O'Connor v. Tappan

449 F.2d 284

• Court: Court of Appeals for the Fifth Circuit
• Decided: September 24, 1971
• Docket: Nos. 71-1160, 71-1710
• Status: Published

Opinions

LEWIS R. MORGAN, Circuit Judge.

This case comes to us on two separate appeals from the Southern District of Florida. The first concerns whether the Referee in Bankruptcy and the United States District Judge were correct in holding that the appellants, James E. Moore, Jr., and Sally H. Moore, did not acquire any lien as against the trustee when the appellants filed their suit against the bankrupt in the Circuit Court of Broward County, Florida.

Under the law of bankruptcy, the Bankruptcy Court must look to state law to determine whether a party has a lien and whether said lien attaches to the property at least four months prior to the institution of bankruptcy proceedings. After a thorough reading and analysis of Florida law, it is our conclusion that a creditor must first obtain a judgment for this indebtedness as against the bankrupt prior to instituting an equitable proceeding to enforce the judgment. Therefore, a suit filed by a creditor to set aside a fraudulent conveyance can only be maintained by a creditor following an entry of a judgment in his favor; and if a suit cannot be maintained by a creditor prior to the entry of judgment, then there could have been no lien existing in favor of a creditor. George E. Sebring Co., Inc. v. O’Rourke, 101 Fla. 885, 134 So. 556 (1931). This particular case had only reached the point where summary judgment was entered on Count One on June 11, 1968, for the sum of $87,612.00 on the alleged indebtedness. So, we are concerned now with Count Two of the complaint. It is our opinion that Count Two constitutes a suit to set aside alleged fraudulent conveyance of the real estate from the bankrupt to Richard and Stephanie Dirks, and does not constitute a true creditor’s bill as contended by the Moores. Therefore, Count Two does not come under the provisions of Chapter 68.05, Florida Statutes, 1967, F.S.A., as being a creditor’s bill.

As to this appeal, the decision of the United States District Court for the Southern District of Florida is affirmed.

The second appeal is brought by the trustee, contending that the Referee in Bankruptcy erred in holding that the ap-pellee, Tappan, had a valid lien against the sum of $10,000, which was on deposit with the Court of Broward County, Florida. The Referee held that this lien was superior to the rights of the trustee and directed the trustee to deliver the sum of $10,000 to the appellee, Tappan. The United States District Court affirmed the Referee in Bankruptcy on a Petition for Review.

The Court has studied the record and the briefs in this case and concludes that there is sufficient evidence to support the Findings of Fact entered by the Referee in Bankruptcy. It is the trustee’s burden to overcome the validity of said finding by demonstrating to this Court that it was clearly erroneous. These findings come to this Court clothed with the presumption of correctness. The Referee had ample opportunity to listen to the testimony of the witnesses and to observe personally the bankrupt and the appellee, Tappan. He had ample opportunity to judge the credibility of all the witnesses. After listening to their testimony and observing their demeanor on the stand, the Referee found as a matter of fact that Tappan had advanced to the bankrupt the monies secured by her mortgage. This Court will not succumb to the wish of the trustee that this case be tried de novo at an appellate level.¹

The findings of the Referee in Bankruptcy were supported by the evidence and, therefore, should not be set aside, even though we may have reached a different result if we had been sitting as the finder of fact.

The trustee then contends that even if appellee Tappan had a valid lien this lien was voidable under Sections 60, 67 and 70 of the Bankruptcy Act. The Court observes that in order for there to be a preferential transfer under Section 60 of the Act, the transfer must be made within four months of the filing of a petition in bankruptcy. It is prima facie that the mortgage given by appellee Tappan almost ten months prior to the filing of the bankruptcy petition does not fall within the four-months preference period. The fact that the transfer of this lien to the proceeds of the sale of the property occurred within four months to the filing of the petition does not constitute a preference. In effect, this was substitution of new security, namely, the funds in the Registry of the Court as security for an old loan. No diminution of the bankrupt’s estate occurred, so no preference resulted. The trustee has not brought to our attention any facts which would bring the transaction against the bankrupt and the ap-pellee Tappan within the purview of Sections 67 or 70(e).

Consequently, it is our finding that the orders of the Referee in Bankruptcy, as affirmed by the United States District Judge, was supported by competent evidence, and the same are hereby affirmed.

Affirmed.

1 . The attention of counsel is called to the most recent opinion by this Circuit on the application of the clearly erroneous rule. Sullivan d/b/a North Dallas Book Center and Inwood Village Book Shop, L. E. Creel, III, Trustee v. Sullivan, 445 F.2d 265 [5 Cir., June 21, 1971].