In an appeal arising out of a Ponzi scheme by the principals of two entities, the receiver sought to recover funds from a bank allegedly diverted as fraudulent transfers under the Florida Uniform Fraudulent Transfer Act (the “FUFTA”) and to collect damages for alleged aiding and abetting of other torts. See Isaiah v. JPMorgan Chase Bank, N.A., No. 17-15585 (11th Cir. June 1, 2020).
The receiver claimed that the bank helped facilitate the scheme by transfering funds into and out of bank accounts despite that it was aware of suspicious banking activities regarding the subject accounts.
The District Court for the U.S. District Court for the Southern District of Florida had dismissed the receiver’s complaint under FRCP 12(b)(6) and the Eleventh Circuit Court of Appeals affirmed.
The Eleventh Circuit’s reasoning was based on the definition of “transfer” under the FUFTA, which provides a “transfer” is “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset.” See Isaiah at 7.
The Court explained, “[w]e disagree that a routine bank deposit constitutes a transfer to the bank within the meaning of the FUFTA.” Id. at 8. The Court clarified that even though the bank “takes title to the money and has certain legal rights to put the deposited funds to its own use . . . the bank’s right to use those funds is subject always to its obligation to the accountholder to return the funds upon request.” Id.
The Court further explained that the relevant inquiry is not one of ownership or title, but of control and in this scenario, the account holder “never relinquishes his interest in or control over the funds. . . .” Id. at 9. Here, where the Ponzi schemers retained “full access to and control over the funds” in the bank accounts at issue, they did not transfer the money to the bank within the meaning of the FUFTA. Id.
As the Uniform Fraudulent Transfer Act is widely adopted, this opinion could provide guidance for similar claims in other states.