591 B.R. 895
Bankr. S.D. Florida2018Background
- Trustee Robert Furr filed nearly identical adversary complaints (against TD Bank, PNC, and JPMorgan) alleging fraudulent transfers, aiding/abetting conversions, negligence, and aiding/abetting breaches of fiduciary duty arising from deposits, withdrawals, overdrafts, and inter-account transfers by Rollaguard and related Shamrock entities.
- Bankruptcy Court dismissed the original complaints with prejudice, ruling: (a) ordinary deposits into a debtor’s own unrestricted demand accounts are not "transfers" avoidable under §§548/544, (b) banks were mere conduits/not transferees under §550, (c) allegations failed to plausibly plead actual fraudulent intent or bank knowledge/substantial assistance for aiding-and-abetting claims, and (d) negligence claims lacked a duty.
- Trustee moved for reconsideration and sought leave to amend; Bankruptcy Court denied relief, finding (inter alia) the purportedly "new" discovery did not cure deficiencies and proposed amendments would be futile.
- District Court reversed in part, holding Rule 15 (via Fed. R. Bankr. P. 7015) governs amendment post-judgment and remanded for amendment analysis under Foman v. Davis.
- On remand Bankruptcy Court again reviewed the proposed amended complaints and discovery and denied leave to amend, concluding the amendments were futile for multiple independent legal reasons (no cognizable "transfer" for ordinary deposits; banks lacked requisite control/knowledge; failure to plead actual intent to defraud; no duty for negligence).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether debtor's deposits into its own unrestricted demand accounts are "transfers" avoidable under §§548/544 (Florida law) | Deposits (and repayments of overdrafts) are transfers that can be avoided; overdraft satisfactions are new actionable transfers | Ordinary deposits are not "transfers" because depositor retains control; satisfaction of an overdraft may be a repayment to the bank (distinct) | Ordinary deposits into debtor's own unrestricted accounts are not "transfers"; overdraft satisfactions may be avoidable but Trustee failed to plead intent for those either; amendment futile |
| Whether banks that received the deposits are "initial transferees" under §550 or are mere conduits | Banks are transferees from whom recovery may be had; conduit defense should not be resolved at pleading stage | Banks are mere conduits (no legal control) and absent actual knowledge/ bad faith cannot be initial transferees | Banks are mere conduits for ordinary deposits; Trustee failed to plausibly allege actual knowledge/bad faith to defeat conduit defense; amendment futile |
| Whether Trustee plausibly pleaded actual intent to hinder, delay, or defraud creditors for fraudulent-transfer claims | Trustee relies on badges of fraud, transfers among entities, overdrafts, and patterns of conduct by Simpson to infer fraudulent intent tied to the deposits/overdraft satisfactions | Even accepting misconduct by Simpson, deposits/satisfaction of overdrafts were not shown to be undertaken with specific intent to hinder creditors; badges alleged do not connect intent to the specific transfers | Trustee failed to plead specific, plausible factual allegations linking intent to the identified transfers; amendment futile |
| Whether Trustee pleaded aiding-and-abetting and negligence (knowledge and substantial assistance; duty) | Banks had actual or constructive knowledge from many "red flags," violated banking norms/regulations, and rendered substantial assistance (e.g., permitting cashier check practices, overdrafts) | Florida law requires actual knowledge for aiding-and-abetting against banks; banks have no duty to monitor customers for misappropriation; red flags/ suspicions are insufficient | Claims for aiding-and-abetting and negligence fail: Trustee did not plead facts showing banks had actual knowledge or provided substantial assistance, nor a cognizable duty for negligence; amendment futile |
Key Cases Cited
- Foman v. Davis, 371 U.S. 178 (1962) (leave to amend should be freely given absent undue delay, bad faith, futility, prejudice)
- In re Whitley, 848 F.3d 205 (4th Cir.) (deposit into unrestricted checking account is not a transfer under §101(54))
- In re Custom Contractors, LLC, 745 F.3d 1342 (11th Cir.) (discussion of conduit/control test and bank-depositor relationship)
- In re Harwell, 628 F.3d 1312 (11th Cir.) (mere-conduit test requires lack of legal control and good faith; remand where factual issues)
- In re Chase & Sanborn Corp., 848 F.2d 1196 (11th Cir.) (treating depositor’s demand account balance as the debtor’s asset for transferee analysis)
- Meoli v. Huntington Nat'l Bank, 848 F.3d 716 (6th Cir.) (bank not initial transferee where it lacks dominion and control over depositor’s funds)
- Katz v. First Nat'l Bank of Glen Head, 568 F.2d 964 (2d Cir.) (deposits in unrestricted checking accounts not transfers)
- Lerner v. Fleet Bank, N.A., 459 F.3d 273 (2d Cir.) (substantial assistance standard for aiding-and-abetting)
- O'Halloran v. First Union Nat'l Bank of Fla., 350 F.3d 1197 (11th Cir.) (banks may assume authorized agents will not misuse funds; no duty to investigate)
- Perlman v. Bank of Am., N.A., [citation="561 F. App'x 810"] (11th Cir.) (aiding-and-abetting against bank requires actual knowledge)