Estate of Juanita Jackson v. Rubin Schron

Case: 16-16462 Date Filed: 10/19/2017 Page: 1 of 45
[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 16-16462
________________________
D.C. Docket Nos. 8:16-cv-00022-EAK & 8:11-bkc-22258-MGW
IN RE: FUNDAMENTAL LONG TERM CARE, INC.,
Debtor.
__________________________________________________________________
ESTATE OF JUANITA JACKSON,
ESTATE OF ELVIRA NUNZIATA,
ESTATE OF JOSEPH WEBB,
ESTATE OF ARLENE TOWNSEND,
STATE OF OPAL LEE SASSER,
ESTATE OF JAMES HENRY JONES,
Plaintiffs - Appellants,
BETH ANN SCHARRER,
Plaintiff,
versus
RUBIN SCHRON,
Defendant - Appellee.
Case: 16-16462 Date Filed: 10/19/2017 Page: 2 of 45
________________________
Appeal from the United States District Court
for the Middle District of Florida
________________________
(October 19, 2017)
Before JORDAN and JULIE CARNES, Circuit Judges, and VINSON, ∗ District
Judge.
JULIE CARNES, Circuit Judge:
This case has a complex procedural history lasting more than a decade and
spanning several state and federal venues. It began when the estates of several
deceased nursing-home patients (the “Estates” or “Appellants”) brought a series of
wrongful-death suits against a network of nursing homes. These suits collectively
resulted in $1 billion in empty-chair judgments against the network. In an effort to
evade enforcement of these and other liabilities, the defendant entities orchestrated
a so-called “bust out” scheme under which they transferred the useful assets of the
nursing-home business into a newly formed operating entity, leaving the core
judgment debtor a judgment-proof shell company.
When the Estates learned that this judgment debtor had been stripped of its
assets, they filed an involuntary Chapter Seven bankruptcy petition in the Middle
∗
The Honorable C. Roger Vinson, Senior United States District Judge for the Northern District
of Florida, sitting by designation.
2
Case: 16-16462 Date Filed: 10/19/2017 Page: 3 of 45
District of Florida and initiated an adversary proceeding seeking to avoid, as
fraudulent, the transfer of the debtor’s assets. The complaint named seventeen
entities and individuals as defendants and described a wide-reaching scheme in
which assets were secretly diverted in order to hinder, delay, and defraud the
debtor’s various judgment creditors. One of the named defendants was real-estate
investor Rubin Schron.
After careful consideration of the Estates’ thirty-two claims for relief—and
after granting the Estates an opportunity to comprehensively amend their lengthy
and deficient initial complaint—the bankruptcy court dismissed Schron from the
suit, concluding that his alleged connection with the transaction was speculative at
best. Claims against several additional defendants survived dismissal, and the case
culminated in a twelve-day bench trial. At its conclusion, the Estates settled with
the remaining defendants for $24 million. The bankruptcy court approved the
settlement as fair and equitable on the condition that the Estates be permanently
enjoined from pursuing any additional claims arising from the bust-out scheme
against Schron individually.
The Estates appealed the dismissal of claims against Schron and the
bankruptcy court’s issuance of a permanent injunction with respect to Schron. The
district court for the Middle District of Florida affirmed both orders. The Estates
3
Case: 16-16462 Date Filed: 10/19/2017 Page: 4 of 45
now appeal those orders to this Court. After careful review, and with the benefit of
oral argument, we affirm.
BACKGROUND
Although this appeal relates solely to the Estates’ claims against Appellee
Rubin Schron, the scope of the allegations against him requires us to review in
some detail the underlying transaction and the course of proceedings before the
bankruptcy court.1
I. The March 2006 Transaction
Trans Healthcare, Inc. (“THI”) was founded in 1998 to operate nursing
homes, assisted living facilities, and long-term acute-care hospitals throughout the
United States. Trans Healthcare Management, Inc. (“THMI”) was a wholly owned
subsidiary of THI and provided management services to THI until March 2006.
By early 2006, numerous wrongful-death and negligence actions had been filed
against THI and THMI on behalf of several nursing-home patients who had died
while in THI and THMI’s care.
Anticipating adverse judgments, the entities designed a transaction that
would shield their assets from potential creditors without affecting their profitable
1
While the factual and procedural background of this case is complex, the scope of the appeal
before us is relatively narrow. As such, we paint in broad strokes. For a detailed narrative of the
underlying sequence of events, see Estate of Jackson v. Gen. Elec. Capital Corp. (In re
Fundamental Long Term Care, Inc.), 507 B.R. 359, 365–71 (Bankr. M.D. Fla. 2014).
4
Case: 16-16462 Date Filed: 10/19/2017 Page: 5 of 45
operations (the “2006 Transaction”). Under the direction of Leonard Grunstein, a
former real-estate lawyer, and Murray Forman, an investment banker, two new
entities were created: Fundamental Long Term Care, Inc. (“FLTCI”) and
Fundamental Long Term Care Holdings (“FLTCH”) (together, the “Fundamental
Entities”). In the first phase of the transaction, THMI sold all its assets to FLTCH
for $9.9 million. In the second phase, THI sold all its stock in the stripped-down
THMI to FLTCI. FLTCI therefore acquired all of THMI’s liabilities but none of
its assets.
THI remained an active corporation and continued operating nursing homes
on a small scale following the transaction. It was ultimately placed into a
receivership and wound down. THMI continued to exist as an insolvent subsidiary
and the sole asset of FLTCI; both entities quickly became defunct. FLTCH, on the
other hand, was left with a substantial number of productive assets and continued
operating the entities’ broader network of nursing homes, generating millions of
dollars of income, without being saddled with the millions of dollars in liabilities
attributable to those entities. To keep the network running, FLTCH rebranded the
former THI/THMI facilities and created two new subsidiaries: FCC, which
provided operational and clinical support; and FAS, the administrative arm of the
company. Together, FLTCH, FCC, and FAS continued to operate in the same
locations, and used the same employees and equipment, as did THI and THMI
5
Case: 16-16462 Date Filed: 10/19/2017 Page: 6 of 45
prior to the 2006 Transaction. At all relevant times, FLTCH was owned by
Grunstein and Forman. 2
As noted, the Estates’ complaint made allegations concerning Rubin
Schron’s involvement in the above-described 2006 Transaction. Schron is a
wealthy New York real-estate investor whose involvement with the THI network
began in 2002. That year, Grunstein and Forman—Schron’s lawyer and banker,
respectively—allegedly convinced Schron to fund the acquisition of 120 nursing
homes from an unrelated entity that was in the process of Chapter Eleven
liquidation. The acquisitions were executed by an entity called ABE Briarwood,
and the facilities were subsequently leased to THI. The complaint does not allege
that Schron ever held a direct ownership interest in THI, THMI, or FLTCH.
Similarly, there is no allegation that Schron was involved in designing or executing
the 2006 Transaction. The Estates allege only that Schron was aware of Grunstein
and Forman’s involvement in the 2006 Transaction and that Grunstein and Forman
acquired stakes in FLTCH as Schron’s agents, but as to this last allegation, the
Estates articulate no basis for their conclusory assertion of an agency relationship.
2
FLTCI’s sole shareholder was an individual named Barry Saacks. Mr. Saacks is an elderly
former graphic artist who currently lives in a nursing home. In the adversary proceeding,
Plaintiffs alleged that Grunstein deceived Saacks by placing FLTCI in Saacks’s name without his
knowing involvement. In fact, it was later shown that Saacks had put forward no money to
effectuate the transaction. He was an owner in name only.
6
Case: 16-16462 Date Filed: 10/19/2017 Page: 7 of 45
II. The Wrongful-Death Judgments
In the meantime, the estates of six deceased nursing-home patients pursued
wrongful-death actions against THI and THMI in state court, alleging that the
decedent patients had been abused, neglected, and injured by the negligent and
reckless operation of THI’s nursing homes in Florida and Pennsylvania. The
Estates had no knowledge at the time that the named defendants, THI and THMI,
had been stripped of their assets.
