counsel, Colleen B. Bombardier, _____________ _____________________
Senior Counsel, and Jeannette E. Roach, Counsel, for appellee Federal __________________
Deposit Insurance Corporation.
____________________
November 10, 1994
____________________
____________________
*Of the District of Maine, sitting by designation.
2
CAMPBELL, Senior Circuit Judge. This is an ____________________
interlocutory appeal from a district court order granting a
preliminary injunction, granting an attachment, and
appointing a trustee pursuant to 12 U.S.C. 1821(d)(18) and
(19).1
I. Background __________
Plaintiff is the Federal Deposit Insurance Corp.
("F.D.I.C."), suing in its capacity as liquidating agent for
two banks, Boston Trade Bank and First Service Bank for
Savings ("First Service").2 Defendants include Carmen Elio,
his wife Elaine Elio individually and in her capacity as
trustee, and their daughter Teresa Elio in her capacity as
trustee, as well as various entities with which the Elios are
involved: the Elio Family Trust, the Seaview Realty Trust,
Faneuil Hall Securities, Inc. ("FH Securities"), Faneuil Hall
Financial Services, Inc. ("FH Financial Services"), and
Faneuil Hall Capital Group, Inc. ("FH Capital Group").
Central to this case are a number of promissory
notes executed by Carmen Elio on which he subsequently
defaulted, and transfers made by Carmen Elio which the
____________________
1. We shall assume without deciding, the issue having
neither been raised nor argued, that an interlocutory order
appointing a trustee is appealable under 28 U.S.C.
1292(a)(2), which provides for appellate jurisdiction over
"[i]nterlocutory orders appointing receivers."
2. The F.D.I.C. was appointed liquidating agent of First
Service on March 31, 1989, and of Boston Trade Bank on May 3,
1991.
-3- 3
F.D.I.C. alleges were made with intent to hinder, defraud or
delay his creditors.
A. Promissory Notes ________________
In 1988, Carmen Elio borrowed the following sums
from First Service: (1) $400,000 on April 19 by means of an
unsecured promissory note with a term of three months; (2) $2
million on May 4 by means of an unsecured promissory note
with a term of three years; and (3) $1,450,000 on September
30 by means of a promissory note with a term of three years.
Elio defaulted on all three loans.
On July 1, 1991, Carmen Elio and FH Financial
Services executed a note for $564,619.35 from the F.D.I.C.,
which had been appointed liquidating agent of First Service
in 1989. The amount represented the outstanding balance on a
1987 loan from First Service to Carmen and Elaine Elio,
secured by a mortgage on their home. The F.D.I.C. canceled
the predecessor note and discharged the mortgage. Under the
new loan agreement, Carmen Elio and FH Financial Services
were to make monthly payments of $7,065.38 beginning in
August, 1991. Elio defaulted on the monthly payments, and
the F.D.I.C. made a demand under the terms of the loan
agreement.
By September 1991, Carmen Elio was also in default
on obligations to Boston Trade Bank, and, according to a
-4- 4
verified complaint filed in another action, to Chase
Manhattan Bank for $1,850,000.
B. Transfers _________
On October 25, 1990, Carmen Elio transferred his
interest in residential property in Florida to Elaine and
Teresa Elio, as trustees of the Seaview Realty Trust, for no
consideration. At the time the equity in the property was
estimated to be more than $1 million.
On December 31, 1990, Carmen Elio created the Elio
Family Trust, naming Elaine Elio as trustee and his children
as beneficiaries. Upon creating the trust, Elio transferred
approximately one-half of his interest in FH Securities to
the trust. Two days later, on January 2, 1991, Elio
transferred the rest of his interest in FH Securities to the
trust. Elio had valued his total interest in FH Securities
at $843,000.
