United States v. WolasUnited States v. Wolas
SAYLOR, C.J.
This is an ancillary proceeding brought by petitioner Cecily Sturge pursuant to
Scott Wolas is a former partner in the New York office of a major law firm. In the mid-1990s, he participated in a pyramid scheme that bilked investors of more than $100 million. In 1996, the scheme collapsed, and he became a fugitive. While a fugitive, and using an assumed name, he perpetrated a second fraudulent scheme in Massachusetts between 2014 and 2016. Eventually, in April 2017, after more than twenty years on the run, he was arrested and charged in this court in connection with the second scheme. On June 29, 2018, he pleaded guilty to seven counts of wire fraud and one count each of aggravated identity theft, misuse of a social security number, and tax evasion. When Wolas became a fugitive, he left behind a wife, Cecily Sturge, and a son. Sturge and her son had sporadic communications with Wolas while he was a fugitive. She eventually obtained a divorce in Florida, where she had moved, in 2001. In 2011, a different Florida court declared Wolas dead, even though he was alive and indeed in contact with his family.
Wolas also left behind a retirement account at the law firm that is now worth more than $700,000. That asset was not brought to the attention of the Florida divorce court, and therefore was not addressed in the divorce decree. There is substantial evidence that Sturge was aware of the existence of the asset at the time of the divorce, and in fact had twice contacted the law firm about transferring it to her, although her efforts were not successful.
By 2016, Wolas and Sturge were in regular contact, both by telephone and in person. Wolas devised a plan to petition the Florida court for a Qualified Domestic Relations Order (“QDRO“) transferring the retirement account to Sturge. The petition and accompanying affidavit stated, among other things, that Sturge did not know Wolas‘s whereabouts, which was untrue; in fact, he physically accompanied her when she signed the affidavit before a notary public.
The Florida court had not yet acted on the petition when Wolas was arrested in April 2017. Wolas and Sturge continued to discuss the transfer of the retirement account over jail telephones. Eventually, in May 2017, the court issued the QDRO transferring the retirement account to Sturge.
In June 2017, at the request of the government, this Court entered a restraining
After a period of discovery, both parties have moved for summary judgment. In substance, the government contends that the Court should issue a final order of forfeiture because the transfer of the retirement account to Sturge was a fraudulent transfer, and therefore voidable under the Florida Uniform Fraudulent Transfer Act. Sturge contends that the transfer was not fraudulent, among other reasons because it took place before the government had an interest in the account.
For the reasons stated below, the government‘s motion for summary judgment will be granted, and the petitioner‘s motion for summary judgment will be denied.
I. Background
A. Factual Background
The following facts are undisputed except as otherwise noted.
1. The Creation of the Retirement Account
Scott Wolas and Cecily Sturge were married on October 12, 1982. (Ex. 7, ¶ 2).1 They have one son from the marriage, Tyler Wolas. (Ex. 2 (“Sturge Dep.“) at 11-12).
From 1989 to 1995, Wolas was a partner in the New York office of the law firm formerly known as Hunton & Williams LLP. (Ex. 3 (“Weisiger Dep.“) at 20).2 While at Hunton & Williams, he participated in the Hunton & Williams Retirement Savings Plan (the “Retirement Plan“) by making contributions to a retirement account (the “Retirement Account“). (Id. at 14-15, 16, 18). His interest in the Retirement Account vested in approximately 1994. (Id. at 35, 36).
Wolas designated Sturge as the primary beneficiary on the Retirement Account. (Ex. 1 (“Wolas Dep.“) at 9-10).3 Sturge was not a participant herself and did not make any contributions to the account. (Weisiger Dep. at 31, 32).
During their marriage, Wolas and Sturge lived together in Westchester County, New York. (Sturge Dep. at 10). Sturge moved to Boca Raton, Florida, in approximately 1989. (Id. at 11, 13). She and Wolas began living separately at about that time. (Id. at 11, 12). She knew that he continued to work at the law firm after their separation. (Id. at 11, 54).
The funds in the Retirement Account have never been distributed. As of September 2019, the account had a balance of more than $788,000. (Weisiger Dep. at 26).
2. Wolas‘s First Criminal Scheme and Flight from Justice
While at Hunton & Williams, Wolas participated in a pyramid scheme that defrauded
Sturge was aware that criminal charges had been filed against her husband and that he was a fugitive from justice. (Sturge Dep. at 15-16, 19-21).4
After Wolas became a fugitive in 1996 or 1997, Sturge had occasional telephone contact with him. (Id. at 37). As set forth below, beginning in about 2016, she had regular telephone contact with him, and met with him in person on at least three occasions. (Id. at 37, 47, 82-83). Her son Tyler also had telephone contact with him, and met him in person at least once, in 2013. (Id. at 21-22, 37-38; Wolas Dep. at 19-20).
3. Contacts with the Retirement Plan in 1997 and 2000
Katherine B. Weisiger is the Retirement Manager for the law firm, and has helped to administer the Retirement Plan since 1987. (Weisiger Dep. at 13, 14).
Weisiger testified that a woman who identified herself as Cecily Sturge first called her in 1997. (Id. at 43). The woman told her she believed her husband, Scott Wolas, was dead, and asked how she could obtain the funds in the Retirement Account. (Id. at 43, 14). Weisiger told her that “there was a certain procedure and a set number of years would need to elapse before we could do anything related to the account.” (Id. at 43-44).
