In Re: FINANCIAL FEDERATED TITLE & TRUST, INC., Debtor. Ronalee Levy Orlick, Plaintiff-Appellant, v. John W. Kozyak, Defendant-Appellee.
No. 01-16553.
United States Court of Appeals, Eleventh Circuit.
Oct. 21, 2002.
309 F.3d 1325
Before CARNES, HILL and KRAVITCH, Circuit Judges. HILL, Circuit Judge.
We also find that a special election is not an appropriate remedy for plaintiffs’ grievances. We require extraordinary circumstances to exist before we will overturn state election results and impose a special election. For example, in Duncan v. Poythress, 657 F.2d 691, 704-08 (5th Cir. Unit B 1981), the former Fifth Circuit13 found extraordinary circumstances and imposed a special election where the fundamental right of the voters was abrogated by the appointment, rather than election, of a judge. There are no such extraordinary circumstances here. The voters in this case were not deprived of an election as in Duncan, nor is there an allegation of voter fraud, vote dilution, or a similar scheme which would mandate a special election. See, e.g., Smith v. Cherry, 489 F.2d 1098 (7th Cir.1973) (reversing dismissal of complaint seeking special election where complaint alleged scheme in which “sham” candidate‘s name was placed on primary ballot to deceive voters into voting for one candidate when they believed they were voting for another). The voters in this case were free to vote for their candidate of choice. More voters chose to vote for Sears than for Weaver. This does not entitle Weaver or those who voted for him to a special election.
V.
For the foregoing reasons, we find that the portions of Canon 7 and the Rule 27 cease and desist request at issue in this appeal are unconstitutional; defendants are entitled to qualified immunity; and plaintiffs fail to allege extraordinary circumstances that would require a special election. Accordingly, the orders of the district court are AFFIRMED in part and REVERSED in part.
SO ORDERED.
HILL, Circuit Judge:
Ronalee Levy Orlick appeals a district court order affirming a bankruptcy court final judgment in favor of John W. Kozyak (bankruptcy trustee or trustee) for $1,167,037.19, on three counts of avoidance of payments as fraudulent transfers from Financial Federated Title & Trust, Inc. (FinFed) and American Benefits Services, Inc. (ABS), (collectively, “debtor“), to Orlick under federal and state law.1
I. PROCEDURAL AND FACTUAL BACKGROUND
The main case originated in 1999 when the bankruptcy trustee filed a complaint against Orlick and eight other defendants consisting of Orlick‘s father, Raphael “Ray” Levy, and seven corporations that Levy, and one other individual, either owned or controlled. The trustee sought to recover approximately $14,000,000 that had been transferred by the debtor to the defendants in an alleged Ponzi scheme2 involving viaticated life insurance policies.3 The trustee‘s claims against Orlick were severed from the main case for non-jury trial before the bankruptcy court.
The facts involved in Orlick‘s case are straightforward. At her father‘s behest, Orlick began work in 1998 at ABS. She claims that it was agreed that she would be compensated at the rate of one percent (1%) of the gross revenues generated by ABS, similar to commissions paid to brokers. It is not disputed that her responsibilities included organizing the office by computerizing functions, coordinating office networking, performing payroll, com-
Both parties agree that Orlick had a limited educational and professional background. She had graduated from high school and attended one and one-half years of community college. She also had computer and data entry vocational training. Orlick had worked as a bank teller for two years, a temporary bank secretary, a graphics art company receptionist and secretary, and a credit union administrative assistant and teller.
Orlick‘s percentage-based commissions were paid directly by debtor ABS through a conduit corporation, M&M Associates Trust (M&M), ostensibly for tax purposes. During the approximate eighteen months that she worked at ABS, Orlick was compensated in the amount of $1,167,037.19.
As to Orlick, the original complaint simply sought to void a transfer made to her for ten thousand dollars ($10,000). In her initial answer, Orlick did not request a jury trial. Three months later, an amended complaint was filed. It increased the demand against Orlick from ten thousand dollars ($10,000), to over one million dollars ($1,017,647), and added M&M Associates Trust (M&M) as the party conduit through which Orlick received the money.4 In her answer to the amended complaint, Orlick demanded a jury trial.
