UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF FLORIDA
FORT LAUDERDALE DIVISION

ORDER GRANTING
TRUSTEE'S MOTION FOR SUMMARY JUDGMENT AGAINST ABS TRUST

This matter came before the Court on Friday, April 20, 2001, at 9:30 a.m. on the Plaintiff, John W. Kozyak as Chapter 11 Trustee (the "Trustee") Motion for Summary Judgment Against ABS Trust (the "Motion"). The Court, having reviewed the Motion and all exhibits attached thereto, including all affidavits in support thereof, as well as the affidavits in opposition submitted by ABS Trust ("ABST"), the entire court file in this adversary proceeding, the main case and relevant portions of the Criminal Case, having considered argument of counsel and otherwise being fully advised, the Court makes the following findings of fact and conclusions of law.

FINDINGS OF FACT

The Bankruptcy

An involuntary petition under Chapter 11 of the Bankruptcy Code was filed against Financial Federated Title & Trust, Inc. ("FinFed") on October 7, 1999 (the "Petition Date"). The Bankruptcy Court entered an Order for Relief on November 16, 1999, adjudicating FinFed a Chapter 11 Debtor. John W. Kozyak is the duly appointed Chapter 11 Trustee for the estate of FinFed.

On or about October 5, 1999 (the "ABS Petition Date"), an involuntary petition under Chapter 11 of the Bankruptcy Code was filed against ABS, Case No. 99-26543-BKC-RBR in the United States Bankruptcy Court for the Southern District of Florida (the "ABS Case"). On March 2, 2000, the Bankruptcy Court entered an Order for Relief adjudicating ABS a Chapter 11 Debtor.

On or about May 17, 2000, this Court entered an Order in the ABS Case substantively consolidating the Chapter 11 estates of FinFed and ABS (the "Consolidation Order"). In the Consolidation Order this Court found that "ABS and FinFed were substantially the same entity" and further, that substantive consolidation would ensure equitable treatment of all creditors of both the FinFed and ABS estates. No FinFed or ABS investor objected although all were served with the notice of the hearing on the motion giving rise to the Consolidation Order. By virtue of the substantive consolidation, Kozyak acts as the Chapter 11 Trustee for ABS, and transfers made by ABS are equivalent to transfers made by FinFed.

The Adversary Proceeding

On or about July 21, 2000, ABS Trust ("ABST") filed a proof of claim in the FinFed bankruptcy as a secured claim in an amount of $20,718,605.55. On August 2, 2000, Kozyak filed an objection to the proof of claim. On September 5, 2000, ABST filed a Response to the Claim Objection and Notice of Withdrawal of Secured Claim (the "Response"). Although in the Response ABST withdrew its secured proof of claim, ABST asserted in the Response that it has an actual ownership interest in a portfolio of policies purchased by ABS and now generally referred to as the ABS Policies (the "ABS Policies").

On December 20, 2000, the Trustee filed a one count Complaint in this adversary proceeding (the "Adversary Proceeding") seeking a declaratory judgment that the beneficial interests in the ABS Policies are property of the estate as ABS was the named beneficiary on the ABS Policies on the ABS Petition Date and remains as such to date.

On or around January 26, 2001, ABST filed a counterclaim (the "Counterclaim") on behalf of individual certificate holders once again disclaiming a security interest in the ABS Policies, and seeking instead a judgment that ABST is the owner of the beneficial interests in the ABS Policies.

The pretrial conference in this Adversary Proceeding was originally held on February 6, 2001, but was continued until March 6, 2001, to allow the Trustee time to respond to the Counterclaim. By Order of the Court dated March 14, 2001, the March 6^th hearing was continued until May 8, 2001, and a discovery cutoff date of May 1, 2001 was set.⁽¹⁾

The Trustee has advised the Court that he is ready to go to trial.

