Glenn F. Straub v. 160 Royal Palm, LLC

USCA11 Case: 22-13592 Document: 23-1 Date Filed: 08/14/2023 Page: 1 of 10
[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 22-13592
Non-Argument Calendar
____________________
In re: 160 ROYAL PALM, LLC,
Debtor.
_______________________________________________
GLENN F. STRAUB, PALM BEACH POLO, INC.,
Defendants-Appellants,
versus
160 ROYAL PALM, LLC,
Plaintiff-Appellee.
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2 Opinion of the Court 22-13592
____________________
Appeal from the United States District Court
for the Southern District of Florida
D.C. Docket No. 9:21-cv-81546-DMM
____________________
Before JILL PRYOR, NEWSOM, and MARCUS, Circuit Judges.
PER CURIAM:
This appeal concerns the denial of attorney’s fees in a bank-
ruptcy action. Glenn Straub and his company, Palm Beach Polo,
Inc., prevailed in an adversary proceeding brought by 160 Royal
Palm, LLC, during 160 Royal Palm’s voluntary Chapter 11 bank-
ruptcy. Straub and Palm Beach Polo then sought attorney’s fees
under a Florida fee-shifting statute. They were denied the fees,
however, because the bankruptcy court determined that the Flor-
ida statute did not apply to an action governed by federal law. The
district court affirmed, and Straub and Palm Beach Polo appealed
to this Court. After careful review, we affirm.
I.
In 2018, 160 Royal Palm -- acting as the debtor in possession
of its own estate and property and possessing the powers of the
trustee -- filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code in the U.S. Bankruptcy Court for the South-
ern District of Florida. Soon after, 160 Royal Palm transferred over
$6 million to Straub and $8 million to Palm Beach Polo, as consid-
eration for the sale of Straub’s equity interest in 160 Royal Palm.
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22-13592 Opinion of the Court 3
A little over a year later, 160 Royal Palm filed a complaint
against Straub and Palm Beach Polo in the same court, seeking to
avoid those transfers and to recover the money. The action pro-
ceeded to trial in 2021, after which the bankruptcy court issued a
final judgment in favor of Straub and Palm Beach Polo. The district
court and, later, a panel of this Court affirmed that judgment. See
160 Royal Palm, LLC v. Straub (In re 160 Royal Palm), No. 22-12901,
2023 WL 2733533, at *1–2 (11th Cir. Mar. 21, 2023) (per curiam).
Straub and Palm Beach Polo then moved for $389,863.50 in
attorney’s fees under the Florida Offer of Judgment Statute, Fla.
Stat. § 768.79. As relevant here, that statute entitles a prevailing
party to costs and attorney’s fees “[i]n any civil action for damages”
in the state of Florida, if other preconditions are met. Id. In their
motion, Straub and Palm Beach Polo argued that they were enti-
tled to fees under the Florida statute because the adversary pro-
ceeding they’d won in bankruptcy court was a civil action for dam-
ages taking place in Florida and they had met the statutory precon-
ditions. 160 Royal Palm responded that the statute applies only to
actions for damages rooted in Florida state law, and its sole request
for damages -- a request to recover the avoided transfers -- came
under 11 U.S.C. § 550(a), a federal law.
After a hearing on August 18, 2021, the bankruptcy court de-
nied the motion for attorney’s fees. The bankruptcy court first rec-
ognized that the Florida Offer of Judgment Statute could apply in
federal court, including in bankruptcy court, if an applicable Flor-
ida state-law claim was being pursued in that court. But this case
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4 Opinion of the Court 22-13592
arose “entirely under Federal law.” As the bankruptcy court saw
it, 160 Royal Palm, acting as the trustee in the bankruptcy proceed-
ing, sought relief under two provisions of the federal bankruptcy
code: (1) it first sought an order under 11 U.S.C. § 544(b)(1) to avoid
certain transfers to the defendant, and (2) it then sought a money
judgment for the value of those avoided transfers under 11 U.S.C.
§ 550(a). The bankruptcy court noted that a theoretical creditor
plaintiff could have sought avoidance and recovery of transfers un-
der the Florida Uniform Fraudulent Transfer Act (“FUFTA”), Fla.
Stat. §§ 726.101 et seq., but that 160 Royal Palm “did not have any
independent right of action against the defendants under Florida
law” because it was a non-creditor. The bankruptcy court ex-
plained that 160 Royal Palm’s complaint referenced Florida’s stat-
utes on fraudulent transfers only because, to meet the federal law’s
requirements, it needed “to show that an unsecured creditor could
have successfully obtained avoidance of the transfers under Florida
law.” Further, the bankruptcy court pointed out that the only
claim for damages here arose under federal law, namely 11 U.S.C.
