Opinion
Case No. 18-12585 Adv. No. 19-1009
10-08-2019
In re: SUZANNE BAIR Debtor EILEEN K. FIELD Plaintiff v. SUZANNE BAIR, ET AL. Defendant
Chapter 7
MEMORANDUM DECISION GRANTING MOTION TO DISMISS SUZANNE BAIR FROM THIS ADVERSARY PROCEEDING [Docket Number 11]
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334, and the standing General Order of Reference in this District.
This matter is before this Court on Defendant-Debtor Suzanne Bair ("Debtor")'s Motion to Dismiss Adversary Proceeding as to Debtor Suzann[e] Bair ("Motion to Dismiss") [Docket Number 11] and the Response [Docket Number 17] filed by Plaintiff Chapter 7 Trustee Eileen K. Field (the "Trustee"). For the reasons that follow, this Court grants the Motion to Dismiss Defendant-Debtor Suzanne Bair from this adversary proceeding.
I. FACTUAL AND PROCEDURAL BACKGROUND
On July 3, 2018, the Debtor filed her Chapter 7 bankruptcy petition. On February 18, 2019, the Trustee filed an adversary complaint captioned Adversary Complaint of Trustee (1) for Determination that Debtor's Transfer of Real Estate Located at 1800 Tanglewood Drive, Loveland Ohio was Fraudulent and (2) For Avoidance of Transfer or Recovery from Defendant of the Value of Debtor's Equity at Time of Transfer, Pursuant to O.R.C. Chapter 1336.01, Et Seq. [Adv. 19-1009, Docket Number 1] ("Complaint"). The Complaint names as defendants the Debtor, Suzanne Bair, and her son, David E. Bair, Jr. ("David Bair").
A. Trustee's Complaint
The following factual allegations are contained in the Complaint and, solely for purposes of the Motion to Dismiss, are considered true.
In May of 2014, the Debtor and her husband entered a land installment contract with Lavonne Hubers for the purchase of a home at 1800 Tanglewood Drive in Loveland, Ohio (the "Tanglewood Property"). The total purchase price was $230,000. The Debtor made the following payments towards the purchase:
$20,000 down at the time the contract was entered.
$10,000 down on July 16, 2014 (in conjunction with an extension).
Thereafter, on August 27, 2014, the Debtor and her husband entered into a one year lease of the Tanglewood Property with Hubers for $1,000 per month. The lease included an option to buy the property for $200,000. As part of the lease, the Debtor and her husband paid an $80,000 security deposit to Hubers that could be credited towards the purchase of the property.
On September 15, 2015, the term of the lease was extended for a six month period at the same rental rate of $1,000 per month.
On or about May 12, 2016, the Tanglewood Property was transferred from Hubers to the Debtor's son, David Bair. He executed a mortgage in favor of Park National Bank for $124,450 secured by the property. According to the Complaint, Hamilton County Auditor records reflect that the sale price was $230,000 and identified the owner as David Bair.
David Bair filed his own Chapter 7 bankruptcy petition on January 19, 2018 and listed ownership of the Tanglewood Property in his schedules. He valued the property at $230,000.
According to the Complaint, the Debtor received no consideration from David Bair for the transfer of the Tanglewood Property.
The Complaint includes one cause of action pursuant to Ohio Rev. Code § 1336.01, et al. for a fraudulent transfer. The Trustee asserts that the Debtor transferred the Tanglewood Property to David Bair, an insider, without receiving reasonably equivalent value and/or with an intent to hinder, delay and defraud creditors while the Debtor was insolvent. The Trustee seeks to avoid the transfer and/or recover the equity in the Tanglewood Property at the time of the transfer or the value thereof, plus fees and costs. The Trustee seeks this recovery from both defendants, David Bair and the Debtor, either jointly or severally.
B. Debtor's Motion to Dismiss and Trustee's Response
On June 6, 2019, Debtor filed her Motion to Dismiss [Docket Number 11]. She asserts that while 11 U.S.C. § 544 and Ohio Rev. Code § 1336.01, et al. allow for avoidance of a transfer or collection of the equivalent value from the transferee, the statutes provide no recovery from the transferor. Accordingly, the Debtor, as the transferor, is not a necessary party.
In her Response [Docket Number 17], the Trustee notes her concern that a cause of action to only avoid the transfer would cause the Tanglewood Property to either be returned to Hubers and/or there would be no equity to benefit the estate because of the liens against it. As such, the Trustee seeks either the return of the property to her, or, in the alternative, recovery of monetary damages of $110,000 from David Bair and/or the Debtor. She also argues that the Debtor can be held liable under the provision in Ohio Rev. Code § 1336.07(A)(3)(c) providing that a creditor may obtain "any other relief that circumstances may require."
II. LEGAL ANALYSIS
A. Legal Standard for a Motion to Dismiss
Although the Debtor does not mention the basis for her motion to dismiss, this Court construes it as one filed under Federal Rule of Civil Procedure ("Civil Rule") 12(b)(6), for failure to state a claim upon which relief can be granted. A motion to dismiss filed pursuant to Rule 12(b)(6) challenges the legal sufficiency of a complaint. In determining a motion to dismiss, the court must "'construe the complaint in the light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the plaintiff.'" Jones v. City of Cincinnati, 521 F.3d 555, 559 (6th Cir. 2008) (quoting Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007)). However, in determining such a motion, a court "need not accept as true legal conclusions or unwarranted factual inferences." Id.