To ensure that the Estates were kept in the dark, FLTCH’s goal was to use
the THI receivership to conceal the linked transfers long enough for the statute of
limitations to run on any available fraudulent-transfer claims. In furtherance of
this plan, THI directed its counsel to withdraw representation of THI and THMI at
around the same time as the relevant statutes of limitations ran. The liability
proceedings moved forward, and the various state courts in which these claims
were pending ultimately entered “empty-chair” jury verdicts (that is, verdicts not
contested by the defendants) against THI and THMI totaling more than $1 billion.
Despite FLTCH’s efforts at concealment, the Estates eventually learned of
the 2006 Transaction and the formation of the successor Fundamental Entities.
They responded by initiating supplementary state-court proceedings against
various entities and individuals alleged to have fraudulently transferred the FLTCH
assets out of creditors’ reach. THI, THMI, the Fundamental Entities, Grunstein,
7
Case: 16-16462 Date Filed: 10/19/2017 Page: 8 of 45
Forman, and Schron were specifically targeted. The Estates also initiated an
involuntary Chapter Seven bankruptcy proceeding, naming FLTCI as debtor. A
Trustee was appointed, and the Estates were identified as FLTCI’s chief creditors.
Shortly after the Chapter Seven proceeding began, the Trustee expressed her
intent to pursue fraudulent-transfer and related actions under the Bankruptcy Code
against FLTCH and other entities involved in the 2006 Transaction. This cause of
action overlapped with the Estates’ already ongoing judgment-enforcement
actions, which were based primarily on state-law fraudulent-transfer theories. In
order to fend off these simultaneous actions, FLTCH filed a declaratory-judgment
action in a New York court seeking a declaration that any fraudulent-transfer or
similar claims relating to the 2006 Transaction were barred by the statute of
limitations. The bankruptcy court enjoined the declaratory-judgment action after
concluding that it would impermissibly interfere with the Trustee’s ability to
administer the Chapter Seven proceeding and protect the assets of the estate.
Having lost its bid for a New York declaratory judgment, FLTCH then
sought an order from the bankruptcy court temporarily enjoining the Estates from
pursuing their state-court judgment-enforcement actions. The bankruptcy court
agreed that a multiplicity of parallel actions could lead to inconsistent outcomes
and therefore entered an order establishing that all fraudulent-transfer and similar
claims against the various defendants designed to unwind the 2006 Transaction
8
Case: 16-16462 Date Filed: 10/19/2017 Page: 9 of 45
would be litigated in a single adversary proceeding before the bankruptcy court
(the “Venue Order”). The result was that all pending state actions were enjoined
pending resolution of the Chapter Seven adversary proceeding.
III. The Adversary Proceeding
Following the bankruptcy court’s Venue Order, the Estates initiated an
adversary proceeding with a two-count complaint for declaratory judgment,
naming THI, THMI, the Fundamental Entities, Grunstein, Forman, and Schron as
defendants (collectively, the “Defendants”), in addition to several other entities
involved in the transaction. In Count I, the Estates sought a declaration that
FLTCH and FLTCI were liable for the judgments against THI and THMI under a
successor theory of liability. In Count II, they sought a declaration that Defendants
were directly liable for the judgments against THI and THMI under a veil-piercing
theory. The Trustee intervened in that proceeding to add a count for substantive
consolidation of FLTCI and THMI. The Estates and the Trustee were later granted
leave to amend the initial complaint and join their respective claims.
A. First Amended Complaint
In December 2013, the Estates and Trustee (together, “Plaintiffs”) filed an
enhanced First Amended Complaint—a 228-page tome containing 1,201 numbered
paragraphs and twenty-two counts against Defendants and several additional
entities. The twenty-two counts in the complaint can be broken into eight
9
Case: 16-16462 Date Filed: 10/19/2017 Page: 10 of 45
substantive claims for relief: one count for substantive consolidation of FLTCI
and THMI; two counts for breach of fiduciary duty; four counts for aiding and
abetting a breach of fiduciary duty; one count for successor liability; two counts for
piercing of the corporate veil; three counts for alter-ego liability; eight counts for
actual and constructive fraudulent transfer; and one count for conspiracy to commit
a fraudulent transfer. Asserting theories of direct or derivative liability, Plaintiffs’
goal was to “unwind” the 2006 Transactions and recapture the FLTCH assets—
wherever they may be held—in order to satisfy the Estates’ various judgments
against the THI/THMI network.
Defendants moved to dismiss all but the substantive-consolidation count. In
a thorough opinion, the bankruptcy court upheld several counts against several
defendants and dismissed several without prejudice, granting leave to amend. See
Estate of Jackson v. Gen. Elec. Capital Corp. (In re Fundamental Long Term
Care, Inc.), 507 B.R. 359, 386 (Bankr. M.D. Fla. 2014). Specifically, the court
allowed the claims for fraudulent transfer against FLTCH, Forman, and Grunstein
to go forward, declining to enforce the statute of limitations on those claims in
light of allegations that these defendants had intentionally concealed facts that
would have given rise to the claim within the limitations period. As to the
remaining claims, the bankruptcy court found the allegations “confusing,
ambiguous, generalized, [and] conclusory,” and noted overall that the pleading
10
Case: 16-16462 Date Filed: 10/19/2017 Page: 11 of 45
required “considerable energy to read.” Id. at 385–86 (internal quotation marks
omitted). The court was nonetheless “not ready to conclude that the Plaintiffs
could not allege additional facts that may potentially give rise to the causes of
action the Court is dismissing.” Id. at 386. The court instructed Plaintiffs to
amend again and cure the pleading defects. Id.B. Second Amended Complaint
Plaintiffs filed their Second Amended Complaint in April 2014. Instead of
clarifying their initial slate of allegations and rehabilitating the dismissed claims,
as they were directed to do, the Second Amended Complaint incorporated several
hundred paragraphs of the First Amended Complaint by reference and offered a
new, but largely repetitive, restatement of several claims. It then added four brand-
new claims against several defendants. With only two exceptions, the bankruptcy
court dismissed with prejudice each of the newly pled and re-pled claims, citing
the same defects identified in the first motion to dismiss.
The court concluded that it was appropriate to dismiss the failed claims with
prejudice because “any further attempts by Plaintiffs to amend their complaint
would be futile or unfairly prejudicial to the Defendants.” On that point, the court
observed that, as a result of the parallel judgment-enforcement actions the Estates
had already pursued in various state courts, Plaintiffs “had the benefit of almost
complete discovery before filing their second amended complaint.”
11
Case: 16-16462 Date Filed: 10/19/2017 Page: 12 of 45
Most relevant to this appeal are the court’s conclusions as to the claims
against Schron. Plaintiffs attempted in their Second Amended Complaint to revive
each of their original counts against Schron and to add four more: alter-ego
liability; aiding and abetting a breach of fiduciary duty; abuse of process;
conspiracy to commit abuse of process; negligence; constructive fraud; and
improper post-petition transfer. The court dismissed each claim in turn,
emphasizing the overarching flaw in the Plaintiffs’ narrative: “[N]owhere in the
complaint . . . is Schron alleged to have committed any act individually,” nor did
the allegations support a theory of derivative liability against Schron.
The court followed its decision with a final judgment in favor of Schron (the
“Dismissal”), in which it stated that “[f]inal judgment is entered in favor of Schron
on all claims that were or could have been asserted by Plaintiffs against him in the
amended complaint and the second amended complaint.”
C. Subsequent Proceedings
Schron was the only defendant fully dismissed from the adversary
proceeding at the pleading stage. Three additional defendants were dismissed later
via their motions for summary judgment. In the course of pre-trial proceedings,
the bankruptcy court also granted Plaintiffs’ motion to substantively consolidate
THMI with the Chapter Seven debtor, FLTCI. The bankruptcy court then
proceeded to consider the surviving claims during a twelve-day bench trial. At
12
Case: 16-16462 Date Filed: 10/19/2017 Page: 13 of 45
issue in the bench trial were claims against Grunstein, Forman, and several related
entities for breach of fiduciary duty, aiding and abetting breach of fiduciary duty,
successor liability, fraudulent transfer, and conspiracy to commit fraudulent
transfer.