§ 550(a). On appeal, the district court affirmed in full.
Straub and Palm Beach Polo now appeal to this Court.
II.
When a district court affirms a bankruptcy court’s order, as
happened here, 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 its findings of fact for clear error and its legal con-
clusions de novo. Id.USCA11 Case: 22-13592 Document: 23-1 Date Filed: 08/14/2023 Page: 5 of 10
22-13592 Opinion of the Court 5
In this case, the bankruptcy court properly denied Straub
and Palm Beach Polo’s motion for attorney’s fees. The bottom line
is simple: Florida’s Offer of Judgment Statute does not apply to this
proceeding, so Straub and Palm Beach Polo are not entitled to at-
torney’s fees.
To get there, we start with whether the Florida Offer of
Judgment Statute ever applies in bankruptcy proceedings. It turns
out that it can apply in bankruptcy, sometimes. This is because the
Florida statute is a substantive state law, Se. Floating Docks, Inc. v.
Auto-Owners Ins. Co., 82 So. 3d 73, 80 (Fla. 2012), and “the substan-
tive law of the forum state governs issues of state law that arise in
bankruptcy proceedings,” Menchise v. Akerman Senterfitt, 532 F.3d
1146, 1150 (11th Cir. 2008) (citing Colwell v. Royal Int’l Trading Corp.
(In re Colwell), 196 F.3d 1225, 1226 (11th Cir. 1999) (per curiam)).
Thus, the Florida statute applies in bankruptcy proceedings for
money damages governed by Florida state law. Id. (applying the
Florida Offer of Judgment Statute in a bankruptcy proceeding).
However, Florida’s Offer of Judgment Statute does not apply
to bankruptcy proceedings governed by federal law. Just as state
substantive law governs state-law claims, federal substantive law
governs federal-law claims. Sola Elec. Co. v. Jefferson Elec. Co., 317
U.S. 174, 176 (1942). And federal courts cannot shift attorney’s fees
absent statutory or contractual authority or without invoking their
inherent authority to sanction bad faith efforts by one party.
Alyeska Pipeline Serv. Co. v. Wilderness Soc., 421 U.S. 240, 255–59
(1975). Notably, the parties to this appeal do not claim that the
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courts’ independent authority to impose sanctions is the basis for
the fee request in this case.
So, according to the relevant case law, Straub and Palm
Beach Polo could be eligible for attorney’s fees under the Florida
Offer of Judgment Statute only if 160 Royal Palm brought a suit for
damages under Florida state law. But, as the bankruptcy court cor-
rectly decided, the proceeding at issue was governed by federal
law. As we’ll explain, there is no question that the relief 160 Royal
Palm sought was available to it only under federal law.
In its complaint, 160 Royal Palm asked for two things. First,
it wanted to avoid two allegedly fraudulent transfers. For avoid-
ance, 160 Royal Palm cited 11 U.S.C. § 544(b) and Florida Statutes
§ 726.105(1) and § 726.106(1). Second, it wanted to recover the
amounts of those transfers. For recovery, it cited 11 U.S.C. § 550(a)
and Florida Statute § 726.108(1)(a). But notwithstanding its cita-
tions to the state statutes, 160 Royal Palm pled causes of action that
only could have arisen under the federal statutes.
Start with avoidance. The bankruptcy code allows a “trus-
tee [to] avoid any transfer of an interest of the debtor . . . that is
voidable under applicable law by a creditor holding an unsecured
claim.” 11 U.S.C. § 544(b)(1); see Menotte v. United States (In re Cus-
tom Contractors, LLC), 745 F.3d 1342, 1346 (11th Cir. 2014). The
“applicable law” can be state or federal law. Westgate Vacation Vil-
las, Ltd. v. Tabas (In re Int’l Pharm. & Discount II, Inc.), 443 F.3d 767,
770 (11th Cir. 2005) (per curiam). This means that where a state
law allows an unsecured creditor to avoid a transfer, federal law
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22-13592 Opinion of the Court 7
allows a trustee to avoid it, too. Florida law, meanwhile, desig-
nates only certain “transfer[s] made . . . fraudulent as to a creditor.”
Fla. Stat. §§ 726.105(1)(a), 726.106(1). That is, under the relevant
sections of FUFTA, transfers are avoidable only by a creditor.
Now turn to recovery. The bankruptcy code allows a “trus-
tee [to] recover, for the benefit of the estate, the property trans-
ferred, or, if the court so orders, the value of such property, from:
(1) the initial transferee of such transfer or the entity for whose
benefit such transfer was made; or (2) any immediate or mediate
transferee of such initial transferee.” 11 U.S.C. § 550(a). The cited
state law allows, “[i]n an action for relief against a transfer, . . . a
creditor” to avoid a transfer “to the extent necessary to satisfy the
creditor’s claim.” Fla. Stat. § 726.108(1)(a). In other words, the
cited federal law provides a right to recovery, but the cited state law
says nothing about recovery. And, in any event, the Florida law still
applies only to a creditor.
