MEMORANDUM OPINION
Pending before the court are two appeals from the February 29, 2012, order issued by the United States Bankruptcy Court for the Western District of Pennsylvania in adversary proceeding No. 10-2838. Bohm v. Titus (In re Titus),
1. Background
The parties do not contest the factual background set out in the bankruptcy court’s opinion. The bankruptcy proceedings arose out of the dissolution in 1999 of the Pittsburgh law firm of Titus & McCon-omy,
After the dissolution of Titus & McCono-my, Mr. Titus worked for the law firm of Schnader Harrison Segal & Lewis (“Schnader Harrison”). Beginning in July 2002, Mr. Titus had Schnader Harrison directly deposit his wages into a checking account he owned with his wife as tenants by the entireties. On April 23, 2007, Trizec filed a fraudulent transfer action against the Tituses in state court in an effort to collect on the judgment. Id. The fraudulent transfer action contained three claims under Pennsylvania’s Uniform Fraudulent Transfer Act (“PUFTA”), 12 Pa. CoNS.Stat. §§ 5101-5110. The first claim is for actual fraudulent transfer under 12 Pa. Cons.Stat. § 5104(a)(1),
On May 20, 2010, TRZ Holdings, Trizec’s parent and successor in interest,
The bankruptcy court tried the case on May 25, 2011, and entered its opinion and order on February 29, 2012. The bankruptcy court found in favor of the Tituses on the actual fraudulent transfer claim, id. at 618,
II. Jurisdiction and Standard of Review
Federal district courts have appellate jurisdiction over the final judgments, orders, and decrees of the bankruptcy court. 28 U.S.C. § 158(a)(1). Rule 8013 of the Federal Rules of Bankruptcy Procedure provides:
On an appeal the district court or bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy judge’s judgment, order, or decree or remand with instructions for further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the Bankruptcy Court to judge the credibility of the witnesses.
The bankruptcy court’s decisions regarding discovery management and the scope of discovery are reviewed for abuse of discretion. Kimmelman v. Port Auth. (In re Kiwi Int’l Air Lines, Inc.),
III. Discussion
There are multiple issues in the two appeals before the court. Because many of the issues overlap, the court will consider the two appeals together.
A. The Trustee’s Appeal (No. 12-1560)
The Trustee asserts two issues. First, whether the bankruptcy court erred by not permitting the Trustee to recover any constructive fraudulent transfers made after the complaint was filed on April 23, 2007; and second, whether the bankruptcy court erred by requiring the Trustee to prove that the transferred funds were not spent on necessities as a part of his prima facie case.
1. Applicable Recovery Period
The Trustee argued before the bankruptcy court that he could seek to recover fraudulent transfers made during the period of April 23, 2003-June 30, 2010.
The Trustee argues that, while the PUFTA statute of repose, 12 Pa. Cons. Stat. § 5109, extinguishes any claims prior to April 23, 2003, it does not limit the ability to seek recovery for transfers made after the filing of the complaint. (Trustee’s Br. 8, No. 12-1560 ECF No. 5.) The Trustee points out that there is no Pennsylvania case law limiting the period of recovery to four years. (Id. at 9.) In Gross v. Laver,
The bankruptcy court in In re Arbogast, a case arising out of the same lease and similar fraudulent transfer litigation, concluded that the look-back period was limited to the period April 23, 2003-April 23, 2007. Cardiello v. Arbogast (In re Arbogast),
Nothing in the statute or case law suggests that recovery is only permitted for transfers prior to the filing of a fraudulent transfer complaint. The bankruptcy court therefore erred in limiting the recovery period to April 23, 2003-April 23, 2007. The Trustee, however, may have waived his claims to transfers in the period after the complaint was filed. While Trizec included a claim for injunctive relief in the complaint, neither Trizec nor the Trustee moved for a preliminary injunction. On the other hand, the Tituses were aware that these transfers were at issue, yet they continued to have Mr. Titus’s wages directly deposited into the entireties account. The record on this issue is not complete. On remand, the bankruptcy court should consider “applicable principles of equity,” 12 Pa. Cons.Stat. § 5107(a)(3), and decide whether the Trustee may recover constructively fraudulent transfers from April 23, 2007, to May 28, 2010.
