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In re Hadley

United States Court of Appeals, Sixth Circuit

December 21, 2016

In re: Robert F. Hadley, Jr., Debtor.
v.
Barry E. Savage, Defendant-Appellant. Douglas A. Dymarkowski, Trustee, Plaintiff-Appellee,

         Appeal from the United States Bankruptcy Court for the Northern District of Ohio at Toledo. No. 12-33850-John P. Gustafson, Judge.

         ON BRIEF:

          Barry E. Savage, Toledo, Ohio, for Appellant.

          Randy L. Reeves, Lima, Ohio, for Appellee.

          Before: DELK, PRESTON, and WISE, Bankruptcy Appellate Panel Judges.

          OPINION

          PAULETTE J. DELK, Bankruptcy Appellate Panel Judge.

         In this case, the Chapter 7 trustee filed an adversary proceeding to avoid and recover preferential or fraudulent transfers from Debtor's business attorney, Appellant herein. The bankruptcy judge granted the trustee's motion for partial summary judgment, finding that two preferential transfers occurred just six days prior to bankruptcy, and awarded the trustee the value of the transferred property pursuant to 11 U.S.C. § 550(a). A separate hearing was subsequently held to determine the value of the property transferred. The transferee attorney appeals the bankruptcy court's order granting partial summary judgment, the order determining the value of the property transferred, and the order denying his motion to amend and modify the judgment.

         I. ISSUES ON APPEAL

         Appellant raises three issues on appeal:

A. Did the bankruptcy court err in concluding that the transfers at issue were preferential and subject to avoidance under 11 U.S.C. § 547(b)?
B. Did the bankruptcy court clearly err in its determination of the value of the property transferred?
C. Did the bankruptcy court abuse its discretion in denying the transferee's motion for a new trial and for amendment and modification of the judgment?

         II. JURISDICTION AND STANDARD OF REVIEW

         The Panel has jurisdiction to decide this appeal. The United States District Court for the Northern District of Ohio has authorized appeals to this Panel, and neither of the parties has timely elected to have these appeals heard by the district court. 28 U.S.C. § 158(b)(6), (c)(1). A bankruptcy court's final order may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497 (1989) (citation omitted). The bankruptcy court's grant of summary judgment and subsequent orders resolved the underlying adversary proceeding on its merits and the orders appealed are therefore final, appealable orders. Lyon v. Eiseman (In re Forbes), 372 B.R. 321, 325 (B.A.P. 6th Cir. 2007).

         The bankruptcy court's legal conclusions are reviewed de novo, Caradon Doors & Windows, Inc. v. Eagle-Picher Indus., Inc. (In re Eagle-Picher Indus., Inc.), 447 F.3d 461, 463 (6th Cir. 2006), including a decision that applies or interprets state law. See Official Comm. of Unsecured Creditors v. Dow Corning Corp. (In re Dow Corning Corp.), 456 F.3d 668, 675 (6thCir. 2006). "De novo means that the appellate court determines the law independently of the trial court's determination." Treinish v. Norwest Bank Minn., N.A. (In re Periandri), 266 B.R. 651, 653 (B.A.P. 6th Cir. 2001) (citations omitted). "No deference is given to the trial court's conclusions of law." Mktg. & Creative Solutions, Inc. v. Scripps Howard Broad. Co. (In re Mktg. & Creative Solutions, Inc.), 338 B.R. 300, 302 (B.A.P. 6th Cir. 2006) (citations omitted). Decisions to grant summary judgment are reviewed de novo.

         A determination of value is a finding of fact, reviewed under the clearly erroneous standard. Tedeschi v. Falvo (In re Falvo), 227 B.R. 662, 663 (B.A.P. 6th Cir. 1998). " A factual finding is clearly erroneous when 'a court, on reviewing the evidence, is left with the definite and firm conviction that a mistake has been committed.'" United States v. Ray, 803 F.3d 244, 275 (6th Cir. 2015) (quoting United States v. Gunter, 551 F.3d 472, 479 (6th Cir. 2009)).

