Opinion
19-10309 Adv. 20-1009
06-03-2022
In re: TONYA GAIL CHAMBERS Debtor v. BARBARA CROUCHER Defendant E. HANLIN BAVELY, TRUSTEE Plaintiff
This opinion is not intended for publication.
Chapter 7
MEMORANDUM OPINION: 1) DENYING THE PLAINTIFF-TRUSTEE'S MOTION FOR SUMMARY JUDGMENT [DOCKET NUMBER 74]; AND 2) GRANTING, IN PART, AND DENYING, IN PART, DEFENDANT'S MOTION FOR SUMMARY JUDGMENT [DOCKET NUMBER 76]
BETH A. BUCHANAN UNITED STATES BANKRUPTCY JUDGE
This matter is before this Court on the cross-motions for summary judgment filed by Plaintiff-Trustee E. Hanlin Bavely ("Trustee") and Defendant Barbara Croucher ("Ms. Croucher") [Docket Numbers 74 and 76]. This Court also considered the parties' responsive and supportive filings at Docket Numbers 77, 78, 79, 80, 81 and 82.
To the extent that Ms. Croucher's responsive filings on summary judgment are coupled with a request to dismiss or to strike the Trustee's motion for summary judgment and response [see Docket Numbers 77 and 80], those requests are denied. This Court agrees with Ms. Croucher that the Trustee's motion for summary judgment and the Trustee's response to Ms. Croucher's motion for summary judgment did not include clearly drafted Statement of Material Facts sections with numbered paragraphs and specific citations to the record as required by this Court's Order Setting Concurrent Dispositive Motions Deadline [Docket Number 72]. Undoubtedly, the Trustee's failure to comply with this Court's Order made responding to the Trustee unnecessarily difficult. Nonetheless, Ms. Croucher did respond to the Trustee's filings in a substantive manner and this Court was able, albeit with considerable effort, to analyze the factual and legal positions of both parties. Accordingly, and in an effort decide the issues on the merits rather than procedural or technical grounds, this Court denies Ms. Croucher's requests to dismiss or strike the Trustee's filings. See Vergis v. Grand Victoria Casino & Resort, 199 F.R.D. 216, 218 (S.D. Ohio 2000) (noting the overall policy within the Sixth Circuit of resolving disputes on their merits rather than disposing of them on procedural or technical grounds).
In October of 2016, more than two years prior to her bankruptcy filing, Debtor Tonya Gail Chamber ("Debtor") transferred her interest in real property to the defendant, Ms. Croucher. After the bankruptcy filing, the Trustee filed an action to avoid the transfer as a fraudulent transfer under the Bankruptcy Code and the Ohio Uniform Fraudulent Transfer Act. The parties filed cross-motions for summary judgment disputing whether the Trustee meets his burden of proving the elements necessary to establish a fraudulent transfer.
Upon review of the evidence presented on summary judgment, this Court concludes that genuine issues of material fact exist regarding whether the Debtor received reasonably equivalent value for the transfer, whether the Debtor was insolvent at or near the time of the transfer, and whether the Debtor intended to incur, believed, or reasonably should have believed that she would incur debts beyond her ability to pay. Accordingly, this Court denies the parties' cross-motions for summary judgment on these issues. However, the undisputed evidence does establish that the Debtor was paying her debts as they became due on or around the time of the 2016 Conveyance. Accordingly, the Trustee has failed to establish a presumption of insolvency under Ohio Rev. Code § 1336.02(A)(2) and Ms. Croucher is granted partial summary judgment on that issue.
I. JURISDICTION
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334, and the standing General Order of Reference in this District. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Both parties consent to this Court entering final orders and judgment in this matter [see Docket Numbers 25 and 26].
II. BACKGROUND
A. The Purchase and Use of the Property
On September 1, 2009, the Debtor, Ms. Croucher and Ms. Croucher's son, Gary M. Mitchell, Jr. ("Mr. Mitchell"), recorded a land installment naming them as joint purchasers of real estate with the street address of 1581 Hamilton Richmond Road, Hamilton, Ohio 45013 (the "Property") [Docket Number 74, Ex. 28 (the "Land Installment Contract")]. At the time of entering the Land Installment Contract, Mr. Mitchell and the Debtor were in a marital-like relationship residing together, sharing income and expenses, and raising their daughter [Docket Number 76, Ex. 2, Affidavit of Gary M. Mitchell ("Mitchell Aff."), ¶ 2]. After entering the Land Installment Contract, the Debtor, Mr. Mitchell and their daughter lived in one of the two dwellings on the Property and Ms. Croucher lived in the other [Docket Number 76, Ex. 1, Affidavit of Barbara Croucher ("Croucher Aff."), ¶ 3; Docket Number 74, Ex. 25, Deposition of Debtor Tonya Chambers taken July 12, 2021 ("Debtor Depo."), pp. 145-47].
Per the terms of the Land Installment Contract, the purchase price of the Property was $155,000.00 and the purchasers were to pay $5,000.00 as a down payment and finance the remaining $150,000.00 of the purchase price at a 5.25% interest rate [Docket Number 74, Ex. 28]. To pay the financed portion, the contract required the purchasers to pay $1,495.82 per month beginning on October 1, 2009 with a maturity date of August 31, 2024 [Id.].
