Silagy v. Morris

Filing 3

Memorandum Opinion and Order: Having conducted its de novo review of Morris's objections to the Memorandum of Opinion, Proposed Findings of Fact and Conclusions of Law, the objections are sustained in part and overruled in part. The Cour t adopts the bankruptcy court's ultimate conclusion of law that the Trustee is entitled to summary judgment against Morris for the Debtor's portion of equity that was fraudulently transferred. The Court rejects the bankruptcy court's calculations as to the value of the equity. This matter is recommitted to the bankruptcy court for further proceedings consistent with this Memorandum Opinion and Order. Judge Sara Lioi on 2/26/2015. (P,J)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

ANNE PIERO SILAGY, Trustee,
PLAINTIFF,
vs.
ANDY CHARLES MORRIS,

DEFENDANT.

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CASE NO. 5:13-cv-2645
(Adv. Proc. No. 12-6133)
(Bankr. No. 11-60657)

JUDGE SARA LIOI
MEMORANDUM OPINION
AND ORDER

This matter is before the Court for de novo review of the bankruptcy court’s
proposed findings of fact and conclusions of law (Doc. No. 1 [“Prop. FF/CL”]) with respect to
the Trustee’s summary judgment motion in the adversary proceeding that relates to the Chapter 7
bankruptcy case of Trina Renee Morris (“Trina” or “Debtor”). Defendant Andy Charles Morris
(“Morris”) has filed objections (Doc. No. 1-5 [“Obj.”]), and the Trustee has filed a response to
the objections (Doc. No. 1-6 [“Resp.”]).1
For the reasons discussed herein, the proposed findings of fact and conclusions of
law are accepted in part and rejected in part. The Court adopts the bankruptcy court’s ultimate
conclusion of law that the Trustee is entitled to summary judgment against Morris for the
Debtor’s portion of equity that was fraudulently transferred. However, the Court rejects the
bankruptcy court’s calculations as to the value of that equity, and, therefore, recommits the
matter to the bankruptcy court for further proceedings consistent with this Memorandum Opinion
and Order.
1

The Court must conduct its review in light of the briefs on the summary judgment motion filed in the adversary
proceeding. These documents include: the motion for summary judgment (Adv. Doc. No. 36 [“MSJ”]), Morris’s
opposition (Adv. Doc. No. 44 [“Opp’n”]), and the Trustee’s reply (Adv. Doc. No. 46 [“Reply”]).

I. STANDARD OF REVIEW
Under 28 U.S.C. § 157(b)(2)(H), a proceeding “to determine, avoid, or recover
fraudulent conveyances” is “core” to a bankruptcy case. Ordinarily, the bankruptcy court would
fully adjudicate such core matters, including issuing a final order, subject to appellate review by
the district court. 28 U.S.C. § 157(b)(1). But in Stern v. Marshall, 564 U.S. --, 131 S. Ct. 2594,
180 L. Ed. 2d 475 (2011), the Supreme Court determined that some core claims actually may not
be adjudicated by bankruptcy courts under 28 U.S.C. § 157(b) because they lack the Article III
constitutional authority to do so. As pointed out by the bankruptcy judge in the instant case,
according to some courts that have considered the issue, “[t]he combination of the statutory
language [in §§ 157(b)(1) and (c)(1)] and the Supreme Court’s decision in Stern leaves a ‘gap’ in
the bankruptcy code.” (Prop. FF/CL at 8, citing cases.) The Court in Stern did not indicate how
these “gap” claims should be treated.
In Exec. Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency Inc.), 702
F.3d 553 (9th Cir. 2012), one of the cases cited by the bankruptcy court as describing a statutory
“gap” created by so-called Stern claims, the Ninth Circuit concluded that “bankruptcy courts
have statutory authority to hear and enter proposed findings of fact and conclusions of law in a
fraudulent conveyance proceeding asserted by a bankruptcy trustee against a noncreditor, subject
to de novo review by a federal district court.” Id. at 566. After the bankruptcy court issued its
ruling in the instant case, the Supreme Court affirmed this procedure, although also finding that
there is no “gap” in the statute. Exec. Benefits Ins. Agency v. Arkison, --U.S.--, 134 S. Ct. 2165,
2173, 189 L. Ed. 2d 83 (2014) (“The plain text of [the statute’s] severability provision closes the
so-called ‘gap’ created by Stern claims.”). Under Arkison, which “assume[d] without deciding[]
that the fraudulent conveyance claims . . . are Stern claims,” id. at 2174, “[i]f the claim satisfies
2

the criteria of § 157(c)(1), the bankruptcy court simply treats the claim as non-core: The
bankruptcy court should hear the proceeding and submit proposed findings of fact and
conclusions of law to the district court for de novo review and entry of judgment.” Id. at 2173.2
It is now for this Court to “consider[] the bankruptcy judge’s proposed findings
and conclusions . . . after reviewing de novo those matters to which any party has timely and
specifically objected.” 28 U.S.C. § 157(c)(1). This de novo review is directed only toward “any
portion of the bankruptcy judge’s [determination] to which specific written objection has been
made[.]” Fed. R. Bankr. P. 9033(d).3 “The district judge may accept, reject, or modify the
proposed findings of fact or conclusions of law, receive further evidence, or recommit the matter
to the bankruptcy judge with instructions.” Id.
This de novo review also requires attention to the procedural posture of the case.
The bankruptcy judge determined this matter on briefs following the Trustee’s filing of a motion
for summary judgment. Therefore, the de novo review must be attentive to the rules regarding
summary judgment.