Weisiger further testified that the same woman called again in February or March 2000, and said “she was again calling to request how to obtain the funds in her husband‘s account.” (Id. at 44-45, Ex. 10).5
On March 31, 2000, Weisiger sent a letter to Sturge at her home address in Florida. (Ex. 11; Weisiger Dep. at 44; 47-49). The letter began, “As we have discussed, you are the beneficiary of your husband‘s account under the Hunton & Williams Retirement Savings Plan.” (Ex. 11 at 1). The letter explained that “[u]nder Virginia law, a missing person is presumed dead after seven years. (Id.). At the appropriate time, you will need to go to court to have [Wolas] declared dead.” (Id.) It also gave the market value of the fund as of that date (more than $209,000) and stated that it was invested in a mutual fund. (Id.).
Sturge disputes that she “communicated with anybody at Hunton & Williams” in “any capacity” before 2001. (Sturge Dep. at 25). She acknowledged, however, that the March 2000 letter was sent to the address where she was living at the time. (Id. at 25).6 She said she did not “recall” receiving the letter, although she also testified that she “didn‘t get letters from [Weisiger].” (Id. at 26). She also testified that she did not “remember” having a
For his part, Wolas testified that he “had no contact with the plan administrator [after] 1995.” (Wolas Dep. at 23).
4. The 2001 Florida Divorce Proceeding
On August 23, 2001, Sturge filed a petition for divorce from Wolas with the Circuit Court in Palm Beach County, Florida. (Ex. 8 at 3). Sturge was represented by counsel throughout the proceeding. (Ex. 7 at 2; Sturge Dep. at 28).
With the divorce petition, Sturge filed a financial affidavit in which she was required, among other things, to list various assets of her and her husband. (Ex. 9). She listed no assets in the column for “Husband.” (Id. at 2). Specifically, she listed nothing under the sections for “Pension Fund IRA,” “Retirement Fund,” or “Other Assets.” (Id.). She signed the affidavit under penalty of perjury. (Id. at 6).
Neither Sturge nor her lawyer made any effort to try to locate any assets of Wolas in connection with the Florida divorce proceeding. (Sturge Dep. at 33-34). The law firm never received a request for information about the Retirement Account in connection with that proceeding. (Weisiger Dep. at 42-43).
On November 13, 2001, the Circuit Court of Palm Beach County, Florida, issued a judgment dissolving the marriage. (Ex. 7).7
The divorce decree stated, among other things, that “the Court reserves jurisdiction of the parties and the subject matter hereof to make such further orders as may be necessary“; the parties “[did] not own any marital assets which would require equitable distribution“; and “[Wolas] shall be responsible for all debt incurred in his name during the course of the marriage and shall be responsible for all joint debt incurred during the marriage.” (Ex. 7 ¶¶ 8-9, 10(c)-10(d)).
Sturge did not object to the finding of the court that the parties did not own any marital assets. (Sturge Dep. at 36). She did not take any steps to amend the divorce decree within the one-year period following its issuance. (Id.).
5. The Petition for a Declaration of Death
At some point, a petition was filed with the Circuit Court of Manatee County, Florida, to have Wolas declared dead. (Ex. 13). The petition was apparently filed by someone named Robert M. Elliott. (Id. at 3). It is unclear whether Sturge was involved in the filing of the petition, or was aware of its filing at the time.
On October 5, 2011, the Florida court granted the petition and issued an “Order of Determination of Death” decreeing that Wolas was deceased. (Id.).
6. Contacts with the Retirement Plan in 2014-2016
In January 2014, Sturge and her attorney, Stephanie Velasquez—who is married to her son Tyler—contacted the Retirement Plan about obtaining the contents of the Retirement Account. (Sturge Dep. at 41; Weisiger Dep. at 49, 50; Ex. 12). The stated basis of that claim was that Wolas was dead. (Exs. 13, 14). In February 2014, attorney Velasquez provided a copy of the October 2011 Order of Determination of Death from the Florida court. (Ex. 13).
In response, on April 11, 2014, the Retirement Plan sent an e-mail to Ms. Velasquez. (Ex. 14). The Plan requested confirmation of certain facts “to ensure that the Plan is paying the correct beneficiaries under both applicable law and the terms of
Sturge did not provide such an affidavit, nor did she respond to the e-mail. (Weisiger Dep. at 59, 61; Sturge Dep. at 44).
Although Velasquez was claiming Wolas was dead, she was likely aware that the claim was false. As noted, her husband, Tyler Wolas, was in sporadic telephone contact with Wolas, and had seen him in person in 2013. (Wolas Dep. at 19-20).
On September 8, 2016, Sturge sent Weisiger an e-mail asking for the status of her claim to “the retirement benefits.” (Weisiger Dep. at 69; Ex. 16). That day, Weisiger responded, stating that “[t]he Plan‘s fiduciaries will handle your request as a claim for benefits in accordance with the Plan‘s claim procedures.” (Ex. 17 at 1). She requested that Sturge provide a letter “[stating] to her knowledge whether or not [Wolas] was deceased” and whether or not he “was married to someone else at the time of his death.” (Id.).
Sturge responded by e-mail, “I will attend to this immediately.” (Sturge Dep. at 63-64). She did not, however, provide the requested letter, or otherwise respond. (Weisiger Dep. at 71).