While the Debtor and Mr. Mitchell were named as two of the three purchasers in the contract, Ms. Croucher attests that she alone paid the $5,000.00 down payment and made all of the monthly payments due under the Land Installment Contract from September of 2009 until November 14, 2014 [Croucher Aff., ¶¶ 4 and 6]. Around November of 2014, Ms. Croucher attests that she paid the remaining balance owed under the Land Installment Contract, approximately $110,000.00, out of her own funds [Id., ¶ 5]. Ms. Croucher further states that she paid all costs associated with the Property including the taxes, insurance, water bills, security and repairs from her own funds [Id., ¶¶ 7-12]. That Ms. Croucher alone paid the purchase price and the costs associated with the Property is further supported by the statements of Mr. Mitchell [Mitchell Aff., ¶¶ 4-8]. The Debtor disputes these statements and attests that her income was put into a joint account or "pot" that was used to pay for the Property and for expenses related to the Property [Debtor Depo., pp. 114-118, 147-48].
Following the payment of the balance due under the Land Installment Contract, a survivorship deed was signed on November 26, 2014 conveying the Property from the seller named in the Land Installment Contract to the Debtor, Ms. Croucher and Mr. Mitchell jointly and in survivorship [Docket Number 74, Ex. 29].
B. The Transfer of the Debtor's Interest in the Property
In 2016, it became clear to Ms. Croucher that the Debtor and Mr. Mitchell would no longer remain in a marital-like relationship and that the Debtor would reside elsewhere [Croucher Aff., ¶ 13]. Ms. Croucher asked the Debtor to transfer her interest in the Property to Ms. Croucher alone [Id.]. On October 11, 2016, the Debtor conveyed her interest in the Property to Ms. Croucher by quit claim deed recorded that same date ("the 2016 Conveyance") [Docket Number 74, Ex. 30]. The papers were signed at a U.S. Bank with Ms. Croucher, Mr. Mitchell, the Debtor, their daughter, and a representative of the bank present [Debtor Depo., pp. 113-14]. Following the 2016 Conveyance, the Debtor continued to live at the Property until February 1, 2017 at which time she moved out and split up with Mr. Mitchell [Debtor Depo., pp. 108-110].
The Debtor did not receive any money from Ms. Croucher in exchange for the conveyance of her one-third interest in the Property [Docket Number 74, Ex. 31, Transcript of § 341 Meeting held February 28, 2019 ("341 Mtg. Tr."), pp. 13-18]. The evidentiary materials presented on summary judgment reveal questions regarding whether or not the Debtor was intimidated by Ms. Croucher and Mr. Mitchell into making the conveyance for no money [Compare 341 Mtg. Tr., pp. 18, 21-22 to Ms. Croucher Aff., ¶ 14; Mr. Mitchell Aff., ¶ 17]. However, Ms. Croucher attests that the Debtor's conveyance was voluntary and, in exchange for the transfer, Ms. Croucher refrained from seeking contribution from the Debtor for all payments made for her benefit under the Land Installment Contract as well as payments towards the Property's taxes and maintenance [Croucher Aff., ¶ 15]. In addition, Ms. Croucher attests that, in exchange for the transfer, she allowed the Debtor to continue to reside on the Property for the period of October 11, 2016 through February 1, 2017 without having to pay rent or utilities [Id., ¶ 16]. The Debtor confirms that she was not asked to pay rent during the period following the conveyance until she left the Property [Debtor Depo., p. 149]. Ms. Croucher calculates that the value of rent for this time period is $1,700 per month totaling $6,800 [Croucher Aff., ¶ 16].
At the time of the 2016 conveyance from the Debtor to Ms. Croucher, the value of the Property was $224,230.00 according to the Butler County Auditor's valuation [Croucher Aff., ¶ 13]. The Property was valued at $251,860.00 by the Butler County Auditor in 2020 [Docket Number 74, Ex. 32].
C. Debtor's Employment History and Finances
The Debtor was 49 years old at the time of her July 2021 deposition so was in her early to mid-40's at the time of the 2016 Conveyance [Debtor Depo., p. 15]. She has an 11th grade education and did not have a driver's license until she turned 44 [Id., pp. 16, 39].
While the Debtor was living on the Property in 2016, the Debtor was employed in two jobs [Debtor Depo., p. 48]. The first job was with Mr. Mitchell in his bathtub reglazing and remodeling business, Absolute Magic Remodeling ("Absolute") [Debtor Depo., pp. 43-45]. The Debtor did not receive a formal paycheck from her job at Absolute [Debtor Depo. pp. 44-45, 117, 155]. Instead, all money received from the Absolute remodeling jobs went into a joint account where it was used to pay business and personal expenses [Id.]. Her other position was a part-time job at Bridges Sportwear working five to ten hours a week in 2016 making approximately $12.00 per hour. [Debtor Depo., pp. 46-48]. The Debtor further stated that she received about $700 in social security disability payments for her daughter starting at the time of her daughter's birth [Debtor Depo., p. 159]. However, those payments ended in 2015 when her daughter no longer met the criteria to continue to receive the disability payments [Id.]. This money also went into the same "pot" or joint account during the time it was received [Id., 159-60].
