160 Royal Palm, LLC v. Glenn Straub

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[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 22-12901
Non-Argument Calendar
____________________
In re: 160 ROYAL PALM, LLC,
Debtor.
___________________________________________________
_________________
160 ROYAL PALM, LLC,
Plaintiff-Appellant,
versus
GLENN STRAUB,
PALM BEACH POLO, INC.,
Defendants-Appellees.
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2 Opinion of the Court 22-12901
____________________
Appeal from the United States District Court
for the Southern District of Florida
D.C. Docket No. 9:21-cv-81217-AMC
____________________
Before ROSENBAUM, JILL PRYOR, and GRANT, Circuit Judges.
PER CURIAM:
160 Royal Palm seeks to recoup $6.2 million the company
transferred to Glenn Straub, claiming that it was a voidable
fraudulent transfer. The bankruptcy court concluded that
collateral estoppel barred this argument for part of the funds, and
that, in any event, this claim failed because none of the funds were
Royal Palm’s property. Because we spot no legal mistakes or clear
factual errors, we affirm.
I.
In Palm Beach, Florida, stands an unfinished hotel known
locally as the Palm House Hotel. This hotel has a “tortured
history.” In re 160 Royal Palm, LLC, No. 18-19441, 2019 WL
989829, at *1 (Bankr. S.D. Fla. Feb. 26, 2019), subsequently aff’d sub
nom. In re KK-PB Fin., LLC, Nos. 20-12361, 20-12368, 2021 WL
5605085 (11th Cir. Nov. 30, 2021). At one point in that history, the
hotel was owned by 160 Royal Palm, which was in turn owned by
Glenn Straub. Eventually, Straub sold Royal Palm (and thus the
hotel) to a man named Robert Matthews for $36 million. Under
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the August 30, 2013 sale agreement, Matthews would pay Straub
about $6.2 million in cash and Royal Palm would issue a note—a
promise to pay the rest over time—to an entity controlled by
Straub, secured by a mortgage on the hotel. On September 11,
2013, Royal Palm wired Straub $6,211,000.00 and on October 2,
2013, it sent $8,718.32 to Palm Beach Polo, which was controlled
by Straub.
About five years later, Royal Palm declared bankruptcy. See
id. During this original bankruptcy proceeding, Straub’s entity
with the note and mortgage asked the court to recognize its claim
to Royal Palm’s assets, which it asserted was worth close to $40
million. The court refused. It held that Royal Palm had shown all
the elements of fraudulent transfer under Florida Statutes
§ 726.106(1), so Straub’s claim was worth $0.
In analyzing the transfer, the bankruptcy court had to
examine Royal Palm’s solvency around the time of Straub’s sale.
Under § 726.106(1), a transfer is fraudulent only if “the debtor was
insolvent at that time or the debtor became insolvent as a result of
the transfer or obligation.” So the court performed a “balance
sheet test” in which it estimated Royal Palm’s total assets and
liabilities and compared the two. To do this test, the court had to
categorize assets and liabilities, including a $2.6 million transfer
that passed through Royal Palm’s bank account around the time of
the sale. The court found that these $2.6 million in funds were “not
assets of the Debtor [Royal Palm] but were parked with the Debtor
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for later payment to Mr. Straub as part of the equity sale
transaction.” Id. at *11.
In 2019, this adversarial action began: Royal Palm sued
Straub in bankruptcy court to recover the $6.2 million paid to
Straub back in 2013. The bankruptcy court ultimately dismissed
the claim because Royal Palm could not show that it owned the
transferred cash.
Three of its decisions are relevant to this appeal. First, the
court said that Royal Palm was collaterally estopped from asserting
that $2.6 million of the $6.2 million was its property given the
court’s findings in the original bankruptcy case. Second, the court
decided, on summary judgment, that there was an issue of fact
about whether Royal Palm owned the remaining $3.6 million.
Even though it presumed that money in Royal Palm’s account
belonged to it, evidence about the method and amounts of the
transfers countered this presumption.
Third, the bankruptcy court concluded—after a bench
trial—that the $6.2 million did not belong to Royal Palm. “Based
on the overwhelming evidence,” it found that “all of the funds used
to make the two wire transfers at issue in this case were merely
parked in the debtor’s bank account to facilitate payment to Mr.
