Florida Business Litigation Lawyer Blog
The United States Court of Appeals for the Eleventh Circuit, in Wiand v. ATC Brokers Ltd., 96 F.4th 1303 (11th Cir. 2024), recently issued an opinion regarding a receiver’s standing to assert fraudulent transfer claims and other torts on behalf of the entity it is overseeing. To understand this new appellate decision, it is necessary to know why a receiver may be appointed and the powers a receiver has. Receivership is usually created to protect the rights of creditors. Freeman v. Dean Witter Reynolds, Inc., 865 So. 2d 543 (Fla. Dist. Ct. App. 2003). A receiver has the rights and remedies possessed by the person or corporation in receivership and can bring claims that were previously owned by the person or corporation in receivership. However, a receiver is not a class representative for all creditors. A receiver cannot therefore pursue claims owned directly by the creditors. Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.
In the Wiand decision, the Eleventh Circuit distinguished between certain claims a receiver has standing to sue for on behalf of the company in receivership and other claims the receiver cannot sue for due to a lack of standing. Standing requires an individual have “a sufficient stake in an otherwise justiciable controversy” so that he or she can “obtain judicial resolution of that controversy.” Jamlynn Invs. Corp. v. San Marco Residences of Marco Condo. Ass’n, 544 So. 2d 1080 (Fla. 2d DCA 1989). A plaintiff must prove it suffered an injury that is concrete and particularized, the injury is fairly traceable to the defendant’s conduct, and it is likely the plaintiff’s injury will be redressed by a favorable decision. Fla. Wildlife Fed’n, Inc. v. S. Fla. Water Mgmt. Dist., 647 F. 3d 1296 (11th Cir. 2011). Receivers of a corporation have standing to bring fraudulent transfer claims against the company’s principals or transfer recipients to claw-back fraudulently transferred funds. Wiand v. Lee, 753 F.3d 1194 (11th Cir. 2014) (“A receiver of entities used to perpetrate a Ponzi scheme does not have standing to sue on behalf of the defrauded investors but does have standing to sue on behalf of the corporations that were injured by the Ponzi scheme operator.”). Receivers possess standing to sue because they effectively remove the company’s “evil zombies” thereby freeing the company from the zombies’ “evil spell.” Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (“The appointment of the receiver removed the wrongdoer from the scene. The corporations were no more Douglas’s evil zombies. Freed from his spell they became entitled to the return of the moneys…”).
By contrast, receivers generally lack standing to pursue other tort claims because the company’s torts are imputed to the receiver. See Perlman v. PNC Bank, N.A., 38 F.4th 899 (11th Cir. 2022) (affirming dismissal of aiding and abetting claims for lack of subject matter jurisdiction because the receiver lacked standing). This is because the receiver does not have the same cleansing effect as fraudulent transfer claims. Wiand v. ATC Brokers Ltd., 96 F.4th 1303 (11th Cir. 2024) (“[F]raudulent-transfer claims must be treated differently for standing purposes: fraudulent transfers are “cleansed through receivership” as a matter of course, but common-law torts by third parties are not.”). However, the receiver can overcome imputation of the company’s bad acts and gain standing to sue for other torts if the receiver proves the receivership entity was separate and distinct from the tort. ATC Brokers Ltd., 96 F.4th 1303. To do this, the company in receivership must have at least one honest board member or stockholder. Isaiah v. JP Morgan Chase Bank, 960 F.3d 1296 (“[U]nless the corporation in receivership has at least one honest member of the board of directors or an innocent stockholder, the fraud and intentional torts of the insiders cannot be separated from those of the corporation itself and the corporation cannot be said to be an entity separate and distinct from the individual tortfeasors.”). The honest actor is required because a company in receivership cannot suffer injury and is considered a sham if created to perpetrate a fraud. ATC Brokers Ltd, 96 F.4th 1303. The honest actor ensures the company in receivership had some legitimate purposes.
Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.