Opinion
Case No. 19-31851 Adv. No.20-3004
2021-03-15
IN RE: Carroll Marcellus WYMAN Judy Ella Wyman, Debtors. Erin C. Renneker, Chapter 7 Trustee, Plaintiff, v. Judy Ella Wyman, Defendant.
Stephen J. Malkiewicz, West Law Office, Springboro, OH, for Debtors.
Stephen J. Malkiewicz, West Law Office, Springboro, OH, for Debtors.
DECISION ON PARTIES’ MOTIONS FOR SUMMARY JUDGMENT (DOCS. 16 & 17) IN ADVERSARY PROCEEDING, AND TRUSTEE'S OBJECTION TO MOTOR VEHICLE AND WILDCARD EXEMPTIONS IN ESTATE CASE
Guy R. Humphrey, United States Bankruptcy Judge I. Introduction
This adversary proceeding and its related contested matter arise out of the objection of Erin C. Renneker, the Chapter 7 trustee (the "Trustee") to debtor Judy Wyman's ("Judy") exemption in a motor vehicle, raise issues of whether Judy and her husband Carroll Wyman ("Carroll") engaged in permissible pre-bankruptcy exemption planning when Carroll transferred the title of a motor vehicle from his name to a joint title with Judy, and if that transfer may be avoided as either an actual or constructive fraudulent transfer. The proceeding and contested matter involve the intersection of the law concerning exemptions and fraudulent conveyances.
Carroll died on December 22, 2019. Estate Doc. 36.
For the reasons to be explained, a material issue of fact exists as to Carroll's intent in transferring the vehicle, precluding summary judgment on the Trustee's actual fraudulent conveyance claim under 11 U.S.C. § 548(a)(1)(A). However, the Trustee is entitled to judgment against Judy under § 548(a)(1)(B) avoiding the transfer of the one-half interest conveyed by Carroll to Judy as constructively fraudulent. A material issue of fact also exists as to the value of the vehicle on the date of transfer and, therefore, the court will not enter judgment pursuant to 11 U.S.C. § 550(a)(1) until the value of the vehicle is established at trial or otherwise. The court denies the Trustee's objection to Judy's motor vehicle and wildcard exemptions. Judy's motion for summary judgment is also denied.
II. Factual and Procedural Background
In January 2017 Carroll purchased a 2011 Chevy Tahoe for $17,031.70 (the "vehicle"). Stipulation of Facts at ¶ 7 (doc. 13) ("Stipulations"). From the time it was acquired until May 29, 2019, Carroll was listed as the sole owner on the certificate of title. Stipulations at ¶ 8. Then on May 29th, approximately one week before the petition date, Carroll transferred title to the vehicle into the joint names of Carroll and Judy. Stipulations at ¶ 9; Exhibit 2. Judy paid Carroll no consideration for the transfer of the one-half interest in the vehicle. Stipulations at ¶ 10. Since the time title was transferred into their joint names, Judy has been listed as the primary driver on the vehicle insurance. Affidavit of Judy, Exhibit B at ¶ 4 (Doc. 17). After Carroll retired due to health issues, Judy was the only member of the household required to drive to her place of employment and the vehicle was the only source of transportation for the household. Id. at ¶¶ 2, 4. Judy has used the vehicle in her employment as a driver delivering newspapers. Id. at ¶ 4.
On June 8, 2019 Carroll and Judy filed their joint Chapter 7 bankruptcy petition initiating this case. Estate Doc. 1. They scheduled an interest held by Carroll in their residence, which they intended to surrender, with a value of $159,500 and a secured claim against it in the amount of $203,094. Id . at 10, 18. They also scheduled an interest in the vehicle, noting that it had 267,000 miles on it and a value of $9,100. Id. at 11. The remainder of their property interests were scheduled as totaling approximately $10,000. Id. at 15. Carroll and Judy claimed two exemptions in the vehicle: $8,000 ($4,000 each) pursuant to Ohio Revised Code § 2329.66(A)(2) – the Ohio motor vehicle exemption – and an additional exemption of $1,100 pursuant to § 2329.66(A)(18) – the Ohio wildcard exemption. Id. at 16-17. Judy and Carroll are entitled to a $4,000 motor vehicle exemption under § 2329.66(A)(2), and a wildcard exemption of $1,325 under § 2329.66(A)(18) to the extent they each owned an interest in the vehicle. In McVicker , 546 B.R. 46, 60 n. 23 (Bankr. N.D. Ohio 2016) ; In re Gazvoda , Case No. 10-20715, 2011 WL 2946171, at *1–2, 2011 Bankr. LEXIS 2786, at *3-4 (Bankr. N.D. Ohio July 21, 2011).
It appears that Carroll and Judy claimed less than the full wildcard exemption because they valued the vehicle at $9,100 on Schedule A/B. Estate Doc. 1 at 11.
On September 12, 2019 the Trustee filed an objection to Carroll and Judy's claims of exemptions in the vehicle. Estate Doc. 17. The Trustee's objection asserts that the transfer by Carroll of the vehicle from his name to he and Judy constituted a fraudulent conveyance of the one-half interest conveyed to Judy. Judy and Carroll filed a response to the Trustee's objection to the exemptions asserted in the vehicle. On January 17, 2020 the Trustee filed the adversary proceeding alleging that an intentional and constructively fraudulent transfer took place when Carroll transferred title to the vehicle into their joint names. Adv. Doc. 1.
Both the Trustee and Judy have filed motions for summary judgment in the adversary proceeding. Adv. Docs. 16, 17.
III. Positions of the Parties
Judy contends that she and Carroll always considered that they both owned the vehicle, and that Judy was the primary driver. Judy contends that she was added to the vehicle title out of "an abundance of caution prior to the filing" because the vehicle was the only one in the household and was essential to her employment. Adv. Doc. 17 at 4. To show ownership of a vehicle in Ohio, an individual's name generally must be on the certificate of title. Ohio Rev. Code § 4505.04. Therefore, it is Judy's position that she was added to the title pre-petition to ensure she would retain the vehicle. Judy contends the title transfer was permissible pre-bankruptcy exemption planning and not a fraudulent transfer as she did not intend to deceive, harm, or defraud creditors.
Case law pertaining to Ohio debtors and Ohio motor vehicle titles provides that a debtor may not claim an exemption in a motor vehicle unless the debtor is listed as an owner of the vehicle on the vehicle's title. See In re Toland , 346 B.R. 444, 449 (Bankr. N.D. Ohio 2006) ; In re Whitt , 534 B.R. 320 (Bankr. N.D. Ohio 2015).
The Trustee's position is that the transfer of the vehicle constitutes both an actual and a constructively fraudulent transfer of Carroll's interest to Judy, and the value of the transferred interest is recoverable for the bankruptcy estate.
