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holding that there is no liability under Florida law for conspiracy to commit fraudulent transfers
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Case No: 05-41744-ABC-(Colorado) Adv. Pro. No. 8:08-mp-00002-MGW
09-30-2011
In re: BILLY JASON HARWELL, Debtor. LYNN H. MARTINEZ, Chapter 7 Trustee, Plaintiff, v. STEVEN D. HUTTON, and STEVEN D. HUTTON, PL. Defendants.
FINAL JUDGMENT
THIS CAUSE came before the Court for hearing on September 7, 2011, on the Court's Order Scheduling Hearing to Announce Ruling [Doc. No. 103] on the trial in this matter. For the reasons stated orally and recorded in open Court, a transcript of which is attached hereto as Exhibit A and incorporated fully herein, the Court finds in favor of Plaintiff, Lynn H. Martinez, Chapter 7 Trustee on Counts I and II against Steven D. Hutton, P.L.
Accordingly, it is
ORDERED, ADJUDGED and DECREED as follows:
1. Judgment is entered for Plaintiff, Lynn Martinez and against Defendant, Steven D. Hutton, P.L. on Counts I and II in the amount of $342,396.17, which shall accrue interest at the statutory rate from this day forward, and for which let execution issue.
2. Judgment is entered for Defendant, Steven D. Hutton, P.L. on Counts III and IV.
3. Judgment is entered for Defendant Steven D. Hutton, individually, on all counts.
DONE AND ORDERED at Tampa, Florida on September 30, 2011.
MICHAEL G. WILLIAMSON
UNITED STATES BANKRUPTCY JUDGE
Copies Furnished To:
Lori V. Vaughan, Esq., Trenam Kemker, P. O. Box 1102, Tampa, Florida 33601-1102
Michael P. Brundage, Esq., Hill Ward & Henderson, 101 E. Kennedy Blvd., Suite 3700, Tampa, Florida 33602
Lynn H. Martinez, Trustee, 1123 N. Elizabeth Street, Pueblo, Colorado 81003-2259
Sam M. Gibbons
U.S. Courthouse
801 N. Florida Avenue
Tampa, Florida 33 602
Held September 7, 2011
TRANSCRIPT OF HEARING
Continued Trial on Complaint - Judge's Ruling
BEFORE THE HONORABLE MICHAEL G. WILLIAMSON
UNITED STATES BANKRUPTCY JUDGE
PROCEEDINGS DIGITALLY RECORDED BY COURT PERSONNEL.
TRANSCRIPT PRODUCED BY TRANSCRIPTION SERVICE
APPROVED BY ADMINISTRATIVE OFFICE OF U.S. COURTS.
APPEARANCES
For the Plaintiff,
Trustee Martinez
LORI V. VAUGHAN, Esquire
LINDSAY P. LOPEZ, Esquire
Trenam Kemker
For the Defendant,
Steven D. Hutton,
Steven D. Hutton, P.L.
MICHAEL P. BRUNDAGE, Esquire
Hill Ward & Henderson, P.A.
Also Present
Steven D. Hutton
PROCEEDINGS
(Proceedings commenced at 2:40 p.m.)
THE COURTROOM DEPUTY: All rise. This Honorable Court is again in session.
THE COURT: Please be seated.
THE COURTROOM DEPUTY: Miscellaneous Proceeding No. 08-2, Lynn Martinez versus Steven D. Hutton and Steven D. Hutton, P.L.
THE COURT: Okay, let me take appearances.
MR. VAUGHN: Good afternoon, Your Honor. Lori Vaughan and Lindsay Lopez, from Trenam Kemker, on behalf of the Trustee.
THE COURT: Okay, thank you.
MR. BRUNDAGE: Good afternoon, Your Honor. Mike Brundage on behalf of Steve Hutton, and Steve Hutton, P.A., and Mr. Hutton is here as well.
THE COURT: Okay, thank you.
MR. BRUNDAGE: Thank you.
THE COURT: Very well, the Court has before it the conclusion of the trial in the adversary brought by the Trustee in the bankruptcy case of Billy Jason Harwell.
The Court tried the adversary proceeding on remand from the Eleventh Circuit and the District Court. I requested the parties to submit their closing arguments in writing, and have now had an opportunity to review those arguments, and otherwise reflect on the facts that were in evidence at trial, the various documents, and the case law that the parties have cited, and will therefore announce my findings of fact and conclusions of law here in open court today.
