Koleti v. Mehlman

[Cite as Koleti v. Mehlman, 2020-Ohio-2708.]
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
DILEEP KOLETI, : APPEAL NO. C-190015
TRIAL NO. A-1606520
and :
ANUSHA KOLETI, : O P I N I O N.
Plaintiffs-Appellees, :
vs. :
MARTHA MEHLMAN, :
Defendant-Appellant. :
Civil Appeal From: Hamilton County Court of Common Pleas
Judgment Appealed From Is: Reversed and Cause Remanded
Date of Judgment Entry on Appeal: April 29, 2020
Cors and Bassett and Michael L. Gay, for Plaintiffs-Appellees,
Cornetet, Meyer, Rush and Stapleton and Thomas W. Jacobs, for Defendant-
Appellant.
OHIO FIRST DISTRICT COURT OF APPEALS
Z A Y A S , Judge.
{¶1} Defendant-appellant Martha Mehlman appeals the judgment of the
Hamilton County Court of Common Pleas, which awarded $8,833.91 in attorney fees
to plaintiffs-appellees Dileep and Anusha Koleti on a claim arising under the Ohio
Uniform Fraudulent Transfer Act (“OUFTA”), R.C. Chapter 1336. For the following
reasons, we reverse the trial court’s judgment.
Facts and Procedural History
{¶2} The Koletis’ case against Martha stemmed from a business deal
between the Koletis and Martha’s now-deceased husband, Timothy Mehlman.
Acting as a real estate broker, Timothy helped facilitate a contract between the
Koletis and another individual for the purchase of a gas station and convenience
store. The Koletis gave Timothy a $50,000 deposit for the purchase, but later found
out that the contract was fraudulent—the individual they contracted with was not the
owner of the property. On October 29, 2015, the Koletis filed a lawsuit against
Timothy to recover their deposit and punitive damages. A year later, the Koletis
obtained a judgment against Timothy for $51,911, plus interest, and sanctions in the
amount of $1,072.50. Timothy was also indicted on two counts of theft and one
count of unauthorized use of property for depriving the Koletis of their deposit
money and obtaining it through deception. Timothy eventually pled guilty to
unauthorized use of property, and the counts for theft were dismissed.
{¶3} After obtaining the judgment against Timothy, the Koletis tried to
recover their money by garnishing a Fifth Third Bank account into which the money
was initially deposited. This account was in Martha’s name. The money, however,
was withdrawn at some point prior to the Koletis’ attempt to collect. On November
29, 2016, the Koletis filed suit against Martha to recover the funds that they were
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awarded in their judgment against Timothy. They brought the action solely pursuant
to the OUFTA, alleging that Martha had received the Koletis’ money from Timothy,
and had secreted the funds “in an attempt to defraud her husband’s creditors.” The
Koletis also demanded “fees incurred as a result of [Martha’s] fraudulent conduct.”
{¶4} On September 14, 2017, the judgment against Timothy was satisfied in
full. Timothy died in April of 2018. Still, a bench trial in the case between the
Koletis and Martha was held on October 31, 2018, wherein the Koletis, having
already recovered their judgment from Timothy, sought only to recover their
attorney fees incurred in the action against Martha.
{¶5} At trial, Martha testified that she let Timothy use and deposit any
money into the Fifth Third Bank account in her name for his company, Global
Commercial Broker. She testified that she signed blank checks from the account and
did not make any deposits. She also testified that the money was not hers, and that
she did not find it unusual that Timothy was using an account in her name to deposit
money for his business until the Koletis filed a lawsuit against her. She said that
Timothy told her to open the account because that’s what his attorney told him.
{¶6} The trial court entered judgment in favor of the Koletis and awarded
them attorney fees in the amount of $8,833.91.
Analysis
{¶7} Martha now appeals, asserting two assignments of error. In her first
assignment of error, Martha states that the trial court erred in finding in favor of the
Koletis. In her second assignment of error, Martha argues that the trial court erred
in awarding the Koletis attorney fees that were incurred after the judgment against
Timothy had been satisfied.
{¶8} Appellate review of a civil bench trial looks to whether the trial court’s
judgment is against the manifest weight of the evidence. Eastley v. Volkman, 132
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Ohio St.3d 328, 2012-Ohio-2179, 972 N.E.2d 517. When reviewing the manifest
weight of the evidence, we review the entire record, weigh the evidence and all
reasonable inferences, consider the credibility of the witnesses, and determine
whether the trial court “clearly lost its way and created a manifest miscarriage of
justice.” Fischoff v. Hamilton, 1st Dist. Hamilton No. C-120200, 2012-Ohio-4785, ¶
11. We are mindful that, in a bench trial, “the trial judge is best able to view the
witnesses and observe their demeanor, gestures and voice inflections, and use these
observations in weighing the credibility of the proffered testimony.” Seasons Coal
Co., Inc. v. Cleveland, 10 Ohio St. 3d 77, 80, 461 N.E.2d 1273 (1984).
{¶9} “Ohio’s Uniform Fraudulent Transfer Act was enacted to create a right
of action for a creditor to set aside an allegedly fraudulent transfer of assets.”
(Internal citations omitted.) DiBlasio v. Sinclair, 7th Dist. Mahoning No. 08-MA-23,
2012-Ohio-5848, ¶ 33. This essentially prevents debtors from divesting themselves
of assets, either to avoid paying pending claims or in anticipation of future claims by
creditors.
