Dymarkowski v. Berndt (In re Berndt)

In Re: Jessica R. Berndt, Debtor.

Douglas A. Dymarkowski, Trustee Plaintiff, v. Jeremy Berndt, Defendant.

Case No. 17-32856

Adv. Pro. No. 19-03057

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO WESTERN DIVISION

June 24, 2021

The court incorporates by reference in this paragraph and adopts as the findings and analysis of this court the document set forth below. This document has been entered electronically in the record of the United States Bankruptcy Court for the Northern District of Ohio.

Chapter 7

Judge John P. Gustafson

MEMORANDUM OF DECISION

This Adversary Proceeding is before the court on Plaintiff-Trustee Douglas A. Dymarkowski's Complaint to Avoid Fraudulent Transfer and Recover Property ("Complaint"). [Doc. #1]. Trustee seeks to avoid the transfer of a 2016 Suzuki GSX1300RAL6, VIN JS1GX72B8G2100647 to Jeremy Berndt as a fraudulent transfer under 11 U.S.C. §§548 and 544.

JURISDICTION AND VENUE

The court has jurisdiction over this adversary proceeding under 28 U.S.C. §1334(b) as a civil proceeding arising in or related to a case under Title 11. The Chapter 7 case and all proceedings in it arising under Title 11, including this adversary proceeding, have been referred to this court for decision. 28 U.S.C. §157(a); General Order 2012-7 of the United States District Court for the Northern District of Ohio. This is a core matter under 28 U.S.C. §157(b)(2)(H).¹ Venue is proper under 28 U.S.C. §1409(a).

FINDINGS OF FACT

"In an action tried on the facts without a jury . . . , the court must find the facts specially and state its conclusions of law separately." Fed. R. Civ. P. 52 (a)(1). The court's findings of fact based on the evidence submitted in the record and the evidentiary hearing testimony are set forth below. See e.g., Corzin v. Fordu (In re Fordu), 201 F.3d 693, 710 (6th Cir. 1999). Whether or not specifically referred to in this Memorandum of Decision, the court has examined all the submitted materials and considered the evidence presented by the parties, has observed the demeanor and credibility of the witnesses' testimony, and has carefully weighed the evidence in determining the facts pertinent to the case and drawing conclusions therefrom.

I. Procedural Background and Parties.

Jessica R. Berndt is the Debtor in the underlying Chapter 7 bankruptcy case. Jeremy Berndt, the Defendant in this adversary proceeding, married the Debtor in November of 2015. Plaintiff, Douglas A. Dymarkowski, is the Chapter 7 Trustee in the above-captioned case. [Ex. 8].

On August 24, 2019, the Trustee commenced this adversary proceeding by filing a complaint. [Doc. #1]. Defendant filed his Answer on September 24, 2019. [Doc. #7].

On October 31, 2019, the court entered an Adversary Proceeding Scheduling Order, [Doc. #9], setting November 26, 2019 as the date for further pretrial hearing. A second Adversary Proceeding Scheduling Order was entered designating February 25, 2020 as the date for further pretrial hearing and January 31, 2020 as the deadline for completion of discovery. [Doc. #13]. A third Adversary Proceeding Scheduling Order was entered setting April 9, 2020 as the deadline for the parties to file their respective exhibits and witness lists. [Doc. #19]. April 14, 2020 was scheduled as the trial date. [Id.]

On or about March 24, 2020, this court entered an order vacating the trial set for April 14, 2020 and continued the matter based on ongoing public health concerns. [Doc. #21].

On August 27, 2020, after the matter was set for further hearing, [Doc. #23], the court entered an Adversary Proceeding Scheduling Order setting October 6, 2020 as the date for further telephonic pretrial conference. [Doc. #26]. Subsequently, Trustee and Defendant filed their respective Exhibit and Witness List. [Doc. ##33, 34]. A Video Evidentiary Hearing was held on January 14, 2021. [Doc. #34].

II. Facts.

On November 21, 2015, Defendant and Debtor were married. Before Debtor filed for bankruptcy, the couple bought the Suzuki motorcycle on July 18, 2016, which was titled in both of their names.

On September 7, 2017, Debtor filed her voluntary petition for relief under Chapter 7 of the Bankruptcy Code. Debtor's bankruptcy schedules did not disclose any transfer related to the Suzuki, but she did disclose her interest in the Suzuki. Debtor's bankruptcy schedules listed assets totaling $87,054.51 and liabilities totaling $197,929.83.

Although the Suzuki is titled in the names of both Debtor and Defendant, Debtor paid the entire purchase price for the Suzuki. The purchase of the Suzuki occurred within two years of the Debtor seeking bankruptcy relief. At the time of the transfer, Debtor was insolvent. 11 U.S.C. §§101(32)(A); 548(a)(1)(B)(ii)(I). [Doc. #1, ¶22]; [Doc. #7, ¶22].

