In re: Thomas C. Wettach v.
2016 U.S. App. LEXIS 899
| 3rd Cir. | 2016Background
- Thomas C. Wettach, a former law partner, filed Chapter 7 on Oct. 14, 2005; listed a PNC checking account held as tenants by the entirety with his wife (the "entireties account") and claimed exemptions.
- Trustee Jeffrey Sikirica sued under Pennsylvania Uniform Fraudulent Transfer Act (PUFTA) to avoid wage deposits directly deposited by Wettach’s employer into the entireties account during the four-year lookback (Oct. 14, 2001–Oct. 14, 2005).
- Bankruptcy court (after trial) found deposits during the lookback, disallowed asserted equivalency defenses for many expenditures, and awarded recovery for non-necessary expenditures; later awarded prejudgment interest — total about $466,007.13.
- District court affirmed; Wettachs appealed, raising burdens of proof/allocation, evidentiary findings (amounts and uses of deposits), and statutory issue whether direct wage deposit into an entireties account is a "transfer"/"asset" under PUFTA.
- Third Circuit reviewed legal questions de novo and factual findings for clear error, affirmed the district and bankruptcy courts in all respects.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Wettach) | Held |
|---|---|---|---|
| Allocation of burdens (persuasion/production) for constructive fraud under PUFTA | Trustee must prove every element by preponderance; burden of production may shift after prima facie case | Wettachs: bankruptcy court improperly shifted burden of proof to them | Court: Burden of persuasion on party challenging transfer to prove lack of reasonably equivalent value by preponderance; court permissibly imposed a rebuttable (Thayer) presumption shifting limited burden of production to Wettachs to produce some evidence of uses |
| Existence & amount of wage deposits into entireties account | Trustee: tax returns, admissions, and testimony establish deposits and amounts (net and gross calculations) | Wettachs: amount/existence not proven; rely on missing Exhibit 23 | Court: Findings not clearly erroneous; judicial admissions and tax returns support deposits; Exhibit 23 not in record, so forfeited/non-considered |
| Whether funds used for "reasonably equivalent value" (necessities) | Trustee: many expenditures were non-necessary and recoverable; Trustee carried burden once Wettachs failed to rebut presumption | Wettachs: monies paid necessary household expenses and renovations; challenged allocations | Court: Wettachs failed to produce evidence to rebut presumption; bankruptcy court’s apportionments and reductions were not clearly erroneous; affirmed recovery amounts (autos, renovations, transfers to wife, account balances) |
| Whether direct deposit of wages into entireties account is a "transfer"/"asset" under PUFTA | Trustee: direct deposit is an indirect transfer of debtor’s asset and covered by PUFTA | Wettachs: wages exempt while "in hands of employer" and thus not an asset/transfer under PUFTA | Court: Direct deposit leaves employer’s hands; PUFTA’s broad definition covers such (direct or indirect) transfers; deposit is a transfer of an asset under PUFTA; affirmed |
Key Cases Cited
- Koppers Co. v. Aetna Cas. & Sur. Co., 98 F.3d 1440 (3d Cir. 1996) (state law governs allocation of burdens of proof when it supplies rule of decision)
- Erie R. Co. v. Tompkins, 304 U.S. 64 (U.S. 1938) (federal courts predict how state high court would decide state-law questions)
- BFP v. Resolution Tr. Corp., 511 U.S. 531 (U.S. 1994) (party opposing transfer bears burden under Bankruptcy Code to show absence of reasonably equivalent value)
- 718 Arch St. Assocs. v. Blatstein (In re Blatstein), 192 F.3d 88 (3d Cir. 1999) (prior discussion of burdens in fraudulent transfer context)
- McCann v. Newman Irrevocable Tr., 458 F.3d 281 (3d Cir. 2006) (distinguishing burdens of persuasion and production; Thayer presumption framework)
- In re Wettach, 489 B.R. 496 (Bankr. W.D. Pa. 2013) (bankruptcy court opinion detailing deposits, allocations, and application of PUFTA relied upon and affirmed)