Martinez v. Hutton (In Re Harwell)
2010 WL 5374340
| 11th Cir. | 2010Background
- Hill obtained a Colorado judgment for $1.396 million against Harwell and sought to domesticate it in Florida; Hutton represented Harwell in that process.
- Harwell had $500,000 in settlement proceeds from CFE/SEI; the funds were deposited into Hutton's trust account and disbursed per Harwell's directions.
- Disbursements from Hutton's trust account included substantial sums to Harwell, family members, and various creditors, including a $10,000 payment to Hutton's firm.
- Hill obtained a turnover order; Hutton garnishment actions led to stopping some checks, but subsequently Hutton issued further disbursements and Harwell later filed for Chapter 11 in Colorado.
- Martinez, as Bankruptcy Trustee, sued Hutton under §§ 548 and 550; the bankruptcy court granted summary judgment finding Hutton an initial transferee would not be liable, and Florida law claims failed.
- Eleventh Circuit reversed, holding Hutton could be an initial transferee and that mere conduit/good-faith defenses require factual development on remand.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is Hutton an initial transferee under §550(a)(1)? | Martinez contends Hutton was initial transferee due to receipt and control via trust account. | Hutton argues he acted as conduit without control, not an initial transferee. | Yes, Hutton is initial transferee; remand needed to resolve good faith/control facts. |
| Can Hutton escape liability via mere conduit/control defense? | Martinez argues no, due to mastermind role and lack of good faith finding. | Hutton seeks mere conduit status as neutral intermediary lacking control and bad faith. | Remand needed to determine control and good faith; cannot conclude on summary judgment. |
| Does the mere conduit rule require good faith by intermediary? | Martinez relies on equitable principles to pierce conduit status given awareness of fraud. | Hutton seeks conduit status based on lack of control and innocence. | Court clarifies good faith is required for mere conduit; remand to assess good faith. |
| Do Florida law claims (aiding/abetting, civil conspiracy) survive if Hutton is not an initial transferee? | Martinez contends Florida claims depend on §550 liability. | Hutton argues Florida claims fail as §550 initial transferee not established. | Reversed and remanded; state-law claims to be reconsidered by bankruptcy court. |
| What is the scope of this court's remand order regarding remand to bankruptcy court? | Martinez seeks full remand for factual development on control/good faith. | Hutton seeking resolution of status and defenses on remand. | Remand to bankruptcy court for fact development consistent with opinion. |
Key Cases Cited
- Nordberg v. Societe Generale (In re Chase & Sanborn Corp.), 848 F.2d 1196 (11th Cir. 1988) (developed control/conduit tests and equitable approach to initial transferee)
- Chase & Sanborn Corp. (In re Chase & Sanborn Corp.), 813 F.2d 1177 (11th Cir. 1987) (adopted control/conduit framework; emphasized entire-transaction look)
- IBT Int’l, Inc. v. Northern (In re Int'l Admin. Servs., Inc.), 408 F.3d 689 (11th Cir. 2005) (conduit rule; malleable § 550(a) interpretation; good faith requirement emphasized)
- Andreini & Co. v. Pony Express Delivery Services, Inc. (In re Pony Express Delivery Services, Inc.), 440 F.3d 1296 (11th Cir. 2006) (initial transferee requires actual control; fiduciaries can be initial transferees if they take control)