[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT
U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
May 3, 2005
No. 04-11829 THOMAS K. KAHN
________________________ CLERK
D. C. Docket No. 03-00765-CV-ORL-19-KRS
BKCY No. 96-03950-6J-1
In Re:
INTERNATIONAL ADMINISTRATIVE SERVICES, INC.,
Debtor.
__________________________________________________________________
IBT INTERNATIONAL, INC.,
SOUTHERN CALIFORNIA SUNBELT DEVELOPERS, INC.,
Defendants-Appellants,
versus
JOHN A. NORTHERN,
Plaintiff-Appellee.
________________________
Appeal from the United States District Court
for the Middle District of Florida
_________________________
(May 3, 2005)
Before MARCUS, FAY and SILER*, Circuit Judges.
FAY, Circuit Judge:
This appeal stems from the bankruptcy of International Administrative
Services, Inc. (“IAS” or the “Debtor”). The Debtor’s stock trustee (the “Trustee”),
acting on behalf of the Official Committee of Unsecured Creditors (the
“Committee”) filed an adversary proceeding against IBT International, Inc.
(“IBT”) and Southern California Sunbelt Developers, Inc. (“SCSD”) to recover
assets that had been fraudulently transferred from the Debtor to IBT and SCSD.
The bankruptcy court entered judgment in the adversary proceeding in favor of the
Trustee. IBT and SCSD appealed to the district court, which affirmed the
judgment, and the Defendants then appealed to this Court. IBT and SCSD raise
four grounds for error that would require reversal: (1) that the statute of limitations
prevented an extension of the time for bringing the action by either court order or
equitable tolling; (2) that the avoidance action was improperly brought because the
Trustee did not first avoid the transfer to the initial transferees; (3) that the Trustee
improperly traced the funds sought to be recovered; and (4) that the bankruptcy
court incorrectly calculated pre-judgment interest against the Defendants. For the
*
Honorable Eugene E. Siler, Jr., United States Circuit Judge for the Sixth Circuit, sitting
by designation.
2
reasons set forth below, we disagree with the Defendants’ assignments of error,
and affirm the judgment of the bankruptcy court.
I. Facts
IAS specialized in marketing financial advice to unsophisticated consumers
through a barrage of seminars and late night infomercials. A leviathan in the world
of get-rich-quick schemes, IAS guaranteed customers increased wealth, provided
they followed the company’s financial strategies, which were contained in IAS
publications. The trap, however, was that to be privy to this valuable information,
a customer had to first purchase a membership and then pay a substantial amount
in annual dues. Essentially, IAS promoted a gamble-free method of getting rich,
once, of course, customers paid IAS, received the publications, and meticulously
followed the instructions.
Charles Givens founded IAS in 1986, and was the company’s sole
shareholder. He served as an officer and director until 1991 or 1992, although
management continued to look to Givens for guidance after his departure. As the
visible voice of IAS, Givens traveled extensively, promoting his “wealth without
risk” plan. A dynamic and compelling speaker, Givens persuaded audiences to buy
expensive memberships in IAS, and those numbers swelled to over 250,000.
Sheer numbers, however, do not validate a theory absent empirical
3
evidence, and doubt soon fell upon the legitimacy of the IAS financial advice. A
majority of the information was neither novel nor covert - most of it was readily
available and comprised common-sense business practices. Other advice, such as
encouraging customers to cancel uninsured motorist coverage on their vehicles,
raised more red flags.
In 1991, several members initiated lawsuits against IAS and Givens,
challenging the practicality of their advice. On the advice of IAS, several
customers dropped their uninsured motorist coverage, only to be involved in
serious car crashes with uninsured drivers, and leaving them with uncompensated
losses. The customers sued IAS for giving them the detrimental advice.
Eventually, eleven similar lawsuits were filed throughout the country, seeking a
large amount in damages.
Another layer was added to IAS’ troubles when the SEC targeted Givens
and IAS as part of a securities fraud investigation in connection to a real estate
venture. IAS’ problems grew when the attorney generals of several states launched
major investigations involving IAS’ failure to pay the state sales tax generated at
seminars around the country. Finally, the Federal Trade Commission aimed its
sights at the company’s business practices.
IAS vigorously defended the lawsuits and government investigations, but it
4
was clear that IAS’ exposure to liability in these cases exceeded $10 million. As a
preemptive method of preserving both his and IAS’ wealth, Givens retained the
services of attorney David H. Tedder (“Tedder”), his law firm, and his company,
The Institute for Asset & Lawsuit Protection, to formulate a plan that would shield
the assets from creditors.1
Tedder moved to Florida in order to implement the IAS/Givens asset
protection plan. First, assets were transferred to various Tedder-owned foreign and
domestic entities. Tedder then recycled the assets through a tangled and complex
web of multi-step international transactions. In total, Tedder transferred assets
more than one hundred times among twenty-three different entities. Between
January 1992 and 1996, Givens removed a treasure chest in excess of $50 million
from IAS’ coffers; putting it out of the direct reach of IAS’ creditors.
On June 20, 1996, IAS filed a voluntary Chapter 11 bankruptcy petition, no
doubt due in part to Givens and Tedder’s purge and plunder scheme. The U.S.
Trustee appointed the Official Committee of Unsecured Creditors (the
“Committee”) to facilitate the IAS reorganization, which would seem plausible
because Givens no longer managed the day-to-day affairs of the debtor.
1
Tedder held himself out as an expert in asset protection, and lectured on related
strategies.
5
Unfortunately for the Debtor, Givens still played an active role in the company,
which crippled IAS’ ability to investigate the suspect transfers without bias or
influence.
The Committee soon discovered the existence of the Givens-IAS transfers,
and with the goal of reorganization in mind, the Debtor assigned its right and duty
to pursue any fraudulent transfer actions or avoidance claims to the Committee.2
By September of 1996, the Trustee then began the unenviable task of unraveling
the knotted trail of transfers. The Trustee’s ability to investigate the transfers was
hampered by Givens and his associates, who, among other things, delayed
document production, withheld discovery responses, and simply “lost” records of
the asset transfers. As a result, the Trustee filed a motion to hold Givens, and the
professionals assisting him in covering the tracks, in contempt of court. The
bankruptcy court appointed a Special Master to oversee and administer discovery
compliance.
The problems associated with discovery led to the Trustee’s inability to
timely identify the long chain of transferees, and thus initiate any proceeding to
2
Ultimately, the Debtor’s reorganization efforts failed, and IAS eventually filed a
liquidating plan, which included a provision creating the Stock Trustee, the plaintiff in the
adversary proceeding. The plan granted the Stock Trustee the power to investigate, commence,
and prosecute all avoidance and fraudulent transfer adversary proceedings, such as this one.
