In re Grove-Merritt, Bankruptcy No. 07-31887.

• Decision Date: 02 June 2009
• Docket Number: Adversary No. 08-3068.,Bankruptcy No. 07-31887.
• Citation: In re Grove-Merritt, 406 B.R. 778 (Bankr. S.D. Ohio 2009)
• Parties: In re Devon Loraine GROVE-MERRITT aka, Devon L. Dullaghan, Debtor. Ruth A. Slone, Trustee, Plaintiff v. Harvey Christophe Lassiter, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

406 B.R. 778

In re Devon Loraine GROVE-MERRITT aka, Devon L. Dullaghan, Debtor Ruth A. Slone, Trustee, Plaintiff v. Harvey Christophe Lassiter, Defendant.

Bankruptcy No. 07-31887.

Adversary No. 08-3068.

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

June 2, 2009.

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Harvey Christophe Lassiter, Cincinnati, OH, Plaintiff pro se.

Stephen D. Brandt, Dayton, OH, to the Chapter 7 Trustee.

Ruth A. Slone, Dayton, OH, Chapter 7 Trustee.

Devon L. Dullaghan, Mason, OH, Debtor pro se.

Decision On Trustee's Fraudulent Conveyance Complaint Pursuing Claims Under 11 U.S.C. § 548(a)(1) and Ohio Revised Code § 1336.04(A)(1) and (A)(2) Following Trial

GUY R. HUMPHREY, Bankruptcy Judge.

I. Introduction

This adversary proceeding is before the court following the trial of the Chapter 7 trustee's complaint to avoid and recover, as fraudulent conveyances under Ohio's version of the Uniform Fraudulent Transfer Act and the Bankruptcy Code, two transfers of the debtor's interests in real property made through quitclaim deeds from the debtor to the defendant. In her complaint, the trustee alleges that the transfers of the debtor's interests in the property to the defendant were made with the actual intent to hinder, delay, or defraud the debtor's creditors and, in addition, were not made in exchange for reasonably equivalent value. The matter was tried on January 13 and 15, 2009.

The court has carefully considered and weighed the testimony of the witnesses and the exhibits admitted into evidence, giving due consideration to the credibility and weight of each of those items. For the reasons set forth below, the court determines that the trustee cannot avoid the first transfer made in April 2005, but that the transfer made in December 2005 is avoidable as a fraudulent conveyance under both state and bankruptcy law. In lieu of avoiding the second transfer, the court is rendering judgment in favor of the trustee in the amount of $11,070.09 pursuant to Bankruptcy Code § 550(a) and Ohio Revised Code § 1336.07.

The following decision constitutes the court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.

II. Facts and Procedural Background

A. Findings of Fact

This adversary proceeding is the second adversary proceeding brought in the estate case of Devon Loraine Grove-Merritt, aka Devon Dullaghan (the "Debtor") (Case No. 07-31887). Harvey Christophe Lassiter aka Christo Lassiter, the defendant in this proceeding (the "Defendant" or "Mr. Lassiter") was the plaintiff in the first adversary proceeding which sought to deny dischargeability of a debt allegedly owed to him by the Debtor pursuant to § 523(a)(6) (Adv. Case No. 07-3215) (the "Dischargeability Proceeding"). In the Dischargeability Proceeding, Mr. Lassiter alleged that, prior to vacating the real property he owns at 5131 Carter Court, Mason, Ohio (the "Property"), the Debtor willfully and maliciously injured him by damaging the Property. The Property that Mr. Lassiter alleged in the Dischargeability Proceeding was willfully and maliciously damaged by the Debtor is the Property transferred to him by the Debtor through the quitclaim deeds that are the subject of the Trustee's Complaint and this proceeding.¹

At all relevant times, the Defendant has been a professor at the University Of Cincinnati College Of Law ("UC Law School"). The Debtor was a former student of the Defendant who graduated from UC Law School in 2002 and was admitted to the Ohio bar that same year. The Debtor and her then husband, Joseph Moser, purchased the Property for $139,000 in June of 2003. To finance the purchase of the Property, the Debtor and Mr. Moser executed a note (the "Wells Fargo Note") and granted a mortgage (the "Wells Fargo Mortgage") in favor of Wells Fargo Home Mortgage ("Wells Fargo"). The Debtor, Mr. Moser, their two children and two cats resided at the Property until the Debtor and Mr. Moser separated in early February 2004. The Defendant has never resided at the Property. Following the separation from Mr. Moser, the Debtor experienced financial difficulties, which worsened over time and were still continuing at the time of the trial. See Trial Tr., p. 89. In the course of 2004, Wells Fargo threatened the Debtor with foreclosure. See Trial Tr., p. 3 and Pl. Exhs. 13 and 16.