Because a defendant is entitled to fair notice of what the plaintiff's claim is and the grounds upon which it rests, the plaintiff's factual allegations must be enough to raise a right to relief above the speculative level. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Consequently, to survive the filing of a motion to dismiss, the complaint "must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory." Varljen v. Cleveland Gear Co., Inc., 250 F.3d 426, 429 (6th Cir. 2001).
B. Remedies Following Avoidance of a Fraudulent Transfer Under 11 U.S.C. § 544(b)
A fraudulent transfer may be avoided by a bankruptcy trustee pursuant to either Bankruptcy Code Section 544(b), using a trustee's "strong-arm" powers to avoid such a transfer under state laws, or Bankruptcy Code Section 548. In this instance, the Trustee seeks to avoid the alleged transfer of the Tanglewood Property to David Bair under Section 544(b) and Ohio Rev. Code § 1336.01, et al. also known as the Ohio Uniform Fraudulent Transfer Act or Ohio UFTA. In her claim for relief, the Trustee seeks not only avoidance of the transfer but recovery of the property or its value.
Unless otherwise indicated, the terms "Bankruptcy Code," "Section" and "§" refer to Title 11 of the United States Code, 11 U.S.C. § 101 et seq.
At issue is whether the Trustee may maintain her claim for relief only against the alleged transferee, David Bair, or also against the Debtor as the alleged transferor. The Trustee asserts that, upon avoidance of a transfer, the Ohio UFTA provides remedies that she may utilize. She theorizes that the broad language "any other relief that circumstances may require," as stated in the remedies provision of the Ohio UFTA, allows her to pursue a claim against the Debtor for the transferred property or its value. See Ohio Rev. Code § 1336.07(A)(3)(c).
The Trustee is mistaken. It is the Bankruptcy Code, and not state law, that sets forth a Trustee's remedies following the avoidance of a transfer under Section 544(b). Meoli v. Huntington Nat'l Bank (In re Teleservices Group, Inc.), 469 B.R. 713, 761 (Bankr. W.D. Mich. 2012). Specifically, Bankruptcy Code Section 550 provides that, upon avoidance of a transfer, the property, or its value, may be recoverable from certain entities to benefit the estate:
(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from—
(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or
(2) any immediate or mediate transferee of such initial transferee.
(b) The trustee may not recover under section (a)(2) of this section from—
11 U.S.C. § 550(a) and (b).(1) a transferee that takes for value, including satisfaction or securing of a present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided; or
(2) any immediate or mediate good faith transferee of such transferee.
While Section 550(a) provides for recovery from certain transferees or beneficiaries of an avoided transfer, it lacks any language providing for recovery from the transferor. Accordingly, Section 550(a) has been interpreted as excluding from its scope a debtor-transferor even if the debtor benefits from the transfer. See Coggin v. Coggin (In re Coggin), 30 F.3d 1443, 1453-54 (11th Cir. 1994) (examining the language, its apparent purpose, economic realities, and the contextual sense of the statutory scheme to conclude that "there is no cause of action created by section 550(a)(1) in a trustee to recover the value of an avoidable conveyance from a transferring debtor") abrogated on other grounds by Kontrick v. Ryan, 540 U.S. 443 (2004); Campbell v. Hanckel (In re Hanckel), 512 B.R. 539, 551-52 (Bankr. D. S.C. 2014) (concluding that, upon avoidance under § 544 or § 548, recovery of the transferred property from the initial transferee is appropriate under § 550(a)(1); however, there is no basis for entering judgment against a debtor-defendant); Higgason v. Staley (In re Earnest), 2014 Bankr. LEXIS 647, at *8-9, 2014 WL 640986, at *3-4 (Bankr. E.D. Ky. Feb. 18, 2014) (holding that there is no claim under § 550(a) against the transferor); Huon Le v. Krepps (In re Krepps), 476 B.R. 646, 651-52 (Bankr. S.D. Ga. 2012); In re Fleming, 424 B.R. 795, 801 (Bankr. W.D. Mich. 2010) (agreeing with Coggin that "Section 550(a)(1)'s syntax does seem to limit the referenced beneficiary to only those whom the transferor intended to indirectly benefit from the transfer as opposed to the transferor himself"); Bohm v. Dolata (In re Dolata), 306 B.R. 97, 144 (Bankr. W.D. Pa. 2004).
Because the Trustee has provided no basis for recovery from the Debtor as transferor, this Court will grant the Debtor's Motion to Dismiss.
WHEREFORE, the Motion to Dismiss [Docket Number 11] is GRANTED and Defendant-Debtor Suzanne Bair is DISMISSED from this adversary proceeding.
SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/_________
Beth A. Buchanan
United States Bankruptcy Judge
Dated: October 8, 2019
Distribution List:
Eileen K. Field, Esq.
Christine B. Hill, Esq.
Robert A. Goering, Esq.
Jeffrey M. Nye, Esq.
Paul T. Saba, Esq.