FINDINGS OF FACT AND CONCLUSIONS OF LAW ON TRUSTEE’S AMENDED COMPLAINT TO SET ASIDE FRAUDULENT TRANSFERS, TO REQUIRE ACCOUNTING AND FOR TURNOVER PURSUANT TO 11 U.S.C. §§ 544, 547, 548 AND FLORIDA STATUTES CHAPTER 726
THIS MATTER came before the Court for trial on August 7,1998. Daniel L. Bakst, Trustee filed an amended adversary complaint which seeks to avoid and recover fraudulent conveyances pursuant to 11 U.S.C. §§ 544, 548 and Florida Statutes §§ 726.101, 726.105(l)(a), 726.105(l)(b), 726.106(1), and alternatively, to avoid and recover a preferential transfer pursuant to 11 U.S.C. § 547. This Court, having observed the demeanor of the witnesses, reviewed the exhibits and testimony presented, considered the argument of counsel, and being otherwise fully advised in the premises, enters the following findings of fact and conclusions of law.
FINDINGS OF FACT
On October 23,1997, Harvey Goldberg (the “Debtor”) filed a Voluntary Petition under Chapter 7 of the Bankruptcy Code. Daniel Bakst (the “Trustee”) was appointed as Chapter 7 Trustee in the Debtor’s bankruptcy case. The Trustee filed a complaint against Linda Levenson (“Levenson”), the Debtor’s fiancee, on April 22, 1998. That complaint was later amended on July 8,1998 to assert causes of action based upon fraudulent transfers under Section 548 of the Bankruptcy Code, upon a preferential transfer under Section 547 of the Bankruptcy Code, and upon fraudulent transfers under Florida Statutes §§ 727.105(l)(a) and (l)(b), and 726.106(1). See Fla.Stat. §§ 727.105(l)(a) and (l)(b) and 726.106(1) (1997).
The Trustee’s Amended Complaint alleges that the following three transfers between Levenson and the Debtor should be avoided:
(1) A payment of $80,000 to Levenson on August 8,1994;
(2) A payment of $50,000 to Levenson on April 21,1995; and
(3) Transfer of a standard equity membership (the “Membership”) in Woodfield Country Club (“Woodfield”) on March 21, 1996.
Levenson and the Trustee have stipulated that these transfers occurred and that the Debtor was insolvent at the time the transfers took place.
The Debtor purchased his home at 3005 Hampton Circle, Boca Raton, Florida (the “Real Property”) on January 31, 1994. The Real Property is located within Woodfield. It is undisputed that the Real Property was the Debtor’s homestead and was exempt at all times relevant to the allegations contained in the Amended Complaint.
The Debtor testified that in the summer of 1994, he was planning on buying a business in South Florida known as the Deli Place. In June 1994, a Florida corporation named
Prior to the purchase of the Deli Place, the Debtor had enough assets in an investment account to pay the $120,000 required as the down payment for the business. The Debtor testified that during his trip to South Florida to attend the closing of the purchase of the business, his stock portfolio lost value to such an extent that he was unable to close on the business. Levenson offered to lend the Debtor enough money to close on the business so that he would not lose the business opportunity. At the Debtor’s request, Le-venson transferred $120,000 directly from her bank account into IBF’s account on July 29, 1994. On the same date, the Debtor executed a promissory note (the “Promissory Note”) for $120,000 to Levenson on behalf of IBF and himself, personally. The $120,000 was then used to purchase the business. The Promissory Note provided that Leven-son would be repaid by the Debtor’s refinancing of the mortgage on the Real Property on or before August 15, 1994. Levenson and the Debtor presented substantial evidence at the trial concerning various other loans Levenson had made to the Debtor from March 1994 to the present. This evidence consisted of promissory notes executed by the Debtor, canceled checks, wire transfer receipts, and the testimony of Levenson. The evidence indicated that: (1) between March, 1994 and May, 1994, Levenson loaned the Debtor $10,000; (2) in February, 1995, Levenson loaned the Debtor $6,000 in cash; (3) in March, 1995, Levenson loaned the Debtor $3,000 in cash; and (4) in April, 1995, Levenson loaned the Debtor $2,000.
On August 8, 1994, the Debtor refinanced his mortgage on the Real Property and transferred $80,000 of the loan proceeds from Great Western Bank directly to Levenson through the trust account of Samsi Caliendo. The $80,000 was not commingled with any of the Debtor’s other funds. The Debtor also transferred $50,000 to Levenson on April 21, 1995 from the proceeds of a $100,000 loan from Joan Prince (“Prince”) for which Prince was granted a second mortgage on the Real Property. Again, the $50,000 was transferred directly to Levenson from the closing agent and was not commingled with any of the Debtor’s other funds.