IV. Analysis
A. Jurisdiction
This court has jurisdiction pursuant to 28 U.S.C. § 1334(b) and Amended General Order 05-02 of the United States District Court for the Southern District of Ohio. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(H) and (O), and this court has constitutional authority to enter final judgment by the knowing and voluntary consent of the parties. Doc. 7. Wellness Int'l Network, Ltd. v. Sharif , 575 U.S. 665, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015). B. Summary Judgment Standard
Federal Rule of Civil Procedure 56(a), made applicable to this adversary proceeding through Federal Rule of Bankruptcy Procedure 7056, sets forth the standard to address the parties' filings. It states, in part, that a court must grant summary judgment to the moving party "if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In order to prevail, the movant, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587–88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
C. Analysis of the Applicable Law
1. Separate Estates, But Jointly Administered, With the Same Trustee
Only an individual and the individual's spouse may file a joint bankruptcy petition. 11 U.S.C. § 302. However, as the Trustee aptly points out, unless the court orders otherwise, while joint cases are usually administered jointly, a joint debtors' bankruptcy estates, unless consolidated, are to remain separate. See Fed. R. Bankr. P. 1015(b) ; Reider v. FDIC (In re Reider ), 31 F.3d 1102, 1105 (11th Cir. 1994) ; In re Toland , 346 B.R. 444, 449 (Bankr. N.D. Ohio 2006). While only one trustee is generally appointed over joint cases, Rule 1015(b) provides that separate trustees may be appointed for each estate in a joint case to protect "creditors of different estates against potential conflicts of interest." Fed. R. Bankr. P. 1015(b).
While the Trustee acknowledges that the estates are separate, the estate for which she is seeking relief is not identified:
The Vehicle at issue is a rapidly depreciating asset for which turn over and liquidation would not restore the bankruptcy estate to same position it held had the Transfer nine days prior to the bankruptcy filing not taken place...Further, a sale of the diminished asset would incur further expense to the estate and reduce the dividend available to unsecured creditors ... A monetary judgment to the Trustee would place the estate in the same position it held absent the transfer. A judgment for the non-exempt equity of $5,175.00 in the Vehicle would save the estate money and provide a guaranteed return to Debtor's creditors .
Adv. Doc. 24 at 4 (emphasis added). The estate which would benefit from the Trustee's course of action, and which must be the "estate" referenced in the above-quoted paragraph, would be Carroll's estate. Similarly, any "guaranteed return" would need to be to Carroll's creditors, not to Judy's separate creditors. By seeking to avoid the transfer of the one-half interest in the vehicle to Judy, the Trustee is seeking to recover that interest after the exemption is applied, or in the alternative, a monetary judgment against Judy for the value of the interest transferred. Because if the one-half interest in the vehicle would remain in Judy's bankruptcy estate it would be fully exempt, or in the alternative, if a monetary judgment was rendered it would be directly against Judy (and not her bankruptcy estate), the court finds that no actual conflict exists arising out of the Trustee's service as the trustee in both bankruptcy estates.
Carroll's and Judy's schedules reflect individual debts of Carroll, individual debts of Judy, and joint debts. Similarly, there are individual assets and joint assets. The mortgage debt related to the surrendered and abandoned residential property (1213 Pine Knoll Court, Miamisburg, Ohio) was scheduled as solely being owned by Carroll, as well as the debt associated with that property. There were 10 proofs of claim filed by creditors. Of those 10 proofs of claim filed, claims 1, 2, and 6 appear to be individual debts of Carroll ($834.02; $14,843.20; and $137.60). Claims 8 and 9 appear to be joint credit card debt ($1,393 and $2,050.18). Claims 4, 5, and 7 are joint tax liabilities (City of Miamisburg $657 priority and $674.20 nonpriority; Internal Revenue Service $51,176.02 nonpriority; and State of Ohio ($194.43 priority and $11,473.50 nonpriority)). The court was unable to determine whether Claims 3 ($649.41) and 10 ($20) were joint or individual debts.
The following recitation in In re Hurt exemplifies the precarious nature of a trustee in a joint case suing one of the debtors to recover an alleged avoidable transfer from that debtor on behalf of the estate for the other joint debtor:
When the court asked the Trustee in closing argument about the avoidance of Mrs. Hurt's interest in the bank account for the benefit of Mr. Hurt's estate, the Trustee responded that he would not sue one joint estate for recovery from the other joint estate. Transfers between spouses in joint cases present additional procedural problems because the trustee must also consider whether he must lift the stay in one case to pursue the transfer made by the other joint debtor or whether there is any creditor who would actually benefit from such litigation.
542 B.R. 798, 804 (Bankr. E.D. Tenn. 2015).
2. The Exemption Scheme
a. 11 U.S.C. § 522
The debtor's interests in property of any nature to create the bankruptcy estate, and those property interests are known as "property of the estate." See 11 U.S.C. § 541(a) ; Rousey v. Jacoway , 544 U.S. 320, 325, 125 S.Ct. 1561, 161 L.Ed.2d 563 (2005). However, debtors may exempt certain property interests to help them obtain a fresh start. Clark v. Rameker , 573 U.S. 122, 124, 134 S.Ct. 2242, 189 L.Ed.2d 157 (2014) (citing Rousey , 544 U.S. at 325, 125 S.Ct. 1561 ). For example, within certain monetary limits, a debtor may exempt her car or home from liquidation by the bankruptcy trustee. Rousey , 544 U.S. at 325, 125 S.Ct. 1561. A debtor's right to claim exemptions in property is determined as of the petition date. White v. Stump , 266 U.S. 310, 313, 45 S.Ct. 103, 69 L.Ed. 301 (1924) ; In re Wengerd , 453 B.R. 243, 250 (B.A.P. 6th Cir. 2011) ; In re Kyle , 510 B.R. 804, 809 (Bankr. S.D. Ohio 2014). And in a joint case, such as this one, each debtor is entitled to claim separate exemptions. 11 U.S.C. § 522(m) ; Ohio Rev. Code § 2329.66(A) ("Every person who is domiciled in this state may hold property exempt ...").
Section 522 provides exemptions which may be claimed in a bankruptcy case. Under subsections (b)(2) and (b)(3), exemptions claimed may be either the federal exemptions listed in § 522(d), or the state law exemptions if the particular state opted out of the federal bankruptcy exemptions. 11 U.S.C. § 522(b). Ohio has opted out of the federal exemptions to the fullest extent that it may do so. See 11 U.S.C. § 522(b)(3)(A) ; Ohio Rev. Code § 2329.662 ; Storer v. French (In re Storer ), 58 F.3d 1125, 1130 (6th Cir. 1995). b. The Ohio Exemptions
However, despite Ohio having opted out of the federal exemptions, certain provisions of § 522 still apply to Ohio debtors. For example, exemptions applicable to debtors in opt-out states for retirement accounts are exempt from taxation under §§ 401 and 403 and other provisions of the Internal Revenue Code. 11 U.S.C. § 522(b)(3)(C). With limited exceptions, property that is held exempt shall not be liable for the payment of any administrative expense. 11 U.S.C. § 522(k). The exempt value in a homestead shall be reduced by any nonexempt property which the debtor disposed of during the previous 10 years and converted into equity in the residence by reinvesting those proceeds in the homestead residence. 11 U.S.C. § 522(o). A debtor is prohibited from claiming a homestead exemption exceeding $170,350 if the debtor: a) acquired the homestead over the 1215 day period preceding the filing of the bankruptcy case, but excluding family farmers and rollover equity from a prior residence owned by the debtor in the same state; or b) was convicted of certain federal felonies which demonstrate that the filing of the case was an abuse of the Code. 11 U.S.C. § 522(p) and (q).
