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Eleventh Circuit Court of Appeals Affirms District Court Ruling Finding that Court had Ancillary Jurisdiction over a Supplementary Proceeding to Avoid a Fraudulent Transfer by a Judgment Debtor

In National Maritime Services v. Straub, (Case No. 13-15349), the Eleventh Circuit Court of Appeals affirmed the decision of the United States District Court for the Southern District of Florida, holding that the district court maintained ancillary jurisdiction over a supplementary proceeding to avoid a fraudulent transfer by a judgment debtor.

National Maritime Services ("NMS") filed a complaint in the Southern District of Florida against Burrell Shipping Company, LLC ("Burrell") and Glen F. Straub ("Straub") for breach of contract and unjust enrichment. The claims arose from management and custodial services that NMS had provided to the M/V ISLAND ADVENTURE, a vessel owned by Burrell. The district court had subject matter jurisdiction to hear the case because of the maritime nature of the controversy. While the action was pending, Burrell sold the vessel (its only asset) to a boat scrapper for USD 2,249,000. Burrell then transferred the proceeds of the sale directly to Straub (the president, CEO, and managing member of Burrell).

At a bench trial in June 2011, the district court entered a final judgment in favor of NMS and against Burrell in the amount of USD 99,660.05, plus interest. The district court ruled that Straub was not individually liable to NMS. When NMS sought to execute its judgment they were unsuccessful because Burrell had no assets. As a result, NMS initiated a supplementary proceeding against Straub asking the district court to void the transfer of proceeds from Burrell to Straub based on a Florida law that permits a trial court to void a transfer of property that "has been made…by the judgment debtor to delay, hinder, or default creditors." Fla. Stat. § 56.29(6)(b). After reviewing briefings from both parties on whether or not the court had ancillary jurisdiction to hear this proceeding, the district court held that it had ancillary jurisdiction because NMS was seeking assets of the judgment debtor, Burrell, that were found in the hands of a third party, Straub.

The Eleventh Circuit Court of Appeals affirmed the district court's decision that it had ancillary jurisdiction over the supplemental proceedings and that the transfer from Burrell to Straub was fraudulent. The appellate court stated that ancillary jurisdiction exists in two (2) circumstances; (1) to permit disposition by a single court of claims that are, in varying respects and degrees, factually interdependent; and (2) to enable a court to function successfully to manage its proceedings, vindicate its authority and effectuate its decrees. The Eleventh Circuit held that because in the supplemental proceeding NMS sought to disgorge Straub of a fraudulently transferred asset and not to impose liability for a judgment on a third party, the district court was correct in asserting that it had ancillary jurisdiction over the proceeding. The Eleventh Circuit also affirmed the district court's holding that the transfer to Straub was fraudulent, agreeing that Straub was an insider of Burrell in that he controlled and received the transfer and failed to provide any sort of valid consideration for the transfer. The appellate court found that the transfer was made with actual intent to hinder, delay or defraud.

To read a copy of the Eleventh Circuit's Decision, [click here]

For more information about the Court's decision and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.

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