Avenues of communication have dramatically expanded over the past few decades, with email, social media, the proliferation of mobile phones, and text messaging making it easier and easier to make contact with the vast majority of people. Whether they want to be in contact with us or not.

Rules for service of process in most jurisdictions were written long before these developments. It remains the rule that when serving process (notifying a defendant that a lawsuit has been filed against him/her/it), personal service (hand delivery) is required. And that requirement is not likely to go away anytime soon, for the simple reason that there is no more effective way to ensure that someone is informed that he/she/it is being sued than to deliver the lawsuit into that person’s hands.

But sometimes a process server can’t find the defendant for personal service. If the plaintiff has made a diligent search for the defendant and still can’t find him/her/it, the rules in most jurisdictions allow for substitute service of process, where service of process can be transmitted to the defendant by some means other than in-person delivery.

In the realm of substitute service of process, the reality that so many forms of communication are now available is beginning to have an impact. Despite that rules of court have not changed, courts are now taking into account the availability of modern forms of communication when considering both whether a plaintiff has made sufficient efforts to locate the defendant before resorting to substitute service of process, and the means that should be used to deliver the lawsuit to the defendant when substitute service of process is appropriate.

Coastal Capital Venture, LLC v. Integrity Staffing Solutions, Inc., a recent decision of Florida’s Second District Court of Appeal (2nd DCA) in Lakeland, Florida, illustrates how modern forms of communication have impacted the search a plaintiff must make before resorting to substitute service of process. In that case (in which Bushell Appellate Law, P.A. represents the defendants/appellants) the plaintiff obtained a default judgment after using substitute service of process by mailing a copy of the lawsuit to the Secretary of State.

The plaintiff contended that substitute service of process was appropriate, because it had conducted a diligent search. It had tried multiple times to serve the defendants at a condominium they owned, and had hired an investigator to conduct a “skip trace,” which did not uncover another address for them.

But the defendants/appellant argued, and the 2nd DCA agreed, that the search was inadequate because the plaintiff had failed to look to the most obvious source to find out where the defendants could be served. Here’s where modern communication came into play: the plaintiff’s president and one of the defendants (who was the principal of the two corporate defendants and the husband of the other individual defendant) had been exchanging text messages during the time period when the plaintiff was trying to serve process. And despite text messages from the defendant saying he was in California, the plaintiff didn’t ask the defendant where he could be located and served with process.

Coastal Capital stands as a lesson that if a plaintiff has a defendant’s cellphone number (as is frequently true in commercial and family litigation and some other types of disputes), the plaintiff must try calling and texting the defendant before resorting to substitute service. And there is no reason to think that the result would have been different if the plaintiff had had the ability to contact the defendant via social media rather than text messaging.      

On the other side of the coin are some recent decisions on how substitute service should be carried out. The goal of service of process, after all, is to make sure the defendant has notice of the lawsuit. So courts have understandably begun recognizing that communication via social media can be an effective way to accomplish substitute service of process. For example, a New York family court judge recently issued an order allowing service of process to be made via Facebook (in conjunction with service by regular mail to the last known physical address) after attempts to locate the defendant at her last known physical address were unsuccesful.

And a few federal court decisions have also authorized substitute service of process via email and social media, but so far they have been confined to substitute service on international defendants. One such decision authorized substitute service of process via Facebook in conjunction with email, while another authorized substitute service via Facebook and Linkedin in conjunction with email. 

Service of process rules may not have changed as means of communication have expanded. But as court are increasingly recognizing, newer means of communication should not be ignored when deciding whether substitute service is appropriate, or in deciding the best way to effectuate substitute service when it is appropriate. 

4th DCA.jpgThe judges of Florida’s Fourth District Court of Appeal can apply the same sharp analysis to solve financial quandaries as they use to parse complex legal issues. That’s what attendees of yesterday’s meeting of the Appellate Practice Section of the Broward County Bar Association learned. 

The 4th DCA–which hears appeals from Broward, Palm Beach, Martin, St. Lucie, Indian River, and Okeechobee Counties–is planning to relocate from its current location on Palm Beach Lakes Boulevard in West Palm Beach to a new building to be constructed between Clematis Street and Datura Street, east of Tamarind Avenue in West Palm Beach. The move is anticipated to take place in early 2018.

At yesterday’s meeting, Chief Judge Dorian Damoorgian, Chief Judge-elect Cory Ciklin, and Judge Jonathan Gerber explained how the relocation plan came to be.

Although the 4th DCA courthouse is old, and designed for a different era, the move is not simply to upgrade to more modern facilities. Rather, it was triggered by an extreme mold infestation that required the courthouse to be closed last year.

While the immediate problem was eventually remediated, it brought to light serious structural issues with the building that made future problems inevitable. Engineers concluded that the building would need to be torn down and rebuilt — an extremely costly proposition, which would be made even more expensive by the need to lease space for court operations while the demolition and construction took place.

The court knew the legislature would not be eager to allocate the funds necessary for such an expensive project. With state budgets tight, and the legislature still weary from the controversy that resulted from the 1st DCA’s construction of a new building a few years ago, it would be necessary for the court to find a less expensive plan for a safe courthouse.

Thus was born the relocation plan. With Palm Beach Lakes Boulevard now a bustling business and retail area, the current courthouse location has become prime real estate, which would allow the property to be sold for several million dollars, the proceeds of which could be applied to construction of a new building.

But wouldn’t the gains of selling the old property be offset by the cost of acquiring new property? As it turns out, no. There was already state-owned property in West Palm Beach where a building could be built across from the West Palm Beach Tri-Rail station, adjacent to the Palm Beach County Health Department and the Department of Children & Family Services.