The Defendants in this case are Steven D. Hutton and Steven D. Hutton, P.L., which is a Florida limited liability company. I'll refer to the Defendants collectively as Hutton, unless the context otherwise indicates.
Mr. Hutton is an attorney who represented the Debtor on two matters in 2005. The first was with respect to a shareholder dispute that the Debtor had with respect to two corporations in which he was a minority shareholder. They were the Center for Endoscopy, which is abbreviated as CFE, and the Sarasota Endo Investors, or SEI.
Mr. Hutton was able to successfully assist the Debtor, who I'll refer to either as the Debtor or Harwell, in resolving the dispute over those two corporations and the Debtor's minority shareholder interest.
In that respect, a settlement agreement was entered into on August 11, 2005, under which the Debtor was to receive substantial cash and a promissory note.
Specifically, under the settlement agreement, the Debtor was to receive $100,000 in cash within 20 days of the settlement agreement, and $400,000 in cash within 30 days of the settlement agreement, and a promissory note in the amount of $46,83 7.
The second matter that Mr. Hutton was retained to represent Mr. Harwell on concerned a substantial judgment which had been entered against Mr. Harwell in Colorado.
The judgment was in the amount of $1,396,076.53. It had been entered on July 12th, 2005 in favor of one, Thomas Clay Hill, who I will refer to as Hill.
On August 26, 2005, Mr. Harwell answered post-judgment interrogatories from Hill and did not disclose the settlement or that the funds would be received shortly.
The first $100,000 payment was timely made on September 1 and, pursuant to the settlement agreement, was sent to Mr. Hutton, who placed the money in his firm's trust account.
That same day, on the direction of Mr. Harwell, Mr. Hutton disbursed the money to the Debtor and third parties so that the money would not be available for seizure or garnishment by Mr. Hill.
On September 6, 2005, Mr. Hutton wrote a letter, at Mr. Harwell's direction, to the attorneys representing the settling parties, directing them to make the promissory note, that was coming out of the settlement, payable to the Debtor's wife.
On September 9, 2005, the second installment of $400,000 was sent to Mr. Hutton, who then placed that in his trust account as well.
On the same day, at the Debtor's direction, Mr. Hutton distributed the $400,000 in.the form of 17 checks, which went to Mr. Harwell, Mr. Harwell's wife, his father and various other third parties.
On September 19, 2 0 05, Mr. Hutton was served with a writ of garnishment with respect to the amounts that he held in trust for the Debtor. Mr. Hutton was able to get an order from the Florida State Court quashing the writ of garnishment.
Immediately after the State Court ruled, Mr. Hutton obtained a number of cashier's checks payable to Mr. Harwell, Mr. Harwell's relatives, and third parties as designated by Mr. Harwell, all in the amount of $125,000. They were cashier's checks drawn on a local bank using the funds that had been in Mr. Hutton's escrow account.
Now, at the time of these transfers, there's no question that Mr. Hutton was aware of the judgment that had been entered against the Debtor. He was aware that the use of the firm's trust account for purposes of distributing the money would result in the money not being available for garnishment or otherwise seized by Mr. Hill, and that the money would be paid through these checks to the Debtor, the Debtor's wife, the Debtor's father, and other parties including various creditors of the Debtor.
On October 10, 2005, the Debtor filed for bankruptcy in Colorado. The Plaintiff Trustee in this case brought a number of adversary proceedings in Colorado against parties who had received payments from checks drawn on Mr. Hutton's trust account.
The Trustee recovered a total sum of $276,893.93 with respect to those transfers. Not all of the money recovered was money that came through Mr. Hutton's account, although the majority of it was.
Previously in this case, I had before me a motion for summary judgment. On January 20, 2009, I entered summary judgment in favor of Mr. Hutton on the basis that the transfers that were made to him were done through his trust account and therefore Mr. Hutton was only a conduit and not the initial transferee.
Because the case was before me in the context of a summary judgment, I construed all facts in a light most favorable to the non-moving party. In this case, that was the Trustee. And therefore, I assumed that Mr. Hutton was the mastermind of the fraudulent conveyance scheme to devise to funnel Harwell's money into and out of Mr. Hutton's trust account in a fashion that the money could not be reached by Hill's judgment collection efforts.