Most of Ohio's exemptions are contained within Ohio Revised Code § 2329.66. As mentioned, the two exemptions at issue are the motor vehicle exemption provided by § 2329.66(a)(2) which exempts "[t]he person's interest, not to exceed three thousand two hundred twenty-five dollars, in one motor vehicle", and the wildcard exemption of § 2329.66(a)(18) which exempts "[t]he person's aggregate interest in any property, not to exceed one thousand seventy-five dollars." Other than her claim that the transfer to Judy of the one-half interest in the vehicle is an avoidable fraudulent conveyance, the Trustee has not asserted any other basis for denying Judy's claim of exemptions in the vehicle.
Ohio law provides for adjustment of this exemption amount:
On April 1, 2010, and on the first day of April in each third calendar year after 2010, the Ohio judicial conference shall adjust each dollar amount set forth in this section to reflect the change in the consumer price index for all urban consumers, as published by the United States department of labor, or, if that index is no longer published, a generally available comparable index, for the three-year period ending on the thirty-first day of December of the preceding year.
Ohio Rev. Code § 2329.66(B). The adjusted dollar amounts do not appear in the text of the statute; however, that information may be accessed by visiting the Ohio Judicial Conference website. Ohio Judicial Conference, http://www.ohiojudges.org/resources/publications (follow "Exemptions" hyperlink). At the time that Carroll and Judy filed their bankruptcy petition, the adjusted dollar amounts for the motor vehicle exemption was $4,000, and for the wild card exemption was $1,325. These figures became effective on April 1, 2019.
Ohio exemptions are to be construed liberally on behalf of the debtor. Daugherty v. Cent. Trust Co. of Ne. Ohio, N.A. , 28 Ohio St.3d 441, 504 N.E.2d 1100, 1103 (1986) ; Baumgart v. Alam (In re Alam ), 359 B.R. 142, 147-48 (B.A.P. 6th Cir. 2006) (applying Ohio law) ; In re Wycuff, 332 B.R. 297, 300 (Bankr. N.D. Ohio 2005) (exemptions to be liberally construed in favor of the debtor "to effectuate [the statute's] remedial purpose: affording the debtor life's basic necessities"). The purposes of exemptions are: "(1) providing the debtor with that property which is necessary for their survival; (2) enabling the debtor to rehabilitate themselves; and (3) protecting the debtor's family from the adverse effects of impoverishment." In re McVicker , 546 B.R. 46, 60 (Bankr. N.D. Ohio 2016) (quoting In re Felgner , No. 11-32274, 2011 Bankr. LEXIS 4118 at *4, 2011 WL 5056994 at *2 (Bankr. N.D. Ohio Oct. 24, 2011) ). The homestead exemption has been said to prevent debtors from being "forced to sell their residence to satisfy creditors, potentially leaving the debtor homeless, shifting the costs of the debtor's care, at least temporarily, onto housing shelters or government programs[.]" In re Way , No. 12-60209, 2014 Bankr. LEXIS 3985, at *8, 2014 WL 4658745, at *3 (Bankr. N.D. Ohio Sept. 17, 2014). Similarly, the motor vehicle exemption can be said to prevent debtors from losing their means of transportation to their jobs, healthcare, food markets, and many other places vital to their well-being and, also, helping to alleviate or decrease their need to rely upon government programs for their support and maintenance. Therefore, exemptions play a vital role not only in the bankruptcy system, but also in the functioning of society.
Like the federal exemptions, the Ohio exemptions also contains exceptions to their applicability. For example, exemptions exist for pensions, benefits, annuities, retirement allowances, accumulated contributions, and deferred compensation programs offered by the state of Ohio and any state governmental unit or municipal corporation. Ohio Rev. Code § 2329.66(A)(10)(a). However, it provides exceptions to that exemption, including for theft in office and other felonies committed while serving in a public position and orders of domestic relations courts providing for marital distributions. Similarly, Ohio provides an exemption for payments received from a stock bonus or profit-sharing plan on account of illness, disability, death, age, or length of service and provides similar exceptions. Ohio Rev. Code. § 2329.66(A)(10)(b). In addition, Ohio exempts payments and benefits under Individual Retirement Accounts and Keogh accounts, with the following exceptions: "... any portion of the assets that were deposited for the purpose of evading the payment of any debt and except as provided in sections 3119.80, 3119.81, 3121.02, 3121.03, and 3123.06 of the Revised Code[.]" Ohio Rev. Code § 2329.66(A)(10)(c) and (d). Exemptions exist for most personal injury settlements. Ohio Rev. Code § 2329.66(A)(12)(c) and (d). Similarly, wages, to a defined amount, are exempt. Ohio Rev. Code § 2329.66(A)(13).
Much like the federal exemption scheme, Ohio has adopted an extensive exemption scheme with numerous exemptions protecting debtors with particular exceptions to those exemptions for limited situations.
3. Law v. Siegel and Its Progeny
In 2014 the Supreme Court decided Law v. Siegel , 571 U.S. 415, 134 S.Ct. 1188, 188 L.Ed.2d 146 (2014). In Siegel the lower courts permitted the Chapter 7 trustee to surcharge and recover from the debtor's equity in his residence substantial expenses incurred by the trustee in establishing that a mortgage lien on the debtor's residence was fraudulently placed on the property by the debtor. Id. at 419-20, 134 S.Ct. 1188. These expenses otherwise would have been subsumed by the debtor's homestead exemption. Id. The lower courts found that there was a bad faith basis to allow the exempt value in the residence to be invaded by the trustee. Id. The Court reversed the lower courts, finding that a bad faith or equitable exception to exemptions did not exist, stating:
[Section] 522 sets forth a number of carefully calibrated exceptions and limitations, some of which relate to the debtor's misconduct. For example, § 522(c) makes exempt property liable for certain kinds of prepetition debts, including debts arising from tax fraud, fraud in connection with student loans, and other specified types of wrongdoing. Section 522(o) prevents a debtor from claiming a homestead exemption to the extent he acquired the homestead with nonexempt property in the previous 10 years "with the intent to hinder, delay, or defraud a creditor." And § 522(q) caps a debtor's homestead exemption at approximately $150,000 (but does not eliminate it entirely) where the debtor has been convicted of a felony that shows "that the filing of the case was an abuse of the provisions of" the Code, or where the debtor owes a debt arising from specified wrongful acts—such as securities fraud, civil violations of the Racketeer Influenced and Corrupt Organizations Act, or "any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual in the preceding
5 years." § 522(q) and note following § 522. The Code's meticulous—not to say mind-numbingly detailed—enumeration of exemptions and exceptions to those exemptions confirms that courts are not authorized to create additional exceptions.
Id. at 424. The Court went on to state that "[i]t is of course true that when a debtor claims a state-created exemption, the exemption's scope is determined by state law, which may provide that certain types of debtor misconduct warrant denial of the exemption." Id. at 425, 134 S.Ct. 1188 (italics in original). The court emphasized that "federal law provides no authority for bankruptcy courts to deny an exemption on a ground not specified in the Code." Id. (italics in original). Finally, the court noted that:
We acknowledge that our ruling forces Siegel to shoulder a heavy financial burden resulting from Law's egregious misconduct, and that it may produce inequitable results for trustees and creditors in other cases. We have recognized, however, that in crafting the provisions of § 522, "Congress balanced the difficult choices that exemption limits impose on debtors with the economic harm that exemptions visit on creditors." The same can be said of the limits imposed on recovery of administrative expenses by trustees. For the reasons we have explained, it is not for courts to alter the balance struck by the statute.
