Opinion
Case No. 99-26616-BKC-RBR, Adv. No. 00-2130-BKC-RBR-A
September 13, 2000
Arthur Halsey Rice, Rice Robinson, P.A., Miami, FL, for trustee.
Scott L. Baena, Strook Strook Lavan LLP, Miami, FL, for defendants.
ORDER DENYING MOTION TO STAY ADVERSARY PROCEEDING
This matter came before the Court for hearing on July 11, 2000 upon the Motion by Defendants to Stay Adversary Proceeding and Incorporated Memorandum of Law (C.P. #28) (the " Motion to Stay"), and the Trustee's Response thereto (C.P. #46) (the " Response"). The Court, having considered the Motion to Stay and the Response, having heard argument of counsel, and being otherwise duly advised in the premises, makes the following findings of fact and conclusions of law.
FINDINGS OF FACT
On October 28, 1999, John W. Kozyak (the "Trustee") was appointed as Chapter 11 Trustee in the bankruptcy case of In re Financial Federated Title Trust, Inc. a/ka Asset Security Corp. a/k/a Viatical Asset Recovery Corp. a/k/a Quad-B-Ltd. a/k/a American Benefits Services, Inc., Case No. 99-26616-BKC-RBR , (FinFed" or "Debtor"). Thereafter, on or about March 20, 2000, the Trustee filed his First Amended Complaint to Avoid Fraudulent Transfers and for Other Relief (the "Complaint") against Cheryl Poindexter ("Poindexter") and AWE Productions, Inc. ("AWE") (collectively the "Defendants") in the instant Adversary Proceeding.
The Complaint alleges that between January 1, 1999 and September 1, 1999, FinFed fraudulently transferred funds totaling $560,000.00 to the Defendants. It makes no allegations as to the conduct or intent of the Defendants beyond their receipt of the funds in exchange for less than reasonably equivalent value. The Complaint contains two counts for avoidance of fraudulent transfers pursuant to 11 U.S.C. § 548(a)(1)(A) and (a)(1)(B), and two counts under their state law counterparts, Florida Statutes § 726.105(1)(a) and (b), and § 726.106. It also contains a count for recovery of the value of the transfers under 11 U.S.C. § 550.
The Complaint also sought to recover an automobile but that Count was dismissed by the Trustee.
To prevail on his fraudulent transfer claims under both state and federal law, the Trustee must show that FinFed made the transfers to Poindexter with intent to defraud or delay creditors. § 548(a)(1)(A); Fla. Stat. § 726.105(1)(a). The Trustee must also prove that FinFed (i) was insolvent at the time of the transfers; (ii) was engaged in a business for which there was little remaining capital; or (iii) intended to incur debts for which it could not pay at the time of the transfers. § 548(a)(1)(B), Fla. Stat. §§ 726.105(1)(a) and 726.106.
On May 26, 2000, the grand jury in the related criminal case of U.S.A. v. Brandau, et al., Case No. 99-8125-CR-HURLEY/Johnson (the "Criminal Case") returned a Second Superceding Indictment (the " Indictment"). The Indictment contains 53 counts naming 17 individual defendants. AWE, a Defendant in this Adversary Proceeding, is not charged in the Indictment and is not a defendant in the Criminal Case.
The Indictment charges Poindexter with one count of Conspiracy to Launder the Proceeds of Illegal Activity in violation of 18 U.S.C. § 1956(h), one count of Financial Transactions with Mail and Wire Fraud Proceeds and with the Intent to Conceal or Disguise the Nature, Source, or Ownership of the Proceeds in violation of 18 U.S.C. § 1956(a)(1)(B), and one count for Criminal Forfeiture in violation of 18 U.S.C. § 982(a)(1). More specifically, the Indictment alleges that Poindexter knowingly and intentionally caused the sum of $197,727.19 in mail and wire fraud proceeds to be transferred to and from certain specific bank accounts in Miami, California, and the Bahamas in furtherance of a conspiracy to conceal the proceeds of FinFed's illegal activity, and seeks forfeiture of her property to the extent it was involved in or can be traced to this offense.