On December 10,1995, the Debtor executed a quit-claim deed transferring the Real Property from himself to Levenson and himself as joint tenants with the right of surviv-orship. Levenson and the Debtor testified that the transfer of the Real Property was based upon the advice of tax counsel relating to deduction of mortgage interest on the Real Property. Levenson also testified that she lent the Debtor substantial monies from October, 1995 until March, 1997 for real estate taxes, mortgage payments, utility bills, cable bills, phone bills and the Membership fees related to the Real Property. However, the Court finds that the monies given to the Debtor to pay expenses related to the Real Property, after the Debtor transferred a joint interest in the Real Property to Leven-son, were not loans to the Debtor, but were either payments of expenses that benefitted Levenson as co-owner or payments of her own living expenses.
On March 16, 1996, the Debtor sent a letter to Woodfield requesting that the Membership be transferred to Levenson. The Debtor testified that he transferred the Membership to Levenson to repay her for loans she made to him. In exchange for the Membership, Levenson testified that she gave the Debtor $20,000 credit toward the funds she had previously lent to the Debtor. On March 21, 1996, Woodfield executed and delivered to Levenson a membership certificate issued in her name representing ownership of the Membership.
John Csapo (“Csapo”), the Project Manager for Development of Woodfield, testified that in order to be eligible for membership in Woodfield, a person must first own real property within the confines of Woodfield. Csapo testified that the transfer of the Membership to Levenson was appropriate because she
On March 14, 1997, Levenson quit-claimed her interest in the Real Property back to the Debtor. The Debtor and Levenson testified that Levenson transferred the Real Property back to the Debtor in order to protect Leven-son from becoming embroiled in the disputes between the Debtor and his creditors. During this period, although Levenson knew there were creditors making claims against the Debtor, the Debtor testified that he did not inform Levenson of specific details concerning these claims, except perhaps the Debtor’s ex-wife’s claim which was disputed. However, Levenson testified that she was aware of a garnishment instituted by Kobrin on January 30, 1997, and that she made additional loans to the Debtor in order to provide him support after the garnishment.
In the early part of 1996, Levenson requested that Woodfield sell the Membership. Upon Woodfield’s sale of the Membership to a third party, Woodfield issued a cheek to Levenson on August 7,1997 in the amount of $22,946.73 representing the proceeds of the sale of the Membership. On August 11, 1997, Levenson lent $22,946.73 to IBF.
Csapo testified that when Levenson quit-claimed the Real Property back to the Debt- or, the Membership did not automatically revert back to the Debtor. Csapo also testified that regardless of whether property holders sell their real property within Wood-field or sells their membership in Woodfield, the effect is the same: the membership goes into a pool for resale and the proceeds of the sale are paid to the membership holder. Csapo further testified that under no circumstances would the proceeds of the sale of the Membership have been paid to the Debtor unless Levenson had instructed Woodfield to transfer the Membership back to him.
The Debtor was involved in two prior bankruptcy cases. The first involved Middle Atlantic Sports Co., Inc., a/k/a MASCO Sports (“Masco”). Masco filed a Chapter 11 bankruptcy in the late 1980’s, through which Masco was sold. The second was his personal Chapter 7 bankruptcy ease, filed in January of 1991, that the Debtor personally filed due, at least in part, to the failure of Masco. The Debtor did not list all of his creditors in his prior personal bankruptcy case. A year after the case was closed, the Debtor requested that his case be reopened in order to add creditors so as to discharge the debts. Several creditors fought this attempt and the bankruptcy court denied the Debtor’s request. Thereafter, several creditors brought suit against the Debtor in 1993 and obtained judgments against him. Seymour Kobrin (“Kobrin”), obtained a judgment against the Debtor in the amount of $243,789.88 on March 19,1996, and Susan Ottinger (“Ottinger”) obtained a judgment against the Debtor in the amount of $326,880.41 on April 11, 1996. Levenson testified that she was aware of a previous bankruptcy involving Masco and of the Debtor’s efforts to reopen his bankruptcy ease, although she was not clear that there were two separate cases.
CONCLUSIONS OF LAW
The Court has jurisdiction over this subject matter pursuant to 28 U.S.C. §§ 157 and 1334(b). The parties have stipulated that this is a core proceeding for which the Court may enter appropriate orders and judgments in accordance with 28 U.S.C. §§ 157(b)(2)(H) and (J).
