National Maritime Services, Inc. v. Glenn F. Straub

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 13-15349
________________________
D.C. Docket No. 0:10-cv-61555-CMA
NATIONAL MARITIME SERVICES, INC.,
Plaintiff-Appellee,
versus
GLENN F. STRAUB,
BURRELL SHIPPING COMPANY, LLC,
Defendants-Appellants.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_______________________
(January 13, 2015)
Before WILLIAM PRYOR and JORDAN, Circuit Judges, and WALTER, ∗ District
Judge.
WILLIAM PRYOR, Circuit Judge:
∗
Honorable Donald E. Walter, United States District Judge for the Western District of
Louisiana, sitting by designation.
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This appeal requires us to decide whether the district court had ancillary
jurisdiction over a supplementary proceeding to avoid a fraudulent transfer by a
judgment debtor. National Maritime Services, Inc., sued Burrell Shipping
Company, LLC, for amounts owed for management and custodial services
provided for a vessel. After National Maritime obtained a judgment in its favor, it
discovered that Burrell Shipping had transferred all of its assets to its owner, Glenn
F. Straub. National Maritime then initiated a supplementary proceeding, Fed. R.
Civ. P. 69; Fla. Stat. § 56.29(6), to void the transfer, and the district court later
entered a judgment against Straub. Because the district court had ancillary
jurisdiction over this supplementary proceeding and the record supports the finding
of a fraudulent transfer, we affirm.
I. BACKGROUND
National Maritime filed a complaint in the district court against Burrell
Shipping and Straub for breach of contract and unjust enrichment. The claims
arose from management and custodial services that National Maritime had
provided for the M/V/ Island Adventure, a vessel owned by Burrell Shipping. The
district court had subject matter jurisdiction based on the maritime nature of the
controversy, 28 U.S.C. § 1333. While that action was pending, Burrell Shipping
sold the vessel, its only asset, to a boat scrapper for $2,249,000. Burrell Shipping
then transferred the proceeds of the sale to Straub.
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Straub is the sole owner of Burrell Shipping and its president, chief
operating officer, and managing member. Straub is also the director and president
of Burrell Industries, Inc. To facilitate the purchase of the vessel, Straub loaned
Burrell Industries $3.2 million in exchange for a promissory note. Burrell
Industries in turn loaned Burrell Shipping $3.2 million by a promissory note.
Burrell Shipping then granted Burrell Industrials a mortgage for the vessel to
secure the promissory note and purchased the vessel from the United States
Marshals Service.
After a bench trial in June 2011, the district court entered a final judgment in
favor of National Maritime and against Burrell Shipping in the amount of
$99,660.05, plus interest. But the district court ruled that Straub was not
individually liable to National Maritime. National Maritime attempted to execute
on its judgment, but was unsuccessful because Burrell Shipping had no assets.
National Maritime then initiated a supplementary proceeding against Straub
in “accord[ance] with the procedure of the state where the court is located.” Fed. R.
Civ. P. 69(a). Based on a Florida law that permits a trial court to void a transfer of
property that “has been made . . . by the judgment debtor to delay, hinder, or
defraud creditors,” Fla. Stat. § 56.29(6)(b), National Maritime asked the district
court to void the transfer of proceeds from Burrell Shipping to Straub.
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After our decision in Jackson-Platts v. General Electrical Capital
Corporation, 727 F.3d 1127 (11th Cir. 2013), the district court raised sua sponte
the question whether it had subject-matter jurisdiction to entertain the
supplementary proceeding against Straub. After the parties submitted memoranda
of law, the district court ruled that it had subject-matter jurisdiction. The district
court explained that it had “ancillary jurisdiction [because] . . . National Maritime
is seeking assets of the Judgment Debtor, Burrell [Shipping], that are found in the
hands of a third party, Straub.” Nat’l Maritime Servs., Inc. v. Straub, 979 F. Supp.
2d 1322, 1326 (S.D. Fla. 2013).
