Jonathan E. Perlman v. Bank of America, N.A.

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
____________________________
Nos. 12-13436 & 12-14073
___________________________
D.C. Docket No. 9:11-cv-80331-DTKH
JONATHAN E. PERLMAN,
Esq., as court appointed Receiver of
Creative Capital Consortium, LLC, et al.,
Plaintiff-Appellant,
versus
BANK OF AMERICA, N.A.,
Defendant-Appellee.
__________________________
Appeals from the United States District Court
for the Southern District of Florida
__________________________
(March 28, 2014)
Before MARTIN, JORDAN, and SUHRHEINRICH, * Circuit Judges.
PER CURIAM:
*
Honorable Richard F. Suhrheinrich, United States Circuit Judge for the Sixth Circuit, sitting by
designation.
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Through Creative Capital Consortium, LLC, and several related entities,
George Theodule promised investors that they could double their money, with little
or no financial risk, within 90 days. Despite the outlandish promised rate of return,
or perhaps because of it, many persons and entities gave Mr. Theodule their
money. But the rate was, of course, too good to be true; Mr. Theodule operated a
massive Ponzi scheme in which he used the money of newer investors to make it
seem as though the older investors were reaping the incredible profits he had
promised. By the time the Securities and Exchange Commission filed suit in late
2008, Mr. Theodule and his companies had pilfered tens of millions of dollars.
Jonathan Perlman, the court-appointed receiver for Creative Capital
Consortium and its related entities, sued Bank of America -- where Mr. Theodule
and his entities had personal and business accounts -- alleging in relevant part that
it aided and abetted a breach of fiduciary duty, and that it violated the Florida
Uniform Fraudulent Transfer Act, Fla. Stat. § 726.101 et seq., by acting as the
initial transferee of millions of dollars fraudulently transferred between accounts
maintained at Bank of America. As receiver of the Theodule entities (and an
alleged creditor within the meaning of the FUFTA), Mr. Perlman sought to void
the fraudulent transfers and recover their value.
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The district court dismissed all of the claims with prejudice, ruling that the
atypical banking transactions alleged in the amended complaint were insufficient
to establish aiding and abetting liability, and that Bank of America could not be
liable under FUFTA because it acted as a “mere conduit” for the transfers. The
district court also denied Mr. Perlman’s Rule 59(e) motion to alter and amend the
judgment because it was untimely.
On appeal, Mr. Perlman argues that the district court should not have
dismissed his FUFTA claims based on the “mere conduit” defense, that the district
court should have granted him leave to amend, and that the district court erred in
denying his Rule 59(e) motion. Although we conclude that the district court was
not required to grant leave to amend, and properly denied the Rule 59 motion, we
reverse the dismissal of the FUFTA claims. The “mere conduit” theory is an
affirmative defense that Mr. Perlman did not have to anticipate or negate in his
complaint, and that defense was not apparent from the face of the amended
complaint.
I1
“[T]o survive a motion to dismiss, a complaint must [ ] contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1289 (11th Cir. 2010)
1
Judges Martin and Jordan join in this portion of the opinion.
3
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(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Nevertheless, “a
well-pleaded complaint may proceed even if it strikes a savvy judge that actual
proof of those facts is improbable[.]” Twombly, 550 U.S. at 556.
The district court, relying on our unpublished decision in Lawrence v. Bank
of America, N.A., 455 F. App’x 904, 907, 2012 WL 89904 (11th Cir. 2012)
(holding that atypical transactions are insufficient to give a bank “providing only
routine banking services” actual knowledge of an alleged Ponzi scheme -- because
Florida law does not require such a bank to “investigate [a client’s] transactions” --
and affirming dismissal of claims alleging that bank aided and abetted a fraudulent
scheme), dismissed all of Mr. Perlman’s claims with prejudice. It concluded that
Mr. Perlman had merely pled the existence of atypical transactions which, in its
view, constituted an insufficient predicate for establishing aiding and abetting
liability under Florida law. It then extended the logic of Lawrence -- a non-
FUFTA case -- to encompass Mr. Perlman’s FUFTA claims, and held that the four
corners of the operative complaint conclusively demonstrated that Bank of
America was a mere conduit for the assets at issue. See Perlman v. Bank of Am.,
N.A., No. 11-80331-CV, 2012 WL 1886617, at *2 (S.D. Fla. May 23, 2012)
(“[T]he face of the Amended Complaint makes clear that the Bank acted as a mere
conduit of Theodule’s fraudulent transfers–that is, that the Bank never exercised
dominion or control over the funds and that the Bank acted with good faith.”).