The issue before the Court on summary judgment was whether or not Mr. Hutton or his law firm was the initial transferee. It was my view at the time that if the money never was actually paid to Mr. Hutton but instead was put into his escrow account, then he was never the initial transferee and I did not, as the Court deciding that summary judgment motion, even need to get to equitable considerations and the conduit defense.
On appeal, Judge Moody affirmed my decision. He concluded that Mr. Hutton and his law firm received the funds in question on behalf of his client, that he deposited those into a trust account. He also concluded that Mr. Hutton was acting in a fiduciary capacity and was obligated to disburse the funds only in accordance with instructions from his client. That Hutton disbursed the funds as directed and assisted by personally delivering the checks, did not alter his status as a fiduciary.
The reasoning was that the funds in the trust account belonged to the client, not to the lawyer. Therefore, Judge Moody concluded that under the control test followed by the Eleventh Circuit, Mr. Hutton and his law firm were not initial transferees under Section 550.
As the parties are well familiar, the Eleventh Circuit reversed Judge Moody's affirmance of my decision. In doing so, the Eleventh Circuit clarified the law in this area, and distilled a two-part test.
That is, in order to take advantage of the equitable exceptions to Section 550's statutory language, the initial transferee must establish, one, that the initial transferee did not have control over the assets, that is that the initial transferee merely received the transfers as a conduit for the assets that were under the actual control of the Debtor transferor and, two, that the initial transferee acted in good faith and as an innocent participant in the fraudulent transfer.
The Eleventh Circuit concluded that based on those facts, Mr. Hutton was an initial transferee under Section 550. The Court concluded that there was no dispute that Hutton was the initial recipient of the Debtor's funds, as stated by the Eleventh Circuit, quote, Hutton undisputably received the funds and deposited them into Hutton's trust account, close quote.
The Eleventh Circuit concluded that the lower courts, meaning Judge Moody and this Court, had erred by merely relying on the fact that Mr. Hutton lacked control over Mr. Harwell's funds in his escrow account, or his trust account.
Under the decision of the Eleventh Circuit therefor, to take advantage of this equitable doctrine, Hutton himself must have acted in good faith and have been an innocent participant in the transfers in and out of the trust account.
The Eleventh Circuit concluded that on remand both parties shall be given the opportunity present evidence and argument to the Bankruptcy Court as to whether Hutton had or lacked control of the funds, and as to whether Hutton acted in good faith or bad faith and was otherwise an innocent participant in what were fraudulent transfers -- or what were assumed to be fraudulent transfers.
That1s the factual background and procedural background that brought us back to trial in this case. And based on those facts and other facts that I will highlight, I make the following conclusions of law.
First of all, the Court has jurisdiction over this matter under 28 U.S.C. Section 1334. This is a core proceeding under 28 U.S.C. Section 157(b)(2)(F) and (b) (2) (H) .
The first issue before the Court is whether or not the transfers were fraudulent. I assume that the transfers were fraudulent for purposes of summary judgment. I did so because I assume all facts in a manner most favorable to the non-moving party.
And while it was assumed, for purposes of summary judgment, that the transfers were fraudulent, the nature of the transfers from the law firm holding the settlement funds to Mr. Hutton in his trust account must still be determined as fraudulent by this Court based on evidence, in order for Mr. Hutton to be the initial transferee of a fraudulent transfer.
Mr. Hutton in that regard argues that the transfers of the settlement proceeds to him were not fraudulent transfers.
The focus of Mr. Hutton's argument in that respect is that the payment of the settlement proceeds by the settling parties to Hutton's trust account was not done for the purposes of hindering, delaying or defrauding any creditor. Thus, under this argument, Mr. Hutton would have the Court focus on the character of the underlying settlement rather than upon what Mr. Harwell did with the settlement proceeds.
Now, there's no question in this Court's mind that the settlement with the unrelated parties was not a fraudulent transfer. Those third parties funded the settlement by placing with their lawyers the amount of $500,000 .
At that point, the attorneys for the settling parties were holding $500,000 that belonged to Mr. Harwell. It was the transfer of Harwell's money from those attorneys to Hutton that was the first transfer in a two-step process to remove the settlement proceeds from the reach of Hill's judgment. That is when the fraudulent transfers began.
