Pak v. Webber
Filing
29
ORDER -- The U.S. Bankruptcy Court's Final Judgment entered against Appellant Sun Y. Pak in the amount of $128,000 is VACATED (Pak B.R. Doc. 141, p. 2, 2). This case is REMANDED to the U.S. Bankruptcy Court. Signed by Judge Roy B. Dalton, Jr. on 10/16/2017. (VMF)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
In Re:
KEITH A. YERIAN,
Debtor.
Bankr. Case No. 6:15-bk-1720-KSJ
_____________________________________
SUN Y PAK,
Appellant,
v.
Case No. 6:17-cv-460-Orl-37
RICHARD BLACKSTONE WEBBER, II,
as TRUSTEE,
Appellee.
_____________________________________
ORDER
In the instant appeal, Appellant Sun Y. Pak (“Pak”) challenges the U.S. Bankruptcy
Court’s final judgment against her. (Docs. 1, 27, 28.) Appellee Richard B. Webber
(“Trustee”) opposes. (Doc. 26.) For the following reasons, the Bankruptcy Court’s final
judgment is due to be vacated and the matter is due to be remanded for additional factual
findings.
I.
PROCEDURAL HISTORY
This action commenced when Debtor Keith A. Yerian (“Yerian”) filed a petition
for Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the Middle District of Florida.
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(See Yerian B.R. Doc. 1, p. 1.) 1 In it, Yerian sought to discharge his debts as an honest
debtor. (Id.; see also Pak B.R. Doc. 152, pp. 17, 26.) As required, he submitted personal
financial information about his claimed estate, and the Bankruptcy Court appointed
Trustee as administrator. (See Yerian B.R. Docs. 1, 3.)
On review of Yerian’s claimed estate, Trustee uncovered additional items he
believed qualified as part of Yerian’s bankruptcy estate. (Pak B.R. Doc. 1.) Pursuant to
11 U.S.C. §§ 105, 544, 548, 550, and 727 of the U.S. Bankruptcy Code, Trustee commenced
an action against Yerian to, among other things, recover the value of these missing items.
(Id.) To accomplish this, Trustee also included Yerian’s non-debtor wife, Pak, in his action.
(See id. ¶¶ 38–48 (Counts IV–VI targeted to Pak).) Of issue here, Pak and Yerian had a
joint bank account (“E-Trade Account”) whose funds were transferred into an individual
account (“Transfer”) for Pak (“Pak Account”). (Pak. B.R. Doc. 152, pp. 5–6.) Trustee
sought to avoid the Transfer as fraudulent to recoup Yerian’s half of the E-Trade
Account’s balance—$128,000. (See id.)
Whether avoidance was possible depended on the type of property the E-Trade
Account constituted under Florida law—the Bankruptcy Code exempts certain types of
state-defined jointly-held property, so if exempt, subsequent transfers cannot be avoided.
(See id. at 21–23 (outlining Florida law of fraudulent transfers).) See also 11 U.S.C.
With a jumbled transmitted record, for clarity’s sake, citations to Yerian’s
Bankruptcy Petition, Case No. 6:15-bk-1720-KSJ are labelled “Yerian B.R.” Citations to
Pak’s Bankruptcy Record, Case No. 6:15-ap-64-KSJ, are titled “Pak B.R.” Citations
without either notation refer to this Court’s record, Case No. 6:17-cv-460-Orl37. This
Order cites the Bankruptcy Court’s Oral Ruling as Pak B.R. Doc. 152, also found at Doc.
11-8.
1
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§ 522(b)(3)(B) (defining exempt property from bankruptcy estate); Fla. Stat. § 726.102(2)(c)
(defining exempt property from which transfers cannot be avoided); Beal Bank, SSB v.
Almand & Assocs., 780 So.2d 45, 52–53 (Fla. 2001) (describing types of jointly-held property
under Florida law and their exempt status). Pak claimed that the E-Trade Account was
exempt from Yerian’s bankruptcy estate under two alternate theories: (1) she owned it
individually; or (2) the couple owned it as a tenancy by the entireties (“TBE”). (See Pak
B.R. Doc. 136, pp. 51–52.) Trustee countered that the E-Trade Account was a joint tenancy
with right of survivorship (“JTWROS”). (See id. at 32–37.)