2

It is still an open question whether, in a case involving a Stern claim, the parties can consent to allow the
bankruptcy judge “to hear and determine and to enter appropriate orders and judgments[.]” 28 U.S.C. § 157(c)(2).
The bankruptcy court in this case concluded that consent is not permitted, relying on Waldman v. Stone, 698 F.3d
910 (6th Cir. 2012) and Wellness Int’l Network, Ltd. v. Sharif, 727 F.3d 751 (7th Cir. 2013). (Prop. FF/CL at 9.) The
Ninth Circuit has taken the opposite view in In re Bellingham Ins. Agency, Inc., 702 F.3d 553 (9th Cir. 2012). This
issue was reserved by the Court in Arkison. 134 S. Ct. at 2170, n. 4; however, the Court recently granted certiorari
on this question. See Wellness Int’l Network, Ltd. v. Sharif, 134 S. Ct. 2901 (2014).
3

This is similar to the type of review given to objections to a magistrate judge’s recommended disposition of a
dispositive matter. See Fed. R. Bankr. P. 9033 advisory committee’s note (subdivision (d) adopts the de novo review
provisions of Fed. R. Civ. P. 72(b)). “An ‘objection’ that does nothing more than state a disagreement with a
magistrate’s suggested resolution, or simply summarizes what has been presented before, is not an ‘objection’ as
that term is used in this context.” Aldrich v. Bock, 327 F. Supp. 2d 743, 747 (E.D. Mich. 2004). See also Fed. R. Civ.
P. 72(b)(3) (“[t]he district judge must determine de novo any part of the magistrate judge’s disposition that has been
properly objected to”); LR 72.3(b) (any objecting party shall file “written objections which shall specifically identify
the portions of the proposed findings, recommendations, or report to which objection is made and the basis for such
objections.”).

3

Summary judgment is proper “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). An opposing party may not rely merely on allegations or denials in its own
pleading; rather, by affidavits or by materials in the record, the opposing party must set out
specific facts showing a genuine issue for trial. Fed. R. Civ. P. 56(c)(1).
In reviewing summary judgment motions, this Court must view the evidence in a
light most favorable to the non-moving party to determine whether a genuine issue of material
fact exists. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 26 L. Ed. 2d 142
(1970); White v. Turfway Park Racing Ass’n, 909 F.2d 941, 943-44 (6th Cir. 1990), impliedly
overruled on other grounds by Salve Regina Coll. v. Russell, 499 U.S. 225, 111 S. Ct. 1217, 113
L. Ed. 2d 190 (1991). Summary judgment is appropriate whenever the non-moving party fails to
make a showing sufficient to establish the existence of an element essential to that party’s case
and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S.
317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). The non-moving party is under an
affirmative duty to point out specific facts in the record as it has been established that create a
genuine issue of material fact. Fulson v. City of Columbus, 801 F. Supp. 1, 4 (S.D. Ohio 1992).
The non-movant must show more than a scintilla of evidence to overcome summary judgment; it
is not enough for the non-moving party to show that there is some metaphysical doubt as to
material facts. Id.
II. FACTUAL AND PROCEDURAL BACKGROUND
In the adversary proceeding before the bankruptcy court, the Trustee moved for
summary judgment and for an order “(i) avoiding the transfer of the Debtor’s one-half (1/2)
interest in the Real Property to [Morris] as a fraudulent transfer and (ii) entering judgment in
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favor of the Trustee and against [Morris] in the amount of $132,852.34, which amount is equal to
the value of the Debtor’s one-half (1/2) interest in the Real Property on the date of the fraudulent
transfer.” (MSJ at 16.)4
The facts underlying this action, as noted by the bankruptcy court, are largely
undisputed. No objections have been filed relating to the following factual summary by the
bankruptcy court and, therefore, these facts are accepted by this Court.
Trina and [Morris] were married on August 29, 1992. During their marriage, the
couple acquired five parcels of land (collectively, “Real Estate”)1 and had two
children together. On November 23, 2009, Trina was indicted on nine felony
counts of theft and forgery relating to her former employer. On April 4, 2010
Trina’s former employer also brought a civil suit seeking damages of $157,000.
Trina pled guilty to the nine felony counts on May 6, 2010, and was ordered to
pay restitution in the amount of $61,910. Trina’s employer’s insurance company,
on September 1, 2010, brought a civil action against Trina seeking damages in the
amount of $13,420. On December 29, 2010 Trina and [Morris] divorced pursuant
to a Judgment Entry of Divorce, Separation Agreement, and Shared Parenting
Plan (collectively, “Divorce Agreement”).
1

The five parcels of land are located in Holmes County, with parcel numbers:
8003732000, 2200136007, 2100578000, 2200136009, and 2200136010.

Under the Divorce Agreement, [Morris] will receive the following assets
free and clear of Trina’s claims: the Real Estate with a fair market value of
$390,755, a 2004 Ford F-350 truck, a 2000 GMC [truck], a 1986 dump truck, and
the complete interest in his business known as “CM Concrete.” Trina, free and
clear of [Morris’s] claims, will receive a 2005 Ford Expedition.2 The Divorce
Agreement provides that [Morris] shall be responsible for all hospital debts, debts
owed to Citifinancial, and mortgage debts with an estimated value of $125,050.
Trina will be solely responsible for the debts incurred based on her fraudulent
conduct of $61,910 with the potential for additional judgments of approximately
$170,000, student loan payments, debts due to Capital One, debts due to The
Sportsman Guide Visa, and the debt due on the 2005 Ford Expedition. The
Divorce Agreement lists [Morris’s] home as the primary residence of the two
children, but each parent has custody of the children for an approximately equal

4

The documents in the bankruptcy case electronic file do not have a header with page identification numbers similar
to those of the district court electronic file. Therefore, all citations to the bankruptcy documents are to the page
numbers contained in the footers on each document. Citations to this Court’s documents, including the Prop. FF/CL,
are to the Page ID # contained in the electronic document headers.

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amount of time. The Divorce Agreement also states that neither party will pay the
other spousal support and that any right to future support is waived.
2

Trustee does not argue, and therefore this court will not address, whether
Debtor’s conveyance of her interests, if any, in the 2004 Ford F-350, 2000 GMC
[truck], 1986 dump truck, and CM Concrete to [Morris] were fraudulent
transfers. Trustee’s complaint only asks that the transfer of the Real Estate be
deemed fraudulent.

