In re Fordu

• Decision Date: 07 July 1997
• Docket Number: 97-8021.,BAP No. 97-8020
• Citation: 209 BR 854
• Parties: In re Daniel J. FORDU, Debtor. Harold A. CORZIN, Chapter 7 Trustee, Plaintiff-Appellant and Cross-Appellee, v. Daniel J. FORDU, Defendant-Appellee, Julie A. Fordu, Defendant-Appellee and Cross-Appellant.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

209 B.R. 854 (1997)

In re Daniel J. FORDU, Debtor Harold A. CORZIN, Chapter 7 Trustee, Plaintiff-Appellant and Cross-Appellee, v. Daniel J. FORDU, Defendant-Appellee Julie A. Fordu, Defendant-Appellee and Cross-Appellant.

BAP Nos. 97-8020, 97-8021.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued May 7, 1997.

Decided July 7, 1997.

COPYRIGHT MATERIAL OMITTED

Michael J. Moran, Sr., Weick, Gibson & Lowry, Cuyahoga Falls, OH (Michael J. Moran, Sr., on brief), for Appellant.

Howard S. Rabb, Dworken & Bernstein, Painesville, OH (Howard S. Rabb, Painesville, OH, and Gerald D. Piszczek, Medina, OH, on brief), for Appellee.

Before: LUNDIN, RHODES, and WALDRON, Bankruptcy Appellate Panel Judges.

OPINION

The Chapter 7 Trustee filed a complaint to avoid certain prepetition transfers made by the Debtor, Daniel J. Fordu, to Julie A. Fordu, his former spouse ("Ms. Fordu"), under a Separation Agreement in a dissolution proceeding. Specifically, the Trustee seeks to avoid the transfer of the Debtor's interest in the proceeds of a winning lottery ticket and a marital residence, as being either fraudulent or preferential transfers under Ohio law. The bankruptcy court entered partial summary judgment against the Trustee, holding that the Debtor never held any interest in the lottery proceeds to which the Trustee could succeed for the benefit of creditors. At the commencement of trial, the court took under advisement Ms. Fordu's motion to dismiss the remaining causes of action asserted in the Trustee's complaint. The bankruptcy court subsequently issued a decision dismissing the Trustee's complaint in its entirety, holding that, because the Trustee stood in privity with the Debtor and the Judgment Entry — Dissolution of Marriage (the "Dissolution Decree") recited that the disposition of the marital property was fair and equitable to both sides, preclusion principles barred the Trustee from now litigating the issue of whether the Debtor received reasonably equivalent value in exchange for the assets transferred. In dismissing the complaint, the bankruptcy court did not specifically rule on the Trustee's Third and Fourth Causes of Action, which asserted additional preference and turnover actions. Following the bankruptcy court's dismissal of the complaint, Ms. Fordu alleged that the Trustee violated Bankruptcy Rule 9011 by continuing the litigation after the bankruptcy court's entry of partial summary judgment and requested costs and attorney fees. The bankruptcy court denied Ms. Fordu's motion.

The Trustee appeals the bankruptcy court's dismissal of his complaint (Case No. 97-8020), and Ms. Fordu cross-appeals the court's denial of her motion for attorney fees and costs (Case No. 97-8021). The Panel reverses the bankruptcy court's Order Granting Motion for Summary Judgment and the Judgment Entry dismissing the Trustee's complaint. The Panel affirms the bankruptcy court's denial of Ms. Fordu's motion for attorney fees and sanctions. The case is remanded to the bankruptcy court for further proceedings consistent with this opinion.

I. ISSUES ON APPEAL

1. Did the bankruptcy court err by concluding, as a matter of law, that the lottery proceeds were the separate property of Ms. Fordu in which neither the Debtor nor any creditor could claim an interest at the time of the parties\' dissolution?

2. Did the bankruptcy court err in concluding that the Dissolution Decree, which recited that the parties\' transfers in their Separation Agreement were fair, just and equitable, barred the Trustee on the basis of preclusion principles from litigating the issue of reasonably equivalent value?

3. Did the bankruptcy court err by failing to rule on the Trustee\'s Third and Fourth Causes of Action?

4. Did the bankruptcy court err in denying Ms. Fordu\'s motion for attorney fees and costs?

II. JURISDICTION AND STANDARDS OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(c)(1) and the order transferring, with the consent of all parties and the district court, this appeal to the Bankruptcy Appellate Panel. The Panel reviews on a de novo basis the bankruptcy court's legal conclusions, including determinations of state law, Salve Regina College v. Russell, 499 U.S. 225, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991), the grant or denial of summary judgment, Martin v. Telectronics Pacing Sys., Inc., 105 F.3d 1090 (6th Cir. 1997), petition for cert. filed, 65 U.S.L.W. 3755 (U.S. May 1, 1997) (No. 96-1749), the application of preclusion principles, United States v. Sandoz Pharmaceuticals Corp., 894 F.2d 825 (6th Cir.1990), and the dismissal of causes of action, Joelson v. United States, 86 F.3d 1413 (6th Cir.1996). Under a de novo standard of review, the reviewing court decides an issue as if the court were the original trial court in the matter. Razavi v. Commissioner, 74 F.3d 125, 127 (6th Cir. 1996).