Here, 160 Royal Palm, as a debtor in possession, had the
powers of a bankruptcy trustee. See 11 U.S.C. § 1107(a). So, under
federal law, it could bring an action to (1) seek avoidance whenever
an unsecured creditor could seek avoidance under state law, and
(2) recover the amount avoided. But, 160 Royal Palm was not a
creditor, so it had no ability to seek avoidance or recovery under
the Florida laws it cited. The only law that governed its claims was
federal. And because federal law governed the adversarial proceed-
ing’s claims, Florida substantive law -- including the Florida Offer
of Judgment Statute -- had no role to play.
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8 Opinion of the Court 22-13592
As for Straub and Palm Beach Royal’s arguments to the con-
trary, we remain unconvinced. They first rely on Menchise v. Aker-
man Senterfitt for the proposition that the Florida Offer of Judgment
Statute applies whenever a plaintiff seeks avoidance and recovery
under Florida law. Even if that’s true, it’s irrelevant here. In
Menchise, the plaintiff used the bankruptcy proceeding to bring a
legal malpractice claim, which was governed entirely by state law.
532 F.3d at 1149. Our Court held that, because the case was gov-
erned solely by Florida law, the Florida Offer of Judgment Statute
applied. Id. at 1150–53. Again, however, in this case, 160 Royal
Palm acted as a trustee, not a creditor, so it could only seek avoid-
ance and recovery through federal law. And since state law did not
apply here, Straub and Royal Palm Beach could not avail them-
selves of the Florida Offer of Judgment Statute.
They also appear to argue that the incorporation of state law
into the elements of the federal statute made the case governed by
state law. They cite no authority in support of this theory. And,
indeed, the only authority we’ve found on this issue cuts the other
way. “Section 544(b)(1) does not authorize a trustee to bring an
avoidance action in state court, rather the statute permits a trustee
to pursue a federal cause of action in bankruptcy court.” Zazzali v.
United States (In re DBSI, Inc.), 869 F.3d 1004, 1015 (9th Cir. 2017)
(emphasis in original); accord Kelley as Tr. for PCI Liquidating Tr. v.
Boosalis, 974 F.3d 884, 902–03 (8th Cir. 2020). We agree with our
sister circuits. The federal law simply grabs the state law and
broadens its scope, providing to a trustee what is otherwise availa-
ble under state law only to a creditor.
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Straub and Palm Beach Royal next claim that 160 Royal
Palm’s claim for recovery of the avoided transfers unambiguously
sought recovery under Florida law. Specifically, they point to the
complaint, which requested “the value of said Transfers, plus inter-
est, from the Defendants pursuant to 11 U.S.C. § 550(a) and Fla.
Stat. § 726.108(1)(a).” But, as we’ve discussed, § 726.108(1)(a) pro-
vides only a claim for avoidance, not recovery. Straub and Palm
Beach Royal then switch course and cite to another statutory pro-
vision, Fla. Stat. § 726.109(2), which allows a “creditor” to “recover
judgment for the value of the asset transferred,” to the extent “a
transfer is voidable in an action by a creditor under
[§] 726.108(1)(a).” Id. But 160 Royal Palm’s complaint never cited
to § 726.109(2), so we will not assume that 160 Royal Palm sought
recovery under that provision. Regardless, 160 Royal Palm could
not seek recovery under that provision because it was not a credi-
tor.
Finally, Straub and Palm Beach Royal argue that 160 Royal
Palm’s pursuit of prejudgment interest turned this case into a suit
for damages under Florida law. But “the allowance of prejudgment
interest and the fixing of the time from which interest shall accrue
are discretionary with the court,” so “[t]he bankruptcy court may
award interest from the date of demand, the institution of the suit,
or from the point at which the transferee could be said to hold the
transfer wrongfully.” IBT Int’l, Inc. v. Northern (In re Int’l Admin.
Servs., Inc.), 408 F.3d 689, 709 (11th Cir. 2005). Straub and Palm
Beach Royal do not explain how 160 Royal Palm’s request for pre-
judgment interest fell under Florida law, as opposed to under the
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bankruptcy court’s inherent discretion, especially since its underly-
ing basis for recovery could only be found in federal law.
All told, this was a federal case governed by federal law. The
Florida Offer of Judgment Statute had no relevancy, so Straub and
Royal Palm Beach had no claim to attorney’s fees.
AFFIRMED.