A conviction for violation of §§ 1956(h) requires that the government prove the following three elements: (1) a conspiracy, agreement, or understanding to commit money laundering was formed, reached, or entered into by two or more persons; (2) at some time during the existence or life of the conspiracy, agreement, or understanding, one of its alleged members knowingly performed one of the overt acts charged in the indictment in order to further or advance the purpose of the agreement; and (3) at some time during the existence or life of the conspiracy, agreement, or understanding, the defendant knew the purpose of the agreement, and then deliberately joined the conspiracy, agreement or understanding. 18 U.S.C. § 1956(h); United States v. Conley, 37 F.3d 970, 976-77 (3d Cir. 1994).
A conviction under § 1956(a)(1)(B) requires proof of the following elements: (1) use of funds that are proceeds of unlawful activity; (2) knowledge that the funds are proceeds of unlawful activity; and (3) conduct or attempt to conduct a financial transaction, knowing that the transaction is designed in whole or in part to disguise the nature, location, source, ownership or control of the proceeds or to avoid a transaction reporting requirement under State or Federal law. 11 U.S.C. § 1956 (a)(1)(B); United States v. Moss, 9 F.3d 543, 551 (6th Cir. 1993). 18 U.S.C. § 982 allows a court to enter an order requiring a person convicted of one of these crimes to forfeit to the government any property involved in or traceable to the offense.
On June 5, 2000, the Defendants filed their Motion to Stay, seeking to stay the continuance of this Adversary Proceeding until the conclusion of the criminal case.
CONCLUSIONS OF LAW
A stay of a civil proceeding pending the outcome of a criminal proceeding is not constitutionally required, but may be granted when "special circumstances" so require in the "interests of justice." United States v. Kordel, 397 U.S. 1, 12 (1970).
The Defendants claim that a stay is warranted in the instant case because Defendant Poindexter has recently been indicted in the Criminal Case and plans to invoke her Fifth Amendment privilege against self-incrimination in this Adversary Proceeding. The Defendants contend that to proceed with the Adversary Proceeding would force her to choose between invoking the privilege and testifying in her defense, amounting to an unconstitutional infringement on her constitutional rights.
The Defendants cite several cases from outside this jurisdiction which articulate numerous factors a court should consider to determine the necessity for a stay of a civil proceeding on constitutional grounds where there is a pending criminal proceeding against the same defendant. However, the standard set by the Eleventh Circuit as to when a stay is mandated to prevent unconstitutional infringement is more narrow and less subjective. Rather, the law in the Eleventh Circuit requires a consideration of whether, as a result of invoking the privilege, the defendant faces certain loss of the civil proceeding on summary judgment if the civil proceeding were to continue. United States v. Lot 5, 23 F.3d 359, 364 (11th Cir. 1994); Pervis v. State Farm Fire Casualty Co., 901 F.2d 944 (11th Cir. 1990).
The Defendants refer the Court to the following cases:Walsh Secs., Inc. v. Cristo Property Management, Ltd., 7 F. Supp.2d 523, 526-27 (D.N.J. 1998); In re Quality Med. Consultants, Inc., 192 B.R. 777, 780 (Bankr.M.D.Fla. 1995); Fidelity Nat'l Title Ins. Co. of N.Y. v. Nat'l Title Resources Corp., 980 F. Supp. 1022, 1024 (D.Minn. 1997); Jackson v. Johnson, 985 F. Supp. 422, 424 (S.D.N.Y. 1997); Sidari v. Orleans County, 180 F.R.D. 226, 229 (W.D.N.Y. 1997); and Southwest Marine, Inc. v. Triple Machine Shop, Inc., 720 F. Supp. 805, 809 (N.D.Cal. 1989)
In United States v. Lot 5, 23 F.3d 359, supra, the defendant was the target of an investigation of a drug conspiracy as well as a civil forfeiture proceeding. Id. at 360. The defendant moved for a stay of the civil forfeiture proceeding on the grounds that the government planned to indict her, and that a stay would preserve her right to due process of law and her privilege against self-incrimination. Id. at 363-364. Like Poindexter in the instant case, the defendant in Lot 5 claimed that she was faced with the dilemma of whether to remain silent and allow the forfeiture, or testify in the forfeiture proceeding and expose herself to incriminating admissions that could be used against her in a subsequent criminal trial. Id. at 364. The stay was denied by the District Court and the defendant appealed.