Approximately three months after the Divorce Agreement, on March 7,
2011, Trina filed a voluntary chapter 7 bankruptcy petition. [Bankr. Case No. 1160657.] Trustee filed a complaint on November 1, 2012 alleging that the transfer
of the Real Estate in the Divorce Agreement was a fraudulent transfer. [Adv.
Proc. No. 12-6133.] Trustee filed her motion for summary judgment in support of
her position on June 17, 2013. [Morris] filed his memorandum in opposition to
summary judgment on July 1, 2013. Trustee then filed a reply in support of her
motion for summary judgment on July 8, 2013. Trustee hopes to recover Trina’s
interest in the Real Estate that was transferred to [Morris] for the benefit of the
bankruptcy estate. [Morris] has not filed a claim against the estate in the chapter 7
case.
(Prop. FF/CL at 2-3, footnotes in original.)
The bankruptcy court allowed the Trustee to obtain an appraiser to determine the
value of the Real Estate and any improvements thereon at the time of the transfer.5 According to
that appraisal, the Real Estate was valued at $390,755.00 as of the date of the transfer, with
Trina’s half interest being worth $132,852.34, after subtracting the mortgage debt. (See MSJ at
7.)
The bankruptcy judge ultimately concluded with respect to the Trustee’s MSJ:
[T]he court recommends that Trustee be granted summary judgment against
Defendant for Debtor’s portion of equity that was fraudulently transferred
pursuant to § 548(a)(l)(A) and § 548(a)(l)(B). As noted above, the value of the
Depot Street property is subject to a genuine issue of material fact. Excluding the
Depot Street property, the Real Estate is valued at $220,755 with a corresponding
mortgage debt of $125,050, leaving $95,705 in equity. One half of the equity
belongs to Debtor ($47,853). Defendant is able to deduct $11,038 for Debtor’s
5

This appraisal was conducted by Robert J. Cerny (“the Cerny Appraisal”) on June 17, 2013, about 2½ years after
the transfer of the Real Estate by way of the Divorce Agreement. There is no dispute that the value of the Real
Estate as of the date of the Divorce Agreement is the relevant value.

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half of the 10% sales expense based on the fair market value of the Real Estate
without the Depot Street property. After allowing the deduction, Debtor
fraudulently transferred $36,815 to Defendant, along with one half of the value of
the Depot Street property to be determined at a later date (less the corresponding
10% sales expense deduction). A hearing will be scheduled to determine the value
of the Depot Street property.
(Prop. FF/CL at 22.)
III. DISCUSSION
A.

Defendant’s Objections--Generally
The bulk of the bankruptcy judge’s opinion is devoted to a discussion of the

Trustee’s fraudulent transfer claim under 11 U.S.C. § 548, which takes two forms: constructive
fraudulent transfer (Prop. FF/CL, Section II b) and actual fraudulent transfer (Prop. FF/CL,
Section II c).
A constructive fraudulent transfer claim is primarily concerned with whether the
debtor received “reasonably equivalent value” for what the debtor transferred to another. In this
case, the sole challenge is to the transfer of the Real Estate by way of the Divorce Agreement.
The bankruptcy judge examined five aspects of the Divorce Agreement to determine whether
there was “reasonably equivalent value” received by Debtor in exchange for the Real Estate
transferred to Morris: (1) his waiver of child support; (2) the probable cost to Morris of selling
the real estate; (3) the accuracy of the Trustee’s land appraisal for purposes of valuing the
relevant real estate; (4) separate property vs. marital property; and (5) Morris’s assumption of
marital debt under the Divorce Agreement. The majority of the objections raised by Morris
(Objection Nos. 1 through 5) address these issues.
An actual fraudulent transfer claim is concerned with whether the debtor had an
actual intent to hinder, defraud or delay any creditor to which the debtor was indebted. Morris
7

does not directly challenge the bankruptcy court’s ruling as to this claim, although objection No.
8 (which challenges the bankruptcy court’s failure to specifically discuss fraudulent transfers
under Ohio Rev. Code § 1336.05) might be read broadly as a general challenge with respect to
the actual fraudulent transfer claim.
Objection No. 6 addresses the bankruptcy judge’s ruling with respect to Morris’s
discovery motions. Objection No. 7 is very broad and appears to be only a general challenge to
the overall outcome of the bankruptcy judge’s ruling.
The Court will address each objection separately.
B.

The Individual Objections
Objection No. 1: The Bankruptcy Court erred by granting summary judgment to
Trustee denying the separate property claims of Morris
The bankruptcy judge identified as one of two areas of factual dispute the

question of whether Morris had sufficiently proven that he had separate property that should be
excluded from the marital property. The bankruptcy court noted:
In the Divorce Agreement, Defendant did not list any separate property.
Defendant first claims he has separate property in his response to Trustee’s
interrogatories. Defendant expands on his position in his objection to Trustee’s
motion for summary judgment, where he claims that he owned two tracts of land
identified as 3042 Township Road and 12843 County Road 6 before his marriage
to Debtor. Defendant claims he sold the 3042 Township Road property after the
start of his marriage for $51,361, and the proceeds were used to purchase land
located at the rear of 835 CR 520, in Glenmont, Ohio, and to make
improvement[s] to land located on Depot Street in Glenmont, Ohio. Both of these
pieces of land are still owned by Defendant. Defendant also claims that on
December 31, 2001 he transferred the 12843 County Road 6 property to his
mother in exchange for $5,000, and Defendant used the proceeds to make
improvements to marital property. In order to show the receipt of money from the
above sales, Defendant provides a settlement statement showing he was entitled to
the receipt of $51,361 for the sale of the 3042 Township Road property, as well as
a signed letter from Defendant’s mother that she paid Defendant $5,000 for the
12843 County Road 6 property. Defendant’s only evidence of his use of the funds
are [sic] statements in his affidavit. Trustee first disagrees with Defendant’s claim
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that he received $5,000 from his mother for the 12843 County Road 6 property
because Trustee argues that Defendant’s deposition claims that the property was
transferred in satisfaction of the property’s outstanding loan, and that cash was
never received. Trustee also disagrees with Defendant’s claims that he used the
cash receipts from the sale of his separate property in a manner that maintains
separate property status.
(Prop. FF/CL at 3-4.)
The bankruptcy judge set forth the relevant law as follows:
If assets are classified as separate property, those assets are not split
between spouses at divorce. Defendant argues that portions of the Real Estate
were not marital property, but were instead separate property. In Ohio, unless an
exception applies, marital property is “[a]ll real and personal property that
currently is owned by either or both of the spouses.” O.R.C. §
3105.171(A)(3)(a)(i). Therefore, during marriage, all property is presumed to be
marital property. Ruetz v. Ruetz, [Nos. L-02-1153, L-02-1037], 2003 WL
21781604, at *6 (Ohio App. 6th [Aug. 1,] 2003). However, “any real or personal
property or interest in real or personal property that was acquired by one spouse
prior to the date of the marriage” is separate property. O.R.C. [§]
3105.171(A)(6)(a)(ii). The party seeking to establish that an asset is separate
property bears the burden of proof. Ruetz, 2003 WL 21781604, at *6. If separate
property is sold during the marriage, and the proceeds from the sale can be
directly traced to the purchase of another asset (such as real property), the new
asset is also separate property. See id. Before a party can obtain separate property
status, evidence tracing the new asset to funds acquired from the sale of property
acquired before the marriage must be present. Id.; see also O.R.C. §
3105.171(A)(7)(b) (“The commingling of separate property with other property
does not destroy the identity of the separate property as separate property, except
when the separate property is not traceable” (emphasis added)). “[T]raceability
has become the focus when determining whether separate property has lost its
separate character after being commingled with marital property.” Peck v. Peck,
96 Ohio App.3d 731, 735 (Ohio App. 12th 1994).
(Id. at 14-15.) The court noted that Morris “present[ed] documentary evidence that he sold two
pieces of separate property for $51,361 and $5,000, respectively.” (Id. at 15.) The Trustee did not
disagree that these two pieces of property were “separate property.” But there was “no
documentary evidence showing that the sale price of the separate property was actually received
or what account the funds were deposited into.” (Id., emphasis added.)
9