In November of 2016, the Debtor stopped working with Mr. Mitchell at Absolute and in December of 2016 started working at Takumi Stamping making about $13.75 per hour [Id., pp. 41-44]. She worked at Takumi full-time until a work related injury in July of 2020 and is currently on medical leave [Debtor Depo. pp., 41-43].
The Debtor's income, according to her federal income tax records, was $6,500 in 2016 [Debtor Depo., p. 138]. However, the Debtor noted that her 2016 income from Absolute was not reported and does not show on the return [Id., p. 139]. The Debtor's federal tax return for 2017 shows gross income of $26,661.00 from her two jobs at Takumi Stamping and Bridges Sportswear [Id.]. On an apartment rental application that the Debtor filled out in January of 2017, the Debtor listed her current occupation at Takumi with a monthly gross income of $3,000 per month [Id., pp. 50-51]. She listed her prior occupations as Bridges Sportswear with a monthly income of $1,500 per month and Absolute with a monthly income of $5,000 per month [Id., p. 52].
Also relevant to the analysis is the Debtor's debts at the time of the 2016 Conveyance and when she subsequently became unable to pay them. During the Debtor's deposition, the Debtor discussed her open credit card accounts at the time of the 2016 Conveyance and when she made her last payment and/or they became delinquent. That testimony supports the following:
1. Victoria Secret account opened October of 2016. First delinquency: December of 2017 [Debtor Depo., pp. 54-55];
2. The Buckle account opened December of 2016. First delinquency: September 10, 2017 [Debtor Depo., pp. 57-59];
3. Comenity Bank / Meijer account opened November of 2014. First delinquency: July 21, 2017 [Debtor Depo., pp. 59-60, 84-85];
4. Citi Best Buy account opened July of 2015. First delinquency: June 21, 2017 [Debtor Depo., pp. 62-64];
5. Walmart account. Unsure when opened. Current through August of 2017 [Debtor Depo., pp. 66-67];
6. Credit One account opened in March of 2007. Current through August of 2017 [Debtor Depo., p. 68];
7. JC Penney account opened in 2016 or earlier. Current through July of 2017 [Debtor Depo., pp. 69-70];
8. Home Depo account opened February of 2012. Current through June of 2017 [Debtor Depo., pp. 70-72];
9. Two U.S. Bank accounts. One account was current and last active in July of 2017. The second account was opened in March of 2012 and was last active December of 2018. Debtor paid both accounts on time and in full every month while they were active [Debtor Depo., pp. 72-78, 87-88];
10. Capital One account opened in October of 2006 and, as of October of 2016, it had a $0 balance and was current as of that time through at least January of 2017 [Debtor Depo., pp. 79-81];
11. Cincinnati Eye Institute account for services following a car accident. Should have been paid in full through insurance and Caresource and was only listed in bankruptcy out of an abundance of caution [Debtor Depo., pp. 81-83];
12. Bank of America (first account) - Debtor was current and making payments from February of 2015 through December of 2018 [Debtor Depo., p. 83];
13. Bank of America (second account) - Debtor was current and making payments from September of 2016 through July 14, 2017 [Debtor Depo., p. 84];
14. Bank of America (third account) - Debtor made payments and was current from September of 2013 through December of 2018 [Debtor Depo., p. 84];
15. First Premier Bank account opened in March of 2008. Last active in July of 2017. Debtor was paying on time and in full each month between those dates [Debtor Depo., p. 85];
16. Kohl's / Capital One account opened in August of 2014. Last active February of 2017 and paid in full and on time every month [Debtor Depo., pp. 85-86];
17. Merrick Bank / Cardworks account opened in September of 2011. Last active July of 2017. Debtor paid in full and on time every month [Debtor Depo., p. 86]; and,
18. Synchrony Bank / Lowes account. Charges were incurred in November of 2015. It was last active in June of 2017. Debtor paid in full and on time every month and was current through that time [Debtor Depo., pp. 86-87].Of those accounts, Ms. Croucher asserts that those with a verifiable balance as of the 2016 Conveyance are as follows:
1. Cincinnati Eye Institute
$ 90.00
2. U.S. Bank
$2,308.30
3. Credit One Bank
$1,341.03
4. Meijer
$ 377.41
Total:
Ms. Croucher notes that the Debtor disputes the Cincinnati Eye Institute debt because it was or should have been paid through insurance proceeds or her Caresource Card [Debtor Depo., pp. 81-83]. Accordingly, Ms. Croucher asserts that the total verifiable debts at the time of the 2016 Conveyance, excluding the disputed debt, is $4,026.74.
To support this calculation, Ms. Croucher refers to a summary attached to her motion for summary judgment referred to as Exhibit X [Docket Number 76, p. 5-6]. The summary itself includes reference to the Debtor's deposition testimony for its information [Id., Ex. X]. However, a review of the Debtor's deposition testimony reveals that, while she acknowledges the existence of the debts set forth in Exhibit X, the Debtor does not discuss the monetary amounts of those debts as of the 2016 Conveyance [See Debtor Depo., pp. 59-60, 68, 81-83, 73-74].