A denial of attorney fees under Rule 9011 is reviewed for an abuse of discretion. Mapother & Mapother, P.S.C. v. Cooper (In re Downs), 103 F.3d 472, 480 (6th Cir.1996). A denial of costs under Bankruptcy Rule 7054(b) is also reviewed for an abuse of discretion. Stuebben v. Gioioso (In re Gioioso), 979 F.2d 956, 962 (3rd Cir.1992). "An abuse of discretion occurs only when the district court `relies upon clearly erroneous findings of fact or when it improperly applies the law or uses an erroneous legal standard.'" Downs, 103 F.3d at 480-481 (citation omitted); see also Ridder v. City of Springfield, 109 F.3d 288 (6th Cir.1997) (an abuse of discretion occurs when a trial court acts upon "an erroneous view of the law or a clearly erroneous assessment of the evidence"). To find an abuse of discretion, the reviewing court "must be firmly convinced that a mistake has been made." Damron v. Commissioner of Social Security, 104 F.3d 853, 855 (6th Cir.1997).

III. FACTS

In 1968, the Debtor and Ms. Fordu were married. Ms. Fordu redeemed, in 1986, a winning Ohio lottery ticket, which would pay approximately $19,000 per year until the year 2011. In 1990, the Debtor and Ms. Fordu filed an action to dissolve their marriage pursuant to Ohio law. Their Separation Agreement, incorporated into the Dissolution Decree entered on May 6, 1991, provided in part that the Debtor would receive half of the lottery proceeds for the year 1990, but would waive any claim to share in the receipt of any future lottery proceeds. The remaining lottery proceeds totaled approximately $380,000. The Separation Agreement further provided that the Debtor would retain exclusive interest in a business he was starting. The Debtor's business failed and the Debtor filed a Chapter 7 case on April 14, 1993. The amended schedules filed in his case list assets of approximately $83,000 and liabilities of approximately $290,000.

The Chapter 7 Trustee filed an adversary complaint against the Debtor and Ms. Fordu alleging that the transfers effected by the Separation Agreement, particularly the transfers of the lottery proceeds and the marital residence,¹ were fraudulent transfers and/or preferences avoidable under Ohio law, pursuant to the Trustee's powers under 11 U.S.C. § 544.² On February 15, 1994, the bankruptcy court entered partial summary judgment against the Trustee. The court held the lottery ticket and its proceeds were at all times the separate property of Ms. Fordu and the Debtor had no property interest in the proceeds to which the Trustee could succeed.

At the trial on the Trustee's remaining causes of action, following opening statements, Ms. Fordu moved to dismiss the Trustee's remaining claims. The bankruptcy court took the request under advisement and, thereafter, dismissed the remainder of the Trustee's complaint, holding that preclusion principles barred the Trustee from litigating the issue of whether the Debtor received reasonably equivalent value in exchange for the transfers in the Separation Agreement because the Trustee stood in privity with the Debtor and the state court Dissolution Decree recited that the parties' Separation Agreement was fair, just and equitable. The bankruptcy court did not specifically rule with respect to the Trustee's Third and Fourth Causes of Action, which asserted additional state-law preference claims and a demand for turnover.

Following the dismissal of the Trustee's complaint, Ms. Fordu filed a motion for attorney fees and costs, alleging that the Trustee violated Bankruptcy Rule 9011 by continuing the litigation after the bankruptcy court had entered its summary judgment decision on the issue of the lottery proceeds. The bankruptcy court concluded that the Trustee's claims were based upon an appropriate inquiry into the facts and were warranted by existing law, notwithstanding that the court had not been persuaded by the Trustee's arguments, and denied Ms. Fordu's motion.

IV. DISCUSSION

In this adversary, the Trustee's complaint alleged that the Debtor, as part of the Separation Agreement incorporated into the Ohio Dissolution Decree terminating their marriage, transferred to Ms. Fordu any claim to future lottery proceeds of approximately $380,000 and the parties' marital residence for less than reasonably equivalent value.

Although the Trustee asserted four separate causes of action pursuant to various federal and state statutes, the essential elements of the Trustee's related requests for relief were allegations that the Dissolution transfers were made with actual intent to hinder, delay, or defraud creditors, or were made without the Debtor receiving reasonably equivalent value at a time when the Debtor knew or should have known that he was insolvent or was about to start a business for which he did not have sufficient assets, that Ms. Fordu knew or should have known this information, that payment of her claims was preferred over payment of any other creditor's claims, and, that as a result, she has valuable property which should be turned...