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Docket Number

No. 3D07-2254.

Attorney(S)

Robert C. Meyer, Miami, for appellant. John H. Ruiz, Miami, and Ralip Hernandez and Jennifer Remy, for appellees.

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Smart Summary

Summary of Opinion: Australia Mejia v. John H. Ruiz and Anthony Davide, No. 3D07-2254 (Fla. 3d DCA May 14, 2008)

Factual and Procedural Background

This appeal arises from proceedings supplementary following a judgment obtained by appellant Australia Mejia against Carmel Apartments, Inc. (the debtor corporation). On March 17, 2003 Mejia was injured at the Carmel Apartments. She sent a letter to Carmel on March 20, 2003 notifying the corporation of her injuries and making a statutory demand for insurance information. After Carmel failed to respond, Mejia filed suit on May 15, 2003; service on Carmel was effected May 20, 2003 by serving appellee Anthony Davide as the corporate representative.

Appellee John Ruiz (an attorney) appeared for Carmel on June 9, 2003 and obtained a 30-day extension to respond. Ruiz was also a 50% shareholder and director of Carmel; Davide was the other 50% shareholder and director. On July 15, 2003 Ruiz filed an answer for Carmel. Unknown to Mejia, that same day Carmel sold its sole asset (the apartment complex where Mejia fell) for approximately $2,225 million, and the sale proceeds were distributed by Davide and Ruiz (K-1s reflected distributions and income to each).

After Mejia noticed the case for trial, Ruiz moved to withdraw as counsel citing "irreconcilable differences" and certified that the motion was not made to delay. Ruiz did not disclose his ownership interest in Carmel nor the sale of the complex. Carmel's pleadings were later stricken, the case proceeded to adjudication, and on January 30, 2004 Mejia obtained a final judgment against Carmel in the amount of $51,377.50.

On April 13, 2004 Davide filed Articles of Dissolution for Carmel, purporting an effective dissolution date of December 31, 2003; no notice of the dissolution was given to Mejia. Mejia filed an affidavit of nonpayment, obtained a writ of execution, served discovery in aid of execution, and commenced proceedings supplementary under section 56.29, Florida Statutes (2003). Depositions taken in aid of execution revealed Carmel had no insurance and confirmed the sale and liquidation of Carmel's only asset.

The trial court denied Mejia relief in the section 56.29 proceeding, finding she had failed to meet her burden of proof. Mejia appealed. The Third District Court of Appeal reviewed the matter de novo and reversed, concluding the transfers to the individual shareholders were fraudulent and ordering that the transfers be set aside as necessary to satisfy Mejia's judgment.

Legal Issues Presented

Whether the transfers of Carmel Apartments, Inc.'s sole asset and the subsequent distributions to its two shareholder-directors constituted fraudulent transfers under section 56.29(6)(b) and the fraudulent-transfer standards in section 726.105;
What burden of proof applies in a section 56.29 proceeding to show a transfer was made "to delay, hinder, or defraud" creditors and whether Mejia met that burden;
Whether the appellees' failure to follow statutory procedures for dissolution (section 607.1406) affects any claim of immunity and supports a finding of fraudulent conduct;
Whether, given the submitted deposition evidence and statutory badges of fraud, the burden shifted to appellees to rebut a prima facie showing of fraudulent transfer and, if so, whether appellees provided any rebuttal evidence.

Arguments of the Parties

Appellant's Arguments

Mejia asserted that the sale of Carmel's only asset and the distributions of the proceeds to Ruiz and Davide were transfers made to "delay, hinder or defraud" creditors, in violation of section 56.29(6)(b) when read with section 726.105.
She relied on multiple statutory "badges of fraud" (as enumerated in section 726.105(2)) and the surrounding circumstances (e.g., timing of the extension request, simultaneous answering and sale, concealment, failure to give notice on dissolution) to establish a prima facie case of fraudulent intent.
Mejia argued that Carmel and its principals failed to comply with the notice and claims-handling requirements of section 607.1406 when dissolving the corporation, and that such noncompliance supports setting aside the transfers and denying any immunity.