While the Debtor was living with Mr. Mitchell on the Property, the parties' credit cards and other debts were paid from their joint bank account to which the Debtor contributed from her jobs at Absolute and Bridges Sportswear [Debtor Depo., p. 156]. Beginning in January of 2017, the Debtor took over paying her own credit cards and continued to pay and keep them current until she could no longer afford to make the payments [Id., p. 157]. Upon moving out of the Property with her daughter in February of 2017, the Debtor received no financial support from Mr. Mitchell at any time prior to a support order that was issued in 2018 [ Id., pp. 154, 158].
Even after she moved out of the Property, however, the Debtor was able to stay current on her debts for some time using funds from her wages at Takumi and Bridges Sportswear [Id., pp. 157-58]. She defaulted on most of her debts between June and September of 2017 because she was no longer able to afford to pay them [Id., p. 144].
With respect to the Debtor's assets at the time of the 2016 Conveyance, the Debtor's deposition testimony supports that she had the same furniture that was listed on her bankruptcy schedules and an iPhone [Id., p. 93]. She testified that she owned a 2000 Ford Taurus that she valued at $400 [Id., pp. 91-92]. With respect to jewelry, the Debtor testified that Mr. Mitchell gave her a diamond engagement ring at the time of their engagement in 2014 as well as several other diamond rings during their relationship [Id., pp. 95-96, 99]. All of her rings, along with Mr. Mitchell's jewelry, were placed in a joint safe deposit box in February of 2016 [Id., pp. 101-02]. She testified that she did not have access to the safe deposit box at any point until she obtained a key in 2018, at which point, the jewelry was gone [Id., pp. 96-98, 101]. She testified that Mr. Mitchell took her jewelry, including the engagement ring, out of the safe deposit box in May of 2016 claiming the jewelry was "his" [Id., p. 96-98].
Based on the Debtor's deposition testimony, schedules, bank statements, and Mr. Mitchell's affidavit, Ms. Croucher calculates the value of the Debtor's assets at the time of the 2016 Conveyance as follows:
8. Cash in the bank (the "pot of money"):
$1,000.00
9. Cash in the Debtor's account:
$ 493.64Total:
$12,873.64
Mitchell Aff., ¶ 11(a)
Debtor Depo., p. 92
Debtor Depo., p. 93 and Schedule A/B
Mitchell Aff., ¶ 11(d)
Mitchell Aff, 11(e)
Mitchell Aff, ¶ 11(f)
Debtor Depo., p. 103
Mitchell Aff., ¶ 11(h)
Docket Number 76, Minnillo Aff., ¶ 8 and Ex. BB
The Trustee disputes both the inclusion of the jewelry noting the Debtor's lack of possession, custody and control, as well as the overall valuation of these assets [Docket Number 78, pp. 9-10]. The Trustee asserts that, if the jewelry and the Debtor's exempt assets are excluded, the value of her assets is zero [Id., pp. 11-12].
D. Debtor's Bankruptcy Filing
The Debtor first met with a bankruptcy lawyer, Mr. Snyder, in February of 2018 [Debtor Depo., p. 39]. That meeting was the first time she started thinking about filing for bankruptcy [Id.]. The Debtor filed a chapter 7 bankruptcy petition and schedules on January 31, 2019 [Docket Number 74, Ex. 7]. In her schedules, the Debtor lists a total of $11,768.33 in assets and $62,477.00 in debts. [Id., (Official Form 106Sum). Her schedules show that at the time she filed her petition, she had no interest in real property [Id.].
III. LEGAL ANALSYIS
A. Summary Judgment Standard
This Court addresses the parties' cross-motions for summary judgment under the standard set forth in Rule 56(a) of the Federal Rules of Civil Procedure (the "Civil Rules") made applicable to this proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure. Civil Rule 56(a) provides that summary judgment is to be granted by this Court "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A "genuine" dispute exists only where "evidence is such that a reasonable [finder of fact] could return a [judgment] for the nonmoving party." Id.; Gallagher v. C.H. Robinson Worldwide, Inc., 567 F.3d 263, 270 (6th Cir. 2009).
To prevail, the moving party, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331 (1986) (dissent). If the burden is on the nonmoving party at trial, the movant must: 1) submit affirmative evidence that negates an essential element of the nonmoving party's claim; or 2) demonstrate to the court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim. Id. at 331-32. Thereafter, the opposing party "must come forward with 'specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (citations omitted); see also Anderson, 477 U.S. at 249-250.
All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita, 475 U.S. at 587-88; Anthony v. BTR Auto. Sealing Sys., Inc., 339 F.3d 506, 511 (6th Cir. 2003). Nonetheless, mere conclusory allegations or unsupported opinions of the nonmovant are insufficient to defeat a motion for summary judgment. See Blaney v. Cengage Learning, Inc., 2011 U.S. Dist. LEXIS 43780, at *19-20, 2011 WL 1532032, at *7 (S.D. Ohio Apr. 22, 2011) ("Although the summary judgment standard requires that evidence of record be viewed in the light most favorable to the nonmoving party, it does not require that all bald assertions and subjective unsupported opinions asserted by the nonmoving party be adopted by the court").