Sturge does not dispute that as of September 8, 2016, she knew that Wolas was alive, even though she was trying to obtain access to the Retirement Account by claiming that he was dead. (Sturge Dep. at 63). Indeed, by September 2016, Sturge and Wolas were in regular contact by telephone. (Bell Aff. 2, ¶¶ 14-15, 19). According to telephone records, she and Wolas spoke 62 times between October 8 and November 22, 2016. (Id. ¶ 20). They also met at least three times in person. (Id. ¶¶ 21-24; Sturge Dep. at 82).
On November 17, 2016, Sturge was interviewed by an FBI agent and a local police officer concerning Wolas. (Sturge Dep. at 83-84; Bell Aff. 2 ¶ 16). She lied and told them she had no contact with him and did not know his whereabouts. (Sturge Dep. at 83-84; Bell Aff. 2 ¶ 16).
Eventually, in June 2017, Sturge was indicted for making a materially false statement to the FBI in violation of
7. Wolas‘s Second Criminal Scheme
Between 2014 and 2016, Wolas—who was living in Massachusetts under a false name—committed another series of financial crimes. As part of the scheme, he solicited approximately $1.9 million from approximately twenty individuals to invest in real estate projects. (Superseding Information ¶¶ 6, 10). He signed contracts with the investors in which he represented that they would receive their principal investment plus interest back and/or a share of the profits once he sold the property. (Id. ¶ 7). The profits he promised the investors exceeded 100% of the profits earned from the sale of the properties. (Id. ¶ 8). He also verbally assured the investors that their money would be used exclusively for construction and other expenses related to developing the properties. (Id. ¶ 9).
On April 4, 2017, a criminal complaint was filed against Wolas in the District of Massachusetts. (Dkt. No. 3). Three days later, on April 7, he was arrested. (Bell Aff. 2 ¶ 29). At that point, he had been a fugitive for more than twenty years.
At his initial appearance in federal court, on April 7, 2017, Wolas testified that he had no funds or assets, of any kind, anywhere in the world. (Ex. 24 at 10). At that time, the Retirement Account had a balance of more than $600,000. (Bell Aff. 2, ¶ 36).
8. The Scheme to Obtain a QDRO
According to Sturge, at some point—beginning in 2016, while he was still a fugitive—Wolas came up with the idea to amend the 2001 divorce decree to distribute the Retirement Account to her. (Sturge Dep. at 90, 71). His plan was to obtain a QDRO from a Florida court to transfer the Retirement Account to her. (Id.).9
On December 28, 2016, Sturge called Weisiger and left a voicemail. (Weisiger Dep. at 71, 74). They spoke by telephone the next day; during the call, Sturge informed her that “she was now going to proceed with doing a Quadro [sic].” (Id. at 71-72).
Weisiger then e-mailed Sturge a number of documents, including a model QDRO document. (Ex. 18). On January 5, 2017, Sturge responded with a list of questions. (Ex. 19). Wolas, in fact, had drafted that e-mail. (Sturge Dep. at 67, 71).10 He also prepared a draft QDRO that was sent to the law firm from Sturge‘s e-mail address on January 16, 2017, which counsel for the Plan revised and sent back. (Id. at 69; Weisiger Dep. at 76-78; Ex. 21).
Wolas drafted various documents to be filed in the Florida court to obtain a QDRO and transfer the Retirement Account to her, including a notice of petition, a petition, a supporting affidavit, and a preliminary proposed QDRO. (Wolas Dep. at 10-11; Sturge Dep. at 49-50; Ex. 22).
A petition to obtain a QDRO and various accompanying documents, including the affidavit, were filed in the Circuit Court for Palm Beach County, Florida, on February 8, 2017. (Ex. 22). The petition sought a QDRO to distribute the Retirement Account to Sturge. (Id.). Both the petition and the affidavit were signed by Sturge under oath. (Id. at 6, 12). The petition stated that the 2001 divorce decree “mistakenly state[d] that there was no marital property subject to equitable distribution.” (Id. at 5).
Among other things, Sturge swore under oath that she was unaware of the existence of the Retirement Plan at the time of the divorce in 2001; that Wolas‘s “whereabouts are unknown“; and that she
Again, at the time Sturge swore to those facts, she was in regular contact with Wolas. Thus, she now admits that her statements to the court were in part untrue. (Sturge Dep. at 53). Indeed, Wolas was actually with her on February 8, 2017, when she went into a bank in Florida to sign the February 8 affidavit before a notary public. (Id. at 56-57; Bell Aff. 2 ¶ 34). Between February 1 and March 26, 2017, Wolas and Sturge had at least 45 contacts by telephone or text message. (Bell Aff. 2 ¶ 26-28).
The court had not yet acted on the petition by the time of Wolas‘s arrest in April 2017. On April 8, 2017, the day after his arrest, he and Sturge spoke over the jail telephone about what she needed to do to “follow through” on “the project“—that is, to obtain the QDRO. (Ex. 25 at 11; Bell Aff. 2 ¶ 37). Wolas reminded Sturge that “this call[‘]s recorded,” which it was. (Id.).
On April 25, 2017, Wolas filed an affidavit with the Circuit Court stating that he did not oppose Sturge‘s petition to transfer the entire contents of the Retirement Account to her. (Ex. 27).