Also on January 2, 1991, Carmen Elio assigned his
interest, direct or indirect, in Advantage Health Care Corp.
to the Family Trust. On a financial statement dated July 15,
1990, he had stated the value of his interest in Advantage at
$3.84 million.3
____________________
3. Financial statements signed by Carmen Elio in 1989 and
1990 list a six percent interest in Advantage Health Corp.
valued at $3,840,000. Elio contends that he never owned any
stock in Advantage, but rather was one of two equal partners
in H.R. Company, which purchased Advantage stock with money
supplied in part by Elio. Elio claims that on January 2,
1991, he assigned his interest in H.R. Company to the Elio
-5- 5
In September 1991, Carmen Elio transferred $218,867
to Elaine Elio for no consideration. The F.D.I.C. also
offered evidence that the Elio Family Trust had paid Chase
Manhattan Bank $104,000 on Carmen Elio's obligations, and had
paid $260,000 directly to Carmen Elio.
C. Proceedings below _________________
The F.D.I.C. initiated a total of three actions
against defendants. In the first, commenced December 11,
1991 ("Elio I"), the F.D.I.C., as liquidating agent of Boston ______
Trade Bank, sought to recover from Carmen Elio and FH Capital
Group money owed under certain promissory notes and
guaranties. The district court granted the F.D.I.C.'s
unopposed motion for summary judgment in Elio I and entered ______
final judgment against Carmen Elio for $1,257,730.67 and
against FH Capital Group for $59,582.43 on February 2, 1993.
In the second action, commenced August 27, 1993
("Elio II"), the F.D.I.C., as liquidating agent for First _______
Service, sued Carmen Elio and FH Financial Services on the
three 1988 promissory notes. The F.D.I.C. later amended this
complaint, adding a claim against Carmen Elio on the 1991
note, and adding fraudulent transfer claims against Elaine
Elio, both individually and as trustee of the Elio Family
Trust and the Seaview Realty Trust, against Teresa Elio as
____________________
Family Trust, that H.R. Company was subsequently dissolved,
and that a portion of the Advantage shares were transferred
to a nominee for the trust.
-6- 6
trustee of the Seaview Realty Trust, and against FH
Securities.
The third action, commenced December 9, 1993 ("Elio ____
III"), is an action on the judgment in Elio I, asserting the ___ ______
same fraudulent transfer claims as Elio II. _______
The F.D.I.C. moved in both Elio II and Elio III for _______ ________
(1) a preliminary injunction against Carmen Elio and anyone
acting on his behalf, (2) an attachment on the real property
of Carmen and/or Elaine Elio, and (3) appointment of a
trustee to hold the assets of the Elio Family Trust and the
Seaview Realty Trust. The F.D.I.C. also moved to consolidate
the three cases.
After holding a hearing on December 21 and 23,
1993, the district court found that the F.D.I.C. had already
proven its right to recover approximately $1.3 million by
virtue of its judgment in Elio I, and was likely to achieve ______
judgment in excess of $4,780,000 in Elio II. The court found _______
that the F.D.I.C. was reasonably likely to succeed in proving
that Carmen Elio had transferred assets to hinder, delay and
defraud the F.D.I.C. The court also found that the balance
of hardships weighed in favor of granting the equitable
relief sought by the F.D.I.C., and that the public interest
would be served by granting that relief. The court granted a
preliminary injunction against defendants and those acting in
concert with them; granted an attachment in the amount of $5
-7- 7
million against property held by Carmen and/or Elaine Elio in
Barnstable County, Massachusetts; and appointed a trustee for
the Elio Family Trust and the Seaview Realty Trust. The
court allowed Carmen and Elaine Elio to pay their ordinary
personal expenses up to $5,000 per month, and allowed FH
Securities and FH Financial Services, with the trustee's
approval, to make payments as reasonably necessary to
continue to conduct business.
At a further hearing held on February 3, 1994 to
address additional issues relating to the court's order, the
court extended the appointment of the trustee to FH Financial
Services.
