Judge Humphrey
Chapter 7
DECISION GRANTING THE CHAPTER 7 TRUSTEE'S MOTION FOR SUMMARY JUDGMENT ON COUNTS 3 AND 6 AGAINST DEFENDANT MARCIA GOUBEAUX (DOC. 19)
On July 6, 2020 the Chapter 7 Trustee, Erin C. Renneker (the "Trustee"), filed an adversary proceeding against Marcia Goubeaux ("Marcia") and Ricky Goubeaux (doc. 1). On February 4, 2021 the Trustee moved for summary judgment on Counts 3 and 6 of her complaint against Marcia (doc. 19). Count 3 seeks to avoid a constructively fraudulent transfer under Ohio Revised Code § 1336.05(A), and 11 U.S.C. § 544(b). Count 6 seeks to recover the transfer under 11 U.S.C. § 550(a) from Marcia, as the initial transferee, for the benefit of the bankruptcy estate. Marcia did not respond to the summary judgment motion.
I. Jurisdiction
This court has jurisdiction pursuant to 28 U.S.C. § 1334(b) and Amended General Order 05-02 of the United States District Court for the Southern District of Ohio. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(H), and this court has constitutional authority to enter final judgment by the knowing and voluntary consent of the parties. Doc. 9 at 2; Doc. 10 at 2. Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665 (2015).
II. Summary Judgment Standard
Federal Rule of Civil Procedure 56, made applicable to adversary proceedings through Federal Rule of Bankruptcy Procedure 7056, sets forth the standard to address the parties' filings. It states, in part, that a court "shall grant summary judgment to the moving party if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In order to prevail, the movant, 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). All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986). "When the moving party has carried its burden . . . the opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Id. at 586.
III. Findings of Fact
In September 2007 the Debtors purchased a condominium at 5710 Coach Drive West, Unit F, Kettering, Ohio (the "Condominium") for $51,500 and held the property through a joint deed with right of survivorship. Complaint, ¶ 10 (doc. 1), Answer, ¶ 1 (doc. 6). In December 2011 or January 2012, the Debtors sought to purchase a home but were denied a mortgage loan due to an outstanding Condominium mortgage loan. Exhibit 1, Responses to Trustee's First Set of Requests for Admissions, Requests for Production of Documents, and Interrogatories Propounded to Defendant Marcia Goubeaux (unsworn May 21, 2020 Statement of the Debtors and Marcia Goubeaux (the "May 2020 Statement"), Admissions 6 and 7, and Interrogatory 19. Marcia offered to pay off the Condominium Mortgage by taking out an additional $38,000 on her home equity loan. Id; Interrogatory 8. Marcia is a relative of Debtor Virginia A. Goerz. May 2020 Statement. Marcia and the Debtors claim that the loan was to be repaid when the Condominium was sold. Id. Marcia claimed that the Debtors wanted to rent the Condominium for "extra income," but did the market was "depressed." Exhibit 1, Interrogatory 15. Relatives were considered as possible renters. May 2020 Statement.
On April 30, 2012 the Debtors completed a loan application with Union Savings Bank, and did not disclose any loan obligation to Marcia. Exhibit 2.
In the Spring of 2016, the Debtors were not paying their credit card obligations as those bills came due. Trustee's Declaration, ¶ 13 (February 1, 2021). American Express National Bank charged off the account of Debtor James Goerz in June 2016. Claim No. 3-1. Two other credit card accounts, Citibank, N.A. (James Goerz account) and Capital One (joint account of the Debtors), were also charged off in July 2016. Claim 1-1 (filed by Cavalry SPV I, LLC, assignee of the debt of Citibank, N.A.); Claim 4-1 (Portfolio Recovery Resources, LLC, assignee of the debt of Capital One). In addition, Debtor Virginia Goerz had a Discover card which she ceased using in December 2015, and was charged off by Discover in June 2017. Claim 2-1.
On or about May 18, 2016, the Condominium was sold to third parties, Tyler VanWinkle and Rick VanWinkle for $36,000. Complaint, ¶ 11, Answer, ¶ 1. The net proceeds from the sale were $32,743.28. Complaint, ¶ 12, Answer, ¶ 1. On May 28, 2016, a $31,478.62 bank check was delivered by the Debtors to Marcia, and was deposited into the bank account of Marcia with Fifth Third Bank (the "Transfer"). Exhibit 3; Complaint, ¶ 13, Answer, ¶ 1. The sale proceeds were the source of the funds for the Transfer. Complaint, ¶ 14, Answer, ¶ 1. The Defendants did not hold any mortgage, lien or security interest against the Condominium at the time of the sale or Transfer. Exhibit 1, Admissions 1 and 2. Marcia stated that the Debtors owed the Defendants $38,000. Exhibit 1, Interrogatory 16.
Marcia and the Debtors claimed that the Transfer was a repayment of a loan, but concede there is nothing in writing regarding the Debtors' obligation to repay the loan which Marcia took out on her home equity loan. May 2020 Statement; Exhibit 1, Admission 3. Marcia indicated that "[n]o formal written agreement was written up as we are a family that trusts one another to do as they say and do the right thing." May 2020 Statement. Marcia further stated that the Transfer did not repay the entire loan, but the Debtors did not schedule any loan or obligation with Marcia as a debt on their bankruptcy schedules in this case. Doc. 1. Marcia did not claim any imputed interest on her tax returns. Exhibit 1, Admission 8.
