Koleti v. Mehlman

2020 Ohio 2708

• Court: Ohio Court of Appeals
• Decided: April 29, 2020
• Docket: C-190015
• Status: Published

Opinion

[Cite as Koleti v. Mehlman, 2020-Ohio-2708.]

IN THE COURT OF APPEALS FIRST APPELLATE DISTRICT OF OHIO HAMILTON COUNTY, OHIO

DILEEP KOLETI, : APPEAL NO. C-190015 TRIAL NO. A-1606520 and :

ANUSHA KOLETI, : O P I N I O N.

Plaintiffs-Appellees, :

vs. :

MARTHA MEHLMAN, :

Defendant-Appellant. :

Civil Appeal From: Hamilton County Court of Common Pleas

Judgment Appealed From Is: Reversed and Cause Remanded

Date of Judgment Entry on Appeal: April 29, 2020

Cors and Bassett and Michael L. Gay, for Plaintiffs-Appellees,

Cornetet, Meyer, Rush and Stapleton and Thomas W. Jacobs, for Defendant- Appellant. OHIO FIRST DISTRICT COURT OF APPEALS

Z A Y A S , Judge.

{¶1} Defendant-appellant Martha Mehlman appeals the judgment of the

Hamilton County Court of Common Pleas, which awarded $8,833.91 in attorney fees

to plaintiffs-appellees Dileep and Anusha Koleti on a claim arising under the Ohio

Uniform Fraudulent Transfer Act (“OUFTA”), R.C. Chapter 1336. For the following

reasons, we reverse the trial court’s judgment.

Facts and Procedural History

{¶2} The Koletis’ case against Martha stemmed from a business deal

between the Koletis and Martha’s now-deceased husband, Timothy Mehlman.

Acting as a real estate broker, Timothy helped facilitate a contract between the

Koletis and another individual for the purchase of a gas station and convenience

store. The Koletis gave Timothy a $50,000 deposit for the purchase, but later found

out that the contract was fraudulent—the individual they contracted with was not the

owner of the property. On October 29, 2015, the Koletis filed a lawsuit against

Timothy to recover their deposit and punitive damages. A year later, the Koletis

obtained a judgment against Timothy for $51,911, plus interest, and sanctions in the

amount of $1,072.50. Timothy was also indicted on two counts of theft and one

count of unauthorized use of property for depriving the Koletis of their deposit

money and obtaining it through deception. Timothy eventually pled guilty to

unauthorized use of property, and the counts for theft were dismissed.

{¶3} After obtaining the judgment against Timothy, the Koletis tried to

recover their money by garnishing a Fifth Third Bank account into which the money

was initially deposited. This account was in Martha’s name. The money, however,

was withdrawn at some point prior to the Koletis’ attempt to collect. On November

29, 2016, the Koletis filed suit against Martha to recover the funds that they were

2 OHIO FIRST DISTRICT COURT OF APPEALS

awarded in their judgment against Timothy. They brought the action solely pursuant

to the OUFTA, alleging that Martha had received the Koletis’ money from Timothy,

and had secreted the funds “in an attempt to defraud her husband’s creditors.” The

Koletis also demanded “fees incurred as a result of [Martha’s] fraudulent conduct.”

{¶4} On September 14, 2017, the judgment against Timothy was satisfied in

full. Timothy died in April of 2018. Still, a bench trial in the case between the

Koletis and Martha was held on October 31, 2018, wherein the Koletis, having

already recovered their judgment from Timothy, sought only to recover their

attorney fees incurred in the action against Martha.

{¶5} At trial, Martha testified that she let Timothy use and deposit any

money into the Fifth Third Bank account in her name for his company, Global

Commercial Broker. She testified that she signed blank checks from the account and

did not make any deposits. She also testified that the money was not hers, and that

she did not find it unusual that Timothy was using an account in her name to deposit

money for his business until the Koletis filed a lawsuit against her. She said that

Timothy told her to open the account because that’s what his attorney told him.

{¶6} The trial court entered judgment in favor of the Koletis and awarded

them attorney fees in the amount of $8,833.91.