Id. at 426-27 (citations omitted).
a. Ellmann v. Baker
Following Law v. Siegel , the Sixth Circuit decided Ellmann v. Baker (In re Baker) , 791 F.3d 677 (6th Cir. 2015). In Baker , the debtors' residence was foreclosed upon pre-petition. Id. at 679. The debtors did not schedule this house, or any cause of action relating to it, or the foreclosure. Id. After they obtained a Chapter 7 discharge and their case was closed, the debtors sued the holder of the sheriff's deed to the property and its legal counsel. Id. at 680. The case lasted over four years. Id. Upon discovering this lawsuit, the trustee was granted permission to reopen the bankruptcy case to administer that cause of action as property of the bankruptcy estate. Id. The debtors then amended their schedules to add the cause of action and to claim a wildcard exemption in it. Id.
The trustee objected to the amendment of the debtors' schedules to add the exemption in the cause of action, asserting that: 1) the debtors' delinquent omission of the cause of action on their schedules interfered with the trustee's administration of the bankruptcy estate; (2) the debtors concealed the cause of action; (3) the exemption claims were asserted in bad faith; and (4) even if they did not know about the cause of action when the bankruptcy case was closed, the debtors nevertheless needed to amend their schedules sooner to include the cause of action. Id. The trustee eventually settled the cause of action and the bankruptcy court denied the trustee's objection to the wildcard exemption in part because Law v. Siegel prohibited the denial of exemptions on bad faith or equitable grounds. Id. On appeal, the trustee argued that Siegel did not apply to a case which was closed and for which the debtors were seeking to reopen the case to add an omitted asset and claim of exemption, relying on Lucius v. McLemore , 741 F.2d 125 (6th Cir. 1984), which permitted courts to deny motions to amend exemptions if the debtor attempted to conceal the related property or acted in bad faith. Id. at 681. The Sixth Circuit affirmed the bankruptcy court's decision and noted that to the extent Lucius conflicts with Siegel , it has been effectively overruled. Id. at 682-83. The court held that "under Siegel , bankruptcy courts do not have authority to use their equitable powers to disallow exemptions or amendments to exemptions due to bad faith or misconduct." Id. at 683.
While the Sixth Circuit recognized that some courts view the Supreme Court's discussion concerning the prohibition of the denial of exemptions on bad faith or other equitable grounds as dicta, since the case concerned the surcharging of an exemption as opposed to its disallowance, the court noted that "[l]ower courts are obligated to follow Supreme Court dicta, particularly where there is not substantial reason for disregarding it, such as age or subsequent statements undermining its rationale." Ellmann v. Baker (In re Baker) , 791 F.3d 677, 682 (6th Cir. 2015).
b. In re Hurt
Following Law v. Siegel and Ellmann , was the bankruptcy court decision of In re Hurt , 542 B.R. 798 (Bankr. E.D. Tenn. 2015). In Hurt the Chapter 7 trustee objected to the exemption claimed by the debtor wife in funds held in a bank account that was solely her account. Id. at 799. The account was opened three days before the joint bankruptcy case was filed by Mr. and Mrs. Hurt, with funds obtained by Mr. Hurt from the sale of a piece of real estate which he and his brother inherited. Id. at 800. The debtors opened one account in his name and one account in her name and split the proceeds from the inherited real estate between the two accounts. Id. Tennessee is an "opt out" state and has a $10,000 per debtor personal property exemption which each debtor claimed in their respective bank accounts. Id. at 804-05. The trustee only objected to the wife's claim of exemption in the funds in her account and asserted three bases for denying the exemption: 1) the deposit in the wife's account was a transfer by Mr. Hurt which was a fraud on his creditors recoverable under §§ 548 and 551 ; 2) the Tennessee personal property exemption statute did not allow an item obtained under such circumstances to be exempted; and 3) the debtor wife's exemption claim was fraudulently asserted. Id. at 799. See Fed. R. Bankr. P. 4003(b)(2) ("trustee may file an objection to a claim of exemption at any time prior to one year after the closing of the case if the debtor fraudulently asserted the claim of exemption."). With respect to the first argument, the court found that Mr. Hurt did not intend to defraud his creditors in opening the two separate accounts, but did so assuming the proceeds were joint marital property and that the Hurts were otherwise engaged in permissible exemption planning, citing Ellmann v. Baker and Law v. Siegel . Id. at 800-04. With respect to the second argument as to the Tennessee exemption statute precluding the use of the exemption, the court cited the statute which prohibits the exempting of assets acquired with fraudulently obtained funds:
An item shall not be eligible, in whole or in part, for the personal property exemption provided by this part, if the item has been purchased with or maintained by fraudulently obtained funds, or if ownership of the item has been maintained using fraudulently obtained funds. A court shall be required to find by a preponderance of evidence that an item was purchased with or maintained by funds obtained by defrauding another person or that ownership of an item was maintained by funds obtained by defrauding another person in order to disqualify the item from eligibility for the personal property exemption.
Tenn. Code § 26-2-103(b). Id. at 805. While the court found that the trustee met his burden of proving a prima facie case, after the debtors put on their defense and the court weighed the evidence, it ultimately determined that the trustee did not carry his burden of proving by a preponderance of the evidence that the opening of the separate accounts with the proceeds split between the two accounts was done fraudulently. Id. at 807-08. Accordingly, the court rejected all of the trustee's arguments for denying Mrs. Hurt's exemption on the funds held in the bank account established in her name. Id. at 808.
Ohio does not have a comparable statute.
However, in denying the trustee's objection, the court explained that allowing exemptions under circumstances such as in Hurt does not open the flood gates to exemptions being created through fraudulently transferred property:
This court's ruling that the Bankruptcy Code allows even property fraudulently transferred to be the subject of an exemption raises concerns that debtors are being given a green light to commit fraud. However, the Trustee is not left without any remedy against intentional fraudulent transfers made in contemplation of bankruptcy. The Bankruptcy Code still provides remedies to defrauded creditors including the denial of discharge under 727(a)(1) or the dischargeability of a particular debt under section 523(a)(2), dismissal of the case, or, if the fraud was in connection with the transfer of an asset, avoidance of the transfer and recovery of the asset. The debtor may temporarily gain a $10,000 exemption but find her ownership interest avoided and subject to turn over. She may face a judgment for the value of the transfer under 11 U.S.C. §§ 548 and 550(a) which is no longer dischargeable. The limitations on the amount of exemptions will also serve as a governor on run away debtors.
Id . at 804. (citation omitted).
c. Goodrich v. Fuentes
Goodrich v. Fuentes , CV-15-2080-MWF, 2015 U.S. Dist. LEXIS 192763 (C.D. Cal. Sept. 23, 2015), aff'd 687 Fed. Appx. 542 (9th Cir. 2017), followed Siegel, Baker, and Hurt . Fuentes involved the issue of "whether a fraudulent transferee spouse is entitled to a homestead exemption in property fraudulently transferred by his spouse, who is a Chapter 7 debtor in a separate bankruptcy case." Id . at *1. Debtor Rudy Fuentes' wife, Aida Fuentes, originally owned the property in question in her sole name as her sole property. Id. at *2. In 2011, five years after marrying Rudy, she conveyed the property to him. Id. They both continuously resided in the property. Id. In 2013 Aida filed a Chapter 7 bankruptcy case. Id. The trustee of her estate pursued the conveyance to Rudy as a fraudulent transfer and the bankruptcy court found that it was a fraudulent conveyance. Id. at *3-4. In 2014 Rudy filed his own Chapter 7 bankruptcy and asserted a possessory homestead exemption claim against the property under California law, to which the trustee objected. Id. The trustee asserted that Rudy could not assert an exemption in property that was fraudulently conveyed to him. Id. at *4. The Bankruptcy Court rejected this contention, stating that:
[E]ven though the Court has determined that the Trustee is entitled to judgment as a matter of law, thereby avoiding the Transfer as a constructively fraudulent transfer, the Court does not find that Debtor loses his right to the claimed homestead exemption in light of Debtor's continuous residency in the Property. Under § 541(a)(1), "property of the estate" includes "all legal or equitable interests of the debtor." 11 U.S.C. § 541(a)(1). Trustee Goodrich has not demonstrated how Debtor's possessory interest would not fall within the broad category of an equitable interest.