2. Burden of Proof on Whether Funds Used for Necessities
Under the PUFTA, entireties account funds used to pay for “reasonable and necessary household expenses” are not fraudulent. Reitmeyer v. Meinen (In re Meinen),
The Trustee argues that the use of funds to purchase necessities is an affirmative defense and that the bankruptcy court erred by not following Meinen in this respect. (Trustee’s Br. 11.) In affirming the bankruptcy court decision in Arbogast, the district court rejected this argument on appeal, also finding committee comment 6 persuasive as to Pennsylvania law. Arbogast,
Based on the limited Pennsylvania law available, the bankruptcy court correctly place the burden of proving that funds were not used for necessities on the Trustee. According to the committee comment, shifting the burden of persuasion to the defendant is an “archaism” which should be avoided. 12 Pa. Cons.Stat.
B. The Tituses’ Appeal (No. 12-1559)
The Tituses argue five major issues on appeal. First, whether the bankruptcy court erred by not following the decisions the state trial court made before removal when determining the applicable legal standards. Second, whether the bankruptcy court erred by imposing a burden of producing evidence about account expenditures and deposits on the Tituses and whether the timing of imposing this burden unfairly prejudiced the Tituses. Third, whether the bankruptcy court erred in calculating the amount of liability because there was insufficient evidence to support its finding that certain unidentified deposits were from Mr. Titus’s wages. Fourth, whether the bankruptcy court erred in finding that a “transfer” occurred pursuant to the PUFTA and that the Ti-tuses may be jointly and severally liable as “transferees.” Fifth, whether the bankruptcy court erred in finding liability because Mr. Titus’s liability was discharged in the bankruptcy proceedings.
1. Preclusive Effect of State Court Proceedings
The Tituses argue the bankruptcy court erred by not adhering to certain rulings made by the state trial court before the removal of the fraudulent transfer action. Specifically, the state trial court issued orders on May 29, 2008, and April 2, 2009, that limited plaintiff Trizec to recovering only from Mrs. Titus and only to the extent she used money from the joint account “for luxury purchases actually benefiting her.” Titus,
The law of the case doctrine promotes “finality and judicial economy” by limiting courts’ discretion to reconsider issues previously decided in a lawsuit. Pub. Interest Research Grp. of N.J., Inc. v. Magnesium Elektron, Inc.,
After considering the state court rulings, the bankruptcy court found them to be clearly erroneous and declined to apply them as the law of the case. Titus,
The court agrees with these holdings of the bankruptcy court. The decision of the state trial court to limit fraudulent transfers to money spent on luxury items is not consistent with Pennsylvania law. See Watters v. DeMilio, 16 Pa. D. & C.2d at 752 (“ ‘[A]n insolvent’s expenses for the maintenance of his family, if shown to be reasonable and necessary, may be a legitimate employment of his money in hand, and will not in such case be considered a conveyance fraudulent in law as to his creditors.’ ” (quoting Welker v. Strohmeyer, 45 Berks 21 (Pa.Ct.Com.Pl.1952))). There is no basis for the state trial court’s apparent conclusion that everything not reasonable and necessary is a luxury. See Shah v. Shaw (In re Shaw),
The state trial court’s holding that a fraudulent transfer required proof that Mrs. Titus personally spent money from the entireties account for her own benefit is similarly without basis in Pennsylvania law. See In re Estate of Holmes,
The Tituses maintain that the bankruptcy court’s reliance on Meinen is misplaced, arguing that it relied on cases decided under the Uniform Fraudulent Conveyance Act instead of the PUFTA. (Tituses’ Br. 15.) For the reasons stated above, the court finds Meinen persuasive as to Pennsylvania law. The other federal courts to address the issue have adopted the reasoning of Meinen with respect to this issue. Cohen,
The Tituses also argue that judicial estoppel bars the Trustee from pursuing claims beyond those that Trizee pleaded in its second amended complaint in state trial court. (Tituses’ Br. 14.) The
£. The Burden of Production
As noted above, the bankruptcy court correctly held that the Trustee had the burden of proof on all elements of the PUFTA claims, including whether funds were spend on necessities. The bankruptcy court did, however, impose on the Titus-es “the burden of producing at least some useful evidence regarding what the funds deposited into [the] entireties bank account [were] ultimately spent on.” Titus,
In support of their argument that the bankruptcy court erred by imposing a burden of production on them regarding expenditures from the entireties account, the Tituses point to committee comment 6 to 12 Pa. Cons.Stat. § 5102, discussed extensively above. While this comment suggests that shifting the burden of persuasion is archaic, contrary to the Tituses’ argument, it does not address the burden of production.