Under the settlement agreement that Harwell had entered into, the attorneys for the settling parties were directed to transfer those funds not to Harwell individually but to Harwell's attorney, Mr. Hutton, who had instructions from Mr. Harwell that the funds be immediately transferred to Harwell, his family members, and selected creditors.
The testimony is clear that once the judgment was entered on July 12th and Hill began his domestication efforts on July 27th, all of Harwell's efforts were directed toward rapidly concluding the settlement, which was done by August 11th, and then disbursing the funds quickly and in a manner that would put them beyond the reach of Hill's judgment.
The transfers occurred shortly after the judgment was entered in favor of Hill. Harwell concealed the settlement and the transfers in interrogatory answers dated August 26, 2011 and a deposition taken on September 12, 2005.
As directed by Harwell, the monies were transferred in a fashion that Hill would not get the settlement proceeds. As set forth in Plaintiff's Exhibit 108, Harwell has admitted facts that clearly show his fraudulent intent, and it would not have been credible for him to take any other position.
Clearly, these transfers and the entire method by which the money was disbursed from the settling attorney's trust account was done by Harwell with the intent to delay, hinder or defraud Hill in his attempts to collect on a final judgment.
And that brings us to Mr. Hutton's good faith. As discussed previously, the Eleventh Circuit in its decision in this case has clarified the law concerning what must be shown in order for the initial transferee of a fraudulent conveyance to avail itself of the mere conduit defense. The required elements are, one, that the transferee did not have control over the funds and, two, that the transferee acted in good faith and as an innocent participant in the fraudulent transfer.
Let me say at the outset of a discussion on Mr. Hutton's good faith, the Court found Mr. Hutton to be a credible and impressive witness, he has had a distinguished career and appears to be an attorney of substantial stature within the legal community in which he practices.
From his perspective, it's clear to the Court that he certainly views that the actions that he took in zealously representing his client with respect to Mr. Hill's judgment were done in good faith and within the duties imposed upon him by his profession.
In this respect, Mr. Hutton's focus at the time was on his duty as an attorney to disburse funds, trust funds, as directed by a client. Secondly, his focus with respect to Mr. Hill's judgment and collection efforts was strictly limited to Mr. Hill's garnishment action.
With respect to Mr. Hutton's duty as an attorney, Mr. Hutton certainly had no discretion in picking and choosing who would receive Mr. Harwell's money that was in Mr. Hutton's trust account. As a general proposition, under the rules regulating the Florida Bar, attorneys are bound to follow the instructions of their clients in distributing trust funds.
However, that did not mean that he needed to make his trust account available to Mr. Harwell so that Mr. Harwell could effect transfers intended to delay, hinder or defraud a creditor. Certainly, Mr. Hutton, knowledgeable that Mr. Harwell was doing whatever he needed to have done to keep the settlement proceeds away from Mr. Hill's collection efforts, could have simply refused to be the recipient of the settlement proceeds and could have insisted that the settlement agreement not make him the initial transferee of those funds.
Secondly, he could have simply paid the money to Mr. Harwell, rather than facilitating Mr. Harwell's efforts to remove the funds from the reach of Mr. Hill. Certainly, no one has argued here that the rules regulating the Florida Bar mandate that an attorney follow the instructions of a client in disbursing funds to accomplish fraudulent or criminal purposes.
Now, as an aside, in several instances in the closing arguments, the Defendants refer to Mr. Hill's Colorado final judgment as a disputed claim. Let me deal with that issue briefly.
Although the Bankruptcy Code does not define that term, Courts have developed a number of different tests for determining whether a claim is a disputed one, principally in the context of Section 303, which governs involuntary petitions.
Some judgments have -- some Courts have adopted a summary judgment standard. That is, if there's material issues of fact or law regarding the claim, it will be considered disputed. Other Courts have adopted a multi-factor test which takes into account the Debtor's subjective state of mind. The majority of circuits, however, have all adopted an objective standard, although the precise articulation of that standard varies somewhat.
But regardless of the test used, the Court is unaware of a single case holding that a final judgment is subject to a bona fide dispute where the final judgment has not been stayed or is not subject to a pending appeal. So Mr. Hill's claim here that the claim -- that the judgment is disputed, is solely one of his creation and is not supported by the law. This was an undisputed judgment. It was owing, and it was in the process of being collected.
