In Re: Fordu v. Fordu

• Decision Date: 07 August 1998
• Docket Number: No. 97-3936,97-3936
• Citation: 201 F.3d 693
• Parties: (6th Cir. 1999) In Re: Daniel Fordu, Debtor. Harold A. Corzin, Appellee, v. Julie A. Fordu, Appellant. Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 693

201 F.3d 693 (6th Cir. 1999)

In Re: Daniel Fordu, Debtor.

Harold A. Corzin, Appellee, v. Julie A. Fordu, Appellant.

No. 97-3936

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: August 7, 1998

Decided and Filed: December 22, 1999

On Appeal from the Bankruptcy Appellate Panel of the Sixth Circuit, No. 93-50685--Harold F. White, Bankruptcy Judge. [Copyrighted Material Omitted]

[Copyrighted Material Omitted] Howard S. Rabb, DWORKEN & BERNSTEIN CO., LPA, Painesville, Ohio, for Appellant.

Michael J. Moran, WEICK, GIBSON & LOWRY, Cuyahoga Falls, Ohio, for Appellee.

Howard S. Rabb, DWORKEN & BERNSTEIN CO., LPA, Painesville, Ohio, for Appellant.

Before: KEITH, BATCHELDER, and COLE, Circuit Judges.

OPINION

R. GUY COLE, JR., Circuit Judge.

This appeal, which arises from the bankruptcy court's disposition of an adversary proceeding initiated by a Chapter 7 trustee, comes to us by way of our circuit's Bankruptcy Appellate Panel ("BAP"). The appeal is brought by one of the defendants to the adversary proceeding, Julie A. Fordu, the former wife of the Debtor, Daniel Fordu. Ms. Fordu contends that the BAP erred by reversing two separate orders of the bankruptcy court: the first order granted partial summary judgment in her favor and the second order dismissed the trustee's complaint. We are urged by Ms. Fordu to reverse the decision of the BAP and affirm the bankruptcy court's orders. Ms. Fordu also seeks reversal of a third order of the bankruptcy court denying her motion for attorney fees and costs.¹

The issues before us are the same as those presented to the BAP: (1) whether the bankruptcy court erred by granting partial summary judgment in favor of Ms. Fordu after concluding that lottery proceeds won during her marriage to the Debtor constituted Ms. Fordu's separate property in which the Debtor had no interest; (2) whether the bankruptcy court erred by concluding that an agreed dissolution decree entered by an Ohio domestic relations court--which dissolved the Fordus' marriage and recited that the parties' Separation Agreement was fair, just and equitable--precluded a finding by the bankruptcy court that the transfers effected by the Separation Agreement were subject to avoidance as fraudulent and/or preferential transfers; (3) whether the bankruptcy court erred in its dismissal of the trustee's third and fourth causes of action without specifically ruling thereon; and (4) whether the bankruptcy court erred by denying attorney fees and costs to Ms. Fordu. For the reasons that follow, we REVERSE the bankruptcy court's order granting Ms. Fordu's motion for summary judgment and its judgment entry dismissing the trustee's complaint. We AFFIRM the bankruptcy court's order denying Ms. Fordu's motion of allowance of bill of costs and attorney fees. We REMAND this case to the bankruptcy court for further proceedings consistent with this opinion.

I.

In 1986, Ms. Fordu redeemed an Ohio lottery ticket entitling her to winnings of $388,888, payable in annual installments of $19,444.40 through the year 2011. In 1990, the Fordus filed a petition to dissolve their marriage in the Common Pleas Court, Division of Domestic Relations, Lake County, Ohio ("Domestic Relations Court").

On January 17, 1991, the Fordus executed a Separation Agreement that was incorporated into an agreed dissolution decree entered by the Domestic Relations Court on May 6, 1991 ("Dissolution Decree"). The Separation Agreement provided that: (1) the Debtor would convey his entire right, title and interest in the marital residence to Ms. Fordu; (2) neither spouse would be responsible for supporting the other after the marriage ended; (3) the Debtor would not be required to pay alimony to Ms. Fordu; (4) Ms. Fordu would waive any claim to an interest in a restaurant business venture that the Debtor was about to undertake; and (5) the Debtor would relinquish any and all rights he may have had in the lottery proceeds, except for one-half of the proceeds of the lottery installment received in 1990.