6
avoid the transfers within the limitation period, which expired on June 20, 1998,
two years after IAS filed for bankruptcy. The bankruptcy court granted the
Committee’s request to extend the time to file avoidance actions through the time
of a hearing by the Special Master on July 29, 1998, when the court would again
consider any extensions based upon the progression of discovery.
As seems par for this case, discovery disputes continued, and the hearing in
which the Special Master delivered his report was not concluded until September
3, 1998, more than one month after the deadline of the initial extension. At this
hearing, the Special Master determined that the all-important transfer documents
did not appear to have been “misplaced,” but, rather, that the items had been
“deliberately and intentionally secreted” from the Trustee. Based upon these
findings, the Trustee moved in open court to further extend the time to file
avoidance actions. The oral motion was granted, and the bankruptcy court entered
a written order memorializing its ruling on September 17, 1998. That order
extended the time period for the Trustee to file avoidance actions until February
10, 1999.
On February 10, 1999, the Trustee filed this adversary proceeding against a
list of defendants, including John Does. IBT and SCSD were not named parties
until August 17, 1999, once the Trustee had traced IAS assets to them, and filed a
7
first amended complaint. Count I of the complaint sought to avoid any transfer of
an interest of the Debtor in property pursuant to 11 U.S.C. § 544(b) and Florida
Statutes §§ 726.105, 726.106, and 726.108, which permit avoidance of transfer
made with the actual intent to hinder, delay, or defraud creditors. In Count II, the
Trustee sought turnover of the property improperly transferred from the Debtor
under 11 U.S.C. § 542(a).
The Trustee targeted IBT and SCSD because they received $1,050,000 from
IAS, through several of Tedder’s intricate transfer devices. The exact route the
money took, and the various stops it made, is a difficult road to follow. After
essentially being laundered through the Tedder mechanisms, the IAS money
trickled down to the Van Dan Limited Partnership (“Van Dan”), which was a
Nevada entity owned by Tedder. Van Dan transferred $50,000 of IAS money to
IBT on May 11, 1993. Two days later, a Netherlands company, Eurokredit Finance
S.A. (“Eurokredit”), transferred another $3,500,000 of IAS funds to an account
held by H.D., Inc., an Isle of Mann corporation. On May 26, 1993, Eurokredit
transferred an additional $3,350,000 of the Debtor’s funds to a second HD-held
account. Tedder himself transferred $999,975 from the two HD accounts to a Van
Dan account on July 1, 1993. Finally, on July 7, 1993, Tedder transferred
$1,000,000 from Van Dan to IBT and SCSD. Consequently, between the May 11
8
and July 7, 1993, transfers, IBT and SCSD received $1,050,000 in Debtor-derived
funds.
The money trail does not end there, however. On August 20, 1993, IBT
transferred its share of the $1,050,000 to SCSD. IBT and SCSD are related
construction/real estate development companies owned by Dan Baer, one of
Tedder’s business associates. SCSD used the money to purchase a commercial
office condominium development known as the John Wayne Office Guild (the
“Guild”), in Orange County, California. As to the Guild property, the Trustee
alleged that the monies which bought the property were fraudulent transfers
originating from IAS, and were subject to avoidance. The Trustee sought recovery
of IBT and SCSD’s interest in the Guild as property of the Debtor’s bankruptcy
estate, not just the money judgment.
The bankruptcy court held a three-day trial on the issues. At the trial, the
Trustee presented a thorough tracing analysis, highlighting that the assets obtained
by IBT and SCSD had originated with IAS and were then transferred to Tedder’s
entities under the auspices of his asset protection plan. The evidence at trial
demonstrated the complex and intentionally insidious nature of the plan, and
illustrated the difficulty the Trustee experienced in investigating the multi-
transaction scheme.
9
The removal of IAS’ funds was not accomplished in one fell swoop. Rather,
the Trustee identified several different avenues used by IAS, Givens, and his
professional advisors to extract company funds. Millions of dollars filtered
through a collection of foreign jurisdictions, allowing Tedder to invest monies for
Givens without the hassle of company creditors or the relevant taxing authorities.
The detours that the IAS funds took ranged from “leasing” Givens’ services to IAS
for a paltry annual sum of $4.8 million to converting $19 million of IAS’ non-
exempt liquid assets into creditor-proof exempt assets via the purchase of phony
annuities to simply giving $3.5 million to a Tedder company that promised to
stabilize IAS’ income, but instead canceled the contract without returning the
funds. Eventually, between the siphoning of the funds and blanket liens that
Tedder’s companies acquired on IAS’ assets and future income, all of IAS’
resources were encumbered and beyond the reach of creditors.
Based upon the evidence, the bankruptcy court entered a money judgment
for the Trustee, and against IBT and SCSD in the amount of $1,679,251.30, which
included interest.3 IBT and SCSD appealed to the district court, which affirmed
the bankruptcy court’s ruling. The Defendants then filed the instant appeal.
3
The bankruptcy court also entered judgment against another defendant, Kevin
McCarthy, in the amount of $1,288,534.30, but he neither attended trial nor presented any
defense on his behalf. McCarthy is not a party to this appeal.
10
II. Discussion
A. Standard of Review
Our Court has jurisdiction over this matter under 28 U.S.C. § 158(d). “As
the ‘second court of review of a bankruptcy court’s judgment,’” we independently
examine the factual and legal determinations of the bankruptcy court and employ
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 Assoc., 951 F.2d 1223, 1228
(11th Cir. 1992)). As the district court made no factual findings in its function as
an appellate court, our review is de novo. In re Sublett, 895 F.2d 1381, 1384 (11th
Cir.1990). We review the findings of fact made by the bankruptcy court for clear
error. In re JLJ Inc., 988 F.2d 1112, 1116 (11th Cir.1993). A factual finding is not
clearly erroneous unless “this court, after reviewing all of the evidence, [is] left
with the definite and firm conviction that a mistake has been committed.” Lykes
Bros., Inc. v. United States Army Corps of Engr's, 64 F.3d 630, 634 (11th Cir.
1995) (internal quotation marks omitted). This Court conducts a de novo review of
“determinations of law, whether from the bankruptcy court or the district court.”
In re Bilzerian, 100 F.3d 886, 889 (11th Cir.1996) (per curiam); In re Sublett, 895
F.2d at 1383 (11th Cir.1990).