Appellees' Arguments

Appellees asserted that their failure to comply with the corporate dissolution statute merely demonstrated that "the corporate affairs have been poorly handled" rather than evidence of fraudulent intent.
Ruiz initially moved to withdraw as counsel citing "irreconcilable differences" (later testifying those differences related to Carmel's inability to pay for his services), and appellees relied on the withdrawal certification that it was not made to delay the action.
Appellees produced no evidence in the proceedings supplementary to rebut Mejia's showing, according to the opinion.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ferguson v. State Exch. Bank, 264 So.2d 867 (Fla. 1st DCA 1972)	Proceedings supplementary are equitable in nature and should be liberally construed.	Cited to support the proposition that section 56.29 proceedings are equitable and warrant liberal construction in favor of the judgment creditor.
Regent Bank v. Woodcox, 636 So.2d 885 (Fla. 4th DCA 1994)	Section 56.29 provides a useful and direct remedy to subject assets to execution in the same court where judgment was recovered.	Used to explain the remedial purpose of proceedings supplementary under section 56.29.
Tomayko v. Thomas, 143 So.2d 227 (Fla. 3d DCA 1962)	Identifies two jurisdictional prerequisites for proceedings supplementary: (1) a returned and unsatisfied writ of execution; and (2) an affidavit averring the writ is valid and unsatisfied with a list of third parties to be impleaded.	Applied to confirm that Mejia satisfied the jurisdictional prerequisites for a section 56.29 proceeding.
Richard v. McNair, 121 Fla. 733, 164 So. 836 (1936)	Statute should be liberally construed to afford the judgment creditor the most complete relief possible.	Supported the court's view that proceedings supplementary should be construed liberally for creditor relief.
Gen. Guar. Ins. Co. of Fla. v. DaCosta, 190 So.2d 211 (Fla. 3d DCA 1966)	Impleading third parties in proceedings supplementary does not itself imply liability; it affords opportunity to raise defenses consistent with due process.	Quoted to explain that impleading appellees did not automatically establish liability, but created an opportunity for them to defend; court found they did not rebut Mejia's showing.
Wieczoreck v. H H Builders, Inc., 450 So.2d 867 (Fla. 5th DCA 1984) and Wieczoreck v. H H Builders, Inc., 475 So.2d 227 (Fla. 1985)	Proceedings supplementary and the preponderance standard for proving fraudulent transfer; courts look to "badges of fraud" to determine actual intent.	Used to explain the evidentiary standard and the practical need to infer intent from badges of fraud when direct proof is unlikely.
Kapila v. Plave (In re Paul), 217 B.R. 336 (S.D. Fla. 1997)	States that proof required to show a transfer is fraudulent is by a preponderance of the evidence.	Cited for the applicable standard of proof in fraudulent-transfer determinations.
Beal Bank SSB v. Almand Assocs., 780 So.2d 45 (Fla. 2001)	Because proving actual intent is difficult, section 726.105(2) allows fraudulent intent to be inferred from badges of fraud.	Supported the court's reliance on statutory badges of fraud to infer fraudulent intent from the surrounding circumstances and transactions.
In re World Vision Entm't, Inc., 275 B.R. 641 (Bankr. M.D. Fla. 2002)	Courts look to badges of fraud to determine whether a transfer was made with intent to defraud creditors.	Used as corroborating authority for using badges of fraud where direct proof of intent is scarce.
United States v. Fernon, 640 F.2d 609 (5th Cir. 1981)	A single badge of fraud may be only suspicious, but a combination of badges can justify a finding of fraud.	Cited to support the proposition that multiple badges present in a case can collectively establish fraudulent intent.
Johnson v. Dowell, 592 So.2d 1194 (Fla. 2d DCA 1992)	Multiple badges of fraud can justify a finding of fraud.	Reinforced the court's view that a combination of indicia supported a finding of fraudulent transfer here.
Stephens v. Kies Oil Co., Inc., 386 So.2d 1289 (Fla. 3d DCA 1980)	The existence of badges of fraud creates a prima facie case and raises a rebuttable presumption that the transaction is void.	Applied to conclude Mejia established a prima facie case, shifting the burden to appellees to rebut.
In re Miller, 188 B.R. 302 (Bankr. M.D. Fla. 1995)	Courts may consider factors beyond those listed in section 726.105(2) when assessing fraudulent intent.	Used to justify considering the totality of circumstances surrounding the transfer.
Kirk v. Edinger, 380 So.2d 1336 (Fla. 5th DCA 1980)	Courts may take into account the circumstances surrounding a conveyance.	Supported the court's weighing of the transactional context and timing in finding badges of fraud.
Treated Timber Prods., Inc. v. S A Assocs., Inc., 488 So.2d 159 (Fla. 1st DCA 1986)	Once a prima facie showing of fraudulent transfer is made, the burden shifts to the defendant to show the transfer was not made to delay, hinder, or defraud creditors.	Quoted to explain the statutory and case-law allocation of the burden of proof; applied where appellees produced no rebuttal evidence.

