Sikirica v. Wettach
| Decision Date | 03 June 2014 |
| Docket Number | Adversary No. 07–02519–TPA.,Bankruptcy No. 05–38188–TPA.,Civil Action No. 13–1822. |
| Citation | 511 B.R. 760 |
| Parties | Jeffrey J. SIKIRICA, Esquire, Chapter 7 Trustee, Appellee, v. Thomas C. WETTACH and Bette C. Wettach, Appellants. |
| Court | U.S. District Court — Western District of Pennsylvania |
OPINION TEXT STARTS HERE
John P. Lacher, Robert O. Lampl, Pittsburgh, PA, for Debtor.
Jeffrey J. Sikirica, Gibsonia, PA, for Trustee.
Pending before the Court is an appeal of a Memorandum Opinion and Order issued by the Bankruptcy Court in Adversary Proceeding No. 07–2519 on March 26, 2013. (Docket No. 1). Appellants Thomas Wettach (“Wettach”) and Bette Wettach (collectively, “the Wettachs”) appeal the Bankruptcy Court's determination that Wettach fraudulently transferred $428,868.12 in assets in violation of the Pennsylvania Uniform Fraudulent Transfer Act, 12 Pa.C.S.A. §§ 5101 et seq. (“PUFTA”). The Wettachs also appeal a separate order issued by the Bankruptcy Court on November 12, 2013, awarding $37,139.01 in prejudgment interest. Based on the following, the Court will AFFIRM the decisions of the Bankruptcy Court in all respects.
As the Bankruptcy Court has fully set forth the factual background in its findings of fact and conclusions of law supporting its decision, the Court restates only the facts pertinent to the instant appeal. Prior to 1999, Wettach was a partner and shareholder of Titus & McConomy (“Titus” or “the Titus firm”), a law firm located in Pittsburgh, Pennsylvania. (Docket No. 1–28 at 3). Following the Titus firm's dissolution in 1999, Wettach became a shareholder and employee in the law firm of Cohen & Grigsby. ( Id. at 7). From at least 2001 through 2005, Wettach's wages from Cohen & Grigsby were directly deposited into a bank account that he jointly owned with his wife as tenants by the entireties. ( Id.).
Prior to the Titus firm's dissolution, the firm had rented office space from Trizechahn Gateway LLC (“Trizec”) pursuant to a long-term lease agreement. ( Id. at 3). In 2000, Trizec filed a breach of contract action against the Titus firm's former partners over unpaid rent due under the lease. ( Id.). That action culminated in a judgment against Wettach and several other partners jointly and severally in the amount of $2,700,000, plus interest and costs. ( Id. at 4). As a result of that judgment, several former partners of the Titus firm became involved in bankruptcy proceedings in this district.1 Two of those proceedings involved Wettach: his own Chapter 7 bankruptcy petition, filed on October 14, 2005, and the adversarial proceeding filed by the Trustee on October 15, 2007.
Wettach's bankruptcy petition listed assets with a total value of $2,951,000 including personal property, retirement accounts, insurance policies, and the contents of a PNC checking account. ( Id. at 4–5). Wettach claimed all of the listed property as exempt, primarily on the basis that it was jointly owned with his wife as entireties property. ( Id. at 5). The Trustee filed objections to the petition on May 16, 2006, and commenced the related adversarial proceeding on October 15, 2007.2 The primary allegation in the adversarial proceeding was that Wettach had engaged in fraudulent transfers by directing his individual compensation to be deposited into a jointly owned entireties account for the purpose of shielding his individual compensation from the reach of his creditors.
The Trustee's objections to Wettach's exemptions and the issues raised in the adversarial proceeding were tried together on November 30, 2011. On March 26, 2013, the Bankruptcy Court issued a Memorandum Opinion and Order finding i n favor of the Trustee and awarding $428,868.12 in damages. On November 12, 2013, the Bankruptcy Court awarded an additional $37,139.01 i n prejudgment interest. The instant appeal ensued.
This Court has appellate jurisdiction over final judgments, orders and decrees of a bankruptcy court pursuant to 28 U.S.C. § 158(a)(1). The Court reviews a bankruptcy court's findings of fact for clear error and its conclusions of law under a de novo standard. In re SubMicron Sys. Corp., 432 F.3d 448, 454 (3rd Cir.2006).
As noted above, the amended complaint i n the underlying adversarial proceeding alleged that Wettach's direct deposits of his wages from Cohen & Grigsby into a jointly owned bank account amounted to fraudulent transfers in violation of 12 Pa.C.S.A. §§ 5104(a)(2)(ii) and 5105. (Docket No. 1–8). Section 5104(a)(2)(ii) provides that:
A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation ... without receiving a reasonably equivalent value in exchange for the transfer or the obligation, and the debtor ... intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due.