Analysis

{¶7} Martha now appeals, asserting two assignments of error. In her first

assignment of error, Martha states that the trial court erred in finding in favor of the

Koletis. In her second assignment of error, Martha argues that the trial court erred

in awarding the Koletis attorney fees that were incurred after the judgment against

Timothy had been satisfied.

{¶8} Appellate review of a civil bench trial looks to whether the trial court’s

judgment is against the manifest weight of the evidence. Eastley v. Volkman, 132

3 OHIO FIRST DISTRICT COURT OF APPEALS

Ohio St.3d 328, 2012-Ohio-2179, 972 N.E.2d 517. When reviewing the manifest

weight of the evidence, we review the entire record, weigh the evidence and all

reasonable inferences, consider the credibility of the witnesses, and determine

whether the trial court “clearly lost its way and created a manifest miscarriage of

justice.” Fischoff v. Hamilton, 1st Dist. Hamilton No. C-120200, 2012-Ohio-4785, ¶

11. We are mindful that, in a bench trial, “the trial judge is best able to view the

witnesses and observe their demeanor, gestures and voice inflections, and use these

observations in weighing the credibility of the proffered testimony.” Seasons Coal

Co., Inc. v. Cleveland, 10 Ohio St.3d 77, 80, 461 N.E.2d 1273 (1984).

{¶9} “Ohio’s Uniform Fraudulent Transfer Act was enacted to create a right

of action for a creditor to set aside an allegedly fraudulent transfer of assets.”

(Internal citations omitted.) DiBlasio v. Sinclair, 7th Dist. Mahoning No. 08-MA-23,

2012-Ohio-5848, ¶ 33. This essentially prevents debtors from divesting themselves

of assets, either to avoid paying pending claims or in anticipation of future claims by

creditors.

{¶10} In this case, the Koletis’ cause of action is premised on R.C. 1336.07,

which states in relevant part:

(A) In an action for relief arising out of a transfer or an obligation that

is fraudulent under section 1336.04 or 1336.05, a creditor * * * may

obtain one of the following:

(1) Avoidance of the transfer or obligation to the extent necessary to

satisfy the claim of the creditor;

(2) An attachment or garnishment against the asset transferred or

other property of the transferee in accordance with Chapters 2715. and

2716. of the Revised Code;

4 OHIO FIRST DISTRICT COURT OF APPEALS

(3) Subject to the applicable principles of equity and in

accordance with the Rules of Civil Procedure, any of the

following:

(a) An injunction against further disposition by the debtor or a

transferee, or both, of the asset transferred or of other property;

(b) Appointment of a receiver to take charge of the asset transferred or

of other property of the transferee;

(c) Any other relief that the circumstances may require.

(Emphasis added.)

{¶11} R.C. 1336.04 states, in pertinent part:

(A) A transfer made or an obligation incurred by a debtor is

fraudulent as to a creditor, whether the claim of the creditor arose

before, or within a reasonable time not to exceed four years after, the

transfer was made or the obligation was incurred, if the debtor

made the transfer or incurred the obligation * * *:

(1) With actual intent to hinder, delay, or defraud any creditor of the

debtor[.]

{¶12} Therefore, to succeed on their claim under the OUFTA, the Koletis had

to demonstrate by clear and convincing evidence that a transfer made or an

obligation incurred by a debtor was fraudulent as to them, as creditors. R.C.

1336.07; Blood v. Nofzinger, 162 Ohio App.3d 545, 2005-Ohio-3859, 834 N.E.2d

358, ¶ 36 (6th Dist.). In order to demonstrate fraud, the Koletis had to show that

“the debtor made the transfer or incurred the obligation * * * with actual intent to

hinder, delay, or defraud.” R.C. 1336.04(A)(1). In turn, the Koletis had to

demonstrate actual intent by pointing to relevant factors of R.C. 1336.04(B), the so-

5 OHIO FIRST DISTRICT COURT OF APPEALS

called “badges of fraud,” or via “sound inferences from circumstances surrounding

the transaction.” Blood at ¶ 36.