On appeal, the Eleventh Circuit expressed that "a blanket assertion of the privilege is an inadequate basis for the issuance of a stay." Id. The Court also determined that a court could deny a stay "so long as the privilege's invocation does not compel an adverse judgment against the claimant." Id. (citing United States v. Premises Located at Route 13, 946 F.2d 749, 756 (11th Cir. 1991)). Because the defendant could not demonstrate that her invocation of the privilege resulted in a certain loss of the civil forfeiture proceeding, the court affirmed the District Court's denial of her request for a stay. Id.
Under this standard, Defendant Poindexter must show that invocation of the privilege in the instant Adversary Proceeding will result in certain loss by automatic summary judgment. United States v. Two Parcels of Real Property, 92 F.3d 1123, 1129 (11th Cir. 1996); Pervis, 901 F.2d at 946-7. This must be an actual adverse judgment, and not "merely the loss of the defendant's most `effective defense.'" S.E.C. v. Incendy, 936 F. Supp. at 955 (S.D.Fla. 1996); Shell Oil Co. v. Altina Assoc., 866 F. Supp. 536, 540-41 (M.D.Fla. 1994). The Defendants make no such showing in the instant case.
In this case, the Court finds that Poindexter's refusal to testify will not give rise to automatic liability subjecting the Defendants to an unfavorable summary judgment. Even if all of the allegations against Poindexter as to her receipt of the transfers were taken as true in light of her silence, the Trustee must still carry the burden of proving all of the elements of his complaint for fraudulent transfers under state and federal law, which include FinFed's fraudulent intent, insolvency, and financial condition at the time of the transfers to the Defendants. Moreover, the Defendants can challenge the Trustee's allegations through expert testimony and other evidence, without exposing Poindexter to the risk of incrimination.
The Court acknowledges that Poindexter's invocation of her Fifth Amendment privilege would not prohibit the Trustee from arguing that an adverse inference be drawn against her in this proceeding as to that information on which she has chosen to remain silent. Baxter v. Palmigiano, 425 U.S. 308, 317-18 (1976). However, under the standard set by the Eleventh Circuit, the mere possibility of disadvantage in a civil proceeding, such as that which might result from this adverse inference, is insufficient to justify a stay in the instant case. See, S.E.C. v. Rhetorik, 755 F. Supp. 1018 (S.D.Fla. 1990) (stay denied where court found that defendants' exercise of Fifth Amendment rights would not give rise to automatic liability); Shell Oil Co. 866 F. Supp. at 541-42(stay denied where defendant invoking privilege would not be subject to summary disposition as a result). Indeed, even severe disadvantage rising to the level of Poindexter losing her best defense would not meet the test in this Circuit. S.E.C. v. Incendy, supra at 955.
The Court also finds that the Stay Motion should be denied as to Defendant AWE. AWE has not been indicted and is not a party to any pending criminal action. Furthermore, there exists no Fifth Amendment privilege for a corporate defendant. Braswell v. United States, 487 U.S. 99, 105 (1988). See also, In re Tower Metal Alloy Co., 188 B.R. 954, 956-57 (Bankr.S.D.Ohio, 1995) (denying motion for stay of civil proceedings filed by corporate defendants because corporation has no Fifth Amendment privilege).
Further, the Court rejects Poindexter's argument that her participation in discovery in the Adversary Proceeding might "extend criminal discovery beyond applicable limits," thereby prejudicing her in the Criminal Case. While there are certain differences in scope between permitted discovery under the Federal Rules of Criminal Procedure and the Federal Rules of Civil Procedure, the Court fails to see how this difference could have any impact on Poindexter's cases. First, the government is not a party to this Adversary Proceeding, and it will not be conducting discovery in this matter. In addition, if Poindexter asserts her Fifth Amendment privilege as she suggests she will, the government would gain little or no information that could be used against her in the Criminal Case. The Fifth Amendment does not protect Poindexter from the testimony of others.