In this objection, Morris broadly interprets the bankruptcy court’s conclusion as
“a factual finding that there was no documentary evidence.” (Obj. at 67.) He claims that the
bankruptcy court “ignore[d] the closing statement and the receipt of funds as evidenced by that
closing statement.” (Id.) What Morris fails to grasp is the nuance in the bankruptcy court’s
conclusion—it was not that there was no evidence; it was that there was “insufficient evidence
tracing the separate property to [Morris’s] current property[,]” (Prop. FF/CL at 15, emphasis
added), so as to allow the assets to retain the status of separate property.
In an affidavit attached to his opposition brief, Morris asserts that he owned two
pieces of separate property prior to his marriage to Debtor. The first, a 25-acre parcel on
Township Road 29, was acquired in 1992 and sold in 1997, with net proceeds totaling
$51,361.34. (Morris Aff. ¶ 5; Exs. B and D.) He claims that the proceeds were used to purchase
property (i.e., parcel number 22001136009—referred to as Tract IV by the Trustee) at the rear of
another piece of property he owns on County Road 520 (i.e., parcel number 22001136010—
referred to as Tract V), and to make improvements to parcel number 2200136007, an 18-acre
parcel on Depot Street (referred to as Tract II). (Morris Aff. ¶ 6.) The sale of the Township Road
property occurred around September 29, 1997 and the parcel on Depot Street (Tract IV) was
purchased around October 2, 1997, lending some support to Morris’s assertion. But there is
nothing establishing the price he paid for the Depot Street property, nor is there any
documentation to trace any part of the $51,361 in net proceeds to any improvements on Tract II.
Tracing is required in order for his separate property to retain its separate nature in the context of
the divorce. Some documentary or non-self-serving testimonial evidence is required to meet the
burden. See Ruetz v. Ruetz, Nos. L-02-1153, L-02-1037, 2003 WL 21781604, at *6 (Ohio Ct.
App. Aug. 1, 2003) (“in order to meet this burden [of proof by a preponderance of the evidence],
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the party seeking to establish an asset as separate property must present at least some
documentary evidence tracing the asset back to its non-marital status.”) (citing cases). The
bankruptcy judge did not ignore Morris’s claim, but only properly found a lack of tracing.
The second piece of separate property Morris identifies was a 4-plus-acre lot on
County Road 6, which he acquired in 1986 as a gift from his grandmother and claims to have
transferred to his mother in December 2001 in exchange for $5,000. (Morris Aff. ¶ 5; Exs. C and
E.) He claims he used the $5,000 “to make improvements to the real estate that is still owned[.]”
(Morris Aff. ¶ 7.) As properly pointed out by the Trustee, this current assertion contradicts
Morris’s deposition testimony that he transferred this second piece of property to his parents in
exchange for their assumption of the mortgage on the property. (See Reply, Ex. N, at pp. 6-7 of
10.) Under summary judgment practice, Morris cannot attempt to create a material factual
dispute by contradicting his own testimony.
All that said, the bankruptcy court did not base its decision upon any conclusion
that there was lack of tracing (although this Court concludes that it very well could have and now
specifically so finds as an additional basis upon which to accept the bankruptcy court’s
adjudication of this issue). The bankruptcy court stated that it “need not decide whether
documentary evidence is required as a matter of law in an Ohio separate property claim because
[d]efendant’s separate property contradiction bars such a claim.” (Prop. FF/CL at 15-16,
emphasis added.) The court applied general evidentiary principles regarding how genuine issues
of material fact may be created to protect oneself from summary judgment. Quoting Cleveland v.
Policy Mgmt. Sys. Corp., 526 U.S. 795, 806 (1999), the court noted that “a party cannot create a
genuine issue of fact sufficient to survive summary judgment simply by contradicting his or her
own previous statement . . . without explaining the contradiction or attempting to resolve the
11

disparity.” (Id. at 16, alteration in original.) Applying the two-part test developed in Aerel, S.R.L.
v. PCC Airfoils, L.L.C., 448 F.3d 899, 908-09 (6th Cir. 2006),6 the bankruptcy court concluded:
In the current case, [d]efendant first specified that he had no separate
property in the Divorce Agreement filed in December of 2010, but contradicted
that statement in his answer to Trustee’s interrogatories in March of 2013 and in
his memorandum in opposition to Trustee’s motion for summary judgment on
July 1, 2013. Defendant’s failure to list any separate Property in the Divorce
Agreement, and later claiming portions of the Real Estate are separate property, is
a direct conflict satisfying the first element of the Aerel test. Defendant has not
provided any explanation for the contradiction, much less a “persuasive
justification,” satisfying the second element of Aerel. Therefore, the court rejects
Defendant’s separate property claim based on his direct and unexplained separate
property contradiction.
(Prop. FF/CL at 16, footnote omitted.)
Morris argues that the bankruptcy court incorrectly asserted that he had not listed
any separate property in the Divorce Agreement. He points to conclusory language in the
Divorce Agreement to the effect that the parties own five parcels of real estate and that they
“agree that their real estate is Husband’s separate property free and clear of any claim” of Trina.
(Obj. at 69, quoting Divorce Agreement.) He also argues that the bankruptcy judge seemed to be
relying on the original asset disclosures made at the time the divorce proceedings were commenced. He
claims that these documents often contain errors and inconsistencies, but that they are often corrected
over time by way of discovery. That may be true; but Morris has presented no such “corrected”
documentation that might establish that he, in fact, had separate property that he simply mistakenly failed
to disclose in the initial filings of the divorce proceedings. Moreover, and importantly, Morris’s original
asset disclosure was presented in a sworn statement.