On June 14, 2004, the Debtor filed a complaint with the Warren County, Ohio, Common Pleas Court, Domestic Relations Division (the "Divorce Court"), seeking a divorce from Mr. Moser. The Defendant assisted the Debtor in the pursuit of her divorce. See Pl. Exhs. 11 and 12. The Divorce Court entered a divorce decree on May 27, 2005 (the "Divorce Decree"), which awarded the Property to the Debtor and gave her until August 17, 2005 to refinance the Property and remove Mr. Moser from any liability that he may have had under the Wells Fargo Note and the Wells Fargo Mortgage. Def. Exh. 5. The Divorce Decree also provided that the Property was to be sold and the net proceeds or deficiency divided equally between the Debtor and her former husband in the event that the Debtor was unable to refinance it. Additionally, the parties stipulated in the Divorce Decree that they lacked equity in the Property. Id. See also Trial Tr., p. 141. Emails exchanged between the Debtor and the Defendant as well as the Debtor's trial testimony indicate that the Defendant played a significant role in ensuring that the Divorce Decree reflected a lack of equity in the Property. See Trial Tr., pp. 56-58 and Pl. Exhs. 12 (p. 2 of attachment, ¶ 3) and 22 and Def. Exh. 19. On cross-examination by the Defendant, the Debtor testified as follows on this point:

Defendant: Well, when you and your ex-husband, Mr. Moser, agreed there was zero equity in the house, did you just do that without any consultation with your real estate agent, Mr. Stadler, did he do that without any consultation with a real estate agent himself?

Debtor: Of course I didn't consult with a real estate agent, I was consulting with you, that was your decision.

Trial Tr., p. 143.

Mr. Moser conveyed title to the Property to the Debtor through a quitclaim deed dated October 13, 2004 (the "First Deed"). Pl. Exh. 5. On April 8, 2005 the Debtor executed a quitclaim deed transferring an undivided one-half interest in the Property to Mr. Lassiter (the "Second Deed"). Pl. Exh. 6. This First Deed and Second Deed were recorded in the Warren County, Ohio, Recorder's Office (the "Recorder's Office") on April 13, 2005. The transfer of the Debtor's undivided one-half interest in the Property to Mr. Lassiter on April 13, 2005 will be referred to as the "April Transfer."

The Debtor attempted to refinance the Property jointly with the Defendant but their joint credit application was denied. Because the Debtor was unable to refinance the Property alone or jointly with the Defendant, the Defendant, alone, applied for a loan with USAA Federal Saving Bank (the "Bank"). Trial Tr., pp. 89, 141 and Def. Exh. 1.5. On June 16, 2005 the Defendant entered into a loan agreement with the Bank evidenced by a note from the Defendant to the Bank in the amount of $140,000 (the "Note"). The Note was secured by a mortgage on the Property granted by both the Debtor and Mr. Lassiter also dated June 16, 2005 (the "Mortgage"). Pl. Exh. 9. The settlement statement dated June 16, 2005 indicates the payoff amount to Wells Fargo was $135,859.81. Pl. Exh. 8. The loan application signed by the Defendant on June 16, 2005 represented the value of the Property as $160,000. Pl. Exh. 1.2. A "closing fax" sent by the Bank's closing coordinator to the closing agent directs the latter to ensure that the mortgage is signed in the following manner: "Devon Loraine Moser, married Harvey Christophe Lassiter, single." (sic). Pl. Exh. 10. The Defendant receives quarterly bank statements evidencing his mortgage payments. See Def. Exh. 13, p. 13.

The appraisal (the "Appraisal") commissioned by the Bank in connection with the refinancing was conducted on May 5, 2005 by Barry K. Teegarden, a professional real estate appraiser. It lists the Property's value at $158,000. Pl. Exh. 4. Mr. Teegarden testified as an expert witness that the Appraisal was based on the Property being exposed to market conditions for a thirty to ninety day period. He also testified that the market conditions in the Mason area had not changed between May and December 2005. See Trial Tr., pp. 25, 30, 34, 42, 43. The court found Mr. Teegarden's testimony credible.

At the time he entered into the loan agreement, the Defendant fully expected that the Debtor would reimburse him for each monthly mortgage payment. As he explained—he was only supposed to be a conduit—he took the loan in his own name to assist the Debtor, he would make the mortgage payments, and then the Debtor was to pay him. See Trial Tr., pp. 224, 227 and Pl. Exh. 2. The Debtor, however, testified that she was to pay the Defendant back when she had the financial ability. See Trial Tr., pp. 100, 150-51, 163, 166. No written agreement was ever executed between the Debtor and the Defendant to detail the terms of their understanding or the Debtor's occupancy of the Property. See Trial Tr., p. 151. Mr. Lassiter timely made all mortgage payments. The Debtor was only able to make one full payment. See Trial Tr. pp. 274-75.

On December 29, 2005 the Debtor recorded a quitclaim deed transferring her remaining undivided one-half interest in the Property to the Defendant in the Recorder's Office (the "Third Deed"). Pl. Ex. 7. This transfer will be referred to as the "December Transfer" and the April Transfer and the December Transfer will be collectively referred to as the "Transfers."

The Third Deed contains the purported signatures of the Debtor, as grantor, and the Defendant, as grantee. Neither the...