IV. Analysis
Section 544(b) of the Bankruptcy Code allows the Trustee to "avoid any transfer of an interest of the the debtor in property . . . that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title . . . ." 11 U.S.C. § 544(b). Ohio's version of the Uniform Fraudulent Transfer Act ("Ohio UFTA"), provides, in part, that:
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.
Ohio Revised Code § 1336.05(A). In order to establish a fraudulent transfer under this section, the Trustee must show an allowable unsecured creditor existed at the time of the transfer.
Turner v.
Phoenix Fin.,
LLC v.
(In re Imageset,
Inc.
), 299 B.R. 709, 715 (Bankr. D. Me. 2003);
Bavely v.
Croucher (In re Chambers), Adv. No. 20-1009,
2020 WL 8184302, at *5 (Bankr. S.D. Ohio Sept. 18, 2020). The record is undisputed that Citibank, Discover, and Capital One held allowable claims at both the time of transfer and on the petition date.
All the other elements to prove constructive fraud under § 1336.05(A) have been shown. The funds paid to Marcia meet the definition of a transfer under the Ohio UFTA. Ohio Revised Code § 1336.01(L) (" 'Transfer' means every direct or indirect, absolute or conditional, and voluntary or involuntary method of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance."). The Debtors are presumed insolvent at the time of the transfer of the funds to Marcia because they were not paying their debts as they became due. Ohio Revised Code § 1336.02(A)(2). The Debtors have not provided any evidence to rebut this presumption. Most crucially, the Debtors did not receive reasonable equivalent value for the Transfer to Marcia. Although Marcia stated that she took out additional funds on her home equity loan to loan the Debtors funds for the purchase of a house, there is nothing in the record showing any contractual obligation owed to Marcia by the Debtors. There is no loan included on any tax return filed by the Debtors, nor is there a promissory note, payoff letter, or any contemporaneous correspondence (written or electronic, formal or informal) showing such a loan ever existed. In addition, the Debtors did not disclose such a loan when they applied for their mortgage loan with Union Savings Bank. There also is no independent witness as to the loan Marcia asserts exists.
The court cannot rely upon the unsworn, self-serving, and uncorroborated May 2020 Statement that contradicts all the other available and contemporaneous evidence, including Marcia's tax returns, the Debtors' loan application with Union Savings Bank, and the Debtors' sworn bankruptcy schedules, to find a material issue of fact. While self-serving evidence can create a material issue of fact for trial, it cannot do so when it is otherwise blatantly contradicted by the record. See Scott v. Harris, 550 U.S. 372, 380-81 (2007) (video evidence directly contradicted the statement of the driver). While the court does not have a "smoking gun" or a video tape, it has tax returns and bankruptcy schedules that are diametrically opposed to Marcia's position, all signed and sworn under penalty for perjury. Had Marcia made some attempt to explain these contradictions, the court could have considered whether a material dispute of fact existed, or whether, as the Trustee asserts, the loan is simply fictitious. But absent any explanation for these contradictions, the court must grant summary judgment to the Trustee. See generally Cleveland v. Policy Mgmt. Sys. Corp., 526 U.S. 795, 806 (1999) ("a party cannot create a genuine issue of fact sufficient to survive summary judgment simply by contradicting his or her own previous sworn statement . . . without explaining the contradiction or attempting to resolve the disparity.").
Ohio Revised Code § 1336.08(C) provides that "[n]otwithstanding the voidability of a transfer of an obligation under division (A)(1) of section 1336.07 of the Revised Code, a good faith transferee or obligee is entitled, to the extent of the value given to the debtor for the transfer or obligation, to any of the following: (1) A lien on or a right to retain any interest in the asset transferred; (2) Enforcement of any obligation incurred; (3) A reduction in the amount of the liability of the judgment." Marcia has not responded to the summary judgment motion to support this defense. But for completeness in responding to the Trustee's motion, the court notes again that the record does not show a dispute of material fact about any value given by Marcia to the Debtors. Instead, based on the summary judgment record, the court can only include there was no loan from Marcia to the Debtors, and any consideration of Marcia's good faith is therefore moot. Ransier v. McFarland (In re McFarland), 170 B.R. 613, 627 (Bankr. S.D. Ohio 1994). See also United Comms. Corp. v. U.S. Bronco Svcs., Inc., No. 1:09-cv-478-HUW, 2011 WL 2160477, at *7 (S.D. Ohio June 1, 2011) (noting that liability may be reduced for a good faith transferee under § 1336.08(C)).
Finally, the Transfer may be avoided pursuant to § 544(b) and Ohio Revised Code § 1336.05(A). Such transfer may be recovered for the benefit of the bankruptcy estate, and judgment entered in favor of the Trustee for the value of the Transfer. 11 U.S.C. § 550(a)(1); Slone v. Lassiter (In re Grove-Merritt), 406 B.R. 778, 812 (Bankr. S.D. Ohio 2009).
V. Conclusion
Finding no dispute of material fact, summary judgment is granted in favor of the Trustee in the amount of $31,478.62, plus pre-judgment interest from July 31, 2019, and post-judgment interest pursuant to 28 U.S.C. § 1961. The court will enter a separate order concurrently with this decision.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/ _________
Guy R. Humphrey
United States Bankruptcy Judge Dated: March 8, 2021
Copies to:
Robert B. Berner
Matthew T. Schaeffer
(Counsel for the Plaintiff) Michael G. Weller
(Counsel for the Defendants)