The case proceeded to trial on November 30, 2016 and December 12, 2016. (Pak
B.R. Docs. 127, 131.) The Bankruptcy Court issued an oral ruling on February 14, 2017, in
favor of Trustee, finding the E-Trade Account was JTWROS and thus not exempt from
Yerian’s estate. (Pak B.R. Doc. 152.) To that end, the Bankruptcy Court entered final
judgment against Pak for $128,000, avoiding the Transfer as fraudulent. (Pak B.R. Doc.
141.) Pak then timely filed a Notice of Appeal to this Court, seeking review of the final
judgment. (Doc. 1.) Both parties submitted briefing, so the matter is now ripe for
adjudication. (Docs. 26–28.) 2
II.
LEGAL STANDARDS
A. Standards of Review
District courts have jurisdiction over appeals from a bankruptcy court’s final
judgments under 28 U.S.C. § 158(a)(1). In reviewing these decisions, a district court
2 The parties filed amended briefs in compliance with the Court’s August 29 Order.
(Doc. 25.) The Court cites the docket entries for these amended briefs.
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functions as an appellate court. In re Colortex Indus., Inc., 19 F.3d 1371, 1374
(11th Cir. 1994). Conclusions of law are reviewed de novo. In re Globe Mfg. Corp., 567 F.3d
1291, 1296 (11th Cir. 2009). Factual findings are reviewed for clear error. Id. Clear error
exists if “the reviewing court on the entire evidence is left with a definite and firm
conviction that a mistake has been committed.” Jones v. Childers, 18 F.3d 899, 904 (11th Cir.
1994) (quotation omitted). District courts may not make independent factual findings. See
In re JLJ Inc., 988 F.2d 1112, 1116 (11th Cir. 1993). Therefore, “[i]f the bankruptcy court is
silent or ambiguous as to an outcome determinative factual question, the case must be
remanded to the bankruptcy court for the necessary factual findings.” Id.
B. Defining the Estate
Filing a petition for bankruptcy creates a bankruptcy estate. 11 U.S.C. § 541(a). This
estate encompasses all of a debtor’s legal and equitable interests in real and personal
property, except for items specifically authorized as excludable. Id. Such excludable items
include “any interest in property in which the debtor had, immediately before the
commencement of the case, an interest as a tenant by the entirety or joint tenant to the
extent that such interest . . . is exempt from process under applicable nonbankruptcy
law.” Id. § 522(b)(3)(B). Thus defining the contours of a bankruptcy estate often turns on
state law exemptions. Here, Florida law controls. See Butner v. United States, 440 U.S. 48,
55 (1979) (announcing that state property law applies in bankruptcy proceedings).
Florida exempts property held as TBE from the bankruptcy estate so long as only
one spouse files for bankruptcy. Beal Bank, 780 So.2d at 53. This is because TBE is a type
of property available only to married couples—it “belongs to neither spouse individually,
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but each spouse is seized of the whole.” Id. As such, “only the creditors of both the
husband and wife, jointly, may attach [TBE] property.” Id. This exemption is extended to
transfers from TBE property under the Florida Uniform Fraudulent Transfer Act
(“FUFTA”), even if the circumstances surrounding the transfer suggest fraud. See Fla.
Stat. § 726.102(2)(c) (defining as exempt “an interest in property held in [TBE] to the extent
it is not subject to process by a creditor holding a claim against only one tenant”); see also,
e.g., In re Anderson, 561 B.R. 230, 240 (Bankr M.D. Fla. 2016) (under FUFTA and the
Bankruptcy Code, “a transfer of property that is exempt from creditors may not be the
subject of an action to avoid a fraudulent transfer”). Consequently, only the fraudulent
creation of TBE property will subject transfers from TBE property to avoidance. See, e.g.,
In re Blitstein, 105 B.R. 133, 135 (Bankr. S.D. Fla. 1989). In short, Florida is highly protective
of TBE property. See Beal Bank, 780 So.2d at 57 (discussing policy considerations
undergirding Florida’s special treatment of TBE).