Mr. Hutton's focus was principally upon his obligation as the holder of client funds which were in the process of being garnished by a judgment creditor. To his credit, he retained legal counsel to advise him about his obligations as a holder of garnished funds.
The advice he received from his counsel were strictly limited to his obligations as the holder of garnished funds. In that respect, the conclusion was that so long as the garnishment existed, he had potential liability to the garnishor, however once the garnishment writ was quashed, he had no further legal obligation to hold the trust funds but was under duty to distribute funds pursuant to the client's instructions.
However, none of this analysis that was done by Mr. Hutton or his counsel focused on the fact that the entire mechanism of payment of Harwell's settlement funds to his trust account and then to other persons was all being done with the intent to delay and hinder Mr. Hill in his collection efforts.
It appears that Mr. Hutton completely missed the critical point that was before him. That is, his offices and his efforts as an attorney were being used by Mr. Harwell to effect a fraudulent transfer.
The question then is whether or not simply missing the issue is enough to support a finding that he acted in good faith and was an innocent participant in the fraudulent transfers.
It should be noted in this regard that this is not a situation of a bank, or for that matter an attorney, being unwittingly involved as the initial transferee of funds used as part of a scheme to defraud creditors under circumstances that would put the bank or attorney on notice of the intent to hinder or delay a creditor.
Clearly, there will be a multitude of situations where attorneys receive funds from clients and disburse them in the ordinary course of business under circumstances that do not raise any concerns or put the attorney on notice that the attorney is playing a critical role in accomplishing a fraudulent transfer.
The Defendants cite two cases for the proposition that an attorney receiving settlement funds is not an initial transferee under Section 550. It's the Gropper or In re Fabric Buys case, and the Bridges Enterprises case, and both those cases involved actions to avoid preferential transfers under Section 547 and to recover money judgments under Section 550.
In Fabric Buys, Unitrac, which is one of the Debtor's creditors, retained a law firm, the Hopgood firm, to sue the Debtor to recover damages for goods sold. The parties settled Unitrac's claim for $37,000. The settlement check was made payable to Unitrac and a member of the Hopgood firm.
The Hopgood firm deposited the check into its escrow account. Eleven days later, the Hopgood firm issued a $37,000 check to Unitrac. Unitrac later deposited the settlement check. Two months later, the Debtor filed for bankruptcy and the Trustee sued Unitrac and Hopgood to avoid the transaction under Section 547 and recover a judgment under Section 550.
The Court in that case held that the Hopgood firm was not an initial transferee. According to the Court, the Hopgood firm acted as a mere conduit. The fact that the settlement payment was funneled through the trust account did not make Hopgood an initial transferee. And even if it did, the Court concluded that it was appropriate to exercise its equitable powers to prevent an inequitable result because the Hopgood firm merely acted as Unitrac's agent and did not receive the benefit of the settlement payment.
Bridges Enterprises involved similar facts. In that case, Fairmeadows and Armstrong Company sued the Debtor to recover $200,000 for breach of contract. The parties eventually settled for $10,000. Shortly after the settlement, the Debtor sent a check to its attorney who deposited the settlement check, which was made payable to the Debtor's attorney, into his trust account.
The Debtor's attorney then sent a check made payable jointly to Fairmeadows' principal and its attorney, sent that check to Fairmeadows' attorney.
After Fairmeadows' attorney endorsed the check, Fairmeadows deposited the check into its checking account. That same day the Debtor filed for bankruptcy, the Trustee then brought an action to recover the $10,000 payment from Fairmeadows and its attorney, among others, as a preferential transfer.
The Court initially concluded that the $10,000 settlement payment was a preferential transfer. But the Court then concluded that neither Fairmeadows nor the Debtor's attorneys were initial transferees under Section 550 because both attorneys merely functioned as agents of their respective clients and served as conduits to effect the parties' settlement.
Like the Court in Fabric Buys, the Bridges Enterprises Court also concluded that it would exercise its equitable discretion to prevent the Trustee from recovering from either attorney, if the attorneys could somehow be deemed initial transferees.