Id. at *5. The Bankruptcy Court also found that "neither Debtor's receipt of an allegedly fraudulently transferred deed, Debtor's claim of a homestead exemption in fraudulently transferred property, nor Debtor's bankruptcy filing to protect the Property from avoidance provides a sufficient basis to deny Debtor's claimed homestead exemption." Id at *5-6. Finally, the Bankruptcy Court held that, under Siegel , a bankruptcy court could not deny an exemption for bad faith absent an appropriate statutory basis, and no basis existed under California law to deny it. Id. at *6.
On appeal to the District Court, the trustee asserted that "by allowing the homestead exemption of $175,000 of the fraudulent transferee in this case, the Bankruptcy Court sustained the positive fraud of Rudy and Aida Fuentes, and contravened the policies of the Bankruptcy Code and the purpose and intent of section 522(g) and section 548, along with various provisions of California law" and "if upheld, the Bankruptcy Court's decision would provide debtors with a blueprint for insulating certain fraudulent transfers to third parties, and would discourage trustees from pursuing fraudulent transfers." Id. at *17. The trustee argued that the policy behind § 522(g)(1), which prohibits a debtor taking an exemption in property which the debtor voluntarily transfers and which the trustee recovers for the benefit of the bankruptcy estate, supported denying the homestead exemption to Rudy and permitting the exemption would just allow debtors like Aida to skirt § 522(g)(1) by obtaining the benefit of the exemption through their spouse. Id. The District Court rejected these arguments holding that "in the absence of case law directly addressing the question of whether a fraudulent transfer can invalidate the transferee's claimed exemption, the Court finds the reasoning of these cases instructive. While both cases [ Siegel and Elliott v. Weil (In re Elliott) , 523 B.R. 188 (B.A.P. 9th Cir. 2014) ] specifically address bad faith, their articulation of the rule is actually much broader." Id. at *21. The court then went on to explain that the Supreme Court "made clear that while ‘[a] debtor need not invoke an exemption to which the statute entitles him; [ ] if he does, the court may not refuse to honor the exemption absent a valid statutory basis for doing so.’ " Id. at *22. The trustee further argued that allowing an exemption in property fraudulently transferred to the debtor would conflict with the Uniform Fraudulent Transfer Act and the Bankruptcy Code's fraudulent transfer section, § 548. Id. at 24. The court also rejected those arguments, finding that the trustee "failed to establish that Rudy Fuentes actually violated any provision that specifically limits a claimed exemption, and therefore they cannot form the basis for such an invalidation here." Id. at *24-25 (italics in original). Consequently, the District Court affirmed the bankruptcy court's allowance of Rudy's homestead exemption despite Rudy having received his interest in the property through a fraudulent conveyance.
The Ninth Circuit affirmed the District Court, finding that without "a valid statutory basis for doing so," the bankruptcy court could not "refuse to honor" the exemption and the trustee failed to elicit any such statutory basis or other federal or state law ground for denying the exemption. Goodrich v. Fuentes (In re Fuentes) , 687 Fed. Appx. 542, 544-45 (9th Cir. 2017) (quoting Law v. Siegel , 571 U.S. 415, 424, 134 S.Ct. 1188, 188 L.Ed.2d 146 (2014) ).
d. In re Rosich
The Bankruptcy Court for the Western District of Michigan confronted a similar situation in the case of Carol K. Rosich , Case No. 13-06483, which spawned a number of reported decisions on various issues. The debtor transferred a piece of real estate from herself or a revocable trust to herself and her husband, who did not file a bankruptcy petition, through a deed which created an estate by the entireties. The trustee pursued the conveyance as a fraudulent conveyance and objected to exemptions claimed by the debtor, but initially did not object to the homestead exemption claimed by the debtor in that property. The trustee belatedly attempted to object to the asserted exemption through Rule 4003, which allows objections to be asserted within one year after the closing of the case "if the debtor fraudulently asserted the claim of exemption." Fed. R. Bankr. P. 4003(b)(2). Through the series of reported decisions, the court determined that the transfer to the debtor was avoidable as being constructively fraudulent. The court then noted, however, that avoiding a transfer under § 548 and the remedies provided by § 550 for avoided transfers are separate determinations. Under § 550, the court could either provide for the recovery of the transferred property by the trustee or, in the alternative, it could award a monetary judgment in favor of the trustee for the value of the transfer. The court determined that, despite finding that the transfer of the property was constructively fraudulent, the homestead exemption claimed by the debtor in the property protected the debtor's interest in the property from recovery by the trustee. However, the court reserved for trial the determination of whether it should award judgment against the debtor and her husband for the value of the transfer under § 550.
In re Rosich , 558 B.R. 199 (Bankr. W.D. Mich. 2016) ; Moyer v. Rosich (In re Rosich ), 561 B.R. 668 (Bankr. W.D. Mich. 2016) ; Moyer v. Rosich (In re Rosich ), 562 B.R. 682 (Bankr. W.D. Mich. 2017) ; Moyer v. Rosich (In re Rosich ), 570 B.R. 278 (Bankr. W.D. Mich. 2017) ; Moyer v. Rosich (In re Rosich ), 582 B.R. 694 (Bankr. W.D. Mich. 2018) ; Moyer v. Rosich (In re Rosich ), 585 B.R. 868 (Bankr. W.D. Mich. 2018).
See Harrison v. Brent Towing Co . (In re H & S Transp. Co. ), 939 F.2d 355, 358 (6th Cir. 1991) ("The Code specifically ‘separates the identification of avoidable transfers (§ 547) from the identification of those who must pay (§ 550 )’.... If it is determined that the transfer is a preference under section 547(b) and none of the exceptions under section 547(c) apply, we then look to section 550(a) to determine to whom the trustee may look for recovery of the property." (citations and footnote omitted)); Ray v. City Bank and Trust Co. (In re C-L Cartage Co. ), 899 F.2d 1490, 1493 (6th Cir. 1990) ("11 U.S.C. § 547 specifies which transfers the trustee may avoid. 11 U.S.C. § 550, however, determines from whom the trustee may recover those voidable transfers or preferences.").
4. Fraudulent Conveyance Law
The Trustee contends that she may avoid the transfer of the one-half interest in the vehicle to Judy because it was actually fraudulent (actual intent to hinder, delay, or defraud creditors) and was constructively fraudulent (conveyed by the debtor while the debtor was insolvent or which caused insolvency, without having received reasonably equivalent value). 11 U.S.C. § 548(a)(1)(A) and (B).
a. Actual Intent to Hinder, Delay, or Defraud Creditors
A trustee may avoid a transfer that was made within two years before the bankruptcy petition was filed if the debtor "made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted[.]" 11 U.S.C. § 548(a)(1)(A).
