Sikirica v. Wettach (In re Wettach)
| Decision Date | 20 January 2016 |
| Docket Number | No. 14–3140.,14–3140. |
| Citation | 811 F.3d 99 |
| Parties | In re Thomas C. WETTACH, Debtor Jeffrey J. Sikirica, Chapter 7 Trustee v. Thomas C. Wettach; Bette C. Wettach, Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
Neal H. Levin, Esq., Freeborn & Peters, Chicago, IL, Jeffrey J. Sikirica, Esq., Gibsonia, PA, for Jeffrey J. Sikirica, Chapter 7 Trustee.
James R. Cooney, Esq., Robert O. Lampl, Esq., Robert O. Lampl & Associates, Pittsburgh, PA, for Appellants.
Before: BENTON, SENTELLE and GILMAN, Circuit Judges.*
Appellants Thomas C. and Bette C. Wettach appeal from an order of the district court affirming the bankruptcy court's award to the bankruptcy trustee for various fraudulent transfers between 2001 and 2005. The Wettachs challenge the bankruptcy court's (a) allocation of the burdens of persuasion and production on the fraudulent transfer claims, (b) evidentiary findings, and (c) legal determination that the deposit of wages into an account held by the entireties constitutes the "transfer" of an "asset" under Pennsylvania state law. Because we conclude that the bankruptcy court's legal conclusions were correct and its evidentiary findings were not clearly erroneous, we affirm the order of the district court affirming the bankruptcy court's decision as to all issues.
Because the bankruptcy court has already detailed the extensive history of this dispute, see Sikirica v. Wettach (In re Wettach ), 489 B.R. 496, 503–06 (Bankr.W.D.Pa.2013), we recite only the essential facts.
The debtor in this bankruptcy case is Thomas C. Wettach, a former partner at the now-defunct law firm of Titus & McConomy, LLP ("Titus"). Prior to its dissolution in 1999, Titus rented office space from Trizechahn Gateway LLC ("Trizec") under a long-term lease agreement. After the firm dissolved, Trizec filed suit in 2000 against Titus's former partners for unpaid rent under the lease. The Pennsylvania Court of Common Pleas for Allegheny County found that Thomas Wettach and the other Titus partners were jointly and severally liable for $2,700,000, plus interest and costs. Although the Pennsylvania Superior Court initially reversed the judgment as to Wettach, see Trizechahn Gateway LLC v. Titus, 930 A.2d 524, 539 (Pa.Super.Ct.2007), the Pennsylvania Supreme Court reinstated his liability, see Trizechahn Gateway LLC v. Titus, 601 Pa. 637, 976 A.2d 474, 481 (2009).
Before the Trizechahn court entered final judgment on June 7, 2006, Thomas Wettach filed a voluntary Chapter 7 bankruptcy petition on October 14, 2005. Wettach's bankruptcy petition listed $3,551,500 in assets, including $2,951,500 in personal property, retirement accounts, insurance policies, and the contents of a PNC checking account held by the entireties (the "entireties account") with his wife Bette Wettach. App. 662, 664–67. Wettach claimed all of this property as exempt under federal bankruptcy law and applicable Pennsylvania state law, primarily relying on the exemption for property in which the debtor holds an interest as a tenant by the entirety. See 11 U.S.C. § 522(b)(1), (3)(B) ; 12 Pa.C.S.A. § 5101(b).
In order to reach at least some of these assets for distribution to Wettach's creditors, the trustee of the bankruptcy estate, Jeffrey Sikirica, initiated an adversary proceeding on October 15, 2007. Following the dissolution of Titus, Wettach joined the law firm of Cohen & Grigsby, P.C., and earned wages that the firm directly deposited into the entireties account. The Trustee claimed in his amended complaint that these deposits constituted recoverable fraudulent transfers since they "had the effect of shielding the Debtor's individual compensation from the reach of his individual creditors ... by converting it into entireties' property." In re Wettach, 489 B.R. at 505. In particular, the Trustee alleged, as relevant here, two counts of constructive fraudulent transfers under the Pennsylvania Uniform Fraudulent Transfer Act (the "PUFTA"), 12 Pa.C.S.A. §§ 5104(a)(2)(ii), 5105.
The bankruptcy court held a trial on these claims on November 30, 2011. However, before the court could issue its decision, the presiding judge, U.S. Bankruptcy Judge Bernard Markovitz, retired. The case was subsequently reassigned to U.S. Bankruptcy Judge Thomas P. Agresti. After the parties consented to the bankruptcy court issuing findings of fact and conclusions of law without the need for a new trial, the court issued a Memorandum Opinion and Order on March 26, 2013, finding in favor of the Trustee and awarding a recovery of $428,868.12. See In re Wettach, 489 B.R. at 531. On November 12, 2013, the bankruptcy court awarded an additional $37,139.01 in prejudgment interest, resulting in a total award of $466,007.13. See Sikirica v. Wettach (In re Wettach ), Bankr.No. 05–38188–TPA, Adv. No. 07–2519, 2013 WL 5999167, at *8 (Bankr.W.D.Pa. Nov. 12, 2013).