4
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Exercising plenary review, see Guarino v. Wyeth, LLC, 719 F.3d 1245, 1248 (11th
Cir. 2013), we reverse the dismissal of the FUFTA claims.
The “mere conduit” theory, as set out in In re Harwell, 628 F.3d 1312 (11th
Cir. 2010), is an “equitable exception” to the fraudulent transfer provisions in the
Bankruptcy Code. See 11 U.S.C. §§ 548, 550. It is available to persons or entities
who are initial recipients of fraudulent transfers but who are “‘mere conduits’ with
no control over the fraudulently-transferred funds.” See In re Harwell, 628 F.3d at
1322. Significantly, however, the “mere conduit” theory must be affirmatively
proved by the one seeking to obtain its protection. As we said in In re Harwell,
transferees who want to come within the equitable exception to §§ 548 and 550 of
the Bankruptcy Code “must establish (1) that they did not have control over the
assets received, i.e., that they merely served as a conduit for the assets that were
under the actual control of the debtor-transferor[,] and (2) that they acted in good
faith and as an innocent participant in the fraudulent transfer.” Id. at 1323. This
two-pronged test entails “a flexible, pragmatic, equitable approach of looking
beyond the particular transfer in question to the circumstances of the transaction in
its entirety." Id. at 1322 (citing Nordberg v. Societe Generale (In re Chase &
Sanborn Corp.), 848 F.2d 1196, 1199 (11th Cir. 1988)).
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We have not yet addressed whether the “mere conduit” affirmative defense
applies in FUFTA actions. Nor have the Florida courts.2 Assuming, however, that
this defense does apply, it should not have served as the basis for dismissal of Mr.
Perlman’s FUFTA claims. As a general matter, a plaintiff is “not required to
negate an affirmative defense in [his] complaint.” La Grasta v. First Union Sec.,
Inc., 358 F.3d 840, 845 (11th Cir. 2004) (punctuation omitted). See also Payne v.
Humana Hosp. Orange Park, 661 So. 2d 1239, 1241 (Fla. 1st DCA 1995) (“[T]he
complaint need not anticipate affirmative defenses[.]”). Although a “complaint
may be dismissed if an affirmative defense . . . appears on the face of the
complaint,” Bingham v. Thomas, 654 F.3d 1171, 1175 (11th Cir. 2011), the “mere
conduit” defense was not apparent from the four corners of the amended
complaint.
According to Mr. Perlman’s allegations, Bank of America was not a mere
conduit. Mr. Theodule and his entities initially did their banking at Washington
Mutual Bank and then Wachovia Bank, but those financial institutions closed their
accounts by July of 2008 “due to the apparent money laundering nature of the
[account] activit[ies].” By then, pursuant to its anti-money laundering policies,
2
A number of courts interpreting the Uniform Fraudulent Transfer Act (on which the
FUFTA is based) have concluded that “the transferee’s knowing participation [in the transferor’s
fraudulent scheme] is irrelevant under the [Act].” Warfield v. Byron, 436 F.3d 551, 557-59 (5th
Cir. 2006) (surveying cases). Accord Frank Sawyer Trust of May 1992 v. Commissioner of
Internal Revenue, 712 F.3d 597, 606-07 (1st Cir. 2007); Boyer v. Crown Stock Dist., Inc., 587
F.3d 787, 792 (7th Cir. 2009).
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and its “Know your Customer” program, Bank of America had implemented
certain due diligence requirements for new customers. These included “obtaining
information from the new customer regarding the background and nature of the
new customer’s business operations,” which Bank of America verified by “various
means[,] including running internet searches, checking public records, and
contacting the customer’s prior banker(s).” Bank of America also did not open,
and did not allow, “investment club” accounts, as such accounts were “a well
known indicator of a Ponzi scheme operation.” If Bank of America “contacted
[Mr.] Theodule’s bankers at Wachovia, as was its custom and policy, [it] knew
[Mr.] Theodule’s accounts there had been ordered closed for money laundering
activities.” Nonetheless, Bank of America agreed to open accounts for Mr.
Theodule and his entities – including at least 20 investment club accounts for
Theodule-related entities -- and make all transfers they requested, even though it
“knew that the transfers were part of a Ponzi scheme.” Many of these investment
club accounts had the words “Investment Club” in their title. Millions of dollars
flowed into the investment club accounts, only to be transferred to Mr. Theodule’s
personal accounts. Within the first 30 days of opening the accounts at Bank of
America, Mr. Theodule took out $1.3 million of the investment clubs’ money that
had come into his own personal accounts.