B. Statute of Limitations and the Filing of the Complaint
11
One of the primary issues of the appeal concerns whether the Trustee let the
limitations period run prior to filing suit. IBT and SCSD argue that the statute of
limitations set forth in 11 U.S.C. § 546(a)(1) had lapsed before the Trustee filed
this adversary proceeding on February 10, 1999. Count I of the complaint seeks
avoidance of the transfer to IBT and SCSD under § 544(b), and is limited by 11
U.S.C. § 546(a), which provides that:
An action or proceeding under section 544, 545, 545, 547, 548, or 553of
this title may not be commenced after the earlier of --
(1) the later of –
(A) 2 years after the entry of the order of relief; or
(B) 1 year after the appointment of election of the first trustee...
Because there was no statutory trustee4 appointed in this case, the statute of
limitations would have run two years after the filing of the bankruptcy case - June
20, 1998. Three days before the limitations was set to run, the bankruptcy court
entered an order extending the time until a hearing by the Special Master on July
29, 1998. Due to the ongoing discovery disputes, that hearing was not held until
September 3, 1998. On September 17, 1998, the bankruptcy court entered a second
order, granting a further extension of the time for filing an adversary action
through February 10, 1999.
4
Although Northen is referred to as the “Trustee,” his title is that of “stock trustee,”
which is not the statutory trustee described in § 546(a)(1)(B).
12
The Defendants’ four-pronged attack on the extension of the statute of
limitations consists of: (1) that the bankruptcy court did not have the power to
extend the § 546(a) period; (2) that the bankruptcy court’s extension of the §
546(a) period was inoperative because of the “gap” period between the orders
extending the limitations period;5 (3) that the doctrine of equitable tolling should
not apply to the adversary proceeding; and (4) that the § 546(a) enlargement
orders were ineffective against IBT and SCSD.
There is the threshold matter of whether the bankruptcy court had any
authority - either by its own order or the doctrine of equitable tolling - to enlarge
the § 546(a) period for commencing avoidance actions. The Defendants suggest
that rather than a statute of limitations, § 546(a) operates as a jurisdictional bar,
and point to Bankruptcy Rule 9006(b), which does not specifically provide for
enlargement of time period created by statute, as opposed to those created by the
Federal Rules of Bankruptcy Procedure or a court order. We find no merit in this
argument. Rule 9006(b) states:
[W]hen an act is required or allowed to be done at or within a specified
period by these rules or by a notice given thereunder or by order of court,
5
IBT and SCSD contend that there is a 57-day gap between the expiration of the first
extension, July 29, and the hearing by the Special Master, on September 3. The Defendants
further argue that another fourteen-day gap exists between the September 3 hearing and the day
the final extension was actually ordered, September 17.
13
the court for cause may at any time in its discretion...order the period
enlarged.
Although “by these rules...or by order of court” does not explicitly encompass
statutory timeframes, it does bring all of the Federal Rules of Bankruptcy
Procedure under its umbrella. Not surprisingly, this would include Rule 7001,
which defines an adversary proceeding as one “to recover money or property” and
Rule 7003, which governs the commencement of adversary proceedings. To read a
jurisdictional bar into § 546 would lead to absurd results, and the Defendants did
not cite any authority for such a proposition. Therefore, § 546 is indeed a statute of
limitations, subject to waiver, equitable tolling, and equitable estoppel. See In re
Rodriguez, 283 B.R. 112, 116-18 (Bankr. E.D.N.Y. 2001) (finding § 546 to be a
true statute of limitations, subject to enlargement by court order, rather than a
statute of repose or jurisdictional bar).
While we think a bankruptcy court has the discretion to extend the filing
period for an adversary proceeding, that resolution is only the tip of the iceberg. It
is undisputed that the Trustee filed the adversary proceeding within the § 546(a)
period, as extended by the bankruptcy court’s second order. The controversy lies
with the so-called “gaps” between the orders that extended the time period, and
whether the extension was fixed by date or reference to a hearing. Namely, the
14
ambiguity arose out the June 17 enlargement order, which provided for an
extension of the § 546(a) limitations period “through the time of the hearing by the
Special Master on July 29, 1998.” This hearing was then continued until
September 3 due to the protracted discovery disagreements. At the September 3
hearing, the judge granted an oral motion to extend the § 546(a) period through
February 10, 1999. The bankruptcy court memorialized this extension by written
order on September 17, 1998.
The Defendants maintain that the effective words of the bankruptcy court’s
first enlargement order were “July 29, 1999" rather than the reference to the
“hearing set before the special master.” Further, the second order was docketed
fifteen days after the oral ruling, and was not entered nunc pro tunc. Given these
inherent ambiguities, the bankruptcy court declined to rest its opinion solely on its
own orders, although it eventually determined that the Trustee timely filed the
complaint.
We think that the bankruptcy court’s orders did indeed extend the
limitations period, albeit not in a seamless fashion. In its Findings of Fact and
Conclusions of Law, the bankruptcy court noted that “[w]ithout question, [it]
intended the limitations period of Section 546(a) to extend through February 10,
1999.” Such a statement demonstrates the clear purpose of the bankruptcy court,
15
even where an order does not. Where an order is ambiguous, “its extent must be
determined by what preceded it and what it was intended to execute.” Union
Pacific Railroad Co. v. Mason City & Fort Dodge Railroad Co., 222 U.S. 237, 247
(1911). Moreover, we may use a memorandum opinion to determine the intent of
the court in issuing that order. United States v. Taylor, 544 F.2d 347, 349 (8th Cir.
1976). Consequently, the language “hearing set before the Special Master”
controls, and the limitations period was continued in conjunction with the hearing.
There is also the matter of the alleged gap between September 3 and
September 17, where the bankruptcy court orally granted a second extension at the
hearing of the Special Master, but did not enter a written order until September 17.
In this instance, the time at which the written order was entered by the court and
file-stamped by the clerk is irrelevant to the time of its effectiveness. “A judgment
is not what is entered but what was directed by the court... In the very nature of
things, the act must be perfect before its history can be so; and the imperfection or
neglect of its history fails to modify or obliterate the act.” In re Ackermann, 82
F.2d 971, 973 (6th Cir.1936) (citation omitted). Other courts have treated oral
orders similarly. See, e.g., Noli v. Commissioner, 860 F.2d 1521, 1525 (9th
Cir.1988) (holding a bankruptcy’s court oral order binding and effective despite
the court's failure to enter it on the docket). Thus, a court’s order is complete when
16
made, not when it is reduced to paper and entered on the docket. See also Dalton
v. Bowers, 53 F.2d 373, 374 (2d Cir.1931) (“Entry is for most purposes not
necessary to the validity of an order.”).