On May 15, 2017, the Circuit Court in Florida entered a QDRO ordering that Sturge should receive the entire contents of the Retirement Account. (Ex. 28 at 1). In the order, the court noted that “Counsel advised he had spoken with [Wolas], who was then in the Federal Detention Center in Miami, and the Former Husband was agreeable to waive the service of process and agree to the entry of the QDRO.” (Id.). The court also noted in the order that Wolas had filed an affidavit in support of her petition to modify the 2001 divorce decree. (Id.).
Wolas testified that he and Sturge “[never] discuss[ed] sharing the proceeds of the retirement account” and that there was no “agreement to relinquish [his] rights in the retirement account to compensate [] Sturge for helping [him] out.” (Wolas Dep. at 22). Sturge testified similarly that there was “[no] agreement . . . on how to divide the retirement account” and that she did not “think he was going to take any portion of the retirement account from [her] when he [sic] got it.” (Sturge Dep. at 92, 93).
9. Wolas‘s Plea of Guilty and the Forfeiture Order
On June 29, 2018, Wolas pleaded guilty to a ten-count superseding information pursuant to a plea agreement with the United States. (Dkt. Nos. 9, 67).11 The superseding information charged him with seven counts of wire fraud and aiding and abetting, in violation of
The superseding information also included a forfeiture allegation pursuant to
Wolas represents that the Retirement Account is his only financial asset,13 and the United States has been unable to locate any other financial assets or source of income that could be Wolas‘s. (Wolas Dep. at 59, 60; Bell Aff., ¶ 38). On September 18, 2019, the Retirement Account had a balance of $788,292.37. (Weisiger Dep. at 26).
B. Procedural Background
On June 2, 2017, as part of a separate civil action, the United States moved ex parte for a temporary restraining order to prevent the transfer or dissipation of assets in the Retirement Account. United States v. Wolas, 17-cv-11032-RWZ (Dkt. No. 6). On June 5, 2017, Senior Judge Zobel granted the restraining order. United States v. Wolas, 17-cv-11032-RWZ (Dkt. No. 12). That order remains in effect. (Id.).
On November 5, 2018, the Court entered a preliminary order of forfeiture of all of Wolas‘s interest in the Retirement Account. (Dkt. No. 78 ¶ 3).
On January 28, 2019, Sturge filed the present petition pursuant to
Both parties have now moved for summary judgment. For the reasons stated below, the government‘s motion for summary judgment will be granted, and petitioner‘s motion for summary judgment will be denied. The government‘s application for a writ of garnishment will be granted.
II. Legal Standard
“Essentially, Rule 56[] mandates the entry of summary judgment ‘against a party who fails to make a showing sufficient to establish the existence of an element essential to that party‘s case, and on which that party will bear the burden of proof at trial.‘” Coll v. PB Diagnostic Sys., Inc., 50 F.3d 1115, 1121 (1st Cir. 1995) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)). In making that determination, the court must “view the record in the light most favorable to the nonmovant, drawing reasonable inferences in his favor.” Noonan v. Staples, Inc., 556 F.3d 20, 25 (1st Cir. 2009). When “a properly supported motion for summary judgment is made, the adverse party must set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (internal quotation marks and footnotes omitted). The non-moving party may not simply “rest upon mere allegation or denials of his pleading,” but instead must “present affirmative evidence.” Id. at 256–57.
III. Analysis
A. Ancillary Proceedings Pursuant to 21 U.S.C. § 853(n)(2)
A third party claiming a legal interest in property that has been ordered forfeited to the United States may petition the court for a determination of the validity of the alleged interest in the property.
Pursuant to
Sturge contends that such a scenario occurred here. She contends that her interest in the Retirement Account vested no later than November 13, 2001, when the Florida court issued the divorce decree, or at the very latest by May 15, 2017, when the Florida court issued the QDRO granting her full ownership of the Retirement Account. (Pet. Opp. at 4, 7).16
The United States does not dispute that its interest in the Retirement Account vested after the date of the QDRO. Instead, it contends that the QDRO was a fraudulent transfer under Florida law, and therefore Sturge “does not have an ownership interest in the Retirement Account as a result of the [QDRO].” (Gov. Mem. in Supp. at 13).
B. Whether the Asset Belongs to Sturge Pursuant to Florida Divorce Law
Sturge first contends that under Florida law, when spouses divorce, any marital assets the divorce decree has not resolved become the spouses’ joint property. On that basis, she contends that even if the QDRO were a fraudulent transfer, she has an interest in the Retirement Account that vested in her at the time of the divorce decree in 2001 and prevents forfeiture. (Pet. Supp. Mem. at 1).17
In Florida, marital assets are distributed equitably upon divorce.