The bankruptcy trustee filed a motion to strike Orlick‘s jury demand as untimely under
The case proceeded to a bench trial before the bankruptcy court. It found in favor of the bankruptcy trustee on the fraudulent transfer counts set forth as Counts I, II and III. It concluded that $1,167,037.19 in transfers from the debtor to Orlick were voidable both under the actual fraud and constructive fraud provisions. See
II. STANDARD OF REVIEW
As “the district court in reviewing the decision of a bankruptcy court functions as an appellate court, we are the second appellate court to consider this case.” Capital Factors, Inc. v. Empire for Him, Inc. (In re Empire for Him, Inc.), 1 F.3d 1156, 1159 (11th Cir.1993). We re-
III. DISCUSSION
A. Introduction
Orlick raises four issues on appeal. We discuss only two: (1) whether the district court improperly denied her right to jury trial in granting the trustee‘s motion to strike jury demand; and (2) whether the district court erred in holding, as a matter of law, that Orlick was not entitled to assert the affirmative defense of “for value and in good faith” found in
B. Right to Jury Trial
Orlick demanded a jury trial in her answer to the trustee‘s amended complaint. At hearing on the trustee‘s motion to strike her jury demand, the bankruptcy court found, and the district court agreed, that the amended complaint raised no new issues upon which Orlick could demand a jury. We disagree.
Any party may demand a trial by jury of any issue triable of right by a jury by (1) serving upon the other parties a demand therefor in writing at any time after the commencement of the action and not later than 10 days after the service of the last pleading directed to such issue, and (2) filing the demand as required in Rule 5(d). Such demand may be indorsed upon a pleading of the party.
In her memorandum in opposition to the trustee‘s motion to strike jury demand, Orlick contended that:
The Trustee asserts, incorrectly, that the Amended Complaint did not add any new issues or facts as to the Trustee‘s claims against Defendant Orlick. In fact, Defendant Orlick has gone from defending a claim against her for $10,000 (original Complaint) to defending a claim against her for $1,017,647.00 (Paragraph 13 of the Amended Complaint). Clearly this is a difference that warrants a reassessment as to the considerations of requesting a jury trial. This addition of a claim for over a million dollars more than the original complaint is certainly a new factual issue and alleges a new theory of recovery as to this Defendant.
We agree.
This issue is not one of first impression in this circuit. In LaMarca v. Turner, 995 F.2d 1526 (11th Cir.1993), this court held that where new plaintiffs raised new issues and claims, defendant‘s initial waiver of a jury did not preclude him from making an effective jury demand with respect to the new issues and new claims. Id. at 1545-46. See Burns v. Lawther, 44 F.3d 960 (11th Cir.1995); Borgh v. Gentry, 953 F.2d 1309, 1311 (11th Cir.1992) (“[A] court‘s dis-
Here the trustee‘s original complaint simply sought to void a transfer made to Orlick for $10,000, claiming that she would not be able to demonstrate the provision of services sufficient to earn that amount.6 Because the relatively nominal amount claimed in the original complaint did not warrant a jury trial, it is not surprising that a jury demand was not made.
After being lulled into waiving her right to jury trial, the trustee then presents Orlick with an entirely new, more sophisticated, case. The amended complaint “raises the ante” one hundredfold, from $10,000 to $1,017,647.00, contending now that these allegedly voidable sums passed through a conduit corporation, M&M, added as a new defendant. The case has changed. Orlick must now defend herself against her alleged legal incapacity to show any entitlement to $10,000 in funds, to defending herself against a claim that amounts paid to her were far greater than she would ever be entitled to receive. This is an entirely different case with new issues that force new methods of defense.7 See LaMarca, 995 F.2d at 1545-46. As to this new case, Orlick‘s right to a jury trial is revived.
C. “For Value and in Good Faith” under Section 548(c)
Here the bankruptcy court found, and the district court affirmed, that the transfers from the debtor to Orlick were voidable pursuant to
The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
(A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or
(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(ii)(I) was insolvent on the date that such transfer was made or such obli-
gation was incurred, or became insolvent as a result of such transfer or obligation; (II) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was unreasonably small capital; or
(III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor‘s ability to pay as such debts matured.