Approximately two years after the Dissolution Decree was entered, the Debtor's business failed and he filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. Harold A. Corzin, the duly appointed trustee for the Debtor's bankruptcy estate ("Trustee"), brought an action pursuant to § 544 of the Bankruptcy Code² against Ms. Fordu seeking to avoid and recover transfers that she received pursuant to the Separation Agreement. Invoking the "strong-arm" powers afforded by § 544(a) of the Bankruptcy Code,³ the Trustee's complaint sought the avoidance of the Debtor's transfers of his interest in the marital residence and lottery proceeds as fraudulent and/or preferential transfers. Although the Trustee's complaint did not specifically reference the state statutes under which relief was sought,⁴ presumably the Trustee sought avoidance of the transfers made pursuant to the Separation Agreement under Ohio Rev. Code Ann. §§ 1336.04(A),⁵ 1336.05,⁶ 1313.56⁷ and 1313.57.⁸

While the Trustee's complaint pled four distinct causes of action arising under various Bankruptcy Code and Ohio statutory provisions, the claims stem from the following essential allegations: (1) that, pursuant to the Separation Agreement incorporated into the Dissolution Decree, the Debtor transferred to Ms. Fordu his interest in approximately $380,000 in future lottery proceeds and the parties' marital residence for less than reasonably equivalent value; (2) that the transfers effected by the Dissolution Decree were made with actual intent to hinder, delay, or defraud creditors, or were made at a time when the Debtor knew or should have known that he was insolvent or was about to engage in a business for which he lacked sufficient assets; (3) that Ms. Fordu was aware of, or should have known, this information; (4) that the Debtor preferred payment of Ms. Fordu's claims over payment of the claims of other creditors; and (5) that, as a consequence of these transfers, Ms. Fordu held property of the Debtor's bankruptcy estate that should be turned over to the Trustee. The Trustee's complaint included the language necessary to support the state and federal causes of action asserted. Nevertheless, without affording the Trustee an opportunity to adduce evidence supporting his claims, the bankruptcy court entered the two separate orders described below that granted judgment in favor of Ms. Fordu as a matter of law.

First, the bankruptcy court entered partial summary judgment against the Trustee, holding that the lottery ticket and its proceeds were the separate property of Ms. Fordu rather than marital property. As such, the Debtor held no interest in the lottery winnings to which the Trustee could succeed, the bankruptcy court concluded. Second, following opening statements at the trial of the Trustee's remaining claims, the bankruptcy court entered a separate order granting Ms. Fordu's motion to dismiss the claims.⁹ Because the Dissolution Decree contained language reciting that the Separation Agreement constituted a fair, just and equitable division of the parties' marital property, the bankruptcy court determined that principles of collateral estoppel precluded the Trustee from litigating the issue of whether the Debtor received reasonably equivalent value in exchange for the transfer of his interest in the lottery proceeds and the marital residence.¹⁰

The bankruptcy court did not make a specific ruling on the Trustee's third and fourth claims for relief, i.e., the state-law preference claim and the claim for turnover of property of the Debtor's bankruptcy estate. Rather, the court simply entered a judgment dismissing these claims. Finally, the bankruptcy court denied Ms. Fordu's motion for recovery of attorney fees and costs. Ms. Fordu's motion asserted that the Trustee violated Fed. R. Bankr. P. 9011 by continuing prosecution of the adversary proceeding after the bankruptcy court had granted partial summary judgment in Ms. Fordu's favor on the basis of its finding that the Debtor held no property interest in the lottery proceeds. Although the bankruptcy court ultimately rejected the Trustee's arguments, it ruled that imposition of Rule 9011 sanctions was not justified because the Trustee's claims were made after appropriate factual inquiry and warranted by existing law.

The Trustee appealed to the BAP the bankruptcy court's two orders that, collectively, resulted in dismissal of his complaint. Ms. Fordu cross-appealed the bankruptcy court's denial of her motion for attorney fees and costs. The BAP reversed the bankruptcy court's first order granting partial summary judgment, holding that the Debtor had an interest in the lottery proceeds at the time the parties' marriage was dissolved. The BAP also reversed the bankruptcy court's second order, which dismissed the Trustee's remaining claims for relief, determining that the recitation in the Dissolution Decree that the Separation Agreement constituted a fair, just and equitable property division did not preclude the Trustee from litigating the issue of whether the challenged transfers were made in exchange for reasonably equivalent value. Because the bankruptcy court failed to state its grounds for dismissing the Trustee's third and fourth causes of action, the BAP reversed the bankruptcy court's dismissal of these claims. Finally, the BAP affirmed the bankruptcy court's denial of Ms. Fordu's motion for attorney fees and costs. The BAP remanded the adversary proceeding to the bankruptcy court for proceedings consistent with its opinion. This timely appeal followed.

II.

Although the issue of what property is properly included in the debtor's bankruptcy estate raises a federal question, it is well-settled that a debtor's property rights are created and defined by state law. See Demczyk v. Mutual Life Ins. Co. (In re Graham Square, Inc.), 126 F.3d 823, 827 (6th Cir. 1997) ("To determine the extent of an estate's...