B. Avoidance of a Constructively Fraudulent Transfer Under the Ohio UFTA
Bankruptcy Code Section 544 confers on bankruptcy trustees the ability to stand in the shoes of a creditor with an allowable unsecured claim to use state fraudulent conveyance laws to avoid certain pre-petition transfers of a debtor's property interests. See Belfance v. Bushey (In re Bushey), 210 B.R. 95, 100 (B.A.P. 6th Cir. 1997) (noting that this provision gives the trustee the power to 'avoid any transfer of an interest of the debtor in property . . . that is voidable under applicable law . . . .'"). On summary judgment, the parties dispute whether the Trustee's evidence is sufficient to establish entitlement to judgment on his claims under the Ohio Uniform Fraudulent Transfer Act ("Ohio UFTA"), specifically the constructive fraud provisions of Ohio Revised Code §§ 1336.04(A)(2) and 1336.05(A).
In the Complaint, the Trustee seeks avoidance of the transfer under both the Ohio UFTA and also under the Bankruptcy Code's fraudulent transfer provision, 11 U.S.C. § 548 [See Docket Number 1, ¶ 13]. However, on summary judgment, the Trustee cites § 548 minimally mostly to note that the provisions are "parallel" to the Ohio UFTA [Docket Numbers 74 and 76]. Nor does Ms. Croucher specifically address the elements of § 548 in her motion and responsive briefing. This Court concludes that neither party establishes entitlement to judgment with respect to the Trustee's claim under § 548 at this stage in the litigation.
Section 1336.04(A)(2) provides:
(A) A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor, whether the claim of the creditor arose before, or within a reasonable time not to exceed four years after, the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation in either of the following ways:
(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and if either of the following applies:
(a) The debtor was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction;
(b) The debtor intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due.Ohio Rev. Code § 1336.04(A)(2).
Section 1336.05(A) provides:
(A) A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
To prevail under these Ohio statutory provisions, the Trustee carries the burden of establishing, by the preponderance of the evidence, that the Debtor received less than reasonably equivalent value for the transfer of her interest of the Property to Ms. Croucher and at least one of the following: a) that the Debtor was insolvent at the time of the transfer or became insolvent as a result of the transfer; b) that the Debtor was engaged in a business or transaction for which her property remained unreasonably small in relation to the business or transaction; or c) the Debtor intended to incur, or believed or reasonably should have believed that she would incur debts beyond her ability to pay as they became due. Ohio Rev. Code § 1336.04(A)(2) and § 1336.05(A); Slone v. Lassiter (In re Grove-Merritt), 406 B.R. 778, 805 (Bankr. S.D. Ohio 2009). Neither the Trustee nor the Debtor argue that the Debtor engaged in a business or transaction for which her property remained unreasonably small in relation to the business or transaction. Accordingly, that particular method for establishing a fraudulent transfer will not be analyzed. This Court will review the other elements in turn.
1. Reasonably Equivalent Value
"A fundamental element of a constructive fraudulent transfer claim is a transfer made in exchange for less than reasonably equivalent value." Corzin v. Fordu (In re Fordu), 201 F.3d 693, 707 (6th Cir. 1999) (citing Ohio Rev. Code §§ 1336.04(A)(2) and 1336.05(A)). The test used to determine whether a transfer is supported by reasonably equivalent value "focuses on whether there is a reasonable equivalence between the value of property surrendered and that which was received in exchange." Id. at 708. The critical time to determine whether a debtor receives reasonably equivalent value is at the time of the transfer. Allard v. Flamingo Hilton (In re Chomakos), 69 F.3d 769, 770-71 (6th Cir. 1995) (noting that neither subsequent depreciation nor appreciation in value of the consideration affects whether reasonably equivalent value is given); Grove-Merritt, 406 B.R. at 805. Whether consideration supporting a challenged transfer is reasonable must be determined from the standpoint of the debtor. Grove-Merritt, 406 B.R. at 805.
The undisputed evidence submitted on summary judgment establishes the existence of a transfer of a property interest of the Debtor to Ms. Croucher with a value of approximately $74,743.33. Furthermore, during the § 341 Meeting, the Debtor testified that she received no funds in exchange for the transfer to Ms. Croucher and that testimony remains uncontradicted.
Specifically, the undisputed facts support that the Debtor held a one-third interest in the Property granted by way of the survivorship deed signed on November 26, 2014 [Docket Number 74, Ex. 29]. The Debtor conveyed her one-third interest in the Property to Ms. Croucher on October 11, 2016 by quit claim deed [Id., Ex. 30]. At the time of the 2016 Conveyance, the value of the Property was $224,230.00 according to the Butler County Auditor's valuation [Docket Number 76, Croucher Aff. ¶ 13] giving the Debtor's one-third interest a value of $74,743.33.
Nonetheless, Ms. Croucher argues that she gave the Debtor two items of "reasonably equivalent value" in exchange for the Debtor's one-third interest in the Property.
First, Ms. Croucher asserts that she waived or released the Debtor from her obligation of contribution towards the Land Installment Contract payments and Property expenses. Specifically, Ms. Croucher attests that even though she, the Debtor and Mr. Mitchell were jointly obligated under the Land Installment Contract, Ms. Croucher alone paid all amounts due under the contract and all expenses related to the Property. Ms. Croucher asserts that she refrained from asserting her right to seek contribution from the Debtor for these payments and expenses in exchange for the Debtor's transfer of her one-third interest in the Property.