The Trustee filed the present Motion on March 29, 2001. ABST's response consisted of affidavits from Adam Jacobs and Raphael "Ray" Levy. Although at least one, and arguably both, affidavits were filed late, the Court has considered both, and finds that they present no substantial facts in dispute. To the contrary, the two affidavits merely confirm the facts as alleged by the Trustee.

From its inception through the Petition Date, FinFed and its various alter egos, by and through a vast network of companies, insurance agents and financial consultants engaged in the business of soliciting money from investors for the purported purpose of purchasing investments known as viatical settlements. However, the solicitation from investors was part of an elaborate scheme to defraud, whereby investors were paid solely from funds received from other investors and not from the proceeds of viatical settlements while the principals diverted large portions of the proceeds to various other assets and or/individuals having nothing to do with viatical investments, but rather to support lavish lifestyles.

A viatical settlement is an investment through which a terminally ill person (the "Viator") sells his life insurance policy and, when the Viator dies, the investor collects the death benefits. The amount an investor pays for a viatical settlement is based on medical predictions of how long the Viator will survive (the "Demise Date"), the premiums that must be paid, the length of time the investment will be non-producing, and several similarly variable factors. Accordingly, although all viatical settlements eventually "mature"⁽²⁾ the return in a viatical investment is extremely unpredictable and risky.

In 1998 the Federal Bureau of Investigation (the "FBI") began investigating the operations of FinFed. On August 30, 1999 a federal grand jury in the Southern District of Florida returned a multi - count indictment (the "Indictment") against FinFed, ASC and others, including individuals associated with FinFed and ASC and an entity, CSI, Ag, Ltd., which was the transferee of substantial FinFed and ASC assets. The case is currently pending before the Honorable Judge Hurley in the United States District Court for the Southern District of Florida, Case No. 99-8125, Case Styled UNITED STATES V. FREDERICK C. BRANDAU, et al (the "Criminal Case"). The Defendants were charged with, among other things, violations of Title 18, United States Code, Sections 1956 and 1957, involving fraud and conspiracy. The Indictment alleges that the defendants fraudulently obtained investor funds exceeding $115,000,000 through the sale of investments in viatical settlement policies.

The property that is the subject of this Adversary Proceeding consists of the beneficial interests in the numerous ABS Policies, with a combined face value of approximately $18,000,000. These ABS Policies were purchased by ABS with money provided by various investors. ABS is now, and always has been, the registered owner of the beneficial interests in the ABS Policies.

The owner of the ABS Policies is Wm. Page & Associates ("WPA"). WPA is a viatical settlement provider. The role of a viatical settlement provider is to arrange for the purchase of life insurance policies from viators, sell the beneficial interests to investors, and to service the policies after the sale to investors.

On or around March 4, 1999, WPA and ABS entered into an Agency Agreement and a Policy Servicing Agreement (together, the "WPA Contracts"), pursuant to which WPA purchased over time, and remained the owner of, the ABS Policies. ABS was named as the irrevocable beneficiary, and WPA serviced the ABS Polices. ABST was not a party to the WPA contracts. WPA began purchasing these interests for ABS at the beginning of April, 1999.

Since approximately October, 1999, the Trustee has been paying insurance premiums on the ABS Policies as they come due, dealing with WPA, and otherwise expending considerable time and money to preserve the value of the ABS Policies. Neither ABST nor any individual investor has contributed to the maintenance of the ABS Policies.

The ABS Scheme

On or around May 7, 1999, at the direction of Ray Levy ("Levy"), Louis Ratfield ("Ratfield"), an accountant, created ABST. The formation document was entitled Declaration and Contract of Trust, ABS Trust (the "ABST Documents"). The res consisted of a $10.00 bill stapled to the original ABST Documents. At all times relevant hereto, Adam Jacobs ("Jacobs") was the trustee for ABST.