II. Analysis ________
A. Appointment of the trustee __________________________
Defendants argue that the district court abused its
discretion by appointing a trustee to hold the assets of the
Elio Family Trust, the Seaview Realty Trust and FH Financial
Services. In determining whether the district court abused
its discretion, "[a]n appellate court's role is to decide
whether the district court applied proper legal standards and
whether there was reasonable support for its evaluation of
factual questions." Hochstadt v. Worcester Found. for _________ ____________________
Experimental Biology, 545 F.2d 222, 229 (1st Cir. 1976). ____________________
-8- 8
1. Applicable standard ___________________
Defendants' contend that the district court failed
to apply the proper standard in appointing the trustee.
Paragraph (18) of 12 U.S.C. 1821(d), entitled "Attachment
of assets and other injunctive relief," provides:
Subject of [sic] paragraph (19), any court of
competent jurisdiction may, at the request of--
(A) the [Federal Deposit Insurance]
Corporation, (in the Corporation's capacity as
conservator or receiver for any insured
depository institution or in the Corporation's
corporate capacity with respect to any asset
acquired or liability assumed by the
Corporation under section 1821, 1822, or 1823
of this title); . . .
issue an order in accordance with Rule 65
of the Federal Rules of Civil Procedure,
including an order placing the assets of
any person designated by the Corporation
or such conservator under the control of
the court and appointing a trustee to
hold such assets.
Paragraph (19), entitled "Standards," provides in relevant
part:
(A) Showing
Rule 65 of the Federal Rules of Civil
Procedure shall apply with respect to any
proceeding under paragraph (18) without
regard to the requirement of such rule
that the applicant show that the injury,
loss, or damage is irreparable and
immediate.
Defendants argue that, despite the statute's
references to Rule 65, which governs injunctions, the
appointment of a trustee to hold assets is governed by
stricter standards and precedents applicable to the
-9- 9
appointment of receivers under Rule 66. See Consolidated ___ ____________
Rail Corp. v. Fore River Ry. Co., 861 F.2d 322, 326-27 (1st __________ __________________
Cir. 1988) (reciting factors to be considered in appointment
of receivers). This is so, defendant argues, for three
reasons: (1) there is no material difference between the
trustee authorized by 1821(d)(18) and a "receiver" as
described in Rule 66; (2) the provisions of 28 U.S.C. 959,
which concern the responsibilities and liability of receivers
and trustees, do not distinguish between the two; and (3) the
apparent intent of paragraphs (18) and (19) is to retain the
pre-existing legal standards applicable to such equitable
relief except for the requirement that the injury, loss or
damage be irreparable or immediate. In making no mention of
Rule 66, defendant concludes, the "drafters evidently
overlooked the fact" that receivers are governed by Rule 66,
not Rule 65.
We do not agree. The fact that a trustee is
analogous to a receiver would not prevent Congress from
authorizing the appointment of a trustee upon a lesser
showing. The statute could not be clearer in its repeated
designation of Rule 65 as the source of the governing
standard. "[T]he task of interpretation begins with the text
of the statute itself, and statutory language must be
accorded its ordinary meaning." Telematics Int'l, Inc. v. ______________________
NEMLC Leasing Corp., 967 F.2d 703, 706 (1st Cir. 1992). ___________________
-10- 10
Even looking at the statutory history, as courts
have sometimes done when interpreting otherwise clear
statutory language, id., that history only militates against ___
defendant's argument. Paragraphs (18) and (19) were enacted
in 1990 as part of the Comprehensive Thrift and Bank Fraud
Prosecution and Taxpayer Recovery Act, passed by Congress in
response to the crisis in the nation's depository
institutions. The Act
responds to the public outcry to put to
justice those who defrauded the savings
and loan industry by providing Federal
regulating agencies, Federal prosecutors,
and law enforcement agencies with
additional tools to combat fraud and
abuse affecting financial
institutions. . . . is aimed at
protecting assets from wrongful
disposition, expands the authority of the
Attorney General, conservators, receivers
or liquidating agents and Federal banking
agencies to enjoin the dissipation of
assets wrongfully obtained. . . . [and]
further expands the power of
conservators, receivers or liquidating
agents to avoid fraudulent
transfers. . . .