The Trustee questions whether Ms. Croucher's waiver or release of a right of contribution was ever communicated to the Debtor let alone reduced to an agreement in writing as required by the Ohio Statute of Frauds.
The Ohio Statute of Frauds "'acts as an evidentiary safeguard requiring certain agreements to be in writing, including agreements to answer for a debt of another, transferring or creating an interest in land, for the consideration of marriage and those that cannot be performed in a year.'" McGee v. Tobin, 2005 Ohio App. LEXIS 2021, at *15, 2005 WL 1018433, at *2 (Ohio Ct. App. April 28, 2005). The Statute of Frauds specific to real estate transactions provides:
No action shall be brought whereby . . . to charge a person . . . upon a contract or sale of lands . . . unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged therewith or some other person thereunto by him or her lawfully authorized.Ohio Rev. Code § 1335.05. The purpose of this statute is to ensure that agreements for the transfer of real property interests are "'commemorated with sufficient solemnity'" so that the parties and the public "'can reliably know when such a transaction occurs.'" 6610 Cummings Court, L.L.C. v. Scott, 125 N.E.3d 362, 375 (Ohio Ct. App. 2018) (further citation omitted). The Statute of Frauds "'supports the public policy favoring clarity in determining real estate interests and discourages indefinite or fraudulent claims.'" Id. (further citation omitted).
To satisfy the Statute of Frauds and be an enforceable agreement, a writing must: 1) identify the subject matter; 2) establish that a contract has been made; and 3) state the essential terms with reasonable certainty. Id. Because the Statue of Frauds only requires the writing to contain the essential terms of the agreement, it need not contain all of the terms of the agreement. Id. at 375-76; McGee, 2005 Ohio App. LEXIS 2021, at *24; 2005 WL 1018433, at *4 (noting that the agreement, to be enforceable, must contain sufficient terms to demonstrate that the parties came to a meeting of the minds). Courts have identified the essential terms of a contract to include the identity of the parties to be bound, the subject matter of the contract, consideration, a quantity term, and a price term. McGee, 2005 Ohio App. LEXIS 2021, at *24, 2005 WL 1018433, at *4.
While seeming to concede the lack of an agreement in writing, Ms. Croucher argues that the Statute of Frauds has no place in determining reasonably equivalent value citing Daneman v. Stanley (In re Stanley), 384 B.R. 788 (Bankr. S.D. Ohio 2008). In Stanley, the bankruptcy court was tasked with determining the actual intent of the debtor in making a transfer of real property to her son to determine whether the transfer was avoidable under the actual fraud provision of Ohio Rev. Code § 1336.04(A)(1). Stanley, 384 B.R. at 798-802. With respect to that issue, the debtor testified that the purpose in making the transfer was for her son to rehabilitate the property. Id. at 801. The trustee argued that the debtor's testimony was insufficient proof of her true intent since it was not in writing and did not meet the requirements of the Statute of Frauds. Id. n.4. The bankruptcy court concluded that, while the Statute of Frauds may have a bearing on the enforceability of an agreement, it has no bearing on the issue of intent. Id.
Unlike Stanley, the Trustee raises the Statute of Frauds not in the context of the Debtor's intent but in the context of what the Debtor received in exchange for the transfer. Nonetheless, even in this context, the fact that an oral contract violates the Statute of Frauds does not require a finding that no reasonably equivalent value was given. Rabin v. Fifth Third Bank (In re Tsirambidis), 2015 Bankr. LEXIS 3943, at *10-12, 2015 WL 7307325, at *4-5 (Bankr.N.D.Ohio Nov. 19, 2015) (concluding that the consideration for an oral contract that violates the statute of frauds could still be considered "reasonably equivalent value" for purposes of fraudulent conveyance laws).
While a lack of a writing is not fatal to Ms. Croucher's argument, there must be evidence that the release of the right to seek contribution was a part of the transaction agreed to by the Debtor in exchange for the property transferred. See Grove-Merritt, 406 B.R. at 807 ("In order for the satisfaction of a pre-existing debt to constitute sufficient consideration, there must be an agreement that the debt is extinguished."); Cellar Lumbar Co. v. Holley, 224 N.E.2d 360, 364 (Ohio Ct. App. 1967) (holding that if the cancellation of a debt is the consideration for the transfer of property, there must be proof of an agreement between the parties that the debt was to be extinguished by the transfer) accord Abood v. Nemer, 713 N.E.2d 1151, 1156 (Ohio Ct. App. 1998). The evidence on summary judgment falls short in this respect. While Ms. Croucher's affidavit supports that she "refrained" from seeking contribution [Croucher Aff. ¶ 15], neither her affidavit nor any other evidence on summary judgment supports that the parties agreed to a release of this right as consideration for the Debtor's transfer of her interest in the Property. Accordingly, this issue is not appropriate for determination on summary judgment.