That space is currently used as a parking lot for the Health Department and DCF. So the new construction will include a parking garage to be used by those agencies as well as the court. During construction, parking will be available in lots located on the south side of Datura Street.  

With the blessing of the Florida Supreme Court, the 4th DCA presented its proposed plan to the Florida legislature. And despite the legislature’s hesistance to use scarce state funds for construction of an appellate courthouse, the court received initial funding of $7.1 million for the project, with the remaining construction funds to be requested in the next legislative session. It seems even the legislature appreciates the 4th DCA’s ability to solve financial problems.          

Last week, two federal courts of appeals–the 4th Circuit and D.C. Circuit–considered whether the IRS reasonably interpreted the Affordable Care Act as allowing the IRS to give tax credits to taxpayers that purchase health insurance through an exchange set up by the federal government. Both courts of appeals considered the same statutory text, the same legislative history, the same regulation, and the same arguments. And they applied the same legal principles.

Yet they reached opposite results. In King v. Burwell, the 4th Circuit found the IRS’s interpretation reasonable. In Halwig v. Burwell, the DC Circuit found the IRS’s interpretation unreasonable. How?

Given that the issue was the propriety of an IRS regulation, both courts proceeded under the framework of Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). That analysis requires the court to determine whether the statute states an unambiguous direction on the issue addressed by the regulation. If it does, then the court must determine whether the regulation is consistent with the statutory command. If the statute is ambiguous and leaves room for agency interpretation, courts defer to the agency’s regulation so long as it is reasonable.

Both courts focused on the language of the statutory provisions. The difference between the two courts’ conclusions turned on disagreement over whether 26 U.S.C. section 36B(b)(2), which establishes the amount of premium assistance that is to be provided, unambiguously directs that only taxpayers who purchase coverage through a state-run plan receive premium assistance. More specifically, the courts of appeals disagreed about the impact of surrounding statutory provisions on the proper interpretation of section 36B.

The ACA Provisions at Issue    

Under section 36B(a), an “applicable taxpayer” (defined as a taxpayers whose income is between 100% and 400% of the poverty line) is entitled to a tax credit “equal to the premium assistance credit amount of the taxpayer…” The term “premium assistance credit amount” is defined in section 36B(b)(1) as the sum of monthly “premium assistance amounts,” as defined in section 36B(b)(2).  

The challenge to the IRS’s regulation allowing tax credits for taxpayers purchasing insurance on a federally established exchange was that section 36B(b)(2), in conjunction with section 36B(c)(2), defines the “premium assistance amount” as calculated solely based on premiums for coverage purchased through a state-established exchange. In defining “premium assistance amount,” Section 36B(b)(2) states that       

The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of—

(A) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 [1] of the Patient Protection and Affordable Care Act, or

(B) the excess (if any) of—

(i) the adjusted monthly premium for such month for the applicable second lowest cost silver plan with respect to the taxpayer, over

(ii) an amount equal to 1/12 of the product of the applicable percentage and the taxpayer’s household income for the taxable year.

Section 36B(c)(2), in turn, defines “coverage month” as any month in which “as of the first day of such month the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer is covered by a qualified health plan described in subsection (b)(2)(A) that was enrolled in through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act…” 

According to the plaintiffs, these provisions unambiguously mean that a taxpayer can have no “coverage months” unless he or she is enrolled in a state-established exchange. So the statute does not provide any subsidy amount for taxpayers who are enrolled in exchanges established by the federal government in lieu of a state.

Reading the Provisions in Context

Both courts recognized that these statutory provisions cannot be read in isolation, but rather must be understood in the context of the statute as a whole. So both proceeded to analyze sections 1311 and 1321 of the ACA, which deal with establishing exchanges by the state and federal government.

Section 1311, read literally, requires all states to establish exchanges. It defines “Exchange” as “a governmental agency or nonprofit entity that is established by a State…” But section 1321 says that states may “elect” to set up exchanges, thus making it an option rather than a mandate. And if a state does not elect to itself establish the exchange, section 1321 directs the federal government to “establish and operate such Exchange within the State…” 

The two courts differed on how to understand the command that the federal government set up “such Exchange within the State.” Both agreed that it means that a federally established exchange is the functional equivalent of a state-established exchange and that a federal exchange must be understood as an exchange established under the authority of section 1311. But the courts disagreed about whether that makes it reasonable to understand the phrase “Exchange established by the State under section 1311” as including a federal exchange.

According to the DC Circuit, “section 1321 creates equivalence between state and federal Exchanges in two respects: in terms of what they are and the statutory authority under which they are established.” But it does not change the identity of who is establishing the exchange. The DC Circuit understood Section 36B(b)(2)(a) to have 3 elements: “(1) an Exchange (2) established by the State (3) under section 1311.” And, it explained, the only reasonable way to understand the statute is that a federal exchange is not an exchange “established by the State.” So the statute unambiguously sets the subsidy amount for coverage purchased through a federal exchange at zero. As such, the DC Circuit found the IRS regulation contravened the statute and could not stand.

According to the 4th Circuit, on the other hand, it is at least as reasonable to understand the interplay of sections 1311 and 1321 as requiring the federal government to set up an exchange essentially on behalf of the state when the state does not. So a federal exchange can reasonably be understood to be encompassed within the provisions defining premium assistance amounts. Because such an interpretation was reasonable, even if not the only plausible interpretation, the statutory provisions were ambiguous. And because they were ambiguous, the IRS’s interpretation of the statute was permissible, and the courts required to defer to it.

