In re Dayton Title Agency, Inc.

• Decision Date: 25 April 2003
• Docket Number: Adversary No. 99-3664.,Bankruptcy No. 99-35768.
• Citation: 292 B.R. 857
• 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: U.S. Bankruptcy Court — Southern District of Ohio

292 B.R. 857

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.

Bankruptcy No. 99-35768.

Adversary No. 99-3664.

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

April 25, 2003.

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

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

WILLIAM A. CLARK, Bankruptcy Judge.

DECISION OF THE COURT, FOLLOWING REMAND, GRANTING PARTIAL SUMMARY JUDGMENT TO THE PARTIES AS FOLLOWS:

1) GRANTING SUMMARY JUDGMENT TO DEFENDANTS THE WHITE FAMILY COMPANIES, INC. AND NELSON WENRICK WITH RESPECT TO THE THIRD PARTY BENEFICIARY FUNDS OF $722,101.49 WHICH THE COURT CONCLUDES ARE NOT PROPERTY OF THE DEBTOR'S ESTATE;

2) DETERMINING THAT AN ISSUE OF FACT EXISTS REGARDING THE OWNERSHIP OF $20,747.13 IN FUNDS WITHIN THE TRUST ACCOUNT AT THE TIME OF THE TRANSFERS TO DEFENDANTS, THE WHITE FAMILY COMPANIES, INC. AND NELSON WENRICK, AND DENYING SUMMARY JUDGMENT TO ALL PARTIES WITH REGARD TO THESE FUNDS;

3) GRANTING SUMMARY JUDGMENT TO PLAINTIFF DAYTON TITLE AGENCY, INC. ON RECOVERY OF THE $4,142,151.38 IN PROVISIONAL LOAN PROCEEDS AS A FRAUDULENT TRANSFER UNDER OHIO'S UNIFORM FRAUDULENT TRANSFER ACT;

4) GRANTING 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 PROTECTION;

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

6) 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.

On May 15, 2001, this court determined, on summary judgment, that the undisputed facts in this adversary proceeding supported two conclusions. First, Dayton Title Agency, Inc. Business Trust ("DTABT") was not a "business trust" for bankruptcy purposes and, thus, was ineligible for separate bankruptcy protection from the Debtor-in-Possession, Dayton Title Agency, Inc. ("Dayton Title"). In addition, the court concluded that Dayton Title was entitled to recover $4,885,000.00 transferred to Defendants the White Family Companies, Inc. ("WFC") and Nelson D. Wenrick ("Wenrick") in October of 1999 from Dayton Title's trust account with Plaintiff National City Bank. The court held that the funds were recoverable as a fraudulent conveyance under the Ohio Uniform Fraudulent Transfer Act ("UFTA"), Ohio Rev.Code §§ 1336.01 et seq. Significant to the court's conclusion was its determination that Dayton Title had a property interest in the funds, making them recoverable on behalf of the estate, even though the funds were transferred from an escrow account used to hold funds for the benefit of third parties. The court made this determination because Dayton Title exerted control over the escrow funds and used them for a purpose other than that intended by the third parties. Furthermore, the transfers diminished assets available for distribution to creditors of the estate.

The parties appealed many of this court's determinations, including its decision on summary judgment, to the United States District Court for the Southern District of Ohio. On appeal, Judge Rice affirmed many of the this court's prior determinations, but vacated and remanded this court's decision on summary judgment relating to whether DTABT was in fact a "business trust" as the term is used in bankruptcy and whether the transfer of funds to WFC and Wenrick constitutes a fraudulent conveyance under the UFTA.

FACTUAL AND PROCEDURAL BACKGROUND

A. Uncontested Facts Adopted from Prior Decision

In general, the facts from this court's decision prior to remand remain uncontested and, thus, the court adopts those findings in this decision on remand. Debtor-in-Possession, Dayton Title, whose bankruptcy case is jointly administered with the related 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, WFC and 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 full, 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 principal 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. OO; 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...