12 Pa.C.S.A. § 5104(a)(2)(ii). Similarly, Section 5105 provides that:
A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
12 Pa.C.S.A. § 5105. In other words, a direct deposit of wages into a jointly held bank account is generally considered to be a fraudulent transfer if the debtor was insolvent at the time of the transfer and the debtor failed to receive “reasonably equivalent value” in return. In re Meinen, 232 B.R. 827, 842–43 (Bankr.W.D.Pa.1999). However, such a deposit is not a fraudulent transfer to the extent that “said funds are then used to satisfy reasonable and necessary expenses for the maintenance of said debtor's family.” Id.; see also In re Titus, 498 B.R. at 515–16 ().
In its Memorandum Opinion, the Bankruptcy Court concluded that Wettach had transferred $933,472 in individual wages into the entireties account during the operative lookback period. (Docket No. 1–28 at 22). Of that total amount, the Bankruptcy Court determined that $380,253.87 was not used to satisfy reasonable and necessary household expenses. ( Id. at 35). The court also awarded the Trustee $39,264.25 from balances held by the Wettachs in other bank accounts and $9,350 from Wettach's severance benefits. ( Id. at 39, 46). Finally, the Bankruptcy Court awarded $37,139.01 in pre-judgment interest. (Docket No. 1–40). In this appeal, the Wettachs attack those determinations on several grounds. Each will be discussed, in turn.
Wettach first contends that the Bankruptcy Court erred by improperly shifting the burden of proving that no money was deposited into the joint checking account other than Wettach's individual wages and that the relevant deposits into the joint checking account were not spent on necessary household expenses from the Trustee to the Wettachs. (Docket No. 4 at 7). As this is a question of law, the Court reviews the Bankruptcy Court's decision de novo.
It is well-established that “the Trustee ha[s] the burden of proof on all elements of ... PUFTA claims, including whether funds were spent on necessities.” In re Titus, 498 B.R. at 519;see also In re Arbogast, 466 B.R. at 308–09 (). However, the Bankruptcy Court may shift the “burden of producing at least some useful evidence regarding what the funds deposited into [the] entireties bank account [were] ultimately spent on” to the defendants. In re Titus, 498 B.R. at 519–20;In re Cohen, 487 B.R. at 621 ().
In the instant case, the Bankruptcy Court adopted the following burden of proof:
[T]he Trustee must prove by a preponderance of the evidence that the Debtor caused the transfers in question to be made into an entireties' account or other entireties' property. He must also show by a preponderance of the evidence that the Debtor failed to receive reasonably equivalent value in exchange for the transfer of his individual compensation into entireties' property, or, in other words, the Trustee must show that the transferred funds were not used to satisfy necessities or were spent on other assets that are presently held as entireties' property. The Trustee must also prove by a preponderance of the evidence that the Debtor was insolvent at the time of the transfers, or was thereby rendered insolvent. The [Wettachs], however, have the burden of producing at least some useful evidence to demonstrate how they spent the transferred funds, and absent such evidence the Trustee will be deemed to have met his burden of proof as to reasonably equivalent value.
(Docket No. 1–28 at 11). This formulation is identical to that which has been utilized and endorsed repeatedly by courts in this district. See, e.g., In re Arbogast, 479 B.R. at 666;In re Cohen, 487 B.R. at 621;In re Titus, 498 B.R. at 519–20. Accordingly, the Bankruptcy Court's ruling on this issue will be affirmed.
Wettach next asserts that the Trustee failed to meet his burden of proving: (1) that Wettach deposited any wages at all into the jointly owned checking account; and (2) that the amount...
To continue reading
Request your trial
-
Sikirica v. Wettach (In re Wettach)
...district court rejected each of the Wettachs' arguments on appeal and affirmed the bankruptcy court's decision. See Sikirica v. Wettach, 511 B.R. 760, 773 (W.D.Pa.2014). The Wettachs now appeal from the district court's order affirming the bankruptcy court's award.II. ANALYSIS We have juris......
-
Impala Platinum Holdings Ltd. v. A-1 Specialized Servs.
...cases in Pennsylvania, in all other cases it is "an equitable remedy awarded at the discretion of the trial court." Sikirica v. Wettach, 511 B.R. 760, 772 (W.D. Pa. 2014). As a non-contractual matter, this case falls into the latter group, and requires our consideration of the following fou......