At the conclusion of trial, the bankruptcy court dismissed claims against
three additional defendants but remained “unsure” as to “which of the Defendants
on the buyers’ side [of the 2006 Transaction] would be liable” under a successor
liability theory, which was the only remaining theory under which Plaintiffs could
prevail. The court announced findings of fact and conclusions of law following
trial and then ordered Plaintiffs and the remaining defendants, including FLTCH,
Forman, and Grunstein, to mediate in hopes that a settlement could be reached.
Mediation was successful and ultimately yielded five settlement agreements.
Under these agreements, Plaintiffs agreed to accept $18.5 million from FLTCH,
FAS, THI, Forman, and Grunstein; $1.25 million from one of the law firms that
defended THI and THMI against the Estates’ earlier actions; $3.25 million from
three additional entities involved in the 2006 Transaction; and $700,000 from
THI’s state-court receiver. In total, these agreements yielded $23.7 million to
cover Plaintiffs’ damages.
Having earlier been dismissed from the adversary proceeding at the pleading
stage, Schron was the sole non-settling Defendant. Throughout the adversary
13
Case: 16-16462 Date Filed: 10/19/2017 Page: 14 of 45
proceeding, the Estates had maintained their intention to pursue further state
actions against Schron notwithstanding his early dismissal from the case. Schron
recognized the possibility of future action against him in a different venue and
accordingly opposed the various settlements unless they were accompanied by a
permanent injunction preventing the Estates from reviving or bringing any new
state-court judgment-enforcement actions against him. Thus, Schron’s insistence
on a permanent injunction reflected his legitimate fear that Plaintiffs would try to
upend the resolution reached by the bankruptcy court after much litigation by the
parties.
Likewise concerned that Plaintiffs would attempt to undo the final resolution
that had been the goal of the complex and protracted adversary proceeding, the
bankruptcy court issued a permanent injunction (the “Permanent Injunction” or
“Injunction”) prohibiting Plaintiffs from “pursuing claims against Rubin Schron
arising out of the nucleus of facts set forth in the adversary complaint in this
proceeding.” This injunction was integral to and a condition of the court’s
approval of the settlements, as the court determined that a settlement of the
surviving claims could not be “fair and equitable” if it did not also finally resolve
the claims against Schron. In the bankruptcy court’s view, an injunction
prohibiting further litigation against Schron in another forum was “necessary” to
protect the court’s prior judgment as to Schron. The court granted this permanent
14
Case: 16-16462 Date Filed: 10/19/2017 Page: 15 of 45
injunction in December 2015 and then, after approving each of the settlement
agreements, issued an opinion thoroughly discussing the basis for the Injunction
and the authority on which it was issued.
The Estates appealed the Dismissal and the Permanent Injunction as to
Schron to the Middle District of Florida, which affirmed both orders of the
bankruptcy court. The Estates now appeal the district court’s affirmance, asking
this Court to reverse the bankruptcy court’s orders with respect to Schron.
STANDARD OF REVIEW
In a bankruptcy appeal, this Court functions as a second reviewer of the
bankruptcy court’s rulings and applies the same standards as the district court,
which operates as the first level of appellate review. Brown v. Gore (In re Brown),
742 F.3d 1309, 1315 (11th Cir. 2014). We therefore review a lower court’s
dismissal of a pleading for failure to state a claim de novo, accepting factual
allegations as true and construing them in the light most favorable to the plaintiff.
Almanza v. United Airlines, Inc., 851 F.3d 1060, 1066 (11th Cir. 2017). A lower
court’s decision to issue an injunction under the All Writs Act, 28 U.S.C.
§ 1651(a), is also reviewed de novo. SFM Holdings, Ltd. v. Banc of Am. Secs.,
LLC, 764 F.3d 1327, 1334 (11th Cir. 2014). We review a court’s decision to grant
or deny leave to amend a deficient pleading for abuse of discretion. Troville v.
Venz, 303 F.3d 1256, 1259 (11th Cir. 2002).
15
Case: 16-16462 Date Filed: 10/19/2017 Page: 16 of 45
DISCUSSION
The Estates ask us to review the bankruptcy court’s Permanent Injunction as
to Schron as well as its Dismissal of all claims alleged in the First and Second
Amended Complaints against Schron. We consider each of the Estates’ challenges
in turn.
I. Grant of Permanent Injunction
The Estates urge this Court to reverse the bankruptcy court’s Permanent
Injunction of any claims against Schron “arising out of the nucleus of facts set
forth” in the Estates’ Second Amended Complaint on two grounds: that the
bankruptcy court lacked jurisdiction to enjoin state-law claims; and that, even if it
had jurisdiction, the Permanent Injunction exceeded the court’s authority under the
All Writs Act and the Anti-Injunction Act. We have considered these challenges
de novo and conclude that the Permanent Injunction was properly issued.
It is important first to clarify the scope of the Permanent Injunction, which is
broad. By its language, the Injunction covers three categories of claims: (1) any
claims against Schron “arising out of the nucleus of facts set forth” in the Second
Amended Complaint; (2) the Estates’ pending state-court judgment-enforcement
actions against Schron, which had been temporarily enjoined pending resolution of
the adversary proceeding; and (3) any claims against Schron “as the ‘real party in
interest’” in three pending state-court cases involving three of the Estates. Thus, in
16
Case: 16-16462 Date Filed: 10/19/2017 Page: 17 of 45
addition to enjoining claims that the Estates had already unsuccessfully pled
against Schron in their Second Amended Complaint (the “Dismissed Claims”), 3
the Injunction precludes the Estates from pursuing any new or old state or federal
actions against Schron asserting any claim arising from the 2006 Transaction,
including claims the Estates did not specifically raise in the adversary proceeding.
The Estates identify three types of claims that were not resolved through the
adversary proceeding and were thus improperly foreclosed by the Injunction:
proceedings supplementary under Florida Statutes § 56.29; 4 “real party in interest”
3
This included the following claims against Schron:
(1) A common-law claim for aiding and abetting breach of fiduciary duties owed to
THMI and THMI’s creditors;
(2) Claims for a declaratory judgment establishing that Schron is liable as a successor
to THI, THMI, and FLTCI and under veil-piercing and alter-ego theories;
(3) A claim for actual and constructive fraudulent transfers, as well as conspiracy to
commit fraudulent transfers, under various state laws;
(4) A claim for abuse of process and conspiracy to commit abuse of process under
Florida state law;
(5) A claim for negligence under Florida state law; and
(6) A claim to avoid certain postpetition transfers under the Bankruptcy Code.
4
This statute permits a judgment creditor to seek avoidance of any transfers “made or contrived
by the judgment debtor to delay, hinder, or defraud creditors.” Fla. Stat. § 56.29(3)(b).
17
Case: 16-16462 Date Filed: 10/19/2017 Page: 18 of 45
claims under state law; 5 and actions under 42 U.S.C. § 1983 6 (collectively, the
“Potential Claims”). The Estates argue that the Potential Claims are theoretically
distinct from the Dismissed Claims and thus were improperly swept into the
Permanent Injunction.
A. Subject-Matter Jurisdiction
The Estates first argue that the bankruptcy court lacked jurisdiction to issue
the Permanent Injunction. We begin by outlining the legal principles that define
the bankruptcy court’s power to enjoin proceedings in foreign venues.
Any power by the bankruptcy court to issue the Permanent Injunction
against non-bankruptcy proceedings must necessarily derive from the federal
bankruptcy jurisdictional statute, 28 U.S.C. § 1334. In relevant part, this statute
provides that bankruptcy courts “shall have original . . . jurisdiction” over “all civil
proceedings arising under title 11, or arising in or related to cases under title 11,”
§ 1334(b), and “all the property, wherever located, of the debtor as of the
5
According to the Estates, a “real party in interest” action would involve the Estates moving
under Florida civil-procedural rules to add Schron as the “real defendant” in the earlier liability
proceedings against THI and/or THMI on grounds that Schron was “materially interested in the
subject matter of [the] suit” because he contributed to the payment of attorneys’ fees in defense
of those entities.