Court's Reasoning and Analysis

The court began by identifying the standard of review as de novo and reiterating that proceedings supplementary are equitable and should be liberally construed to afford judgment creditors relief. The opinion analyzed statutory and decisional law governing proceedings supplementary (section 56.29) and fraudulent transfers (section 726.105).

Under section 56.29(6)(b), transfers made or contrived by a defendant to delay, hinder or defraud creditors are void. The court explained that whether transfers were so made is governed by the standards of section 726.105(1), which treats transfers made with actual intent to hinder, delay, or defraud as fraudulent, and section 726.105(2), which lists factors (badges of fraud) that may be considered in determining actual intent.

The court observed that many of the statutory badges of fraud were present in the record: the transfer was to insiders (the two shareholder-directors), the transfer was of substantially all the debtor's assets (the sole apartment complex), the transfer occurred after the debtor had been sued and after service, the transfer was concealed from the judgment creditor (Mejia did not learn of the sale until depositions in aid of execution), and the transfer left the corporation insolvent and unable to satisfy the judgment. The court additionally highlighted circumstantial indicia: Ruiz sought and obtained an extension timed to the closing, filed an answer the same day the sale occurred without disclosing the sale, delayed responding to discovery, then moved to withdraw without disclosing his ownership interest or the sale while certifying the withdrawal was not made to delay the action.

The court noted the preponderance-of-the-evidence standard for proving a fraudulent transfer and explained that, because actual intent is seldom admitted, badges of fraud permit an inference of intent. Citing authorities, the court held that a combination of badges can create a prima facie case and raise a rebuttable presumption that the transfer is void. Having found that Mejia presented numerous undisputed facts amounting to several badges of fraud, the court concluded that Mejia made a prima facie showing.

Once a prima facie case was established, the burden shifted to appellees to produce evidence that the transfers were not made to delay, hinder, or defraud creditors. The opinion states appellees produced no such rebuttal evidence.

The court also examined statutory dissolution procedures under section 607.1406 and concluded that Carmel and its principals ignored the statute's requirement to notify known claimants when dissolving a corporation. The court rejected appellees' characterization that the failure to comply merely showed poor corporate governance, reasoning the statute is intended to protect creditors and that compliance can afford limited immunity while noncompliance affords no such protection. The failure to follow the statutory dissolution and claims-notice procedures buttressed the finding that appellees engaged in conduct to delay, hinder, or defraud creditors.

On the totality of the evidence and statutory framework, the court found Mejia had amply satisfied her burden (or at minimum established a prima facie case shifting the burden), appellees failed to rebut, and the transfers should be set aside as necessary to satisfy Mejia's judgment.