The burden lies with the Trustee to prove a fraudulent transfer claim by a preponderance of the evidence. Slone v. Lassiter (In re Grove-Merritt) , 406 B.R. 778, 789 (Bankr. S.D. Ohio 2009). Judy contends that the actions of the Debtors were pre-bankruptcy exemption planning and therefore the transfer of the vehicle title cannot be avoided because such planning is not fraudulent, but rather permissible. "The general rule which has emerged from the decisional law is that mere conversion of property from non-exempt to exempt status on the eve of bankruptcy does not establish fraud." In re Beckman , 104 B.R. 866, 869 (Bankr. S.D. Ohio 1989). See In re Wadley , 263 B.R. 857, 859-60 (Bankr. S.D. Ohio 2001) ("[C]onversion of non-exempt assets into exempt assets does not, by itself, establish fraud." The court explained, through a review of legislative history, that "[e]ven if a debtor converts the assets with the intent to place them beyond the reach of creditors, the debtor's intent cannot be fraudulent because it is in line with the very purpose of exemptions."). Because pre-bankruptcy exemption planning is permissible and in line with legislative history, extrinsic evidence of an intent to defraud creditors must be shown for a court to consider determine that such a transfer is avoidable. Beckman , 104 B.R. at 870.
The Trustee has, in part, relied upon Butz v. Wheeler (In re Wheeler) , 17 B.R. 85 (Bankr. S.D. Ohio 1981) in support of her argument that she may recover the transfer of the one-half interest to Judy. Wheeler involved an adversary proceeding through which the Chapter 7 trustee sought to avoid the transfer of a one-half interest in tax refunds by the debtor husband to the debtor wife as a preferential or fraudulent transfer. Particularly, the Trustee relies upon the court's conclusion that the exemption planning defense to fraudulent transfers does not apply between separate people, such as spouses. In other words, he concluded that the exemption planning negation of fraudulent intent in converting nonexempt property into exempt property only applies if the debtor is converting property the debtor owns from nonexempt to exempt property, such as by transferring money from a nonexempt bank account in the debtor's name to an Individual Retirement Account in the debtor's name, not from one debtor to another debtor. That being so, the court opined:
Although the pre-Petition conversion of property into non-exempt property has been considered proper under both the Bankruptcy Act and Code (facetiously referred to as "bankruptcy estate planning"), the instant transfer involves the conversion of non-exempt property of one Debtor to exempt property of another Debtor. In two-party situations such as this, the rule condoning property conversion from non-exempt to exempt property is inapplicable if the elements of a fraudulent conveyance are determined to exist, since, by definition, an inter vivos "gift" ... is impermiss[ible] if within one year of the donor's bankruptcy Petition filing.
Id . at 89. However, this proposition has come into dispute following Siegel . In Hurt , after referencing Wheeler , the court stated:
In the past year there have been significant rulings in cases involving a debtor who claims an exemption in bad faith or who has engaged in misconduct. An objection based on bad faith or concealment of the property can no longer be sustained absent specific statutory authorization. This holding requires the court to address whether the two party fraudulent transfer exception to exemptions still applies in light of the recent rulings by the Supreme Court and the Sixth Circuit Court of Appeals.
In re Hurt , 542 B.R. at 802 (citation omitted). The Hurt court then rejected the proposition that the two-party rule could still be applied to deny an exemption claim post Siegel .
To make a determination as to fraudulent intent, courts look at certain "badges of fraud" which if present may constitute an intent to defraud. In re Crescent Cmtys., Inc. , 298 B.R. 143, 149 (Bankr. S.D. Ohio 2003). These badges include:
(1) Whether the transfer ... was to an insider;
(2) Whether the debtor retained possession ... of the property transferred after the transfer;
(3) Whether the transfer... was disclosed or concealed;
(4) Whether before the transfer was made ... the debtor had been sued or threatened with suit;
(5) Whether the transfer was of substantially all of the assets of the debtor;
(6) Whether the debtor absconded;
(7) Whether the debtor removed or concealed assets;
(8) Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred ...;
(9) Whether the debtor was solvent or became insolvent shortly after the transfer was made ...;
(10) Whether the transferred occurred shortly before or shortly after a substantial debt was incurred; and
(11) Whether the debtor transferred the essential assets of the business to a lienholder who transferred the assets to an insider of the debtor.
Grove-Merritt , 406 B.R. at 794. "If the party alleging fraud is able to demonstrate a sufficient number of badges, the burden of proof then shifts to the defendant to prove that the transfer was not fraudulent." Crescent Cmtys. , 298 B.R. at 149 (citation and quotation marks omitted).
b. Constructive Fraud
The Trustee also contends that she may avoid the transfer of the one-half interest in the vehicle to Judy because the transfer was constructively fraudulent under § 548(a)(1)(B). That provision provides that a trustee may avoid a transfer that was made within two years before the bankruptcy petition was filed if the debtor:
(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(ii) (I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;
(II) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital;
(III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debts matured; or
(IV) made such transfer to or for the benefit of an insider or incurred such obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business.
11 U.S.C. § 548(a)(1)(B). Further, " ‘value’ means property or satisfaction or securing of a present or antecedent debt of the debtor, but does not include an unperformed promise to furnish support to the debtor or to a relative of the debtor." 11 U.S.C. § 548(d)(2)(A).
c. Fraudulent Conveyance Claims Under § 548 Are Post-Petition Claims Not Discharged Under the Debtor's Discharge
With the Trustee suing Judy on behalf of Carroll's estate, the issue arises as to whether the Trustee's claims against Judy are prepetition claims or post-petition claims. This issue is critical because if the Trustee's claims against Judy are prepetition claims, they may have been discharged since Judy received her discharge on October 23, 2019. Section 727(b) provides that, except for a debt that is nondischargeable under § 523 of the Code, a discharge granted under subsection (a) "discharges a debtor from all debts that arose before the date of the order for relief under this chapter, and any liability on a claim that is determined under section 502 of this title as if such claim had arisen before the commencement of the case[.]" 11 U.S.C. § 727(b). The Trustee's claims could not have arisen until the case was filed since: a) they are based on and arise out of § 548 and, because of this, could not come into existence until the case was filed; and b) the Trustee's authority to pursue such claims did not arise until the Trustee was appointed after the case was filed. Therefore, even though the transfer to Judy occurred prepetition, such claims could not be prepetition claims which were discharged under § 727(b). Guttman v. Fabian (In re Fabian ), 458 B.R. 235, 258 (Bankr. Md. 2011) ("A bankruptcy trustee's causes of action to recover fraudulent conveyances and preferential transfers, are independent of, and separate from, prepetition causes of action possessed by the debtor outside of bankruptcy. These actions arise after the petition date, and therefore are not themselves property of the estate.") See also Hurt , 542 B.R. at 804 ("[The debtor] may face a judgment for the value of the transfer under 11 U.S.C. §§ 548 and 550(a) which is no longer dischargeable."); Brown v. Barclay (In re Barclay ), BAP No. SC-17-1068-AKuS, 2018 Bankr. LEXIS 1524 at *22, 2018 WL 2308267, at *8 (B.A.P. 9th Cir. May 21, 2018) (concurring opinion) ("[T]he trustee's avoiding powers have no existence independent of the bankruptcy case and never accrue to the debtor. In other words, the trustee's avoidance claims arise, if at all, postpetition and vest in the trustee as the representative of the bankruptcy estate.") (footnote omitted).