The district court found that before the sale of the vessel Burrell Shipping
had never generated its own revenues and had operated on loans or funds provided
by Burrell Industries. When Burrell Shipping sold the vessel, its liabilities
“exceeded its assets by at least $4 million.” Id. To close the sale, Burrell Shipping
had to deliver the vessel to the buyer free of all encumbrances. Burrell Industries
agreed to release the mortgage in exchange for the proceeds of the sale, but the
proceeds were transferred directly to Straub, not Burrell Industries.
The district court found that Straub is an insider of Burrell Shipping and of
Burrell Industries. The district court also found that Straub “controlled and
received the transfer” and failed to provide consideration for the transfer. Id. The
district court determined that, “[a]t the time of the transfer, Straub was aware or
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should have been aware that Burrell[ Shipping]’s liabilities exceeded its assets, he
was aware or should have been aware of the pending lawsuit against Burrell
[Shipping] and himself, and he was aware or should have been aware that Burrell
[Shipping] owed National Maritime in excess of $90,000.00.” Id.
The district court ruled that the transfer of proceeds was fraudulent on two
grounds. First, the district court found that the transfer was made with “actual
intent to hinder, delay, or defraud,” Fla. Stat. § 726.105(1)(a). Straub, 979 F. Supp.
2d at 1327–29. Second, the district court found that the transfer was made to an
insider for an antecedent debt when the insider should have known that the debtor
was insolvent, Fla. Stat. § 726.106(2). Straub, 979 F. Supp. 2d at 1329–30. The
district court ruled that the transfer was void and entered judgment against Straub
in the amount of the final judgment against Burrell Shipping.
II. STANDARDS OF REVIEW
Two standards of review govern this appeal. First, we review de novo issues
of subject-matter jurisdiction. Jackson-Platts, 727 F.3d at 1133. Second, “[a]fter a
bench trial, we review the district court’s conclusions of law de novo and the
district court’s factual findings for clear error.” Crystal Entm’t & Filmworks, Inc.
v. Jurado, 643 F.3d 1313, 1319 (11th Cir. 2011) (internal quotation marks and
citation omitted).
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III. DISCUSSION
This appeal presents two issues. First, we must decide whether the ancillary
jurisdiction of the district court extended to the supplementary proceeding initiated
by National Maritime. Second, we must decide whether the district court erred
when it determined that Burrell Shipping fraudulently transferred the proceeds to
Straub. We address each issue in turn.
A. The District Court Had Subject-Matter Jurisdiction to Hear the Supplementary
Proceeding Initiated by National Maritime.
The parties agree that ancillary jurisdiction is the only possible basis for
subject-matter jurisdiction over the supplementary proceeding. This Court has not
addressed when a supplementary proceeding falls within the ancillary jurisdiction
of a district court. We conclude that the district court had ancillary jurisdiction
over this supplementary proceeding.
Ancillary jurisdiction exists in two circumstances: “(1) to permit disposition
by a single court of claims that are, in varying respects and degrees, factually
interdependent; and (2) to enable a court to function successfully, that is, to
manage its proceedings, vindicate its authority, and effectuate its decrees.”
Peacock v. Thomas, 516 U.S. 349, 354, 116 S. Ct. 862, 867 (1996) (quoting
Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 379–80, 114 S. Ct. 1673, 1676
(1994)). The latter category encompasses “a broad range of supplementary
proceedings involving third parties to assist in the protection and enforcement of
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federal judgments—including attachment, mandamus, garnishment, and the
prejudment avoidance of fraudulent conveyances.” Id. at 356, 116 S. Ct. at 868
(citations omitted). But ancillary jurisdiction does not extend to “a new lawsuit to
impose liability for a judgment on a third party.” Id. at 359, 116 S. Ct. at 869.