Holding and Implications

HOLDING: The court reversed the trial court's Final Order in the supplemental proceedings and instructed the trial court to set aside the transfers from Carmel Apartments, Inc. to appellees John Ruiz and Anthony Davide to the extent necessary to satisfy Mejia's judgment, and to enter judgment in Mejia's favor.

Implications:

The direct, immediate effect is that the transfers of Carmel's assets to the shareholder-directors are voidable to the extent necessary to satisfy Mejia's judgment, and entry of judgment in Mejia's favor was required.
The opinion emphasizes that statutory procedures for corporate dissolution (section 607.1406) are intended to protect creditors; failure to comply can undermine any claim of immunity and support a finding of fraudulent intent when combined with other badges of fraud.
The court applied established precedents and statutory standards (section 56.29 and section 726.105) to the facts; the opinion directs relief in this case but does not announce a novel rule of law beyond applying those authorities to the record facts.

This summary is limited to and derived exclusively from the content of the provided opinion.

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Australia MEJIA, Appellant, v. John H. RUIZ and Anthony Da

RAMIREZ, J.

Appellant Australia Mejia appeals a final order denying her claim in proceedings supplementary against appellees John Ruiz and Anthony Davide, the only two shareholders and directors of a judgment debtor corporation Carmel Apartments, Inc. After Mejia filed suit and served Carmel, the appellee shareholders sold all of the corporation's assets and distributed the proceeds to themselves, leaving the debtor corporation insolvent. Appellant then obtained a judgment against the now worthless corporation. Because the appellees fraudulently transferred all the assets of Carmel to themselves, we reverse.

Mejia fell at the Carmel Apartments on March 17, 2003, and was injured. She submitted a letter to Carmel on March 20, 2003, putting Carmel on notice of her injuries and making a statutory demand for insurance information. When Carmel failed to respond, she filed suit on May 15, 2003. Service on Carmel was effectuated on May 20, 2003, by serving Appellee Davide as the corporate representative.

On June 9, 2003, Ruiz, an attorney and principal of John H. Ruiz, P.A., appeared for Carmel when he filed a notice of appearance and a motion for extension of time to respond to the lawsuit. The motion sought thirty additional days to respond to the complaint. Ruiz was a 50 percent shareholder and director of Carmel. Davide was the other 50 percent shareholder and director of Carmel. Appellees are sophisticated businessmen who engage in real estate, law, and other businesses. Davide has 40 real estate or other businesses, with a total of 150 to 200 employees.

After obtaining an extension of time, Ruiz filed an answer for Carmel on July 15, 2003. That same day, unbeknownst to Mejia, Carmel sold its only asset — the apartment complex and the site of Mejia's accident — for $2,225 million. Davide handled the financial distributions of the proceeds or accounting that followed the sale. According to the K-1 federal tax forms of Carmel, Davide and Ruiz each received a cash distribution of $168,000.00 and over $207,000.00 of income from the closing.

After Mejia noticed the case for trial, Ruiz moved to withdraw as counsel for Carmel on the grounds of "irreconcilable differences." Ruiz did not disclose that he was a director and 50 percent shareholder of Carmel nor that Carmel had sold its only asset. Carmel's pleadings were subsequently stricken, and the matter proceeded to adjudication in favor of Mejia on January 30, 2004, with a final judgment for $51,377.50.

Ruiz later testified in deposition that the "irreconcilable differences" were that Carmel could not pay for his services.

On April 13, 2004, Davide filed Articles of Dissolution with the Secretary of State, pursuant to section 607.1403, Florida Statutes (2003). The dissolution asserts to be in compliance with section 607.1403 and to be effective December 31, 2003, despite a filing date of April 13, 2004. No notice of the dissolution was given to Mejia. Mejia thereafter filed an affidavit of nonpayment, and the clerk issued a writ of execution. Mejia also served a request for production in aid of execution upon Carmel and commenced proceedings supplementary pursuant to section 56.29, Florida Statutes (2003).