In short, two federal courts of appeals reached opposite conclusions about the propriety of the IRS’s regulation because they disagreed about whether the statutory provisions, read in context, are ambiguous. And perhaps that should not be surprising, given the complexity of the ACA. Indeed, the concurring and dissenting opinions reflect that there was disagreement even among the judges on each panel about how to interpret the statute.

Update (09-04-14): At the government’s request, the D.C. Circuit has voted to rehear the Halwig case en banc, and vacated the ruling of the panel. Grants of rehearing en banc are rare, but it’s not all that surprising that review by the entire court would be granted in this case, given the magnitude of the case and that the decision conflicted with a decision of another court of appeals. But even if the en banc court reaches the same result as the 4th Circuit, I would still expect the Supreme Court to eventually take up the issue. Although in run-of-the-mill cases, the Supreme Court is more likely to grant certiorari if there is circuit split, the Court can review any case it chooses, so long as there is a federal issue involved. And it has shown a penchant for taking on cases involving high profile, controversial issues of national import, whether there is a circuit split or not.  

It is not easy to get the Supreme Court of Florida to hear a case. That is by design: the Florida Constitution was amended in 1980 to curtail the Supreme Court’s jurisdiction so that it may only review a limited number of cases that fall into discrete categories. 

But the Court has a catch-all jurisdictional authority known as “All Writs” jurisdiction. All Writs jurisdiction is derived from Article V, Section 3(b)(7) of the Florida Constitution, which allows the Florida Supreme Court to “issue all writs necessary to complete exercise of its jurisdiction.”     

This constitutional provision has traditionally been interpreted narrowly. It has been understood to confer something akin to supplemental jurisdiction, rather than an independent basis for jurisdiction, and is invoked only in rare cases. 

But disputes involving exceptionally important issues with great time sensitivity appear to fall into the category of rare cases in which the Florida Supreme Court is willing to invoke its All Writs power. In The League of Women Voters of Florida v. Data Targeting, Inc., released May 27, 2014, the Florida Supreme Court was asked to weigh in in a pre-trial dispute in litigation over whether the 2012 apportionment of Florida’s congressional districts was designed to advance partisan political objectives in violation of the Fair District Amendments to the Florida Constitution.  

A week before trial was to begin, the trial judge ruled that documents obtained from a political consultant, which the plaintiffs wanted to use to show that political consultants participated in the redistricting process, could be used as evidence in the trial but would remain confidential. On appeal, the First DCA issued a short order ruling that the documents could not be admitted into evidence, and stating that it would issue an opinion explaining its reasoning.

The plaintiffs filed an emergency petition asking the Florida Supreme Court to stay the 1st DCA’s order so that the evidence could be presented at the trial and the trial court could decide the dispute with the aid of that evidence before the 2014 midterm elections. With the trial about to begin, the Court would need to act immediately if its decision was going to have any impact.

But while the Court said it had reason to believe it would have jurisdiction to review the 1st DCA’s decision, it could not be certain as yet.  Because the First DCA had not explained its reasoning in a full opinion, the Florida Supreme Court could not determine whether it had jurisdiction to hear the petition under its more commonly used bases, such as when there are conflicting rulings between districts on a point of law.

Nonetheless, the Court predicted that the district court opinion was likely to construe a provision of the Florida or federal constitution. And it noted that the Court had previously exercised jurisdiction in the same case based on the direct effect on a class of constitutional officers, but said that it could not say for sure whether jurisdicition to review the 1st DCA’s decision on the admissibility of the documents could be obtained on that basis. In addition, there was a chance that the 1st DCA would certify a question of great public importance, given “the statewide importance of this litigation and the lack of Florida precedent regarding the associational privilege,” which the 1st DCA appeared to have relied on based on its citation to a 9th Circuit case addressing that issue.

Although the All Writs doctrine does not prove an independent basis for jurisdiction, the Supreme Court explained, “this Court may utilize the constitutional all writs provision as a means of ‘protecting jurisdiction that likely will be invoked in the future.'” Thus, due to the likelihood that the Supreme Court would have jurisdiction, and that it would not be able to provide effective relief by exercising jurisdiction after the 1st DCA issued its opinion (and the trial likely already completed, the Supreme Court held that it was appropriate to stay the 1st DCA’s order under the All Writs doctrine:

In order to maintain the status quo during the ongoing trial, preserve this Court’s ability to completely exercise the eventual jurisdiction it is likely to have to review the First District’s decision, and prevent any irreparable harm that might occur if the Petitioners are prevented from using the challenged documents, we conclude that we must grant the petition and stay the enforcement of the First District’s reversal of the circuit court, pending the completion of the trial.

Justice Lewis issued a concurring opinion to explain his view that the litigation’s importance to the “democratic system of government in Florida–and public faith in that system,” combined with the fact that the Court had to act now in order to issue effective relief, made the case a rare instance in which All Writs jurisdiction was appropriate. Chief Justice Polston dissented in an opinion joined by Justice Canady, explaining that in his view it was inappropriate to exercise All Writs jurisdiction because “an independent basis for jurisdiction does not currently exist.”

The 1st DCA apparently agreed that the Florida Supreme Court should review the case. As a twist, the 1st DCA’s opinion never came. Before the Supreme Court issued its decision, a 1st DCA judge had filed an internal motion for the court to review the panel’s order en banc. A majority of the judges ultimately voted to grant en banc review, and ruled that “the appeal should have been passed through to the supreme court,” as had been requested.

The court vacated the prior order and certified an issue of great public importance for immediate review by the Florida Supreme Court. And the Florida Supreme Court has accepted jurisdiction.

