Sec. & Exch. Comm'n v. Alleca

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SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. ANGELO A. ALLECA, et al., Defendants, CARRIE MISTINA, Intervenor-Appellant, ROBERT D. TERRY, ESQ., Receiver-Appellee.

No. 21-13486

United States Court of Appeals, Eleventh Circuit

November 2, 2022

DO NOT PUBLISH

Appeal from the United States District Court for the Northern District of Georgia D.C. Docket No. 1:12-cv-03261-ELR Before ROSENBAUM, BRANCH, and GRANT, Circuit Judges.

PER CURIAM.

Carrie Mistina appeals the district court's order voiding a pre-receivership transfer from the receivership entity to Mistina as a constructively fraudulent conveyance. The court concluded that the exchange was not supported by reasonably equivalent value because Mistina provided only $30,000 for a revenue stream worth up to $225,000. Mistina maintains that the value given by her $30,000 payment was more than reasonably equivalent because the money was used to pay the premium on an errors and omissions insurance policy, which ultimately paid out nearly $1.5 million to the receivership estate. She also raises several procedural matters. After careful review, we reject Mistina's procedural arguments but we vacate the district court's constructive-fraud determination and remand for further proceedings.

I.

In September 2012, the Securities and Exchange Commission filed a receivership action alleging that Angelo Alleca was operating a Ponzi scheme through several of his companies including Summit Wealth Management, Inc. ("Summit"). The district court appointed a receiver, Robert D. Terry (the "Receiver"), and authorized him to recover and secure assets belonging to Summit, among other things. The court also ordered a stay of all civil litigation involving any receivership property or entities until further order of the court, and it tolled any applicable statute of limitations for claims asserted by the Receiver while the stay order remained in effect.

As relevant here, the Receiver alleged that a pre-receivership exchange between Summit and Mistina, Summit's Chief Financial Officer, was fraudulent and therefore voidable. The exchange concerned an August 2011 agreement between Summit and a third-party, Alexandria Capital LLC, under which Summit would receive payments on an annual basis beginning in October 2012 based on fees generated from certain investment accounts (the "Note"). In August 2012, Mistina paid Summit $30,000 of her personal funds in exchange for the right to receive the four annual payments due Summit under the Note, which had an estimated value of between $130,000 and $225,000.

Mistina filed a claim for $225,000 in the receivership action and otherwise asserted her ownership of the Note and contested the Receiver's assertion that the transfer was fraudulent. Although the Receiver repeatedly offered his view that the transfer was fraudulent, he never sought to prove the matter to the district court, despite indicating on multiple occasions that he would do so. Instead, he simply treated the assets as part of the receivership estate-i.e., he treated the transfer as a fraudulent conveyance- for purposes of the distribution plan, which the district court ultimately approved in September 2017.

On appeal, we vacated and remanded for further proceedings, holding that these procedures denied Mistina due process. Sec. & Exch. Common v. Terry, 833 Fed.Appx. 229, 234-35 (11th Cir. 2020) (quotation marks omitted). We stated that district courts in receivership cases "may use so-called 'summary proceedings,' which promote judicial efficiency, so long as the procedure provides claimants with due process." Id. at 232. But we explained that "the issue of whether a pre-receivership transfer was fraudulent 'required an evidentiary hearing' where the claimants could 'present and argue their facts' and 'rebut the characterization of the transfer and present affirmative defenses.'" Id. at 233, 235 (quoting Sec. & Exch. Comm'n v. Elliott, 953 F.2d 1560, 1568 (11th Cir. 1992)). Because Mistina was not afforded those minimum procedures, we remanded with instructions to give her a "full and fair opportunity" to rebut the characterization of the transfer before she was deprived of her property interest in the Note. Id. at 235.

On remand, the district court held an evidentiary hearing after a period of limited discovery. Both the Receiver and Mistina testified at the hearing, and the parties offered various exhibits in evidence.

At the evidentiary hearing, Mistina testified about the circumstances of the transfer. She explained that Alleca, Summit's President and CEO, had proposed assigning the Note to her in exchange for $30,000 of her personal funds because the premium for Summit's $3 million errors and omission policy (the "E&O policy") was due and Summit was short on cash. After transferring $30,000 of her personal funds to Summit, Mistina then promptly paid the approximately $37,000 premium for the E&O policy out of Summit's account.