136 Cong. Rec. E3684 (daily ed. Nov. 2, 1990) (statement of
Rep. Schumer). "By enacting the Taxpayers Recovery Act,
Congress has evidenced its desire to take an aggressive
position in minimizing losses sustained by taxpayers due to
bank failures . . . . Congress has given the FDIC a green
light to use aggressive tactics in protecting taxpayers'
interests." F.D.I.C. v. Cafritz, 762 F. Supp. 1503, 1509 ________ _______
(D.D.C. 1991). See also Resolution Trust Corp. v. Cruce, 972 ________ ______________________ _____
-11- 11
F.2d 1195, 1200 (10th Cir. 1992) ("Congress clearly intended
to reduce the RTC's burden vis a vis other litigants in
similar situations when it seeks to freeze assets that
allegedly are the subject of a fraudulently [sic]
conveyance."). Providing for the appointment of a trustee
under the standards of Rule 65 fits within this purpose.
Where a statute's plain language was consonant with its
apparent purpose, we have said that we would not find in it a
meaning "nowhere suggested by the explicit language of the
statute itself." Telematics, 967 F.2d at 706-07. __________
We conclude that the appointment of a trustee under
12 U.S.C. 1821(d)(18) is governed by the standards and
precedents applicable to the issuance of injunctive relief
under Rule 65, except that there is no need for plaintiff to
show that the injury, loss or damage will be irreparable or
immediate. To justify the appointment of a trustee to hold
the assets of defendants, the F.D.I.C. was, therefore,
required to show (1) that it will suffer some injury in the
absence of the appointment of a trustee; (2) that such injury
outweighs any harm which appointment of the trustee would
inflict on the defendant; (3) that the F.D.I.C. has exhibited
a likelihood of success on the merits; and (4) that the
public interest will not be adversely affected by the
-12- 12
appointment of the trustee. See Planned Parenthood League v. ___ _________________________
Bellotti, 641 F.2d 1006, 1009 (1981).4 ________
2. Reasonableness of the court's factual findings ______________________________________________
Defendants argue that there was no reasonable
support for the district court's conclusions that (1) the
F.D.I.C. was likely to succeed on the merits of its claims,
(2) the F.D.I.C. would suffer harm in the absence of the
appointment of the trustee, and (3) the balance of harms
favored the F.D.I.C.5
a. Likelihood of success on the merits ___________________________________
The F.D.I.C. brings its claims against the Elio
Family Trust and the Seaview Realty Trust to avoid fraudulent
transfers under 12 U.S.C. 1821(d)(17). To succeed on such
claims, the F.D.I.C. must show that the transfer was made by
the debtor of the financial institution within five years of
____________________
4. The F.D.I.C. ignores the first of these four prongs
that some showing of harm be made in the formulation
argued to us. Perhaps it feels that such a requirement is
implicit in the second prong, that the balance of harms
supports the party requesting relief. We agree with the
Tenth Circuit, in any case, that 12 U.S.C. 1821(d)(19) does
not completely eliminate the requirement that "some showing
of injury" be made. Cruce, 972 F.2d at 1200. See also 136 _____ ________
Cong. Rec. E3686 (statement of Rep. Schumer) (daily ed., Nov.
2, 1990) ("Congress still intends that the Corporation be
required to make some showing of injury prior to obtaining
relief"). But see Cafritz, 762 F. Supp. at 1505-06. _______ _______
5. Defendants also argue that, under the standards and
precedents governing the appointment of receivers under Rule
66, the F.D.I.C. was required to show that it had a legal or
equitable right in the defendants' property, and that it
failed to do so here. Because we hold that those standards
do not apply, we do not address this argument.
-13- 13
the F.D.I.C.'s appointment as conservator or receiver, and
that that debtor "voluntarily or involuntarily made such
transfer or incurred such liability with the intent to
hinder, delay, or defraud the insured depository institution,
the Corporation or other conservator, or any other
appropriate Federal banking agency." 12 U.S.C.
