566 B.R. 755
Bankr. W.D. Pa.2017Background
- Paul H. Titus (debtor) had his individual law-firm wages deposited into a joint tenancy-by-entireties bank account with his wife after a landlord judgment (Trizec) against him following his former firm’s lease breach. Trustee sought avoidance/recovery as fraudulent transfers.
- Involuntary Chapter 7 filed May 20, 2010; Trustee removed a state-court fraudulent-transfer action to bankruptcy court and substituted as plaintiff.
- Judge Markovitz (trial court) found no actual intent but found constructive fraudulent transfers and applied an "Other Deposit" (O.D.) methodology: trustee must prove wage deposits funded non-necessity (objectionable) expenditures; explained non-wage deposits offset liability dollar-for-dollar; unexplained deposits did not offset. Judgment ~ $281,006.
- District Court largely affirmed but remanded for (1) liability over an extended period (April 23, 2003–May 28, 2010) unless equitable principles limited it to the 4-year lookback, and (2) to permit the Tituses to present evidence about unexplained deposits/expenditures.
- On remand the bankruptcy court (Agresti, J.) held the entire time period (ETP) applied, concluded the Trustee waived any challenge to the O.D. methodology (appellate waiver/mandate rule), applied the O.D. methodology anew to the expanded record, and entered judgment for the Trustee for $273,862.68.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Titus) | Held |
|---|---|---|---|
| Proper time window for liability | Recovery may include transfers after the state-court complaint through May 28, 2010 (ETP) | Limit recovery to 4-year lookback before complaint (April 23, 2003–April 23, 2007) | Court: ETP applies; no equitable reason to limit to lookback; Tituses failed to produce evidence to justify limiting period |
| Methodology for measuring liability | Court should abandon O.D. Methodology; measure liability by wage deposits minus necessities (O.D.I.) or prorata treatment of other deposits | Maintain Judge Markovitz’s O.D. Methodology (explained other deposits offset liability dollar-for-dollar; unexplained deposits do not offset) | Court: Must apply O.D. Methodology (appellate waiver and mandate/law-of-the-case); no exceptional circumstances to change it |
| Treatment of unexplained non-wage deposits | Some unexplained deposits should offset liability; Trustee urged excluding other deposits entirely under his approach | Tituses sought credit for explained and some unexplained deposits; argued remand allowed them to explain sources | Court: Per District Court’s guidance and precedent, unexplained deposits cannot be used to reduce liability; Tituses failed to explain them on remand so no offset for unexplained deposits |
| Classification of expenditures (necessity vs non-necessity) | Use conservative standard; many disputed items are non-necessities | Many expenditures are necessities; Tituses met burden of production for many categories | Court: Applied Markovitz standard and law-of-the-case; parsed hundreds of transactions, treated core categories (taxes, certain work-related expenses, charitable gifts, some household items) as necessities and disallowed others; resulted in $1,000,133.51 objectionable expenditures used as ceiling for recovery |
Key Cases Cited
- In re Titus, 467 B.R. 592 (Bankr. W.D. Pa. 2012) (trial court opinion applying O.D. methodology and allocation of burdens)
- Titus v. Shearer, 498 B.R. 508 (W.D. Pa. 2013) (district court opinion affirming most of bankruptcy court rulings but remanding for ETP and further evidence on deposits/expenditures)
- Cohen v. Sikirica, 487 B.R. 615 (W.D. Pa. 2013) (district court endorsement that unexplained other deposits should not reduce recoverable amount under O.D. approach)
- In re Wettach, 811 F.3d 99 (3d Cir. 2016) (Third Circuit clarifying burden-of-production and burden-of-proof principles in entireties-account fraudulent-transfer cases)
- Skretvedt v. E.I. DuPont de Nemours, 372 F.3d 193 (3d Cir. 2004) (discussing appellate waiver and law-of-the-mandate principles)
- Cowgill v. Raymark Indus., 832 F.2d 798 (3d Cir. 1987) (mandate/law-of-the-case principle when appellate court affirms in part and remands in part)