The case cited by the Defendants in support of their claim that the difference in the scope of the discovery should be considered in granting a motion for stay, Campbell v. Eastland, 307 F.2d 478 (5th Cir. 1962), is completely inapplicable. Campbell involved a litigant using a civil case to obtain discovery from the government as to a possible case it might have against him. The court granted the stay of the civil proceeding because "a litigant should not be allowed to make use of the liberal discovery procedures applicable to a civil suit as a dodge to avoid the restrictions on criminal discovery and thereby obtain documents he would not otherwise be entitled to for use in his criminal suit." Id. at 487. As stated above, the government is not a litigant in this civil proceeding. Therefore, the Campbell case and its reasoning is inapplicable. See, e.g., In re Who's Who Worldwide Registry, Inc., 197 B.R. 193, 197 (E.D.N.Y. 1996) (where government is a party to Adversary Proceeding, and parallel criminal case is pending, government is precluded from discovery as to issues raised in complaint).
Finally, although not required under the narrow standard set by the Eleventh Circuit for determining whether a stay should be granted on Fifth Amendment grounds, a balancing of the interests involved warrants the conclusion that a stay is not justified in this instance. As discussed above, continuation of this Adversary Proceeding presents no impermissible threat to Poindexter's Fifth Amendment privilege. She will have the right to assert such privilege, as well as participate in the proceeding as it relates to discovery of third parties. Moreover, at trial, Poindexter will have the unfettered right to contest the Trustee's proof, as well as present those defenses which may negate liability. Because the Trustee's claims require proof of issues and facts quite distinct from the allegations of the Indictment, she can do so with little risk of incrimination in the Criminal Case.
On the other hand, a stay would severely prejudice the Trustee's legitimate interest in the expeditious resolution of this Adversary Proceeding in order to make a distribution to creditors. The longer this Adversary Proceeding is delayed, the less likely it is that the Trustee will be able to recover the assets that are sought. This is particularly true in light of the fact that "over time, the likelihood of witnesses becoming unavailable, memories fading, and documents being lost increases dramatically." S.E.C. v. Incendy, 936 F. Supp. at 955.
Contrary to the assertions of the Defendants with regard to the effect the invocation of the privilege might have on discovery, the interests of this Court, as well as the public interest in administering the estate and compensating creditors, can only be served by resolving this Adversary Proceeding, including any discovery issues which may arise, as efficiently and expeditiously as possible.
Accordingly, for the reasons set forth above it is
ORDERED AND ADJUDGED that the Motion to Stay is DENIED without prejudice. This Adversary Proceeding shall proceed according to the schedule set by this Court.
DONE AND ORDERED in the Southern District of Florida on __________________________________.
MEMORANDUM ORDER DENYING DEFENDANT THOMAS D. SCLAFANI'S MOTION TO DISMISS ADVERSARY COMPLAINT
This matter came before the Court for hearing on August 8, 2000 upon the Motion to Dismiss Adversary Complaint filed by Defendant Thomas D. Sclafani. The Court, having reviewed the Motion and court file, having considered the arguments of counsel, and being otherwise duly advised in the premises, finds as follows.
I. INTRODUCTION
On or about June 15, 2000, Plaintiff John W. Kozyak, Trustee for Financial Federated Title and Trust, Inc. ("FinFed"), the Debtor in the main bankruptcy case from which the instant Adversary Proceeding arises, filed his Complaint to Avoid Fraudulent Transfers and to Impose Transferee Liability (the " Complaint") against Defendants Asset Base Resources International, Ltd. ("ABRI") and Thomas D. Sclafani, individually ("Sclafani"), seeking to recover alleged fraudulent transfers of over $5 million to ABRI and over $1 million to Sclafani. Sclafani has moved to dismiss the Complaint because of the Trustee's failure to join an entity known as Transcontinental Management Services, Ltd. ("TMS") which, as will be explained in further detail below, Sclafani claims is an indispensable party under Rule 19 of the Federal Rules of Civil Procedure. For the reasons set forth below, the Court concludes that TMS is not an indispensable party within the meaning of Rule 19 and, accordingly, Sclafani's Motion to Dismiss will be DENIED.