The bankruptcy court recognized that shifting the burden of production is often appropriate where, as is the case here, one party is in complete control of the relevant evidence. Titus,
In response, the Trustee argues that the Tituses knew that the expenditures were at issue. (Trustee’s Resp. 12, No. 12-1559 ECF No. 6.) Under the most relevant case decided at that time, Meinen, the Trustee expected the entire burden of proof to be on the Tituses. (Id.) The Tituses should therefore have prepared to present evidence regarding the expenditures and were not prejudiced. (Id. at 13.)
A question of the bankruptcy court’s discovery management or eviden-tiary rulings is reviewed for abuse of discretion. Here, the issue is not the substance of the bankruptcy court’s decision, but the timing. The law regarding the burdens of proof and production in a PUF-TA action was not clear, as the Court of Appeals for the Third Circuit recently recognized. Arbogast, — Fed.Appx. at-. While the bankruptcy court correctly imposed the burden of producing evidence on expenditures from the entireties account, waiting until after trial to decide that issue deprived the Tituses of an adequate opportunity to produce the records in question. Under those circumstances, the court concludes an abuse of discretion occurred and will remand to allow the Tituses to introduce evidence about the unknown expenditures. The burden of persuasion, however, rests with the Trustee.
3. Sufficiency of Evidence
The Tituses challenge the sufficiency of the evidence relied on by the bankruptcy court to determine the amount of deposits into the entireties account attributable to Mr. Titus’s wages from Schnader Harrison. (Tituses’ Br. 25.) The bankruptcy court found that the Trustee had proven by a preponderance of the evidence that deposits in the amount of $336,909.03 were directly attributable to Mr. Titus’s wages. In re Titus,
(a) such deposits, according to the Trustee’s Trial Exhibit 30, were all made during the period from April 30, 2003, to April 21, 2006, (b) the Trustee has not been given information by the Debtor from which he can ascertain, for the period prior to June 2, 2006, what portion of such deposits are attributable to such wages of the Debtor, (c) the Debt- or, as set forth above, bears the burden of producing such evidence, and (d) the Court itself can readily ascertain, from a brief examination of such trial exhibit, that many of the deposits in question are indeed attributable to direct deposits of the Debtor’s wages.
Id. It does appear that some of the unknown deposits are from Schnader Harrison. For example, there are seventeen known deposits of $11,166.67 from Schnader Harrison and there are four unknown deposits of exactly $11,166.67 (totaling $44,666.68) during the look-back period. (Pl.’s Trial Ex. 30, Adversary Proceeding No. 10-2338, ECF No. 71-2.) Based upon that evidence, and considering Mr. Titus’s wages from Schnader Harrison during the June 2, 2006-July 1, 2010 period and the burden of production placed on the Titus-es, the court concludes that the bankruptcy court’s determination that $238,319.22 of the unknown funds were wages was not clearly erroneous. In light of the bankruptcy court weighing the burden of production in making that finding, on remand, the Tituses should be given the opportunity to introduce evidence about the source of these unknown deposits.