6
Section 1983 provides: “Every person who, under color of any statute, ordinance, regulation,
custom, or usage, of any State . . . subjects, or causes to be subjected, any citizen of the United
States . . . to the deprivation of any rights, privileges, or immunities secured by the Constitution
and laws, shall be liable to the party injured.” The Estates’ theory of § 1983 liability is unclear.
18
Case: 16-16462 Date Filed: 10/19/2017 Page: 19 of 45
commencement of such case, and of property of the estate,” § 1334(e)(1). The
bankruptcy court’s jurisdiction over cases “arising in or related to” a bankruptcy
proceeding is sometimes referred to as “related-to jurisdiction” and is the focus of
our analysis on appeal.
Bankruptcy courts plainly lack jurisdiction over outside proceedings that do
not affect the debtor. Celotex Corp. v. Edwards, 514 U.S. 300, 309 n. 6 (1995).
But the phrase “related to”—which is not defined in the Bankruptcy Code—“must
be read to give [bankruptcy courts] jurisdiction over more than simply proceedings
involving the property of the debtor or the estate.” Id. at 308; see also id. at 307–
08 (“Congress did not delineate the scope of ‘related to’ jurisdiction, but its choice
of words suggests a grant of some breadth.” (footnote omitted)).
The Third Circuit has held that a civil proceeding is “‘related to’ a
[bankruptcy] proceeding if the outcome of [the] proceeding could conceivably
have any effect on the estate being administered in bankruptcy.” Nuveen Mun.
Trust ex rel. Nuveen High Yield Mun. Bond Fund v. WithumSmith Brown, P.C.,
692 F.3d 283, 293–94 (3d Cir. 2012) (second alternation in original) (emphasis in
original) (quoting Pacor Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984))
(internal quotation marks omitted). We have indicated our agreement with that
principle. Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784, 788
(11th Cir. 1990) (“We join the majority of the circuits that have adopted the Pacor
19
Case: 16-16462 Date Filed: 10/19/2017 Page: 20 of 45
formulation.”); see also Celotex, 514 U.S. at 308 (agreeing “with the views
expressed by the Court of Appeals for the Third Circuit in [Pacor], that ‘Congress
intended to grant comprehensive jurisdiction to the bankruptcy courts so that they
might deal efficiently and expeditiously with all matters connected with the
bankruptcy estate’”); Wortley v. Bakst, 844 F.3d 1313, 1320 (11th Cir. 2017)
(applying the “conceivable effect” test from Lemco Gypsum to conclude that the
bankruptcy court had related-to jurisdiction over certain state-law tort claims).
Under this standard, a bankruptcy court can enjoin any civil action “if the
outcome could alter the debtor’s rights, liabilities, options, or freedom of action” or
“in any way impacts upon the handling and administration of the bankrupt estate.”
Celotex, 514 U.S. at 308 n.6 (quoting Pacor, 743 F.2d at 994) (internal quotation
marks omitted); see also Wortley, 844 F.3d at 1318–20. The overriding question,
then, is whether the claims covered by the Permanent Injunction could
“conceivably” affect the administration of the bankruptcy estate, especially in light
of the substantive consolidation of FLTCI (the named debtor) and THMI (the
Estates’ chief judgment debtor). We conclude that they could.
Consider the simple example of a state-law judgment under Florida Statutes
§ 56.29 determining that Schron was the recipient of a fraudulent transfer from
THMI and is thus liable, to the extent of that transfer, for the Estates’ wrongful-
death judgments against THMI. If, pursuant to that judgment, Schron were
20
Case: 16-16462 Date Filed: 10/19/2017 Page: 21 of 45
ordered to disgorge any prior transfer of assets, then the sum transferred would
necessarily reenter, and enlarge, the joint FLTCI/THMI bankruptcy estate. It is
clear that such an outcome would, at the least, “conceivably” impact the size and
the administration of the estate.
The Estates ask us to focus on a somewhat more complicated example: an
action to avoid (that is, undo) fraudulent transfers from THI, which is THMI’s
former parent and the Estates’ secondary judgment creditor. The Estates assert that
certain of the claims they wish to bring against Schron “are individual, grounded in
state law and [ ] designed to collect on the Estates’ judgments against THI—an
entity that ‘has not been substantively consolidated into the Debtor, [or]
determined to be the alter ego of or successor to the debtor.’” According to the
Estates, because THI is an entirely separate entity from debtors THMI and FLTCI,
any action seeking to hold Schron liable for the Estates’ judgments against THI
will have “no conceivable impact” on the property of the debtor’s estate.
We disagree. As noted, the Estates wish to pursue fraudulent transfer claims
under state law, with the goal of recovering assets that were transferred by THI
through FLTCI and, finally, to FLTCH. If a state court were to find those transfers
to be non-fraudulent, then the FLTCI estate would have a hard time succeeding on
its own fraudulent-transfer claim against FLTCH. In other words, because THI
was the entity from which the 2006 Transaction originated, a finding in state court
21
Case: 16-16462 Date Filed: 10/19/2017 Page: 22 of 45
that THI’s transfers were not fraudulent would undermine the debtor’s central
avoidance claim against FLTCH—the primary transferee of THI’s assets. Such a
result would no doubt impact the size of the estate and the parties’ various efforts
to reverse the 2006 Transaction. Significant repercussions would likewise result
from a state-court judgment establishing that the transfers from THI were, indeed,
fraudulent and avoidable under state law and that Schron himself, as an alleged
recipient of assets from FLTCH, was liable for the wrongful-death judgments
against THI. In that case, the debtor’s avoidance claims against FLTCH would be
strengthened by the possibility of recovery against Schron himself as a downstream
transferee.7 In other words, the assets that would satisfy the Estates’ judgments
against THI necessarily flowed through THMI—and therefore through FLTCI, and
therefore through the bankruptcy estate—before reaching Schron. Any assets
transferred to Schron would have to pass back through the bankruptcy estate before
they could be used to satisfy the Estates’ wrongful-death judgments. The structure
7
The bankruptcy court explained the scenario as follows:
The fact that the assets that were allegedly transferred to Schron . . . belonged to THMI is
crucial. If that is the case, what difference does it make if the creditors are going after
those assets in an attempt to collect on a judgment against THI? How can the [Estates]
collect on [their] judgment against THI by seeking to undo a transfer of assets that belong
to THMI—whether under an alter ego or fraudulent transfer theory—without interfering
with the administration of this estate?
22
Case: 16-16462 Date Filed: 10/19/2017 Page: 23 of 45
of the transaction makes it impossible to envision an action seeking recovery from
Schron for the THI debts that would not implicate the THMI estate and carry the
potential to deconstruct the bankruptcy court’s resolution of the dispute.
The Estates have identified no scenario in which a claim to recover on a
judgment against THI would not impact the size and administration of the
bankruptcy estate, as well as the debtor’s potential claims with respect to the 2006
Transaction. As a result, we conclude the bankruptcy court possessed subject-
matter jurisdiction under § 1334(b) to enjoin claims against Schron arising from
the 2006 Transaction.
B. Authority under the All Writs Act
The next question the Estates ask us to consider is whether the bankruptcy
court had statutory authority to enjoin pending and future state-court proceedings
under the particular circumstances of this case.
The bankruptcy court justified the Permanent Injunction under the All Writs
Act, 28 U.S.C. § 1651, which states that federal courts “may issue all writs
necessary or appropriate in aid of their respective jurisdictions and agreeable to the
usages and principles of law.” 28 U.S.C. § 1651(a). Authority under the All Writs
Act is limited by the Anti-Injunction Act, which provides:
A court of the United States may not grant an injunction to stay proceedings
in a State court except [1] as expressly authorized by Act of Congress, or
[2] where necessary in aid of its jurisdiction, or [3] to protect or effectuate its
judgments.
