[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 05-11521
August 15, 2005
Non-Argument Calendar
THOMAS K. KAHN
________________________ CLERK
D. C. Docket Nos. 03-21609-CV-UUB
BKCY No. 99-40395
In Re: THE FLORIDA FUND OF CORAL GABLES, LTD.,
Debtor.
____________________________________________________
MIAMI POLICE RELIEF & PENSION FUND,
Plaintiff-Appellant,
versus
JOEL L. TABAS, as Trustee of the Bankruptcy Estate
of the Florida Fund of Coral Gables, Ltd, a.k.a.
The Florida Fund,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(August 15, 2005)
Before TJOFLAT, DUBINA and PRYOR, Circuit Judges.
PER CURIAM:
The Miami Police Relief and Pension Fund (Police Fund) appeals the
decision of the district court that affirmed a judgment entered in favor of the
Trustee and against the Police Fund in an adversary proceeding in bankruptcy. The
Trustee sued the Police Fund to avoid several preferential transfers from the
debtor, the Florida Fund of Coral Gables, Ltd. (Florida Fund), a now-defunct Ponzi
scheme operated by a longtime associate of the Police Fund. Because the Police
Fund was not entitled to sovereign immunity, an insider relationship existed
between the Police Fund and the debtor, and the Police Fund was the proper
defendant in this adversary action, we affirm.
I. BACKGROUND
The Police Fund is a pension plan that is intended to benefit the police
officers of the City of Miami. The Police Fund was established under both state
law and local ordinance, and it is governed by a board of directors. During the
relevant period, Donald Warshaw served as Chief of Police, and in various
leadership roles in both city government and the board of the Police Fund.
Ronald Stern was the proprietor of the Florida Fund and a longtime associate
of the Police Fund and its directors. Stern and his accounting firm were employed
as the accountants for the Police Fund. Stern also served as an investment advisor
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to the Police Fund. Stern had personal relationships with several directors of the
Police Fund, and he served as the personal accountant to some of them.
Stern also had a personal and business relationship with the administrator of
the Police Fund, Ruth Miller. Stern and Miller had a personal friendship for three
decades. Miller was employed simultaneously by Stern and the Police Fund, and
although Stern paid the full salary for Miller, Stern was then reimbursed by the
Police Fund for its share. Miller’s office was located in the same office space that
housed both Stern’s personal office and that of the Florida Fund. Transactions
between Stern and the Police Fund were regularly handled inside those offices,
because Stern and Miller worked in such close proximity.
The Florida Fund was a limited partnership and Ponzi scheme operated by
Stern. The Florida Fund undertook no legitimate business or investment activity,
but continually bilked the Police Fund and others. Between January 1996 and May
1998, Stern and the Florida Fund defrauded the Police Fund of more than $1.3
million.
In November 1998, the Police Fund commissioned an investigation by
outside accountants that uncovered the fraud Stern had committed against the
Police Fund. In December 1998, the Florida Fund began to reimburse the Police
Fund for some of its losses. Between December 1998 and March 1999, the Florida
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Fund paid $771,757.19 to the Police Fund in a series of seven payments. Warshaw
testified that he considered Stern “a member of the Police family,” but Stern had
become the black sheep of that family by February 1999, when Warshaw
“squeez[ed]” Stern and told Stern that he was “messing with the Police.” In May
1999, the Police Fund sued the Florida Fund in state court to recover its remaining
losses, and the Police Fund filed a claim against the estate of Stern in a Florida
probate court.
In October 1999, an involuntary petition for bankruptcy relief was filed
against the Florida Fund. On December 8, 2000, the Police Fund filed a proof of
claim in the bankruptcy of the Florida Fund. Joel Tabas was appointed Trustee of
the Florida Fund, and he filed this adversary proceeding against the Police Fund to
avoid the seven transfers from the Florida Fund to the Police Fund between
December 1998 and March 1999.
The bankruptcy court awarded the Trustee $771,757.19 based on the
conclusion that the transfers from the Florida Fund to the Police Fund were
avoidable preferences, under section 547(b) of Chapter 11. The Police Fund
appealed to the district court, which affirmed the judgment of the bankruptcy court.
The Police Fund then filed this appeal.
II. STANDARD OF REVIEW
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“As the ‘second court of review of a bankruptcy court’s judgment,’ this
Court examines independently the factual and legal determinations of the
bankruptcy court and employs the same standards of review as the district court.”
In re Issac Leaseco, Inc., 389 F.3d 1205, 1209 (11th Cir. 2004) (quoting In re Club
Assocs., 951 F.2d 1223, 1228 (11th Cir. 1992)). “Factual findings by the
bankruptcy court are reviewed under the limited and deferential clearly erroneous
standard. . . . In contrast, legal conclusions by the bankruptcy court and the
district court are reviewed by this court de novo.” In re Club Assocs., 951 F.2d at
1228.