Meanwhile, the trial has ended, and the trial court has ruled on the merits. Although the ruling invalidated 2 congressional districts, the legislature has announced that it does not intend to appeal.

But the legislature has also asked that the congressional districts not be redrawn until after the 2014 midterm elections. Will the Florida Supreme Court have jurisdiction if it asked to rule on whether the map must be redrawn before the midterms? Given the importance of the issues and the time sensitivity, that seems likely.  

The U.S. Supreme Court may not be willing to go as far some had hoped in overruling its precedents. That is the message from the Supreme Court’s June 23, 2014 decision in Halliburton Co. v. Erica P. John Fund, Inc. Adherence to precedent won the day in Halliburton, as the Court upheld the so-called “fraud on the market” presumption that enables securities fraud suits to be brought as class actions.

The specific issue of the case was of significance to Wall Street, investors, class action lawyers, and publicly traded corporations. But the larger question was how willing the current Supreme Court is to overturn its own precedents.  

At stake in Halliburton was whether the Supreme Court would reconsider the fraud on the market presumption, first embraced by the Court in Basic, Inc. v. Levinson, 485 U. S. 224 (1988). It is no exaggeration to say that overruling Basic would have put an end to securities fraud class actions. Many on Wall Street and in corporate boardrooms have long sought that result, to eliminate what they see as a nuissance that has become ubiquitous. Many investors (and their lawyers), on the other hand, would have mourned the death of what they consider to be an importance source of deterrence against fraud and a means (albeit limited) of obtaining compensation for fraud when it occurs. 

What is the the fraud on the market presumption and why is it so important? The presumption solves a basic problem in securities class actions. For a case to proceed as a class action, the plaintiffs must show, among other things, that the claims can be tried on behalf of a class of persons who are similarly situated to the plaintiffs (without the class members individually trying their claims) because most of the issues to be tried are common to all members of the class, i.e., if each class member were to bring suit individually, each would need to prove the same thing that the plaintiffs will prove in the class action trial. This factor is known as predominance — common questions must predominate over individual questions.

As is true of fraud claims generally, to prove securities fraud under the federal securities laws, the plaintiff must prove not only that the defendant made a fraudulent statement, but that the plaintiff relied on the fraudulent statement to his/her/its detriment. Whether any individual relied on a statement is generally an individualized inquiry. Did the individual hear or read the statement? Did he/she/it believe the statement? Did he/she/it take action (or refrain from taking action) because he/she/it believed it?

Such individualized inquiries are considered to prevent common questions from predominating over individual questions. Thus, if proof of actual reliance were required, a class action asserting claims of securities fraud could not be successfully maintained.    

The fraud on the market presumption solves that problem. It is based on the efficient markets hypothesis, which posits that when securities trade on an efficient market, the price of the securities will tend to incorporate all available information about the underlying business.Thus, if a corporation or its executive leadership makes a statement about the financial health of the corporation, investors will assimilate the information provided and the share price of the corporation will be affected.

The fraud on the market presumption incorporates that principle, such that a misrepresentation by a corporation or executive is presumed to have impacted the price of the corporation’s securities. So any investor who purchases the corporation’s securities at a price that was impacted (artificially inflated) by a misrepresentation, without showing direct reliance on the statement itself, can show reliance indirectly, by showing that he/she/it relied on the integrity of the price of the securities, which was artificially inflated by the misrepresentation.

All securities fraud class actions rely on the fraud on the market presumption. If the plaintiffs can show that the securities traded on an efficient market, that the misrepresentation was known to the public and material, that the plaintiff bought securities after the false statement was made but before the truth came to light, they are entitled to the fraud on the market presumption, thus making it unnecessary to prove individual reliance.

The defendants can then try to rebut the presumption, by disproving that the statement affected the prices of the securities, or by showing that the plaintiff did not actually rely on the price of the securities as being accurate.   

Economists have for years debated whether the efficient market hypothesis is truly valid. And correspondingly, lawyers have argued over the wisdom of the adoption of the fraud on the market presumption in Basic.

Seizing on that debate, and what some see as a Supreme Court that is willing to overturn even 25-year old precedents, the defendants in Halliburton expresly asked the Supreme Court to overrule Basic. And in granting certiorari, the Supreme Court agreed to consider doing so.

But, ultimately, only three dissenting justices saw fit to overrule Basic, with six — Chief Justice Roberts and Justices Kennedy, Ginsburg, Breyer, Sotomayor, and Kagan — voting to uphold it.

In so doing, Chief Justice Roberts, writing for the Court, indicated that the Court still adheres to its traditional hesitance to overrule settled precedent that has not always been evident in recent decisions. Even if the Court thinks the precedent was wrong, that is not enough to overturn it: 

Before overturning a long-settled precedent,…we require “special justification,” not just an argument that the precedent was wrongly decided.    

Moreover, the Court noted, “the principle of stare decisis has ‘special force'” when the issue is one of statutory interpretation, as was the issue in Basic.

Halliburton’s main reasons for overturning Basic were (1) that it was decided contrary to Congressional intent; and (2) that advancements in economic theory have undermined the validity of the efficient market hypothesis.

The Court rejected both arguments. It was unnecessary to address the first argument at length, because it was discussed by the dissenters in Basic but rejected by the Court majority. There was “no new reason to endorse it now.” 

The second argument was rejected because Halliburton had only pointed out that there is a debate among economists as to how quickly markets incorporate information and that there are variations in efficiency among markets. But that debate was ongoing at the time when Basic was decided. And Basic did not assume that markets were perfectly efficient, only that stock prices are responsive to public information about a corporation.