In an abundance of caution, we will not limit our analysis of the limitations
period to the bankruptcy court’s orders. Rather, we will also reach the question of
whether the Trustee demonstrated an equitable basis for extending the limitations
period. Where, despite the exercise of due diligence, a trustee fails to timely bring
an avoidance action due to fraud or extraordinary circumstances beyond the
trustee’s control, equitable tolling prevents the expiration of § 546(a)’s limitations
period. In re Levy, 185 B.R. 378 (Bankr. S.D. Fla. 1995). See Lampf, Pleva,
Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 363, 111 S.Ct. 2773,
2782, 115 L.Ed.2d 321 (1991) (“where the party injured by the fraud remains in
ignorance of it without any fault or want of diligence or care on his part, the bar of
the statute does not begin to run until the fraud is discovered, though there be no
special circumstances or efforts on the part of the party committing the fraud to
conceal it from the knowledge of the other party.”) (quoting Bailey v. Glover, 21
Wall. 342, 348, 22 L.Ed. 636 (1875)).
The equitable tolling doctrine most often applied is that enunciated in
Holmberg v. Armbrecht, 327 U.S. 392, 397, 66S.Ct. 582, 585, 90 L.Ed. 743
17
(1946). When a defendant’s fraudulent deceptions leave a plaintiff ignorant of the
facts or even existence of his claim, the limitations period is tolled until discovery
of the fraud. Id. at 396-97, 66 S.Ct. at 584-85. Equity does not lend itself to fraud
of any kind. Id. at 396, 66 S.Ct. at 584. While this doctrine is not applicable to the
time limitation imposed by every federal statute, it does apply to all federal
statutes where the time limits are in the character of a true statute of limitations. In
re M&L Bus. Mach. Co. Co., Inc., 75 F.3d 586 (10th Cir. 1996); In re United Ins.
Mgmt., Inc., 14 F.3d 1380 (9th Cir. 1994). In such a case, the statute is simply an
affirmative defense, and, consequently, subject to equitable considerations such as
estoppel and waiver. Smith v. Mark Twain Nat'l Bank, 805 F.2d 278, 293-94 (8th
Cir.1986) (applying equitable estoppel to section 549(d)). Equitable
considerations are inapplicable, however, where time limits are jurisdictional in
nature and are to be strictly construed. Id. Our Circuit’s precedent holds that §
546(a) is a statute of limitation that can be waived. In re Pugh, 158 F.3d 530, 537
(11th Cir. 1998) We think the same principles apply to equitably toll the statute as
well. See In re Klayman, 228 B.R. 805 (Bankr. M.D. Fla. 1999); In re United Ins.
Management, Inc., 14 F.3d 1380, 1385 (9th Cir.1994) (noting that “[e]very court
that has considered the issue has held that equitable tolling applies to §
18
546(a)(1).”).6
Generally, two types of cases give rise to the equitable principles of tolling
where the plaintiff cannot timely commence an action because of a defendant’s
affirmative or negligent conduct. In re Pomaville, 190 B.R. 632 (Bankr. D. Minn.
1995). First, when the fraud goes undiscovered because the defendant has taken
positive steps after the commission of the fraud to keep it concealed, then the
statute of limitations is tolled until the plaintiff actually discovers the fraud. Id. at
636-37. In re Lyons, 130 B.R. 272, 280. (Bankr. N.D. Ill. 1991). “Fraudulent
concealment must consist of affirmative acts or representations which are
calculated to, and in fact do, prevent the discovery of the cause of action.” Lyons,
130 B.R. at 280. The identity of the party concealing the fraud is immaterial, the
critical factor is whether any of the parties involved concealed property of the
estate. Id. The second instance is the more mundane circumstance where the
defendant has not actively concealed the fraud, and the plaintiff must then exercise
due diligence in an attempt to discover the fraud. Id. The limitations clock starts
ticking when the plaintiff obtains - or should have obtained - knowledge of the
underlying fraud. Id. Again, the inquiry is whether assets of estate have been
6
The issue here is not whether § 546(a) is a statute that is subject to equitable tolling.
Instead our focus is whether there is evidence to equitably toll the statute of limitations.
19
concealed. Id. Because the applicability of equitable tolling is a fact-based
decision, the bankruptcy court determines whether equitable tolling governs on a
case-by-case basis. Pomaville, 190 B.R. at 636.
Thus, in the instant case, the Trustee must demonstrate either that he acted
with due diligence to discover the negligently concealed fraud or that one of the
parties involved in the alleged fraud took positive steps to conceal the transfers. In
re Naturally Beautiful Nails, Inc., 243 B.R. 827, 829 (Bankr. M.D. Fla. 1999). The
statute of limitations in the former situation begins when the Trustee either
acquired, or should have acquired, actual knowledge of the existence of a cause of
action. Id. The latter scenario, however, overlooks the Trustee’s diligence, and the
statute begins to run only when the Trustee gains actual knowledge. Id.
The bankruptcy court found that the Trustee succeeded under both tests,
observing that the Trustee “worked long and hard to discover all the intricacies of
IAS’ and Givens’ asset diversion plan.” We agree. The Trustee hired a forensic
accountant to assist in piecing together the jigsaw puzzle of transfers. Although
the Trustee identified some of the initial transfers early in the case, it took months
to assemble and ascertain the different mechanisms at work behind the IAS
transfers.
To further complicate the Trustee’s attempts to ferret out the details of the
20
asset diversion plan, the Debtor and Givens went to extreme lengths to hide their
activities. The case was replete with discovery violations, mostly in the form of the
Debtor and its associates’ refusals to supply the Trustee with critical and important
documentation. The appointment of a Special Master and his concluding report
demonstrate the deliberate and intentional attempts to obscure the true nature of
the asset transfers. The documents that evidenced a money trail from IAS to IBT
and SCSD were not produced until after September 3, 1998. Without that
information, it would have been careless, and perhaps malpractice, for the Trustee
to file this adversary proceeding prior to the delivery of these documents.
As such, we conclude that the Trustee did not obtain actual knowledge of the
cause of action until after September 3, 1998, at which time the limitation period
of Section 546 began to run. The February 10, 1999 complaint was timely filed.
Moreover, even if the concealment was negligent or inadvertent, and we are not in
the least convinced that it was, the bankruptcy court was right to find that the
Trustee “acted with exemplary diligence given the complexities of this case.”
As a final challenge to the enlargement of the § 546(a) statute of limitations,
the Defendants argue that the bankruptcy court’s orders do not apply to them. The
second enlargement order encompassed potential adversary proceedings against
certain limited partnerships and “any other entity (including individuals) which
21
holds or held, either directly or indirectly, assets for the benefit of Charles J.