I. CLAIMS UNDER 11 U.S.C. § 547 ARE TIME-BARRED.
Section 547(b) of the Bankruptcy Code permits a trustee to avoid certain prebankruptcy transfers as preferences. A preferential transfer under 11 U.S.C. § 547 must be made either within 90 days before the filing of the petition in bankruptcy or between ninety days and one year before the date of the filing of the petition if the creditor receiving the transfer was an insider. See 11 U.S.C. § 547(b). The Trustee argues that the transfer of the Membership to Levenson occurred within the statutory period. However, the Trustee’s argument is without merit because the Membership was transferred outside of the statutory period and is thus time-barred.
Florida law provides the proper date for determining the date upon which a transfer occurs. In the case of
Gennet v.
II. CLAIMS UNDER 11 U.S.C. § 548 ARE TIME-BARRED.
Section 548 allows the Trustee to avoid a debtor’s transfer in interest of the property of the debtor that was made or incurred within one year before the commencement of the bankruptcy case and that depletes the debtor’s assets to the detriment of the bankruptcy estate. See 11 U.S.C. § 548(a). In the instant case, the transfer of the Membership did not take place within the required one year period, as explained more fully above. As such, this Court finds that the Trustee’s claim based upon fraudulent transfers under § 548 of the Bankruptcy Code is also time-barred. 2
III. THE TRANSFERS OF $80,000 AND $50,000 ARE EXEMPT AS PROCEEDS OF HOMESTEAD PROPERTY UNDER FLORIDA LAW.
The unrebutted evidence at trial indicated that the $80,000 and $50,000 transfers were proceeds of loans generated by the equity in the Debtor’s Real Property. It is undisputed that the Real Property was the Debtor’s homestead and thus exempt. Prior to both the $80,000 and the $50,000 transfers, the Debtor granted mortgage liens on his homestead to the lender and the proceeds of the loans were delivered directly to Levenson without being commingled with any of the Debtor’s other assets. The Debtor, as a matter of law, could not have formulated the fraudulent intent necessary to commit a fraudulent transfer if the source of the transfer is an exempt asset absent a commingling of the funds with nonexempt assets. Moreover, because the source of the proceeds was exempt property, the proceeds were out of the reach of creditors as a matter of law. In
Sneed v. Davis,
according to the weight of authority a debtor in disposing of property can commit a fraud on creditors only by disposing of such property as the creditor has a legal right to look to for satisfaction of his claim, and hence a sale, gift, or other disposition of property which is by law absolutely exempt from the payment of the owner’s debts cannot be impeached by creditors as in fraud of their rights. Creditors have no right to complain of dealings with propertywhich the law does not allow them to apply on their claims, even though such dealings are with a purpose to hinder, delay, or defraud them.
See also Malone v. Short (In re Short), 188
B.R. 857 (Bankr.M.D.Fla.1995) (finding that, as a matter of law, a transfer of exempt property could not be avoided as having been made with the intent to hinder, delay, or defraud creditors either under § 548 of the Bankruptcy Code or Florida Statutes § 726.105);
Tavormina v. Robinett (In re Robinett),
The Trustee argues that although the proceeds may have been exempt, they lost their exempt status once they were no longer intended for the use of homestead property. The Trustee cites the case of
Orange Brevard Plumbing & Heating Co. v. La Croix,
we hold the proceeds of a voluntary sale of a homestead to be exempt from the claims of creditors just as the homestead itself is exempt if, and only if, the vendor shows, by a preponderance of the evidence an abiding good faith intention prior to and at the time of the sale of the homestead to reinvest the proceeds thereof in another homestead within a reasonable time.... The proceeds of the sale are not exempt if they are not reinvested in another homestead in a reasonable time or if they are held for the general purposes of the vendor.
Id. at 205.
The facts in Orange Brevard are distinguishable from the facts in the case at bar. Orange Brevard was not a fraudulent transfer case but involved garnishment of proceeds of the debtor’s homestead being held by a third party. The issue before the court was whether the debtor had a good faith intention to reinvest the funds into a homestead within a reasonable period of time. Here, upon transfer to Levenson, the Debtor retained no interest in the funds generated by the loans against his homestead and never had possession of the funds since they were delivered directly to Levenson. Moreover, the Debtor did not sell his homestead. The Debtor merely mortgaged and refinanced his homestead, encumbering the Real Property with liens that must be satisfied upon its sale. Mortgage and refinance proceeds are not the functional equivalent of sale proceeds. Thus, the fact that the Debtor did not reinvest the proceeds or have the requisite intent to reinvest the proceeds into another homestead within a reasonable period of time is irrelevant. The Court finds that no creditor could have forced the Debtor to mortgage his homestead to satisfy its claims. Thus, the Debtor’s creditors were not harmed and there was not, nor could there be, any fraudulent intent on the part of the Debtor.