Although the Court rejected Halliburton’s efforts to overrule Basic, it agreed that defendants should have the opportunity to offer evidence to defeat the presumption of reliance, by showing at class certification that the price of the securities at issue was not affected by the statement at issue. Basic expressly contemplated that defendants would be permitted to rebut the presumption, the Court explained.

So securities class actions continue to be viable, to the chagrin of some and the relief of others, while defendants may have gained some additional ammunition to fight them. But in the bigger picture, what the decision portends is that the principle of stare decisis (hesitance to overrule prior decisions) remains vibrant, especially in the realm of statutory interpretation. 

With the collapse of multiple large scale Ponzi schemes in recent years, Federal courts in Florida and elsewhere have been wrestling with so-called “clawback” suits. The way Ponzi schemes work is that the schemers induce investors to give them money that is supposed to be invested, usually with high returns promised.

But because the promised returns are unsustainable and the schemers syphon off investors’ funds for their own personal use, the schemers cannot pay the promised returns to investors when they seek to liquidate their investments. Thus, the Ponzi schemers recruit additional investors, and instead of investing the funds received, they use the funds to pay the earlier investors the principal and earnings promised.

Typically, Ponzi schemes collapse and are discovered when the new money coming in is insufficient to pay the amount promised to withdrawing earlier investors. Investors that withdraw early often see the return of the principal they invested and also receive “earnings” on that principal. When a Ponzi scheme collapses, there are usually insufficient funds to return the principal given to the Ponzi schemers by the remaining investors, much less the promised earnings. 

In a clawback suit, the bankruptcy trustee or receiver appointed to oversee the wind-up of an entity involved in a Ponzi scheme seeks to recover funds paid to the earlier investors in order to achieve a more equitable distribution of funds as between earlier and later investors. The theory of the suits is that the transfers to the earlier investors were fraudulent transfers, which may be recovered under fraudulent transfer statutes, such the Florida Uniform Fraudulent Transfer Act (FUFTA), Florida Statutes §726.101 et seq.

But Ponzi scheme clawback suits aren’t the typical fraudulent transfer suit. In Wiand v. Lee (decided June 2, 2014), the Eleventh Circuit addressed the viability of such suits under FUFTA, and resoundingly endorsed them. 

The clawback suit in Wiand resulted from the collapse of a Ponzi scheme run by Arthur Nadel, in which he induced investments into certain hedge funds. Wiand was the receiver for those funds. Lee was an early investor that had withdrawn its investment and was paid back its principal, plus profits. Wiand sought return of the profits.

The 11th Circuit held that a transfer made in furtherance of a Ponzi scheme satisfies the requirements of the “actual fraud” provision of FUFTA. Under the actual fraud provision, a transfer is fraudulent when the debtor made the transfer “with actual intent to hinder, delay, or defraud any creditor of the debtor…” Courts have interpreted that provision to mean there must be “[1] a creditor to be defrauded, [2] a debtor intending fraud, and [3] a conveyance of property which is applicable by law to the payment of the debt due.”

Although the second element, fraudulent intent, is usually determined based on “badges of fraud,” the 11th Circuit held that proof that a transfer was made in furtherance of a Ponzi scheme is sufficient to show fraudulent intent without the need to consider the “badges of fraud.”

The more difficult questions were who was the creditor and debtor and whether the funds received by Lee were “property of the debtor,” as required by FUFTA to recover them. Money from the hedge funds was transferred to Lee by Nadel.

The court of appeals explained that the hedge funds were the creditors, because when Nadel illegally transferred money from them, he became a debtor to them for the funds he illegally removed. It then turned to the issue of whether the funds were “property of the debtor.”

Although “property of the debtor” would appear to mean Nadel’s property given that he was the debtor, the 11th Circuit held otherwise. According to the court, under Florida law, “property of the debtor” means “property which is applicable by law to the payment of the debt due.” Because the funds removed created the debt owed by Nadel to the hedge funds, the funds he removed were “applicable by law to the payment of the debt due.”   

Addressing the receiver’s cross-appeal, the 11th Circuit held that pre-judgment interest should be awarded in FUFTA cases as a matter of course, except in limited circumstances where specific equitable factors counsel otherwise. The denial of prejudgment interest was reversed, with a remand for determination of whether any recognized equitable considerations justified the denial of prejudgment interest. 

U.S. federal courts are characteristically wary of overstepping their bounds when adjudicating cases involving foreign governments or issues and events occuring in foreign countries. That can pose a challenge for U.S. companies engaged in international business, especially with foreign governments. When such business dealings go sour, the ability to enforce contract rights in U.S. courts can be critical.

Recent decisions of the Eleventh Circuit and other federal courts of appeals should give comfort to U.S. companies that do business with foreign governments that they can enforce their contract rights in U.S. courts. Lawyers can help keep their clients’ disputes in U.S. courts by ensuring that their contracts include clauses protecting the right to do so.

The Eleventh Circuit’s recent decision in GDG Acquisitions, LLC v. Government of Belize, decided April 22, 2014, illustrates that point. The dispute arose from a deal in which International Telecommunications, Ltd. (Intelco) leased telecommunications hardware to the government of Belize.

The Facts

Although Intelco was actually a Belizean company, the deal was negotiated in Florida and Washington, D.C. It was financed by a U.S. bank located in Miami. The deal closing was in Miami, where the government of Belize also took possession of the equipment. A month before suit was filed, Intelco assigned its rights against Belize to GDG, a U.S. company owned by the founder and director of Intelco.