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One of the defrauded investors, who had obtained an equity line on her
home to invest with one of the investment clubs, found out through a Bank of
America vice-president/branch manager that the club, instead of depositing her
$80,000 check, had cashed it. When the customer expressed alarm, the vice
president/branch manager advised her that “there was no cause for concern”
because she had a receipt. Acting on this advice, the customer took no further
action. The customer never got any of her money back, and Bank of America is
now threatening to foreclose on her home because she cannot make the payments
on the equity line.
These allegations, at the very least, cast some doubt on Bank of America’s
good faith, and preclude a finding that the “mere conduit” defense was apparent
from the face of the amended complaint. Cf. Rodriguez v. Farm Stores Grocery,
Inc., 518 F.3d 1259, 1273 (11th Cir. 2008) (characterizing "good faith" as a "fact-
intensive issue"). Bank of America is, of course, free to assert the “mere conduit”
affirmative defense at summary judgment once discovery is completed.
II3
As noted earlier, the district court denied leave to amend and denied Mr.
Perlman’s Rule 59 motion. We review both of these rulings for abuse of
discretion. See Tampa Bay Water v. HDR Eng’g, Inc., 731 F.3d 1171, 1178 (11th
3
Judges Jordan and Suhrheinrich join in this portion of the opinion.
8
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Cir. 2013) (leave to amend); Am. Home Assurance Co. v. Glenn Estess & Assocs.,
Inc., 763 F.2d 1237, 1238-39 (11th Cir. 1985) (motion to alter or amend judgment
under Rule 59(e)).
The district court properly exercised its discretion. First, the footnote in
which Mr. Perlman sought leave to amend -- contained in his opposition to Bank of
America’s motion to dismiss -- did not indicate what additional facts he intended to
allege in a proposed second amended complaint. The request was therefore legally
insufficient. See Wagner v. Daewoo Heavy Indus. Am. Corp., 314 F.3d 541, 542
(11th Cir. 2002) (en banc) ("A district court is not required to grant a plaintiff leave
to amend his complaint sua sponte when the plaintiff, who is represented by
counsel, never filed a motion to amend nor requested leave to amend before the
district court."); Rosenberg v. Gould, 554 F.3d 962, 967 (11th Cir. 2009)
(concluding that the district court did not abuse its discretion in denying request for
leave to amend where the request was merely included in a footnote and did not
“describe the substance of [the] proposed amendment”). Second, Mr. Perlman
filed his Rule 59(e) motion one day beyond the 28-day deadline. See Fed. R. Civ.
P. 59(e) (“A motion to alter or amend a judgment must be filed no later than 28
days after the entry of the judgment.”). As a result, the district court could not
have granted relief. See Green v. Drug Enforcement Admin., 606 F.3d 1296, 1300
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(11th Cir. 2010) (“To help preserve the finality of judgments, a court may not
extend the time to file a Rule 59(e) motion.”). 4
III
The district court did not abuse its discretion when it denied Mr. Perlman’s
request for leave to amend, and when it denied his Rule 59(e) motion. The district
court erred, however, in dismissing the FUFTA claims with prejudice under the
“mere conduit” affirmative defense. We therefore affirm in part, reverse in part,
and remand for proceedings consistent with this opinion.
AFFIRMED in part, REVERSED in part, and REMANDED.
4
To the extent that Mr. Perlman argues that the district court should have granted relief
under Rule 60, we likewise find no abuse of discretion.
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MARTIN, Circuit Judge, concurring in part and dissenting in part:
I concur with Part I of the majority opinion, which reverses the District
Court’s dismissal of Mr. Perlman’s claims under the Florida Uniform Fraudulent
Transfers Act (FUFTA). I respectfully dissent from Part II, however, because I
believe that the District Court abused its discretion when it dismissed Mr.
Perlman’s aiding and abetting claims without granting leave to amend.
If this were a typical case, I would agree with the majority that the District
Court did not abuse its discretion by rejecting Mr. Perlman’s abbreviated attempt
to request leave to amend. See Rosenberg v. Gould, 554 F.3d 962, 967 (11th Cir.
2009). It is now well-established in our Circuit that “[a] motion for leave to amend
should either set forth the substance of the proposed amendment or attach a copy
of the proposed amendment.” Long v. Satz, 181 F.3d 1275, 1279 (11th Cir. 1999)
(per curiam); see also Posner v. Essex Ins. Co., 178 F.3d 1209, 1222 (11th Cir.
1999) (per curiam) (“Where a request for leave to file an amended complaint
simply is imbedded within an opposition memorandum, the issue has not been
raised properly.”).