Also on May 7, 1999, ABS and ABST entered into a Consulting and Service Agreement (the "Service Agreement"), pursuant to which ABST agreed to act as "a separate servicing company for [ABS]", and "to provide such servicing and related Trust services to [ABS] and its investors in viatical contracts as it may determine necessary and desirable." As consideration for providing such services, ABST was to be paid 3% of the face value of the policies as they matured. On the same date, ABS executed an Assignment of Interests (the "Assignment") which assigns to an unnamed assignee

All life insurance policies now or hereafter acquired through viatical rights to receive payment thereon; and investors [sic] monies as instructed by investors [sic] documentation and instruction to ABS TRUST as and for viatical contract completion for said investors. These policies may be from various sources including, but not limited to, Wm. Page & Associates, Inc., a viatical contract provider.

At some point, ABS also executed a UCC-1 Financing Statement in favor of ABST, which was recorded by the Florida Secretary of State on June 11, 1999, describing the collateral as "all viaticated insurance policies purchased by American Benefit Services, Inc. as owner or beneficiary up to the face value of each policy." However, it is undisputed that ABS never executed any security agreement granting to ABST (or any other entity) a security interest in any of its assets. Moreover, ABST abandoned any claim arising from a security interest when it withdrew its proof of claim. Finally, in its Answer and Counterclaim, ABST specifically disclaimed a security interest in the ABS Policies.⁽³⁾

Also on or around May 7, 1999, Ratfield created ABS Trust #2000 with a res of $10.00, through the Declaration and Contract of Trust #2000 (the "ABS Trust #2000 Documents"). Although it appears that ABS Trust #2000 was intended to play a role in the overall ABS scheme, the ABS Trust #2000 Documents do not clarify the nature of that role.

As part of the apparent ABS scheme, Jacobs was supposed to create a sub-holding trust for each ABS Policy purchased, assign investors to particular sub-holding trusts, and issue certificates (the "Certificates") to each investor describing the investor's interests in that sub-holding trust. Based on the documents in the record, it does not appear that ABS investors were ever intended to be named as direct beneficiaries of the ABS Policies but rather, were beneficiaries of the purported sub-holding trusts. Apparently, Jacobs did create, and cause ABST to issue, Certificates to at least some of the investors. However, ABST did not produce any evidence that sub-holding trusts were

ever created. The Certificates were meaningless sheets of paper that "assigned" to investors interests from a sub-holding trust that did not exist, and referenced property that belonged to ABS.

CONCLUSIONS OF LAW

I. STANDARDS OF REVIEW

A. Summary Judgment Standard

Under Federal Rules of Civil Procedure 56, incorporated by Federal Rules of Bankruptcy Procedure 7056, "summary judgment is proper if the pleadings, deposition, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material facts and that the moving party is entitled to judgment as a matter law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed. 2d 265 (1986); Fed.R.Civ.P.56(c). In 1986, the Supreme Court decided a trilogy of cases which encourage the use of summary judgment as a means to dispose of factually unsupported claims. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed. 2d 202 (1986); Celotex, 477 U.S. 317; and Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed. 2d 538 (1986).

Since the primary purpose of granting summary judgment is to avoid unnecessary trials when there is no genuine issue of material fact in dispute, if the evidence is merely colorable or is not significantly probative, summary judgment may be granted. Anderson, 477 U.S. at 249-250.

Once a moving party identifies those portions of the record that demonstrate the absence of a genuine issue of material fact, any party opposing summary judgment must set forth specific facts showing a genuine issue for trial, and may not rely on mere allegations or denials. Celotex, 477 U.S. at 324, Anderson, 477 U.S. at 256-57. If the record as a whole could not lead a rational trier of fact to find for the non-moving party, then there is no genuine issue of fact precluding summary judgment. Matsushita, 475 U.S. at 586-87. Where the factual context renders the non-moving party's position implausible, it must come up with more persuasive evidence than would otherwise be necessary to defeat summary judgment. Id. at 587.