Both courts found as a matter of law that Orlick was not entitled to the affirmative defense set forth in
... [A] transferee or obligee of such [an otherwise voidable] transfer or obligation that takes for value and in good faith has a lien on or may retain any interest transferred or may enforce any obligation incurred, as the case may be, to the extent that such transferee or obligee gave value to the debtor in exchange for such transfer or obligation.
Both the district court and the bankruptcy court in this case relied upon In re Randy, 189 B.R. 425 (Bankr.N.D.Ill.1995), a summary judgment holding based upon affidavits. Randy held that brokers, paid a commission based upon a percentage of their sales made from soliciting investors in what turned out to be a debtor‘s Ponzi scheme, were not entitled to the affirmative defense of
In Randy, the trustee was seeking to retrieve commissions paid to three defendant brokers for their efforts in coopting new investors into a Ponzi scheme. Id. at 438. These brokers were also paid commissions for inducing persons who had already invested in the scheme to keep their principal investments in place so that the Ponzi scheme would not collapse. Id.
Citing an unreported memorandum decision, Wilson v. RHS & Associates (In re Blazo Corp.), 1994 WL 456881 (Bankr.N.D.Ohio 1994), the Randy court held that
In Blazo, however, the agents were “asserting a claim for their efforts and expenses in furtherance of an illegal contract...” and “[t]he defendants worked, by. their own admission, assiduously and effectively to advance the debtor‘s nefarious scheme.” Id. (emphasis added). In essence, Randy took Blazo one step further by eliminating the element of culpable intent.9
We disagree with the rationale of Randy. The better reasoned cases germinate
The fact that the services appellants performed increased the debtors’ insolvency does not preclude a determination that the appellants gave value. By definition, a Ponzi scheme is driven further into insolvency with each transaction. Therefore, by the trustee‘s reasoning, no one who in any way dealt with, worked for, or provided services to the debtors could prevent avoidance of any transfers they received. The debtors’ landlord, salaried employees, accountants and attorneys, and utility companies that provided services to the debtors all assisted the debtors in the furtherance of their fraudulent scheme. In spite of this fact, we do not think that the goods and services that these persons and entities provided were without value or that transfers to them could be set aside as fraudulent conveyances. We see no material distinction between such persons or entities and appellants. All were necessary to the success of the debtors’ scheme. [60 B.R. at 999, footnotes omitted.]
* * *
We conclude that a determination of whether value was given under
The district court in Universal Clearing House then remanded the case to the bankruptcy court for a determination of whether the services the brokers performed were reasonably equivalent in value to the payments they received. Id. at 998.
Universal Clearing House has spawned a line of recent cases which also decline to follow Randy. See Balaber-Strauss v. Lawrence (In re Churchill Mortg. Inv. Corp.), 256 B.R. 664 (Bankr.S.D.N.Y.2000), aff‘d 264 B.R. 303 (S.D.N.Y.2001) (where commissions paid to brokers for originating mortgages and soliciting additional investors in good faith, without knowledge that debtor was operating Ponzi scheme, were not subject to avoidance as constructively fraudulent transfers); Cuthill v. Greenmark, LLC, et al. (In re World Vision Entm‘t., Inc.), 275 B.R. 641 (Bankr.M.D.Fla.2002) (where courts must assess “for value and in good faith” for purposes of
Based upon this line of precedent, under a de novo review, we conclude that the district court and the bankruptcy court erred in relying upon Randy in determin-
IV. CONCLUSION
We vacate the order of the district court affirming the order of the bankruptcy court and remand this case for jury trial. In addition, the district court is specially instructed that Orlick is not barred as a matter of law from attempting to demonstrate or prove at trial the value of the amount, if any, rendered by her to the debtor under
VACATED and REMANDED with SPECIAL INSTRUCTIONS.
CARNES, Circuit Judge, concurring specially:
I concur in this court‘s opinion with the understanding that on remand after evidence is offered on the value of Orlick‘s services and the jury returns its verdict on that issue, the court retains its usual authority and has the duty, upon proper motion, to decide any issue relating to the amount of the verdict. Our opinion neither expresses nor implies any view that Orlick‘s services to ABS during the eighteen months she worked there were worth $1,167,037.19, which is the amount she was paid. Given the facts and circumstances in the record so far, it is utterly inconceivable that her services were worth that much, but how much less than that they were worth is up to the jury to determine in the first instance, subject to review thereafter by the court if the issue is properly raised.