745 F.3d 1342
11th Cir.2014Background
- Deborah Menotte, as trustee for Custom Contractors, LLC estate, seeks to recover eight transfers Debtor made to the IRS for Denson's personal income taxes.
- Debtor formed in 2006 as a single-member LLC taxed as an S corporation; taxes were paid directly to the IRS from Debtor's operating account.
- Debtor operated at a loss in 2008; IRS refunded an overpayment after Denson requested, but Denson did not return funds to Debtor.
- Bankruptcy filed July 15, 2009; bankruptcy court held first seven transfers not fraudulent for lack of unreasonably small capital, eighth fraudulent, IRS initial transferee; district court affirmed on seven, but reversed on eight for conduit status.
- This court affirms the district court, upholding seven non-fraudulent transfers and treating the IRS as a mere conduit for the eighth transfer.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| §544(b)(1) claims vs. sovereign immunity | Menotte argues §106(a) abrogates immunity and allows SUIT. | United States contends immunity bars claims unless waived. | Court has jurisdiction; abrogation exists but merits proceed later. |
| Avoidability of the first three transfers under FUFTA §726.105(1)(b)(1) | Menotte asserts unreasonably small capital supports avoidability. | IRS and district court reject reliance on Barbee; no unreasonably small capital. | Debtor not shown to have unreasonably small capital; first three transfers not avoidable. |
| Avoidability of the remaining transfers under §548 | Transfers after seven still alleged to be fraudulent due to insolvency and lack of value. | District court properly declined to find unreasonably small capital for those transfers. | Affirmed that eighth transfer is avoidable under §548 but reversed on initial transferee status issues. |
| IRS as initial transferee or mere conduit | IRS could be initial transferee if no conduit defense applies. | IRS qualifies as mere conduit under the control test; not an initial transferee. | IRS is a mere conduit; not liable as initial transferee under §550(a)(1). |
Key Cases Cited
- In re Int'l Admin. Servs., 408 F.3d 689 (11th Cir. 2005) (set forth standard of review for bankruptcy appeals; interplay of law and fact)
- Senior Transeastern Lenders v. Official Comm. of Unsecured Creditors (In re TOUSA, Inc.), 680 F.3d 1298 (11th Cir. 2012) (de novo review of law; clear error standard for facts)
- Nordberg v. Arab Banking Corp. (In re Chase & Sanborn Corp.), 904 F.2d 588 (11th Cir. 1990) (distinguishes control vs. conduit tests in initial transferee analysis)
- Pony Express Delivery Servs., Inc. (In re Pony Express Delivery Servs., Inc.), 440 F.3d 1296 (11th Cir. 2006) (mere conduit vs. control test; considers recipient's rights and obligations)
- Societe Generale v. Societe Generale (In re Chase & Sanborn Corp.), 848 F.2d 1196 (11th Cir. 1988) (deposit vs. payment of debt distinction; conduit analysis)