Russell v. Perkins Ex Rel. International Management Associates, LLC
2015 U.S. App. LEXIS 4444
11th Cir.2015Background
- IMA, run by Kirk Wright, operated like a Ponzi scheme; defendants (George and Betty Curtis and the trust) invested $500,000 and received $621,000 in disbursements, the last being a $200,000 transfer on January 10, 2006.
- A bankruptcy trustee (also a state-then-federal receiver) filed adversary proceedings seeking to avoid transfers made shortly before IMA’s bankruptcy petition on March 16, 2006.
- The bankruptcy court held a consolidated hearing to determine whether IMA was a Ponzi scheme; the trustee testified and offered Rule 1006 summaries of voluminous IMA records but did not admit the underlying documents themselves.
- Defendants objected that the summaries relied on unauthenticated hearsay; the bankruptcy court overruled, finding the underlying records admissible under the residual hearsay exception, and entered judgment allowing avoidance of the $200,000 transfer.
- The district court affirmed; the Eleventh Circuit reviewed the evidentiary rulings for abuse of discretion and the Ponzi-scheme finding for clear error.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Curtis) | Held |
|---|---|---|---|
| Admissibility of Rule 1006 summaries | Summaries permitted under Rule 1006; underlying records admissible as business records | Underlying documents are inadmissible hearsay and unauthenticated, so summaries should be excluded | Admitted: trustee met prerequisites; underlying records admissible as business records, so summaries properly admitted |
| Authentication of underlying records | Trustee’s testimony and reconciliation with banks/clients provide prima facie authenticity | Trustee lacked direct knowledge; relied on hearsay from interviews | Authenticated: circumstantial evidence and trustee custody suffice for Rule 901 prima facie showing |
| Business-records hearsay exception (Rule 803(6)) | Trustee, as receiver and custodian, could testify to recordkeeping, timing, regularity, and trustworthiness | Trustee’s foundation testimony is itself hearsay and insufficient to establish Rule 803(6) elements | Satisfied: court may consider hearsay on preliminary admissibility questions; trustee’s investigation and reconciliation established trustworthiness and routine practice |
| Sufficiency of evidence to find a Ponzi scheme | Rule 1006 summaries plus stipulated investments/disbursements and trustee’s testimony show classic Ponzi features (no legitimate business; payments from new investors) | Summaries insufficient and underlying evidence unreliable; thus Ponzi finding unsupported | Affirmed: bankruptcy court’s Ponzi-scheme finding not clearly erroneous under the record |
Key Cases Cited
- In re TOUSA, 680 F.3d 1298 (11th Cir. 2012) (standard of appellate review of bankruptcy findings)
- Peat, Inc. v. Vanguard Research, Inc., 378 F.3d 1154 (11th Cir. 2004) (proponent of Rule 1006 summary must show underlying writings would be admissible)
- Wiand v. Lee, 753 F.3d 1194 (11th Cir. 2014) (definition and features of a Ponzi scheme)
- United States v. Williams, 837 F.2d 1009 (11th Cir. 1988) (affirming judgment despite erroneous hearsay admission when another rule supports admissibility)
- United States v. Dreer, 740 F.2d 18 (11th Cir. 1984) (requirements for establishing business-records exception)
- United States v. Lebowitz, 676 F.3d 1000 (11th Cir. 2012) (light authentication burden under Rule 901)