Florida does not extend the same exemption status to other types of jointly-held
property that can be proportionally divided. See id. at 52–53. This includes property held
as JTWROS, where each tenant holds “only his or her separate share” to which a creditor
can attach. Id. at 53. As such, Florida allows creditors of one spouse to seize both JTWROS
property and transfers from such property as part of the debtor’s bankruptcy estate. Id.
And unlike TBE, a debtor’s fraudulent exclusion of such property can lead to avoidance
and recovery proceedings under 11 U.S.C. § 550. Because Florida treats TBE and JTWROS
oppositely in this respect, defining the bankruptcy estate for a married debtor with
jointly-titled property turns on that property’s classification.
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C. Classifying the Property
Under Florida law, the composition of TBE and JTWROS boils down to a single
variance—marriage. Beal Bank, 780 So.2d at 52. Other than marriage, TBE and JTWROS
share the same five unities: possession, interest, title, time, and survivorship. Id. But
married couples may own both TBE and JTWROS property, which complicates matters
when one spouse files for bankruptcy and seeks to determine which property should be
exempt from the estate—particularly if the couple jointly acquired title to property after
marriage without realizing TBE ownership was possible. See id. at 53–55. To avoid such
complications, the Florida Supreme Court announced a presumption in favor of TBE
ownership for married couples jointly owning property (“Beal Bank Presumption”). Id.
at 58. Florida’s legislature then codified the Beal Bank Presumption, announcing, “[a]ny
deposit or account made in the name of two persons who are husband and wife shall be
considered a tenancy by the entirety unless otherwise specified in writing.” Fla. Stat.
§ 655.79. With this, courts attempting to classify joint property owned by married couples
under Florida law must engage the Beal Bank Presumption. See Beal Bank, 780 So. 2d at 61;
In re Sinnreich, 391 F.3d 1295, 1297 (11th Cir. 2007.)
Applying the Beal Bank Presumption is rather straightforward. First, the property
at issue must meet the six required unities of TBE. Beal Bank, 780 So.2d at 58. Joint bank
accounts normally do. See id. at 61; see also In re Mathews, 307 F. App’x 266, 268–69
(11th Cir. 2009) (discussing types of personal property that the Beal Bank presumption
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applies to). 3 Second, the court must determine whether there was evidence of an express
disclaimer—a writing that specifies the account as TBE or otherwise and a deliberate
choice by the couple to choose a type of ownership. Id. at 60. If the couple expressly chose
TBE or JTWROS, the inquiry is over and the account is either TBE or JTWROS,
respectively. Id. But if a writing merely stated that the account being opened was JTWROS
without offering TBE, the Beal Bank Presumption applies and the account is presumed TBE.
Id. The Beal Bank Presumption operates in these situations—where it is unclear whether
the married couple deliberately chose a type of ownership other than TBE. See id. So
determining whether the Beal Bank Presumption applies is a factually-driven activity that
involves scrutinizing both the types of accounts offered to the couple and the documents
they signed when opening the account. 4
When the Beal Bank Presumption applies, the creditor shoulders the burden to
prove by a preponderance of the evidence that the property is not TBE. See id. at 58–59.
To accomplish this, the creditor can put on evidence that the couple fraudulently created
the TBE property. See id. at 61; see also In re Blitstein, 105 B.R. at 135. To prove such fraud
at inception, the creditor can show, among other things, that the debtor acted “with actual
While unpublished opinions are not binding precedent, they may be considered
as persuasive authority. See 11th Cir. R. 36-2; see also United States v. Almedina,
686 F.3d 1312, 1316 n.1 (11th Cir. 2012).
4 Many courts have conducted this analysis. See, e.g., In re Anderson, 561 B.R. at
235–41; In re Benzaquen, 555 B.R. 63, 65, 68–69 (Bankr. S.D. Fla. 2016); Regions Bank v.
Hyman, 91 F. Supp. 3d 1234, 1255 (M.D. Fla. 2015); In re Stephenson, No. 6:11-bk-18901ABB, 2012 WL 4896725, at *1 (Bankr. M.D. Fla. Oct. 4, 2012); Mathews v. Cohen, 382 B.R.