Givens or members of his family.” IBT and SCSD contend that the order could not
apply to them because they do not hold any such interests. The record, however,
demonstrates otherwise.
The evidence at trial established that Tedder and Givens orchestrated an
elaborate operation that filtered money directly from IAS to IBT and SCSD.
Tedder and Dan Baer - the owner of both Defendants - initiated various business
ventures together and collaborated on a variety of investment programs and
seminars. In their business dealings, Baer managed the day-to-day activities and
Tedder arranged for financing. Moreover, the Guild project, where the Defendants
eventually put the IAS funds, was one of many investments Tedder made within
the confines of the asset dissipation plan. Finally, evidence demonstrated that Baer
knew that Guild funding originated with IAS and Givens.
The second enlargement order pertained to those that held assets either
“directly or indirectly.” The Defendants’ possession of IAS funds falls squarely
within that description. The money moved through a chain from IAS and Givens
to Tedder and his entities to Baer and his entities, the Defendants. As joint venture
partners, Baer was to renovate and manage the Guild project, while Tedder
secured and supplied financing. Tedder clearly knew the source of the funds, and
22
the bankruptcy court charged Baer with this knowledge as well. IBT
unquestioningly accepted the money, no strings attached. Baer knew that IAS was
not an equity participant in the project, but no one signed a promissory note.
Rather, Tedder incredibly supplied $1.050 million free and clear of any debt. IBT
and SCSD cannot escape liability on the notion that Charles Givens did not
directly hand them a fist full of cash or write a million-dollar check. Simply put,
the Defendants were subject to the terms of the bankruptcy court’s second
enlargement order.
C. Avoidance of the Initial Transfer
Defendants argue next that the Bankruptcy Code requires that the Trustee
first avoid the transfers to the initial transferees before he has a cause of action
against the subsequent transferees. In fraudulent transfer actions, there is a
distinction between avoiding the transaction and actually recovering the property
or the value thereof. In re Burns, 322 F.3d 421 (6th Cir. 2003). By its language, 11
U.S.C. § 544(b)indicates that the transaction must first be avoided before a
plaintiff can recover under 11 U.S.C. § 550. In re H & S Transp. Co., 939 F.2d 355
(6th Cir. 1991); In re Richmond Produce Co., 195 B.R. 455 (N.D. Cal. 1996); In re
DLC, Ltd., 295 B.R. 593 (8th Cir. B.A.P. 2003), aff'd, 376 F.3d 819 (8th Cir.
2004). This demarcation between avoidance and recovery is underscored by §
23
550(f), which places a separate statute of limitations on recovery actions; it
provides that a suit for recovery must be commenced within one year of the time
that a transaction is avoided or by the time the case is closed or dismissed,
whichever occurs first. In re Carpenter, 266 B.R. 671 (Bankr. E.D. Tenn. 2001),
subsequently aff'd, 79 Fed. Appx. 749 (6th Cir. 2003).
Title 11 U.S.C. § 550(a) details the scope of recovery:
to the extent that a transfer is avoided under section 544...the trustee may
recover for the benefit of the estate property transferred, or if the court so
order, 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
As § 550(a) indicates, once a transaction has been avoided, the bankruptcy estate
may recover from: (a) the initial transferee; (b) the party for whose benefit the
initial transfer was made; and/or (c) any subsequent transferee. In re Int’l Mgmt.
Assoc., 399 F.3d 1288 (11th Cir. 2005); In re Teligent, Inc. 307 B.R. 744 (Bankr.
S.D.N.Y. 2004). Obviously, a plaintiff in an avoidance action may recover from
the initial transferee. In re Model Imperial, Inc., 250 B.R. 776 (Bankr. S.D. Fla.
2000); In re Red Dot Scenic, Inc., 293 B.R. 116 (S.D.N.Y.), aff'd, 351 F.3d 57 (2d
Cir. 2003). If there is not an affirmative good faith defense, then § 550(a) allows
24
recovery from subsequent transferees as well. In re Willaert, 944 F.2d 463, 464
(8th Cir.1991). The question that lingers, however, is whether an action must first
be brought against the initial transferee as a prerequisite to seeking recovery
against other parties who may be liable. In re Richmond Produce Co., 195 B.R.
455 (N.D. Cal. 1996); In re Resource, Recycling & Remediation, Inc., 314 B.R. 62
(Bankr. W.D. Pa. 2004).
The crux of the Defendants’ argument is that the Trustee failed to first sue
the initial transferees, Tedder’s law firm and a Tedder entity named Texas
International Personnel Corporation (“TIPCO”), before asserting the claims
against IBT and SCSD, the subsequent transferees. If, as the Defendants contend,
the money first filtered from IAS to Tedder and TIPCO, then the Trustee must first
avoid this initial transfer. Accordingly, and as the Defendants’ argument goes,
pursuant to Section 550 of the Bankruptcy Code, the Trustee cannot pursue
subsequent transferees without avoiding that initial transfer.
Section 550(a) plainly states that “to the extent that a transfer is avoided
under section 544...of this title.” (emphasis added). Defendants primarily rely upon
In re Trans-End Technology, Inc., 230 B.R. 101 (Bankr.N.D.Ohio 1998), which
interpreted this provision as requiring the actual avoidance of an initial transfer
before recovery is sought from subsequent transferees. The Defendants contend
25
that by allowing the Trustee to recover from them, the bankruptcy court
improperly read the word “avoidable” (rather than “avoided”) into § 550(a). While
Trans-End characterizes the language of § 550(a) as “unarguably...unambiguous
and plain,” a review of relevant case law demonstrates an array of interpretations.
230 B.R. at 104. See In re Richmond Produce Co., Inc., 195 B.R. 455 (N.D. Cal.
1996) (finding that “once the trustee proves that a transfer is avoidable...he may
seek to recover against any transferee, initial or immediate, or an entity for whose
benefit the transfer is made”); Imperial Corp. of America v. Shields, 1997 WL
808628 (S.D.Cal. 1997) (same); In re Advanced Telecomm. Network, Inc., 321
B.R. 308, 328 (Bankr. M.D. Fla. 2005) (same). But see In re Slack-Horner
Foundries Co., 971 F.2d 577 (10th Cir. 1992) (holding that where a
debtor-in-possession or a trustee has brought an adversary proceeding to set aside
a transfer after a tax sale, the plaintiff must first seek recovery from the
governmental entity that had sold the property for taxes).
