Brian Bash v. Textron Financial Corporation
834 F.3d 651
| 6th Cir. | 2016Background
- Fair Finance (the Debtor) ran a factoring business funded largely by V-Notes sold to unsophisticated investors; after a 2002 leveraged buyout by Durham and Cochran it became a Ponzi scheme funded by insider loans.
- Textron financed the Debtor under a 2002 Loan & Security Agreement (2002 L&SA) that granted a continuing security interest; Textron later replaced United as lender and the parties executed a First Amended and Restated Loan & Security Agreement on January 6, 2004 (2004 ARL&SA).
- Trustee alleges Textron knew of and assisted concealment of insider loans and repeatedly waived defaults, received large fees, and was paid over $300 million between 2004 and payoff in 2007.
- Trustee sued in bankruptcy (withdrawn to district court) asserting actual and constructive fraudulent transfer claims under Ohio’s UFTA, civil conspiracy, aiding-and-abetting, and equitable subordination/disallowance claims; district court dismissed most claims on Rule 12(b)(6).
- Sixth Circuit reversed in part: it reinstated the Trustee’s actual fraudulent transfer and civil conspiracy claims (and related equitable claims), but affirmed dismissal of constructive fraudulent transfer as time-barred.
Issues
| Issue | Plaintiff's Argument (Bash) | Defendant's Argument (Textron) | Held |
|---|---|---|---|
| Whether the 2004 ARL&SA was a novation extinguishing the 2002 security interest so the 2004 grant/payments were "transfers" under Ohio UFTA | 2004 agreement was intended to supersede and extinguish the 2002 L&SA; extrinsic facts create ambiguity—if novation occurred, there was no preexisting valid lien and the 2004 grants/payments are avoidable | 2004 agreement was a refinancing; language and circumstances show the 2002 security interest continued in full force, so no avoidable transfer occurred | Reversed district court: pleadings and incorporated evidence create an ambiguity as to novation; Trustee plausibly stated an actual fraudulent transfer claim |
| When § 1336.09(A)’s one‑year discovery period begins for an "actual" UFTA claim | Discovery period begins when plaintiff discovers (or with reasonable diligence could discover) the fraudulent nature of the transfer | Discovery period begins when the transfer itself is discoverable (not necessarily its fraudulent nature) | Held that the one‑year discovery rule runs when the plaintiff discovers or should have discovered the transfer’s fraudulent nature; applied here, the Trustee’s actual UFTA claim was timely |
| Whether the Trustee has standing to bring a civil conspiracy claim (or whether Wagoner-style rule precludes it) | Trustee stands in Debtor’s shoes and alleges injury to the Debtor distinct from creditors; thus has standing | Relying on Wagoner, a trustee cannot sue for harm to creditors where the debtor joined in fraud | Court held Trustee has standing; Wagoner conflates standing with equitable defenses and is not applied to deny standing here |
| Whether in pari delicto (and sole-actor doctrine) bars Trustee’s civil conspiracy claim or whether an innocent-insider exception applies | Allegations permit inquiry whether any innocent insider existed; plaintiff not required to plead facts to defeat an affirmative in pari delicto defense at pleading stage | Durham and Cochran dominated Debtor (sole‑actor) so their fraud imputes to the Debtor and bars recovery | Reversed: district court erred in dismissing on in pari delicto grounds and in requiring pleading to anticipate the defense; Sixth Circuit predicts Ohio would adopt an innocent-insider exception to the sole-actor rule, so the defense cannot be resolved on the pleadings |
Key Cases Cited
- Jones v. City of Cincinnati, 521 F.3d 555 (6th Cir. 2008) (pleading standard under Twombly/Iqbal applied)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for Rule 12(b)(6))
- Jones v. Bock, 549 U.S. 199 (2007) (plaintiff need not plead facts to negate affirmative defenses)
- McGlothin v. Huffman, 640 N.E.2d 598 (Ohio Ct. App. 1994) (elements and nature of novation under Ohio law)
- Nat’l City Bank v. Reat Corp., 580 N.E.2d 1147 (Ohio Ct. App. 1989) (intent/consent for novation may be implied; novation never presumed)
- Bolling v. Clevepak Corp., 484 N.E.2d 1367 (Ohio Ct. App. 1984) (novations require clear and definite evidence of consent)
- In re Dublin Sec., 133 F.3d 377 (6th Cir. 1997) (discussion of in pari delicto and related equitable doctrines)
- Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299 (1985) (explaining the in pari delicto equitable defense)
- Pinter v. Dahl, 486 U.S. 622 (1988) (in pari delicto bars recovery when plaintiff bears substantially equal responsibility)
- Flagstar Bank, F.S.B. v. Airline Union’s Mortg. Co., 947 N.E.2d 672 (Ohio 2011) (discovery‑rule principles: accrual when plaintiff knows or should know injury and cause)