23
Case: 16-16462 Date Filed: 10/19/2017 Page: 24 of 45
28 U.S.C. § 2283. If an injunction falls within one of the Anti-Injunction Act’s
three exceptions, then it is authorized under the All Writs Act. See Burr & Forman
v. Blair, 470 F.3d 1019, 1028 (11th Cir. 2006) (“[T]he sole relevant inquiry is
whether the injunction qualifies for one of the exceptions to the Anti-Injunction
Act.”). The Anti-Injunction Act exceptions “are narrow and are not [to] be
enlarged by loose statutory construction.” SFM Holdings, 764 F.3d at 1335
(alternation in original) (quoting Smith v. Bayer Corp., 131 S. Ct. 2368, 2375
(2011)) (internal quotation marks omitted). As such, “[a]ny doubts as to the
propriety of a federal injunction against state court proceedings should be resolved
in favor of permitting the state courts to proceed.” Id. (alternation in original)
(quoting Smith, 131 S. Ct. at 2375) (internal quotation marks omitted).
The bankruptcy court concluded that the Permanent Injunction was
“necessary in aid of its jurisdiction” and necessary “to protect or effectuate its
judgments” under the second and third Anti-Injunction Act exceptions. The
district court agreed with the bankruptcy court’s rationale, finding that “the
Bankruptcy Court’s injunction clearly seeks to protect the integrity or
enforceability of its existing orders, i.e. its order dismissing the Bankruptcy
Estates’ claims against Schron, as well as the settlement agreement between the
Probate Estates, the Trustee, and the remaining defendants.” We agree.
24
Case: 16-16462 Date Filed: 10/19/2017 Page: 25 of 45
The Anti-Injunction Act’s third exception, often called the “relitigation
exception,” permits injunction of state-court actions “to protect or effectuate [the
federal court’s] judgments.” See SFM Holdings, 764 F.3d at 1335. This exception
“is designed to implement well-recognized concepts of claim and issue
preclusion.” Id. (quoting Smith, 131 S. Ct. at 2375) (internal quotation marks
omitted). We have, however, acknowledged that “the relitigation exception is
narrower” than traditional principles of claim preclusion and “only authorizes an
injunction to prevent state litigation of a claim or issue that previously was
presented to and decided by the federal court.” Id. at 1336 (quoting Smith, 131 S.
Ct. at 2375) (internal quotation marks omitted).
Given this framework, there is no question that the Injunction was proper
under the third Anti-Injunction Act exception as to the Dismissed Claims—i.e., the
claims specifically asserted in the Second Amended Complaint against Schron.
These matters were “presented to and decided by” the bankruptcy court when it
considered and dismissed the Second Amended Complaint with prejudice as to
Schron.
The Potential Claims, on the other hand, were not asserted in the Second
Amended Complaint and thus were not decided by the bankruptcy court. While
the relitigation exception is therefore not applicable, we conclude that an
25
Case: 16-16462 Date Filed: 10/19/2017 Page: 26 of 45
injunction directed against the Potential Claims was “necessary in aid of [the
court’s] jurisdiction” under the second Anti-Injunction Act exception.
We have consistently held that “state in personam proceedings that threaten
to make complex multidistrict litigation unmanageable” may be enjoined in aid of
the court’s jurisdiction. Juris v. Inamed Corp., 685 F.3d 1294, 1339 (11th Cir.
2012) (internal quotation marks omitted); see also Estate of Brennan ex rel. Britton
v. Church of Scientology Flag Serv. Org., Inc., 645 F.3d 1267, 1274 (11th Cir.
2011). To fall within this exception, the injunction must be “necessary ‘to prevent
a state court from so interfering with a federal court’s consideration or disposition
of a case as to seriously impair the federal court’s flexibility and authority to
decide that case.’” Wesch v. Folsom, 6 F.3d 1465, 1470 (11th Cir. 1993) (quoting
Atl. Coast Line R.R. Co. v. Bhd. of Locomotive Eng’rs, 398 U.S. 281, 295 (1970)).
For instance, in Battle v. Liberty National Life Insurance Co., we held that a
district court that had issued a final judgment in a complex and lengthy class
action, and expressly retained jurisdiction over the settlement, properly enjoined a
subsequent state-court suit involving substantially similar claims. 877 F.2d 877,
880–83 (11th Cir. 1989). The underlying case involved “years of litigation and
mountains of paperwork,” and we concluded that any future state-court judgment
“would destroy the settlement” the parties had reached and “nullify [the] court’s
26
Case: 16-16462 Date Filed: 10/19/2017 Page: 27 of 45
work in refining its Final Judgment” while “subject[ing] the parties to added
expense and conflicting orders.” Id. at 882 (internal quotation marks omitted).
We agree with the bankruptcy court that “[t]his case, although not involving
a class action or multi-district litigation, falls squarely within the Eleventh
Circuit’s decisions in Battle” and subsequent, similar cases. See, e.g., Wesch, 6
F.3d at 1470–71 (affirming injunction on finding that “virtual equivalent of a res to
be administered” existed where the district court had “invested a great deal of time
and other resources in the arduous task of reapportioning Alabama’s congressional
districts”); Juris, 685 F.3d at 1339–40 (concluding that “paradigmatically
complex” litigation that ended in carefully crafted settlement “presumptively
satisfie[d]” the second Anti-Injunction Act exception under Battle and Wesch).
The bankruptcy court’s description of the course of proceedings in this
matter merits repeating:
What started off as six negligence or wrongful death lawsuits has morphed
into 25 lawsuits (including adversary proceedings) and 15 appeals before 11
courts and 17 judges in five states over 11 years. . . . [I]t quickly became
apparent the Probate Estates and Trustee were pursuing identical claims
against identical parties arising out of the same nucleus of operative facts—
i.e., the March 2006 transactions—in more than one forum (state court,
district court, and bankruptcy court). . . .
This Court (and others) have devoted years of time and effort to this
exceedingly complex litigation. . . . The complaints in this proceeding . . .
totaled nearly 300 pages and contained more than 1,600 numbered
paragraphs [and] alleged 32 claims for relief against 17 parties. . . . The
mediation produced four settlements that will bring nearly $24 million into
27
Case: 16-16462 Date Filed: 10/19/2017 Page: 28 of 45
the bankruptcy estate . . . and, perhaps more important, resolve this
adversary proceeding and bankruptcy case in their entirety.
The scale of this proceeding, the broad scope of the Estates’ claims in the First and
Second Amended Complaints, and the fact that the Estates have had several
opportunities to develop their claims against Schron justify the court’s injunction
of actions that will raise claims substantially similar, if not identical, to the claims
that have been dismissed.
It is also important to note that the bankruptcy court’s approval of the
settlements as fair and equitable was expressly conditioned on the issuance of the
Permanent Injunction. In the bankruptcy court’s view, a broad settlement
agreement that left the door open to state actions alleging analogous claims against
Schron would “unduly prejudice[] Schron.” The bankruptcy court’s careful
consideration of the Estates’ claims and substantial efforts in reaching a fair,
equitable, and comprehensive resolution of this matter would be undone by future
state-court adjudications raising the same claims. And because the Estates have
been unequivocal about their intent to pursue state action against Schron, the
necessity of the Injunction in aid of the bankruptcy court’s jurisdiction is clear.
We thus agree with the lower courts that the injunction of state-court claims
against Schron “arising out of the nucleus of facts set forth” in the Second
Amended Complaint was authorized under the All Writs Act. We therefore
28
Case: 16-16462 Date Filed: 10/19/2017 Page: 29 of 45
conclude that the bankruptcy court properly issued the Permanent Injunction as to
Schron, and we AFFIRM the decisions of both lower courts on these issues.
II. Dismissal of Second Amended Complaint with Prejudice
The Estates also challenge the bankruptcy court’s order of final dismissal as
to Schron, arguing that the courts below failed to properly analyze allegations that
Schron (1) is an alter ego of debtor FLTCI; (2) aided and abetted a breach of
fiduciary duty by the board of directors of THMI; (3) committed and benefited
from fraudulent transfers of the assets of THI and THMI, thus committing
constructive fraud; and (4) committed abuse of process and conspired to commit
abuse of process. If their arguments as to the merits of these claims fail, the
Estates ask this Court to reverse the bankruptcy court’s decision to dismiss with
prejudice and provide them another opportunity to amend their complaint.
