Harrison v. Creviston

{¶ 43} I am astonished that the trial court would grant, and my colleagues would affirm, a summary judgment for the plaintiffs in a case as fact-bound as this. The plaintiffs, of course, bear the burden of proving their case. While in some cases, the plaintiff's proof may be unrefuted or certain elements of the case may be admitted, this is not one of them. Cf. Cleveland Mack Leasing, Ltd. v. Chef's Classics,Inc., Mahoning App. No. 05 MA 59, 2006-Ohio-888,2006 WL 459269.

{¶ 44} The majority opinion ignores one of the most fundamental tenets of our business laws: Cash is fungible. See, e.g., Adkins v. Perry (2004), 116 Fed.Appx. 605, 611. Creviston was not a bailee of the Harrisons' funds. Cf.Edwards v. Horsemen's Sales Co. (1989),148 Misc.2d 212, 213, 560 N.Y.S.2d 165. He did not hold the Harrisons' money in a separate fund on their behalf, but rather commingled their funds with whatever other funds he may have had in his bank account. Once he did so, the Harrisons' money lost its separate character. The Harrisons, like Finley and LaQuatra before them, had only Creviston's promise to make investments on their behalf. Consequently, it is simply wrong to say that Creviston used "the Harrisons'" money to repay LaQuatra and Finley.

{¶ 45} To suggest that it was fundamentally unfair for Finley and LaQuatra to have recovered anything from Creviston because Creviston lost "their" money ignores the fact that Finley and LaQuatra had legitimate claims against Creviston. There is no evidence that Finley and LaQuatra knew that Creviston had lost their funds at the time they filed suit against him; based on Creviston's misrepresentations, they may well have believed that their accounts had successfully grown since they invested with him. This belief may have been proved wrong in the course of the litigation, but it did not make their claims any less legitimate. Furthermore, if Finley and LaQuatra learned that Creviston had lost "their" money, they may well have had other claims against him for negligence, fraud, or the like. These claims provided ample grounds for Creviston to settle with Finley and LaQuatra, even if he did lose the investments he made for them.

{¶ 46} The Harrisons presented two claims for relief against Finley and LaQuatra, a claim for unjust enrichment and a claim for fraudulent transfer. In my opinion, the common pleas court improperly granted summary judgment on both of these claims. Because the majority believes that the judgment on the fraudulent-transfer claim alone warrants affirmance, I will address that claim first.

Fraudulent-Transfer Claim

{¶ 47} A transfer made by a debtor may be deemed fraudulent as to a creditor if the transfer was made with actual intent to defraud a creditor or if the transfer was constructively fraudulent. R.C. 1336.04(A). In determining whether a debtor made a transfer with actual intent to defraud a creditor, R.C. 1336.04(B) provides that the court should consider "all relevant factors, including, but not limited to, the following:

{¶ 48} "(1) Whether the transfer or obligation was to an insider."

{¶ 49} There was no evidence that Finley and LaQuatra were insiders. The term "insider" is defined in R.C.1336.01(G). When the debtor is an individual, the term includes "(a) A relative of the debtor or of a general partner of the debtor; (b) A partnership in which the debtor is a general partner; (c) A general partner in a partnership described in division (G)(1)(b) of this section; (d) A corporation of which the debtor is a director, officer, or person in control." Finley and LaQuatra were creditors of Creviston; there is no evidence that they were either his relatives, partners, or relatives of his partners. There is no evidence of this important badge of fraud.

{¶ 50} "(2) Whether the debtor retained possession or control of the property transferred after the transfer."

{¶ 51} There is no evidence that Creviston retained possession or control of the funds he transferred to Finley and LaQuatra.

{¶ 52} "(3) Whether the transfer or obligation was disclosed or concealed."

{¶ 53} There is no evidence that Creviston either disclosed to the Harrisons the transfer to Finley and LaQuatra or concealed the transfer from them. In concluding that Creviston "concealed" the transfer from the Harrisons, the majority confuses concealment with nondisclosure. This confusion appears to be based, at least in part, on the mistaken belief that the Harrisons' funds retained their separate character after they were transferred into Creviston's bank account, creating some sort of disclosure duty as to the funds' disposition. I firmly disagree: Once the funds were transferred to Creviston, they were his; he had no obligation to disclose to the Harrisons what he did with those particular funds. Consequently, his nondisclosure cannot be seen as concealment.

{¶ 54} "(4) Whether before the transfer was made or the obligation was incurred, the debtor had been sued or threatened with suit."