Subject to the limits of jurisdiction, a court may issue a declaratory judgment action if the there is a substantial controversy between parties having adverse legal interests of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 61 S.Ct. 510, 85 L.Ed. 826 (1941). A declaratory judgment action is ripe for adjudication only where an "actual controversy" exists. Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891, 896 (5^th Cir. 2000). "As a general rule, an actual controversy exists where 'a substantial controversy of sufficient immediacy and realty [exists] between parties having adverse legal interests'". Id., citing Middle South Energy, Inc. v. City of New Orleans, 800 F.2d 488, 490 (5^th Cir. 1986). The threat of litigation, if specific and concrete, can indeed establish a controversy upon which declaratory judgment can be based. Orix Credit, 212 F.3d at 897. Furthermore, a trial court may entertain a declaratory judgment action if the judgment will serve a useful purpose in clarifying and settling the legal relation in issue or if a declaration will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding. Continental Cas. Co. v. Coastal Sav. Bank, 977 F. 2d 734, 737 (2d Cir. 1992).

In fact, numerous courts have entertained declaratory judgment actions filed by trustees when the ownership interest of an asset was in dispute which the trustee asserted was property of the estate on the petition date. See In re Challenge Air Int'l. Inc., 952 F.2d 384 (11^th Cir. 1992); In re Taylor & Campaigne, Inc., 157 B.R. 493 (Bankr. M.D. Fla. 1993); Bottom v. Bottom, 176 B.R. 950 (Bankr. N.D. Fla. 1994); In re Ocean Beach Club, Inc., 79 B.R. 505 (Bankr. S.D. Fla. 1987).

ABST has created an actual controversy between it and the Trustee regarding the ownership of the beneficial interests in the ABS Policies. The determination of this controversy will effect the Trustee's Chapter 11 Plan from the standpoint of both inclusion of this asset as well as the creditor body claiming an interest therein. Many creditors in the bankruptcy case are elderly individuals who require some return of their investments. Any delay in distribution of assets will cause harm to these creditors. The ABS Polices are a substantial asset of the estate. The delay caused by the present controversy is thus a substantial harm, making a determination of this actual controversy immediate and necessary.

There is no dispute that as of October 5, 1999, the filing of the ABS bankruptcy, ABS was the named beneficiary on the ABS Policies. ABST asserts that such beneficial interests were assigned to it prior to the ABS Petition Date. The undisputed evidence however, reflects that all insurance policies still name ABS as the beneficiary. Thus, since the beneficial ownership rights in the ABS Policies belonged to ABS as of the ABS Petition Date, making such interest property of the estate on the date of filing, this Court can entertain this declaratory judgment action to declare such beneficial interest in the ABS Policies property of the estate pursuant to 11 U.S.C. §541.

The Court finds that there are no material issues of fact in dispute, and, accordingly, finds that summary judgment is appropriate. There is no dispute that ABS is the listed beneficiary of the ABS Policies. ABST rests its claim on the Assignment. All that remains is a legal conclusion as to the meaning, validity and effect, if any, of the Assignment.

II. THE ASSIGNMENT TO ABST FAILED TO TRANSFER
ANY INTERESTS FROM ABS

Pursuant to Fla. Stat. §627.422, "A policy may be assignable, or not assignable, as provided by its terms." Thus, in order to determine whether the ABS Policies were subject to assignment, one must read each policy and comply with the specific terms for assignment. There is currently no evidence before the Court reflecting whether any or all of the ABS Policies contain prohibitions on assignment. However, the Trustee did present evidence through the affidavit of Page, and ABST did not dispute, that in all instances, the insurance companies require that a change of beneficiary or an assignment of interest be recorded by the insurance company before the insurance company can be deemed to have notice. This, as the Trustee points out, is a matter of common sense. When a policy matures, the owner of the policy must notify the insurer. The insurer then pays the beneficiary directly, unless a recorded notice of assignment or transfer directs the insurance company to pay the assignee instead. Regardless of whether a policy allows assignments, the insurer must have a written record to whom the company should send the proceeds of a mature policy.