We agree with the courts below that the Second Amended Complaint failed
to sufficiently allege any causes of action against Schron personally, and we find
no abuse of discretion in the bankruptcy court’s decision to dismiss those claims
with prejudice.
A. Sufficiency of the Allegations
The Estates wish to revive several distinct claims against Schron that the
bankruptcy court dismissed. We discuss each in turn, taking the factual allegations
29
Case: 16-16462 Date Filed: 10/19/2017 Page: 30 of 45
contained in the Second Amended Complaint as true and construing them in the
light most favorable to the Estates.
1. Claims Arising from the 2006 Transaction
Importantly, there is no allegation in the Complaint that Schron took any
affirmative act with respect to the 2006 Transaction. Indeed, the Complaint states
that “Grunstein and Forman undertook all the actions described [ ] regarding the
transfers of the assets of THI and THMI.” As such, for the Complaint to have
stated a claim against Schron for alter-ego liability, 8 aiding and abetting breach of
fiduciary duty, 9 and fraudulent conveyance10 in connection with the 2006
Transaction, it must have alleged that Grunstein and Forman were acting as
Schron’s agents. The bankruptcy court concluded that the Complaint failed to
properly allege such an agency relationship: “The Plaintiffs, however, fail to
8
The Complaint alleged that FLTCH, Grunstein, Forman, and Schron were alter egos of FLTCI,
the debtor, and that they were therefore derivatively liable for FLTCI’s debts.
9
The Complaint alleged that various entities involved in the 2006 Transaction breached
fiduciary duties owed to THMI’s creditors and that Grunstein, Forman, and Schron aided and
abetted those breaches.
10
The Estates sought to avoid the transfer of assets to FLTCH through the 2006 Transaction
under a theory of fraudulent conveyance. To establish liability for a fraudulent transfer under the
Bankruptcy Code and the Uniform Fraudulent Transfer Act (which the relevant states have
adopted), a plaintiff must show that property was transferred by the defendant for less than
reasonably equivalent value at a time when the transferor was insolvent or in a manner that left
the transferor insolvent. See 11 U.S.C. § 548(a)(B); see also Fla. Stat. § 726.105(1)(b). In this
case, the debtor, FLTCI, was the immediate transferor but was allegedly controlled by its alter
egos Grunstein and Forman. The Estates alleged that Grunstein and Forman were, in turn, acting
as agents of Schron.
30
Case: 16-16462 Date Filed: 10/19/2017 Page: 31 of 45
sufficiently allege the facts necessary to impute any knowledge by Forman and
Grunstein to Schron or to bind him by their acts for purposes of their alter ego and
aiding and abetting claims.”
We agree. The Estates baldly claim that Grunstein and Forman exercised
rights belonging to Schron “as Schron’s agent, lawyer and fiduciary” in planning
and executing the 2006 Transaction, but they fail to allege that Schron
acknowledged, accepted, or instructed the two men to move forward with the
Transaction—nor do they make the necessary connections to demonstrate how
Schron stood to gain from the Transaction. That is, while Grunstein and Forman
may have sometimes functioned as Schron’s agent, lawyer, or fiduciary in other
contexts, the Complaint does not allege that they operated in this capacity for
purposes of the 2006 Transaction.
First, and importantly, the allegations do not plausibly establish that Schron
ever held an ownership interest in THI, THMI, FLTCI, or FLTCH. And to suffice,
a factual allegation must do more than speculate that a right to relief might exist. It
must “state a claim to relief that is plausible on its face.” See Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555, 570 (2007). The Complaint falls short of this
standard. It states in pertinent part: “Grunstein informed Schron about FLTCH
taking over the operations of [THI],” and Grunstein and Forman ultimately “agreed
to give Schron an option to buy one-third of FLTCH for a nominal amount, so that
31
Case: 16-16462 Date Filed: 10/19/2017 Page: 32 of 45
Schron also benefitted from the transaction.” An option agreement was
subsequently executed among FLTCH, Forman, Grunstein, and “Schron’s entity.”
(Emphasis added). It is not clear which “entity” this latter allegation refers to,
though the Complaint later implies that Quality Health Services LLC (“QHS”) was
the recipient of the option. Yet, even stretching an implication into an allegation,
the Complaint offers no explanation as to how, exactly, QHS was “Schron’s
entity.” The Estates argue that the use of this possessive descriptor clearly alleged
ownership, but there is no specific allegation regarding Schron’s ownership of
QHS, nor is there any allegation that Schron knew that “his entity” was purchasing
such an option. Elsewhere in the complaint, the Estates allege that “FLTCH is
owned by Forman and Grunstein,” with no mention of any one-third interest held
by “Schron’s entity.” Clearly, these allegations are insufficient to identify Schron
as having any interest in these entities. And it is important to remember that these
allegations were not made at a point in the litigation when Plaintiffs lacked the
necessary knowledge to fill in the blanks. Plaintiffs had enjoyed the opportunity
for extensive discovery in state-court proceedings by the time of the Second
Amended Complaint.
In another attempt to find some way to place Schron in the Transaction, the
Complaint identifies another entity, SWC Property Holdings, LLC (“SWC”), as
“Schron’s entity” and then alleges that SWC played a role in “forcing” the sale of
32
Case: 16-16462 Date Filed: 10/19/2017 Page: 33 of 45
THMI. Even if it had coherently explained SWC’s involvement in the
Transaction, the Complaint still fails to specify the nature of Schron’s interest in or
control over SWC during the relevant timeframe. 11
The Complaint also alleges plainly contradictory facts regarding the
fiduciary relationship between Schron, on the one hand, and Grunstein and Forman
on the other. Oddly, the Complaint directly incorporates several factual allegations
that were contained in a separate lawsuit Schron had filed against Grunstein and
Forman, in which Schron alleged that Grunstein and Forman had executed the
2006 Transaction “surreptitiously,” without his knowledge or involvement, and for
11
The bankruptcy court characterized the Complaint’s allegations regarding QHS and SWC as
follows:
As best the Court can tell, the Plaintiffs allege that one of three different people or
entities actually own the one-third option [in FLTCH that the Estates claim is Schron’s].
In one instance, the Plaintiffs allege that “[Grunstein] and Forman agreed to give Schron
an option to buy one-third of FLTCH for a nominal amount,” although they do not allege
they actually gave Schron himself the option. In other instances, the Plaintiffs allege that
“Schron’s entity”—SWC Property Holdings, LLC—received the option, without alleging
whether Schron has any ownership interest in that entity. If that is not confusing enough,
the Plaintiffs allege in still other places that “Schron’s entity”—presumably SWC
Property Holdings—designated Quality Health Services, LLC to take title to the option.
Again, there is no allegation regarding Schron’s ownership interest—if any—in Quality
Health Services. Trying to harmonize those seemingly contradictory allegations, it
appears the Plaintiffs are alleging that Schron benefitted from the March 2006 transaction
because Forman and Grunstein contracted with SWC Property Holdings to convey a one-
third option to Quality Health Services. Without any allegation that Schron actually
owns SWC Property Holdings or Quality Health Services, however, the Plaintiffs cannot
plausibly state a claim that Schron personally benefitted from the March 2006
transaction.
33
Case: 16-16462 Date Filed: 10/19/2017 Page: 34 of 45
their own benefit, in breach of duties they owed to him. Plaintiffs appear to think
these allegations to be an admission by Schron that the two men functioned as his
agents. But, to the contrary, Schron’s Complaint alleged that the two men had
failed to act as his agent in the 2006 Transaction. As the bankruptcy court noted,
this is a problematic inconsistency because, at best, Plaintiffs offer only a
conclusory assertion that Grunstein and Forman were acting on Schron’s behalf,
which they then directly contradict by specific allegations from Shron’s
incorporated complaint that assert quite the opposite. The Estates had no
obligation to allege or incorporate facts from Schron’s lawsuit against Forman and
Grunstein. That they did so and included allegations that directly contradict the
central premise of their claim—that Grunstein and Forman were acting on
Schron’s behalf—is, to say the least, not helpful.
