Know Your ABC's
On January 1, 2018, Dorsey, Inc. (“Dorsey” or “Assignor”) filed an Assignment for the Benefit of Creditors (“ABC”) in Florida, selecting Rob Goddell as assignee (“Goddell” or “Assignee”). Prior to filing the ABC, Riveron LLC (“Riveron”) filed a lawsuit against Dorsey for a simple breach of lease agreement (the “Contract Lawsuit”), which was subsequently abated during the pendency of the ABC
During the course of the ABC, Riveron asserted that Dorsey had fraudulently conveyed millions of dollars to its principals, Jimmy and Dee (the “Principals”), during the four (4) year period prior to the ABC filing date (the “Transfer Claims”). Riveron also attempted to take extensive financial discovery of the Principals related to the purported Transfer Claims, but was met with multiple objections and protective motions from the Principals, who argued that only Goddell, as Assignee, had standing to pursue any potential fraud claims and that any discovery may only be taken as provided by the Florida Rules of Civil Procedure. Because Riveron had yet to obtain a final judgment and neither of the Principals were guarantors to the Riveron debt (or even named as a defendant in the Contract Lawsuit), the Principals argued that Riveron had no right to seek discovery of their personal financial information. The Principals also asserted that Riveron’s discovery attempts were barred, in part, by the “pending proceeding rule” as the Contract Lawsuit was still pending in general division.
In an effort to settle and resolve the ABC proceeding and minimize further fees and costs, the Principals, Dorsey and Goddell attempted to enter into a global settlement which would include (i) a lump sum payment to the ABC estate (ii) an injunction in favor of the Principals and (iii) abandonment of certain assets, such as uncollected accounts receivable, back to Dorsey. Consequently, Riveron objected to the settlement based, in part, on Goddell’s attempt to abandon the assets back to the Assignor, which Riveron argued was not contemplated under Fla. Stat. § 727.108(11), which only allowed abandonment back to “duly perfected secured or lien creditors”. Riveron also argued that Goddell’s attempts to invoke a “bar order” under Munford and the “business judgment rule” under Justice Oaks II were inapplicable to state court ABC proceedings.
After months of litigating the issue, Goddell, with the Principal’s consent and authority, finally decided to place Dorsey in a Chapter 7 wherein Goddell was also appointed as the Chapter 7 Trustee (the “Bankruptcy Case”). Subsequently, Goddell attempted to sell right, title and interest to the Transfer Claims to the highest and best bidder. The Principals objected to the sale on the basis that Goddell had no authority to sell fraud-based claims arising under 11 U.S.C. §§ 544 and 548. Goddell argued that under Chapter 727, as the former Assignee, he had authority, at a minimum, to sell the Transfer Claims arising under Florida Statute §§ 726.105, et seq., pursuant to Fla. Stat. § 727.108(1).
Did Riveron, as a general unsecured creditor, have a basis under Florida Rules of Civil Procedure to seek financial discovery of the Principals in the ABC case? Would the “pending proceeding rule” also bar Riveron from seeking a Rule 2004 in the Bankruptcy Case?
Could Goddell have included abandonment of assets in his settlement with the Assignor and Principals? Would Goddell have prevailed in obtaining an injunction under the Munford standard in an ABC proceeding? Would Goddell have prevailed applying the “business judgment rule” under the Justice Oaks II standard in an ABC proceeding?
Could Goddell (as an Assignee) have sold the Transfer Claims to Riveron under Fla. Stat. § 727.108(1)? Did he lose the ability to sell them when the Bankruptcy Case was filed? Does it matter if the Transfer Claims arise under 11 U.S.C. § 528 versus Chapter 726?
Fla. Stat. § 727.108
Fla. Stat. § 727.110
Fla. Stat. § 727.112
United States v. Hartog, Tr. for Bankr. Estate of Exporther Bonded Corp., 597 B.R. 673, 679 (S.D.Fla.2019), appeal dismissed sub nom. In re Exp. Bonded Corp., 19-11937-FF, 2019 WL 4137769 (11th Cir. July 15, 2019)
Matter of Munford, Inc., 97 F.3d 449 (11th Cir. 1996)
In re Sanomedics, Inc., No. 16-21659-RAM, 2018 WL 3816772, *3 (Bankr.S.D.Fla. July 25, 2018) (Mark, J.)
In re Pursuit Capital Mgmt., LLC, 595 B.R. 631 (Bankr.D.Del.2018)
In re McGuirk, 414 B.R. 878, 879 (Bankr.N.D.Ga.2009)
Smith v. Effective Teleservices, Inc., 133 So.3d 1048, 1053 (Fla. 4th DCA 2014)
Moffatt & Nichol, Inc. v. B.E.A. Intern. Corp., Inc., 48 So. 3d 896, 901 (Fla. 3d DCA 2010)