After the final judgment of dissolution of a marriage is entered, the ownership interest of “property rights [that] were not introduced in the litigation, but could or should have been, . . . is settled once and for all . . . .” Steinfeld v. Steinfeld, 553 So. 2d 774, 776 (Fla. Dist. Ct. App. 1989) (emphasis added). See Smith v. Cahill, 141 So. 3d 1047, 1053 (Ala. Civ. App. 2013) (applying similar Alabama law: “when a specific asset of the parties to a divorce action is not disposed of by the decree, the parties are left in the same position relative to that asset as they were in prior to the decree“) (quoting Johnson v. Johnson, 585 So. 2d 89, 90 (Ala. Civ. App. 1991); see also Brett R. Turner, Equitable Distribution of Property § 9:28 (“Where the court fails to divide a marital asset, there is no basis for dividing the asset at a later time,” and “[t]he spouse who has legal title to that asset is entitled to retain full ownership.“); Love v. Love, 770 So. 2d 256, 256 (Fla. Dist. Ct. App. 2000) (reversing a trial court order distributing military retirement benefits to a former wife seventeen years after the divorce); Preston v. Burmeister, 52 S.W.3d 386, 390 (Tex. App. 2001) (rejecting an argument that retirement benefits not disposed of in a Florida divorce decree “became property held as a tenancy in common upon divorce.“).18
Nevertheless, Sturge contends that Steinfeld supports her position. There, a court considered two checks that had been issued jointly to a divorced couple after the court had already entered the dissolution judgment, where the right to the proceeds of at least one of the checks may have arisen during the course of the marriage. Steinfeld, 553 So. 2d at 775-76. The court determined that the trial court lacked jurisdiction to force a division of the property, because subsequent litigation as to any property rights that could have or should have been introduced in the divorce proceeding was barred. Id. at 776. However, in reaching its conclusion, the court made the following statement, on which Sturge relies: “[w]hen the parties’ marriage was dissolved, any marital assets not otherwise resolved by the property settlement agreement or the final judgment became joint property of the parties.” Id.; Pet. Opp. at 5.
That statement may not be as broad as Sturge contends, however. As the court noted, although the court lacked jurisdiction to distribute the checks, the divorced couple could file a separate action to seek an appropriate division of their joint checks. Id. In such an action, the divorced couple would no longer rely on the law of equitable ownership, but on the law of joint ownership. See, e.g., Davis v. Dieujuste, 496 So. 2d 806, 809 (Fla. 1986) (noting that parties may seek statutory partition); Cleary v. Hough, 567 So. 2d 1039, 1040 (Fla. Dist. Ct. App. 1990) (“Since the final judgment in that action was silent as to [stock held as joint tenants], the parties, by operation of law, became owners as
The general rule that a divorce decree finally determines all property rights that could have been raised in the original proceeding is subject to a limited number of exceptions that may permit a court to amend the judgment after it has entered.
that the 2001 divorce decree “mistakenly state[d] that there was no marital property subject to equitable distribution.” (Ex. 22) (emphasis added).19
Here, Sturge did not have an interest in the Retirement Account that vested in her upon her divorce. First, she knew or reasonably should have known about the Retirement Account at the time of the divorce proceeding. There is substantial evidence in the record that Sturge contacted the Retirement Plan in both 1997 and 2000 to inquire about transferring the Retirement Account to her. Even assuming that there is a good-faith dispute as to whether those contacts took place, it is clear that she reasonably should have known that such an asset existed. She knew that her husband was a partner at a major law firm for many years before becoming a fugitive. It would be unusual, to say the least, if the firm had no tax-advantaged retirement plan, or if Wolas had declined to participate in such a plan, or otherwise had made no provision for his retirement. Sturge was represented by counsel in the divorce proceeding. And the form of the petition for the divorce specifically asked whether she or her husband had a “Pension Fund IRA,” “Retirement Fund,” or any “Other Assets.”
In short, the existence of the Retirement Account could or should have been raised in the Florida divorce proceeding. It was not, and the issue of whether Sturge was entitled to any portion of it as a marital asset was “settled once and for all“—at least until the QDRO was issued “when the judgment of dissolution [became] final.” Steinfeld, 553 So. 2d at 776. In other words, if Sturge had an equitable interest in the Retirement Account as a marital
C. Whether the Transfer Was Fraudulent under Florida Law
The government contends that the transfer of the Retirement Account pursuant to the QDRO was a fraudulent transfer under Florida law, and therefore voidable, because it was undertaken for the purpose of defrauding Wolas‘s creditors, and because Wolas did not receive equivalent value for the transfer and it prevented him from paying his debts as they came due.20
1. Overview
Under the Florida Uniform Fraudulent Transfer Act (“FUFTA“), adopted in 1987, a creditor may avoid a transfer of property under certain circumstances. See
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:
. . .
2. 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.
Id.
There is no dispute that a “transfer” of property occurred within the meaning of the statute. Under the FUFTA, a “transfer” is “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance.”
Nor is there a dispute that Wolas had creditors at all relevant times. As of 1997, when he became a fugitive, he owed the victims of his pyramid scheme at least $100 million. And as of September 2016, he owed the victims of his real estate fraud approximately $1.9 million. Those claims accrued no later than the moment Wolas fraudulently induced his victims to part with their investments.
2. “Creditors” Under the FUFTA
Under the FUFTA, a transfer may be found fraudulent “as to a creditor” under certain circumstances (either because of actual fraud or constructive fraud).