6

The court in Aerel applied Cleveland to develop a test for determining whether to consider a contradiction to a
previous statement: “(1) are the current and former statements in direct conflict; and (2) if yes, has the nonmoving
party provided a ‘persuasive justification’ for the contradiction.” (Prop. FF/CL at 16, citing Aerel, 448 F.3d at 90809.)

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This Court finds no error in the bankruptcy court’s ruling with respect to this
issue, and Morris’s Objection No. 1 is overruled.
Objection No. 2: The Bankruptcy Court erred by finding the deviation in child
support down to zero did not create reasonably equivalent value to the Debtor
Under the Shared Parenting Plan made a part of the Divorce Agreement, neither
party was to pay child support to the other. (See MSJ, Ex. I [Doc. 36-9] at 18.) The bankruptcy
judge concluded that this “waiver” did not amount to “reasonably equivalent value” for the
transferred real estate. (Prop. FF/CL at 12.) The bankruptcy court noted that “a party has not
received reasonably equivalent value ‘when the debtor receives only an illusory promise in
return’ as ‘there must be some legitimate and reasonable chance of return.’” (Id., quoting Frank
v. Kiesel (In re Denison), 292 B.R. 150, 154 (E.D. Mich. 2003).) Because of Trina’s financial
condition,7 the bankruptcy court ruled that it was highly unlikely that Trina could have paid child
support and, therefore, any waiver of child support by Morris had no offsetting value. The
bankruptcy court further concluded that Trina’s transfer of her real estate interest in lieu of child
support payments impermissibly harmed the bankruptcy estate’s creditors.
In his objection, Morris argues that “[i]f one party is relieved of financial
obligations, or the payment of marital debts that are equal to or substantially equal to the
unencumbered asset, there is no fraudulent transfer claim.” (Obj. at 71.) He asserts that his

7

The bankruptcy court stated:
The court concludes that reasonably equivalent value could not have been given by Debtor to
Defendant in this circumstance. Debtor has recently been convicted of fraud and her former
employer won a restitution judgment of over $60,000. Additionally, she faces the possibility of
significantly larger civil judgments. Because of the fraud, Debtor has lost her employment, and
this court believes it will be near impossible for Debtor to find a similarly paying job. For these
reasons, the court finds that the waiver of child support payments is illusory and of no value to
Defendant.

(Prop. FF/CL at 12-13.)

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waiver of child support,8 a debt that would ordinarily not be dischargeable in bankruptcy, was of
value to the debtor and, as a result, she agreed to an “unequal, but equitable division of property
order as the limited equity in the real estate was the only asset remaining that could provide a
benefit to the minor children for the financial loss caused by the Debtor.” (Id. at 72.)
The Trustee argues in response that “[c]hild support was eliminated because of
the Debtor’s circumstances, not because Morris opted to forego his right to receive payments.”
(Resp. at 87.) Further, the Trustee points out that the bankruptcy court concluded that Trina
divested herself of a significant asset (the Real Estate) without receiving anything of equivalent
value in return, thus harming the creditors of her estate.
Under Ohio law, courts calculate child support according to a statutory child
support schedule. (See Ohio Rev. Code § 3119.021.) A Child Support Computation Worksheet is
utilized when there is a shared parenting order. (See Ohio Rev. Code § 3119.022.) A court may
deviate from the calculated amount of child support based on several factors. (See Ohio Rev.
Code §§ 3119.22, 3119.23.) Here, the Divorce Agreement approved by the state court simply
stated that “[t]he parties agree that a deviation from the Ohio Child Support Guideline amount is
in the best interests of the children.”
“[T]he standards for measuring the fairness of a property division in the domestic
relations arena and reasonably equivalent value in a fraudulent transfer case are separate and
distinct.” Corzin v. Fordu (In re Fordu), 201 F.3d 693, 707 (6th Cir. 1999). Courts “thus do not
equate the Domestic Relations Court’s approval of [a divorce agreement] with a determination
by the court that the transfers made in connection with the parties’ property division were
supported by reasonably equivalent value.” Id.
8

Morris asserts that Trina’s child support obligation would have totaled $60,049.23. (Obj. at 72.)

14

This Court concludes, as did the bankruptcy court, that there was no value
attributable to Morris’s “waiver” of child support. The section of the Divorce Agreement
addressing child support provides nothing to suggest otherwise, offering only the most generic of
reasons (i.e., “best interests of the children”) for the agreement that neither party would pay child
support.
This Court perceives no error in the findings or conclusion of the bankruptcy
court with respect to reasonably equivalent value as it relates to child support. Accordingly,
Objection No. 2 is overruled.
Objection No. 3: The Bankruptcy Court erred by finding that the agreement by
Morris to assume and pay most, if not all, of the marital debt should not be
considered as fair consideration, reasonably equivalent value, or to support an
equitable, but unequal, division of property and debt order
Morris complains that the bankruptcy court improperly focused on only the
transfer of the Real Estate without giving due consideration to all of the assets and liabilities of
the parties when determining whether there was reasonably equivalent value enjoyed by both
parties to the Divorce Agreement.
The bankruptcy judge noted:
[Morris] argues that his assumption of unsecured marital debts should be
offset against the assets he received in the Divorce Agreement. In Ohio, “debt
incurred [] during marriage is presumed to be marital debt.” In re Neal, 478 B.R.
at 268. However, creditors are not bound by any determination of liability made
by a domestic relations court, and are instead bound only by the contractual
relationship between the parties. Id. at 274. This means that the assumption of
debt by one spouse in a divorce agreement, when that spouse is solely liable on
that debt, conveys no benefit onto the other spouse. Id. Additionally, if both
spouses are liable on the debt, the creditor can seek recovery from either party
regardless of the allocation of debt in the a [sic] divorce agreement. Id. Therefore,
the Bankruptcy Appellate Panel for the Sixth Circuit determined that the
assumption of debt should not be included in a reasonable equivalence
calculation, as Debtor and Defendant were “either not contractually liable for the
15