Even if proven that the release of Ms. Croucher's right to seek contribution was the consideration for the transfer, the value of that release remains in dispute. Specifically, the parties dispute whether the Debtor paid less than her proportionate share of expenses related to the Property. While Ms. Croucher asserts that the Debtor contributed nothing, the Debtor's deposition testimony supports that her informal paycheck from working at Mr. Mitchell's remodeling company was put into a "pot" used for payments towards the Property and other joint expenses. Accordingly, both the issue of whether the parties agreed to a release of Ms. Croucher's right of contribution in exchange for the Debtor's transfer of her interest in the Property, as well as the value of that release, are issues that cannot be resolved on summary judgment.
Nonetheless, as an additional or alternative basis for the exchange of reasonably equivalent value, Ms. Croucher attests that she allowed the Debtor to remain on the Property without paying rent from the date of the transfer on October 11, 2016 until February 1, 2017. Ms. Croucher values the Debtor's continued residency at $6,800.00. While the Debtor's deposition testimony supports that she remained in residence on the Property and did not pay rent during this time, the value of the Debtor's continued residency alone is not reasonably equivalent to the Debtor's one-third interest in the Property valued at $74,743.33. See Stanley, 384 B.R. at 801 (noting that the payment of back taxes of between $4,000 and $5,000 was not reasonably equivalent value for the transfer of property valued between $20,000 and $45,000).
Because genuine issues of material fact exist regarding whether Ms. Croucher gave "reasonably equivalent value" for the Debtor's one-third interest in the Property, this issue cannot be determined on summary judgment.
2. Insolvency
To establish a constructively fraudulent transfer under the Ohio UFTA provision in § 1336.05(A), the Trustee must not only prove that the transfer was made for less than reasonably equivalent value, but also that "the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer." Ohio Rev. Code § 1336.05(A).
Under the Ohio UFTA, "[a] debtor is insolvent if the sum of the debts of the debtor is greater than all of the assets of the debtor at a fair valuation." Ohio Rev. Code § 1336.02(A)(1). In addition, "[a] debtor who generally is not paying his debts as they become due is presumed to be insolvent" for purposes of the Ohio UFTA. Ohio Rev. Code § 1336.02(A)(2).
Under the first definition of insolvency, also known as the "balance-sheet" approach, insolvency is demonstrated if the Debtor's liabilities exceed her assets at a fair valuation. Stanley, 384 B.R. at 806; Rieser v. Hayslip (In re Canyon Sys. Corp.), 343 B.R. 615, 647 (Bankr. S.D. Ohio 2006). However, for purposes of the Ohio UFTA, "assets" do not include property encumbered by a valid lien nor property exempt under nonbankruptcy law including, but not limited to, Ohio Revised Code § 2329.66. Ohio Rev. Code § 1336.01(B).
Ms. Croucher asserts that the Debtor was solvent at the time of the 2016 Conveyance because her assets exceeded her liabilities. Ms. Croucher calculates the Debtor's assets to include jewelry, a vehicle, furniture listed on the Debtor's schedules, a freezer, a mobile phone, an Xbox gaming system, and cash totaling $12,873.64. At the same time, Ms. Croucher calculates the Debtor's verifiable undisputed debts at that time to total $4,026.74 by reference to a summary attached to Ms. Croucher's motion for summary judgment at Exhibit X.
The Trustee takes issue with Ms. Croucher's calculation of the Debtor's assets and, particularly, her inclusion of exempt assets. The Trustee also questions whether jewelry that may not have been in the Debtor's possession, custody, and control at the time of the 2016 Conveyance, or anytime thereafter, should be included in the calculation. This Court agrees with the Trustee that Ms. Croucher's calculation does not properly exclude the Debtor's exempt assets under Ohio Rev. Code § 2329.66. Furthermore, there remains a genuine issue of material fact regarding the ownership of the diamond engagement ring and other jewelry at the time of the 2016 Conveyance. Accordingly, this Court cannot determine the value of her assets for the insolvency calculation on summary judgment.
Neither party provided this Court with any legal analysis to determine ownership of the jewelry and whether it is properly considered an asset of the Debtor or Mr. Mitchell. This Court expects the parties to provide that legal analysis in conjunction with the evidence presented at the hearing.
In addition, the Trustee takes issue with Ms. Croucher's calculation of the Debtor's debts. He argues that the evidence relied upon by Ms. Croucher to calculate the Debtor's outstanding debts as of the 2016 Conveyance in Exhibit X fails because it is not the best evidence. This Court agrees that Exhibit X is only a summary and, thus, this Court looks to the evidence referenced in the summary to determine whether it supports Ms. Croucher's calculation of the Debtor's outstanding debts. In Exhibit X, Ms. Croucher points to various portions of the Debtor's deposition testimony to establish the existence and amount of the Debtor's debts at the time of the 2016 Conveyance. While the Debtor testified to the existence of the debts included in Exhibit X, the Debtor did not discuss the monetary amount of those debts during her deposition. Accordingly, it is not clear to this Court what evidence, if any, supports Ms. Croucher's calculation of the Debtor's debts at either $4,026.74 or $4,116.74, depending on the inclusion of the disputed Cincinnati Eye Institute debt.