Both of these cases are distinguishable from this case. Neither Fabric Buys nor Bridges Enterprises involved an alleged fraudulent transfer, nor did either of these cases involve any allegations that the attorneys involved were aware that the transfers were potentially preferential transfers. There were no facts in either of these cases that would suggest the attorneys did not act in good faith, so there's no question that the attorneys in Fabric Buys and Bridges Enterprises would satisfy the Harwell test.
Here, on the other hand, Mr. Hutton, a well-respected commercial litigator, who has handled fraudulent cases before, was aware at the time he received the $500,000 in settlement payments, that Mr. Hill had obtained a nearly $1.4 million judgment against the Debtor in Colorado, and that he was attempting to domesticate that judgment here in Florida.
Mr. Hutton was also aware that nearly $250,000 of the 500,000 in settlement funds was being paid to the Debtor or other family members. These are facts completely different from the cases cited by the Defendants.
Those cases, as cited, are all consistent with the Eleventh Circuit standard announced in Harwell. That is the recipient must act in good faith and be an innocent participant in the fraudulent transfer.
That brings us to the standard to be applied in judging good faith and innocent participation in a fraudulent transfer case.
First of all, under the applicable case law, Mr. Hutton has the burden of proving that he acted in good faith. The term good faith is not defined in the Bankruptcy-Code, however there is case law that provides the Court with guidance. The term arises in numerous other instances in the Bankruptcy Code.
Most pertinent to this situation is the good faith standard applicable to immediate and mediate transferees from initial transferees in the context of avoidable transferees in Section 550.
Again, the Court will note parenthetically that the assumption made for purposes of the motion for summary judgment was that Mr. Hutton was the mastermind of the fraudulent scheme. That assumption was only made to satisfy the requirement that the facts be viewed most favorably to the non-moving party. It is certainly not the standard that a finding of lack of good faith requires that the participant be the mastermind of the scheme.
The cases in this area make clear that good faith should be decided based on an objective test. The focus is on what the transferee knew or should have known.
If the transferee has sufficient knowledge to put him on inquiry notice that the transfer may be fraudulent, the transferor lacks good faith. In such instances, knowledge or suspicious events should induce a reasonable person to investigate, and if it is apparent that the purposes of the transfer would hinder or delay a creditor rather than being simply ordinary course of business transactions, then the transferee cannot claim to be acting in good faith and certainly would not be innocent if he then participated in the fraudulent transfer.
In this case, Mr. Hutton can make no credible argument that he was an unwitting or innocent participant in the transfers made by Mr. Harwell. He knew that transfers were intended to get the money away from Mr. Hill's collection efforts. He knew a judgment had been entered. He knew that the transferees were either Mr. Harwell himself or family members or other third parties. The transactions were unusual in his practice, as he and his office manager testified.
In fact, in a sense, he went beyond the call of duty when, on his own notion, he obtained cashier's checks, something he'd never done before for any client, to ensure that there would be absolutely no money left to be applied toward Mr. Hill's judgment.
Nor is it any defense that Mr. Hutton in no way benefitted professional or monetarily from the transfers. Unfortunately, monetary benefit to an initial transferee is not an essential element for liability. The case law is clear in this regard as I have discussed, or I did discuss in my ruling, with respect to the initial transferees in the case of McCarn's Allstate Finance.
Absent a defense, such as the conduit defense being asserted here, an initial transferee is strictly liable for the property received, even if it was transferred on to others.
However, there is no question but that the settlement checks from the attorneys representing CFE and SEI in the respective amounts of $100,000 and $400,000 were made payable to Steven D. Hutton, P.L. trust account.
From the description of Mr. Hutton's office practices, based on his testimony and that of his bookkeeper, the Court infers that in the ordinary course of business, settlement checks such as these, upon receipt would be put into the firm's trust account. At no time did the funds actually go into Mr. Harwell's individual account. Accordingly, the only evidence is that the initial transferee of the fraudulent conveyance is Steven D. Hutton, P.L.
The complaint alleges and the answer admits that Steven D. Hutton, P.L. is a Florida limited liability company and thus has a separate legal existence under Florida law from Mr. Hutton individually.
Accordingly, Mr. Hutton was not individually a transfer of the fraudulent transfers. Steven D. Hutton, P.L. was the recipient of the fraudulent transfers.
