Stermer v. Old Republic Nat'l Title Ins. Co. (In re ATIF, Inc.)

629 B.R. 634

IN RE: ATIF, INC., Debtor.

Daniel J. Stermer, as Creditor Trustee, Plaintiff,

v.Old Republic National Title Insurance Company, Old Republic National Title Holding Company, Old Republic Title Companies, Inc., and Attorneys' Title Fund Services, LLC, Defendants.

Case No. 2:17-bk-01712-FMD

Adv. Pro. No. 2:18-ap-531-FMD

United States Bankruptcy Court, M.D. Florida, Fort Myers Division.

Signed March 29, 2021

Lara Roeske Fernandez, Trenam Law, Tampa, FL, for Defendant Old Republic National Title Holding Company.

Darren M. Goldman, Jon Polenberg, Becker & Poliakoff, P.A., Fort Lauderdale, FL, for Plaintiff.

John D. Goldsmith, Trenam, Kemker, Scharf, et al., Tampa, FL, Ashley K. Martin, Fox Swibel Levin & Carroll LLP, Chicago, IL, for Defendant Attorneys' Title Fund Services, LLC.

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND MEMORANDUM OPINION REGARDING REASONABLY EQUIVALENT VALUE

Caryl E. Delano, Chief United States Bankruptcy Judge

THIS PROCEEDING came before the Court for trial on February 16, 17, 18, 19, 22, and 23, 2021, on Plaintiff's Corrected Third Amended Adversary Complaint (the "Complaint").¹ Among other claims, Plaintiff, the Creditor Trustee in this confirmed Chapter 11 case, seeks to avoid Debtor's transfers of property to Defendant Old Republic National Title Insurance Company as actually and constructively fraudulent transfers under 11 U.S.C. § 548 and Chapter 726 of the Florida Statutes, the Florida Uniform Fraudulent Transfer Act.

With the agreement of the parties, the limited issue presented at trial was Plaintiff's claim that Debtor did not receive reasonably equivalent value in exchange for its transfers to Old Republic National Title Insurance Company.² As set forth below, the Court concludes that Plaintiff has not met his burden of proof on the issue of reasonably equivalent value.

I. FACTS

A. The Parties

1. ATIF, Inc. ("Debtor") is a Florida corporation wholly owned by Attorney's Title Insurance Fund, a Florida Business Trust ("ATIF Trust").

2. On March 2, 2017, Debtor filed a petition for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101, et seq. The Court confirmed a plan of reorganization and Plaintiff, Daniel J. Stermer, was appointed as the Creditor Trustee.

3. Old Republic National Title Insurance Company ("OR Title") is a nationwide title insurer that is owned directly or indirectly by Old Republic National Title Holding Company ("OR Holding").³ Together, OR Title and OR Holding are referred to herein as the "OR Defendants."

B. Debtor's Former Business Operations

1. Prior to July 1, 2009, Debtor was licensed by the Florida Office of Insurance Regulation (the "Florida OIR") as a title insurance company. The Florida OIR regulates Florida title insurers.⁴ Under Florida law, insurance companies are required to maintain a surplus of the value of its assets over the value of its policy liabilities.⁵

2. Debtor's business operations as a title insurer included insuring title, underwriting and selling title insurance, selling title searches, managing and supporting insurance agents, and administering title insurance claims. Debtor conducted its business under the trade name "The Fund."⁶

3. Debtor conducted its insurance business through a network of attorney-agents, who were themselves licensed as title insurance agents.⁷

4. Debtor's headquarters were formerly located in an office building it owned in Orlando, Florida (the "Headquarters Property").⁸

5. Debtor owned and maintained a title plant of Florida real property records (the "Title Plant"). Generally, a title plant is a compilation of property records and indexes to property records, such as deeds, mortgages, and judgments, that is used to examine the title to real property in connection with the issuance of title insurance policies.⁹

6. Between 2005 and 2008, Debtor's market share of premiums earned by title insurance companies in the State of Florida ranged from 18.65% to 19.44%. During that same time period, OR Title's market share of premiums earned by title insurance companies in the State of Florida ranged from 6.84% to 7.71%.¹⁰

C. The Joint Venture Agreement

1. Beginning in late 2008, Debtor experienced financial difficulties for three primary reasons: the defalcations by certain attorney-agents in the amount of $60 million; the decline in value of its stock market investments resulting from the global financial crisis; and the reduction in its income from title insurance policies due to the effect of the global financial crisis on the Florida real estate market.¹¹

2. In early 2009, Debtor's surplus (the value of Debtor's assets over its liabilities) fell to a level near the minimum required by Florida law for a title insurer to continue to issue new policies.¹²

3. In early 2009, Debtor's President, Charles Kovaleski, contacted OR Title's President, Rande Yeager, regarding Debtor's financial difficulties.¹³