Straub.” Indeed, Royal Palm “had no right to use them for a
different purpose.” “Those funds were not the debtor’s property.”
Royal Palm appealed to the district court, which affirmed,
and then to this Court. It reiterates that the bankruptcy court made
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two errors on summary judgment: applying collateral estoppel for
$2.6 million and concluding that disputed facts prevented summary
judgment for the remaining $3.6 million. Royal Palm also
challenges the bankruptcy court’s finding—after a bench trial—
that Royal Palm did not own any of the $6.2 million it transferred
to Straub.
II.
When a district court affirms a bankruptcy court order, we
review the bankruptcy court’s decision. L. Sols. of Chi. LLC v.
Corbett, 971 F.3d 1299, 1304 (11th Cir. 2020). In so doing, we
review the bankruptcy court’s factual findings for clear error and
its legal conclusions de novo. Id.III.
A.
Collateral estoppel bars a party from relitigating an issue
already decided in a prior suit. I.A. Durbin, Inc. v. Jefferson Nat.
Bank, 793 F.2d 1541, 1549 (11th Cir. 1986). As the bankruptcy court
correctly recited, the doctrine applies when the issue in the older
proceeding was (1) identical; (2) actually litigated; (3) a “critical and
necessary part” of the prior judgment; and (4) the party potentially
precluded had a full and fair opportunity to litigate that issue.
Christo v. Padgett, 223 F.3d 1324, 1339 (11th Cir. 2000) (quotation
omitted). Applying this test, the court concluded that its finding in
the original bankruptcy proceeding—that the $2.6 million in cash
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was not one of Royal Palm’s assets—precluded Royal Palm from
claiming the funds as property in this adversarial bankruptcy suit.
Royal Palm maintains that the court erred in deciding that
the issue was both “identical” and “critical and necessary.” Both
are “factual determinations underlying” the court’s collateral
estoppel analysis, so we will not disturb them unless clearly
erroneous. Richardson v. Ala. State Bd. of Educ., 935 F.2d 1240,
1244 (11th Cir. 1991); see Islam v. Sec’y, Dep’t of Homeland Sec.,
997 F.3d 1333, 1340–41 (11th Cir. 2021) (reviewing whether
something was “actually litigated” for clear error). This is a
deferential standard; we only reverse if we have “a definite and firm
conviction that a mistake has been committed.” United States v.
Rodriguez, 34 F.4th 961, 969 (11th Cir. 2022) (quotation omitted),
cert. denied, 143 S. Ct. 580 (2023).
We see no clear error. In assessing “identical,” the court
reasoned that its earlier conclusion that the $2.6 million was not
Royal Palm’s asset also meant it was not its property. That makes
sense: the cash had value, and if it could not count as some sort of
asset, then Royal Palm had no ownership interest. The relevant
Florida Statutes confirm this commonsense conclusion, defining
“asset” as “property of a debtor.” Fla. Stat. § 726.102(2).
Royal Palm primarily argues that the issues were not
“identical” because the burden of persuasion differed between the
proceedings. It is true that issues are not identical if distinct legal
standards apply, or evidentiary burdens differ in legally significant
fashion. See B&B Hardware, Inc. v. Hargis Indus., Inc., 575 U.S.
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138, 154 (2015); One Lot Emerald Cut Stones & One Ring v. United
States, 409 U.S. 232, 235 (1972). Royal Palm asserts that the court
in this proceeding had to apply a legal presumption that Royal
Palm owned the funds. True enough, “funds in a debtor’s account
are generally presumed to be the debtor’s property.” In re Int’l
Pharmacy & Disc. II, Inc., 443 F.3d 767, 771 (11th Cir. 2005). But
Royal Palm never claims that this presumption did not also apply
in the original bankruptcy estimation proceeding. Given the broad
framing of our caselaw, we do not see why the presumption would
be limited to formally adversarial proceedings. We cannot say the
court erred in finding the issues “identical.”
Nor did it clearly err in concluding that the issue was “critical
and necessary” to the earlier proceeding. The bankruptcy court
reasoned—and the parties seem to agree—that an issue is critical
and necessary if it “was actually recognized by the parties as
important and by the trier as necessary to the first judgment.” See
Restatement (Second) of Judgments § 27 cmt. j (1982). The court
found that the parties and trier of fact (itself) did consider it
important whether the $2.6 million was Royal Palm’s asset.
