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Florida Court Holds in Favor of Defendants on Alter Ego and “Fraudulent Transfer” Claims

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December 2, 2021, Middle District of Florida – Plaintiff Daniel J. Stermer, the creditor trustee of Debtor ATIF, Inc.’s liquidating Chapter 11 plan, sought to recover actual and constructively fraudulent transfers under § 548 and FUFTA. The trustee also sought judgment against certain defendants on alter ego and successor liability claims. The Defendants include Old Republic National Title Insurance Company, Old Republic National Title Holding Company, Old Republic Title Companies, Inc., and Attorneys’ Title Fund Services, LLC. ATIF is a Florida corporation wholly owned by Attorney’s Title Insurance Fund, a Florida Business Trust (“ATIF Trust”). Debtor’s business operations as a title insurance company included insuring the title, underwriting and selling title insurance, selling title searches, managing and supporting insurance agents, and administering title insurance claims. As pointed out in the opinion, the Debtor’s insurance business was conducted through a network of attorney agents, who were themselves licensed as title insurance agents. 

The Court found that on December 12, 2015, a master agreement was executed between ATIF and the Defendants under which OR Title agreed to reinsure Debtor’s title policies under a Title Insurance Assumption Reinsurance Contract in exchange for Debtor and ATIF Trust’s transfer of certain assets to OR Title. Subsequently, in early 2017, less than 14 months after Debtor entered into the 2015 Master Agreement and made the 2015 transfers, Debtor filed a Chapter 11 petition. Later on, in 2018, Plaintiff commenced an adversary proceeding, alleging that (a) the Debtor made the 2015 Transfers with the actual intent to hinder, delay, or defraud its creditors, and the alleged transfers are avoidable under 11 USC § 548 and FUFTA (b) ATF Services is Debtor’s successor in interest under de facto merger and “mere continuation” theories, such that ATF Services is liable for Debtor’s debts; and (c) ATF Services is the alter ego of OR Companies and OR Holding, such that OR Companies and OR Holding are liable for the debts of ATF Services. OR Defendants contend that the evidence demonstrated that the 2015 Transfers were never concealed and that they had no fraudulent intent in connection with the alleged transfers.

The Court found that Plaintiff failed to establish whether Debtor received less than reasonably equivalent value in exchange for the 2015 Transfers and granted summary judgment in favor of the Defendants on the “fraudulent transfer” claims under 11 USCS § 548(a)(1)(A) and Fla. Stat. § 726.105(1)(a). The Court also held that the defendants met their burden to prove that Plaintiff could not establish that the LLC was created through improper use of ATF’s corporate form and that Debtor’s creditors were injured by the ATF’s corporate form. Accordingly, the Court granted summary judgment in favor of the defendants.

Stermer v. Old Republic Nat’l Title Ins. Co. (In re ATIF, Inc.) , Nos. 2:17-bk-01712-FMD, 2:18-ap-531-FMD, 2021 Bankr. LEXIS 3297 (Bankr. MD Fla. December 2, 2021)

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