In re Dayton Title Agency, Inc.

• Citation: 262 BR 719
• Decision Date: 15 May 2001
• Docket Number: No. 99-35768. Adversary No. 99-3664.,99-35768. Adversary No. 99-3664.
• Parties: In re DAYTON TITLE AGENCY, INC., Debtor-In-Possession. Dayton Title Agency, Inc., et al., Plaintiffs, v. The White Family Companies, Inc., et al., Defendants.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio

262 B.R. 719 (2001)

In re DAYTON TITLE AGENCY, INC., Debtor-In-Possession.

Dayton Title Agency, Inc., et al., Plaintiffs, v. The White Family Companies, Inc., et al., Defendants.

No. 99-35768. Adversary No. 99-3664.

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

May 15, 2001.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

BOK Mortgage, Tulsa, OK, pro se.

Sharyn J. Bennett, Robert B. Berner, Stephen K. Dankof, Donald F. Harker, III, Ronald S. Pretekin, Walter Reynolds, Charles D. Shook, Dayton, OH, David S. Cupps, Frederick L. Ransier, Columbus, OH, Stewart H. Cupps, Roger E. Luring, De Wayne Smith, Troy, OH, William B. Fecher, Jerome J. Metz, Jr., Cincinnati, OH, James P. Hickey, Jr., Oakwood, OH, for creditors.

Alan A. Biegel, Kettering, OH, Robert J. Eilerman, Lawrence S. Walter, Dayton, OH, for Interested parties.

Courtney M. Brady, Dayton, OH, pro se.

Centex Home Equity, Dallas, TX, pro se.

Fifth Third Mortgage, Cincinnati, OH, pro se.

Anne M. Frayne, Dayton, OH, for debtor.

GMAC Mortgage Corp., Waterloo, IA, pro se.

Liberty Lending Services, Inc., Wilmington, OH, pro se.

Mary Stickelman, Franklin, OH, pro se.

WILLIAM A. CLARK, Bankruptcy Judge.

DECISION OF THE COURT:

1) GRANTING PARTIAL SUMMARY JUDGMENT TO DEFENDANTS THE WHITE FAMILY COMPANIES, INC. AND NELSON WENRICK ON THE ISSUE OF DAYTON TITLE AGENCY, INC. BUSINESS TRUST\'S INELIGIBILITY FOR SEPARATE BANKRUPTCY TREATMENT;

2) GRANTING SUMMARY JUDGMENT TO DAYTON TITLE AGEN-

CY, INC. ON RECOVERY OF FRAUDULENT TRANSFERS UNDER OHIO\'S UNIFORM FRAUDULENT TRANSFER ACT AND DENYING SUMMARY JUDGMENT TO DEFENDANTS ON SAME;

3) DETERMINING NATIONAL CITY BANK\'S MOTION FOR SUMMARY JUDGMENT TO BE MOOT; AND

4) GRANTING DAYTON TITLE AGENCY, INC.\'S REQUEST FOR PREJUDGMENT INTEREST AND COURT FILING COSTS.

The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334, and the standing General Order of Reference entered in this district. This matter is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(E) and (H). The following decision is determined in accordance with Fed.R.Bankr.P. 7056.

This matter is before the court upon the following three motions for summary judgment and responsive memoranda:

1) The Motion of Plaintiff National City Bank for Summary Judgment filed against Defendants The White Family Companies, Inc. and Nelson Wenrick Adv.Doc. # 99-1, Defendants\' Memorandum Contra Adv.Doc. # 121-1 and Reply Memorandum of Plaintiff National City Bank Adv. Doc. # 135-1;

2) The Motion of Plaintiffs Dayton Title Agency, Inc. and Dayton Title Agency, Inc. Business Trust for Summary Judgment Against Defendants The White Family Companies, Inc. and Nelson Wenrick Adv.Doc. # 103-1, Defendants\' Memorandum Contra Adv.Doc. # 133-1 and Reply Memorandum of Plaintiffs Dayton Title Agency, Inc. and Dayton Title Agency, Inc. Business Trust Adv.Doc. # 136-1; and