Sturge contends that for a creditor to avoid a transfer as fraudulent, that creditor must have at least one claim against that debtor at the time the transfers were made. (Pet. Opp. at 2.) According to her, the government did not become a creditor until June 29, 2018, when Wolas pleaded guilty, and the QDRO transferring the property was issued more than a year earlier, on May 15, 2017. Therefore, according to her, the QDRO could not have been a fraudulent transfer because “the rights of the government (and Wolas‘[s] victims) to obtain restitution vested no earlier than the date of Wolas‘[s] conviction.” (Pet. Opp. at 2).21
Sturge‘s position has some support in the case law. See Citation Mortgage, Ltd. v. Ormond Beach Associates Ltd., 184 F.3d 143, 156 (2d Cir. 1999) (applying Florida law) (stating that in order to avoid a transfer as fraudulent, “a creditor must have at least one claim in existence when the transfers were made“) (quoting Harper v. United States, 769 F. Supp. 362, 366-67 (M.D. Fla. 1991)); see also Wiand v. Lee, 753 F.3d 1194, 1203 (11th Cir. 2014) (stating that creditors seeking to avoid transfers under
That position, however, runs contrary to the language of the statute itself, which states that a transfer may be fraudulent as to a creditor “whether the creditor‘s claim arose before or after the transfer was made or the obligation was incurred.”
Furthermore, the cases on which Sturge relies, Harper and Citation Mortgage, do not actually address the question presented here. In Harper, the IRS had made a jeopardy assessment against the transferee for the transferor‘s federal income-tax liabilities for several tax years preceding the date of the transfer. Harper, 769 F. Supp. at 364. The court concluded that “the United States was a creditor with standing to institute a fraudulent conveyance action since the assessments made against Reed relate back to the tax years from which the liability arose.” Id. at 366-67. In Citation Mortgage, the Second Circuit affirmed a trial court decision that the appellant could not maintain a fraudulent transfer action because the appellant had never had any claims against the transferor either before or after the transfer. Citation Mortgage Ltd., 184 F.3d at 155-157. And in Wiand, the Eleventh Circuit affirmed a trial court decision that the funds transferred were the property of separate corporations, not that of the individual who owed the debts. Wiand, 753 F.3d at 1203, 1205. Harper thus involved a transfer made after the government had become a creditor; Citation Mortgage involved a party that never had any claim against the debtor at all; and Wiand involved a dispute over the property transferred, not the standing of the creditor.
It is also noteworthy that while the first portion of the statute uses the term “a creditor,” the actual fraud provision uses the term “any creditor,” and the constructive fraud provision does not use the term “creditor” at all.
In short, the government qualifies as a “creditor” of Wolas within the meaning of
3. Actual Fraud
As noted, the FUFTA requires creditors seeking to avoid a transfer on the basis of actual fraud under
It is undisputed that a transfer of property occurred. It is also undisputed that Wolas had creditors as of the date of the transfer; he owed the victims of his crimes many millions of dollars. And it is undisputed that the property transferred could have been used to satisfy, in part, the claims of those victims.27
The question, then, is whether Wolas acted with the requisite intent. Again, the intent to defraud creditors need not have been directed at the creditor seeking to avoid the transfer. See Veigle, 873 F. Supp. at 626 (“Under Florida‘s fraudulent conveyance statute, a transfer is fraudulent as to present creditors if the debtor made the transfer with actual intent to hinder, delay, or defraud any creditor of the debtor.“) (internal quotation marks omitted) (emphasis added).
The statute sets out eleven non-exclusive factors that may be considered in determining actual intent.
Here, the transfer by Wolas to Sturge satisfies the six factors listed above—that is, the transfer satisfies more than half of the eleven non-exclusive factors that may be considered in determining actual intent pursuant to
As to the first, second, and third factors: Wolas came up with the idea to obtain the QDRO while still a fugitive, after “abscond[ing]” from authorities for a second time in September 2016.
Wolas also “concealed” his involvement in the transfer from the administrators of the Retirement Plan, and initially, from the Circuit Court in Palm Beach County.
In addition to concealing his involvement in the transfer from administrators of the Retirement Plan and the Circuit Court, Wolas also concealed the transfer itself from federal authorities.
As to the fourth and fifth factors, “the transfer was of substantially all [Wolas‘s] assets,” and he “was insolvent or became insolvent shortly after the transfer was made.”
In sum, the undisputed evidence shows that the transfer meets six of the factors to be considered in determining actual intent, which courts have found to be more than sufficient. Wolas made the transfer “with actual intent to hinder, delay, or defraud” his creditors, making the transfer actually
4. Constructive Fraud
The government also contends that the transfer was constructively fraudulent. Again, even without a finding of actual intent, a transfer by a debtor may be fraudulent as to a creditor if, among other things, (1) the debtor made the transfer without receiving reasonably equivalent value, and (2) the debtor believed or reasonably should have believed that he or she would incur debts beyond his or her ability to pay as they became due.
The statute does not define “reasonably equivalent value,” but in reviewing the transfer, courts consider the “good faith of the parties, the disparity between the fair value of the property and what the debtor actually received, and whether the transaction was at arm‘s length.” Kapila v. WLN Family Ltd., 341 B.R. 53, 56-57 (Bankr. S.D. Fla. 2006).28 As to the second element, the test solely concerns the debtor‘s ability to pay its debts as they become due, and not whether the debtor is technically solvent or insolvent. United States v. South Capital Construction, Inc., 758 F. App‘x 676, 680 (11th Cir. 2018).