The Trustee also cites
Roemelmeyer v. Vidana (In re Vidana),
IV. THE TRANSFER OF THE MEMBERSHIP IS NOT VOIDABLE UNDER § 726.106(1) OR § 726.105(l)(b) BECAUSE THE DEBTOR RECEIVED REASONABLY EQUIVALENT VALUE UNDER § 726.104(1).
Florida Statutes §§ 726.105(l)(b) 3 and 726.106(1) 4 deal with transfers made by a debtor without receiving reasonably equivalent value in exchange for the obligation while the debtor was insolvent or intended to incur or believed or should have believed that he or she would incur debts beyond his or her ability to pay as they became due. Because Levenson has stipulated that the Debt- or was insolvent at the time of the transfer of the Membership, the Court’s analysis under these claims is limited to whether the Debtor received reasonably equivalent value in exchange for the transfer.
Section 726.104(1) specifically defines value to include the satisfaction of an antecedent debt.
5
Both Levenson’s and the Debtor’s unrebutted testimony indicated that at the time the Membership was transferred, Levenson was owed $23,000 on the loans she had previously made to the Debtor between March, 1994 and April, 1995. The Debtor and Levenson also testified that Levenson gave the Debtor a $20,000 credit against his loan balance in exchange for the transfer of the Membership. Under Florida law, an insolvent debtor may make a valid conveyance of property to a creditor for the purpose of either securing or discharging a pre-existingdebt, but for such a conveyance to be valid there must be an agreement at the time between the parties that the conveyance shall discharge the debt.
See Jones v. Wear,
The Eleventh Circuit standard for determining reasonably equivalent value was set forth in
Walker v. Littleton (In re Littleton),
Y. THE TRANSFER OF THE MEMBERSHIP IS VOIDABLE UNDER § 726.105(l)(a).
Under § 726.105(l)(a)
6
, the Court finds that the transfer of the Membership was made with the actual intent to hinder, delay, or defraud creditors of the Debtor. Under § 726.105(2), the Florida Legislature provides a list of factors, com-moniy referred to as badges of fraud, that a Court may use in determining whether a debtor acted with actual intent. “While a single badge of fraud may only create a suspicious circumstance and may not constitute the requisite fraud to set aside a conveyance ... several of them when considered together may afford a basis to infer fraud.”
General Trading Inc. v. Yale Materials Handling Corp.,
YI. THE TRANSFER OF THE MEMBERSHIP IS NOT PROTECTED UNDER THE STATUTORY DEFENSE OF § 726.109(1).
Even if a transfer is deemed a fraudulent conveyance under § 726.105(l)(a),
Florida courts have outlined the parameters of good faith. For example, in
Miles v. Katz,
The Eleventh Circuit has confirmed this interpretation of good faith by citing
Miles v. Katz
and stating as follows: “A Debtor may convey its assets to a creditor to satisfy its antecedent debts, even if the debtor intended to defeat the claims of other creditors and the creditor had knowledge of such intention_ The transfer becomes fraudulent, however, if the creditor actually participates in the debtor’s fraudulent purpose, provided such a purpose exists.”
Mission Bay Campland, Inc. v. Sumner Financial Corp.,
The Court in the instant ease finds that Levenson participated in the Debtor’s fraudulent scheme. Therefore, based on the Eleventh Circuit’s standard, the Court finds that she lacked good faith. The Debtor titled the IBF stock in his mother’s name. This was clearly an effort to put the Debtor’s assets out of the reach of his creditors. Levenson’s testimony showed her awareness that the Debtor was not a shareholder in IBF. Nonetheless, Levenson’s transfer of $120,000 directly to IBF, instead of to her fiancee, enabled the Debtor to perpetuate this fraud on his creditors and is evidence of Levenson’s participation in the Debtor’s fraudulent scheme.
Both Levenson and the Debtor testified that the Real Property was transferred to Levenson based on tax advice, and then she quit-claim deeded the Real Property back to the Debtor so that she would not get embroiled in the disputes between the Debtor and his creditors. However, Levenson failed to transfer the Membership back to the Debtor. Upon receipt of the $22,946.73 proceeds from the sale of the Membership, she immediately loaned the funds to IBF, instead of to the Debtor. Again, Levenson’s actions aided the Debtor in hiding his assets from his creditors and is evidence of Levenson’s participation in the Debtor’s fraudulent scheme to remove IBF from the claims of his creditors.