The Tituses argue that the bankruptcy court failed to credit the full amount of nonwage deposits into the en-tireties account against the “objectionable expenditures,” or those expenses not for necessities. (Tituses’ Br. 25.) The bankruptcy court did credit $142,974.00 of Mrs. Titus’s social security benefits, concluding that it was “at least as likely as not” that they funded objectionable expenditures. Titus,
If the Court were to reduce the [objectionable expenditures by the amount of unknown deposits], it would incentivize Appellants not to come forward with any information that they had regarding the source of those funds. It would allow them to avoid judgment in this action merely by having funds deposited into the account that could not be traced. Furthermore, the Court agrees with the Bankruptcy Court in Titus that because sufficient deposits attributable to [the defendant’s] wages exist to fund the unexplained expenditures that those transfers were constructively fraudulent.
Cohen,
k. The Bankruptcy Court’s Interpretation of the PUFTA
The Tituses argue that the bankruptcy court erred in its interpretation of several provisions of the PUFTA as applied to this case. According to the Tituses, there was no “transfer” of an “asset” as those terms are defined in 12 Pa. Cons.Stat. § 5101(b), and the bankruptcy court’s ruling to the contrary was based on the erroneous Meinen decision. The Tituses also argue that neither Mr. Titus nor Mrs. Titus was
The Tituses claim that the direct deposit of Mr. Titus’s wages into their entireties account cannot be a “transfer” because neither the wages nor the entireties account are “assets” under the PUFTA. (Ti-tuses’ Br. 17-18.) The term “asset” does not include “property to the extent it is generally exempt under nonbankruptcy law” or “an interest in property held in tenancy by the entireties to the extent it is not subject to process by a creditor holding a claim against only one tenant.” 12 Pa. Cons.Stat. § 5101(b). The Tituses correctly point out that wages in the hands of the employer are exempt under nonbank-ruptcy law. See 42 Pa. Cons.Stat. § 8127(a). Since exempt wages were deposited into an exempt bank account, they argue there can be no fraudulent transfer.
The bankruptcy court correctly rejected this argument, which is substantively similar to the position taken by the state trial court before removal. The bankruptcy court found Meinen’s analysis of Pennsylvania law to be persuasive, a view shared by the federal courts dealing with related cases. See Cohen,
The court agrees with this analysis. Under the PUFTA, the direct deposit of a spouse’s wages into a bank account owned by both spouses as tenants by the entireties is a transfer. Mr. Titus had control over his wages, and he directed Schnader Harrison to deposit his wages in the account. It would be a strange result to allow direct deposit to circumvent the PUFTA when an employee who physically deposited paychecks or cash into an entire-ties account could face fraudulent transfer liability. As recognized by the bankruptcy and district courts of this district, such a result is not compelled by Pennsylvania law.
The bankruptcy court found that Mr. Titus and Mrs. Titus were both “initial transferees” and imposed joint and several liability. Titus,
The Tituses argue that an en-tireties bank account where either spouse could spend the money without the other’s permission is a different form of ownership than real estate held as tenants by the entireties. This distinction is not borne out by Pennsylvania law. Bank accounts held in the name of husband and wife are entireties property. Madden v. Gosztonyi Savings & Trust Co.,
The bankruptcy court correctly determined that transferee liability attaches when a transfer is made “without receiving a reasonably equivalent value in exchange,” 12 Pa. Cons.Stat. § 5104(a)(2), unless the transferred funds were spent on necessities. Titus,
The bankruptcy court held that Mr. Titus was, along with Mrs. Titus, an initial transferee of the direct deposits. Titus,
In ruling that Mr. Titus could be both a transferor and a transferee, the bankruptcy court cited two decisions of the Bankruptcy Court for the Eastern District of Pennsylvania, Dawley and Lichtenstein v. Buttery (In re Computer Personalities Sys., Inc.), Nos. 01-14231, 01-1017,
The Tituses illogieally assert that because the bankruptcy court found no evidence of actual intent to defraud credi
The court affirms the bankruptcy court’s interpretation of the PUFTA. In accord with the other courts to have addressed this issue, the direct deposit of Mr. Titus’s wages into the bank account owned by Mr. and Mrs. Titus as tenants by the entirety is a transfer, and, without any applicable principle of equity, Mr. and Mrs. Titus may both be liable as transferees. See 12 Pa. Cons.Stat. § 5107(a)(3).