The standard of review for whether a party is an insider, within the meaning
of the relevant portions of the Bankruptcy Code “has been the subject of some
debate.” In re Krehl, 86 F.3d 737, 742 (7th Cir. 1996). We agree with the Seventh
and Fifth Circuits that “[t]he question under section 101(31) is whether the
historical facts found by the bankruptcy court meet the [Bankruptcy] Code’s
open-ended definition of an insider. We think that question is properly
characterized as a mixed question of law and fact.” Id.; see also In re Holloway,
955 F.2d 1008, 1014 (5th Cir. 1992).
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III. DISCUSSION
The Police Fund makes three arguments on appeal. First, it contends that the
Trustee could not sue the Police Fund in an adversary proceeding in federal
bankruptcy court based on the sovereign immunity of the Police Fund. Second, the
Police Fund argues that the bankruptcy court erred when it concluded that the
Police Fund was an insider of the Florida Fund. Third, the Police Fund argues that
its members, rather than the directors or the Police Fund itself, were the proper
defendants in the adversary action. We address each of these arguments in turn.
A. The Police Fund Does Not Have Sovereign Immunity
Under the Tenth Amendment and State Law.
Florida law purports to make immune from divestment by judicial decree the
money contributed to the Police Fund:
For any municipality, chapter plan, local law municipality, or local
law plan under this chapter, the pensions, annuities, or any other
benefits accrued or accruing to any person under any municipality,
chapter plan, local law municipality, or local law plan under the
provisions of this chapter and the accumulated contributions and the
cash securities in the funds created under this chapter are exempted
from any state, county, or municipal tax of the state and shall not be
subject to execution or attachment or to any legal process whatsoever
and shall be unassignable.
Fla. Stat. § 185.25. The Florida Supreme Court has held that the money
contributed to the Police Fund cannot be reached in an equity suit, under state law,
by a private party who sues to recover the police officer’s pension in state court.
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Baron v. Bailey, 275 So. 2d 519, 520 (Fla. 1973). The Police Fund argues that this
grant of immunity is “reserved to” the State of Florida by the Tenth Amendment to
the United States Constitution. U.S. Const. Amend. X. The Police Fund concedes
that it is not entitled to sovereign immunity under the Eleventh Amendment.
The argument of the Police Fund runs squarely against the operative section
of the Bankruptcy Code that provides for a waiver of sovereign immunity when the
sovereign files a proof of claim: “A governmental unit that has filed a proof of
claim in the case is deemed to have waived sovereign immunity with respect to a
claim against such governmental unit that is property of the estate and that arose
out of the same transaction or occurrence out of which the claim of such
governmental unit arose.” 11 U.S.C. § 106(b). The Police filed a proof of claim in
the bankruptcy of the Florida Fund. That proof of claim “arose out of the same
transaction or occurrence” as the complaint that the Trustee filed against the Police
Fund. We conclude, therefore, that the Police Fund waived any alleged right to
invoke sovereign immunity.
B. The Police Fund was an Insider of the Florida Fund.
We now turn to the argument of the Police Fund that the bankruptcy court
erred when it concluded that the Police Fund was an insider of the Florida Fund.
“[I]f the debtor is a partnership,” an “‘insider’ includes” the following entities: “(i)
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general partner in the debtor; (ii) relative of a general partner in, general partner of,
or person in control of the debtor; (iii) partnership in which the debtor is a general
partner; (iv) general partner of the debtor; or (v) person in control of the debtor.”
11 U.S.C. § 101(31)(C). “By virtue of the nonlimiting term ‘includes,’ the”
definition of “insider” in section 101(31) “is intended to be illustrative rather than
exhaustive.” In re Krehl, 86 F.3d at 741; see also 11 U.S.C. § 102(3) (“‘includes’
and ‘including’ are not limiting”). “An ‘insider’ generally is an entity whose close
relationship with the debtor subjects any transaction made between the debtor and
such entity to heavy scrutiny.” 2 Lawrence P. King, et al. Collier on Bankruptcy ¶
101.31 at 101-99 (Revised 15th ed. 1996). As the Fifth Circuit concluded, “The
cases which have considered whether insider status exists generally have focused
on two factors in making that determination: (1) the closeness of the relationship
between the transferee and the debtor; and (2) whether the transactions between the
transferee and the debtor were conducted at arm’s length.” In re Holloway, 955
F.2d at 1011.
Both the district court and the bankruptcy court correctly found that the
Police Fund was an insider of the Florida Fund. First, no one can seriously dispute
the closeness of the relationships between Stern, the principal of the Florida Fund,
and the Police Fund and its directors. Second, neither the district court nor the
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bankruptcy court clearly erred in finding that the transactions between the Florida
Fund and the Police Fund were not at arm’s length. Third, the record shows that
the Police Fund discovered the fraud of the Florida Fund before any other creditor,
and based on its longstanding relationship with Stern, the Police Fund was able to
obtain the preferential transfers the Trustee sought to avoid.
C. The Police Fund Is the Proper Defendant.
The final argument of the Police Fund is that the Trustee erroneously sued
the Police Fund as an entity and the chairman and secretary of the board of the
Police Fund in their capacities as officers of the Police Fund. The Police Fund
asserts that the proper defendants are the individual police officers of the City of
Miami who are beneficiaries of the Police Fund. This argument is absurd. The
Police Fund has offered no authority to support its assertion that the Police Fund
cannot pay a judgment entered against it in an adversary proceeding. The Police
Fund filed, in its own name, a proof of claim in the bankruptcy of the Florida Fund,
and we reject the proposition that the Police Fund may sue, but not be sued, in its
own name.
IV. CONCLUSION
The judgment of the district court is
AFFIRMED.
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