## Facts

- The court was presiding over litigation between Arthur Smith and Powder Mountain, LLC; during that litigation, a separate, consolidated post-judgment dispute arose that did not involve Smith or Powder Mountain.
- In the secondary dispute, FDB II Associates, LP (FDB) obtained a federal consent judgment against Arnold Mullen for $1,000,000 and pursued collection in post-judgment proceedings.
- Separately, Paul Fireman, the Paul & Phyllis Fireman Charitable Foundation, and their designee PFP Asset Recovery LLC (PFP) pursued Mullen in Florida state court and obtained relief requiring Mullen to turn over certain assets, including two Fidelity Investments securities accounts held in Mullen’s name.
- On June 30, 2010, the state court approved a restitution/transfer agreement and ordered Mullen to transfer the Fidelity accounts to Fireman, the Foundation, their designee (PFP), or another designated account.
- That same day, PFP/Fireman provided Fidelity with the state-court order and transfer instructions, and counsel exchanged emails with Fidelity personnel about carrying out the transfer.
- Fidelity expressed willingness to transfer the accounts to PFP, but the parties had not resolved a required transfer detail and Fidelity required additional documentation/signatures before it would complete the transfer.
- On July 1, 2010, before the transfer was completed, FDB served Fidelity with writs of garnishment directed to Mullen’s Fidelity accounts.
- FDB sought a final judgment of garnishment against Fidelity. PFP moved to dissolve the writs and claimed priority, arguing it had obtained “control” of the accounts under Florida’s enactment of U.C.C. Article 8 before the writs were served.
- The parties filed cross-motions for summary judgment on the priority question.

## Issues

1. Whether, by June 30, 2010, PFP had obtained “control” of Mullen’s Fidelity security entitlements under Fla. Stat. § 678.1061(4)(b) because Fidelity had agreed to comply with entitlement orders originated by PFP without further consent by Mullen.
2. If PFP lacked Article 8 “control,” whether FDB’s July 1, 2010 writs of garnishment created a superior lien/interest in the Fidelity accounts under Florida garnishment law and related U.C.C. provisions.
3. Whether PFP qualified as a “protected purchaser” under Fla. Stat. § 678.5101(1) so as to take the security entitlements free of FDB’s later-asserted claim.

## Decision

- The court granted summary judgment in favor of FDB on the priority dispute and denied PFP’s request to dissolve the writs.
- The court held PFP did not obtain “control” of the Fidelity accounts before FDB served the writs of garnishment on July 1, 2010.
- The court treated Fidelity’s June 30 communications as not yet an agreement to comply with PFP’s entitlement orders “without further consent” by Mullen because Fidelity still required additional steps (including additional signatures/documentation) before it would execute the transfer.
- Because PFP lacked control and thus did not establish protected-purchaser status under § 678.5101(1), FDB’s garnishment lien took priority over PFP’s claim to the accounts.
- The court permitted FDB’s garnishment to proceed against Fidelity based on that priority ruling.

## Legal Principles

- Under Fla. Stat. § 678.1061(4)(b) (U.C.C. § 8-106(d)(2)), a purchaser has “control” of a security entitlement only if the securities intermediary agrees it will comply with entitlement orders originated by the purchaser without further consent by the entitlement holder.
- An intermediary’s stated willingness to transfer assets, when conditioned on additional required steps or approvals, may be insufficient to show the intermediary has agreed to follow the purchaser’s entitlement orders within the meaning of § 678.1061(4)(b).
- Under Fla. Stat. § 678.5101(1) (U.C.C. § 8-510(a)), a purchaser who gives value, lacks notice of an adverse claim, and obtains control is a “protected purchaser” that takes the security entitlement free of adverse claims.
- In a contest between a claimed transferee and a judgment creditor using garnishment, priority can turn on whether the transferee obtained Article 8 control before the writs were served and the judgment creditor’s lien attached under Florida law.

## Conclusion

In this consolidated post-judgment order issued in *Smith v. Powder Mountain, LLC*, the Southern District of Florida resolved a priority fight between FDB (a federal judgment creditor) and PFP (a state-court transferee) over Mullen’s Fidelity securities accounts, concluding that Fidelity’s June 30, 2010 conditional transfer communications did not give PFP Article 8 “control” before FDB served writs of garnishment on July 1, 2010, so FDB’s garnishment lien had priority.


Smith v. Powder Mountain, LLC, 2011 WL 2457906 (2011)