Accordingly, the Court concludes that Mr. Hutton -- and I refer to Mr. Hutton, again, collectively --has failed to meet his burden in showing that he acted in good faith and was an innocent participant in Mr. Harwell's fraudulent actions to hinder and delay Mr. Hill's collection efforts. Because the actual recipient of the funds was his limited liability company, that Defendant company will be solely liable as the initial transferee of the transfers except to the extent of any other defenses that it may have by way of setoff or otherwise.
Turning then to the setoff defense, this was the first defense that Mr. Hutton raised. Specifically Mr. Hutton argues that he is entitled to set off any -- against the transfers, monies received from other transferees. Indeed, Section 550 exists to restore the estate to the financial condition it would have enjoyed if the transfers had not occurred.
Accordingly, the Court must determine to what extent the money that went through Mr. Hutton's hands was later collected in settlements from the third party transferees.
It appears that there were eleven adversary proceedings brought in Colorado by the Trustee against these third party transferees. The Trustee recovered a total of $276,893.93 from these transferees. However, several of these Defendants had been sued for amounts in excess of the Hutton transfers based on other transfers.
Accordingly, the Court agrees with the Trustee that a pro rata allocation must be made to apportion the amount of the settlements that resulted from the Hutton transfers and the amount of the settlement that would be attributable to other transfers.
The Court will accept the Trustee's evidence in this regard as set forth in actually Defendants' Exhibit 40. This results in a credit against the total transfers made of $157,603.83. This will be a deduction from the $500,000 that went through the Hutton P.L. trust account.
Turning to the Trustee's argument that the amounts received from the other transferees should be reduced by the cost of collection, the Court concludes as follows: The Court rejects the Trustee's contention that the Court should take into account the fees and costs that the Trustee had to incur in order to pursuer the other Defendants in order for the Trustee to recover the full value of the Hutton transfers. There's no basis for allowing attorneys' fees in actions to avoid fraudulent transfers or to seek recovery under Section 550. It was simply a cost of administration of the estate.
The Court will also deny relief to the Trustee under either the aiding and abetting or civil conspiracy counts. As previously ruled by this Court, there's no cause of action for aiding and abetting a fraudulent transferee. Hutton's liability arises as the initial transfer under Section 550 and is limited to the liability of Mr. Hutton's professional association.
Nor is there any liability under Florida law for conspiracy to commit fraudulent transfers. In any event, there was insufficient evidence to show that Hutton was in fact the mastermind of Harwell's scheme to get his money away from Mr. Hill.
While it is clear to the Court that Mr. Hutton should have known that all of the transfers were being made with the intent to delay or hinder Mr. Hill, or Mr. Hutton did know it, more is required to prove an actual conspiracy.
There's no evidence that Hutton and Harwell actually conspired to bring about the fraudulent transfers. Indeed, it was clear Mr. Harwell at all times was acting to get the money away from Mr. Hill. Certainly Mr. Hutton facilitated that, but it wasn't part of a conspiracy.
In conclusion, the Court finds for the Trustee and will enter judgment against the Defendant Steven D. Hutton, P.L., a Florida limited liability company, for the amount of $342,396.17 under Section 550. Judgment will be entered in favor of the Defendants on all the other counts and requests for relief.
I'll ask Ms. Vaughan to do a form of final judgment consistent with my ruling. It can simply be for the reasons stated orally in open court. If you could get a transcript of my ruling and attach that as an exhibit, rather than have anything typed up.
That concludes my ruling, subject to entry of a final judgment. Is there anything else that I've overlooked or that the parties wish me to consider before we conclude the hearing here today?
MS. VAUGHAN: No, Your Honor.
THE COURT: Okay. Okay, very well, the Court will be in recess. This hearing is concluded. Thank you. THE COURTROOM DEPUTY: All rise. (Proceedings concluded at 3:21 p.m.)
CERTIFICATE
I certify that the foregoing' is the official verbatim transcript, prepared to the best degree possible from the digital audio recording and logs provided by the court.
I further certify that I am neither counsel for, nor related to, nor an employee of, any of the parties to the action in which this hearing was taken.
I further certify that I have no personal interest in the outcome of the action.
Cheryl Culver, CCR, B-1281
Certified Court Reporter
State of Florida Notary Public
Administrative Office of U.S. Courts Approved Transcriber