debt or, if [they were], [they] remained liable for the debt despite [the other
parties’] [sic] assumption thereof.” Id.
(Prop. FF/CL at 16-17.)
The only element of fraudulent conveyance that Morris challenged was the
element of reasonably equivalent value. As explained by the bankruptcy court, the value of any
incurred marital debt is not generally considered in that calculus. In re Neal, supra. Therefore,
the bankruptcy court’s conclusion is not in error and nothing in Morris’s objection convinces the
Court otherwise. Objection No. 3 is overruled.
Objection No. 6: The Bankruptcy Court erred by denying the motion to extend time
to secure a rebuttal appraisal and the motion to strike the Cerny Appraisal
Because this objection is related to Objection No. 4, the Court will take it out of
order and discuss it before No. 4.9
This objection amounts to a discovery dispute. Morris had sought an extension of
time to conduct discovery and to file dispositive motions. He made his motion after discovery
had closed, and after three extensions had already been granted at the Trustee’s request, with the
approval of opposing counsel.10 The bankruptcy court determined that Morris had been provided
sufficient time to conduct discovery; that he had scheduled the Trustee’s deposition, voluntarily
canceled it and, despite an extension, never rescheduled; and that he chose not to obtain his own
appraisal prior to seeing the Trustee’s appraisal, allegedly in an effort to save money but just as

9

Morris incorporates by reference the arguments raised in both Objection No. 4 and Objection No. 5. (See Obj. at
78.) The Court does not perceive any connection to No. 5.
10

As noted in the Trustee’s opposition to Morris’s motion for extension (Bankr. Doc. No. 35), the first extension
was rendered necessary by Morris’s outstanding discovery responses and unavailability for a then-noticed
deposition. The second extension was sought for the express purpose of allowing Morris time to schedule the
Trustee’s deposition, which he never did despite being offered several dates when the Trustee would be available.
The third extension was granted to allow Morris time to produce certain records and because the Trustee’s appraisal
was not yet completed.

16

likely as an attempt to gain some tactical advantage by seeing his opponent’s appraisal before
obtaining his own. (Prop. FF/CL at 20.)
The bankruptcy court’s decision to deny a fourth motion for extension of time to
conduct discovery related to an issue that was germane from the outset is reviewed for abuse of
discretion. In re Valley-Vulcan Mold Co. 5 F. App’x 396, 400-01 (6th Cir. 2001) (concluding
that “the bankruptcy court did not abuse [its] discretion by denying [plaintiff’s] motions to
extend discovery and postpone trial where the [plaintiff’s] behavior appeared dilatory and
tactical.”). This Court finds no abuse of discretion.
This objection also addresses the bankruptcy court’s refusal to strike the Trustee’s
appraisal simply because it was delivered one day after the close of discovery. The bankruptcy
court found no evidence that the Trustee acted in bad faith or that Morris was prejudiced in any
way. Morris has supplied nothing in his objection to contradict the bankruptcy court’s
conclusion. This Court finds no abuse of discretion.
Objection No. 6 is overruled.
Objection No. 4: The Bankruptcy Court erred when it issued its finding, for
summary judgment purposes, that the Depot Street property value is either
$170,000, $125,000 or $100,000
The bankruptcy court noted in its factual recitation that the value of only one of
the five parcels of real estate owned by Morris and Trina was disputed--the Depot Street
property. Because of this factual dispute, the bankruptcy court ultimately concluded that a factfinder would be needed to make the final determination as to value. (See Prop. FF/CL at 22.)
Examining the only available evidence of value, the bankruptcy court stated:
When viewing the Cerny Appraisal’s valuation of the Depot Street
property in the light most favorable to Defendant, a genuine issue of material fact
exists as to the Depot Street property’s value as of January 7, 2011. Based on the
17

above, the valuation of the Depot Street property is either [sic] $170,000
(Trustee’s interpretation of the Cerny Appraisal), $125,000 (Defendant’s
valuation after subtracting the “contributory value”), or $100,000 (the Cerny
Appraisal notes). After accounting for the differences in the Depot Street property
valuations, the equity in the Real Estate could be $265,705, $220,705 or
$195,705, respectively.
(Id. at 14.)
Morris argues in his objection that “it constitutes error for the [b]ankruptcy [c]ourt
to limit the evidence that Morris is entitled to submit to support the correct value of the property
and/or the contributory value provided by Morris through his expenditures and improvements
since the time of the Divorce Decree.” (Obj. at 76.) He asserts that, “the value of this property is
unknown and must be determined at the time of trial.” (Id. at 77.)
In opposition, the Trustee asserts that “there is absolutely no basis for Morris’[s]
objection that the [b]ankruptcy [c]ourt’s finding that one of the three (3) stated values is, and will
be, correct.” (Resp. at 91.) The Trustee argues that, until now, Morris has not challenged the
$45,000 contributory value figure, and has, in fact, tacitly accepted it by arguing that the Trustee
“ignored the $45,000 discount” and “refuses to even acknowledge the $45,000 discount imposed
by her own appraiser[.]” (See Bankr. Doc. No. 44 at 16, 17.)
This Court is of the view that, since there is a factual dispute as to the value of the
Depot Street property, it is for a fact-finder to determine from all the evidence that will be
available what that value was at the time of the Divorce Agreement. The fact that Morris
accepted as true for purposes of a summary judgment argument a discount figure of $45,000,
does not irrevocably tie him to that figure, or any other, at the time of trial. He will be free, as
will be the Trustee, to establish the value in the usual way – by submission of evidence to the