Levenson also testified that she knew the Debtor was having some problems with creditors and she knew that he was trying to reopen a bankruptcy case, even if she was unaware of which bankruptcy case he was trying to reopen. Moreover, the parties were engaged for several years and both testified that their marriage would not take place until all of the Debtor’s financial disputes were settled. In a vacuum, one could attribute the transfer of the $120,000 to IBF and the retention of the Membership to na-iveté or ignorance on the part of Levenson. However, when coupled with Levenson’s knowledge of the Debtor’s financial problems and the lending of the proceeds from the sale of the Membership to IBF almost immediately upon her receipt, the Court finds that these acts were knowingly and intentionally undertaken to aid the Debtor’s fraudulent scheme to remove IBF from the claims of his creditors. Accordingly, based upon the
CONCLUSION
The Court finds that the Trustee’s claims under 11 U.S.C. §§ 548 and 547 are time-barred. The Court further finds that the transfers of $80,000 and $50,000 are proceeds of an exempt asset and thus could not be the subject of a fraudulent conveyance as a matter of law. In addition, the Court holds that the Membership was not fraudulently transferred within the purview of § 726.105(l)(b) and § 726.106(1) because the Debtor received reasonably equivalent value in exchange therefor. The Court also holds that the transfer of the Membership was a fraudulent conveyance under § 726.105(l)(a) because the Debtor had the actual intent to fraudulently transfer the Membership. This determination is based upon the Court’s finding of several badges of fraud. The statutory defense under § 726.109(1), raised by Leven-son, is inapplicable because the Court finds that she lacked good faith. Accordingly, based upon the preceding findings of fact and conclusions of law, this Court hereby ORDERS AND ADJUDGES that:
1. All claims raised under the Bankruptcy Code, 11 U.S.C. §§ 547 and 548, are time-barred.
2. Judgment is entered in favor of Leven-son as to all counts regarding the $80,-000 and the $50,000 transfers.
3. Judgment is entered in favor of the Trustee with respect to the transfer of the Membership under Florida Statutes § 726.105(l)(a). The transfer of the Membership to Levenson which had a value of $22,946.73 is voidable.
4. Judgment is entered in favor of the Trustee in the amount of $22,946.73, plus interest thereon at the statutory rate from August 7,1997.
5. This Court retains jurisdiction of this matter for the purpose of entering such other orders as are necessary and proper.
6. The Court shall enter a separate final judgment consistent with this opinion pursuant to Bankruptcy Rule 9021.
Notes
. Levenson argued, in error, that the Membership was a certificated share under Florida Statutes § 678.102(l)(a). See Fla.Stat. § 678.102(l)(a) (1997). The Court finds that the Membership is not a certificated security within the meaning of that statutory language which generally references stocks dealt in a securities exchange.
. As indicated, the Trustee also asserts fraudulent conveyance claims under the Florida Uniform Fraudulent Transfer Act, specifically, Florida Statutes §§ 726.105(l)(a), 726.105(l)(b), and 726.106 with respect to all three transfers. Under Florida Statutes § 726.110, these claims are not time-barred because the statute of limitations for these statutes is four years from the date the transfer was made. See Fla.Stat. § 726.110 (1997).
. Set forth in full, infra, at footnote 6.
. Florida Statute § 726.106(1), provides:
A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at the time or the debtor became insolvent as a result of the transfer or obligation.
See Fla.Stat. § 726.106(1) (1997).
.Section 726.104 defines "Value” as:
(1) Value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied, but value does not include an unperformed promise made otherwise than in the ordinary course of the promisor’s business to furnish support to the debtor or another person. See Fla.Stat. § 726.104(1) (1997).
. Florida Statutes § 726.105, provides:
(1) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (a) with actual intent to hinder, delay, or defraud any creditor of the debtor, or (b) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: (I) was engaged or was about to engage in a business or transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or (ii) intended to incur or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.
See Fla.Stat. § 726.105 (1997).
. Although Levenson did not qualify as a relative of the Debtor because she was only engaged to him, many courts have broadly construed the definition of insider for purposes of fraudulent transfer actions.
See In re Levy,
. Although many of the Debtor’s debts existed since the 1980’s, the Debtor requested that the Membership be transferred to Levenson on March 18, 1996, and the Membership was actually registered in her name on March 21, 1996. The Kobrin judgment was entered on March 19, 1996 and the Ottinger judgment was entered on April 11, 1996.
. The Membership was the only asset that the Debtor owned of any value at the time he transferred it to Levenson, other than his home.
. The Debtor admitted at trial that he opened banking accounts under the names of family members in order to protect his money from his creditors. He also titled the stock of IBF in his mother’s name even though at trial his mother stated that the Debtor owned IBF.