The lease agreement included (1) a choice of law clause specifying that Florida law controlled; (2) a choice of forum clause, in which the government of Belize “submit[ted] to the exclusive jurisdiction of” the federal and state courts in Florida and consented to suit in those courts; and (3) a clause in which the government of Belize waived objections to Florida forums and claims that such forums were inconvenient.

After the government of Belize neither returned the equipment at the end of the lease term nor continued making lease payments, GDG filed suit in the Southern District of Florida. In response, Belize contended that the minister who signed the lease agreement did not have authority under Belizean law to bind the government. It moved to dismiss the complaint on the ground that the suit should be adjudicated in Belize.

The District Court dismissed the suit based on the alternative grounds of forum non conveniens and the doctrine of international comity. On appeal, the Eleventh Circuit disagreed.

Forum Selection Clauses Control the Forum Non Conveniens Analysis

Regarding forum non conveniens, the Eleventh Circuit found fault in the district court’s failure to give sufficient weight to the forum selection clause in its analysis. Under the U.S. Supreme Court’s recent decision in Atlantic Marine Constr. Co. v. U.S. Dist. Court for the W. Dist. of Tex., 134 S. Ct. 568 (2013), a forum selection clause, if enforceable, “carries near determinative weight” in evaluating whether to dismiss a suit for forum non conveniens. 

The Eleventh Circuit left it for the district court to decide in the first instance whether the forum selection clause was enforceable, as well as whether the clause is permissible or mandatory, i.e., whether the clause requires that litigation take place in Florida, or merely permits litigation in Florida but allows suit to be brought in other jurisdictions as well. The court of appeals made clear, though, that if the clause is enforceable and mandatory, it will “control except in unusual cases.”

A valid and mandatory forum selection clause will trump other forum non conveniens considerations such as where it would be more expeditious to litigate based on where witnesses and evidence are located. Even if litigation in another forum may be more convenient, enforcing forum selection clauses in international transactions is paramount:

This approach is consonant with the Supreme Court’s longstanding recognition “that privately bargained-for forum-selection clauses [are] a necessary component of the expanded international commercial relationships of our time.” Estate of Myhra v. Royal Caribbean Cruises, Ltd., 695 F.3d 1233, 1240 (11th Cir. 2012) 

International Comity is Applied Sparingly When a Foreign Court Has Not Already Exercised Jurisdiction Over the Dispute

The Eleventh Circuit also rejected the argument that principles of international comity supported deferring to Belizean courts to resolve the dispute. There are two kinds of comity, the court explained.

In the first kind, U.S. courts consider whether to respect or enforce a judgment by a court in another nation. In such cases, comity favors generally recognizing and enforcing such judgments, so long as the foreign court was competent and the judgment was neither fraudulent nor violative of “American public policy notions of decency and justice.” 

But it is more rare for U.S. courts to apply comity “prospectively,” i.e., to decline to hear a case when there has been no adjudication, and no litigation is pending, in a foreign jurisdiction. To apply comity prospectively, courts weigh the interests of the United States and the foreign nation in using a foreign forum as well as whether the foreign forum is adequate.

Comity rarely wins the day in that calculus. In fact, the Eleventh Circuit noted that only once has it ever “sustained the dismissal of a lawsuit” based on comity in such circumstances. That case involved a special situation where the U.S. government had reached an international agreement with the German government to resolve all Holocaust era claims through a private foundation set up to resolve all such claims. Due to that agreement, both the U.S. government and the foreign government had a strong interest in having the case resolved in a foreign forum.

But that was an unusual situation that does not support applying comity in a “garden variety” commercial dispute. That the government of Belize may now, as a litigant, claim to have a strong interest in litigating in its own courts does not make international comity appropriate.

Litigants Against Foreign Governments Have Recently Fared Well in the 2nd Circuit as Well

This favorable outcome for a private business in a commercial dispute against a foreign government comes on the heels of a successful effort to hold the government of Argentina accountable for defaulted bonds in the Second Circuit. NML Capital, Ltd. v. Republic of Argentina, like GDG, involved a forum selection clause and choice of law clause making litigation proper in the U.S. (New York) and the law of a U.S. state (New York) controlling.

The issue was not one of forum but of the power of a U.S. court to enforce judgments against a foreign sovereign. Thedistrict court imposed an injunction requiring Argentina to pay its debts to the holders of the defaulted bonds in parity with its payments to holders of later issued bonds as required by contract, despite that the Argentinian legislature had passed a law forbidding the government from making payments on the earlier bonds. 

On appeal, the Second Circuit rejected Argentina’s argument that the injunction violated the Foreign Sovereign Immunities Act, under which U.S. courts cannot exercise control over the property of a foreign state. Although Argentina contended that the injunction effectively exercises control over its funds by requiring it to pay money to the bondholders, the Second Circuit held that the injunction was permissible. The determinative factor was that the injunction did not technically force Argentina to pay money to anyone — it merely required that if Argentina paid money to one group, it must also pay the other group on par. Argentina has filed a petition for certiorari asking the Supreme Court of the United States to overturn that ruling.


No doubt litigation arising from international transactions will continue to pose special challenges for litigants seeking relief in U.S. courts, particularly when foreign governments are involved. But, so long as international agreements are drafted so as to preserve the ability to litigate in U.S. courts, these cases illustrate that those obstacles can be overcome.  


Courts’ power to do justice in civil cases depends on their ability to enforce their judgments, i.e., to compel parties to pay up when they are found liable. But courts are also wary of extending their power outside of their own territory, and thus encroaching on the power of courts in other states and countries.   