1821(d)(17)(A).
Because direct evidence of fraudulent intent is
often lacking, courts may have to rely on inferences "from
the circumstances surrounding a transaction, placing
particular emphasis on certain indicia or badges of fraud."
F.D.I.C. v. Anchor Properties, 13 F.3d 27, 32 (1st Cir. ________ _________________
1993). Such indicia may commonly include, without
limitation,
(1) actual or threatened litigation
against the debtor; (2) a purported
transfer of all or substantially all of
the debtor's property; (3) insolvency or
other unmanageable indebtedness on the
part of the debtor; (4) a special
relationship between the debtor and the
transferee; and (5) retention by the
debtor of the property involved in the
putative transfer.
Id. "[T]he confluence of several [indicia or badges of fraud] ___
can constitute conclusive evidence of an actual intent to
defraud, absent 'significantly clear' evidence of a
legitimate supervening purpose." Max Sugarman Funeral Home, __________________________
Inc. v. A.D.B. Investors, 926 F.2d 1248, 1253-54 (1st Cir. ____ ________________
1991).
-14- 14
Here, the evidence amply supported the district
court's finding that the F.D.I.C. was likely to succeed on
the merits of its fraudulent transfer claims against the Elio
Family Trust and the Seaview Realty Trust. The transfers
were made in late 1990 and 1991. The evidence indicated that
by the end of 1990, Carmen Elio was more than $6 million in
debt, of which approximately $4.5 million was in default, and
that by September 1991 he was also in default on obligations
to Boston Trade Bank. There was evidence that these debts
remained in default, with interest accruing, and that
judgment subsequently entered for $1,257,730.67 on the
F.D.I.C.'s action as liquidating agent of Boston Trade Bank.
The district court could thus reasonably have found
unmanageable indebtedness on Elio's part at the time of the
transfers, and could reasonably have inferred that Elio would
have been aware that litigation would inevitably follow.
It is unquestioned that the transferees had a
special relationship with Carmen Elio. The two trusts were
both created by Elio; family members served as the trustees
of both; his children were the beneficiaries of the Elio
Family Trust.6 Nor do defendants dispute that the transfers
were made for no consideration.
____________________
6. The record was silent as to the beneficiaries of the
Seaview Realty Trust.
-15- 15
The court supportably found that the transfers to
the trusts were not for legitimate tax planning purposes.
Michael Davis, the tax attorney who had prepared the
instruments establishing the Elio Family Trust, testified
that, although he understood that the trust was being
established for tax purposes and was aware of the initial
transfer of approximately half of the FH Securities stock to
the trust, Carmen Elio did not inform him of the transfer of
the remaining stock only two days later. Davis also
testified that he was not consulted on or aware of any
subsequent transfers to the trust. His testimony also
indicated that the stock transfers far exceeded the amount
that would have been exempt under the gift tax annual
exclusion. Davis speculated that the additional amount could
have had other beneficial tax consequences, but conceded that
the financial information provided to him by Carmen Elio was
insufficient for him to know whether beneficial consequences
would occur. Davis testified that he did not recall having
seen Elio's 1989 or 1990 tax returns, was unaware to what
extent Elio had made any prior gifts that would affect the
level of his lifetime gift tax exemption, was not consulted
with respect to payment of any gift tax on the transfers to
the trust, and was unaware of Elio's transfer of property to
the Seaview Realty Trust. The district court reasonably
concluded that although counsel formed the trust for
-16- 16
conventional gift tax purposes, Carmen Elio had not provided
counsel with full and accurate financial information and
immediately used the trust as a means to hinder, delay and
defraud his creditors.
The record supports the finding that Carmen Elio
continued to enjoy the benefits of the property even after
the transfers were made. There was evidence that the Elio
Family Trust made payments on Elio's obligation to Chase
Manhattan Bank, and that the trust paid $260,000 directly to
Elio;7 there was also evidence that, even after the Florida
property was transferred to the Seaview Realty Trust, Elaine
Elio stated that the property was her "winter residence,"
from which the court reasonably inferred that Carmen Elio had
use of the property as well.
