Coutinho v. Stifel Fin. Corp. (In re Iannarino)

• Decision Date: 29 March 2022
• Docket Number: Case No. 19-55160,Adv. Pro No. 21-02003
• Citation: 638 B.R. 873
• Parties: IN RE: Michael J. IANNARINO, Debtor. James A. Coutinho, Plaintiff, v. Stifel Financial Corp., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

638 B.R. 873

IN RE: Michael J. IANNARINO, Debtor.James A. Coutinho, Plaintiff,

v.Stifel Financial Corp., Defendant.

Case No. 19-55160

Adv. Pro No. 21-02003

United States Bankruptcy Court, S.D. Ohio, Eastern Division.

Signed March 29, 2022

Jeffrey Robert Corcoran, Allen Stovall Neuman & Ashton LLP, Columbus, OH, for Plaintiff.

James A. Coutinho, Allen Stovall Neuman & Ashton LLP, Columbus, OH, Plaintiff, Pro Se.

Daniel M. Anderson, Ice Miller LLP, Columbus, OH, for Defendant.

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT (DOC. #8) AND DEFENDANT STIFEL FINANCIAL CORPORATION'S CROSS-MOTION FOR SUMMARY JUDGMENT (DOC. #9)

Mina Name Khorrami, United States Banktuptcy Judge

This cause came before the Court for oral hearing on January 13, 2022, to consider Plaintiff's Motion for Summary Judgment (Doc. #8) (the "Motion"), Defendant Stifel Financial Corporation's Memorandum in Opposition to Plaintiff's Motion for Summary Judgment and Cross-Motion for Summary Judgment (Doc. #9) (the "Cross-Motion"), and Plaintiff's Reply in Support of Motion for Summary Judgment and Memorandum in Opposition to Defendant's Cross-Motion for Summary Judgment (Doc. #10). Present at the hearing were Jeffrey R. Corcoran on behalf of the Plaintiff, James A. Coutinho, Chapter 7 Trustee, and Daniel M. Anderson on behalf of the Defendant, Stifel Financial Corporation. At the conclusion of the hearing, the Court allowed the parties an opportunity to file the following post-hearing briefs: Plaintiff's Supplemental Memorandum in Support of Motion for Summary Judgment and in Opposition to Defendant's Cross-Motion for Summary Judgment (Doc. #17), Defendant Stifel Financial Corporation's Supplemental Memorandum in Opposition to Plaintiff's Motion for Summary Judgment and in Support of Its Cross-Motion for Summary Judgment (Doc. #18), and Plaintiff's Supplemental Reply Memorandum in Support of Motion for Summary Judgment and in Opposition to Defendant's Cross-Motion for Summary Judgment (Doc. #21).

James A. Coutinho, Chapter 7 Trustee (the "Trustee"), seeks judgment as a matter of law against Stifel Financial Corporation ("Stifel") on the Trustee's complaint to avoid a preferential transfer under 11 U.S.C. § 547 and for the recovery of the value of the preferential transfer for the benefit of the estate under 11 U.S.C. § 550. More specifically, the Trustee argues that the prejudgment attachment orders obtained by Stifel are void and unenforceable. In response, Stifel argues that the prejudgment attachment orders are valid and it obtained a valid attachment lien as a result. In addition, the Trustee and Stifel dispute whether Stifel was required to register with the Ohio Secretary of State prior to filing a prejudgment attachment proceeding against the Debtor. For the reasons stated below, the Court concludes that it does not have the authority to determine if the prejudgment orders entered by the United States District Court for the Southern District of Ohio are void, and until that determination is made, summary judgment is not appropriate. In addition, the Court cannot determine as a matter of law whether Stifel was required to register with the Secretary of State under Ohio law because a genuine issue of material fact exists as to whether Stifel was required to do so.

I. Jurisdiction

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Amended General Order 05-02 entered by the United States District Court for the Southern District of Ohio, referring all bankruptcy matters to this Court. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F). Venue is properly before this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

II. Findings of Facts

The Debtor, Michael Iannarino, owned a successful investment-management company. In June 2018, the Debtor entered into an employment agreement with Stifel, Nicolaus & Company, Inc. Under the employment agreement, the Debtor was employed as a financial advisor and had the option of receiving an initial personal loan of up to $900,000 from Defendant, Stifel Financial Corp. ("Stifel"), as long as the Debtor met certain conditions, including continued employment. After entering into the employment agreement, the Debtor executed a demand promissory note with Stifel for $900,000. In early October 2018, the Debtor received $450,000 from Stifel pursuant to the agreement and note but was terminated from his employment on October 11, 2018. As a result of his termination, the Debtor was obligated to repay the loan proceeds in the amount of $450,000 to Stifel.