In this case it is undisputed that no one, not Page, Levy, Jacobs, ABS, or ABST, notified any of the insurance companies in writing or otherwise of any assignment or change in beneficial interest in the ABS Policies. It is also undisputed that, in the middle of October, 1999, after the ABS Petition Date, Levy asked Page to change the beneficiary from ABS to ABS Trust #2000, but Page never received any written request to do so. Furthermore, as of the ABS Petition Date, the only undisputed evidence is that Page was "unaware of any attempted assignment of interests by ABS on behalf of ABS Trust or any other entity. [Page] was never asked to . . . file an assignment of interest with any of the insurers of the ABS Portfolio."

ABST asserts, by way of the affidavits of Ray Levy and Adam Jacobs, that Levy signed certain releases of beneficiary forms. Levy testifies that he sent such forms to Page. Page's testimony disputes that he ever received such forms. However, whether or not Page received the release of beneficiary forms, it is undisputed that Page never sent any release forms to any of the insurance companies. Thus, whether Levy or Jacobs sent Page the release forms, or whether Page received them, is immaterial.

Accordingly, since there is no dispute that any insurance company ever received notice of any change of beneficiary, insofar as the insurance companies are concerned, there was no valid transfer of interests from ABS to ABST.

III. ASSIGNMENT WITHOUT TRANSFER OF BENEFICIAL INTERESTS

At the hearing, ABST argued that even if the beneficial interests were not transferred to ABST, the Assignment could still be valid as between the parties. As stated above, there is no evidence before the Court reflecting whether any or all of the ABS Policies even permit assignments. Assuming all facts in favor of the non-moving party, the Court will assume that the ABS Policies do allow assignment. The undisputed evidence reflects that even without a prohibition against assignment the purported assignment of interests from ABS to ABST was invalid.

In order to have a valid assignment of interests, an assignment must be supported by adequate consideration, it must show an intent to effect a transfer and must identify a particular asset as the subject of the assignment. See Buckeye Cellulose Corp. v. Sutton Constr. Co., Inc. 907 F.2d 1090 (11^th Cir. 1990); Waldrep et. al., v. Jewell Mae Detjen, et. al., 1996 U.S. Dist. LEXIS 673 (S.D. Fla 1996); Burkey v. Pheonix Strategy Corp. 68 B.R. 270 (Bankr. S.D. Fla. 1986); United States of America v. Currency Totaling $48,318.08, 609 F.2d 210 (5^th Cir. 1980) citing Restatement of Contracts §150(2) (1932). Generally, in determining the validity of an assignment, a court may look to the practices of the parties, their objectives, their business practice and their relationship. Gerstel v. Aquatic Co., 65 B.R. 602, 605 (S.D. Fla. 1986). The Assignment in this case fails to satisfy any of the necessary requirements to be deemed a valid conveyance of interests in the ABS Policies.

a. The Assignment is not supported by adequate consideration.

ABS and ABST are interrelated companies. Levy was the former President and principal of ABS. ABST was created at the direction of Levy, shortly after the FBI commenced its investigation into FinFed. This Court has already found ABS and FinFed to be essentially the same entity, in other words, a continuation of the massive fraud.⁽⁴⁾ Thus, from the outset, the assignment at issue is suspect, warranting careful inspection. Upon careful inspection, it is clear that the Assignment document itself contains no reference whatsoever to what, if any, consideration was being granted by ABST in exchange for the purported assignment of ABS' beneficial interests in the ABS Policies, or indeed, if ABST is the intended assignee. ABST asserts that, missing language notwithstanding, the consideration for the assignment of these interests was the servicing of the ABS Policies. It is undisputed however, that this consideration, that is, the servicing of the ABS Policies, is the very same consideration forming the basis of the Service Contract between ABST and ABS which provides for payment of 3% of the face value of the ABS Policies.

Assuming ABST is the intended assignee, there was no new consideration provided by ABST outside of the Service Agreement for the assignment of any policies or whatever was to be assigned. Without any consideration, there is no effective conveyance of interests and the Assignment is invalid.⁽⁵⁾

b. The Assignment was not intended as an absolute transfer of interest in the Policies.⁽⁶⁾

In determining the validity of the Assignment, this Court may look to the practices of the parties, their objectives, their business practice and their relationship. See Gerstel, 65 B.R. at 605. As previously described, on May 7, 1999 ABS and ABST entered in the Service Agreement. Thus, because the Service Agreement governs the contractual relationship between ABS and ABST, a review of the relevant provisions is in order.