5. Effect of Mr. Titus’s Bankruptcy Discharge
The Tituses argue that Mr. Titus’s personal liability for the underlying judgment and any fraudulent transfers was discharged in bankruptcy, citing 11 U.S.C. §§ 524 and 727(a)(2). (Tituses’ Br. 28). In response, the Trustee states that a bankruptcy discharge does not bar recovery or avoidance of fraudulent transfers under 11 U.S.C. § 550(a)(1). (Trustee’s Resp. 19.) The Tituses reply that “[t]he Plaintiff has never pled a right to relief pursuant to Section 550(a)(1)” and any recovery must be governed by 12 Pa. Cons. Stat. § 5108. Although the bankruptcy court invoked § 550(a), the Tituses contend it erred in doing so. (Tituses’ Reply 7 & n. 7.)
Trizec filed the fraudulent transfer action in state court before the pendency of Mr. Titus’s bankruptcy, and accordingly Trizec did not plead for recovery under § 550 of the Bankruptcy Code. Trizec did not amend its complaint after the case was removed to bankruptcy court, and neither did the Trustee after he was substituted as the plaintiff. The Trustee argues that since he was substituted for Trizec pursuant to 11 U.S.C. § 544(b)(1), federal bankruptcy law applies even though it was not pleaded in the complaint. Section 550(a) permits a trustee to recover the value of transfers avoided under § 544.
The court agrees with the Trustee. It is uncontested that the Trustee stepped into the shoes of Trizec under § 544. The Trustee is only able to pursue this case under the provisions of the Bankruptcy Code. Section 550 is the applicable recovery provision of the Bankruptcy Code, and it provides that “to the extent that a transfer is avoided under section 544 ... the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property.” 11 U.S.C. § 550. The power to seek recovery under § 550 is part of the Trustee’s authority and is applicable in this case, even if not specifically pleaded in the complaint in state court. The Tituses removed the fraudulent transfer case to bankruptcy court and the Trustee was substituted as the plaintiff under § 544. The Bankruptcy Code governed the remedy, which is set forth in § 550. Even if required to be plead in the adversary complaint, a party may move at any time to amend the pleadings, including after remand, and “failure to amend does not affect the result of the trial of that issue.” Fed.R.CivP. 15(b)(2) (applied to adversary proceedings by Fed. R. BaNKR.P. 7015); see 6 ChaRles Alan WRIght, Arthur R. Miller & Mary Kay Kane, Federal Practice AND Prooedure § 1489 (2010) (“[I]f the court of appeals determines that the lower court impliedly tried the case on a theory not set forth in the pleadings, it may permit a conforming amendment — in effect under Rule 15(b) (or at least by analogy to it) — to include that theory in the trial record.”).
IV. Conclusion
For the reasons set forth above, the court finds after de novo review that the legal holdings of the bankruptcy court about the preclusive effect of the ruling made by the state trial court, the burden of proof and the burden of production with respect to unknown deposits and expenditures from the entireties account, the meaning of “transfer” and “transferee” in the PUFTA, and the effect of Mr. Titus’s discharge are correct. The court, however, finds that the bankruptcy court erred by imposing the burden of production on the Tituses without notice and an opportunity to present relevant evidence and by limiting the recovery period to the four years before the complaint was filed. The court remands the case to the bankruptcy court for a determination of liability from April 23, 2003, to May 28, 2010, unless the court finds that equitable principles do not permit transfers after April 23, 2007 to be included. On remand, the Tituses may produce evidence about the unexplained deposits and expenditures and any other matter permitted by the bankruptcy court.
An appropriate order will be entered.
Notes
. The breakup of Titus & McConomy and the subsequent attendant litigation spawned several other bankruptcy adversary proceedings dealing with many of the same issues. See Cardiello v. Arbogast (In re Arbogast),
. A debtor’s transfer is fraudulent as to a creditor "if the debtor made the transfer or incurred the obligation ... with actual intent to hinder, delay or defraud any creditor of the debtor.” 12 Pa. Cons.Stat. § 5104(a)(1).