4. After Mr. Kovaleski's initial contact, Debtor's representatives met with representatives of OR Title at OR Title's headquarters in Minneapolis, Minnesota. Shortly thereafter, OR Holding proposed that Debtor and OR Title enter into a joint venture agreement.¹⁴

5. On July 1, 2009, Debtor and OR Holding entered into a Joint Venture Agreement (the "JVA").¹⁵

6. Under the JVA, Debtor and OR Holding formed a limited liability company known as Attorneys' Title Fund Services, LLC ("ATF Services") and entered into an operating agreement for ATF Services.¹⁶ The JVA states that ATF Services was formed "for the purposes of servicing title insurance agencies."¹⁷ Under the JVA, ATF Services provided services to OR Title in connection with OR Title's issuance and underwriting of title insurance policies, and Debtor agreed that it would not engage in the business of title insurance underwriting or title insurance production.¹⁸

7. The JVA states:

[Debtor] covenants and agrees that it will take all reasonable action to ensure that its former agents sign an agency agreement with [OR Title], and that it will shift all business currently being written by [Debtor] to [OR Title]. All ancillary services being provided by [Debtor] shall be transferred to [a new limited liability company to be known as Attorneys' Title Fund Services, LLC].¹⁹

8. Upon obtaining approval of the JVA from the Florida OIR, Debtor surrendered its license to sell title insurance. However, Debtor maintained its license to service and manage its existing title insurance policies and policy-related claims.²⁰

9. Under separate contribution agreements attached to the JVA, Debtor contributed the Title Plant and related subscription agreements to ATF Services, and OR Holding contributed $10,000,000.00 in cash and a promissory note for $700,000.00 to ATF Services.²¹

10. Debtor and OR Holding held equal interests in ATF Services.²²

11. As of July 1, 2009, 544 of Debtor's 568 employees became employees of ATF Services; Debtor retained 24 employees.²³

12. In addition, a number of Debtor's officers and senior employees became officers and employees of ATF Services. For example, as of June 30, 2009, Ted Conner was Debtor's Associate General Counsel.²⁴ Effective July 1, 2009, Mr. Conner became an employee of ATF Services, as Associate General Counsel and Vice President for approximately two years, and as General Counsel and Senior Vice President for approximately three years. In July 2009, Mr. Conner was appointed an Assistant Vice President of OR Title. In 2014, Mr. Conner ceased being an employee of ATF Services and became a Senior Vice President of OR Title (which position he still holds) and Deputy General Counsel and Vice President of OR Holding (which positions he still holds). As Deputy General Counsel of OR Holding, Mr. Conner is counsel to all subsidiaries of OR Holding, including ATF Services.²⁵

13. In addition, effective July 1, 2009, the following senior management employees terminated their employment with Debtor and became employees of ATF Services:

(a) Debtor's Chief Financial Officer, Jimmy Jones, became ATF Services' President and Chief Executive Officer. Mr. Jones presently serves as ATF Services' Chief Executive Officer.²⁶

(b) Debtor's general counsel, Norwood Gay, became ATF Services' Chief Legal Officer.²⁷

(c) Debtor's Controller, Deanna Bolger, joined ATF Services effective July 1, 2009, and is currently ATF Services' Chief Financial Officer and Chief Information Officer.²⁸

(d) Debtor's Human Resources Director, Gwen Geier, became ATF Services' Senior Vice President and Chief Financial Officer. Ms. Geier is currently ATF Services' President.²⁹

(e) Jeannie L. Calabrese, a Debtor employee, became ATF Services' Senior Vice President and Chief Information Officer.³⁰

(f) Sharon Priest, a Debtor employee, became ATF Services' Senior Vice President and Chief Operating Officer.³¹

14. At some point in time, Debtor's president at the time Debtor entered into the JVA, Charles Kovaleski, became a member of the Board of Directors of Old Republic International Corporation, the parent company of OR Title and OR Holdings.³²

15. Commencing July 1, 2009, ATF Services' principal place of business was located in the Headquarters Property, which it leased from Debtor.³³

16. After July 1, 2009, most of Debtor's attorney-agents signed title agency agreements with OR Title.³⁴

17. After July 1, 2009, Debtor's business was to administer its previously issued title policies and manage policy claims. This is referred to as "running off its claims tail."³⁵

18. Commencing July 1, 2009, ATF Services—not Debtor—maintained and updated the Title Plant.³⁶ Deanna Bolger, ATF Service's CFO since 2014, testified that the cost for ATF Services to maintain the Title Plant is approximately $10 million per year.³⁷

19. ATF Services earns fees from OR Title and third parties for searches of real property records conducted on the Title Plant in connection with their issuance of title insurance policies.³⁸

20. Debtor did not retain a copy of the Title Plant as it existed on July 1, 2009.

21. After Debtor...