The record supports the district court's finding
that Carmen Elio had in the past made false statements
regarding his financial condition. His financial statement
given to Chase Manhattan Bank on December 31, 1989, did not
disclose his debt to Boston Trade Bank or the full amount of
his debt to First Service. His financial statement given to
____________________
7. Monthly statements of the Elio Family Trust's account
show numerous other unexplained transactions, some in large
amounts. After the trustee had been appointed and made its
initial report under seal to the court, the court noted on
the record that the report showed substantial payments made
by the trust which did not appear to be for the benefit of
the beneficiaries, concluding that "if the FDIC had known
about them, they would have emphatically used them in their
earlier argument."
-17- 17
Boston Trade Bank on July 15, 1990 did not disclose any of
the debt then owed to First Service. Nor, the district court
reasonably inferred, had Elio told Attorney Davis of the
extent of his substantial debt.
As to the proportion of Carmen Elio's property that
he had transferred, the district court reasonably found that
Elio's own statements on his previous financial statements
were not credible, and that there was no evidence of any
property other than that which had been transferred.
Given the evidentiary support for these several
"badges of fraud," the district court reasonably concluded
that the F.D.I.C. was likely to succeed on the merits of its
claims against the two trusts.
The F.D.I.C. also sues FH Financial Services on its
obligation under the $564,619.35 loan agreement executed July
1, 1991. There is sufficient evidence in the record to show
that FH Financial Services undertook this obligation and is
currently in default on it. Defendants do not claim
otherwise and offer no defense. As a result, the district
court was entitled to find that the F.D.I.C. would succeed on
the merits of its claim against FH Financial Services.
b. Some showing of harm ____________________
The record supports the district court's conclusion
that the F.D.I.C. would be harmed if no trustee were
appointed specifically, that the F.D.I.C.'s ability to
-18- 18
fulfill its statutory objective of collecting on the assets
of the failed banks would be impaired. There was evidence
that assets of the Elio Family Trust had been expended on
Carmen Elio's behalf, and that Elio had continued to enjoy
the benefit of the assets transferred to the Seaview Realty
Trust, thus permitting the inference that the assets of the
trusts were still within Elio's control. The district court
also reasonably found that the F.D.I.C. had been frustrated
in its attempts to obtain discovery with respect to the
assets of the two trusts and of FH Financial Services,8 and
with respect to the merits. The district court reasonably
found that the information previously provided by Carmen Elio
himself as to their assets was not credible.
At the hearing on February 3, 1994, the court heard
representations of counsel that FH Financial Services had
once been owned by Carmen Elio, that it may subsequently have
been transferred to one of Elio's children, that its present
ownership was unknown, that its only known asset was a third
mortgage on the Elios' home in Osterville, Massachusetts,
____________________
8. In response to Carmen Elio's statement in an affidavit
that the Florida property had been damaged in a hurricane and
foreclosed upon, counsel for the F.D.I.C. stated, "My
question is: Does the Seaview Realty Trust have other
assets? What happened when it was foreclosed? Who
foreclosed it? What were the proceeds of the foreclosure?
Was there an insurance policy payable? Was the loss payee
the mortgagee if Hurricane Andrew damaged it? There are a
lot of questions about the Seaview Realty Trust which aren't
dissolved by that terse statement that the property was
damaged by Hurricane Andrew and has been foreclosed."
-19- 19
that the current state of its business was unknown, and that
the F.D.I.C. still sought discovery from it. The court
extended the appointment of the trustee to FH Financial
Services to verify its assets and ensure its compliance with
the court's earlier order. As there was a void of
information concerning FH Financial Service's business,
assets and ownership, the court could reasonably have found
that without the extension of the trustee to FH Financial
Services, the F.D.I.C.'s ability to protect its rights and
pursue its claim would be impaired.