         The bankruptcy court's denial of a motion to amend and modify a judgment pursuant to Federal Rule of Civil Procedure Rule 59(e) (made applicable by Federal Rule of Bankruptcy Procedure 9023) is reviewed for abuse of discretion. Kreipke v. Wayne State Univ., 807 F.3d 768, 781-82 (6th Cir. 2015). An abuse of discretion occurs where the reviewing court has "'a definite and firm conviction that the trial court committed a clear error of judgment.'" CFE Racing Prods. v. BMF Wheels, Inc., 793 F.3d 571, 584 (6th Cir. 2015) (quotation omitted).

         III. FACTS

         The facts of this case are undisputed. Prior to bankruptcy, Debtor had a long-standing professional and personal relationship with Appellant, Debtor's attorney. Appellant provided legal services for Debtor and Debtor's business interests. Debtor's businesses were flailing, and Debtor was unable to pay the $70, 000 attorney fees that accrued over a period of several years. Appellant was aware that Debtor would be unable to pay his fees, but continued to provide legal services. Debtor's unpaid legal expenses continued to escalate, and on May 19, 2008, Debtor gave Appellant possession of the titles to two of Debtor's vehicles - a 1954 MG and a 1977 Ferrari - as a form of security for payment of the legal fees. There was, however, no written security agreement.

         Appellant continued to provide legal services over the next several years, and the legal fees remained unpaid. When a bank began putting pressure on Debtor for payment, Appellant requested possession of the vehicles to further solidify his security interest. Debtor accordingly turned over possession of the two vehicles to Appellant in the spring (last week of April or first week of May) of 2012. Debtor did not transfer ownership of the vehicles by signing over the two titles and completing assignment of ownership forms, however, until August 15, 2012 - just six days prior to Debtor's Chapter 7 bankruptcy filing on August 21, 2012. Debtor and Appellant agreed that the Ferrari was worth approximately $25, 000 and that the MG was worth approximately $15, 000. Although these amounts were insufficient to cover the amount of the unpaid legal fees, Debtor and Appellant agreed that the transfer would satisfy Debtor's fee debt.

         At the time Appellant obtained ownership of the vehicles, the vehicles were not in working order - both required mechanical work to get them running - with substantial work required on the Ferrari. Appellant presented no evidence, however, of the value of the mechanical work that was performed.

         Once Appellant obtained title to the vehicles, he put the vehicles up as collateral on two bank loans totaling $37, 500, and then, in November 2013, sold the vehicles to a third party for $40, 000. More than eight months after the sale, on August 1, 2014, the Chapter 7 trustee filed an adversary complaint against Appellant pursuant to § 547(b), among other provisions, seeking to avoid Debtor's transfer of ownership to Appellant, and to recover the value of the vehicles. The trustee alleged that the transfer occurred when Debtor signed the titles over to Appellant, just six days prior to bankruptcy. Appellant contended that he had a possessory attorney's lien on the vehicles to secure payment of his fees, which was perfected by possession of the titles in 2007, or, at the latest, on or about May 1, 2012, when he took possession of the vehicles - either date falling outside the 90-day look-back period for avoidance of a transfer under § 547(b). Both parties filed motions for summary judgment.

         Working through the elements of § 547(b), the bankruptcy court concluded that Appellant did not have a valid or perfected attorney lien on the vehicles under Ohio law, and that the transfer occurred when Debtor transferred ownership by signing over the vehicle titles on August 15, 2012, within the look-back period for avoidance. As Appellant failed to show an exception to avoidance pursuant to § 547(c), the bankruptcy court granted the trustee's motion for partial summary judgment, avoiding the transfer, and denied Appellant's summary judgment motion. Because an issue of material fact existed as to the value of the transfer, the bankruptcy judge reserved that issue for a later hearing.

         The bankruptcy court subsequently held a hearing to determine the amount of the judgment in favor of the trustee. While it was agreed that the MG was worth $15, 000, there was a dispute as to the value of the inoperable Ferrari at the time of transfer. Although the cars were ultimately sold for $40, 000, Appellant had been forced to make substantial improvements to the vehicles, especially the Ferrari, during his ownership. The trustee requested the entire $40, 000 sale price plus prejudgment interest from the date the trustee filed the adversary complaint. As the repairs to the vehicles were essentially a barter transaction between Appellant ...


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