At depositions in aid of execution, Mejia learned that Carmel had no liability insurance and had no coverage for her claim. She also learned for the first time of the sale and liquidation of Carmel. The section 56.29 proceeding was presented to the court by uncontested submission of deposition transcripts. The court denied Mejia relief and entered a final order finding that she had failed to meet her burden of proof.

The parties agree that our standard of review is de novo. Proceedings supplementary are equitable in nature and should be liberally construed. See Ferguson v. State Exch. Bank, 264 So.2d 867 (Fla. 1st DCA 1972). Pursuant to section 56.29, judgment creditors have a "useful, efficacious and salutary remedy . . . to subject [assets to] . . . a speedy and direct proceeding in the same court in which the judgment was recovered." Regent Bank v. Woodcox, 636 So.2d 885, 886 (Fla. 4th DCA 1994).

Under the decisional law interpreting section 56.29, there are two jurisdictional prerequisites for proceedings supplementary: (1) a returned and unsatisfied writ of execution; and (2) an affidavit averring that the writ is valid and unsatisfied, along with a list of third persons to be impleaded. Tomayko v. Thomas, 143 So.2d 227, 229-30 (Fla. 3d DCA 1962). Once these jurisdictional criteria are met, the "statute should be given a liberal construction so as to afford to the judgment creditor the most complete relief possible." Richard v. McNair, 121 Fla. 733, 164 So. 836, 840 (1936); Gen. Guar. Ins. Co. of Fla. v. DaCosta, 190 So.2d 211, 213 (Fla. 3d DCA 1966). Mejia established that her writ of execution was valid and returned unsatisfied and listed appellees as the parties to be impleaded. Such impleading, however, does not in and of itself imply liability on the part of the impleaded third parties. DaCosta, 190 So.2d at 214. It provides them with an opportunity to raise their defenses and protect their interests consistent with genuine due process. See Wieczoreck v. H H Builders, Inc., 450 So.2d 867, 871 (Fla. 5th DCA 1984).

The trial court did not elucidate its finding that the plaintiff failed to meet her burden of proof, but we cannot agree with this conclusion. First, we have serious reservations that Mejia had the burden of proof. Second, even if she did, we must conclude that she amply satisfied her burden. Section 56.29(6)(b) states that any transfer, assignment or other conveyance of personal property made or contrived by defendant to delay, hinder or defraud creditors shall be void. Whether a defendant's actions are made or contrived to "delay, hinder, or defraud" must be determined with reference to section 726.105(1)(1), which states: "(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; . . ."

Section 726.105(2) states that, in determining actual intent, consideration may be given, among other factors, to whether:

(a) The transfer or obligation was to an insider.

(b) The debtor retained possession or control of the property transferred after the transfer.

(c) The transfer or obligation was disclosed or concealed.

(d) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.

(e) The transfer was of substantially all the debtor's assets.

(f) The debtor absconded.

(g) The debtor removed or concealed assets.

(h) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred.

(i) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.

(j) The transfer occurred shortly before or shortly after a substantial debt was incurred.

(k) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

Most of the factors listed in the statute are present in this case. The proof required to show that a transfer is fraudulent is the preponderance of the evidence standard. Kapila v. Plave (In re Paul), 217 B.R. 336, 337 n. 2 (S.D.Fla. 1997) (citing Wieczoreck v. H H Builders, Inc., 475 So.2d 227 (Fla. 1985)). Proof of fraud requires proof of intent. Obviously, in these situations, the parties will not readily admit to being instruments of fraud. Therefore, "because of the difficulty of proving actual intent to defraud creditors, section 726.105(2) provides that fraudulent intent maybe presumed from evidence of `badges of fraud.'" Beal Bank SSB v. Almand Assocs., 780 So.2d 45, 60 (Fla. 2001); see also In re World Vision Entm't, Inc., 275 B.R. 641, 656 (Bankr. M.D.Fla. 2002) ("Because the determination of actual intent can be difficult, courts look to `badges of fraud' to determine whether the transfer was made with the intent to defraud creditors.").

