The defendant, Michelle Castellanos ("Castellanos"), is the one-time fiancé of the debtor, Orlando Y. Carter ("Carter"). Castellanos and Carter lived with each other since 2002, maintaining separate residences and splitting time between each other's homes. The couple purchased a home together in April of 2005, and both moved in shortly later.
At the time, Carter was the owner of Dynus and Cincinnati Capital Partners XVIII ("Cincinnati Capital"), and Castellanos was a recruiter, working as an independent contractor for Dynus over the previous year. Beginning September of 2005 Castellanos began to notice "instability" in Carter's businesses. At that time she created and issued an invoice for her recruiting work which had been performed over the previous year. This was the first invoice created for Castellanos' work for Carter's businesses.
On October 18, 2005 Fifth Third Bank ("Fifth Third") took a cognovit judgment (the "Cognovit Judgment") against Carter and Dynus in the amount of $5,891,751.70 and filed a certificate of judgment which served as a lien against the home Carter shared with Castellanos. The entering of the Cognovit Judgment began a chain of events resulting in Carter's bankruptcy. About the same time, Fifth Third froze Carter's bank account. Though Carter and Castellanos had maintained separate finances, when Fifth Third froze his account, Carter began using a bank account belonging to Castellanos at National City Bank (the "National City Account"). Carter was made a signatory on that account on January 19, 2006, the day after he filed bankruptcy.
At the time of his bankruptcy petition in January of 2006, Carter listed the value of his ownership interest in Dynus as being $0 on Schedule B of his bankruptcy schedules. (est. doc. 22 at 5).1 Castellanos testified that Dynus closed its doors around the time of the entering of the Cognovit Judgment. Accordingly, the court finds that Carter's interest in Dynus was either worthless or negligible at the time of entry of the Cognovit Judgment as well.
At the time of the entry of the Cognovit Judgment, Carter owned the following assets:
| 422 Oak Run Drive (rental property)
|
| 6214 Murphey Road (co-owned with ex-wife)
|
(est. doc. 22 at 2-5).
Carter scheduled the following undisputed, non-contingent claims that were incurred before the Cognovit Judgment was entered: | Mortgage on Sanctuary Lane |
| Mortgage on 6214 Murphey Road (co-owned with |
| Construction Lien on 973 Sanctuary Lane |
| Blinds for Sanctuary Lane property |
(est. doc. 22 at 8-16). Looking only at these debts, Carter's net worth was approximately $460,000 just prior to the time the $5,891,751.70 Cognovit Judgment was entered. In reality, however, his net worth was far less than this due to several unliquidated liabilities listed in Carter's schedules, including his personal guaranty of a $2,000,000 Small Business Administration loan and a $2,500,000 disputed claim stemming from an Advanced Purchase Agreement for Dynus. Considering Castellanos' testimony that Carter's businesses were showing signs of instability in September 2005, giving rise to the impetus for issuing the invoice for recruiting services at that time; the unliquidated claims relating to the SBA loan and the Dynus Advanced Purchase Agreement; and the Cognovit Judgment having been taken in October 2005, the court finds that, at the very latest, Carter was insolvent as of September 2005.
In 2008 a federal grand jury indicted Carter on 11 counts, including mail fraud, bank fraud, and bankruptcy fraud. Carter was tried ("Carter's Criminal Trial") and found guilty of 11 felony charges. The conviction was affirmed on appeal. United States v. Carter, 483 F. App'x 70 (6th Cir. 2012), cert. denied, 133 S. Ct. 677 (2012).
At the trial of this adversary proceeding and during Carter's Criminal Trial, Castellanos provided testimony on a series of transfers from Carter to herself.2 For the sake of simplicity, a chart of the transfers follows:
| Underlying Document Description |
| 8/20/2005 check from Carter to Castellanos |
| 8/25/2005 check from Carter to Castellanos |
| Excerpt of Transcript of Castellanos's testimony in Carter's |
| Criminal Trial Discussing the Transaction |
| 10/11/2005 check from Rhyne Assoc., Inc. to Carter in the |
| amount of $372.65. Endorsed to Castellanos, deposited on |
| 10/20/2005 check from Rhyne Assoc., Inc. to Carter in the |
| amount of $1,000.00. Endorsed to Castellanos, deposited |
| 11/3/2005 check from the State of Ohio to Carter in the |
| amount of $1,674.00 for 2004 Ohio Income tax refund. |
| Endorsed to Castellanos, deposited on 11/21/2005 |
| 11/18/2005 check from United States Treasury to Carter in |
| the amount of $6,564.00 for tax refund. Endorsed to |
| Castellanos, deposited on 11/21/2005 |
Transfers 2C and 2D were checks written directly by Carter to Castellanos. Transfer 2C was for $1000, dated August 20, 2005, and deposited into Castellanos' account within a few days. Transfer 2D was for $500, dated August 25, 2005, and was also deposited within a few days.
Transfers 4A-D were all checks that were made payable to Carter, but were endorsed by Carter to Castellanos. Images of the checks were contained on a deposit slip from a November 21, 2005 deposit into the National City Account. Transfers 4A and 4B were from Rhyne Associates for rental proceeds from Carter's property in North Carolina. Transfer 4A was for 372.65 and dated October 11, 2005. Transfer 4B was for $1,000 and dated October 20, 2005. Transfer 4C was a tax refund check from the state of Ohio for $1,674 and dated November 8, 2005. Transfer 4D is an IRS tax refund check for $6,564 dated November 18, 2005.
The Trustee provided evidence of Transfer 3 in the form of a transcript excerpt from Castellanos' testimony at Carter's Criminal Trial:
Q. What is that check?
A. That check is a fee paid to ExecuSolutions.
Q. And who's it being paid by?
A. By Cincinnati Capital Partners.
Q. XVIII?
A. XVIII.
Q. Do you know what Cincinnati Capital Partners XVIII was?
A. I only know it was a division of Dynus.
Q. And who controlled Cincinnati Capital Partners XVIII?
A. I don't know who controlled.
Q. Well, who controlled Dynus?
A. Orlando Carter.
* * *
Q. And is there a date on that check?
A. October 4th, 2005.
* * *
Q. And how much is that check for?
A. 43,924
Q. And who's the payee?
A. ExecuSolutions.
* * *
Q. Well, who owned Executive Solutions?
A. I do. Uh-huh. I'm in staffing and recruiting.
(Exhibit 3, at 32-34). To summarize Castellanos' testimony, on October 4, 2005 Castellanos invoiced Cincinnati Capital, a company owned and controlled by Carter, for recruiting services which Castellanos provided to Carter's businesses over the previous year. On that same date, Cincinnati Capital wrote a check for $43,924 to ExecuSolutions, Castellanos' unincorporated business. Though ExecuSolutions LLC is also a party in this adversary proceeding, the limitedliability company was not formed until January 2007, over two years after Transfer 3. (Exhibit 6A). Castellanos testified that she created a new bank account for ExecuSolutions in order to deposit that check and that Carter and Castellanos made withdrawals from that account to pay for household expenses.