Under that framing of “critical and necessary,” we see no
clear error. In the original proceeding, Royal Palm successfully
reduced Straub’s note-based claim to $0 based on fraudulent
transfer. Under the relevant statute, Royal Palm had to show that
it was “insolvent at that time” or “became insolvent as a result” of
the transfer. Fla. Stat. § 726.106. And a debtor is insolvent “if the
sum of the debtor’s debts is greater than all of the debtor’s assets at
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a fair valuation.” Id. § 726.103(1). As a result, the court had to
estimate Royal Palm’s assets to produce its judgment—a judgment
favorable to Royal Palm.
Royal Palm argues that the issue was unnecessary because
the $2.6 million would not have tipped the balance to solvency.
True enough, removing the cash as an asset did not change the
ultimate insolvency result. Still, computing assets and liabilities is
indisputably necessary to the process described in Florida Statutes
§ 726.103. This statute requires courts to evaluate “all of the
debtor’s assets” in assessing insolvency. In doing an insolvency
analysis requiring numeric totals, it does not make sense to judge
the importance of each number in isolation. After all, the trier of
fact—the court—raised the $2.6 million because Royal Palm’s own
expert had included it as an asset, suggesting that Royal Palm
considered it important. See In re 160 Royal Palm, LLC, 2019 WL
989829, at *10–11. Based on the record, we do not have a “definite
and firm conviction” that the court erred in deciding that this issue
was critical and necessary.
B.
We now turn to the bankruptcy court’s conclusions about
whether the funds were Royal Palm’s property.
Although Royal Palm urges us to review the court’s denial
of summary judgment—and the district court improperly did so—
we “will not review the pretrial denial of a motion for summary
judgment after a full trial and judgment on the merits.” Lind v.
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United Parcel Serv., Inc., 254 F.3d 1281, 1286 (11th Cir. 2001). Here
the court entered a “Final Judgment” dismissing Royal Palm’s
complaint after a bench trial, so we will not reconsider its summary
judgment denial.
After the trial, the court decided based on “the
overwhelming evidence” that none of the $6.2 million belonged to
Royal Palm.1 Whether a “transfer involves the property of the
Debtor is a finding of fact that is subject to review only for clear
error.” In re Int’l Pharmacy & Disc. II, Inc., 443 F.3d at 771.
We see no clear error. Despite the presumption that the
funds belonged to Royal Palm, the court heard facts at trial that
called into question whether it had “sufficient control over the
funds to warrant a finding that the funds were the debtor
corporation’s property.” In re Chase & Sanborn Corp., 813 F.2d
1177, 1180 (11th Cir. 1987). Most importantly, as the court noted,
the total amount of the funds transferred to Royal Palm and on to
Straub “was exactly the sum owing to Mr. Straub when he sold his
equity interest in the debtor.”
Royal Palm’s forensic accounting expert, Marcie D. Bour,
testified at trial that she traced the $6.2 million in cash transfers.
Four transfers arrived in Royal Palm’s bank account from lawyer
1 The court explicitly stated that its factual finding “includes the 2.6 million
dollars the Court addressed at summary judgment.” So even if the bankruptcy
court had erred in invoking collateral estoppel, the result for Royal Palm
almost certainly would have been the same.
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trust accounts: $2,600,000, $2,580,000, $150,920.08, and
$890,000.78. Together, that is $6,220,920.86. Soon after, Royal
Palm wired $6,211,000 to Straub and $8,718.32 to Palm Beach Polo,
totaling $6,219,718.32. Based on the transfers’ path, timing, and
total compared to the cash purchase price, we cannot conclude that
the court clearly erred.
Royal Palm repeatedly argues that neither Straub nor the
bankruptcy court showed who owned the funds, so they must have
belonged to it. This argument fails on two fronts. First, Straub did
not necessarily need to prove who owned the funds to rebut the
presumption that Royal Palm owned them. Put another way, the
question was not who owned the funds, but whether Royal Palm
in fact did. Regardless, Straub explicitly argues that he controlled
and therefore owned the funds—not Royal Palm. Likewise, the
court found that Royal Palm transferred the cash to “facilitate
payment to Mr. Straub” and that Royal Palm “had no right to use
them for a different purpose,” suggesting that he owned the funds.
* * *
We AFFIRM.