3) The Defendants, White Family Companies, Inc. and Nelson Wenrick\'s, Motion for Summary Judgment Against Dayton Title Agency, Inc., Dayton Title Agency, Inc. Business Trust and National City Bank and Memorandum in Support Adv. Docs.# 125-1 and 126-1, Memorandum of Plaintiff National City Bank in Opposition Adv.Doc. # 134-1, Memorandum of Plaintiffs Dayton Title Agency, Inc. and Dayton Title Agency, Inc. Business Trust in Opposition Adv.Doc. # 138-1, Defendants\' Reply to National City Bank\'s Memorandum Adv.Doc. # 140-1 and Defendants\' Reply to Dayton Title\'s Memorandum Adv.Doc. # 143-1.

FACTUAL AND PROCEDURAL BACKGROUND

Debtor-in-Possession, Dayton Title Agency, Inc. ("Dayton Title"), whose bankruptcy case is jointly administered with the related Dayton Title Agency, Inc. Business Trust ("DTABT") bankruptcy, was a Dayton area title agency founded in 1973. Adv.Doc. # 67-1, Depo. of Alex Katona ("Katona Depo."), p. 42. Beginning in 1996, Dayton Title conducted closing agent services on real estate transactions for Krishan Chari ("Chari"), a real estate broker affiliated with Don Wright Realty. Adv.Doc. # 70-1, Depo. of Pam Folino ("Folino Depo."), pp. 25-27. Many of these transactions involved Chari channeling funds through Dayton Title's trust accounts which were used primarily to hold third party escrow funds related to the title agency's real estate closings. Id., pp. 17-18.

Beginning in November of 1998, Dayton Title experienced difficulties collecting funds from Chari to cover disbursements made at his direction through the trust accounts. In at least one transaction, Dayton Title disbursed funds on behalf of Chari before Chari made a deposit into its account. Adv.Doc. # 129-1, Ex. 3. In connection with this same transaction and many others, Chari's checks were returned for insufficient funds. Id., Exs. 3, 5, 11-18, 20-21, 23-24. Some of the bounced checks resulted in substantial overdrafts in a Dayton Title trust account. Adv.Doc. # 130-1, Ex. 70 at NCB 00277 and Adv. Doc. # 131-1, Ex. 71 at NCB 00255.

At the center of the present dispute are transactions conducted at Chari's direction through one of Dayton Title's trust accounts with National City Bank involving Chari's real estate investment enterprise, Invesco, LLC. Folino Depo., pp. 27-28. Invesco was run by Chari and his partner Michael Karaman. Id. Beginning in December of 1998, two separate entities, the White Family Companies, Inc. ("WFC") and Nelson Wenrick ("Wenrick") provided short term financing, called bridge loans, to Invesco for purported real estate transactions. Adv.Doc. # 52-1, Depo. of Timothy White ("White Depo."), pp. 28-30; Adv.Doc. # 53-1, Depo. of Nelson Wenrick ("Wenrick Depo."), pp. 14-29. The purpose of the loans, each involving over one million dollars, was to facilitate Invesco in the purchase of commercial real estate for attractive prices. White Depo., p. 30; Adv.Doc. # 132-1, Ex. 95. The duration of each loan was only 30 or 45 days, long enough for Invesco to procure permanent financing. Adv.Doc. # 90-1, Depo. of Dave Alexander ("Alexander Depo."), p. 148; White Depo., pp. 30, 34-36; Wenrick Depo., p. 29. These loan transactions were usually closed at Dayton Title's facilities Alexander Depo., pp. 34-35, 53, 68, 87-88, 101, 113; Wenrick Depo., p. 16 and were evidenced by notes signed by Michael Karaman on behalf of Invesco Adv.Doc. # 132-1, Ex. 95. Each note carried a second signature of Michael Karaman as personal guarantor. Id.