{¶13} The statute is specific to conduct of the debtor. R.C. 1336.04(A),

which defines a fraudulent transfer, describes actions of the debtor that can turn a

transfer into a fraudulent one. (This list is prefaced with the phrase “if the debtor

made the transfer”). R.C. 1336.01 defines “debtor” as “a person who is liable on a

claim.” R.C. 1336.01(F). “Claim” is defined as “a right to payment, whether or not

the right is reduced to judgment, liquidated, unliquidated, fixed, contingent,

matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.”

R.C. 1336.01(C).

{¶14} The Koletis argued that the “any other relief” provision of R.C.

1336.07(A)(3)(c) provided them with a right to recover their attorney fees, and that

Martha’s conduct fell under R.C. 1336.04(A)(1). Specifically, they argued in their

brief on appeal that

the transfer [of their $50,000] was to Martha, an insider1; Timothy as

the debtor retained control of the property transferred; the opening of

the account in Martha’s name was concealed from [the Koletis]; [the

Koletis’] money was deposited into Martha’s account and withdrawn

from it after Timothy had been threatened with suit; and the transfer

was substantially all of the assets of the debtor related to [the Koletis].

The conduct of the debtor, Timothy, with his insider, Martha, is

evidence of actual intent and malice to defraud [the Koletis].

Martha argued that most of the acts about which the Koletis complained were

committed by her late husband, as evidenced by the judgment against him, and that

1 An “insider” is defined by the OUFTA to include a relative of the debtor. R.C. 1336.01(G)(1)(a).

6 OHIO FIRST DISTRICT COURT OF APPEALS

any conduct attributed to her was at his direction. But, she agreed with the Koletis’

assertions that she did not retain control over the money and was not a debtor.

{¶15} Both parties agreed that the debtor to the Koletis was Timothy, not

Martha. Only Timothy was found liable to the Koletis in the judgment they obtained

against him. As noted above, R.C. 1336.04 is specific to the debtor and therefore

liability for the fraudulent transfer was retained by Timothy, the debtor—who was

not a defendant in this cause of action. The Koletis failed to establish that R.C.

1336.04 applied to Martha. The statute does not impute liability for a fraudulent

transfer to Martha, as a transferee. Her intent as a transferee was inconsequential.

Accordingly, the record does not contain any competent, credible evidence to

support the trial court’s judgment.

{¶16} The Koletis never pursued Martha as a debtor on their underlying

claim, such as by joining her as a party defendant with Timothy. Rather, the Koletis

consistently argued that Martha was an insider, as a spouse who received the transfer

of the money, and that Martha had no control over the money in the manner of a

debtor. While proving that Martha was an insider would enable the Koletis to

recover their judgment debt—because it goes towards proving Timothy fraudulently

transferred the money to Martha to avoid paying the Koletis back, see R.C.

1336.04(B)—it does not help them to recover from Martha. Martha was never liable

for the money owed to the Koletis—i.e., the debt on their claim. Therefore, there is

no evidence in the record to support the trial court’s conclusion that Martha can be

liable for any relief provided for under R.C. 1336.07.

{¶17} Martha also argued that the Koletis were not entitled to attorney fees

because they did not ask for, or prove that they were entitled to, punitive damages—

which Martha argues is a prerequisite to the recovery of attorney fees. In light of our

7 OHIO FIRST DISTRICT COURT OF APPEALS

determination above, we decline to reach the issue of whether the Koletis were

entitled to attorney fees under the statute. See App.R. 12(A)(1)(c).

Conclusion

{¶18} Because the determination made by the trial court is not supported by

the record, the decision was against the manifest weight of the evidence. We

therefore sustain Martha’s first assignment of error—that the trial court erred in

finding in favor of the Koletis. The first assignment of error is dispositive of this

appeal. Her second assignment of error—challenging the calculation of attorney

fees—is therefore moot and we decline to address it. The judgment of the trial court

is reversed, and the cause is remanded with instructions for the trial court to enter

judgment for Martha.

Judgment reversed and cause remanded.

MOCK, P.J., and BERGERON, J., concur.

Please note:

The court has recorded its own entry on the date of the release of this opinion.