Stathopoulos v. Alford (In re McMillin)

Summarized by Michael Pugh , Thompson, O'Brien, Kemp & Nasuti, PC
13 years 7 months ago

Citation:

D.C. Docket Nos. 8:10-cv-01036-JSM; 8:05-bk-27381-KRM (No. 11-12353)

Tag(s):

Ruling:

The 11th Circuit Court of Appeals REVERSED the district court order and reinstated the bankruptcy court judgment that a transfer was not avoidable because the debtor did not have control of the transferred funds. The Court of Appeals held that in order to establish the debtor's control over money, more is necessary than just the fact that a third party placed the funds in an account of the debtor with no express restrictions on their use. The Court found that neither the debtor nor VTG had the power to designate which party would receive the funds nor did either have the power to disburse the funds because the funds were specifically designated under the terms of a written agreement. The Court found that the source of the funds was Alford's ("Appellee") business and the funds were payable to another business in which the Appellee was affiliated. The Court concluded that the connection between the funds and the debtor was "quite tangential." Applying the control test to the facts, the Court held that the transfer is not avoidable.

Procedural context:

The bankruptcy court found that the transfer of $280,000 could not be avoided as to Appellee becasue the funds were never property of the debtor since the debtor never had "control" of the funds and the funds went to another entity of the Appellee and this other entity had unfettered use of the funds. The trustee appealed the bankruptcy court's ruling. The district court reversed the bankruptcy court's finding as to control, concluding that the Appellee failed to rebut the presumption that the funds belonged to the debtor. The district court ultimately affirmed the judgment in Appellee's favor, stating that the trustee did not prove the debtor's insolvency. The trustee brought the instant appeal, arguing that the case must be remanded to the bankruptcy court for reconsideration of the fraudulent conveyance counts. Appellee cross-appealed, arguing that the district court erred in determining that the bankruptcy court was clearly erroneous in finding that the debtor did not have control of the funds.

Facts:

Within 1 year prior to the filing of the bankruptcy case, a corporation owned by Appellee wired $280,000 to Virtual Trading Group ("VTG"), a company that the debtor does not own but is found to be debtor's alter ego. Within hours of the wire transfer, Appellee accompanied the debtor to a bank branch where the debtor purposed a $280,000 cashier's check for VTG payable to another company that the Appellee is affiliated with. The debtor and the Appellee had a written agreement whereby Appellee agreed to lend VTG $280,000 for the right to purchase a piece of real property. The agreement provided that the property would remain in Appellee's name until he received repaymet in full. If the money had not been fully repaid within 60 days, then VTG forfeited any right to the property. The money was not repaid and title to the real property remained in Appellee's name. The trustee sought to set aside the transfer on the ground that it was fraudulent and argued that either the $280,000 or the real property that was purchased with the funds are property of the bankruptcy estate.

Judge(s):

DUBINA, EDMONDSON, & GOLDBERG

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!