18

fact-finder. Presumably, the Trustee will rely on the Cerny Appraisal and it will be up to Morris
to appropriately rebut that evidence.
That said, this objection must be weighed in light of the discussion of Objection
No. 6. Morris apparently made a tactical decision not to depose the Trustee and not to obtain his
own appraisal of the relevant Real Estate. As a result, he has limited his own ability to submit
evidence at the trial. This Court’s ruling with respect to this objection does not mean Morris will
be permitted to reopen discovery, including expert discovery, to produce new evidence (unless
the bankruptcy judge, in his discretion, were to permit that).
Only to the extent set forth herein, Objection No. 4 is sustained.
Objection No. 5: The Bankruptcy Court erred by limiting the sale expenses to ten
percent (10%) in determining the equity in the real estate
Defendant argued in opposition to the Trustee’s motion for summary judgment
that, if he were forced to return Trina’s half interest in the real property, he could only do so by
selling the property. Under Ohio law, if a sale of property is required to effectuate an equitable
distribution of marital property, the court is permitted to consider the cost of sale when
determining the value of the property. See Ohio Rev. Code § 3105.171(F)(7). In his opposition to
the motion for summary judgment, Morris suggested that the costs could “average between 10%
to 15% of the sale proceeds.” (Bankr. Doc. No. 44 at 12.) For purposes of the motion, he used
10% of the Cerny Appraisal value, which would be $39,000.
The bankruptcy court stated: “[Morris] claimed a 10% reduction and Trustee does
not dispute this point.” (Prop. FF/CL at 13.) It then concluded: “The court finds that [Morris] is
entitled to deduct one-half of the cost of sale, set at 10% of the fair market value of the real
estate, from what he received under the Divorce Agreement.” (Id.)
19

Morris objects to this finding of a 10% reduction, arguing that 10% is the figure
“normally used when the sale takes place as a result of an arms-length negotiation and/or a
normal real estate closing.” (Obj. at 77.) “When there is an auction sale, which is more likely in a
bankruptcy situation, the sale expenses are much higher and usually reach 14% to 15%.” (Id.) He
argues that it is error to lock in the sale expense at 10% when it remains an unknown amount. At
the very least, Morris argues that this is a question of fact, requiring the testimony of witnesses.
In opposition, the Trustee argues that “Morris’[s] attack on the reasonableness of
the [b]ankruptcy [c]ourt’s selection of 10% contravenes his acknowledgment of the [b]ankruptcy
[c]ourt’s familiarity with sale costs in these types of sales and his own suggestion that 10% is
within the bounds of reasonableness.” (Resp. at 93.) The Trustee further asserts that “(i) the
[b]ankruptcy [c]ourt’s application of ten percent (10%) sale costs [should] be adopted for the
purpose of fixing the judgment amount and (ii) that this Court can clarify that actual costs of
sale, which may be subject to [b]ankruptcy [c]ourt approval prior to sale, must be shared equally
by the parties.” (Id. at 94.)
The Court agrees that Morris should be allowed to deduct a portion of the sale
costs, if a sale occurs. If no sale occurs, such costs will obviously not be a factor in determining
value. The Court further concludes that determining the sale costs now simply “for the purpose
of fixing the judgment amount” is premature, see, e.g., Sweet v. Sweet, Nos. 2007-A-0003, 2008A-0003, 2009 WL 1110875, at * 4 (Ohio Ct. App. Apr. 24, 2009) (“consideration of the costs of
sale is only appropriate so long as those consequences are not speculative”) (internal quotes and
citation omitted), and it was error for the bankruptcy court to make this fact-dependent
determination at the summary judgment stage, notwithstanding the bankruptcy judge’s
acknowledged familiarity with the issue. The Trustee’s suggestion that the costs of any sale
20

should be shared equally by the parties is probably a good one, but one that need not be adopted
at this juncture. All that need be said is that, if the real property must be sold to refund its value
to the bankruptcy estate, Morris will be allowed to deduct the cost of the sale in whatever amount
is determined to be equitable. At this point in the proceedings, it is not a foregone conclusion that
the sale costs will be 10% of the sale or of the fair market value.
As set forth herein, Objection No. 5 is sustained. As a result, the bankruptcy
judge’s overall calculation of the Debtor’s equity must be rejected at this juncture because it
incorporated the 10% value for sale costs.

Objection No. 7: The Bankruptcy Court erred by granting summary judgment in
favor of Trustee on Trustee’s fraudulent conveyance claims
This objection does not meet the specificity requirement of Rule 9033(d), a fact
that Morris himself seems to recognize since he “incorporates by reference the applicable law
and argument set forth in Objection Nos. 1 through 6 herein.” (Obj. at 78.) It is merely a catch-all
statement of disagreement with the bankruptcy court’s ruling. This Court is not required to
address such non-specific “objections.”
Objection No. 7 is overruled.
Objection No. 8: The Bankruptcy Court erred by not considering and addressing
the fraudulent transfer provisions specified in R.C. § 1336.05
At first blush, this also appears to be a generalized objection to the overall ruling
of the bankruptcy court. Morris “incorporates by reference the applicable law and argument set
forth in Objection Nos. 1 through 7.” (Obj. at 80.) As such, this Court is not required to address
it.

21

Although the objection specifically cites failure to address a fraudulent transfer
claim under an Ohio statute, there are no arguments that would explain how the bankruptcy court
erred. Comparison of 11 U.S.C. § 548 and Ohio Rev. Code § 1336.05 reveals that they are
virtually identical with respect to the elements that need to be proven.11 Therefore, the discussion
of the elements under federal law is sufficient to address the same elements under Ohio law.
In an abundance of caution, however, the Court notes Morris’s assertion within
this objection that “for summary judgment purposes a question of fact exists as to whether the
transfers that resulted from the Divorce Decree were made with the intent to hinder, delay or
defraud any person or entity that was, or became, a creditor of the Debtor.” (Id. at 80.) If this is
an objection at all, and if it is specific enough, it can only be read as a challenge to the
bankruptcy court’s determination as to the actual fraudulent transfer claim under federal law.12
The bankruptcy court stated:
Fraudulent intent is rarely proven by direct evidence. In re Gabor, 280
B.R. at 157. In order to combat this problem, courts have developed “badges of
fraud,” which, if established, result in fraudulent intent being presumed, shifting
the burden to the Debtor to show that the transfer was not fraudulent. Id. A badge
of fraud arises in circumstances “so frequently attending [a] fraudulent transfer[]
that an inference of fraud arises.” United States v. Isaac, 968 F .2d 1216, 1992
WL 159795, at *4 (6th Cir. 1992) (unpublished). Under Ohio law, badges of fraud
are:
(1) Whether the transfer or obligation was to an insider;
(2) Whether the debtor retained possession or control of the
property transferred after the transfer;
(3) Whether the transfer or obligation was disclosed or concealed;
(4) Whether before the transfer was made or the obligation
incurred, the debtor had been sued or threatened with suit;
11

