Dymarkowski v. Savage (In re Hadley)

Decision Date23 November 2015
Docket NumberAdv. Pro. No. 14–3089,Case No. 12–33850
Citation541 B.R. 829
PartiesIn re: Robert F. Hadley, Jr., Debtor. Douglas A. Dymarkowski, Trustee, Plaintiff, v. Barry E. Savage, Defendant.
CourtU.S. Bankruptcy Court — Northern District of Ohio

Gordon R. Barry, Toledo, OH, for Debtor.

Randy Lee Reeves, Lima, OH, for Plaintiff.

Ralph DeNune, III, Sylvania, OH, for Defendant.

Barry E. Savage, Toledo, OH, pro se.

MEMORANDUM OF DECISION AND ORDER REGARDING CROSS–MOTIONS FOR SUMMARY JUDGMENT

John P. Gustafson, United States Bankruptcy Judge

Plaintiff Douglas A. Dymarkowski (Plaintiff or Trustee) is the Chapter 7 Trustee in the underlying Chapter 7 case filed by Robert F. Hadley, Jr. (“Debtor”). On August 1, 2014, Plaintiff commenced this adversary proceeding, seeking to avoid and recover alleged avoidable transfers [p]ursuant to 11 U.S.C. Sections 105, 547, 548and/or 549and 550; and Pendent or Incorporated by 11 U.S.C. Section 544, [t]he Ohio Uniform Fraudulent Transfer Act, O.R.C. Chapter 1336; and to [d]isallow [c]laim(s) pursuant to 11 U.S.C. Section 502(d)made to or for the benefit of Barry E. Savage (the Defendant).” [Doc. # 1, p. 2].

Barry E. Savage (Defendant) is Debtor's “long time attorney for personal and business matters”. [Doc. # 31, p. 2].

Plaintiff asserts that Debtor, directly or indirectly, made transfers to or for the benefit of Defendant on or about August 18, 2012, three days before Debtor filed his Chapter 7 bankruptcy petition. [Doc. # 1, ¶ 9]. The transfers Plaintiff seeks to avoid were of two vehicles, a 1954 MG and a 1977 Ferrari, originally alleged by the Trustee to be valued at $20,000.00 and $30,000.00 respectively. [Id.]. Plaintiff seeks to avoid the alleged preferential or fraudulent transfers and recover either the vehicles or the full amount of the transfers as property of the Chapter 7 bankruptcy estate. Additionally, Plaintiff requests that the court award judgment against Defendant together with prejudgment and post-judgment interest, along with fees and costs incurred. [Doc. # 1, p. 13].

This proceeding is now before the court on Plaintiff's Motion for Partial Summary Judgment (Plaintiff's Motion”) [Doc. # 30], Defendant's Motion for Summary Judgment (Defendant's Motion”) [Doc. # 31], Plaintiff's Response to Defendant's Motion (Plaintiff's Response”) [Doc. # 32], Defendant's Response to Plaintiff's Motion (Defendant's Response”) [Doc. # 33], and Defendant's Reply to Plaintiff's Response (Defendant's Reply”) [Doc. # 40].

Having considered the parties' respective arguments, for the reasons that follow, Plaintiff's Motion will be granted, and Defendant's Motion will be denied.

FACTUAL BACKGROUND

Unless otherwise noted, the following facts are not in dispute. Defendant has been Debtor's long time attorney for both business and personal matters, from approximately 2002 until the filing of Debtor's Chapter 7 petition on August 21, 2012. [Doc. # 30, Pl. Ex. C, p. 43]. The court notes that Defendant is not Debtor's bankruptcy attorney.

Debtor's business provided packaging services for automotive businesses, including General Motors and Chrysler. He was also engaged in real estate investment which relied upon rental income to pay substantial mortgage debt. Debtor's automotive industry-based business experienced “difficulties” in 2007, which resulted in the loss of Debtor's two main customers, Chrysler and General Motors. [Doc. # 31, p. 2]. Also in 2007, Debtor liquidated “a majority of his assets and invested it in his business enterprises to keep them afloat. The real estate investments suffered a similar fate.” [Id.]

At his deposition, Defendant testified that his law practice timesheets indicated that he was providing legal services to Debtor in 2008. At that time, Defendant was “doing both [Debtor's] personal work ... and [Debtor] had a couple of other [business] entities that I was doing work for....” [Doc. # 30, Pl. Ex. C, p. 44]. All of Debtor's legal bills were sent to him by Defendant on a monthly basis. [Id.]

Because of Debtor's aforementioned business difficulties, he was unable to pay Defendant for his legal services. As a result of his working relationship with Debtor, Defendant understood that Debtor would be unable to pay his ongoing legal fees. On May 19, 2008, Debtor gave Defendant possession of the titles1for two of Debtor's vehicles, a 1954 MG and a 1977 Ferrari. The vehicles were held in Mr. Hadley's self-settled revocable trust [Id.,Pl. Ex. A, p. 15] which Defendant had prepared for Debtor the year before. [Id.at p. 46]. Defendant alleges that he accepted the titles to “secure an attorney lien for unpaid services then and those to accrue.” [Doc. # 31, p. 3].