526, 531–33 (Bankr. M.D. Fla. 2007), affirmed by In re Mathews, 307 F. App’x at 268; In re
Robedee, 367 B.R. 901, 907–09 (Bankr. S.D. Fla. 2007); In re Wingate, 377 B.R. 687, 698–701
(Bankr. M.D. Fla. 2006).
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intent to hinder, delay, or defraud.” See 11 U.S.C. § 548(a)(1)(A); see also Fla. Stat. §
726.105(1)(a). Then, only if the creditor succeeds at proving the TBE property was
fraudulently created can fraudulent transfers from TBE property be avoided. See In re
Blitstein, 105 B.R. at 135; see also Sneed v. Davis, 184 So. 865, 869 (Fla. 1938). Otherwise,
property that has the six unities, no express disclaimer, and was not fraudulently created
is TBE. Beal Bank, 780 So.2d at 61. It and all subsequent transfers from it are exempt from
the reach of a single spouse’s creditors. See id.; see also In re Sinnreich, 391 F.3d at 1296; In
re Wingate, 377 B.R. at 700–01.
The Florida Supreme Court has recognized one exception where the creditor does
not have the burden of proof. When the financial institution does not offer TBE as a form
of ownership, or expressly precludes TBE ownership, an express disclaimer is not
possible, so of course the Beal Bank Presumption does not apply. Beal Bank, 780 So.2d at
61. Indeed, Florida law does not ascribe a type of ownership to an account that the
financial institution expressly chooses not to offer. Nevertheless, if the debtor still
maintains that the couple intended the property as TBE, he can offer such evidence. Id.
As such, the debtor shoulders the burden to show TBE ownership, still by preponderance
of the evidence. Id.
Against this legal backdrop, the Court turns to the Bankruptcy proceedings below.
III.
BANKRUPTCY PROCEEDINGS
On February 14, 2017, the Bankruptcy Court issued an oral ruling announcing its
factual findings and legal conclusions. (Pak B.R. Doc. 152.) The Court summarizes the
relevant findings below.
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A.
Bankruptcy Court’s Factual Findings
The story begins with Debtor Yerian. (Id. at 8.) An Ohioan, Yerian formerly
enjoyed an active and successful career in software development, even conceiving a
software company, ETC Computers, Inc., with his ex-wife Deborah Yerian (“Deborah”).
(Id.) Ever a factotum, Yerian also acquired skill and knowledge of stock trading. (Id. at
11.) Indeed, by the time he divorced Deborah and married Pak, “he was a well-versed
stock trader and had traded stock for years,”—quite the “sophisticated businessman.”
(Id. at 10–11.)
Pak, on the other hand, had no experience “of any demonstrated kind . . . in the
stock market.”(Id. at 11.) She worked at ETC Computers, Inc. for a bit and married Yerian
in October 2008. (Id. at 9, 11.) Following their nuptials, they opened the E-Trade Account
on October 24, 5 funded with $70,000 gifted by Pak’s mother to celebrate the union. (Id. at
10–12.) Pak’s mother transferred the funds in three installments—first $50,000, then two
installments of $10,000 each. (Id. at 10–11.)
From 2008 to 2012, there were “thousands of stock trades,” and “the trading was
very successful.” (Id. at 11.) So much so that “the amount increased from $70,000 to well
over $250,000.” (Id.) Bluntly, “there was a substantial return in the investment.” (Id.)
During trial, Pak testified that she was the reason for the E-Trade Account’s
exceptional performance during an economic recession, despite never having traded
The E-Trade Account was titled “Keith A. Yerian & Sun Y. Pak JTWROS.” (See
Doc. 13-3.)
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stock before. 6 (Id. at 13.) Such testimony “strained” the Bankruptcy Court’s beliefs and
was deemed not credible. (Id.) Rather, the Bankruptcy Court attributed the E-Trade
Account’s substantial growth to Yerian, who evidence showed “effectuated every stock
trade.” (Id.)
While the E-Trade Account triumphed, ETC Computers, Inc. flopped. (Id. at 9.)