{¶ 55} In my opinion, the majority misconstrues this "badge of fraud." I believe that the purpose of this badge is to demonstrate that the debtor had a motive to hide assets from the threatening creditor. See, e.g., Spangler v.Redick (1991), 74 Ohio App.3d 798, 804, 600 N.E.2d 720 (plaintiff alleged that defendant attempted to conceal assets after he learned of plaintiff's suit). Its purpose isnot, as the majority suggests, to show that the debtor had some reason to make a transfer to the threatening creditor to the detriment of other creditors. Here, Creviston had actually been sued by Finley and LaQuatra and others, to whom he made the payments. There was no threat of suit by the Harrisons at that time, nor was there any evidence of any other litigation by other creditors against him. The fact that Creviston paid a creditor with a pending claim against him is not evidence of any actual fraud on other creditors.

{¶ 56} "(5) Whether the transfer was of substantially all of the assets of the debtor."

{¶ 57} There is no evidence of Creviston's assets at the time of the transfer. Consequently, we cannot fully assess this badge of fraud. However, it is clear that on the day before these transfers were made, Creviston had the $200,000 given to him by the Harrisons. Even if we make the drastic assumption that this $200,000 constituted all of Creviston's assets at the time, the transfer of $115,000 — roughly 58 percent of the total — is not a transfer of "substantially all" of Creviston's assets.

{¶ 58} The majority relies on Creviston's August 2003 involuntary bankruptcy as evidence that "he had no funds"nine months earlier. While the involuntary bankruptcy might be cause for further investigation as to the state of Creviston's finances in November 2002, the assumption that he had no assets³ nine months earlier is unwarranted. This assumption certainly cannot support the conclusion that there is no genuine issue of material fact whether Creviston transferred "substantially all" of his assets to Finley and LaQuatra.

{¶ 59} "(6) Whether the debtor absconded."

{¶ 60} Creviston did not abscond.

{¶ 61} "(7) Whether the debtor removed or concealed assets."

{¶ 62} There is no evidence that Creviston removed or concealed assets. Again, the majority's determination that he did conceal assets from the Harrisons implies that he had some duty to trace "their" funds. He did not.

{¶ 63} "(8) Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred."

{¶ 64} I cannot say as a matter of law that Creviston did not receive consideration reasonably equivalent to the amounts he paid Finley and LaQuatra. Rather, the evidence discloses that this is a genuine issue of material fact.

{¶ 65} By focusing on the narrow point that Creviston lost Finley and LaQuatra's money, the majority loses sight of the fact that Finley and LaQuatra had other arguably valid claims against Creviston that were subject to settlement and may have provided reasonably equivalent value. The majority recognizes that Finley and LaQuatra were "victimized" by Creviston, yet fails to recognize that this victimization itself may have created a compensable claim.

{¶ 66} "(9) Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred."

{¶ 67} On the evidence before us, it is impossible to discern whether Creviston was insolvent or became insolvent shortly after the transfers were made to Finley and LaQuatra. "A debtor is insolvent if the sum of the debts of the debtor is greater than all of the assets of the debtor at a fair valuation." R.C. 1336.02(A)(1). There is no evidence of Creviston's debts and assets at the time this transfer was made. The Harrisons urge us to conclude that Creviston was insolvent because he was unable to repay them after he transferred the funds to Finley and LaQuatra. There is insufficient evidence in the record to reach this simplistic conclusion. Moreover, the fact that Creviston was involuntarily placed in bankruptcynine months later does not demonstrate that he became insolvent "shortly after" the transfer.

{¶ 68} "(10) Whether the transfer occurred shortly before or shortly after a substantial debt was incurred."

{¶ 69} The majority opinion suggests that this badge of fraud is proved because Creviston incurred the debt to Finley and LaQuatra at approximately the same time that he made the transfer to them. This analysis makes little sense. First, Finley and LaQuatra's filing of a lawsuit was not the event which created the debt from Creviston to them; the lawsuit was merely their method of collecting the asserted debt. More important, it is not fraudulent to transfer funds to a legitimate creditor. Therefore I disagree with the majority's analysis of this "badge," and would find that there is no evidence that Creviston incurred a substantial debt at approximately the same time he transferred these funds to Finley and LaQuatra.

{¶ 70} "(11) Whether the debtor transferred the essential assets of the business to a lienholder who transferred the assets to an insider of the debtor."

{¶ 71} There is no evidence that such a transfer occurred.

{¶ 72} Viewing the evidence in the light most favorable to Finley and LaQuatra, the nonmoving parties, genuine issues of material fact preclude summary judgment on the question whether Creviston's transfer of funds to them was actually fraudulent as to the Harrisons, pursuant to R.C.1336.04(A)(1).

{¶ 73} The same genuine issues of material fact also preclude summary judgment on the question whether the transfer was constructively fraudulent under R.C. 1336.04(A)(2). A transfer is constructively fraudulent if the debtor made the transfer "[w]ithout receiving a reasonably equivalent value in exchange for the transfer * * * and if either of the following applies: (a) [t]he debtor was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; (b) [t]he debtor intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due." R.C.1336.04(A)(2). As noted above, there is a genuine issue of fact whether Creviston received a reasonably equivalent value in exchange for the transfer to Finley and LaQuatra. Neither party submitted any evidence from which we could determine whether Creviston's assets were unreasonably small in relation to his business or whether he intended to incur debts beyond his ability to pay them.