The Service Agreement contains the following relevant provisions:

Section 1. Appointment. INC. hereby retains TRUST as a separate servicing company for INC. and TRUST accepts such appointment, and, in addition, TRUST agrees to provide such servicing and related trust services to INC. and its investors in viatical contracts as it may determine necessary and desirable.

(Emphasis added)

Section 4. Compensation. In consideration of any and all services to be rendered hereunder, INC. shall pay to TRUST a sum equal to a minimum of Three Percent (3%) of all policies (face value) as they mature...

The Service Agreement further contains the following integration clause:

Section 6. Complete Agreement. This Servicing and Service Agreement contains the complete understanding between INC. and TRUST, and there are no understandings or agreements other than those incorporated herein...

It is quite clear from the four corners of this Service Agreement that ABST was to be compensated a 3% fee of the face value of the Policies as consideration for providing services to ABS and ABS' investors. In fact, it is undisputed that ABST was created for the purpose of servicing the ABS Policies. Based upon the integration clause contained therein, this Service Agreement represents the complete understanding between the parties that describes the relationship between the parties and the consideration for the services provide, without any ambiguity. The objective of this Service Agreement leaves nothing to dispute; ABST was to service ABS' policies. The relationship of the parties is clear. The Assignment was executed on the very same day that the Service Agreement was entered into. There can be no other conclusion but that the attempted assignment of the Policies to ABST (assuming ABST is the intended assignee) was intended to do nothing more than secure the payment of ABST's servicing fee, not effect a transfer of the beneficial interests in the Policies. ⁽⁷⁾

c. The Assignment can only transfer what is presently owned by the transferor.

A party claiming an assignment of interests must show that the assignment was valid, i.e., that it effectively conveyed to the assignee an interest in the subject property, and second, that the assignor had a valid ownership interest in the property at the time of the assignment. United States of America v. Cashier's Checks Having Aggregate Value of Two Hundred Thousand Dollars in U.S. Currency, 897 F.2d 1567, 1572 (11^th Cir. 1990).

Not only must ABST prove valid consideration, it must also show that ABS held a valid ownership interest in the interests it was purporting to assign and that the description of such assets are sufficiently identified. An assignee only acquires the interest of the assignor at the time of an assignment. US v. Eleven Thousand Five Hundred and Eighty Dollars, 454 F. Supp.376, 381 (M.D. Fla. 1978), citing, Florida Bahamas Lines, Ltd. v. Steel Barge "Star 800" of Nassau, 433 F.2d 1243 (5^th Cir. 1970); Currency Totaling $48,318.08, 609 F.2d at 214. At the time of the Assignment, WPA had only purchased 16 policies for ABS's benefit. Since ABS did not hold a valid ownership interest in policies "hereafter acquired" at the time of the Assignment, such interests could not be transferred to ABST.

Further, the Assignment is ambiguous in that it fails to identify with particularity the assets being assigned. The language does not delineate either the property referred to or the intent of the transfer. The failure of this language to effectuate an assignment regarding either specific, presently held policies, or future acquired policies, renders the Assignment void.

Additionally, in order to have a valid transfer of an interest in a particular fund, "the transfer must be such as to leave the assignor with no control over the fund." In re Gibraltar Resources, Inc., 211 BR 216 (Bankr. N.D. Tex. 1997), quoting Ashford, 73 B.R. 37, 40 (Bankr. N.D. Tx. 1987). To date, ABS remains in control of the beneficial interests in the ABS Policies, thereby belying the allegation that any purported assignment was effective. Accordingly, the Assignment fails to meet the standards necessary to effectuate a valid assignment of the beneficial interests in the Policies.