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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 11-12114 JULY 13, 2012
________________________ JOHN LEY
CLERK
D.C. Docket Nos. 8:10-cv-01036-JSM ; 8:05-bk-27381-KRM
In Re: JAMES LOGAN MCMILLIN,
Debtor,
__________________________________________________________________
ANGELA STATHOPOULOS,
llllllllllllllllllllllllllllllllllllllll Plaintiff-Appellant,
versus
DAN ALFORD,
llllllllllllllllllllllllllllllllllllllll Defendant-Appellee.
________________________
No. 11-12353
________________________
D.C. Docket Nos. 8:10-cv-01036-JSM ; 8:05-bk-27381-KRM
Case: 11-12114 Date Filed: 07/13/2012 Page: 2 of 9
In Re: JAMES LOGAN MCMILLIN,
Debtor,
__________________________________________________________________
ANGELA STATHOPOULOS,
llllllllllllllllllllllllllllllllllllllll Plaintiff-Appellee,
versus
DAN ALFORD,
llllllllllllllllllllllllllllllllllllllll Defendant-Appellant.
________________________
Appeals from the United States District Court
for the Middle District of Florida
________________________
(July 13, 2012)
Before DUBINA, Chief Judge, EDMONDSON, Circuit Judge, and GOLDBERG,*
Judge.
PER CURIAM:
I. BACKGROUND
*
Honorable Richard W. Goldberg, United States Court of International Trade Judge,
sitting by designation.
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Appellant-Trustee Angela Stathopoulos (“Appellant-Trustee”) is the
Trustee for the bankruptcy estate of James Logan McMillan (“Debtor”).
Appellant-Trustee appeals the district court’s judgment affirming the bankruptcy
court’s order in an adversary proceeding she filed. In the adversary proceeding,
the Trustee alleged several causes of action against multiple individuals, including
several fraudulent conveyance claims against Appellee Dan Alford (“Alford”).
There are many individuals and entities involved in this case. Debtor is a
serial bankruptcy filer. Virtual Trading Group, Inc. (“Debtor/VT”) is a company
that Debtor does not own, but in which Debtor had sufficient control such that the
bankruptcy court found it to be Debtor’s alter ego. Alford owns Bluewater
Trading Company (“BWT”), a Georgia corporation that is not affiliated with
Debtor/VT but that had “partnered” with Debtor/VT in many transactions in the
products-trading business. Alford is also affiliated with the construction company
Southeastern General (“SEG”). Alford does not own SEG; however, he makes
loans to SEG and shares in the company’s profits and losses.
Two particular transactions form the basis of Appellant-Trustee’s claims
that Alford is liable to the estate for receiving a fraudulent transfer from
Debtor/VT. The first transaction involves the transfer of a sum of money from
BWT to Debtor/VT, and then from Debtor/VT to SEG. The second, and related,
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transaction involves the subsequent transfer of a piece of property (the “Ball
Ground Home”) from SEG to Alford.
Specifically, on December 10, 2004, less than one year before Debtor filed
his bankruptcy petition, BWT wired $282,000 to Debtor/VT.1 Within hours after
the wire transfer was posted to Debtor/VT’s bank account, Alford accompanied
Debtor to a bank branch and Debtor purchased for Debtor/VT a $280,000
cashier’s check payable to SEG. Debtor/VT did not receive anything in exchange
for its transfer of $280,000 to SEG. Shortly after the date of the wire transfer,
Alford signed a purchase and sale agreement with SEG for the Ball Ground Home.
Debtor and Alford had a written agreement (the “2004 Agreement”) related
to the transfer of both the money and the property. The agreement, signed by
Alford and Debtor/VT’s owner, provided that Alford agreed to lend Debtor/VT
$280,000 for the right to purchase the Ball Ground Property. Under the
agreement, the title to the property would be in Alford’s name until he had
received repayment in full. If the money had not been fully repaid within sixty
days, then Debtor/VT forfeited any right to the property. However, Debtor did not
repay the money in the agreed-upon time. As a result, Alford took title to the Ball
1
The parties acknowledge that $2,000 is sales commission income, which is not in
dispute; thus, the disputed amount is $280,000.
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Ground Property. At the time of trial, Alford had title to the Ball Ground
Property. Although Debtor was living in the property, he never had title to it.
Alford subsequently sold the Ball Ground Property. Appellant-Trustee claims that
either the $280,000 or the Ball Ground Property are property of the Debtor’s
bankruptcy estate.
The bankruptcy court granted relief to Trustee on most counts relating to the
other individuals, but dismissed the claims against Alford. The bankruptcy court
specifically found that the transfer of $280,000 from Debtor/VT to SEG could not
be avoided as to Alford because (1) the $280,000 was never Debtor’s property,
since neither Debtor nor Debtor/VT had “control” of these funds, and (2) the
$280,000 went to SEG, and SEG had unfettered use of these funds.
Appellant-Trustee appealed the bankruptcy court’s ruling, arguing that the
bankruptcy court erred when it concluded that neither Debtor nor Debtor/VT ever
had control of the funds. The district court reversed the bankruptcy court’s
finding as to control over the $280,000, concluding that Alford had failed to rebut
the presumption that the funds in Debtor/VT’s bank account belonged to the
Debtor. However, the district court ultimately affirmed the judgment in Alford’s
favor, stating that the Trustee had not proven the Debtor’s insolvency.