Prior to filing bankruptcy the Debtor was a "house flipper" who had fixed up and sold several houses. Defendant did work on the side as a "handyman." In mid-2015, Debtor purchased 5702 Silver Fox Court, Anderson, Indiana ("Silver Fox Court") and hired Defendant to do work on that property, getting it ready for sale. Initially, the Debtor and Defendant had just a business relationship. While working on Silver Fox Court, the Debtor and the Defendant developed a personal relationship that led to their November 2015 marriage.

Before purchasing the Suzuki, it appears that the work on Silver Fox Court had been mostly completed, and it was listed for sale. Both Debtor and Defendant were presented with evidence that they were mistaken in their belief that the proceeds from Silver Fox Court were used to purchase the Suzuki motorcycle, and could not remember clearly where the money had come from. Counsel for the Trustee cited to the Statement of Financial Affairs, P. 38, Q. 18, listing the transferof Silver Fox Court as having occurred in October, 2016, after the purchase of the motorcycle.²

In her testimony, Debtor confirmed the purchase date of the Suzuki as July 18, 2016, the balance paid on delivery as $13,004.32, with a unit price of $11,999.00. She also identified her signature on Exhibit 2. Debtor testified that she believed she owed Defendant because Defendant had performed most of the repairs and renovations for Silver Fox Court. As a result, Debtor purchased the Suzuki to serve as the compensation for Defendant's repairs and services in renovating the Silver Fox Court property for sale.

Debtor testified that although they were co-owners of the Suzuki on the title, it was her belief that the motorcycle belonged to, and had always belonged to, Defendant.³ Nevertheless, Debtor had listed her interest in the Suzuki on Schedule A/B, with a value of $9,500.00. [Ex. 1, Schedule A/B: Property, p. 11]. Debtor testified that they purchased the Suzuki together since it was their first major purchase as a married couple, but primarily the purchase compensated Defendant for his services and repairs on Silver Fox Court.

Debtor testified she previously paid her mother and uncle for similar refurbishing services on the houses that she "flipped." Debtor testified that she listed Silver Fox Court for sale three months before it sold. Debtor stated she did not list Defendant as a creditor in her bankruptcy. Debtor testified that she made no other significant transfers before filing for bankruptcy. Lastly, Debtor testified that Defendant and Debtor had subsequently traded in the Suzuki for a jet ski.

Defendant began his testimony by identifying his signature on Exhibit 2, the Defendant testified that the Suzuki was his compensation for providing about 500 hours of repairs and other services in preparing the Silver Fox Court property for sale. Defendant confirmed that Debtor provided all the materials needed to work on Silver Fox Court. [Ex. 5, Interrogatory No. 7, p. 9]. Defendant estimated that his work, repairs, and services were about $25,000 based on his usual rate of $50 an hour. [Ex. 5, Interrogatory No. 7, p. 9]. Debtor described the work he performed as: reframing the kitchen and basement; adding a bedroom and closet to the basement; some electrical and plumbing work; installing two new bathrooms; and installing a new deck and newroof.

Although Defendant testified that he kept contemporaneous records of his repairs and services, Defendant did not produce receipts, invoices, or other written documentation evidencing the repairs in response to Trustee's Request for Production. Debtor and Defendant's agreement for services was not in writing. Before marrying the Debtor, Defendant testified that he expected full payment for his services.

The Trustee questioned the Debtor's assertion that $25,000 worth of work was done on the Silver Fox Court property.

On cross examination, Defendant testified that he is a police officer for the City of Toledo. On redirect, when asked if Defendant had any records of his repairs, Defendant testified he did not. However, the court found Defendant's testimony as to the specific renovations made to Silver Fox Court, which were extensive, to be credible. The court does not find, and does not need to find, that the value of Defendant's services was actually $25,000.

After closing arguments, Trustee and Defendant agreed to admit Exhibits 1, 2, and 4 through 8 into evidence. The court asked Trustee and Defendant to submit post-trial briefs with law the court should apply in deciding the issue of whether Debtor received "reasonably equivalent value." Trustee submitted his post-trial brief. [Doc. #39]. Defendant did not submit a post-trial brief.

CONCLUSIONS OF LAW

I. Constructively Fraudulent Transfers.

Subsection 548(a)(1)(B) allows a trustee to avoid a constructively fraudulent transfer. Under this subsection, a debtor's actual intent in making the transfer is irrelevant.

The Bankruptcy Code's constructive-fraud provision states:

(a)(1) The trustee may avoid any transfer . . . of an interest of the debtor in property . . . that was made . . . on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or

...