Although the Defendants also rely on the Slack-Horner decision, we must
mention what the dissenting judge so neatly pointed out. Namely, that there were
no other cases to support the majority’s decision, and instead listed several cases
that did not preclude recovery from the subsequent transferee because the trustee
did not go against the initial transferee. 971 F.2d at 583 (Seymour, J., dissenting)
26
(citing In re Hall, 131 B.R. 213 (Bankr. N.D. Fla. 1991); In re Allegheny Int'l
Credit Corp., 128 B.R. 125 (Bankr. W.D. Pa. 1991); In re War Eagle Floats, 104
B.R. 398 (Bankr. E.D. Okl. 1989); In re Louis L. Lasser & Stanley M. Kahn, 68
B.R. 492 (Bankr. E.D.N.Y. 1986)). It seems as though Trans-End is the only case
since Slack-Horner to endorse the Defendants’ argument in this case. We will not,
however, be the third court to echo that holding.
The strict interpretation of § 550(a) produces a harsh and inflexible result
that runs counterintuitive to the nature of avoidance actions. If the initial
transaction must be avoided in the first instance, then any streetwise transferee
would simply re-transfer the money or asset in order to escape liability. The chain
of transfers would be endless. Nevertheless, this result presents a bit of a
quandary. There are two approaches that achieve the end, and we must determine
which is the most sound, both legally and logically, for this case.
Several courts, including a bankruptcy court from this Circuit, have
advocated the “avoidable” view of § 550(a). See In re Advanced Telecomm.
Network, Inc., 321 B.R. 308, 328 (Bankr. M.D. Fla. 2005) On the other hand,
other courts, including this Court, have applied the “mere conduit” concept. In re
Chase & Sanborn Corp., 904 F.2d 588 (11th Cir. 1990); Nordberg v. Societe
Generale, 848 F.2d 1196 (11th Cir. 1988). We will evaluate each in turn.
27
Since the conduit notion is the law in this Circuit, we will address it first. As
with the instant case, a plaintiff’s ability to make a case under § 550, may be
compromised by the characterization of a potential defendant as an initial,
immediate, or mediate transferee. In re Advanced Telecomm. Network, Inc., 321
B.R. 308 (Bankr. M.D. Fla. 2005) The determination whether a particular party is
an “initial transferee” within the meaning of § 550(a)(1) has not been as
straightforward as the language itself might suggest. Id. A strictly literal
interpretation of the statutory term would suggest that the “initial transferee” of a
transfer is the first party which received possession of the property in question
after it left the hands of the debtor. In re Ogden, 314 F.3d 1190 (10th Cir. 2002).
Generally, courts are disinclined to construe the statute in such a rigid manner
because in many instances the initial recipient may have nothing to do with the
debtor’s property other than facilitating its transfer. In re Jet Florida System, Inc.,
69 B.R. 83 (Bankr. S.D. Fla. 1987).
Thus, courts have created a more malleable approach to § 550(a),
recognizing that such a “mere conduit” cannot be considered an “initial recipient”
for purposes of an avoidance action. In re Chase & Sanborn Corp., 904 F.2d 588
(11th Cir. 1990); In re Columbia Data Products, Inc., 892 F.2d 26, 28 (4th
Cir.1989) (“a party cannot be an initial transferee if he is a mere conduit for the
28
party who had a direct business relationship with the debtor”).
Thus, a legal fiction is created, and the logical flow of the “mere conduit”
rule is that the party who receives the property from the conduit is likely to be
considered the “initial transferee,” albeit several steps removed. The mere conduit
rule is used most frequently in situations where banks act as an intermediary in
transferring assets. See In re Erie Marine Enterprises, Inc., 216 B.R. 529 (Bankr.
W.D. Pa. 1998); In re Coutee, 984 F.2d 138 (5th Cir. 1993); Bonded Financial
Services, Inc. v European American Bank, 838 F.2d 890 (7th Cir. 1988). Where a
bank receives a check, wire transfer, etc., from the debtor, with instructions to pass
it along to another transferee, courts tend to immunize the bank from liability
under § 550 as an “initial transferee” because it never exercised any control over
the Debtor’s funds. See In re Auto-Pak, Inc., 63 BR 321 (Bankr. D.D.C. 1986),
rev’d on other grounds,73 B.R. 52 (D.D.C.).
In order for this exception to apply, then, we must determine whether
Givens, Tedder, TIPCO and HAC are merely conduits of the IAS funds, and
whether IBT and SCSD are the resulting “initial transferees.” As we read it, the
conduit rule presumes that the facilitator of funds acts without bad faith, and is
simply an innocent participant to the underlying fraud. See In re Machinery &
Steel Service, Inc., 112 B.R. 478 (Bankr. D. Mass. 1990) (finding that a union was
29
not an “initial transferee” of payments for benefit of employee welfare and pension
funds because it neither received payments themselves nor any benefit from
payments; the union only acted as a conduit of checks); see also Hooker Atlanta
Corp. v. Hocker, 155 B.R. 332 (Bankr. S.D.N.Y. 1993). We cannot view Givens,
Tedder, and company in that light.
These initial transferees do not conjure images of well-intentioned, but
gullible, parties who mistakenly fell victim to a massive conspiracy between the
Debtor and the Defendants. To the contrary, these entities had intimate and
thorough knowledge of the transactions and their desired effect. Money changed
multiple hands, twenty-three entities filtered IAS funds away from creditors.
Tedder and Givens were the architects of a masterful plan aimed at diluting IAS’
coffers and lining their own pockets. To hold them to be innocent parties would
contravene the character of a fraudulent transfer action, the purpose of which is to
expose fraudulent dealings. As such, we cannot deem Givens, HAC, and TIPCO as
“mere conduits” who naively transferred funds to Van Dam who then transferred
the same funds to IBT and SCSD. This case does not merit the “mere conduit”
distinction that we carved out in Chase & Sanborn or Nordberg.
Notwithstanding our analysis of the application of the conduit rule, the
Trustee’s case does not fail. The more tenable result in this case is that the Trustee
30
may simultaneously avoid a transfer under § 544 and seek recovery under § 550.
Richmond Produce, 195 B.R. at 463; Advanced Telecomm., 321 B.R. at 328. This
approach allows a plaintiff to recover property from those considered to be
“mediate” transferees of the initial transferee. In short, once the plaintiff proves
that an avoidable transfer exists he can then skip over the initial transferee and
recover from those next in line.