The day after the Debtor was terminated, Stifel filed a diversity action against the Debtor for payment on the promissory note in the United States District Court for the Southern District of Ohio ("District Court"). At the same time, Stifel filed a motion requesting prejudgment attachment in District Court (the "Original Motion") for the purpose of preventing the Debtor from using the $450,000. The funds were believed to have been deposited in the Debtor's account with CME Federal Credit Union and in a business account with PNC Bank. The Original Motion was accompanied by declarations in support of the motion for prejudgment attachment (the "First Affidavits"). Pl.’s Mot. for Summ. J. Ex. A 38-41, 63-66, ECF No. 8. The First Affidavits failed to contain a specific averment stating that "[t]o the best of the plaintiff's knowledge, after reasonable investigation, ... that the property is not exempt from attachment or execution" as required by Ohio Revised Code ("O.R.C.") § 2715.03(E). Pl.’s Mot. 38-41. The Original Motion, however, contained a statement that "the Loaned Funds are not exempt from attachment because the Loaned Funds are not personal earnings as defined under Ohio law." Pl.’s Mot. 33.

After considering the Original Motion, District Court entered an order (the "Original Order") granting the unopposed motion for prejudgment attachment on December 3, 2018. Pl.’s Mot. for Summ. J. Ex. B 67-73, ECF No. 8. District Court made the following findings in the Original Order: "The Court finds that plaintiff is entitled to prejudgment attachment under Ohio law. The affidavits submitted with the motion for prejudgment attachment satisfy the six requirements of O.R.C. § 2715.03(A) - (F)." Pl.’s Mot. 69. District Court further concluded that "[Stifel] has established that the property is not exempt from attachment. Ohio law exempts certain benefit payments, such as workers’ compensation, unemployment, and social security. O.R.C. § 2715.041(A). Under the employment agreement and note, the funds made available to [the Debtor] were a loan." Pl.’s Mot. 70.

Stifel later discovered that the funds that were initially believed to have been deposited in the Debtor's accounts with CME Federal Credit Union and PNC Bank were transferred by the Debtor to certain investment accounts held at Charles Schwab & Co., Inc. ("Schwab"). Consequently, Stifel filed an ex parte motion for amended prejudgment attachment order (the "Amended Motion") on December 18, 2018, requesting that the attachment be extended to include the Debtor's accounts at Schwab. Pl.’s Mot. for Summ. J. Ex. C 74-102, ECF No. 8. The Amended Motion was accompanied by declarations in support of the request for an amended prejudgment attachment order (the "Second Affidavits"). Pl.’s Mot. 83-102. The Second Affidavits failed to contain a specific averment stating that "[t]o the best of the plaintiff's knowledge, after reasonable investigation, ... that the property is not exempt from attachment or execution" as required by Ohio Revised Code ("O.R.C.") § 2715.03(E). Pl.’s Mot. 83-102. The Amended Motion, however, stated that "[t]he basis for prejudgment attachment has not changed. As such, Stifel incorporates as if fully restated herein, all previous arguments in support of prejudgment attachment." Pl.’s Mot. 80. In addition, the Amended Motion included a statement that "[i]n the December 3, 2018 Attachment Order, this court held that Stifel satisfied the requirements of O.R.C. § 2715.03 and there was probable cause supporting the motion." Pl.’s Mot. 78-79. After considering the Amended Motion, District Court entered an amended order of prejudgment attachment (the "Amended Order") on December 19, 2018, that granted the Amended Motion and extended the attachment to include the Schwab accounts. Pl.’s Mot. for Summ. J. Ex. D 103, ECF No. 8. The Amended Order specifically provided as follows:

This matter is before the Court on Plaintiff Stifel Financial Corporation's ex parte motion to amend the December 3, 2018 order of prejudgment attachment. Plaintiff has submitted evidence establishing that defendant has transferred the funds that were the subject of the order of attachment. Plaintiff has set forth specific facts showing that it will suffer irreparable injury if the order is not amended. For good cause shown, the motion to amend (doc. 19) is GRANTED.

Accordingly, Defendant Iannarino, either directly or through his business entity Cephas Capital Partners & Advisory, LLC, shall not transfer, move, sell or encumber the $450,000 drawn from his Stifel account, then placed in accounts with PNC Bank and CME Federal Credit Union, and later transferred (whether in whole or in part) to accounts held with Charles Schwab & Co., Inc., which are identified by account number in plaintiff's affidavits and supporting documentation, until further order of the Court.

Pl.’s Mot. 103. One of the Debtor's accounts at Schwab was an individual retirement account.

Approximately five months later, District Court granted default judgment against the Debtor on May 19, 2019. Subsequently, Stifel requested garnishment of the funds held in the Schwab accounts, and District Court ordered Schwab to pay the funds it was holding to Stifel. On July 9, 2019, Schwab sent a check for $234,376.66 to Stifel and those funds were transferred to Stifel's account. A month later, the Debtor filed for relief under ...