{¶ 74} Finally, genuine issues of material fact preclude summary judgment on any fraudulent-transfer claim pursuant to R.C. 1336.05. R.C. 1336.05(A) provides that "[a] transfer made * * * by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made * * * if the debtor made the transfer * * * without receiving a reasonably equivalent value in exchange for the transfer * * * and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer * * *." Assuming that the Harrisons had a "claim" — that is, a right to payment — immediately after they deposited their money with Creviston, there are genuine issues of material fact whether Creviston received "reasonably equivalent value" from Finley and LaQuatra in exchange for the transfer and whether he was insolvent at the time or became insolvent as a result of the transfer to Finley and LaQuatra.

Unjust-Enrichment Claim

{¶ 75} In order to recover on a claim of unjust enrichment, the party asserting the claim must demonstrate "(1) a benefit conferred by a plaintiff upon a defendant; (2) knowledge by the defendant of the benefit; and (3) retention of the benefit by the defendant under circumstances where it would be unjust to do so without payment." Hambleton v. R.G.Barry Corp. (1984), 12 Ohio St.3d 179, 183, 12 OBR 246,465 N.E.2d 1298. A claim for unjust enrichment, or quantum meruit, "rests upon the equitable principle that one shall not be permitted to unjustly enrich himself at the expense of another without making compensation therefor." Natl. City Bank v.Fleming (1981), 2 Ohio App.3d 50, 57, 2 OBR 57,440 N.E.2d 590. "As ordinarily defined, the concept of unjust enrichment includes not only loss on one side but gain on the other, with a tie of causation between them." Zele Funeral Home v.Buttry (1994), 96 Ohio App.3d 588, 591, 645 N.E.2d 792, fn. 2.

{¶ 76} "It has long been the law of equity that a person who confers a benefit either directly or indirectly upon another in the course of performance of a contract with a third person is not entitled to compensation or restitution from the other party merely because of the failure to [sic] performance by the third party. * * * However, where it appears from all the facts that the conferral of such benefit was the product of fraud, misrepresentation or bad faith by the party accepting and retaining such benefit, equity will imply an obligation to make payment therefor." Natl. City Bank,2 Ohio App.3d at 58, 2 OBR 57, 440 N.E.2d 590.

{¶ 77} A case similar to the present case was recently decided by the Sixth District Court of Appeals inFirstar Bank, N.A. v. Prestige Motors, Inc., Huron App. No. H-04-037, 2005-Ohio-4432, 2005 WL 2049174. InFirstar, an automobile dealer drew $750,000 on a bank credit account after the account was closed. It used these funds, in part, to pay Chrysler Financial Corporation ("CFC"). Among other things, Firstar asserted that CFC was unjustly enriched by the payments it received from Prestige, arguing that CFC knew or "would have known had it exercised due diligence" that the funds were from an illegal source. In responding to this argument, the court held, at ¶ 13:

{¶ 78} "Based upon the allegations in the complaint, the `unjust enrichment' Firstar seeks to recover was actually a benefit conferred upon Prestige, who then simply chose to use the funds to repay certain debts, including loans to CFC. * * * [N]othing in the complaint demonstrates that CFC had any duty to monitor finances or to inquire about or protect Firstar's interests. Absent some contractual duty, we can discern no Ohio law which requires one creditor to monitor the finances of its debtor for the purpose of protecting the interests of other creditors."

{¶ 79} In this case, the Harrisons claimed that they had conferred a benefit on Finley and LaQuatra by providing money to Creviston, which Creviston in turn paid to Finley and LaQuatra. The evidence shows that the Harrisons gave the money to Creviston for the purpose of making investments on their behalf, not for the purpose of paying Finley and LaQuatra. Thus, there is no causal relationship between the Harrisons' loss and Finley's and LaQuatra's gain. As in Firstar, any "benefit" the Harrisons conferred was conferred upon Creviston, not on Finley and LaQuatra. Furthermore, Finley and LaQuatra were creditors of Creviston; they had a pending action against Creviston for the money they claimed he owed them from investments he made on their behalf. Therefore, the funds they received from Creviston were not a "benefit," but only the fulfillment of Creviston's asserted legal obligation to them. Under these circumstances, I would find as a matter of law that the payment by Creviston to Finley and LaQuatra was not a benefit conferred by the Harrisons on Finley and LaQuatra.

{¶ 80} I would hold that the trial court erred by granting summary judgment to the Harrisons. I would reverse the judgment of the trial court and remand the cause for further proceedings on the fraudulent-transfer claim, with instructions to enter judgment for Finley and LaQuatra on the unjust-enrichment claim. Accordingly, I dissent.

³ That is, that he had no assets other than the funds transferred to him by the Harrisons.