The court in Richmond Produce affirmed the bankruptcy court's decision
permitting the trustee to recover a fraudulent transfer from a mediate transferee,
irrespective of whether the trustee had sued the initial transferee of the relevant
property. In the case at bar, the bankruptcy court adopted the Richmond Produce
analysis: Under § 550, “once a trustee proves that a transfer is avoidable...he may
seek to recover against any transferee, initial or immediate, or an entity for whose
benefit the transfer is made.” Id. at 463. An interpretation of Section 550
mandating actual avoidance of initial transfers, “conflates Chapter 11's avoidance
and recovery sections.” Richmond Produce further clarified that the language “to
the extent that” simply appreciates “that transfers sometimes may be avoided only
in part, and that only the avoided portion of a transfer is recoverable.” Id. (citing
In re Sufolla, Inc., 2 F.3d 977, 982 (9th Cir.1993) (quoting In re Deprizio, 874
F.2d 1186, 1195-96 (7th Cir.1989))). The Richmond Produce court then looked to
31
the legislative history of Section 550 to explain the operative language. The court
observed that Congress took “to the extent” to mean that “liability is not imposed
on a transferee to the extent that a transferee is protected under a provision...which
grants a good faith transferee for value of the transfer that is avoided only as a
fraudulent transfer, a lien on the property transferred to the extent of value given.”
124 Cong. Rec. H. 11,097 (Sept. 28, 1978), S 17414 (Oct. 6, 1978).
In the instant case, the bankruptcy court agreed with Richmond Produce,
noting:
Nothing in the language of Section 550 requires a plaintiff in a fraudulent
transfer adversary proceeding to avoid the transfer received by the initial
transferee before continuing with avoidance actions down the line of
transfers. Certainly, the plaintiff can pursue the initial transferee, but the
plaintiff is not obligated to do so. The plaintiff is free to pursue any of the
immediate or mediate transferees, and nothing in the statute requires a
different result.
Although this interpretation treats IBT and SCSD as subsequent transferees,
the distinction between initial transferee and mediate transferee for avoidance
purposes is irrelevant. The Defendants need only be transferees. In order to incur
liability as a transferee, a party must have exercised a degree of dominion and
control over the property transferred, or held some sort of beneficial right in it. In
re Paramount Citrus, Inc., 268 B.R. 620 (M.D. Fla. 2001). Here, IBT and SCSD
meet that test. The Defendants received $1.050 million of IAS’ money and used it
32
to invest in the Guild property. Only a controlling entity would be able to do so,
and the Trustee may recover from the Defendants.
We think this interpretation is correct. We emphasize that this ruling does
not erode the conduit theory. Rather, it accommodates a case involving a multitude
of patently fraudulent transfers. Not all cases can conveniently be characterized as
involving a “conduit” in order to reach property from later transfers. Thus, the
decision today allows a more pragmatic and flexible approach to avoiding
transfers; for if the Bankruptcy Code conceives of a plaintiff suing independently
to avoid and recover, then bringing the two actions together only advances the
efficiency of the process and furthers the “protections and forgiveness inherent in
the bankruptcy laws.” In re Waldron, 785 F.2d 936, 941 (11th Cir. 1986). “The
cornerstone of the bankruptcy courts has always been the doing of equity,” and in
situations such as this, where money is spread throughout the globe, fraudulent
transferors should not be allowed to use § 550 as both a shield and a sword. Id.
Not only would subsequent transferees avoid incurring liability, but they would
also defeat recovery and further diminish the assets of the estate. An opposite
result would foster the creation of similar enterprises, for creditors would design
increasingly complex transactions, with the knowledge that more transfers
decrease the likelihood of a successful avoidance action. Moreover, the increased
33
cost in litigation and the delays associated with prolonged investigations would
only contribute to a debtor’s shrinking estate.
We are mindful that our reading of § 550(a) does not embrace a strict
construction. We believe, however, that it does address the ambiguity of the words
“to the extent that a transfer is avoided.” Because those words are ambiguous, it is
appropriate to look beyond the plain language of the statute. See United States v.
DBB, Inc., 180 F.3d 1277, 1281 (11th Cir.1999) (“We do not look at one word or
term in isolation, but instead we look to the entire statutory context.... We will
only look beyond the plain language of a statute at extrinsic materials to determine
the congressional intent if: (1) the statute's language is ambiguous; (2) applying it
according to its plain meaning would lead to an absurd result; or (3) there is clear
evidence of contrary legislative intent.”) (citations omitted).7 The results here
would be absurd, and, as the bankruptcy court put it, “a bizarre exercise in
futility.” After looking at the statute as a whole, we think Congress contemplated
7
As a reviewing court, we should not restrict ourselves to examining a particular
statutory provision in isolation when determining whether Congress has specifically addressed
the question at issue. The meaning, or lack thereof, of certain words or phrases may only come to
light when placed in the appropriate context. It is a “fundamental canon of statutory construction
that the words of a statute must be read in their context and with a view to their place in the
overall statutory scheme.” FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132-33,
120 S.Ct. 1291, 146 L.Ed.2d 121 (2000) (citations omitted). We must therefore interpret the
statute “as a symmetrical and coherent regulatory scheme,” ... and “fit, if possible, all parts into
an harmonious whole.” Id.
34
“to the extent that a transfer is avoided” to be a simultaneous as well as successive
process. The Trustee here did not have to pursue litigation against Eurokredit,
HAC, and TIPCO, or the other Tedder operations, to successfully avoid the
transfers of assets to IBT and SCSD. Therefore, we hold that Section 550(a) does
not mandate a plaintiff to first pursue recovery against the initial transferee and
successfully avoid all prior transfers against a mediate transferee.
D. Tracing of Funds
IBT and SCSD also argue that the Trustee failed to trace every penny
deposited into the Van Dan accounts and transferred to IBT. Because the
transactions associated with this case are numerous and difficult, we find it
necessary to re-examine the chain of IAS funds to IBT: As part of the deferred
compensation scheme, whereby IAS leased Givens’ services from two of Tedder’s
entities, HAC Administrative Finance, (“HAC”) and TIPCO, IAS transferred
funds to TIPCO and TIPCO then transferred monies to HAC. HAC, in turn,
transferred the IAS funds to Eurokredit. Eurokredit then passed funds to Tedder’s
H.D., Inc. From H.D., Inc., the funds went to Van Dan, yet another of Tedder’s
companies. Finally, Tedder moved the funds from Van Dan to IBT. IBT and SCSD
stipulated that IBT received $1,050,000 from these transfers, and admitted that
IBT subsequently transferred the funds to an account held by SCSD to purchase
35
units in the Guild. The Defendants contend that the monies sought by the Trustee
have been commingled with unrecoverable monies. Furthermore, according to the
Defendants, any funds included in the report for transfers occurring before June
20, 1992, are unreachable because of the Uniform Fraudulent Transfer Act’s four-
year statute of limitations. Finally, the Defendants point out that $659,000 of the
money came from an entity called CJGO Canada, and not the Debtor.