In his Motion to Dismiss, Sclafani also sought to dismiss Count II of the Complaint, which alleges that the transfers to ABRI were fraudulent under 11 U.S.C. § 548(A)(1)(B) but mistakenly seeks judgment against Sclafani for the value of these transfers in the "Wherefore" clause. On August 8, 2000, this Court entered an Order granting the Trustee's Motion to Amend by Interlineation, which was filed on August 1, 2000, in order to correct this scrivener's error. Accordingly, the Motion to Dismiss as to Count II for failure to state a claim against Sclafani is moot and need not be addressed in this Order.
II. BACKGROUND FACTS
Because this matter has come before the Court on a Motion to Dismiss, all of the allegations contained within the Complaint are taken as true. As stated previously, this proceeding involves the avoidance and recovery of certain alleged transfers to the Defendants from FinFed.
According to the Complaint, on March 5, 1999, FinFed began a series of transfers totaling over $5 million to an entity known as CSI Ag., Ltd. ("CSI"). CSI is a corporation controlled by an individual named Gary Pierce, and its officers are Pierce and an individual named Anthony Thompson ("Thompson"). These initial transfers to CSI have been avoided by the Trustee in a prior action styled Kozyak v. Gary Pierce and CSI Ag., Ltd., Adversary No. 99-2558-BKC-RBR-A, by Memorandum Decision Granting Partial Final Judgment by Default dated February 18, 2000.
The Complaint further alleges that or about May 10, 1999, CSI transferred $4,890,000.00 to Defendant ABRI. ABRI is allegedly a limited partnership, formed under the laws of the Bahamas, whose officers are Thompson and Frederick Brandau, a principal of FinFed.
In late July of 1999, CSI then allegedly transferred $100,000.00 to Defendant Sclafani. Two days later, ABRI allegedly transferred $1 million to Sclafani. The Trustee avers that ABRI accomplished this transfer by first transferring the funds to a Bahamian bank account held by TMS, whose officers are Thompson, his daughter, and a woman named Anette Langley. Within days, TMS conveyed these funds to Sclafani. The Trustee does not allege that TMS is the recipient of any fraudulent transfers from FinFed. Instead, he alleges that TMS was a mere conduit for the transfer to Sclafani.
The Trustee's Complaint seeks to avoid and recover the transfers from CSI to Sclafani and ABRI under 11 U.S.C. § 548 and § 550(a)(1) and Fla. Stat. § 726.105, asserting that ABRI and Sclafani were the initial transferees and CSI was a mere conduit for the funds transferred. In the alternative, the Complaint contains a count for mediate or subsequent transferee liability against both ABRI and Sclafani under 11 U.S.C. § 550(a)(2) because all of the initial transfers from FinFed to CSI have been avoided.
The Trustee's Complaint also seeks to recover the value of the alleged transfer of $1 million from ABRI directly to Sclafani via TMS, premised on the fact that Sclafani is a mediate or subsequent transferee of the voidable transfer to ABRI from FinFed. In the alternative, the Trustee alleges that this transfer can be avoided as a direct transfer from FinFed, using CSI, ABRI, and TMS as conduits. Neither theory alleges that TMS is a transferee of any funds, and the Complaint seeks no relief against TMS. Sclafani claims that TMS is an indispensable party who cannot be joined and, accordingly, the Complaint should be dismissed.
III. ANALYSIS TMS is not an Indispensable Party to this Action
Deciding Sclafani's Motion to Dismiss for failure to join an indispensable party requires a two-step analysis for determining whether a party is indispensable, set forth in Rule 19 of the Federal Rules of Civil Procedure. First, the Court must ascertain under the standards of Rule 19(a) whether TMS is a "necessary party," or one who should be joined if feasible. Challenge Homes, Inc. v. Greater Naples Care Center, Inc., 669 F.2d 667, 669 (11th Cir. 1982). If TMS is found to be a necessary party, the Court must then proceed to the second step in the analysis, contained in Rule 19(b), which requires the Court to consider various factors and determine whether the litigation may continue. Id.
A. TMS is Not "Necessary" to this Action.
According to Rule 19(a), Federal Rules of Civil Procedure:
A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence, complete relief cannot be accorded among those already parties; or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest, or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.