Under 11 U.S.C. § 548(a)(1)(A), a trustee may avoid a transfer if it is proven that the transfer was made “with
actual intent to hinder, delay, or defraud” a creditor. There is no comparable provision in the Ohio statute.
Section 548(a)(1)(B) permits avoidance if the debtor “received less than a reasonably equivalent value in
exchange for such transfer[.]” Similarly, Ohio Rev. Code § 1336.05(A) requires “a reasonably equivalent value in
exchange for the transfer[.]”
12

As already noted, the cited Ohio statute does not appear to encompass any claim of actual fraudulent transfer.

22

(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 or
the obligation incurred;
(9) Whether the debtor was insolvent or became insolvent shortly
after the transfer was made or the obligation was incurred;
(10) Whether the transfer 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.
O.R.C. § 1336.04(B). Bankruptcy courts in the Sixth Circuit have recognized
many of the above badges of fraud. See e.g., In re Gabor, 280 B.R. at 156. While
one badge of fraud may only raise the court’s suspicion of a debtor, “the
confluence of several badges can be conclusive evidence of fraudulent intent,
absent significantly clear evidence of the debtor's legitimate supervening
purpose.” Id. at 157.
In some cases, courts have shifted the burden of proof from the plaintiff to
the defendant only after illustrating a few badges of fraud and a showing that the
transfer was without adequate consideration. See Green v. Stevenson (ln re
Stevenson), 69 B.R. 49 (Bankr. E.D. Mo. 1986) (cited in Schilling v. Heavrin (In
re Triple S Restaurants. Inc.), 422 F.3d 405, 414-15 (6th Cir. 2005)). However, in
2005 the Sixth Circuit decided that if a sufficient number of badges of fraud are
present, “the burden of proof may shift even where consideration has not been
shown to be inadequate.” In re Triple S Restaurants. Inc., 422 F.3d at 416
(holding that the burden of proof in a fraudulent conveyance action shifted to the
debtor when the trustee was able to show that the transfer benefited the debtor’s
close family members and a corporate insider, even without a showing that the
transfer lacked reasonable equivalence). Once the burden of proof has transferred
to the debtor, if he cannot offer a legitimate reason for the transfer, actual fraud
will be shown. See In re Gabor, 280 B.R. 158; Slone v. Lassiter (ln re GroveMerritt), 406 B.R. 778, 794 (Bankr. S.D. Ohio 2009).
In the current case, Trustee has shown a sufficient number of badges of
fraud to create a presumption of actual fraud. The badges of fraud present in this
case are:
(1) The transfer was made in the face of litigation as well as the
threat of additional future litigation.
23

(2) Debtor was insolvent at the date of the transfer or the transfer
made Debtor insolvent.
(3) The transfer was made without receiving reasonably equivalent
value.
(4) The transfer was of substantially all of Debtor’s assets.
According to Schedule B of Debtor’s bankruptcy petition, Debtor’s
total personal property as of the date of the petition was $6,475. As
Debtor’s one-half interest in the equity in the Real Estate was
8
$132,853, Debtor transferred approximately 95% of her property
in the Divorce Agreement.
8

The $132,853 valuation may change based on the court’s interpretation of the
Cerny Appraisal. Even viewing the Cerny Appraisal in the light most favorable
to Defendant, Debtor still transferred substantially all of her assets.

(5) Debtor obtained a waiver of future child support obligations to
the detriment of current creditors. Debtor’s actions amount to
accelerating an unmatured, future obligation and allowing her to
prepay it. Assets that were immediately available, equity in the real
estate, were traded for a future obligation that has not yet come
due. This is little different than allowing a debtor to prepay ten
years of rent or any other future expense saving tactic at the
expense of current creditors holding liquidated, matured debts.
While this action has not previously been listed as a badge of
fraud, under the particular facts of this case, the court finds the
transaction increases the overall likelihood of actual fraudulent
intent.
This court finds that a sufficient number of badges of fraud are present to
create a presumption of actual fraud. In a similar case, this court found a
presumption of actual fraud when there was (1) actual litigation and threatened
litigation against the debtor; (2) the debtor made the transfer while insolvent; (3)
there was not fair consideration for the transfer; and (4) the transfer was made to a
person with a special relationship to the debtor. In re Gabor, 280 B.R. at 158. The
similarity between the current case and In re Gabor strengthen this court’s belief
that a presumption of actual fraud is appropriate.
(Prop. FF/CL at 17-19, footnote in original.)
Morris offers nothing other than a conclusory assertion that “questions of fact
exist as to whether the transfers made as a result of the entire Divorce Decree were made without
fair consideration.” (Obj. at 80.) However, “fair consideration” is not the issue in an actual

24

fraudulent transfer claim. Morris has presented no record evidence to refute the “badges of
fraud” identified by the bankruptcy judge.
Objection No. 8 is overruled.
IV. CONCLUSION
Having conducted its de novo review of Morris’s objections to the Memorandum
of Opinion, Proposed Findings of Fact and Conclusions of Law, the objections are sustained in
part and overruled in part.
The Court adopts the bankruptcy court’s ultimate conclusion of law that the
Trustee is entitled to summary judgment against Morris for the Debtor’s portion of equity that
was fraudulently transferred. The Court rejects the bankruptcy court’s calculations as to the value
of the equity. This matter is recommitted to the bankruptcy court for further proceedings
consistent with this Memorandum Opinion and Order.

IT IS SO ORDERED.

Dated: February 26, 2015
HONORABLE SARA LIOI
UNITED STATES DISTRICT JUDGE

25