Defendant stated at his deposition that he remembered the exact date he received the titles, because it was both his birthday and the day that National City Bank “called the [$3.5 million] line of credit on [one of Debtor's businesses] on which Debtor was a personal guarantor. Defendant took possession of the vehicle titles, because he “wanted to be protected on attorney fees. [Debtor] had liquidated some personal assets to put into the company, and I kn[ew] from prior experience that ... you need to protect yourself with attorney fees.” [Doc. # 30, p. 46]. At this time, Defendant had no written security agreement with Debtor, but he believed himself secure with his alleged “attorney's lien linked to possession of the free and clear titles.” [Doc. # 31, p. 3].

From January 1, 2008 to December 31, 2008, Defendant provided $41,580.60 worth of legal services to Debtor. From January 1, 2009 to August 21, 2012, Defendant provided an additional $28,744.10 worth of legal fees to Debtor, totaling $70,324.70 in unpaid legal fees over the course of that time period.

In the spring of 2012 (“either the last week of April in 2012 or the first week of May”), Debtor

was “getting pressure” from an attorney from Huntington Bank. [Doc. # 30, p. 48]. Due to a conflict of interest, Defendant was unable to represent Debtor in this issue, but he became aware of the bank's pressure during a conversation with Debtor. At that time, Defendant informed Debtor that he wanted to take possession of the vehicles, as a way of “protect[ing] myself further.” [Id.,p. 49]. Prior to Defendant obtaining possession of the vehicles, Debtor had kept them stored “outside of Ypsilanti, Michigan. They hadn't been licensed and they were uninsured.” [Doc # 30, p. 47]. Upon gaining possession, Defendant initially stored both cars in a Waterville, Ohio barn. [Id.]

On August 15, 2012 Debtor assigned ownership of the vehicles to Defendant, as noted on the vehicle titles and assignment of ownership forms [Id.,Pl. Ex. B, pp. 30–35]. The price for the vehicles was indicated as zero, and as Defendant said in his deposition, “the attorney fees were in excess of what the value of the cars were [at that time].” So, Debtor and Defendant agreed that the transactions “basically washed out all attorney fees.” [Id.,Pl. Ex. C, p. 52].

At the time that Debtor signed off the record titles to Defendant, they “generally agreed” that the Ferrari was worth $25,000 [Id.at p. 53] and the MG was worth “about” $15,000. [Id.at pp. 54–55]. The vehicle titles were notarized on August 17, 2012, in the presence of a Waterford Bank attorney, Debtor, and Defendant. Debtor filed his Chapter 7 petition in this court on August 21, 2012. [Case No. 12–33850, Doc. # 1].

After Debtor signed over the titles to Barry E. Savage, Defendant kept the vehicles in Waterville. Despite Debtor's Chapter 7 bankruptcy, Defendant was able to take out loans on the vehicles with Directions Credit Union for $15,000 and with Farmer's Merchant State Bank for $22,500 on July 22, 2013. [Doc. # 30, Pl. Ex. L, p. 59]. In November 2013, Defendant sold the vehicles to a third party for $40,000.

The record reflects that at the time the titles were signed over to Defendant, the two vehicles were not running. [Id.,p. 25–26]. Work was done on both vehicles to get them running, with substantial work being required on the Farrari. [Id.,p. 55–58]. There is no evidence before the court regarding what monies, goods or services were exchanged for the work on the two motor vehicles to put them in operating condition.

Plaintiff filed his Complaint in this court on August 1, 2014. In his Complaint, Plaintiff seeks to avoid the alleged preferential or fraudulent transfers and recover either the vehicles or the full amount of the their values as property of the Chapter 7 bankruptcy estate [Doc. # 1]. In opposing the Complaint, Defendant contends that he had a possessory attorney lien on the motor vehicles, because he had possession of the vehicle titles in 2007, and took physical possession of the two vehicles “on or about May 1, 2012, more than 90 days prior” to Debtor's filing. [Doc. # 31, p. 4].

LAW AND ANALYSIS
I. Summary Judgment Standard

Under Rule 56 of the Federal Rules of Civil Procedure, made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7056, summary judgment is proper only where there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). In reviewing a motion for summary judgment, however, all inferences “must be viewed in the light most favorable to the party opposing the motion.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,475 U.S. 574, 586–88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

The party moving for summary judgment always bears the initial responsibility of informing the court of the basis for its motion, “and identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits if any’ which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett,477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where the moving party has met its initial burden, the adverse party “may not rest upon the mere...

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