Here, the transfer meets both elements of constructive fraud. As noted, Wolas made the transfer without receiving reasonably equivalent value. There was an obvious disparity between the fair value of the Retirement Account, which was approximately $600,000 at the time of the transfer, and what Wolas received, which was nothing. The transfer was not at arm‘s length, but was between former spouses. And it was not made in good faith. Wolas came up with the idea for the QDRO while a fugitive from justice based on two different schemes in which he defrauded multiple investors of millions of dollars. Sturge and Wolas knowingly submitted a false affidavit to the Florida court to accomplish the transfer. And Wolas told authorities that he had no assets of any kind, anywhere in the world, despite the fact that he still had full ownership of the Retirement Account when he made that representation and was in the process of transferring it to Sturge.
Furthermore, at the time of the transfer, Wolas likely did not believe, nor would it have been reasonable for him to believe, that he would be able to pay off his debts as they became due. Before the court had acted on the QDRO, Wolas had been arrested for a criminal scheme that defrauded approximately 20 investors of approximately $1.9 million. He was also a fugitive from justice after being indicted on 119 counts of fraud arising out of a criminal scheme that defrauded investors out of $100 million or more. Obviously Wolas could not have reasonably believed, at the time the transfer was made, that he would be able to pay those debts, which became “due” the moment he persuaded his victims to part with their funds.
Thus, both factors of constructive fraud are met: Wolas (1) made the transfer without receiving reasonably equivalent value, and (2) believed or reasonably should have believed that he would incur debts beyond his ability to pay as they became due.
5. Whether an Equitable Remedy is Appropriate
Sturge further contends that even if the Court concludes that the transfer
A fraudulent transfer of property is not void ab initio. Rather, it is “voidable at the instance of a creditor.” Smith v. Effective Teleservices, Inc., 133 So. 3d 1048, 1051 (Fla. Dist. Ct. App. 2014). Section 726.108 of the FUFTA provides for the following remedies:
(1) In an action for relief against a transfer . . a creditor . . . may obtain:
(a) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor‘s claims;
(b) An attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with applicable law; or
(c) Subject to applicable principles of equity, and in accordance with applicable rules of civil procedure
. . .
(3) Any other relief the circumstances may require.
This last phrase is known as the “catch-all” phrase. Freeman v. First Union Nat. Bank, 865 So. 2d 1272, 1275 (Fla. 2004). Although it allows courts to award “other relief,” it was intended to facilitate the use of the other remedies provided in the statute. Id. at 1276. Nonetheless, courts have noted that the catch-all phrase is “broad,” and grants “the court equity powers to remedy the fraud.” Invo Florida, Inc. v. Somerset Venturer, Inc., 751 So. 2d 1263, 1267 (Fla. Dist. Ct. App. 2000) (agreeing with appellant‘s contention that an action under the FUFTA is broader than a breach of contract claim).
Even assuming that the Court has the power to divide the Retirement Account between Wolas and Sturge pursuant to principles of equity, it declines to do so. Sturge clearly engaged in inequitable conduct in connection with the Retirement Account. She admits that she attempted to obtain the asset between January 2014 and September 2016 by claiming that Wolas was dead, which she knew to be false.29 While there is no evidence she had any role in the filing of the petition to have Wolas declared dead, she used that declaration in her communications with the Retirement Plan even though she knew it to be false.
In addition, Sturge admits that as part of her petition to the court to obtain the QDRO in 2017, she submitted a sworn affidavit that falsely stated that she did not know Wolas‘s whereabouts and had had no contact with him since 1995. Finally, in November 2016, she was interviewed by the FBI about Wolas, and lied to them, saying that she had had no contact with Wolas
Sturge further contends, in the alternative, that even if the Court concludes that the United States can maintain an action under the FUFTA, it should apply the principles set forth in Crews v. Lankry, 263 B.R. 638 (Bankr. M.D. Fla. 2001). (Pet. Mot. Summ. J. at 14). In Crews, the court found that “to establish that a separation agreement fraudulently transferred non-entireties properties acquired during a marriage,” a creditor must prove that: (1) the property in question was in fact marital property and not separate property, (2) the distribution of marital property was unequal, and (3) a departure from equitable distribution was not justified by the factors recognized as relevant under Florida law. Crews, 263 B.R. at 644. The court concluded that fact issues under that test remained and precluded summary judgment. Id.
That principle is inapplicable here, however. By the time of the fraudulent transfer in 2017, the Retirement Account was no longer subject to the rules governing the division of marital assets. The divorce petition did not identify the Retirement Account, the divorce decree did not mention it, and Sturge did not seek to modify that decree during the one-year period after it issued. Thus, by 2017, the Retirement Account was simply an asset belonging to Scott Wolas, and Sturge had long since abandoned her ability to claim that it was a marital asset.
Under the circumstances, the Court will not equitably distribute any portion of the Retirement Account, even if it has power to do so. Instead, the appropriate remedy in this case is that the United States should be able to “avoid [] the transfer . . .,” which it has elected to do.