Matters came to a head in November 2011, when Deborah filed suit against Yerian and
others based on business-related issues. (Id.; see also Pak B.R. Doc. 121-11.) Four months
later, the Transfer occurred, whereby Pak and Yerian depleted the E-Trade Account and
moved its $257,000 to the Pak Account. (Pak B.R. Doc. 152, pp. 11–12; see also Pak B.R.
Doc. 120-24.) Pak then used $173,000 from the Pak Account to purchase a Florida home.
(Pak B.R. Doc. 152, p. 13.) The couple decamped in May, with $81,000 remaining in the
Pak Account. (Id.) This money was somehow spent, but on what and by whom remains
unknown—the Bankruptcy Court found no credibility in Pak’s testimony about the Pak
Account’s expenditures and found the money “unaccounted for.” (Id. at 14.) The
Bankruptcy Court did not state whether the Pak Account was closed.
B.
Bankruptcy Court’s Legal Conclusions
After enumerating its factual findings, the Bankruptcy Court announced its legal
conclusions. It concluded that Pak and Yerian owned the E-Trade Account as JTWROS
(“JTWROS Finding”), discrediting Pak’s primary argument that it was individually
The Bankruptcy Court also found that “during the testimony, it was clear that
Ms. Pak did not understand the [account] statements or what the various matters meant.”
(Pak B.R. Doc. 152, p. 13.)
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owned. (Pak B.R. Doc. 152, pp. 24–25.) As support, the Bankruptcy Court stated:
[T]he original [E-Trade Account] established in 2008 – October 24, 2008 –
was jointly owned. The monies were jointly owned; And that Mr. Yerian
was the primary stock trader. Perhaps Ms. Pak had some input, but I would
not find it to be substantial, although she has and is entitled as the joint
tenant with right of survivorship to have half the monies.
But it was a joint gift. It was to both of them. The [E-Trade Account] was
joint.
(Id.)
The Bankruptcy Court made no mention of Pak’s secondary argument that the ETrade Account was TBE. (See generally id.) Instead, based on the JTWROS Finding, the
Bankruptcy Court devoted its legal analysis to evaluating whether the Transfer could be
avoided as fraudulent. (Id. at 22–25.) In so doing, it looked at the suspect circumstances
surrounding the Transfer—the litigation between Yerian and Deborah and other
“numerous badges of fraud”—to find “intentional fraud in the scheme to move the
money away.” (Id. at 24–25.) From this, it concluded “that the Trustee [was] entitled to
avoid the fraudulent transfer and receive a judgment in the amount of [Yerian’s] interest
of $128,000.” (Id. at 25.)
IV.
ANALYSIS
The Court’s task is to review the Bankruptcy Court’s final judgment against Pak.
Pak calls on the Court to vacate the judgment, while Trustee seeks affirmance. (See Docs.
26–28.) On review, the Court finds no clear error with the Bankruptcy Court’s factual
findings regarding the E-Trade Account, and agrees that the couple jointly owned and
opened the account after their marriage. But the Court concludes that the Bankruptcy
Court misapplied Florida law. Hence, on de novo review, its final judgment against Pak
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is due to be vacated and this case is due to be remanded for additional factual findings.
See In re Sublett, 895 F.2d at 1384.
Against Beal Bank’s clearly-established framework, the Bankruptcy Court’s
JTWROS finding misses the mark. Its ruling made no mention of TBE as a form of
property ownership. Instead, the Bankruptcy Court zeroed in on Pak’s primary argument
that she alone owned the E-Trade Account. (See Pak B.R. Doc. 152, pp. 23–24.) Once the
Bankruptcy Court discredited this argument, it apparently thought that JTWROS was the
only available alternative property form, despite Pak’s secondary position arguing
exactly the opposite. (See Pak B.R. Doc. 152, p. 13 (statement of Bankruptcy Court that
“[i]t [is] undisputed that [the E-Trade Account] was JTWROS.”); see also Pak B.R. Doc.
136, pp. 51–52 (asserting argument that the E-Trade Account was alternatively TBE).)
Regardless of its reasoning, the Bankruptcy Court latched on to the notion that the ETrade Account was JTWROS, enabling it to avoid the Transfer. (See Pak B.R. Doc. 152, pp.
23–25.) This was error.