Upon careful review of the pleadings, we agree with the bankruptcy court
that the Complaint’s allegations are too vague and inconsistent to successfully state
a claim against Schron under an agency theory of liability. The failure to properly
allege an agency relationship dooms the Estates’ claims for alter-ego liability,
aiding and abetting breach of fiduciary duty, and fraudulent conveyance with
respect to the 2006 Transaction. We therefore AFFIRM the bankruptcy court’s
dismissal of these claims.
34
Case: 16-16462 Date Filed: 10/19/2017 Page: 35 of 45
2. Claims Arising from 2012 Settlement Agreement
The Estates also seek to revive a separate fraudulent-conveyance claim
against Schron involving a 2012 transaction in which Schron was a direct
participant. In January 2012, the THI receiver entered into an agreement with
several of the Defendants—including Schron—whereby the receiver assigned to
these defendants all claims the THI estate held against any third parties (the “2012
Settlement Agreement”). In exchange, these defendants collectively paid the
receiver $700,000. Schron personally supplied $200,000 of the purchase price.
According to the Second Amended Complaint, these claims included “any
and all claims that THI has or may have against Schron,” “THI’s rights under the
attorney-client privilege and the work-product doctrine,” and a legal malpractice
claim against the lawyers that represented THI and THMI in the wrongful-death
cases that resulted in the empty-chair judgments. The Estates maintain that these
claims—and the malpractice claim in particular—have a “potential value” of “well
over $2 billion.” The Complaint specifically alleged that, because the wrongful-
death judgments totaled $1 billion and had been accruing interest over a number of
years, the potential malpractice claim alone could, “[w]ithout a doubt,” be worth
35
Case: 16-16462 Date Filed: 10/19/2017 Page: 36 of 45
more than $2 billion. 12 The purported discrepancy between the supposed value of
these claims and the $700,000 purchase price—coupled with the fact that THI was
insolvent at the time of the Agreement—allegedly rendered the transfer fraudulent
under various state laws.
To state a plausible fraudulent-conveyance claim with respect to the 2012
Settlement Agreement, the Estates were required to allege facts demonstrating that
the claims Schron received were not reasonably equivalent in value to the price he
paid. “Reasonably equivalent value” does not mean dollar-for-dollar equivalence.
See Crumpton v. Stephens (In re Northlake Foods, Inc.), 715 F.3d 1251, 1257
(11th Cir. 2013). Instead, courts make informed judgments as to asset valuation in
light of the totality of the circumstances. Thus, in order to have “nudged their
claims across the line from conceivable to plausible,” Twombly, 550 U.S. at 570,
the Estates must have offered more than a bald assertion that the malpractice claim
(in addition to the other unidentified claims Schron acquired) had, as alleged, a
12
The Second Amended Complaint explained:
Damages in a legal malpractice action are the amount of damages sustained by the client
as [a] result of malpractice. As of the date of this filing, the THI Enterprise has sustained
damages in the amount of $1.4 billion, plus accruing interest. Three of the Plaintiffs[’]
Estates here still have pending litigation against the THI Enterprise. Without a doubt, the
potential value of the THI Enterprise’s claims could be well over $2 billion.
36
Case: 16-16462 Date Filed: 10/19/2017 Page: 37 of 45
potential value of more than $2 billion, or at the least that the value exceeded
$700,000.
We agree with both lower courts that the Second Amended Complaint failed
to allege that, under the circumstances present at the time, $700,000 was not a
reasonably equivalent value for the transferred claims. While the Complaint does
allege that a successful malpractice claim is theoretically worth at least the value of
the underlying judgment, it does not address the potential costs of pursuing those
claims, the likelihood that the underlying judgments might be reversed on appeal,
or—most importantly—the probability of the claim succeeding. In fact, the
Complaint does not set out any facts tending to show that the claims were worth
upwards of $1 billion, actually or in theory.
For instance, in at least two portions of the Complaint, the Estates note that
certain of the wrongful-death judgments against THI and THMI were subject to
appeal in state and federal court. Such allegations introduce the possibility that a
portion of the underlying empty-chair judgments may be reversed. A reversal of
those underlying judgments would, in turn, directly diminish the value of the
malpractice claim. Thus, under the allegations of the Complaint itself, the
expected value of that claim cannot be 100% of its potential value. The Complaint
fails to acknowledge the connection between the alleged appeals and its valuation
of the malpractice claim, and accordingly, it fails to discount the potential value of
37
Case: 16-16462 Date Filed: 10/19/2017 Page: 38 of 45
the malpractice claim by the probability that those reversals will succeed. The $2
billion valuation is necessarily an overstatement.
More problematically, the Estates fail to address a glaring inconsistency
between their valuation of the malpractice claim and their broader fraud argument.
In order to succeed, the action for legal malpractice would require Schron to step
into the shoes of the THI receiver and establish that THI’s attorneys negligently
failed to prevent the $1 billion in empty-chair judgments against THI. This theory
of liability arguably has some initial facial appeal, given the allegation that THI’s
defense counsel ultimately withdrew its representation of THI in those actions.
But elsewhere in the Complaint, the Estates assert that THI’s defense counsel
withdrew its representation only at the express instruction of the THI receiver—
who was, in turn, acting at the behest of Schron and the other Defendants—in
furtherance of a common scheme to conceal the 2006 Transaction from creditors.
Thus, under the Estates’ description of the circumstances, establishing a viable
malpractice claim would require a court to find THI’s counsel liable to the THI
receiver (and, derivatively, to Schron) for its obedience to the receiver’s direct
instructions. The chances of success on such a theory are clearly slim. And as the
bankruptcy court observed, this conceptual inconsistency is plain from the face of
the Second Amended Complaint.
38
Case: 16-16462 Date Filed: 10/19/2017 Page: 39 of 45
Thus, the allegations contained in the Second Amended Complaint do not
plausibly assert that the malpractice claim is worth the full value of the underlying
empty-chair judgments (plus interest), as the Complaint supposes. Such a
valuation would require an assumption that the malpractice claim has a near-
absolute certain chance of succeeding. The Complaint’s own allegations make
such an assumption implausible. In the absence of any countervailing allegations
to overcome these issues and shore up the $2 billion valuation, the Complaint does
not state a claim that $700,000 was less than reasonably equivalent value for the
claims under the circumstances.13
For these reasons, we conclude that the Second Amended Complaint does
not contain sufficient factual detail to plausibly assert that the malpractice claim, or
any of the other unidentified claims transferred through the 2012 Settlement
Agreement, were sold for less than reasonably equivalent value. We therefore
13
As the bankruptcy court put it, the Estates’ valuation
fails to consider, among other things, that the more than $1 billion in judgments largely
consist of punitive damages claims; all but one of those judgments is currently on appeal;
and Schron’s ability to prevail on the potential malpractice claims—which are based on
the allegation that the lawyers for THI and THMI negligently withdrew their defenses of
those entities in the state-court wrongful death cases—is seriously diminished because
the lawyers took their direction from the THI Receiver (and Schron would be standing in
the shoes of the THI Receiver pursuing the malpractice claims).
39
Case: 16-16462 Date Filed: 10/19/2017 Page: 40 of 45
AFFIRM the bankruptcy court’s dismissal of the fraudulent-conveyance claim
arising from the 2012 Settlement Agreement.
3. Abuse of Process and Conspiracy to Commit Abuse of Process
Finally, the Estates argue that their abuse-of-process claims against Schron
were improperly dismissed. The Estates allege that Schron and the other
defendants committed an abuse of process by asserting unauthorized defenses on
behalf of THMI in order to advance their own interests. These claims relate to the
2012 Settlement Agreement between the Defendants and the THI receiver,
discussed supra. In addition to assigning THI’s claims against third parties to the
Defendants, the 2012 Agreement purported to settle all claims that THI might have
had against each of the Defendants. It also purported to assign to the Defendants
the right to defend THMI in state-court proceedings against THMI brought by the
Estates. After the 2012 Settlement Agreement was executed, the Defendants took
control of the defense of THMI in state court.