D. Federal-State Relationship Considerations
One last set of issues merits consideration. The transfer of the Retirement Account was not a simple transfer of property between parties, but was incorporated into a state-court judgment. The question thus arises whether any doctrine or principle governing the relationship of federal and state courts requires a different outcome. Sturge acknowledges that “state court divorce judgments are not immune from scrutiny as potentially fraudulent transfers.” (Pet. Supp. Mem. at 1). She further acknowledges that “[t]he government is correct that legal doctrines such as ‘full faith and credit,’ [the] Rooker-Feldman [doctrine],31 [and] domestic relations
The federal full-faith-and-credit statute,
A judgment under Florida law “may be [collaterally] attacked for . . . extrinsic fraud” at any time. Nichols v. Nichols, 613 So. 2d 137, 139 (Fla. Dist. Ct. App. 1993); Parker v. Parker, 950 So. 2d 388, 391, 394 (Fla. 2007) (“Rule 1.540(b) specifically provides that ‘[t]his rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment, decree, order, or proceeding or to set aside a judgment or decree for fraud upon the court.‘“).33 Although Florida courts do not appear to have considered the issue, courts in other jurisdictions have considered challenges pursuant to the Uniform Fraudulent Transfer Act to be based upon “extrinsic fraud.” See, e.g., Greeninger v. Cromwell, 915 P.2d 479, 482 (Or. Ct. App. 1996) (“Plaintiff‘s claim that the [dissolution] judgment constitutes a fraudulent transfer under the UFTA contains allegations that, if proven, could constitute extrinsic fraud and permit a collateral attack on the [dissolution] judgment“); Dowell v. Dennis, 998 P.2d 206 (Okla. Civ. App. 1999) (party was permitted to collaterally attack divorce decree both because he was not a party, and because he met fraud exception).
Again, the United States was not a party to the proceeding to obtain the
Thus, in Alliant Tax Credit 31, Inc., the plaintiffs alleged that the defendant had colluded with his former wife to make a fraudulent transfer of his assets to her as part of a divorce settlement. Alliant Tax Credit 31, Inc. v. Murphy, 924 F.3d 1334, 1338 (11th Cir. 2019). The plaintiffs filed an action in federal court and challenged the transfer under the Georgia Uniform Fraudulent Transfer Act. Id. The court concluded, among other things, that the full-faith-and-credit statute did not prevent the plaintiffs from collaterally attacking the divorce settlement—which a state court had incorporated into a divorce decree—because plaintiffs were neither parties to the divorce proceeding nor in privity with a party to the divorce proceeding. Id. at 1139, 1147, n.14.
It is true that the United States is a separate sovereign, not a private plaintiff. But there is no obvious reason why it should be in a worse position than a private plaintiff to challenge a transfer as fraudulent. And, again, there is no other procedural vehicle—or at least the parties have not identified one—for it to protect its interests under the circumstances.
In United States v. Kirtland, 2012 WL 4463447 (D. Kan. Sept. 27, 2012), the court found that pursuant to the Fair Debt Collections Procedure Act the United States could avoid fraudulent transfers from a defendant to his wife of certain assets, notwithstanding that the settlement agreement had been adopted by a state court. Id. at *16 (“The mere fact the fraudulent transfers have been formalized by a state-court approved property settlement provides no immunity from federal law.“). The court had also rejected petitioner‘s allegation that “the state court judgment . . . was entitled to full faith and credit” on an earlier motion to set aside a restraining order on the assets. See United States v. Kirtland, 2011 WL 3624997, at *1, *2 (D. Kan. Aug. 17, 2011).
Under the circumstances, the Court concludes that it has the authority to permit the United States to avoid the transfer, notwithstanding the requirements of the full-faith-and credit statute or its constitutional counterpart. And because the government has satisfied the requirements of the Florida Uniform Fraudulent Transfer Act to prove a fraudulent transfer, it will grant the request to avoid the transfer of the Retirement Account.
IV. Conclusion
For the foregoing reasons,
- the Court finds that petitioner Cecily Sturge has standing to challenge the preliminary forfeiture order issued by the Court on November 5, 2018;
- the Court finds that petitioner Cecily Sturge has not proved, by a preponderance of the evidence, that any legal right, title, or interest in the Retirement Account was vested in her rather than Scott J. Wolas or was superior to any right, title, or interest of Scott J. Wolas at the time of the commission of the acts that gave rise to the forfeiture of the Retirement Account;
- the Court finds that the transfer of the Retirement Account from Scott J. Wolas to Cecily Sturge by means of a Qualified Domestic Relations Order issued by the Circuit Court for Palm Beach County,
Florida, on May 15, 2017, was a fraudulent transfer within the meaning of the Florida Uniform Fraudulent Transfer Act, Fla. Stat. Ann. §§ 726.105(1)(a) ,(b) ; - the Court grants the request of the United States to avoid the transfer of the Retirement Account to Cecily Sturge, and to return the Retirement Account to Scott J. Wolas;
- the motion of petitioner Cecily Sturge for summary judgment is DENIED;
- the motion of the United States for summary judgment is GRANTED;
- the petition of Cecily Sturge pursuant to
21 U.S.C. § 853(n)(2) ,28 U.S.C. § 2461(c) , and Fed. R. Crim. P. 32.2 is DENIED; - the Court will enter a final order of forfeiture pursuant to
18 U.S.C § 981(a)(1)(C) ,28 U.S.C. § 2461(c) , and Fed. R. Crim. P. 32.2(c); and - the application of the United States for a writ of garnishment pursuant to
28 U.S.C. § 3205(c)(1) is GRANTED.
So Ordered.
Dated: February 16, 2021
/s/ F. Dennis Saylor IV
F. Dennis Saylor IV
Chief Judge, United States District Court