The decision of the Supreme Court in Peacock is instructive. After the
plaintiff in Peacock won a judgment against his employer, the plaintiff initiated a
supplementary proceeding to pierce the corporate veil of his employer to reach
assets of a third party. Id. at 351–52, 116 S. Ct. at 865–66. The Supreme Court
held that ancillary jurisdiction did not extend to the supplementary proceeding
because the effect of the plaintiff’s claim would be “to impose liability for a money
judgment on a person not otherwise liable for the judgment.” Id. at 351, 116 S. Ct.
at 865. As the Court explained, the claim was more than an attempt “to force
payment . . . or to void postjudgment transfers.” Id. at 357 n.6, 116 S. Ct. at 868
n.6.
In contrast with Peacock, the district court had ancillary jurisdiction over
this supplementary proceeding because National Maritime sought to disgorge
Straub of a fraudulently transferred asset, not to impose liability for a judgment on
a third party. Unlike the defendant in Peacock, Straub is not personally liable for
the judgment against Burrell Shipping. Id. at 351, 116 S. Ct. at 865. Straub’s
liability is limited instead to the proceeds that Burrell Shipping fraudulently
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transferred to him. If the value of the transferred proceeds was less than the value
of the judgment against Burrell Shipping, National Maritime would have no
recourse against Straub for the excess amount. The claim asserted by National
Maritime is not “a new lawsuit [that] impose[s] liability for a judgment on a third
party.” Id. at 359, 116 S. Ct. at 869.
Our decision follows the approaches of other authorities. Both the Second
and Ninth Circuits have upheld the exercise of ancillary jurisdiction in this
circumstance, Epperson v. Entm’t Express, Inc., 242 F.3d 100, 103–07 (2d Cir.
2001); Thomas, Head & Griesen Emps. Trust v. Buster, 95 F.3d 1449, 1453–55
(9th Cir. 1996), and the First and Tenth Circuits have suggested in dicta that they
would reach the same conclusion, Ellis v. All Steel Const., Inc., 389 F.3d 1031,
1034 (10th Cir. 2004); U.S.I. Props. Corp. v. M.D. Const. Co., 230 F.3d 489, 498
(1st Cir. 2000). Our decision also comports with the ruling in Dewey v. West
Fairmont Gas Coal Company, where the Supreme Court approved of the exercise
of ancillary jurisdiction over a claim to avoid a fraudulent transfer of assets to a
third party. 123 U.S. 329, 332–33, 8 S. Ct. 148, 150 (1887). Although the claim to
avoid the fraudulent transfer in Dewey was asserted before the entry of a judgment
against the transferor, id. at 332, 8 S. Ct. 149–50, we see no reason why the result
should be different when the claim is asserted after the entry of a judgment. See
Buster, 95 F.3d at 1455. “[T]he fact that the joinder . . . took place after judgment
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is not dispositive of whether the court has jurisdiction to effectuate its judgment by
recapturing the judgment debtor’s fraudulent conveyances.” Id.; see also Swift &
Co. Packers v. Compania Colombiana Del Caribe, S.A., 339 U.S. 684, 694–95, 70
S. Ct. 861, 867–68 (1950) (“The basis of admiralty’s power is to protect its
jurisdiction from being thwarted by a fraudulent transfer, and that applies equally
whether it is concerned with executing its judgment or authorizing an attachment
to secure an independent maritime claim.”).
Straub argues that our holding in Jackson-Platts establishes that any
supplementary proceeding brought under section 56.29(6) is a new action that
seeks to impose new liability on a third party, but we disagree. Jackson-Platts did
not foreclose the exercise of ancillary jurisdiction in this circumstance. Although
we described the supplementary proceeding in Jackson-Platts as a “‘suit[]
involving a new party litigating the existence of a new liability,’” 727 F.3d at 1135
(quoting Butler v. Polk, 592 F.2d 1293, 1296 (5th Cir. 1979)) (alteration in
original), that description does not apply to this supplementary proceeding. In
Jackson-Platts, the plaintiff brought the supplementary proceeding to impose
liability for the entire judgment on new defendants who had conspired to strip the
original defendants of all of their assets. Id. at 1132. In contrast, National Maritime
sought to recover only a fraudulently transferred asset from a third party.