{¶10} In this case, the Koletis’ cause of action is premised on R.C. 1336.07,
which states in relevant part:
(A) In an action for relief arising out of a transfer or an obligation that
is fraudulent under section 1336.04 or 1336.05, a creditor * * * may
obtain one of the following:
(1) Avoidance of the transfer or obligation to the extent necessary to
satisfy the claim of the creditor;
(2) An attachment or garnishment against the asset transferred or
other property of the transferee in accordance with Chapters 2715. and
2716. of the Revised Code;
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(3) Subject to the applicable principles of equity and in
accordance with the Rules of Civil Procedure, any of the
following:
(a) An injunction against further disposition by the debtor or a
transferee, or both, of the asset transferred or of other property;
(b) Appointment of a receiver to take charge of the asset transferred or
of other property of the transferee;
(c) Any other relief that the circumstances may require.
(Emphasis added.)
{¶11} R.C. 1336.04 states, in pertinent part:
(A) A transfer made or an obligation incurred by a debtor is
fraudulent as to a creditor, whether the claim of the creditor arose
before, or within a reasonable time not to exceed four years after, the
transfer was made or the obligation was incurred, if the debtor
made the transfer or incurred the obligation * * *:
(1) With actual intent to hinder, delay, or defraud any creditor of the
debtor[.]
(Emphasis added.)
{¶12} Therefore, to succeed on their claim under the OUFTA, the Koletis had
to demonstrate by clear and convincing evidence that a transfer made or an
obligation incurred by a debtor was fraudulent as to them, as creditors. R.C.
1336.07; Blood v. Nofzinger, 162 Ohio App. 3d 545, 2005-Ohio-3859, 834 N.E.2d
358, ¶ 36 (6th Dist.). In order to demonstrate fraud, the Koletis had to show that
“the debtor made the transfer or incurred the obligation * * * with actual intent to
hinder, delay, or defraud.” R.C. 1336.04(A)(1). In turn, the Koletis had to
demonstrate actual intent by pointing to relevant factors of R.C. 1336.04(B), the so-
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called “badges of fraud,” or via “sound inferences from circumstances surrounding
the transaction.” Blood at ¶ 36.
{¶13} The statute is specific to conduct of the debtor. R.C. 1336.04(A),
which defines a fraudulent transfer, describes actions of the debtor that can turn a
transfer into a fraudulent one. (This list is prefaced with the phrase “if the debtor
made the transfer”). R.C. 1336.01 defines “debtor” as “a person who is liable on a
claim.” R.C. 1336.01(F). “Claim” is defined as “a right to payment, whether or not
the right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.”
R.C. 1336.01(C).
{¶14} The Koletis argued that the “any other relief” provision of R.C.
1336.07(A)(3)(c) provided them with a right to recover their attorney fees, and that
Martha’s conduct fell under R.C. 1336.04(A)(1). Specifically, they argued in their
brief on appeal that
the transfer [of their $50,000] was to Martha, an insider1; Timothy as
the debtor retained control of the property transferred; the opening of
the account in Martha’s name was concealed from [the Koletis]; [the
Koletis’] money was deposited into Martha’s account and withdrawn
from it after Timothy had been threatened with suit; and the transfer
was substantially all of the assets of the debtor related to [the Koletis].
The conduct of the debtor, Timothy, with his insider, Martha, is
evidence of actual intent and malice to defraud [the Koletis].
Martha argued that most of the acts about which the Koletis complained were
committed by her late husband, as evidenced by the judgment against him, and that
1 An “insider” is defined by the OUFTA to include a relative of the debtor. R.C. 1336.01(G)(1)(a).
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any conduct attributed to her was at his direction. But, she agreed with the Koletis’
assertions that she did not retain control over the money and was not a debtor.
{¶15} Both parties agreed that the debtor to the Koletis was Timothy, not
Martha. Only Timothy was found liable to the Koletis in the judgment they obtained
against him. As noted above, R.C. 1336.04 is specific to the debtor and therefore
liability for the fraudulent transfer was retained by Timothy, the debtor—who was
not a defendant in this cause of action. The Koletis failed to establish that R.C.
1336.04 applied to Martha. The statute does not impute liability for a fraudulent
transfer to Martha, as a transferee. Her intent as a transferee was inconsequential.
Accordingly, the record does not contain any competent, credible evidence to
support the trial court’s judgment.
{¶16} The Koletis never pursued Martha as a debtor on their underlying
claim, such as by joining her as a party defendant with Timothy. Rather, the Koletis
consistently argued that Martha was an insider, as a spouse who received the transfer
of the money, and that Martha had no control over the money in the manner of a
debtor. While proving that Martha was an insider would enable the Koletis to
recover their judgment debt—because it goes towards proving Timothy fraudulently
transferred the money to Martha to avoid paying the Koletis back, see R.C.
1336.04(B)—it does not help them to recover from Martha. Martha was never liable
for the money owed to the Koletis—i.e., the debt on their claim. Therefore, there is
no evidence in the record to support the trial court’s conclusion that Martha can be
liable for any relief provided for under R.C. 1336.07.
{¶17} Martha also argued that the Koletis were not entitled to attorney fees
because they did not ask for, or prove that they were entitled to, punitive damages—
which Martha argues is a prerequisite to the recovery of attorney fees. In light of our
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determination above, we decline to reach the issue of whether the Koletis were
entitled to attorney fees under the statute. See App.R. 12(A)(1)(c).
Conclusion
{¶18} Because the determination made by the trial court is not supported by
the record, the decision was against the manifest weight of the evidence. We
therefore sustain Martha’s first assignment of error—that the trial court erred in
finding in favor of the Koletis. The first assignment of error is dispositive of this
appeal. Her second assignment of error—challenging the calculation of attorney
fees—is therefore moot and we decline to address it. The judgment of the trial court
is reversed, and the cause is remanded with instructions for the trial court to enter
judgment for Martha.
Judgment reversed and cause remanded.
MOCK, P.J., and BERGERON, J., concur.
Please note:
The court has recorded its own entry on the date of the release of this opinion.
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