But this is not a typical case. When Bank of America filed its motion to
dismiss the Amended Complaint, its second motion to dismiss filed in the District
Court proceeding, Mr. Perlman had no reason to believe that his aiding and
abetting claims were in jeopardy of being dismissed. Indeed, the District Court
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had already denied Bank of America’s challenge to the identical aiding and
abetting claims when it moved to dismiss Mr. Perlman’s original complaint. In
this circumstance, barring an intervening change in controlling law 1 or a warning
that the District Court was inclined to reverse itself, a plaintiff should not be
expected to come forward with a formal request for leave to amend. As a practical
matter, it is unclear to me how we can expect a plaintiff to draft any amendment
when the District Court has already affirmatively ruled that the very same
pleadings were sufficient.
On this issue, I find instructive this Court’s decision in Bryant v. Dupree,
252 F.3d 1161 (11th Cir. 2001) (per curiam). In Bryant, the District Court denied a
motion to dismiss filed by the defendants. Id. at 1163. Following interlocutory
appeal, the defendants renewed their motion to dismiss, and the plaintiffs filed a
response, which included a request for leave to amend. Id. The District Court, in a
reversal from its earlier position, dismissed the complaint with prejudice. Id. We
were not satisfied, however, with the District Court’s reasons for denying leave to
amend. Id. at 1162–63. Specifically, we emphasized that the plaintiffs had never
been provided notice of the possible deficiencies in their complaint. Id. at 1164.
1
I recognize that the District Court relied heavily on this Court’s unpublished opinion in
Lawrence v. Bank of America, N.A., 455 F. App’x 904 (11th Cir. 2012) (per curiam), which was
decided during the interim between the two motions to dismiss. Lawrence, however, was an
unpublished opinion and therefore does not constitute binding precedent. See 11th Cir. R. 36-2.
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To the contrary, “[r]ather than indicating infirmities in the complaint, the district
court’s prior opinion created the exact opposite impression.” Id.Although I recognize that Bryant was decided before our en banc decision in
Wagner v. Daewoo Heavy Industries America Corp., 314 F.3d 541 (11th Cir.
2002) (en banc), the principles set forth in Bryant apply with equal force in this
case. Because there had been no intervening change in controlling law or any
indication that the District Court was planning to change its mind, Mr. Perlman
was likely shocked to learn that the same judge who had upheld his aiding and
abetting claims just five months earlier now found them insufficient. In this
extraordinary circumstance, a plaintiff should not be expected to include a
proposed amendment in his request for leave to amend. He would simply have no
way of knowing how or why his complaint is insufficient.
Finally, it is important to keep in mind the underlying reasons why we
require plaintiffs to provide their proposed amendments to the District Court in
advance. Until this Court’s en banc decision in Wagner, District Courts were
required to allow plaintiffs to amend their complaints as long as a more carefully
drafted complaint “might” state a claim. Bank v. Pitt, 928 F.2d 1108, 1112 (11th
Cir. 1991) (per curiam). Under the Bank rule, however, plaintiffs had no incentive
to amend their complaints before the District Court ruled on a motion to dismiss.
See Wagner, 314 F.3d at 543. If their claims were dismissed, plaintiffs knew they
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would get at least “two bites at the apple” because they had a guaranteed right to
amend in their back pocket. Id. This is why we overruled Bank and held that
District Courts are not generally required to grant a plaintiff leave to amend when
the plaintiff never requested it. Id. at 542.
Here, however, there was no danger that Mr. Perlman was trying to get two
bites at the apple because his first bite had already made its mark. As far as Mr.
Perlman was concerned, the District Court had already told him his aiding and
abetting claims passed muster once, and so there was no need for him to think
about how to shore up the insufficiencies in his complaint. Without the benefit of
prognostication, Mr. Perlman reasonably assumed that the District Court would
reject Bank of America’s second motion to dismiss in the same way it dismissed
the first one. This is why I believe that a District Court should be required to grant
leave to amend in this circumstance unless there is an intervening change in
controlling law or the District Court otherwise provides notice that it is
reconsidering its earlier ruling.
For these reasons, I would hold that the District Court abused its discretion
here by dismissing Mr. Perlman’s aiding and abetting claims with prejudice, and I
would remand this case to the District Court to provide Mr. Perlman with an
opportunity to amend his aiding and abetting claims.
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SUHRHEINRICH, Circuit Judge, concurring in part and dissenting in part:
I disagree with the majority=s conclusion that the Amended Complaint states
a claim for fraudulent transfer under the Florida Uniform Fraudulent Transfer Act,
Fla. Stat. ' 726.101 et seq. (AFUFTA@), for the following reasons.