This Court finds that TMS does not meet either test and, therefore, is not "necessary" as set forth in Rule 19(a).
1. TMS is Not Necessary to Accord Full Relief.
The absence or presence of TMS in this lawsuit has no bearing on the Court's ability to accord complete relief among those already parties. The Defendants, including Sclafani, are not requesting relief in this case, so to address this test the Court need only look at whether, in the absence of TMS, the Court can afford the Trustee the relief he seeks. Clearly, it can. The Defendants can be found liable as the direct, mediate, or immediate transferee of a fraudulent transfer, and they can be ordered to turn over the estate property and/or account for same. While it is true that the circumstances surrounding the transfers allege events involving FinFed, CSI, ABRI, and TMS, TMS does not need to be a party in the lawsuit to establish the relationship among these entities or the facts involved in the transfers. Facts concerning TMS's limited involvement as a conduit for the funds transferred can easily be substantiated by calling TMS as a witness or by using documentary evidence.
2. TMS Claims No Interest in this Action.
TMS has not claimed any interest in the Trustee's action against the Defendants for recovery of fraudulent transfers made for the benefit of the Defendants. The Trustee is not seeking affirmative relief against TMS, or alleging that TMS was the recipient of any fraudulent transfers. In fact, according to the allegations of the Complaint, TMS is no longer in possession of any property of the estate and was only in possession of the funds the Trustee seeks to recover from the Defendants for a short period, as a mere conduit. A determination that TMS is a conduit does not constitute a binding determination as to the rights, interests, or liabilities of TMS or TMS's participation in the acts alleged in the Complaint. To prevail on his allegations that TMS is a mere conduit does not require The Trustee to show that TMS had any knowledge of the fraudulent nature of the transfers or that it was an alter-ego or agent of the Defendants. Instead, he must show only that TMS did not exercise sufficient dominion and control over the funds transferred to be considered a transferee. Nordberg v. Societe General (In re Chase Sanborn Corp.), 848 F.2d 1196 (11th Cir. 1988). See, e.g., Metsch v. First Alabama Bank of Mobile (In re Colombian Coffee Co.), 75 B.R. 177, 179 (S.D.Fla. 1987) (finding that bank was mere conduit where bank had no discretion with respect to deposited funds; bank acquired no beneficial interest in the deposited funds; bank exhibited no bad faith; and bank was obligated to follow the depositor's instructions); Salomon v. Nedlloyd, Inc. (In re Black Geddes, Inc.), 59 B.R. 873, 875 (Bankr.S.D.N.Y. 1986) (finding that steamship agency was mere conduit where it simply collected payment from the debtor and applied the money to pay the freight to the common carrier); Gropper v. Unitrac, S.A. (In re Fabric Buys of Jericho, Inc.), 33 B.R. 334, 337 (Bankr.S.D.N.Y. 1983) (holding that law firm acted as mere conduit of funds placed into firm's escrow account).
Finally, neither the Defendants nor TMS will be exposed to double or inconsistent liabilities if TMS is not joined. Section 550(d) of the Code provides that "the trustee is entitled to only a single satisfaction" of his claim. Should the Trustee prevail and recover the money and property sought from the Defendants in this action, it would be unnecessary for the Trustee to then turn and seek recovery from TMS. Similarly, the Trustee's recovery would have no effect on any subsequent claim TMS might have against the Defendants in the future. Moreover, 11 U.S.C. § 550 contains an express provision that protects against the Trustee making multiple recoveries. See, 11 U.S.C. § 550(d).
The case cited by Sclafani in support of his Motion to Dismiss, Johnson Johnson v. Coopervision, Inc., 720 F. Supp. 1116 (D.Del. 1989), is inapposite. In that case, the plaintiff failed to join one of its subsidiaries, where the contract upon which the suit was based had been transferred to this subsidiary. Id. The court found that the subsidiary had an interest in the outcome of the litigation because it would be bound by any decision made as to the contract, and that it needed to be joined to protect this interest. Id at 1123. As discussed above, TMS has no interest in the instant lawsuit and will not be affected by any judgment in favor of either party.