While a single badge of fraud may amount only to a suspicious circumstance, a combination of badges will justify a finding of fraud. United States v. Fernon, 640 F.2d 609, 613 (5th Cir. 1981); Johnson v. Dowell, 592 So.2d 1194, 1197 (Fla. 2d DCA 1992). "The existence of badges of fraud create a prima facie case and raise a rebuttable presumption that the transaction is void." Stephens v. Kies Oil Co., Inc., 386 So.2d 1289, 1290 (Fla. 3d DCA 1980). Consideration may also be given to factors other than those listed. In re Miller, 188 B.R. 302, 305-306 (Bankr.M.D.Fla. 1995). Courts may take into account the circumstances surrounding the conveyance. Kirk v. Edinger, 380 So.2d 1336, 1337 (Fla. 5th DCA 1980).

In our case, these circumstances included: (1.) requesting an extension of time to file an answer until the closing on the apartment complex; (2) filing an answer and eleven affirmative defenses without mentioning that the complex has been sold and the closing is taking place that same day; (3) receiving a request to produce from the plaintiff and waiting until the thirtieth day to then move to withdraw; (4) filing a motion to withdraw for irreconcilable differences without explaining that those differences were with a corporation in which counsel was a 50 percent owner and director; and (5) certifying in the motion to withdraw that it was not made in an effort to delay the action and was "made in good faith." Here, Mejia clearly satisfied her burden by presenting numerous undisputed facts which supported several badges of fraud, as well as additional facts and circumstances buttressing a finding that Carmel did "delay, hinder or defraud" Mejia.

After receipt of this evidence, the burden shifted to appellees to show the transfer was made without intent to "delay, hinder or defraud creditors." Treated Timber Prods., Inc. v. S A Assocs., Inc., 488 So.2d 159, 160 (Fla. 1st DCA 1986); § 56.29(6)(a) ("[T]he defendant has the burden of proof to establish that such transfer or gift from him or her was not made to delay, hinder, or defraud creditors."). Appellees put forth no evidence to rebut Mejia's showing.

Furthermore, the manner in which Carmel was dissolved lends support to a finding that appellees engaged in conduct to "delay, hinder or defraud creditors." The Florida Statutes provide the manner for liquidation of corporations. Section 607.1406 requires that known claims of dissolved corporations be handled in one of three manners. That statute states, in pertinent part:

Section 607.1406. Known claims against dissolved corporation

(2) The dissolved corporation or successor entity shall deliver to each of its known claimants written notice of the dissolution at any time after its effective date . . .

(3) A dissolved corporation or successor entity may reject, in whole or in part, any claim made by a claimant pursuant to this subsection by mailing notice of such rejection to the claimant within 90 days after receipt of such claim . . .

(4) A dissolved corporation or successor entity electing to follow the procedures described in subsections (2) and (3) shall also give notice of the dissolution of the corporation to persons with known claims . . .

Carmel totally ignored these statutory provisions. Although appellees knew of Mejia's claim, Mejia was given no notice of the sale/transfer nor was she notified as required under section 607.1406. Appellees respond that their failure to comply with the statute merely proves that "the corporate affairs have been poorly handled." The statute, however, is not intended as a guide to what constitutes good corporate governance, but is clearly aimed at affording protection to creditors when a corporation is voluntarily dissolved. Shareholders and directors that follow the procedures set forth in section 607.1406 are given limited immunity. Conversely, those that ignore its dictates are not. Here, appellees disregarded the statute and are therefore entitled to no immunity.

In sum, Mejia presented the trial court with a prima facie proof of evidence of several badges of fraud derived from the appellees' own testimony. We therefore reverse the trial court's Final Order on Supplemental Proceedings entered in favor of the appellees, with instructions to set aside the transfers from Carmel to appellees to the extent necessary to satisfy Mejia's judgment, and enter judgment in Mejia's favor.

MEJIA v. RUIZ