We hold that there is ample evidence of harm in the
record to satisfy the reduced standard required by 12 U.S.C.
1821(d)(18) and (19).
c. Balance of harms ________________
Finally, the record supports the district court's
conclusion that the balance of harms weighed in the
F.D.I.C.'s favor. Defendants' contention that the
appointment of a trustee would jeopardize the Elio Family
Trust's license to sell securities was rejected by the
district court and is not pursued on appeal. Defendants cite
only the costs of trusteeship itself and the deprivation of
ongoing control over their property as sources of harm.
Though these harms are not negligible, the district court did
not abuse its discretion in finding that they were outweighed
by the potential harm to the F.D.I.C.'s ability to protect
-20- 20
the assets of the failed banks. Moreover, because the
likelihood of plaintiff's ultimate success on the merits is
great, "less weight is to be given to the defendant's
prospective loss." S.E.C. v. World Radio Mission, Inc., 544 ______ _________________________
F.2d 535, 541-42 (1st Cir. 1976).
B. Preliminary injunction against Elaine Elio __________________________________________
The district court enjoined the defendants and
those acting in concert with them from "selling,
transferring, hypothecating, encumbering or otherwise
alienating any assets or property," specifically allowing
Carmen and Elaine Elio individually to pay their ordinary
personal expenses up to $5,000 per month. The district court
emphasized that he had found Elaine Elio to be "acting in
concert" with Carmen Elio, that she would have been subject
to the order even if not explicitly named, and that she was
named in the order primarily to put her on notice and
"minimize the risk that someone would inadvertently do
something that will make them the subject for a motion for
civil contempt by the F.D.I.C."
Defendants argue that the district court abused its
discretion in granting a preliminary injunction against
Elaine Elio individually, because (1) there was no support
for a finding that she was acting in concert with Carmen
Elio, and (2) the amount of the injunction should have been
-21- 21
limited to the amount of the allegedly fraudulent transfer
that she received from Carmen Elio.
But the evidence of Elaine Elio's involvement, was
not limited merely to her receipt of $218,867 from Carmen
Elio in September 1991. Elaine Elio was the trustee of the
Elio Family Trust, which was the recipient of substantial
transfers from Carmen Elio on at least three occasions, and
which subsequently made two transfers to Carmen Elio or on
his behalf. She was also a trustee of the Seaview Realty
Trust. Seaview was the recipient of Florida residential
property from Carmen Elio, which the court reasonably
inferred could continue to be used by Carmen Elio after the
transfer. In addition, Elaine Elio refused at her deposition
to answer any questions about her involvement, asserting her
Fifth Amendment privilege against self-incrimination. As
this is a civil action, the district court was entitled to
draw a negative inference from her refusal to testify.
Baxter v. Palmigiano, 425 U.S. 308, 318 (1976). We conclude ______ __________
there was reasonable support in the record for the district
court's finding that Elaine Elio was acting in concert with
Carmen Elio in his attempts to hinder, delay and defraud his
creditors, and that a preliminary injunction was necessary to
-22- 22
prevent further dissipation of Elio's assets.9 See Fed. R. ___
Civ. P. 65(d).
Nor was the scope of the injunction an abuse of
discretion. Despite the district court's repeated
invitation, Elaine Elio refused to provide information
regarding the state and source of her assets, or to identify
any assets which she had acquired independently from Carmen
Elio. Defendants' assertion that Elaine Elio "may very well
have" independent assets was unsupported by any evidence.
The district court repeatedly offered to reconsider its order
if such evidence were provided; none was. From her refusal
to testify regarding the source of her assets, and from the
other evidence of her acting in concert with Carmen Elio to
defraud creditors, the court could have inferred a likelihood
that there had been additional transfers in unknown amounts.