Appellant-Trustee brought this appeal, arguing that because the district
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court reversed on the control issue, the case must be remanded to the bankruptcy
court for it to reconsider the fraudulent conveyance counts against Alford. On
cross-appeal, Alford argues that the district court erred in determining that the
bankruptcy court was clearly erroneous in finding that neither Debtor nor
Debtor/VT had control of the money in Debtor/VT’s bank account. We hold that
the bankruptcy court did not err in concluding that neither Debtor nor Debtor/VT
had control of the funds. Because our holding on the issue of control renders
Appellant-Trustee’s appeal moot, we do not address Appellant-Trustee’s claims.
II. STANDARD OF REVIEW
This Court reviews conclusions of law de novo and reviews findings of facts
for clear error. In re Int’l Pharm. & Disc. II, Inc. v. Tabas, 443 F.3d 767, 770
(11th Cir. 2005). A finding of fact is not clearly erroneous unless, considering all
of the evidence, this Court has “the definite and firm conviction that a mistake has
been made.” Id.
III. DISCUSSION
Appellant-Trustee filed an adversary proceeding alleging several causes of
action for avoidance of fraudulent transfers under 11 U.S.C. § 548. The purpose
of avoiding fraudulent transfers is to prevent the debtor from diminishing funds
that are generally available for distribution to creditors. Consequently, there is a
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presumption that “any funds under the control of the debtor, regardless of the
source,” are the debtor’s property, “and any transfers that diminish that property
are subject to avoidance.” In re Sanborn & Chase Corp., 813 F.2d 1177, 1181
(11th Cir. 1987). However, presuming ownership in situations of alleged
fraudulent transfers “poses the distinct danger that creditors could receive a
windfall in the form of funds that simply passed through the debtor’s possession
but in fact were not property of the debtor.” Id.
In In re Chase & Sanborn Corp., this Court established a “control test” for
determining when funds provided to a debtor by a third party become property of
the debtor so that an allegedly fraudulent transfer of the funds to a noncreditor is
subject to avoidance under 11 U.S.C. § 548. 813 F.2d at 1181–82. In a fraudulent
transfer situation, “more is necessary to establish the debtor’s control over the
funds than the simple fact that a third party placed the funds in an account of the
debtor with no express restrictions on their use. Id. at 1181.
The control test is a “very flexible, pragmatic one; in deciding whether the
debtors had controlled property subsequently sought by their trustees, ‘the court
must look beyond the particular transfers in question to the entire circumstance[s]
of the transactions.’” Nordberg v. Societe Generale, 848 F.2d 1196, 1199 (11th
Cir. 1988) (quoting In re Chase & Sanborn Corp., 813 F.2d at 1181–82). In
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looking at the entire circumstances of the transactions, courts have considered the
source of the funds, which party primarily benefits from the challenged
transactions, and whether the debtor has the power to designate which party will
receive the funds and the power to actually disburse the funds. See In re Bankest
Capital Corp., 374 BR 333, 338 (Bankr. S.D. Fla. 2007) (following and applying
the test established in In re Chase & Sanborn).
After hearing all testimony and evaluating the evidence and the credibility
of key witnesses, the bankruptcy court concluded that neither the Debtor nor
Debtor/VT had sufficient control of the funds. The bankruptcy court found that
the $280,000 was only in Debtor/VT’s bank account for a few hours, the time it
took to obtain a cashier’s check payable to SEG. The bankruptcy court reasoned
that neither the Debtor nor Debtor/VT had the power to designate which party
would receive the funds, and neither had the power to disburse the funds because
the funds were specifically designated under the terms of the 2004 Agreement.
Further, the bankruptcy court specifically found that the $280,000 was not money
that BWT owed to the Debtor or to Debtor/VT.
BWT wired the money to Debtor/VT. Thus, the source of the funds was
BWT, Alford’s company. Once the funds were in Debtor/VT’s account, Debtor
obtained a cashier’s check for $280,000 payable to SEG, the construction business
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in which Alford had an interest. Debtor/VT did not receive any consideration for
this transfer of money.
Shortly thereafter, Alford received a quitclaim deed to the residence.
Hence, the eventual use of the funds was to purchase the Ball Ground residence.
Alford benefitted most from the money transfer, and the transfer was done at his
direction. The Debtor and Debtor/VT merely facilitated the transfer of the funds
and the “actual connection between the funds and the debtor was quite tangential.”
In re Chase & Sanborn, 813 F.2d at 1182.
The bankruptcy court correctly applied the control test. Applying the
control test to the facts found by the bankruptcy court, the transfer is not
avoidable. Thus, the bankruptcy court correctly determined that the funds were
never under the Debtor/VT’s control and were not part of Debtor’s estate.
IV. CONCLUSION
The Court REVERSES the district court order with respect to its
determination regarding the issue of control over the funds and reinstates the
bankruptcy court judgment. Thus, Appellant-Trustee’s appeal is dismissed as
moot.
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