2018 Ohio 5056
Ohio Ct. App.2018Background
- Bates Recycling delivered two hydraulic cylinders to Lee’s Hydraulics (operated by Conaway) for repair; Bates rejected the estimate and later discovered the cylinders had been scrapped. Bates sued Conaway and Lee’s Hydraulics for conversion and unjust enrichment and obtained a judgment for compensatory and punitive damages.
- Lee’s Hydraulics owed back rent to JAMAS Land, LLC; it left equipment on JAMAS’s premises and executed a bill of sale transferring remaining equipment to JAMAS in April 2016. The bill of sale did not reference the pending litigation and did not list the two cylinders.
- JAMAS paid cash and forgave past-due rent (total consideration shown as $31,000) and later arranged an auction of the acquired equipment; auction proceeds were placed in trust after post-judgment motions.
- Bates filed a separate complaint seeking to set aside the transfer as a fraudulent conveyance under the Ohio Uniform Fraudulent Transfer Act (OUFTA) and moved for summary judgment to void the transfer.
- JAMAS moved for summary judgment asserting R.C. 1336.08(A): it was a good-faith purchaser who paid reasonably equivalent value; the trial court granted JAMAS’s motion and denied Bates’s motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the transfer from Lee’s Hydraulics to JAMAS was a fraudulent conveyance under R.C. 1336.04(A)(1) | Transfer evidenced badges of fraud (e.g., debtor sued, apparent concealment) showing actual intent to defraud creditors | JAMAS was a good-faith purchaser who paid reasonably equivalent value and thus is protected under R.C. 1336.08(A) | Court: Bates showed badges of fraud as to transferors, but not that JAMAS acted in bad faith or failed to pay reasonably equivalent value; JAMAS entitled to summary judgment. |
| Whether lis pendens (R.C. 2703.26) applied to bar transfer/charge JAMAS with notice | Lis pendens applied because litigation over debtor’s assets put third parties on notice and should prevent third-party acquisition of subject assets | The original complaint sought money damages for two cylinders and did not describe or claim the disputed equipment; lis pendens not applicable | Court: Lis pendens does not apply—complaint sought money damages and the equipment was not the essence of the controversy. |
| Burden of proof after showing badges of fraud | Bates: showing badges of fraud shifts burden to transferee to prove good faith and reasonably equivalent value | JAMAS: produced evidence (deposition, lien search, proof of consideration) to meet its burden | Court: JAMAS satisfied its burden; Bates failed to produce specific facts creating a genuine issue of material fact. |
| Whether summary judgment standards were properly applied | Bates: trial court erred in denying summary judgment for Bates | JAMAS: its evidence required denial of Bates’s motion and granted summary judgment for JAMAS | Court: de novo review upheld trial court—no genuine issue of material fact for Bates; judgment affirmed. |
Key Cases Cited
- Byrd v. Smith, 110 Ohio St.3d 24 (2006) (nonmoving party must set forth specific facts to show a genuine issue for trial)
- Murphy v. Reynoldsburg, 65 Ohio St.3d 356 (1992) (summary judgment is a procedural device to terminate litigation and must be awarded with caution)
- Beneficial Ohio, Inc. v. Ellis, 121 Ohio St.3d 89 (2009) (elements required for lis pendens to apply)
- Levin v. George Fraam & Sons, Inc., 65 Ohio App.3d 841 (1991) (property must be at the essence of the controversy for lis pendens to attach)
- Baker & Sons Equip. Co. v. GSO Equip. Leasing, Inc., 87 Ohio App.3d 644 (1993) (burden shifts to transferee to prove absence of fraud after badges of fraud are shown)
- Thomas v. Othman, 99 N.E.3d 1189 (1st Dist. 2017) (R.C. 1336.08(A) protects a transferee who took in good faith and for reasonably equivalent value)