Between December 1, 1998 and July 12, 1999, WFC made five bridge loans to Invesco ranging from $1,900,000.00 to $3,200,000.00. Id. In a completely separate transaction, Wenrick furnished a $1,200,000.00 bridge loan to Invesco on August 4, 1999. Id. Each loan transaction was carried out by the lender depositing the funds into one of Dayton Title's accounts. Adv.Doc. # 132-1, Exs. 99-103, 105. These loans were paid back in fall, but not always before the due dates. Adv.Doc. # 132-1, Ex. 95; Adv.Doc. # 103-1, Exs. G, N, T, AA, GG; Wenrick Depo., pp. 235-236.

On September 3, 1999, WFC and Wenrick each provided a final bridge loan to Invesco of $3,200,000.00 and $1,600,000.00 respectively. Adv.Doc. # 132, Ex. 95. The loans were made in connection with the supposed purchase of property containing a Staples retail office supply store. Wenrick Depo., pp. 242-244; White Depo., pp. 144-145. Like the previous loans, these were evidenced by notes containing Michael Karaman's signature as President of Invesco and a second signature of Michael Karaman as personal guarantor of the loans. Adv.Doc. # 132-1, Ex. 95. According to the notes, Invesco was to repay the principle and interest on the short-term loans on or before October 3, 1999. Id.

Soon after the loans were past due, WFC and Wenrick were repaid with checks drawn on a Texas IOLTA account of John Lewis. Adv.Doc. #103-1, Ex. 00; Alexander Depo., pp. 118-119; Wenrick Depo. pp. 24-25. Both checks were returned for insufficient funds. Wenrick Depo. pp. 24-25; Alexander Depo., pp. 122-123.

Subsequently, on October 19, 1999, Krishan Chari had a $5,000,000.00 check deposited into Dayton Title's trust account with National City Bank for the purpose of paying WFC and Wenrick. Adv.Doc. # 99-1, App. A, Ans. to Interrog. 3(c); Adv.Doc. # 132-1, Exs. 97 and 98. The check was purportedly drawn on a DCW Investments account at Oak Hill Bank. Id. The teller at National City Bank did not place a hold on the check Chari deposited. Adv.Doc. # 132-1, Ex. 109. On that same day, pursuant to Chari's instructions, Dayton Title issued a check payable to WFC in the amount of $3,260,000.00 and a check payable to Wenrick in the amount of $1,625,000.00 from the trust account. Adv.Doc. # 103-1, Ex. 2, Affidavit of Pam Folino ("Folino Aff."), ¶ 4; Adv.Doc. # 132-1, Ex. 111. The remaining $115,000.00 from Chari's $5,000,000.00 check was to remain in Dayton Title's trust account for fees payable to Dayton Title for unrelated transactions. Folino Aff., ¶ 4.

On October 20, 1999, Tim White presented the WFC check to a teller at National City Bank and obtained an official bank check in return. White Depo., pp. 154-155; Adv.Doc. # 99-1, App. A., Ans. to Interrog. 3(a). Wenrick deposited his check in an account at Security National Bank. Wenrick Depo., pp. 39-45. Wenrick's check cleared the trust account at National City Bank on October 25, 1999. Adv.Doc. # 99-1, App. A., Ans. to Interrog. 3(b).

On or about October 26, 1999, National City Bank received notification that the check deposited by Chari in Dayton Title's trust account was being returned. Adv. Doc. # 132-1, Ex. 97. However, WFC and Wenrick's checks were honored by National City Bank prior to the bank's discovery that Chari's check was a forgery drawn on a non-existent account. Adv. Doc. # 99-1, App. A, Ans. to Interrog. 3(a) through 3(c), 5 and 6. Chari deposited two subsequent $5,000,000.00 checks into Dayton Title's trust account which also bounced. Adv.Doc. # 131-1, Ex. 79; Adv. Doc. # 132-1, Exs. 97 and 118. Consequently, National City Bank made the decision to...