In a pair of March 2014 decisions, the latter consideration prevailed, as a Florida appellate court narrowly interpreted the power of Florida courts to exercise jurisdiction over assets located outside of Florida.

In the first case, Sargeant v. Al-Saleh, decided March 5, 2014, the Fourth District Court of Appeal (based in West Palm Beach) reversed an order of the 15th Judicial Circuit, which had required that stock certificates evidencing ownership of corporations located abroad be turned over to satisfy a judgment.

The judgment in Sargeant resulted from litigation over a failed oil shipping deal, in which a jury awarded $28.8 million in favor of Mohammed Al-Saleh (reportedly the brother-in-law of the king of Jordan, according to the Palm Beach Post). To satisfy the judgment, Al-Saleh sought to compel the defendants, businessmen Harry Sargeant III and Mustafa Abu-Naba’a, to turn over stock certificates for corporations they owned. The defendants countered that Florida courts do not have jurisdiction to order the turnover of the stock certificates to the corporations they own, because they are located in the Bahamas, Jordan, the Isle of Man, and the Dominican Republic.

On appeal, the 4th DCA agreed. Finding no controlling Florida cases on point, the court was swayed by policy considerations, which it said favor letting courts in foreign jurisdictions determine rights to property located in those jurisdictions.

UPDATE: The Sargeant case has garnered considerable attention in the legal community and the media. Paul Sullivan of the New York Times has a great write-up about the potential impacts of the decision in his May 9, 2014 column, with insights and reactions from several Florida lawyers, including me. The article also notes that, unsurprisingly, the appellees (who were denied access to the defendants’ foreign assets as a result of the decision on appeal) plan to ask the Supreme Court of Florida to hear the case. Whether the Court will agree to take up the case is anyone’s guess.  

In the second case, Edelsten v. Mawardi, decided March 19, 2014, the court dealt with a slightly different attempt to take control of assets located outside of Florida. The plaintiff in that case sued a Florida parent company and its Ohio subsidiary in connection with a failed business deal involving an apartment complex in Dayton, Ohio, which was owned by the Ohio subsidiary. A circuit court appointed a receiver to manage the apartment complex until the dispute was resolved. The 4th DCA reversed.

Just as the court had held that Florida courts cannot order the transfer of foreign stock certificates, the 4th DCA held that Florida courts are not empowered to exercise jurisdiction to appoint a receiver over a corporation located in another state. It is true that the circuit court was empowered to appoint a receiver over the Florida parent corporation, but that does not mean that it can exercise control over an Ohio subsidiary and its property in Ohio. Showing wariness of trampling on another jurisdiction, the 4th DCA was particularly troubled by the fact that appointing a Florida resident as a receiver over an Ohio corporation was in direct contravention of Ohio law, under which only an Ohio resident may be appointed as a receiver over an Ohio corporation. The court, thus, remanded to the circuit court to terminate the appointment of the receiver over the Ohio corporation and the apartment complex. 

These decisions are sure to have a significant impact on litigation in Florida. With so much interstate and international business taking place in Florida, litigation involving out of state and foreign corporations and assets located outside of Florida is far from uncommon.

But while the court’s deference to other jurisdictions has resulted in limiting the power of Florida courts, the decisions do not mean that out of state and foreign assets can never be reached. They do mean, however, that after obtaining a judgment, litigants may need to resort to courts in other jurisdictions to enforce them.   

Florida’s Third District Court of Appeal (in Miami) recently reaffirmed that making a mistake in one’s bankruptcy filings is not necessarily fatal. The decision reversing summary judgment in Montes v. Mastec North America, Inc., No. 3D12-2622, was released on February 12, 2014. Bushell Appellate Law, P.A. represented the appellant.

Mr. Montes was injured in an accident that occurred at his workplace. He hired a law firm to investigate whether he might be able to bring a personal injury lawsuit to recover for his injuries, and if so, to file suit.

Several months later, while the PI law firm was still investigating a potential lawsuit, Mr. Montes hired a different law firm to file a petition for Chapter 13 bankruptcy relief. The bankruptcy petition filed by the bankruptcy law firm on Mr. Montes’ behalf did not disclose that he had potential claims arising from his accident. The bankruptcy court approved a Chapter 13 plan for Mr. Montes, with which he was required to comply in order to obtain a bankruptcy discharge.

About a year later, Mr. Montes, represented by the PI law firm, sued Mastec (a contractor for DirecTV) for allegedly causing his injuries. Mastec moved for summary judgment based on judicial estoppel, a doctrine that prohibits a litigant from taking a position that directly contradicts a position he/she/it took in a prior case, if the litigant was successful in the first case and certain other conditions are satisfied.

Mastec asserted that because Mr. Montes did not disclose his potential injury claim in his bankruptcy case, the doctrine of judicial estoppel prevented him from pursuing the claim. Mr. Montes, whose bankruptcy case remained open, then amended his bankruptcy schedules to disclose the claim against Mastec.

The trial court nonetheless granted summary judgment against Mr. Montes. It agreed with Mastec that allowing Mr. Montes to pursue his claim would make a mockery of the court system because it pursuing the claim would be inconsistent with his bankruptcy filing, which did not acknowledge that he had such a claim.

In an opinion authored by Judge Salter (joined by Judge Lagoa and Judge Fernandez), the 3rd DCA reversed. While Mastec argued that the Florida Supreme Court’s holding in Blumberg v. USAA Casualty Insurance Co., 790 So. 2d 1061 (Fla. 2001), had relaxed the requirements for judicial estoppel and precluded the lawsuit, the court found Blumberg distinguishable. The court also rejected Mastec’s argument that certain federal decisions supported the application of judicial estoppel, noting that federal standards for judicial estoppel are different than the standards under Florida law. 