First, as this court recently observed, A[m]ere conduits, such as lawyers and
banks, do not have an affirmative duty to investigate the underlying actions or
intentions of the transferor.@ Martinez v. Hutton (In re Harwell), 628 F.3d 1312,
1324 (11th Cir. 2010). Also, as this court has also observedBalbeit in an
unpublished decision but one that applies Florida lawBallegations of Aatypical
transactions@ Aare insufficient under Florida law to trigger liability. Florida law
does not require banking institutions to investigate transactions.@ Lawrence v.
Bank of Am., N.A., 455 F. App=x 904, 907 (6th Cir. 2012) (per curiam).
Second, a Arecipient@ is not the Ainitial transferee@ unless it exercises some
control or receives some benefit, such as in a debtor-creditor relationship, with the
funds at issue. See Bonded Fin. Servs., Inc. . European Am. Bank, 838 F.3d 890,
893 (7th Cir. 1988) (AAlthough the Bankruptcy Code does not define Atransferee@,
and there is no legislative history on the point, we think the minimum requirement
of status as a Atransferee@ is dominion over the money or other asset, the right to
put the money to one's own purposes.@). Indeed, this Court has stated that: AWhen
trustees seek recovery of allegedly fraudulent conveyances from banks, the
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outcome of the cases turn on whether the banks actually controlled the funds or
merely served as conduits, holding money that was in fact controlled by either the
transferor or the real transferee.@ Nordberg v. Societe Generale (In re Chase &
Sanborn Corp.), 813 F.2d 1196, 1200 (11th Cir. 1987) (noting that a bank controls
funds where it receives money from a debtor to pay off a debt owed to the bank).
Third, the Florida Supreme Court emphasized that AFUFTA was not
intended to serve as a vehicle by which a creditor may bring a suit against a non-
transferee party (like [the bank] in this case) for monetary damages arising from
the non-transferee party=s alleged aiding-abetting of a fraudulent money transfer.@
Freeman v. First Union Nat=l Bank, 865 So.2d 1272 (Fla. 2004). In Freeman, the
Florida Supreme Court rejected the creditors= aiding and abetting fraudulent
transfer claims against a bank after the bank transferred funds on behalf of a Ponzi-
schemer, even after the schemer was sued and an injunction freezing the accounts
at the bank had been issued.
Fourth, the Eleventh Circuit created the Amere conduit@ equitable exception
to fraudulent transfer liability Ato prevent the unjust or inequitable result of holding
an innocent transferee liable for fraudulent transfers where the innocent transferee
is a mere conduit and had no control over the funds transferred.@ Id. at 1324. See
generally Jessica D. Gabel & Paul R. Hage, Who is a ATransferee@ Under Section
550(a) of the Bankruptcy Code?: The Divide Over Dominion, Control and Good
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Faith in Applying the Mere Conduit Defense, 21 NORTON J. BANKR. L. & PRAC. 1
Art. , at 6 (2012) (noting that A[r]egardless of the test employed, courts seem to
agree that the term >transferee= must mean something different from anyone who
simply touches the avoided transfer, such as an agent or a courier. . . . [S]uch an
approach tracks the function of the bankruptcy trustee=s avoiding powers: to recoup
money from the real recipient[.]@ (internal quotation marks and citation omitted)).
Fifth, Florida law allows a court to consider affirmative defenses in
resolving a motion to dismiss where the complaint Aaffirmatively and clearly
shows the conclusive applicability of the defense to bar the action.@ Jackson v.
BellSouth Telecommunications, 372 F.3d 1250, 1277 (11th Cir. 2004) (citations
omitted).
The Amended Complaint affirmatively shows that the defense applies at this
stage (i.e. is apparent from the four corners of the complaint) because it does not
allege facts establishing that the bank actually controlled the funds at issue, making
the bank an initial transferee. It alleges simply that the bank knew, from its
customs or policies, or should have known, based on atypical transactions, that the
money transfers were part of a Ponzi scheme. Although the customer threatened
with foreclosure by the bank is a sympathetic fact, this allegation does not even
involve a transfer of funds by the debtor to the bank. Cf. Chase & Sanborn, 848
F.2d at 1199-1200 (noting that where a bank receives funds from a debtor to pay
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off a loan, the bank has control over the funds and is therefore an initial transferee).
Thus, the Amended Complaint fails to satisfy Iqbal=s requirement that the plaintiff
Aplead[] factual content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.@ Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007)).
Again, Athe misconduct alleged@ here is fraudulent transfer under FUFTA.
Freeman makes clear that an aiding and abetting theory is not available under
FUFTA, which is in essence what Perlman=s claims are, given the lack of control
over the funds.
For these reasons, I would affirm the district court=s dismissal of the FUFTA
claims.
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