The other evidence largely confirmed Mistina's account. Bank records showed that, on the date of the Note assignment in August 2012, before the premium was paid, Summit's account had a balance of $20,646.42. In addition, the Receiver acknowledged that a "substantial portion" of Mistina's funds were used to pay the insurance premium, even if a precise amount could not be determined, and that, "but for that money, the insurance premium . . . would not have been made." Ultimately, the insurer paid nearly $1.5 million under the policy to the receivership estate. That insurance payment accounted for roughly 80% of the total assets collected by the Receiver.

The district court concluded that the transfer of the Note to Mistina was a fraudulent conveyance based on "constructive" fraud under O.C.G.A. § 18-2-74(a)(2). The court reasoned that the receipt of $30,000 by Summit was not reasonably equivalent value for selling an income stream of up to $225,000. The court rejected Mistina's claim that Summit received the benefits of the E&O policy. The court was "not persuaded that the value of the coverage amount for the errors and omissions insurance policy can be attributed to Mistina" because there were other funds in Summit's account at the time the premium was paid, and it was not "Mistina's deposit alone that paid the insurance premium." The court also found that Summit was insolvent at the time of the transfer, which Mistina does not dispute. Concluding that the transfer constituted a constructive fraud, the court did not address whether the transfer was voidable based on "actual" fraud.

Having resolved Mistina's objection, the district court went on to approve a prior settlement agreement between the Receiver and Alexandria, under which Alexandria agreed to pay $77,000 to the receivership estate in exchange for the entry of a bar order foreclosing future claims against it based on the Note. Mistina now appeals, raising procedural and substantive arguments.

II.

We start with Mistina's procedural arguments. First, Mistina contends that the Receiver's right to bring a fraudulent-transfer action against her expired on August 21, 2016, four years after the transfer was made. She maintains that the tolling provision in the order appointing the receiver is unlawful as an indefinite stay. Second, she contends that, even aside from the limitations period, the claim was barred by the doctrine of laches. The parties agree that these issues are governed by Georgia law, where the alleged fraudulent transfer occurred.

A. Statute of Limitations

A cause of action with respect to a fraudulent transfer or obligation generally must be brought "within four years after the transfer was made or the obligation was incurred." O.C.G.A. § 182-79; see O.C.G.A. § 18-2-74. Because the alleged fraudulent transfer occurred on August 21, 2012, the limitations period ordinarily would have expired four years later, on August 21, 2016.

In November 2012, though, the district court entered a Modified Receivership Order which expressly tolled all statutes of limitations that would otherwise run against the Receiver regarding claims on behalf of the receivership entities against third persons or parties "until further Order of this Court." Mistina does not dispute that, if the tolling provision applies, the statute of limitations would not bar reaching the merits of the fraudulent transfer issue.

Mistina's claim that the tolling provision is invalid is unpersuasive. She cites caselaw from this Circuit holding that an indefinite stay order pending related litigation is invalid.^[1] See Trujillo v. Conover & Co. Commc'ns, Inc., 221 F.3d 1262, 1264-65 (11th Cir. 2000) (vacating an order staying proceedings in a case as "indefinite" where it remained in effect until litigation in Bahamian courts concluded); CTI-Container Leasing Corp. v. Uiterwyk Corp., 685 F.2d 1284, 1288-89 (11th Cir. 1982) (vacating a stay pending a determination by a special US-Iran Claims Tribunal). But none of the cases she cites addressed the validity of a provision tolling applicable statutes of limitations pending a receivership. Nor can we say that the tolling provision was "indefinite in scope." Tolling remained in effect pending further order of the court, so it was bounded by the receivership itself and subject to court oversight.

Moreover the fraudulent-transfer issue was properly resolved in the context of the receivership, and so was appropriately subject to tolling. Mistina submitted a claim for $225,000 in the receivership action, "in turn submitting [herself] to the jurisdiction of the receivership." Sec. & Exch. Comm'n v. Wells Fargo Bank, N.A., 848 F.3d 1339, 1345 (11th Cir. 2017). And the Receiver purported to resolve the fraudulent-transfer claim as part of the ordinary claims process,...