See also Church Joint Venture, L.P. v. Blasingame (In re Blasingame ), 986 F.3d 633 (6th Cir. 2021) (State law malpractice claim was a post-petition claim and not property of the debtors' Chapter 7 bankruptcy estate because the claim accrued post-petition when the debtors' discharge was denied.).
D. Conclusions of Law
1. Summary Judgment Is Inappropriate on the Issue of Intent Under § 548(a)(1)(A)
The Trustee argues that the following badges of fraud are present and establish that the transfer was fraudulent under § 548(a)(1)(A) : transfer to an insider, Carroll retained the use and benefit of the vehicle post-transfer, the transfer was not disclosed in the filings, legal actions were pending on the petition date, the transfer of the interest was substantially all of Carroll's and Judy's assets, Carroll was insolvent at the time of the transfer, and Carroll received no consideration for the transfer. The parties stipulated that Carroll was insolvent at the time of the transfer and that Judy paid no consideration for the transfer of the one-half interest to her, both of which does support badges of fraudulent intent. Adv. Doc. 13 at ¶¶ 5 and 10.
However, Judy disputes the presence of many of the "badges" of fraud. and argues that the badges of fraud do not establish an intent to defraud. Although Carroll theoretically "retained the use and benefit" of the vehicle after the transfer of the title into both their names, Judy states that she was the only person in the household actually driving the vehicle so this "badge" does not weigh in favor of finding a fraudulent intent. With regard to disclosure, although Carroll and Judy did not disclose the title transfer in their filings, they did disclose the transfer at the meeting of creditors. Additionally, regarding the lawsuits, question #9 of their Statement of Financial Affairs shows that the most recent lawsuit was filed in 2010 and, therefore, Judy argues that pending lawsuits did not trigger the transfer of the title in an attempt to defraud creditors. Doc. 1 at 39. Also, Judy points out that Schedule A/B shows that the transfer of the interest the vehicle did not constitute "substantially all of their assets." Doc. 21 at 4.
Judy argues that Carroll added her to the certificate of title when planning for their allowed exemptions to make sure that Judy would be able to retain their only working vehicle. She further argues that there was no intent to defraud the creditors, but rather Carroll and Judy engaged in permissible pre-bankruptcy exemption and estate planning. She further argues that Carroll's intent in transferring title into both his and Judy's name was not to defraud creditors, but rather, to recognize reality that the vehicle was as much Judy's as his and to ensure that Judy would continue to be able to use the vehicle to provide for their sustenance.
Judy argues that the evidence establishes that the title was transferred by Carroll into both his and Judy's names to allow the exemption to be claimed by both he and Judy. See footnote 3, supra . "[Judy and Carroll] chose to be ‘honest and fair’ Debtors by following the titling laws of the state of Ohio; thereby ensuring the protection of their main source of transportation needed to generate income for their household and properly claimed the bankruptcy exemptions which are to be construed liberally in favor of Debtors." Adv. Doc. 21 at 4. In addition, it appears that Judy argues that there was an estate planning motive for transferring the title into both their names.
Under these facts, the intent issue is a material question of fact as to the Trustee's establishing a claim under § 548(a)(1)(A). First, the court must weigh the facts, particularly the facts as they support or do not support the "badges of fraud" involved in determining fraudulent intent. A court is not to engage in the weighing of evidence in rendering summary judgment. Further, much of Judy's position depends upon her own statements and testimony. Of course, the court cannot assess her credibility without a trial. As recently stated by the Sixth Circuit, in ruling on a motion for summary judgment, the court is not to weigh the evidence or to determine the truth. Thompson v. Fresh Prods., LLC , 985 F.3d 509, 523 (6th Cir. 2021). See also Nat'l Elec. Annuity Plan v. Henkels & McCoy, Inc. , 846 Fed. Appx. 332, 336, 2021 U.S. App. LEXIS 4296, at *9 (6th Cir. Feb. 16, 2021) (At the summary judgment stage, "[t]he court does not engage in credibility determinations or weigh evidence[.]"). Further, the standard for granting summary judgment does not change "simply because the parties present cross-motions" for summary judgment. Taft Broad. Co. v. United States , 929 F.2d 240, 248 (6th Cir. 1991).
For these reasons, a material issue of fact, namely Carroll's intent in transferring title to the vehicle precludes the rendering of summary judgment in favor of either party under the Trustee's claim under § 548(a)(1)(A). See Rentas v. Gomez (In re Indrescom Sec. Tech. Inc. ), 559 B.R. 305, 318 (Bankr. P.R. 2016) ("The existence of fraudulent intent is a factual question, usually inappropriate for summary judgment."); In re Lehman Bros. Holdings v. JP Morgan Chase Bank, N.A. , 541 B.R. 551, 577 (S.D.N.Y. 2015) ("Determining the existence of actual fraudulent intent is typically a question of fact that precludes summary judgment.").
2. The Trustee Established that the Transfer of the One-Half Interest in the Vehicle to Judy Was Constructively Fraudulent
Judy stipulated that she did not provide consideration for the transfer of the interest in the vehicle to her. Adv. Doc. 13 at ¶ 10. However, Judy argues that she provided value in services she performed for Carroll stating:
Additionally, Male Debtor's health problems limited his ability to drive and travel alone. With the Defendant now on the title, Defendant was able to also go to the Bureau of Motor Vehicles to renew registration on the Vehicle with[out] Defendant requiring Male Debtor to accompany her to take care of these tasks. This is beyond the "love and care of a spouse" but value at a minimum, of the cost by Male Debtor of hiring someone or a service to transport him to his and other places. There is reasonably equivalent value received by Male Debtor in not needing to take care of these types of issues.
Adv. Doc. 21 at 4. However, as noted, "value ... does not include an unperformed promise to furnish support to the debtor or to a relative of the debtor." 11 U.S.C. § 548(d)(2)(A). The court views Judy's assertion as, at the time of the transfer, an unperformed promise to furnish support and, therefore, not qualifying as value as that term is defined. 11 U.S.C. § 548(d)(2)(A) ; Adv. Doc. 21 at 4. Further, despite making that argument, Judy did not cite anything in the record, as required by Federal Rule of Civil Procedure 56(c), to support that assertion.
A party opposing summary judgment has the burden to present "affirmative evidence in order to defeat a properly supported motion for summary judgment." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; Street v. J.C. Bradford & Co. , 886 F.2d 1472, 1477 (6th Cir. 1989). Judy failed to submit any evidence that she provided reasonably equivalent value to Carroll in exchange for the transfer of the one-half interest in the vehicle. Thus, the court finds that the Trustee has established that Carroll was insolvent at the time of the transfer and that Judy failed to provide reasonably equivalent value in exchange for the one-half interest she received in the vehicle and, therefore, is entitled to summary judgment under § 548(a)(1)(B).