Moreover, to enjoin her, in the abstract, from dissipating
only those assets received from Carmen Elio would have been
an ineffective directive subject to easy evasion, leaving the
court with little ability to distinguish a valid expenditure
____________________
9. Defendants argue that the district court erroneously
found that Elaine Elio was Carmen Elio's "alter ego," thereby
inappropriately applying a principle of corporations to a
relationship between two individuals. It is clear from the
record, however, that the district court used the term "alter
ego" not as a term of art but rather as synonymous with
"acting in concert"; the court used the latter phrase several
times, including in the December 27, 1993 order. Moreover,
the court specifically clarified this issue, citing to Rule
65, on the record at the February 3, 1994 hearing.
-23- 23
from an invalid one. Given the failure of defendants to
provide information on the basis of which the district court
might have meaningfully modified its order, it was not an
abuse of discretion to enjoin Elaine Elio from spending more
than $5,000 per month. See F.D.I.C. v. Faulkner, 991 F.2d ___ ________ ________
262, 267 (5th Cir. 1993); F.S.L.I.C. v. Dixon, 835 F.2d 554, __________ _____
566 (5th Cir. 1987).
C. Attachment on Elaine Elio's property ____________________________________
The district court ordered an attachment in the
amount of $5 million on the real property of Carmen and/or
Elaine Elio in Barnstable County, Massachusetts. Echoing
their arguments with respect to the preliminary injunction,
defendants argue that the attachment, as it applies to Elaine
Elio, was an abuse of discretion.
Unlike preliminary injunctions and receiverships,
however, attachments are not among the interlocutory orders
appealable under 28 U.S.C. 1292(a). Defendants concede
that interlocutory orders granting attachments are not
ordinarily appealable, see In re Unanue Casal, 998 F.2d 28, ___ __________________
31-32 (1st Cir. 1993); Lowell Fruit Co. v. Alexander's ________________ ___________
Market, Inc., 842 F.2d 567, 568-70 (1st Cir. 1988), but ____________
briefly argue that the rule should not apply here because the
attachment is integrally related to the other orders, is
based on the same findings of fact, and will not waste
judicial resources. Defendants cite no statute or precedent
-24- 24
in support of this argument, nor do defendants attempt to
show that the attachment is appealable under the collateral
order doctrine. See Cohen v. Beneficial Indus. Loan Corp., ___ _____ ____________________________
337 U.S. 541, 545-47 (1949)10. In these circumstances, we
decline to review the attachment order. Cf. In re Unanue ___ ____________
Casal, 998 F.2d at 31-32; Lowell Fruit, 842 F.2d at 568-70; _____ ____________
Sobol v. Heckler Congressional Comm., 709 F.2d 129, 130-32 _____ ___________________________
(1st Cir. 1983) (order dissolving attachment); Midway Mfg. ___________
Co. v. Omni Video Games, Inc., 668 F.2d 70, 71 (1st Cir. ___ ______________________
1981) (order vacating impoundment order).
Affirmed. ________
____________________
10. We question whether such a showing could be made. Under
the collateral order doctrine, the order appealed from "must
be a final order that presents an issue of law, not one of
discretion, that is separable from the issues to be presented
at trial, and that cannot await resolution until appeal from
the final judgment because irreparable harm would be
probable." Midway Mfg. Co. v. Omni Video Games, Inc., 668 _______________ ______________________
F.2d 70, 71 (1st Cir. 1981). Here, the validity of the
attachment order is by no means separable from the merits of
the F.D.I.C.'s fraudulent conveyance claims, and it "may well
involve only a fact-specific exercise of discretion rather
than a controlling issue of law." Bridge Constr. Corp. v. ____________________
City of Berlin, 705 F.2d 582, 583 (1st Cir. 1983). In ______________
addition, given that the attachment of Carmen Elio's interest
in this same property was not challenged, it appears unlikely
that Elaine Elio will suffer any irreparable harm from the
attachment on her interest.
-25- 25
Document Info
Docket Number： 94-1248
Filed Date： 11/16/1994
Precedential Status： Precedential
Modified Date： 9/21/2015