[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 07-13488 February 29, 2008
Non-Argument Calendar THOMAS K. KAHN
________________________ CLERK
BKCY No. 06-12096-BKC-PGH
In Re: RUSSELL R. KINGSLEY and
GRETCHEN L. KINGSLEY,
Debtor.
________________________________________________________________
MICHAEL R. BAKST, Trustee in Bankruptcy
for RUSSELL R. KINGSLEY and
GRETCHEN L. KINGSLEY,
Plaintiffs-Appellants,
versus
PHILLIP R. WETZEL,
Defendant-Appellee.
________________________
Appeal from the United States Bankruptcy Court
for the Southern District of Florida
_________________________
(February 29, 2008)
Before TJOFLAT, PRYOR and FAY, Circuit Judges.
PER CURIAM:
Michael R. Bakst (“the trustee”), an attorney proceeding pro se, appeals the
bankruptcy court’s order granting in part and denying in part his cross-motion for
summary judgment. The trustee argues that, where the bankruptcy court has found
a fraudulent transfer avoidable pursuant to 11 U.S.C. § 548, neither 11 U.S.C.
§ 550(d) nor Fla. Stat. § 726.109(3) provide for the adjustment of the amount of
recovery based on pre-petition repayments to the Debtors or the Debtors’ creditors
where there has been a finding of actual fraud. He contends that the transferee
must have accepted the funds in good faith in order to benefit from such an
equitable adjustment. He also asserts that pre-petition repayments to the debtor do
not legitimize fraudulent transfers. For the reasons set forth more fully below, we
affirm.
“[A]n appellate court reviews a bankruptcy court’s grant of summary
judgment de novo.” In re Optical Technologies, Inc., 246 F.3d 1332, 1334 (11th
Cir. 2001).
Under Fed. R. Civ. P. 56(c), . . . summary judgment is proper if the
pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no genuine
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issue as to any material fact and that the moving party is entitled to
judgment as a matter of law. In making this determination, the court
must view all evidence and make all reasonable inferences in favor of
the party opposing summary judgment. Where the record taken as a
whole could not lead a rational trier of fact to find for the non-moving
party, there is no genuine issue for trial. . . . [A] bankruptcy court
deciding a summary judgment motion . . . must determine whether
there are any genuine issues of material fact.
Id. (citations and quotations omitted).
Pursuant to 11 U.S.C. § 548(a),
The trustee may avoid any transfer . . . of an interest of the debtor in
property . . . that was made . . . on or within 2 years before the date of
the filing of the petition, if the debtor voluntarily or involuntarily--
(A) made such transfer . . . with actual intent to hinder, delay, or
defraud any entity to which the debtor was or became, on or after the
date that such transfer was made . . . , indebted; or
(B) (i) received less than a reasonably equivalent value in
exchange for such transfer . . . ; and
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(ii) (I) was insolvent on the date that such transfer was
made . . . , or became insolvent as a result of such transfer.
Here, the parties stipulated to the material facts of the case, which establish that
defendant Phillip R. Wetzel knowingly accepted a transfer of $4,516 from his
daughter and son-in-law, Gretchen L. Kingsley and Russell R. Kingsley (“the
Debtors”), in order to prevent Bank of America from seizing those funds to satisfy
the Debtors’ credit card debt. The parties do not dispute the bankruptcy court’s
finding that the transfer of $4,516 to Wetzel was both actively and constructively
fraudulent, and therefore avoidable pursuant to 11 U.S.C. § 548.1 The sole issue on
appeal is whether the bankruptcy court erred in exercising its equitable powers to
calculate Wetzel’s liability pursuant to 11 U.S.C. § 550 and Fla. Stat. § 726.109.
Both 11 U.S.C. § 550 and Fla. Stat. § 726.109 provide that, to the extent that
a transfer is avoided, the trustee may recover the property or the value of the
property transferred from the initial transferee. 11 U.S.C. § 550(a)(1); Fla. Stat.
§ 726.109(2)(a). Florida law provides that the value of the asset transferred may be
1
To the extent that Wetzel seeks to challenge the bankruptcy court’s finding of actual
fraud on appeal, this issue is not properly before us because he failed to file a cross-appeal.
See Campbell v. Wainwright, 726 F.2d 702, 704 (11th Cir. 1984) (holding that “a party who has
not appealed may not enlarge his rights under the judgment or diminish those of the opposing
party”). Accordingly, we decline to address this issue.
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“adjusted as the equities may require.” Fla. Stat. § 726.109(3). The trustee is
entitled to recover the adjusted value of the asset “or the amount necessary to
satisfy the . . . claim, whichever is less.” Fla. Stat. § 726.109(2). Federal law also
endows the bankruptcy court with equitable powers to “issue any order, process, or
judgment that is necessary or appropriate to carry out the provisions of this title.”