Under Florida law, which governs this claim, “[a]buse of process involves
the use of criminal or civil legal process against another primarily to accomplish a
purpose for which it was not designed.” See Bothmann v. Harrington, 458 So. 2d
1163, 1169 (Fla. 3d DCA 1984). An abuse of process has not occurred unless the
process is used to accomplish an immediate purpose other than that for which it
was designed. Id. The fact that a party may be motivated by incidental or
40
Case: 16-16462 Date Filed: 10/19/2017 Page: 41 of 45
concurrent benefits of the use of process is not sufficient to constitute an abuse.
See S & I Investments v. Payless Flea Mkt., Inc., 36 So. 3d 909, 917 (Fla. 4th DCA
2010) (“There is no abuse of process . . . when the process is used to accomplish
the result for which it was created, regardless of an incidental or concurrent
motive of spite or ulterior purpose.” (emphasis in original) (quoting Bothmann,
458 So. 2d at 1169)).
As both lower courts noted, the 2012 Settlement Agreement was likely
unenforceable, and Defendants’ conduct in subsequent state-court proceedings was
improper. Indeed, the parties do not dispute that Defendants’ counsel’s
representation of THMI pursuant to the 2012 Settlement Agreement was
unauthorized and that Defendants misled various state courts with respect to the
nature of THMI’s defense. 14 But the question before us is not whether Defendants
properly exercised their rights under the Agreement or whether the Agreement
itself was enforceable as a matter of law. The sole question is whether the
14
There were two major problems with the 2012 Settlement Agreement and with the
representation that followed. First, the agreement was between the Defendants and the THI
receiver. But at that point in time, THI did not have an obligation or a right to indemnify or
otherwise represent THMI in litigation filed against it. In effect, then, the Agreement purported
to sell Defendants a right that THI did not actually possess. As a result, none of the Defendants
was authorized at any time to fund or direct the legal defense of THMI. And yet that is precisely
what they did. Second, when Defendants took over the defense of THMI, they misrepresented to
the courts and to the Estates that they had “a duty to indemnify and a right to defend” THMI
when, in fact, they did not. According to the Second Amended Complaint, counsel representing
THMI also failed to disclose that it simultaneously represented the Defendants and was,
therefore, “protecting and serving the Defendants” rather than or in addition to THMI.
41
Case: 16-16462 Date Filed: 10/19/2017 Page: 42 of 45
Complaint alleged that the Defendants’ defense of THMI under the Agreement
constituted a use of civil process that was intended to achieve an immediate
purpose for which it was not designed. See Bothmann, 458 So. 2d at 1169.
Thus, to plausibly state a claim for abuse of process, the Complaint must
have alleged that the defense of THMI was not primarily designed for the simple
goal of defending THMI. We agree with the bankruptcy court that the Complaint
failed to so allege. While Schron and the other Defendants may have hoped that
the defense of THMI would serve their own, separate interests, the only immediate
impact of that defense in the state-court actions was to defend THMI. This is
precisely the result for which such process was created. The fact that a successful
defense of THMI would yield incidental benefits to Schron and other Defendants
does not convert their unauthorized defense of THMI into an abuse of process
under Florida law. All that the Complaint alleges is that the Defendants asserted a
defense on THMI’s behalf. This is not, by itself, sufficient to allege an abuse of
process.15
15
As the bankruptcy court noted,
It would be one thing if the Plaintiffs were alleging an abuse of process claim based on
FAS allegedly orchestrating a defense on THMI’s behalf before THMI’s counsel
withdrew in 2010. At least there, the Plaintiffs would have a plausible claim that FAS (or
some of the other Defendants) were not using their defense of THMI to avoid liability but
rather to stall the litigation long enough for the statute of limitations to run on any
fraudulent transfer claim arising out of the March 2006 transaction. That would arguably
42
Case: 16-16462 Date Filed: 10/19/2017 Page: 43 of 45
For the above reasons, we AFFIRM the bankruptcy court’s dismissal of
claims of abuse of process and conspiracy to commit abuse of process against
Schron. Because we find that the Complaint fails to allege the facts necessary to
support these claims, we do not consider the alternative grounds on which the
bankruptcy court dismissed them. 16
B. Dismissal with Prejudice
The bankruptcy court dismissed each of the claims against Schron with
prejudice. Such dismissal is reviewed for abuse of discretion, and a court generally
does not abuse its discretion where future amendments would be futile or unfairly
prejudicial. We find no abuse of discretion.
be an improper purpose. But asserting a defense on THMI’s behalf for the purpose of
avoiding liability—which is all that is alleged here—cannot give rise to an abuse of
process claim.
16
The bankruptcy court also concluded that the abuse-of-process claims were due to be
dismissed under Florida law’s litigation privilege, which affords immunity to allegedly tortious
acts occurring during the course of a legal proceeding so long as they have some relation to the
legal proceeding. See Levin, Middlebrooks, Mabie, Thomas, Mayes & Mitchell, P.A. v. U.S. Fire
Ins. Co., 639 So. 2d 606, 608 (Fla. 1994). The only way the Estates could escape the application
of the litigation privilege was by proving that the defense of THMI was a “sham”—i.e., that the
proceeding was “objectively baseless in the sense that no reasonable litigant could realistically
expect success on the merits.” Atico Int’l USA, Inc. v. LUV N’ Care, Ltd., No. 09-60397-CIV,
2009 WL 2589148, at *3 (S.D. Fla. Aug. 19, 2009). The bankruptcy court concluded that the
Defendants’ efforts to defend THMI were not a sham, as it was not unreasonable for them to
believe they had authority to represent THMI based on the 2012 Settlement Agreement, even if
the Agreement was later found to be unenforceable. We do not reach this issue.
43
Case: 16-16462 Date Filed: 10/19/2017 Page: 44 of 45
The Estates’ First Amended Complaint spanned nearly three-hundred pages
and contained hundreds of repetitive paragraphs. Its narrative was convoluted and
difficult to track. It did not comport with Rule 8’s mandate to present a “short and
plain statement of the claim.” Fed. R. Civ. P. 8(a)(2) (“A pleading that states a
claim for relief must contain: . . . a short and plain statement of the claim showing
that the pleader is entitled to relief.”). The bankruptcy court nonetheless granted
the Estates an opportunity to amend, acknowledging the complexity of the
underlying transaction.
Instead of clarifying the content of the initial pleading and remedying its
deficiencies of form, the allegations in the Estates’ Second Amended Complaint
were no clearer or more precise than those contained in the First Amended
Complaint. The Second Amended Complaint not only failed to remedy the
inadequacies the bankruptcy court had identified, but it also repeated, by
incorporation, numerous paragraphs contained in the First Amended Complaint
and added another sixty pages of allegations, including four entirely new claims
against several of the Defendants. In addition to the counts already contained in
the initial complaint, the Second Amended Complaint newly alleged that various
defendants committed abuse of process, conspiracy to commit abuse of process,
and negligence, in addition to executing an avoidable post-petition transfer under a
separate section of the Bankruptcy Code. And in support of the claims that the
44
Case: 16-16462 Date Filed: 10/19/2017 Page: 45 of 45
Estates had already articulated, the Estates simply restated their initial factual
allegations rather than adding new facts to illuminate Schron’s role in the 2006
Transaction.
The Estates have given no indication that a third pleading would be any
more fruitful than their second. If the Estates could have alleged viable claims
against Schron, they already would have done so. We find no abuse of discretion
in the court’s decision not to grant the Estates a third bite at the apple and AFFIRM
accordingly.
CONCLUSION
We conclude that the bankruptcy court had jurisdiction to enjoin future
claims arising from the 2006 Transaction and that it acted within the scope of its
authority under the All Writs Act and the Anti-Injunction Act in issuing the
Permanent Injunction. The Permanent Injunction was broad, but its breadth was
justified in this case. We also find the various claims against Schron implausible
as alleged in the Second Amended Complaint, even taking all the Estates’
allegations as true. And given the Estates’ inability or unwillingness to remedy the
deficiencies in their pleadings, the bankruptcy court exercised proper discretion in
dismissing the Second Amended Complaint with prejudice. We therefore
AFFIRM the bankruptcy court’s dismissal of claims against Schron with prejudice
and its issuance of a permanent injunction with respect to claims against Schron.
45