The debtor accepted a new position as a financial advisor with a bank. As part of his contract, the bank agreed to lend the debtor funds as an inducement to join the bank. The debtor promised to repay the loan within the first ten years of his employment, or immediately if he left his position before then. The debtor deposited the loan into an account he held jointly with his wife (the “joint account”). The joint account was governed by the bank’s client relationship agreement, which allegedly granted the bank a security interest and lien in the account “[a]s ‘security for the payment of all liabilities or indebtedness presently outstanding or to be incurred under this or any other agreement…” The agreement further provided that “the account holders [were] jointly and severally liable for all obligations with respect to the [a]ccount.” Shortly after the debtor signed with the bank, he was exposed for mishandling client funds, legally barred from working in the financial services industry, and fired by the bank. The debtor did not return the loaned funds and filed for bankruptcy. The debtor listed the joint account as “exempt from the bankruptcy estate as a tenancy by the entireties, which protected his wife’s interest in it under Florida law.” The bank proceeded to freeze the account, asserting it had a valid lien. The debtor then filed an adversary complaint against the bank, seeking, in relevant part, (1) a declaratory judgment that the joint account was exempt from the bankruptcy estate as a tenancy by the entireties, and (2) a declaration that the bank lacked a valid security interest, lien, or right of setoff against the joint account. The bank responded with four counterclaims: (1) a declaratory action to clarify that the bank had a perfected security interest in the joint account under New York law; (2) a fraudulent transfer claim for the return of the loan funds; (3) a contractual setoff claim under federal law; and (4) a common law setoff claim. The debtor moved for summary judgment on all claims and counterclaims. The bankruptcy court entered summary judgment in favor of the debtor on all claims and the district court affirmed. The bank appealed.
In Esteva v. UBS Fin. Servs., Inc. (In re Esteva), No. 23-14050, 2025 WL 2171062, 2025 U.S. App. LEXIS 19228 (11th Cir. 2025) (unpublished opinion), the Eleventh Circuit reversed summary judgment in favor of the debtor on the tenancy by the entireties and lien claims, and on the bank’s constructive-intent fraudulent transfer counterclaim. Additionally, the court affirmed summary judgment in favor of the debtor on the bank’s actual intent, fraudulent transfer, and setoff claims. First, the court considered the lien and tenancy by the entireties claims. The court explained that New York law governed the interpretation of the agreement’s provisions, while Florida law governed the joint account itself. Under New York law, when a contract’s provisions are ambiguous, “a question of fact is presented which cannot be resolved on a motion for summary judgment.” W. Grp. Nurseries, Inc. v. Ergas, 167 F.3d 1354, 1360 (11th Cir. 1999). Under Florida law, because the joint account is a tenancy by the entirety, the bank could not recover the debtor's funds. Instead, the court had to determine whether the debtor granted a lien on the joint account under the agreement, and if he did, how that lien affected his wife’s rights to the account. The court looked specifically to the provisions of the agreement between the debtor and the bank and found several ambiguous terms. Specifically, the court looked to what the agreement meant by using the word “you.” The debtor argued that the word should be interpreted as singular; however, the court also found that the word “you” could be interpreted to include the debtor’s wife. Similarly, the meaning of the word “obligations” was likely ambiguous; the court noted it was unclear whether it meant paying fees or extended to obligations such as promissory notes held by the bank. There also remained a question of whether the wife was liable to the bank by signing the agreement. Therefore, because of ambiguities in the agreement, the court ruled that summary judgment was improper as to the lien and tenancy by the entireties claims, because the ambiguities created a factual dispute that the court could not resolve at the summary judgment stage. Next, the court considered the bank’s actual intent and constructive intent fraudulent transfer claims. The court concluded that the bank waived its actual intent fraudulent transfer claim by failing to defend its theory in its response to the debtor’s summary judgment motion. However, the court found a genuine dispute of material fact regarding the bank’s constructive intent fraudulent transfer claim. Florida state law has two relevant statutes: (1) constructive fraudulent transfer occurs when a debtor does not receive “a reasonably equivalent value in exchange for a transfer or obligation,” and (2) a transfer or obligation is fraudulent if made when the debtor was insolvent and did not receive reasonably equivalent value in exchange. Fla. Stat. Section 726.105(1)(b). The court held that the bank presented enough evidence under both statutes to continue with its constructive intent fraudulent transfer claim. Lastly, the court affirmed the dismissal of the bank’s setoff counterclaims. In both setoff claims, the bank pleaded the applicability of § 553 of the bankruptcy code, but that section does not create a right to setoff. The bank had failed to identify substantive law granting the right to setoff, which was required to avoid dismissal. Therefore, the court affirmed summary judgment in part and reversed in part.
By Charlie Cole [email protected]
Edited By Olivia Lewis [email protected]
Edited By Kristin Meurer [email protected]
Edited By Hayden Mariott [email protected]