The court relied primarily on a recent Fourth DCA opinion, which found judicial estoppel inapplicable in a similar context. It found persuasive the fact that no lawsuit had been filed at the time that Mr. Montes originally filed his bankruptcy disclosures, such that he could be excused for failing to recognize that he should list on his schedules a potential claim that remained speculative at the time. And the fact that Mr. Montes amended his bankruptcy schedules meant that his creditors were not defrauded and could share in the benefits of any recovery he might obtain in the lawsuit.  

Is a Facebook friendship really a friendship? Can judges be “friends” with attorneys on Facebook? Florida judges and legal ethicists have been debating these questions for more than four years. Florida District Courts of Appeal have now begun to offer their opinions, as Facebook friending has emerged as an issue in motions to recuse trial court judges. But definitive answers remain illusory. 

Back in 2009, the Judicial Ethics Advisory Committee of the Florida Bar thought it had resolved the issue when it released an ethics opinion weighing in on these issues. According to the JEAC’s opinion, a judge is not permitted to be Facebook friends with a lawyer who may appear before him or her.  

But more than three afters that opinion was released, at an educational program discussing this topic, a justice of the Florida Supreme Court reminded appellate judges and lawyers that the JEAC’s opinion is not necessarily authoritative. The JEAC is an advisory committee, the justice pointed out, and the Supreme Court of Florida is the ultimate arbiter of legal and judicial ethics in Florida. 

During the same discussion, other Florida appellate court judges offered varying viewpoints about the propriety of Facebook friending. Judges are permitted to be friends with lawyers in real life, one pointed out, so why can’t they also be Facebook friends with lawyers? Another took the view that because Facebook is so public, allowing a lawyer to list a judge as his/her Facebook friend might create a forum for a lawyer to try to woo clients by giving the impression of having special influence over the judge presiding over their cases, or might cause opposing parties to fear that the judge might be biased in favor of his/her “friend.”

The 4th DCA Frowns on Facebook Friendship

Now Facebook friendship has become an issue in litigation. In September 2012, the Fourth District Court of Appeal in West Palm Beach became the first Florida appellate court to address Facebook friendship between judges and lawyers in Domville v. State, 103 So. 3d 184 (Fla. 4th DCA 2012). Agreeing with the reasoning of the JEAC’s opinion, the 4th DCA held that a judge was required to recuse himself from a case in which the prosecutor was his Facebook friend.

It may be that the prosecutor’s Facebook friendship with the judge entailed no special influence over the judge whatsoever, the 4th DCA explained. But the existence of the Facebook friendship could “create in a reasonably prudent person a well-founded fear of not receiving a fair and impartial trial” and that fear is sufficient to require the judge’s recusal. The Supreme Court of Florida declined to hear the appeal. 

The 5th DCA Disagrees 

On January 24, 2014, in Chace v. Loisel, the Fifth District Court of Appeal in Daytona Beach became the second Florida District Court of Appeal to weigh in. Making clear that the issue is far from settled, the 5th DCA called into question the 4th DCA’s understanding of the implication of Facebook friendship:

 We have serious reservations about the court’s rationale in Domville. The word “friend” on Facebook is a term of art. A number of words or phrases could more aptly describe the concept, including acquaintance and, sometimes, virtual stranger. A Facebook friendship does not necessarily signify the existence of a close relationship. Other than the public nature of the internet, there is no difference between a Facebook “friend” and any other friendship a judge might have. Domville’s logic would require disqualification in cases involving an acquaintance of a judge. Particularly in smaller counties, where everyone in the legal community knows each other, this requirement is unworkable and unnecessary.

To require judges to step aside from hearing cases based on Facebook friendships, the 5th DCA explained, is to misunderstand “the true nature of a Facebook friendship,” and doing so “casts a large net in an effort to catch a minnow.”

Both Courts Agree That Some Facebook Friending is Out of Bounds

Despite its criticism of Domville, the 5th DCA held that the trial court in Chace should have followed the 4th DCA’s guidance and recused herself. Why? 

For two reasons. First, at the time that the motion to recuse was made, Domville was the only decision of a Florida appellate court on the issue of Facebook friendship. When there is only one appellate court decision on an issue, every trial court in the state is required to apply the law as interpreted in that decision.  

Second, the Facebook activity of the judge in Chace was worse and more likely to result in bias than merely being Facebook friends with one of the parties’ lawyers. The judge in Chace actually sent a Facebook friend request to one of the parties, i.e., Ms. Chace, while her divorce litigation was pending before the judge. On her attorney’s advice, Ms. Chace didn’t accept the request, and feared the judge might hold it against her.

The 5th DCA found the judge’s conduct of reaching out to a litigant with a case pending before her more troubling than a mere Facebook friendship between a judge and an attorney. It regarded Ms. Chace’s fear of bias as well founded, and ordered the judge to recuse herself.

An Open Question

The reality is that most judges are former litigators, and most former litigators have friends — on Facebook and in real life — who are litigators. But it is also a reality that even without Facebook friendships, many litigants are suspicious of the relationships between judges and lawyers.

It is unlikely that judges will ever be banned from having real life friendships with lawyers. At least in the short term, judges in Broward, Palm Beach, Martin, St. Lucie, Indian River, and Okeechobee Counties cannot be Facebook friends with lawyers appearing before them. It remains an open question whether they, and judges throughout the state, will be able to maintain Facebook friendships with lawyers in the long run.