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B. The District Court Did Not Err When It Concluded that Burrell Shipping
Fraudulently Transferred the Proceeds of the Sale to Straub.
Straub argues that the district court erred when it ruled that the transfer of
the proceeds was fraudulent. To determine whether a transfer is fraudulent within
the meaning of section 56.29(6)(b), Florida courts look to the Uniform Fraudulent
Transfer Act, id. §§ 726.101–.112. Morton v. Cord Realty, Inc., 677 So. 2d 1322,
1324 (Fla. Dist. Ct. App. 1996). The Act provides that a preferential transfer to an
insider is void if the “claim arose before the transfer was made, . . . the transfer was
made to an insider for an antecedent debt, the debtor was insolvent at that time, and
the insider had reasonable cause to believe that the debtor was insolvent.” Fla. Stat.
§ 726.106(2). The district court found that all of these conditions were met, Straub,
929 F. Supp. 2d at 1330, and Straub does not contest these findings.
Straub argues that National Maritime failed to establish that the transfer was
made “without reasonably equivalent value,” but this argument misses the boat.
Reasonably equivalent value is not an element of proof under section 726.106(2) or
any associated defenses, see Fla. Stat. § 726.109. Although subsection (1) of
section 726.106 provides that a transfer is fraudulent if it occurred “without
receiving a reasonably equivalent value,” subsection (1) is unrelated to whether a
transfer to an insider is fraudulent under subsection (2). Id. § 726.106.
Straub also argues that the transfer is not voidable because he gave “new
value” for the transfer, id. § 726.109(6), but this argument too fails. Section
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726.109(6) provides that a transfer to an insider is not voidable “[t]o the extent the
insider gave new value to . . . the debtor after the transfer was made.” Id. §
726.109(6). Straub presented no evidence that he gave any value after the transfer
was made; he instead proved only that he released the antecedent debt. But section
726.109(6) applies when an insider gives new value after a transfer. See Unif.
Fraudulent Transfer Act § 8 cmt. 6 (2006) (explaining that section 726.109(6) “is
adapted from § 547(c)(4) of the Bankruptcy Code, which permits a preferred
creditor to set off the amount of new value subsequently advanced against the
recovery of a voidable preference”).
The district court did not err. The record supports its decision that the
transfer to Straub was a fraudulent transfer to an insider, Fla. Stat. § 726.106(2).
And we need not address whether the transfer alternatively was fraudulent because
Burrell Shipping “inten[ded] to hinder, delay, or defraud,” id. § 726.105(1)(a).
IV. CONCLUSION
We AFFIRM the judgment in favor of National Maritime and against
Straub.
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JORDAN, Circuit Judge, concurring.
I join the Court’s opinion in full. Although there is language in Jackson-
Platts v. General Electric Capital Corp., 727 F.3d 1127, 1134-39 (11th Cir. 2013),
which can be read as cutting against a finding of ancillary jurisdiction here, the
case is distinguishable because the plaintiff there, though seeking to void a
fraudulent transfer, wanted to hold the new parties liable for the entire underlying
judgment. Here, as the Court points out, National Maritime’s claim against Mr.
Straub in the supplementary proceeding was limited to the value of the
fraudulently transferred assets. We should not read Jackson-Platts more broadly
given that the Supreme Court has twice held that district courts have jurisdiction to
entertain ancillary proceedings challenging fraudulent transfers by defendants. See
Swift & Co. Packers v. Compania Colombiana Del Caribe, S.A., 339 U.S. 684,
690-95 (1950) (fraudulent transfer of vessel which had been attached pre-judgment
in initial admiralty action); Dewey v. West Fairmont Gas Coal Co., 123 U.S. 329,
332-33 (1887) (pre-judgment fraudulent transfer of assets to non-diverse
defendant).
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