. A debtor’s transfer is fraudulent as to a creditor
if the debtor made the transfer or incurred the obligation ... without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor ... intended to incur, or believed or reasonably should have believed that the debt- or would incur, debts beyond the debtor’s ability to pay as they became due.
12 Pa. Cons.Stat. § 5104(a)(2)(h).
. A debtor’s transfer is fraudulent as to a creditor
if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
12 Pa. Cons.Stat. § 5105.
. The Tituses objected to TRZ’s claim on the basis that it was not the successor in interest to Trizec. The bankruptcy court overruled the objection as nonsubstantive and “pointless,”
. The judgment in favor of the Tituses on the actual fraudulent transfer claim was not appealed and that holding is final.
. On appeal, the Trustee argues that the appropriate recovery period is April 23, 2003, to May 28, 2010, the date the bankruptcy court entered its order of relief. (Trustee's Br. 9, No. 12-1560 ECF No. 5).
. The bankruptcy judge asked, "So, we’re dealing with four years back from the date of the complaint? Is that right?” Cardiello v. Arbogast,
. When asked about the look-back period at the trial in this case, counsel for the Trustee did not so limit Trustee’s claims:
You had asked me before to explain the reach-back period. There’s a four-year statute of limitations, the complaint was filed in April of '07, the reach-back would be April of '03. Moves forward to this day, because as a transferee Mrs. Titus does not have the benefit of the automatic stay, so there’s no end in sight ....
Trial Tr. 158, May 25, 2011, Adversary No. 10-2338 ECF No. 79. The Trustee, however, is not seeking to recover transfers made after the order of relief in involuntary chapter 7 case against Mr. Titus.
. The committee comment provides:
Neither this chapter nor these comments comprehensively address such evidentiary and procedural matters as the standard of proof required to establish particular facts, allocation of the burden of proof and burden of persuasion, and the circumstances in which such burdens may shift .... Except for points specifically addressed, these matters are left to the courts to determine, giving appropriate consideration to, among other things, the policy of construing uniform laws to make uniform the laws of those states which have enacted similar uniform laws (as set forth in 1 Pa.C.S. § 1927 and in the transitional provisions of the act enacting this chapter), the possible desirability of conformity with similar provisions of the Bankruptcy Code and, to the extent not inconsistent with this chapter, prior Pennsylvania case law. However, certain cases applying prior Pennsylvania law have stated in effect (if rephrased in the terms used in this chapter) that if a creditor establishes that the transferor was in debt at the time of a transfer, the burden shifts to the parties seeking to uphold the transfer to establish that the transferor received reasonably equivalent value or met the financial conditions required by 12 Pa.C.S. §§ 5104(a)(2) and 5105. Stinner v. Stinner,300 Pa.Super. 351 ,446 A.2d 651 (1982); In re Glenn,108 B.R. 70 (Bankr.W.D.Pa.1989). That principle is an archaism and has not been consistently followed (compare, e.g., In re Joshua Slocum, Ltd..,103 B.R. 610 (Bankr.E.D.Pa.1989), aff'd mem.,121 B.R. 442 (E.D.Pa.1989)), and in any event should not be followed in applying this chapter.
12 Pa Cons.Stat. § 5102 cmt. 6 (1993).
. Even if the argument on judicial estoppel were properly before the court, it is without merit. Judicial estoppel prevents a party from asserting a position contrary to one previously asserted in the litigation if it took either of the positions in bad faith. Greenway Ctr., Inc. v. Essex Ins. Co.,
. The Tituses argue that this holding could set up a situation where a spouse could transiently transfer funds into and out of an en-tireties account without the other spouse's knowledge or consent and thereby make the innocent spouse fully liable for fraudulent transfers. Although there is a presumption that property titled to a husband and wife is entireties property, that presumption may be overcome if one spouse takes advantage of the other or engages in fraud or misrepresentation. Butler v. Butler,