The Bankruptcy Court erred by not linking two key findings: (1) the E-Trade
Account was JTWROS; and (2) Pak and Yerian were married when they opened it.
Together, these findings signal that the E-Trade Account possessed all required unities
for TBE ownership. Thus Beal Bank springs into action. With this, the Bankruptcy Court
should have proceeded to examine the circumstances surrounding the opening of the
E-Trade Account, specifically whether: (1) E-Trade allowed TBE ownership; and, if so,
(2) the couple expressly disclaimed it. But the Bankruptcy Court’s ruling contained no
such factual findings, and the only record evidence that speaks to the issue of express
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disclaimer was one question in Yerian’s testimony, where his attorney asked if he had
“any option to [his knowledge] to elect [the E-Trade Account] as [TBE.]” (Pak B.R. Doc.
134, ¶¶ 1–3.) He said no. (Id. ¶ 4.) Such scant evidence hardly resolves the issue, so
additional factual findings are needed to evaluate whether the Beal Bank presumption
applies.
Therefore, because the Bankruptcy Court did not engage the Beal Bank analysis,
remand is necessary to develop further factual findings on this point. If the Beal Bank
presumption applies, it is Trustee’s burden to overcome by preponderance of the
evidence. If he does not, then the E-Trade Account remains TBE and exempt from
Yerian’s bankruptcy estate, not avoidable, despite the Bankruptcy Court’s finding of
fraud, based on FUFTA and the Bankruptcy Code.
Trustee lobs several other arguments in favor of affirmance. Although none are
persuasive, the Court briefly addresses them. First, Trustee asserts that judicial estoppel
bars the Court from evaluating the E-Trade Account’s legal status. (Doc. 26, pp. 19–21.)
But this bungles the doctrine, which operates only when parties take “inconsistent
positions” in separate judicial proceedings—not, as here, where a party makes alternative
arguments in a single proceeding. See Slater v. U.S. Steel Corp., No. 12-15548, 2017 WL
4110047, at *1 (11th Cir. Sept. 18, 2017) (en banc).
Second, Trustee maintains that the Court’s standard of review is limited to clear
error by contending that the JTWROS Finding was factual, not legal. (Doc. 26, pp. 15–16.)
But the determination of what legal form of property the TBE Account constitutes is just
that—a legal question that involves the application of Florida law and the Bankruptcy
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Code. See In re Mathews, 307 F. App’x at 268.
Third, Trustee opines that the E-Trade Account is missing two required unities—
possession and interest—so it cannot be TBE. (See id. at 21–35.) The Court is buffaloed by
this argument. Because JTWROS and TBE share the same unities, apart from marriage,
accepting Trustee’s argument here would not only prevent the E-Trade Account from
being TBE, but also JTWROS. Trustee cannot have his cake and eat it, too.
Last, Trustee posits that remand for additional factual findings is unnecessary
because the Court can presume that the Bankruptcy Court fully considered the possibility
that the E-Trade Account was TBE. (Doc. 26, pp. 35–36 (citing United States v. $242,484.00,
389 F.3d 1149, 1154 (11th Cir. 2004).) Trustee asks too much, given the gap between the
Bankruptcy Court’s ruling and Florida’s TBE structure. To afford such deference to the
Bankruptcy Court’s ruling, the Court would need some indication, even a blip, that Beal
Bank or the possibility of TBE crossed the Bankruptcy Court’s radar.
Therefore, although the Court disfavors remand, it is particularly appropriate here
to straighten out this misapplication of Florida law. The Bankruptcy Court is instructed
to reconsider its February 14, 2017 oral ruling in light of this Order.
IV.
CONCLUSION
Accordingly, it is ORDERED AND ADJUDGED as follows:
1.
The U.S. Bankruptcy Court’s Final Judgment entered against Appellant Sun
Y. Pak in the amount of $128,000 is VACATED (Pak B.R. Doc. 141, p. 2, ¶2).
2.
This case is REMANDED to the U.S. Bankruptcy Court for further factual
findings consistent with this Order.
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3.
The Clerk is DIRECTED to close the file.
DONE AND ORDERED in Chambers in Orlando, Florida, on October 16, 2017.
Copies to:
Counsel of Record
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