The Johnson court also held that the subsidiary was a necessary party because, were the plaintiff to recover from the defendant, the subsidiary could then sue the defendant seeking to recover under the same contract. Id. In the instant case, while the Court is unaware of the nature of any claims TMS may have against Sclafani unrelated to facts and circumstances surrounding the instant lawsuit, this Court can find no basis for TMS to sue Sclafani for damages arising out of the same claim. TMS has no standing to sue to recover a fraudulent transfer, and any damage award to the Trustee would come from Sclafani directly, so TMS could have no basis for an indemnification suit against Sclafani. Accordingly, Sclafani could not be subject to double or inconsistent liabilities in the absence of TMS.
B. TMS is Not an Indispensable Party to This Action.
Assuming arguendo TMS is a necessary party under the test set forth in Rule 19(a), TMS is not an indispensable party under Rule 19(b), and dismissal is neither automatic nor appropriate in this instance. Once a party is found to be "necessary" pursuant to Rule 19(a), the Court must then "determine how prejudicial a judgment would be to the nonjoined and joined parties, whether this prejudice could be lessened by the relief the court shapes, whether any judgment without joinder could be adequate, and, finally, whether the plaintiff would be left with any remedy should the court dismiss for nonjoinder." Wymbs v. Republican State Executive Comm. of Fla., 719 F.2d 1072 (11th Cir. 1983) (citing Challenge Homes, Inc., 669 F.2d at 669).
It has been suggested that while joinder of TMS would not divest this Court of subject matter jurisdiction, it may not be feasible to join TMS for practical reasons in that it is a foreign corporation over which this Court may not have personal jurisdiction. However, even if this were to prove true, dismissal is not warranted in the instant case. Considering the factors set forth above, the Court finds that a judgment rendered in the absence of TMS will not prejudice TMS in any way. As already discussed, the Trustee is not seeking to avoid any transfers to TMS and has not alleged that TMS is in possession of any funds fraudulently conveyed to it by the Debtor. Also, the Trustee is limited, under 11 U.S.C. § 550(d), to only a single satisfaction of his claim. Accordingly, a judgment rendered in favor of the Trustee in TMS's absence will have no effect on TMS other than the beneficial effect of preventing the Trustee from being able to seek further recovery from TMS. Similarly, should judgment be rendered in favor of the Defendants, it is difficult to imagine this having any effect, prejudicial or otherwise, on TMS.
Nor will proceeding with this action in the absence of TMS prejudice Sclafani. As support for his claim of prejudice, Sclafani offers the circular argument that a judgment rendered in TMS's absence would be "highly prejudicial" because TMS is an indispensable party. However, the term "indispensable party" is merely a conclusion arrived at after completing the analysis in Rule 19. Challenge Homes, Inc., 669 F.2d at 669, n. 3.
Sclafani's unsupported claim of prejudice merely as a result of TMS's alleged indispensable status is unsupported and without merit. The Trustee is alleging that Sclafani was a direct transferee of the funds in question, and the presence or absence of TMS as a named party in this action does not affect this allegation against Sclafani. If Sclafani were to need information from TMS to refute this allegation, as discussed above, TMS can be called as a third party witness.
As for the third and fourth Rule 19(b) factors, a judgment rendered in the absence of TMS will certainly be adequate for the Trustee. Because the Trustee seeks no relief from TMS, recovery from Sclafani and/or ABRI will address all of his claims. Dismissal as to Sclafani, however, would leave the Trustee with no adequate remedy against him. The Complaint alleges that Sclafani received a total of $1,100,000.00, and that $100,000.00 of those funds did not come from ABRI, but were routed from FinFed to CSI. Proceeding against ABRI alone would leave the Trustee with no means to recover these funds transferred to Sclafani directly.
IV. CONCLUSION
TMS does not meet the standard for determining whether a party is indispensable under the test set forth in Rule 19 of the Federal Rules of Civil Procedure. Accordingly, for the reasons set forth above, it is
ORDERED AND ADJUDGED as follows:
1. That Defendant Sclafani's Motion to Dismiss Adversary Complaint is hereby DENIED; and
2. That the Defendant shall file an Answer on or before _________________.
DONE AND ORDERED in the Southern District of Florida on __________________________________.