In an action seeking recovery, the plaintiff has the burden of tracing funds it
claims to be property of the estate. First Fed. of Michigan v. Barrow, 878 F.2d 912
(6th Cir. 1989). Although we agree with this proposition, it is also true that proper
tracing does not require dollar-for-dollar accounting. Id.; In re Fin. Federated Title
& Trust, Inc., 273 B.R. 706 (Bankr. S.D. Fla. 2001); In re Bridge, 90 B.R. 839
(E.D. Mich. 1988). The bankruptcy court determined that the Trustee successfully
proved by a preponderance of the evidence that the $1.050 million transferred to
IBT from the Van Dan accounts, originated solely with IAS. We cannot find that
conclusion clearly erroneous. Givens and Tedder perpetrated a fraud that can only
be described as massive. It is not fatal to the Trustee’s case that dollar for dollar,
the exact funds cannot be traced.
The evidence demonstrates that the funds used to purchase the Guild
property originated in H.D., Inc. and Van Dan accounts, and the monies in those
36
accounts originated with the Debtor. Tedder and Givens cycled substantial
amounts of money through nearly two dozen entities on a regular basis. During
that time, IAS’ debt increased in lock-step with Givens’ burgeoning treasure chest,
all in an effort to hide assets from creditors. That money eventually found its way
to IBT and SCSD. “It is undeniable that equity will follow a fund through any
number of transmutations, and preserve it for the owner as long as it can be
identified.” Bridge, 90 B.R. at 848 (citing Farmers & Mechanics National Bank v.
King, 57 Pa. 202 (1868) (quoted in National Bank v. Insurance Co., 104 U.S. 54,
69, 26 L.Ed. 693 (1881))). The Trustee has identified relevant pathways and
properly traced the funds.
Furthermore, we find no merit in the Defendants’ argument that the monies
the Trustee seeks to recover have been commingled with funds that are not
recoverable due to the operation of Florida’s fraudulent transfer law. Under 11
U.S.C. § 544, a transfer may only be avoided within four years of the filing of
bankruptcy petition per Fla. Stat. § 726.110(1). What Defendants fail to recognize
is that the second clause of Fla. Stat. § 726.110(1), provides an exception to the
general limitations period, where the claimant could not reasonably have
discovered the relevant transfers. In such a case, avoidance actions may be brought
for one year from the time the plaintiff discovers or reasonably could have
37
discovered the fraudulent transfers. The overwhelming evidence demonstrates the
pervasive fraud that took place in this case, which essentially paralyzed the
Trustee’s attempts to undo the tangled mess of transfers. Given the situation, the
exception applies, and all transfers relevant to the Guild purchase were properly
avoidable.
The Defendants’ last stand with respect to challenging the avoidance of the
transfers is the argument that some $659,000 of the funds that the Trustee sought
for recovery came from a source other than the Debtor - CJGO Canada. Again, we
harken back to the bankruptcy court’s conclusion that “the funds involved in the
fraudulent transfer...did not originate from any of Tedder’s other clients or from
Givens’ other businesses. The money came from IAS alone.” The Defendants have
the burden of demonstrating clear error in this factual finding, In re JLJ, Inc., 988
F.2d 1112, 1116 (11th Cir.1993), but bring no support for this bare allegation.
Hence, the bankruptcy court’s finding stands.
E. Prejudgment Interest
As a final matter, we address whether the bankruptcy court improperly
charged interest from the time of the transfers to the Appellants, August 20, 1993,
rather than from the time the Appellants were actually named in the complaint,
August 17, 1999. Ordinarily, the allowance of prejudgment interest and the fixing
38
of the time from which interest shall accrue are discretionary with the court.
Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434,
1446 (11th Cir. 1998); see also In re Bellanca Aircraft Corp., 850 F.2d 1275 (8th
Cir.1988); In re Industrial and Mun. Engineering, Inc., 127 B.R. 848, 851 (Bankr.
C.D. Ill. 1990). In re Indep. Clearing House, Co., 41 B.R. 985, 1015 (Bankr. D.
Utah 1984). The 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. Indep. Clearing House, 41 B.R. at 1015; In re Model
Imperial, Inc., 250 B.R. 776 (Bankr. S.D. Fla. 2000).
Although the Bankruptcy Code does not explicitly provide for prejudgment
interest, it has become a common practice, especially when transfers have been
made with the actual intent to hinder, delay, or defraud creditors. See Matter of
Texas Gen. Petroleum Corp., 52 F.3d 1330, 1339-40 (5th Cir. 1995); In re
Cybermach, Inc., 13 F.3d 818, 822 (4th Cir. 1994); In re Investment Bankers, Inc.,
4 F.3d 1556, 1566 (10th Cir. 1993); In re Agricultural Research and Technology
Group, Inc., 916 F.2d 528, 541 (9th Cir. 1990). This case calls for the award of
such interest.
Our Circuit’s precedent holds that “prejudgment interest is not a penalty, but
compensation to the plaintiff for the use of funds that were rightfully his.”
39
Industrial Risk Insurers, 141 F.3d at 1446-47. We think that policy is appropriate
here, to compensate “the debtor's entire estate for the use of the funds for the
period of time in which they were wrongfully withheld...” In re HMH Motor
Services, Inc., 259 B.R. 440, 453 (Bankr. S.D. Ga. 2000) (citations omitted). In the
absence of a controlling statute, the choice of a rate at which to set the amount of
prejudgment interest is also within the discretion of a federal court. Industrial Risk
Insurers, 141 F.3d at 1447. That decision is “usually guided by principles of
reasonableness and fairness, by relevant state law, and by the relevant fifty-two
week United States Treasury bond rate, which is the rate that federal courts must
use in awarding post-judgment interest.” Id. (citing 28 U.S.C. § 1961). The
bankruptcy court calculated the rate according to the Treasury bond rate. Fairness
and equity mandate the assessment of prejudgment interest in this case, and the
prejudgment interest should be calculated from the date of the loss, August 20,
1993.
III. Conclusion
Based upon the foregoing reasons, we find that the Trustee timely filed the
adversary proceeding, that the Trustee simultaneously could avoid the transfer and
recover from the mediate transferees, that the Trustee fully satisfied his burden of
tracing the Debtor’s funds, and that the bankruptcy court properly awarded
40
prejudgment interest from the date the Defendants received the fraudulently
transferred funds. Accordingly, we AFFIRM the decisions of the bankruptcy and
district courts.
AFFIRMED.
41