The Trustee takes issue with the calculation of debts limited to those existing at the time of the transfer arguing that Ohio Rev. Code § 1336.04(A) allows the inclusion of debts up to four years after the transfer [Docket Number 78, p. 12]. However, this provision does not discuss "four years" in conjunction with the appropriate debts to be included in a balance sheet insolvency test but, instead, provides that a creditor may bring a fraudulent transfer claim against a debtor even if the creditor's claim arose up to four years after the transfer. With respect to insolvency, it is the Trustee's burden to prove, by a preponderance of the evidence, that the Debtor is insolvent at the time of the transfer or immediately following the transfer. Canyon Sys. Corp., 343 B.R. at 647. As such, this Court rejects the Trustee's argument.
Neither, however, has the Trustee provided an alternative calculation of the Debtor's debts at the time of the 2016 Conveyance. Accordingly, this Court concludes that neither party has established the valuation of the Debtor's liabilities for purposes of determining insolvency under the balance sheet approach.
Although this Court finds the Trustee's arguments vague and difficult to follow, this Court believes the Trustee is attempting to determine the Debtor's debts by reference to his prior filed discovery-related motion seeking to deem admitted Ms. Croucher's responses to the Trustee's requests for admissions [See Docket Number 74, pp. 6-7; Docket Number 78, pp. 13-16]. However, that discovery-related motion was not granted nor does the Trustee's vague reference to that motion establish a monetary amount of debt at the time of or immediately following the 2016 Conveyance.
Alternatively, to establish a presumption of insolvency, the Trustee may demonstrate "equitable insolvency" or that the Debtor was not paying her debts as they became due at or around the time of the transfer. Ohio Rev. Code § 1336.02(A)(2); Silagy v. Gagnon (In re Gabor), 280 B.R. 149, 160 (Bankr.N.D.Ohio 2002). "'Evidence that a debtor failed to pay some debts is not sufficient to prove that he is generally not paying his debts and, thus, will not give rise to a presumption that the debtor was insolvent at or near the time of the alleged fraudulent transfer.'" Stanley, 384 B.R. at 808 (further citation omitted).
On summary judgment, Ms. Croucher submits the Debtor's deposition testimony to establish that the Debtor was generally paying her debts as they became due. Indeed, the Debtor's uncontradicted testimony establishes that she was paying her debts as they became due at the time of the 2016 Conveyance and did not begin to default on her debts until approximately eight to ten months later, between June and September of 2017. Accordingly, the Trustee has failed to demonstrate facts that give rise to a presumption of insolvency under Ohio Rev. Code § 1336.02(A)(2) and Ms. Croucher is granted summary judgment on this issue.
Nonetheless, because genuine issues of fact remain regarding the Debtor's insolvency under the balance sheet approach, this required element to prove a fraudulent transfer under Ohio Rev. Code § 1336.05(A) must be determined at trial.
3. Debtor's Intent and Belief Regarding Debts Incurred Beyond Ability to Repay
Under an alternative provision of the Ohio UFTA, the Trustee may avoid a constructively fraudulent transfer that was made for less than reasonably equivalent value if the Trustee can further prove that "the debtor intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due." Ohio Rev. Code § 1336.04(A)(2); Demcyzk v. Lesh, Casner & Miller, L.P.A. (In re Kirkpatrick), 254 B.R. 378, 386 (Bankr.N.D.Ohio 2000) (noting that the language of this provision is significant in that it does not refer to the debtor's belief regarding her ability to pay debts immediately and in full, but only her belief regarding her ability to pay debts as they become due).
This element involves intent and belief which requires a determination of the Debtor's state of mind. Absent undisputed evidence, determination of a party's subjective intent and state-of- mind is generally inappropriate on summary judgment. Rice v. Morse (In re Morse), 524 B.R. 774, 789 (Bankr.E.D.Tenn. 2015); Canyon Sys. Corp., 343 B.R. at 650.
In this instance, the parties submit conflicting evidence on this issue. The Trustee focuses on the Debtor's limited income reported on her 2016 tax return, her loss of $700 per month in social security payments that terminated in 2015, and the Debtor's need to begin paying for her own accommodations and living expenses after she moved out of the Property in February of 2017 to argue that "[i]t can be safely assumed that she would readily believe that she would be unable to make payments as her debts fell due . . . ." [Docket Number 74, p. 21]. In contrast, Ms. Croucher notes that the Debtor was paying her debts in a timely manner at the time of the 2016 Conveyance, had two jobs when she moved out of the Property, and did not seek bankruptcy advice until February of 2018. Ms. Croucher asserts that these facts support that the Debtor believed or would reasonably believe that she would be able to make payments on her debts as they became due.
The evidence submitted on summary judgment regarding the Debtor's intent and belief is in dispute and, accordingly, the issue is not appropriate for determination at this stage of the litigation.
IV. CONCLUSION
The undisputed evidence establishes that the Debtor was generally paying her debts as they became due on or around the time of the 2016 Conveyance. Accordingly, the Trustee has failed to establish a presumption of insolvency under Ohio Rev. Code § 1336.02(A)(2) and Ms. Croucher is granted partial summary judgment on that issue. In all other respects, the cross-motions for summary judgment filed by the Trustee and Ms. Croucher are DENIED.
SO ORDERED.
E. Hanlin Bavely, Esq. Paul J. Minnillo, Esq.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.