Court Opinion

ID: 2976808
Source: CourtListenerOpinion
Date Created: 2015-09-22 17:58:00.38099+00
Date Added: 2024-06-11T11:44:03.606465
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                              File Name: 08a0482n.06
                               Filed: August 11, 2008

                                           No. 07-3247

                           UNITED STATES COURT OF APPEALS
                                FOR THE SIXTH CIRCUIT

IN RE:                                                   )
                                                         )
OHIO BUSINESS MACHINES, INC.,                            )
                                                         )     ON APPEAL FROM THE
         Debtor.                                         )     BANKRUPTCY APPELLATE
                                                         )     PANEL OF THE UNITED
_________________________________________                )     STATES COURT OF APPEALS
                                                         )     FOR THE SIXTH CIRCUIT
BRIAN A. BASH, Trustee,                                  )
                                                         )
         Appellee,                                       )
                                                         )
                v.                                       )
                                                         )
SUN TRUST BANKS, INC.,                                   )
                                                         )
      Appellant.                                         )
__________________________________________

BEFORE: NORRIS, GIBBONS, and GRIFFIN, Circuit Judges.

         PER CURIAM.

         This appeal originates in an adversary proceeding in bankruptcy court brought by appellee

Brian A. Bash, the Chapter 7 Trustee for debtor Ohio Business Machines, Inc. (“OBM”), against

appellant Sun Trust Banks, Inc. The Trustee’s complaint seeks avoidance of fraudulent and

preferential transfers and alleges breach of fiduciary duty under the Ohio Uniform Fraudulent

Transfer Act (“OUFTA”), OHIO REV . CODE §§ 1336.01-1336.11. Specifically, the Trustee alleges
No. 07-3247
Bash v. Sun Trust Banks

that OBM fraudulently transferred $926,021.29 to Sun Trust in exchange for certain stock-purchase

warrants Sun Trust held in OBM’s parent holding company, Point Group, Inc. (“PGI”). The Trustee

avers that Sun Trust, through its agents and representatives, was an insider of OBM at the time of

the warrant payments as a result of its attendance at OBM’s board of director meetings and thus

acquired specific information pertaining to the financial status of OBM and PGI. The Trustee alleges

that as a result of OBM’s warrant payments, OBM depleted its assets by more than $3 million,

receiving in return warrants in PGI that were worthless due to PGI’s nominal financial condition.

       The bankruptcy court dismissed the adversary proceeding for lack of subject matter

jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1), concluding that the Trustee lacked

standing to pursue his claims against Sun Trust because the transferred funds did not belong to the

debtor OBM, but rather to the bankruptcy estate of PGI. In conjunction with the dismissal, the

bankruptcy court denied the Trustee’s request to substitute the bankruptcy estate of PGI as a party

plaintiff under Federal Rule of Civil Procedure 17.

       The Bankruptcy Appellate Panel of the Sixth Circuit (“BAP”) affirmed in part and reversed

in part the bankruptcy court’s order. Bash v. Sun Trust Banks, Inc. (In re Ohio Business Machines,

Inc.), 356 B.R. 786, 2007 WL 177941 (6th Cir. BAP Jan. 25, 2007) (table decision). The BAP held

that the Trustee had standing to pursue the fraudulent conveyance and breach of fiduciary actions

against Sun Trust because the transfer at issue was of “an interest of the debtor in property” as

contemplated by the Bankruptcy Code, 11 U.S.C. § 544(b)(1) and OHIO REV . CODE ANN . § 1336.05.

In a nutshell, the BAP

                                                -2-
No. 07-3247
Bash v. Sun Trust Banks

       agree[d] with the Trustee that OBM had an interest in the funds transferred to Sun
       Trust. Notwithstanding that the original warrant agreement was between PGI and
       Sun Trust alone and the subsequent Warrant Redemption Agreement was only
       between these two entities, it is clear that the funds paid to Sun Trust were funds that
       Minolta had loaned to both OBM and PGI, and that both OBM and PGI were
       obligated to repay. OBM was a party to the Minolta loan agreement and a party to
       the escrow agreement, wherein it gave its consent to the distribution of funds in
       which it had an interest. If OBM had had no interest in the funds, it would not have
       been necessary for it to be a party to the escrow agreement which directed the
       distribution to Sun Trust. The mere fact that the funds were to be used to pay a debt
       owed solely by PGI did not obviate the fact that PGI’s debt was paid with funds in
       which OBM had an interest since Minolta had loaned the funds to both OBM and
       PGI and each was severally obligated for the funds’ repayment. Because the transfer
       to Sun Trust was made with funds that had been loaned to OBM, there was a transfer
       of property of the debtor. The bankruptcy court’s decision to the contrary was clearly
       erroneous.

In re Ohio Business Machines, Inc., 2007 WL 177941, at *5.

       Although its conclusion in this regard rendered moot the issue of the Trustee’s Rule 17

motion to add the PGI estate as a party plaintiff, the BAP nonetheless found no abuse of discretion

in the bankruptcy court’s denial of the motion. Sun Trust now timely appeals from that portion of

the BAP’s decision reinstating the Trustee’s claims.

       Upon careful review of the record, the parties’ briefs, and applicable law, we are satisfied that

the issues were decided correctly by the BAP and that no useful purpose would be served by

additional discussion or the issuance of a full written opinion by this court. Therefore, with one

caveat,1 we affirm the BAP’s January 25, 2007, judgment, In re Ohio Business Machines, Inc., 2007

       1
        In its decision, the BAP raised sua sponte the issue of Sun Trust’s “earmarking” defense and
resolved this matter against Sun Trust. See In re Ohio Business Machines, Inc., 2007 WL 177941,
at *6. Sun Trust complains legitimately that the BAP should not have ruled upon the viability of a
defense that, while briefed in Sun Trust’s motion for summary judgment, was not asserted in its

                                                 -3-
No. 07-3247
Bash v. Sun Trust Banks

WL 177941, for the reasons stated therein.

       The judgment of the Bankruptcy Appellate Panel is affirmed.

motion to dismiss, and was neither addressed by the bankruptcy court nor briefed by the parties on
appeal to the BAP. See generally Lillard v. Shelby County Bd. of Educ., 76 F.3d 716, 729 (6th Cir.
1996) (“rely[ing] on our general rule” and declining to address the merits of a Title IX claim where
the “substance of the plaintiffs’ claims was not addressed by the court below, and has not been
adequately briefed on appeal.”). Nonetheless, the BAP’s analysis of the “earmarking” defense was
not dispositive of the case, but merely supplemented its correct conclusion, based on the ample
evidence of record, that OBM had sufficient interest in the funds to constitute a transfer of the
property of the debtor for purposes of the bankruptcy code and the OUFTA, thereby giving the
Trustee standing to pursue his claims. Thus, we conclude, contrary to Sun Trust’s contention, that
the BAP’s imprudent discussion of the defense does not warrant reversal of the BAP’s decision.

                                               -4-