The Wettachs appealed the bankruptcy court's decision to the U.S. District Court for the Western District of Pennsylvania. The 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.
We have jurisdiction over this appeal under 28 U.S.C. § 158(d)(1). "Because the District Court sat as an appellate court, reviewing an order of the Bankruptcy Court, our review of the District Court's determinations is plenary." SEC v. Bocchino (In re Bocchino ), 794 F.3d 376, 379 (3d Cir.2015) (quoting In re Heritage Highgate, Inc., 679 F.3d 132, 139 (3d Cir.2012) ). "In reviewing the Bankruptcy Court's determinations, we exercise the same standard of review as did the District Court." In re Heritage Highgate, Inc., 679 F.3d at 139. We therefore "review the Bankruptcy Court's legal determinations de novo and ... its factual determinations for clear error." In re Bocchino, 794 F.3d at 380.
The Bankruptcy Code grants the Trustee the power to "avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim...." 11 U.S.C. § 544(b)(1). Pennsylvania state law permits a creditor to avoid a fraudulent transfer "to the extent necessary to satisfy the creditor's claim." 12 Pa.C.S.A. § 5107(a)(1). However, the creditor can recover only for transfers made during the four-year "lookback" period preceding the date of filing the action. Id. § 5109. In this case, the bankruptcy court determined that the relevant lookback period ran from October 14, 2001, until October 14, 2005. In re Wettach, 489 B.R. at 509.
Relevant to this appeal are the Trustee's constructive fraudulent-transfer claims under 12 Pa.C.S.A. §§ 5104(a)(2)(ii), 5105. As the district court noted, under both provisions, "a direct deposit of wages into a jointly held bank account is generally considered to be a fraudulent transfer if the debtor was [ (a) ] insolvent at the time of the transfer and [ (b) ] the debtor failed to receive ‘reasonably equivalent value’ in return." Sikirica v. Wettach, 511 B.R. at 765. Thomas Wettach's insolvency is not at issue in this appeal. However, the Wettachs vigorously dispute whether there was "reasonably equivalent value" for the transfers. Because "[u]nder the PUFTA, entireties account funds used to pay for ‘reasonable and necessary household expenses' are not fraudulent[,]" Titus v. Shearer, 498 B.R. 508, 515 (W.D.Pa.2013), they argue that the bankruptcy court erred when it permitted the Trustee to recover based on funds in the entireties account allegedly used to pay for "necessary" expenditures.
The Wettachs purport to raise ten separate issues in their opening brief. Appellants' Br. 1–2. In addition to challenging the allocation of the burdens of persuasion and production for the Trustee's constructive fraudulent-transfer claims, they dispute various evidentiary findings by the bankruptcy court. Id. Furthermore, the Wettachs make a statutory-interpretation argument that the deposit of wages into an entireties account is not a "transfer" of an "asset" under Pennsylvania law. Id. at 2. However, two of the Wettachs' arguments are not developed in their opening brief: (a) that the Trustee breached his duties to the Court by failing to offer into the record an exhibit allegedly delineating the deposits into the entireties account, and (b) that the bankruptcy court erred by finding that the only deposits into the entireties account were Thomas Wettach's wages. Because these claims were not timely presented, we hold that the Wettachs have forfeited them.
For those issues not forfeited on appeal, we reject each of the Wettachs' arguments and affirm the order of the district court.
First, the Wettachs argue that the bankruptcy court "improperly shifted the burden of proof" to them to demonstrate that they used funds deposited into the entireties account to pay for necessities. Appellants' Br. 13. We review the allocation of the burdens of persuasion and production de novo, cf. United States v. Dodd, 225 F.3d 340, 343 (3d Cir.2000), and affirm the district court's order affirming the bankruptcy court.
We recognized in Koppers Co. v. Aetna Cas. & Sur. Co., 98 F.3d 1440, 1446 (3d Cir.1996), that, where state law provides the rule of decision, the allocation of the burden of proof is a matter of substantive state law. This rule applies even if, as here, the Court's subject-matter jurisdiction is not premised on diversity of the parties. See Hatco Corp. v. W.R. Grace & Co.—Conn., 59 F.3d 400, 406 (3d Cir.1995). However, the PUFTA "is silent on the issue of the burden of proof for constructive fraud claims." Fidelity Bond...
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