3. Judy is Entitled to the Use of the Motor Vehicle and Wildcard Exemptions
Because Carroll and Judy engaged in permissible pre-bankruptcy planning, she is entitled to use the exemptions to retain the vehicle. Under Ohio law, a court generally cannot recognize an interest in a motor vehicle "unless it is evidence[d] on the certificate of title." In re Miller , 427 B.R. 616, 619 (Bankr. N.D. Ohio 2009). In Miller , the debtor-wife attempted to claim an exemption in a vehicle that was titled solely in the name of the debtor-husband. The court determined that because her name was not on the title of the vehicle, debtor-wife held only a "de-minimis" interest in the vehicle and therefore was not entitled to claim an exemption. Id. at 620. See also In re Toland , 346 B.R. 444, 449 (Bankr. N.D. Ohio 2006) (holding that debtor-husband was "not entitled to claim an exemption in his wife's vehicle.").
Here, Carroll specifically added Judy to the certificate of title of the vehicle prior to the bankruptcy filing so that her interest would be recognized under Ohio law and she would be entitled to claim such an exemption and retain the vehicle for her use. The Trustee has not asserted any basis for denying the exemptions which Judy claims other than because she received her interest in the vehicle as a result of a fraudulent conveyance made by Carroll for exemption and estate planning purposes, as the vehicle was the only vehicle which either of the debtors owned.
Under Siegel and Baker , an exemption survives an attempt to avoid the transfer of property to a debtor as a fraudulent conveyance. In both the Fuentes and Rosich decisions the courts specifically held that the exemptions protect the property transferred to the debtor despite the trustee's proof that the exempt property was fraudulently conveyed to the debtor. There is no statutory basis for denying Judy's exemptions in the vehicle. As noted in Siegel , § 522 provides a "meticulous—not to say mind-numbingly detailed—enumeration of exemptions and exceptions to those exemptions" and bankruptcy courts "are not authorized to create additional exceptions." Siegel , 571 U.S. at 424, 134 S.Ct. 1188. Further, as noted in Fuentes , while § 522(g) prohibits the transferor who voluntarily transfers property from claiming an exemption in that property if the trustee recovers that property, it does not preclude the transferee from claiming an exemption in that transferred property. Similarly, § 2329.66 contains numerous exemptions and exceptions to those exemptions, but no exception to Judy's motor vehicle and wildcard exemptions apply. While the Supreme Court noted in Siegel that state law could provide such an exception to an exemption, the Trustee has not pointed one out and the court is not aware of such an exception.
Ohio allows "[e]very person who is domiciled in this state [to] hold property exempt from execution, garnishment, attachment, or sale to satisfy a judgment or order," including $4,000 in a motor vehicle. Ohio Rev. Code § 2329.66(A)(2). Under the wildcard exemption, § 2329.66(A)(18), another $1,325 in the vehicle may be exempted. In consequence, because Judy is entitled to the motor vehicle and wildcard exemptions in the vehicle, the Trustee may not execute against or cause the vehicle to be sold under § 550.
The court cannot envision a situation more compelling than this one for enforcing the purpose of the exemption laws – to allow the debtor to retain discreet interests in minimal property so that the debtor can survive – in this case a simple mode of transportation to Judy's work and as part of her employment as a delivery driver, to her medical appointments, and to the grocery store. Judy has only requested that her $4,500 interest in her and Carroll's joint motor vehicle on the date the bankruptcy was filed be preserved for her benefit – a modest request. Accordingly, the Trustee's objection to Judy's motor vehicle and wildcard exemptions in the vehicle is denied.
4. Despite Judy's Entitlement to the Exemptions in the Vehicle, the Trustee is Entitled to Judgment for the Value of the One-Half Interest in the Vehicle Transferred to Judy. However, the Value of the Vehicle Must Be Established at Trial.
The Trustee is entitled to judgment against Judy under §§ 548(a)(1)(B) and 550(a)(1) on account of the transfer of the one-half interest in the vehicle being constructively fraudulent. Based upon the evidence submitted, the Trustee established that Judy failed to provide reasonably equivalent value to Carroll at the time of the transfer in exchange for the one-half interest in the vehicle conveyed by Carroll to Judy and that Carroll was insolvent at the time of the transfer. Thus, the Trustee established entitlement to judgment under § 548(a)(1)(b). See Slone v. Lassiter (In re Grove-Merritt ), 406 B.R. 778, 805 (Bankr. S.D. Ohio 2009). And under § 550(a)(1), 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 the initial transferee of such transfer ... [.]" 11 U.S.C. § 550(a)(1).
While Judy's interest in the vehicle is exempt, prohibiting the Trustee from executing against her in rem interest in the vehicle or causing its sale, she is not immune from liability on an in personam basis for the fraudulent transfer under §§ 548(a)(1)(B) and 550(a)(1). Thus, while the exemptions protect her in rem interests in the vehicle from execution by the Trustee, because the Trustee's claim is a nondischargeable post-petition claim against Judy, the court may enter an in personam judgment under § 550(a)(1). See Hurt , 542 B.R. at 804 (Despite an exemption in the transferred property, the debtor "may face a judgment for the value of the transfer under 11 U.S.C. §§ 548 and 550(a) which is no longer dischargeable."); Rosich , 570 B.R. 278, 287 (Bankr. W.D. Mich. 2017) ("[T]he court will grant the Motion to the extent the Trustee seeks an order avoiding the challenged transfer, but deny the Motion to the extent he seeks recovery of the Property ... but will permit the Trustee, at trial, to attempt to persuade the court to exercise its discretion under § 550(a) in favor of awarding monetary relief against both Defendants.").
The Trustee has requested that the court enter judgment in the amount of $5,175 for the value of the interest transferred to Judy. Adv. Doc. 18 at 4; Adv. Doc. 24 at 4. While the Trustee asserts that value in her memoranda, the Trustee has not submitted evidence in support of that value. Further, while the transfer occurred approximately ten days before the bankruptcy was filed, Carroll and Judy scheduled the vehicle at that time as having a value of $9,100. While the court can grant summary judgment on the basis of an undisputed fact, Judy disputed the vehicle's value in her answer, and the Trustee has only raised value in her request for relief and has not supported the vehicle's value with evidence. Fed. R. Civ. P. 56(e) and (f). The court finds that the vehicle's value on the transfer date is a disputed issue of material fact.
V. Conclusion
For the foregoing reasons, the Trustee's objection to Judy's exemptions in the vehicle is denied. The Trustee's summary judgment motion is granted in part and denied in part as follows:
(1) The Trustee is denied summary judgment to avoid the transfer to Judy of the one-half interest in the vehicle as an actual fraudulent transfer under § 548(a)(1)(A).
(2) The Trustee is granted summary judgment to avoid the transfer to Judy of the one-half interest in the vehicle as a constructively fraudulent transfer under § 548(a)(1)(B).
(3) However, since the value of the vehicle on the date of the transfer has not been established and is a material issue of fact, judgment in favor the Trustee pursuant to § 550(a)(1) cannot be entered at this time, and summary judgment is denied as to that count.
Upon establishment of the value of the vehicle, the court will enter judgment on behalf of the Trustee in the amount of one-half the value of the vehicle on the date of transfer pursuant to § 550(a)(1). The court will issue a separate order scheduling for trial the Trustee's claim under § 548(a)(1)(A) and the issue of the value of the vehicle on the date of the transfer. Judy's motion for summary judgment is denied. The court is contemporaneously entering orders consistent with this decision.
Of course, the parties may stipulate to the value of the vehicle, and otherwise resolve any issues remaining in advance of the scheduled trial.
--------