Wiand v. Lee: Panel Affirms Recovery in Ponzi Scheme Clawback Action Because Transfer of Investor Funds to Other Investors Was Property of the Debtor for Purposes of Florida Law

Wiand v. Lee, No. 13-10448, from SDFla
 

District Judge Fuller (M.D. Al.) joined by Circuit Judge Martin and Senior Circuit Judge Anderson
 

Summary: The plaintiffs sued the defendant trustee under the Florida Uniform Fraudulent Transfer Act (“FUFTA”), seeking to void distributions of profits from the trust to various receivership entities that were used to perpetrate a Ponzi scheme.  The district court granted summary judgment to the plaintiff receiver.  The defendant trustee appealed the grant of summary judgment; the plaintiff cross-appealed the denial of pre-judgment interest on profits that the defendant was ordered to return.

Essentially, this was a “clawback” action to recover profits from investors in a Ponzi scheme run by Arthur Nadel.  The trust held accounts with both of the plaintiff entities, who were run by Mr. Nadel and heavily involved in the scheme, and received distributions from those entities from 2000 through 2008 (the scheme collapsed in 2009), profiting by more than $900,000.  The plaintiff receiver sued seeking return of these false profits to partially compensate investors who suffered net losses on their investments.

The panel first considered whether Mr. Nadel’s transfer of receivership funds to the defendant trustee was a transfer of “property of a debtor” as required by FUFTA.  The panel concluded, as a matter of first impression for the Eleventh Circuit, that proof of a transfer made in furtherance of a Ponzi scheme establishes actual intent to defraud under § 726.105(1)(a) without the need to consider whether there were additional badges of fraud.  The receiver had standing to sue on behalf of the plaintiff receivership entities because they were harmed by Mr. Nadel when he transferred profits to investors from the principal investments of others.  The grant of summary judgment was therefore affirmed.

Next, the panel considered whether the order denying pre-judgment interest should stand.  The amount of prejudgment interest sought was nearly $440,000.  This claim was made under Florida law, and a plaintiff is typically entitled to prejudgment interest when a judgment is entered on liquidated damages in its favor.  There are three factors a court should consider in determining whether to award prejudgment interest on equitable grounds: (1) when a government entity is concerned, whether it would be equitable to put the burden of paying interest on the public in choosing between innocent victims; (2) whether it is equitable to allow an award of prejudgment interest when the delay between injury and judgment is the fault of the prevailing party; and (3) whether it is equitable to award prejudgment interest to a party who could have, but failed, to mitigate its damages. 

 

Since the district court (acting through the magistrate judge) failed to actually apply these factors, the panel found that the district court had abused its discretion.  The panel cited several Florida cases showing that the award of prejudgment interest in FUFTA cases was routine and ordered the magistrate judge to “cite specific equitable considerations recognized under Florida law that would result in a different outcome than the cases cited above.”

Accordingly, the district court’s grant of the plaintiff’s motion for summary judgment was affirmed, but the denial of the motion for prejudgment interest was reversed and remanded with instructions.