11 U.S.C. § 105. Bankruptcy courts have consistently held that 11 U.S.C. § 550
“is designed to restore the estate to the financial condition that would have existed
had the transfer never occurred.” In re Sawran, 359 B.R. 348, 354 (Bankr. S.D.
Fla. 2007) (citation omitted); see also In re Centennial Textiles, Inc., 220 B.R. 165,
176 (Bankr. S.D.N.Y. 1998).
We have indicated that “the cornerstone of the bankruptcy courts has always
been the doing of equity.” In re Waldron, 785 F.2d 936, 941 (11th Cir. 1986).
“Equitable determinations by the Bankruptcy Court are subject to review under an
abuse of discretion standard.” In re General Dev. Corp., 84 F.3d 1364, 1367 (11th
Cir. 1996). In reviewing for abuse of discretion, we recognize the existence of a
“range of possible conclusions the trial judge may reach,” and “must affirm unless
we find that the . . . court has made a clear error of judgment, or has applied the
wrong legal standard.” Amlong & Amlong, P.A. v. Denny’s, Inc., 500 F.3d 1230,
1238 (11th Cir. 2007).
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“In fraudulent transfer actions, there is a distinction between avoiding the
transaction and actually recovering the property or the value thereof.” In re Int’l
Admin. Servs., 408 F.3d 689, 703 (11th Cir. 2005). We have not addressed
whether the bankruptcy court may adjust the amount of recovery to reflect the
transferee’s pre-petition repayment of funds or return of property to the debtors.
Some courts have declined to undertake such an inquiry, holding that the
fraudulent transfer should not be legitimized or offset by any repayments to the
debtor. For example, in Nostalgia Network, Inc. v. Lockwood, 315 F.3d 717 (7th
Cir. 2002), the debtor transferred money to his fiancee, who used it to pay his
personal and business expenses. 315 F.3d at 719. In affirming the district court’s
grant of summary judgment and award of full recovery in favor of the creditor, the
Seventh Circuit held that, once the court makes a finding that a transfer was
fraudulent,
the fact that some or for that matter all of it may later have seeped
back to the debtor does not legitimize the transfer. . . . [T]he seeping
back of the transferred money or property to the transferor is strong
evidence of actual fraud by him. It is one thing to make a gift; it is
another to transfer money to someone whom [the debtor] expect[s] to
retransfer it to [him]; the inescapable implication is that [he is]
parking [his] money in a place where [he] hope[s] [his] creditors
won’t know to look.
Id. at 720.
Alternatively, other courts have applied equitable principles to reduce or
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eliminate the amount of the trustee’s recovery where the transferee used the funds
to pay for the debtor’s personal expenses or returned the money directly to the
debtor pre-petition. For example, in In re Jackson, 318 B.R. 5 (Bankr. D.N.H.
2004), aff’d 459 F.3d 117 (1st Cir. 2006), the bankruptcy court exercised its
equitable powers to adjust the amount of recovery to the bankruptcy estate where
the defendant-transferee used proceeds from the sale of fraudulently transferred
property to pay the debtor’s business and family expenses. 318 B.R. at 27. The
court found that “in the absence of any finding of actual fraud, it would be a
windfall to the estate to allow the Plaintiff full recovery . . . without making an
equitable adjustment to account for the proceeds the Defendant used to pay the
Debtor’s bills and cover the family expenses.” Id. at 27-28. The court then
determined that it was “equitable under the facts of th[e] case to credit the
Defendant for the expenditures she made that the Debtor could have legitimately
made if the constructively fraudulent transfers had not occurred.” Id. at 28.
Here, the bankruptcy court, applying similar reasoning, determined that
recovery of the pre-petition transfers would result in an inequitable windfall to the
bankruptcy estate. However, unlike the defendant-transferee in the previous case,
here, the bankruptcy court explicitly found that Wetzel committed actual fraud.
We have noted that “[t]he equitable doctrine of unclean hands provides that one
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who has acted in bad faith, resorted to trickery and deception, or been guilty of
fraud, injustice or unfairness will appeal in vain to a court of conscience.” In re
Garfinkle, 672 F.2d 1340, 1346 n.7 (11th Cir. 1982) (quotation and alteration
omitted); see also United States v. Howell, 425 F.3d 971, 974 (11th Cir. 2005)
(indicating that “the doctrine of unclean hands is an equitable test that is used by
courts in deciding equitable fate”). Nevertheless, the bankruptcy court’s decision
was not entirely inconsistent with this doctrine. Although the court’s decision did
benefit Wetzel to the extent that it found that he was not liable for any pre-petition
payments, it did not bar recovery altogether, finding that he was liable for the post-
petition payments. Moreover, in light of the cases discussed above, the bankruptcy
court did not misapply the law or make a clear error of judgment in reducing the
amount of recovery to the bankruptcy estate. Accordingly, the bankruptcy court
did not abuse its discretion.
In light of the foregoing, the decision of the bankruptcy court is
AFFIRMED.
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