Koleti v. Mehlman

September 15, 2020Attorney Fees, Case Summary, Deceased Debtor, Intent of Transferee, Ohio Uniform Fraudulent Transfer Act, off
Image by Ilia Karpenko on 123RF.

Abstract

Case Name: Koleti v. Mehlman, 1st Dist. Hamilton No.C-190015, 2020-Ohio-2708.
Jurisdiction: Ohio Court of Appeals for the First District.
Plaintiffs-Appellees: Dileep Koleti and Anusha Koleti.
Defendant-Appellant: Martha Mehlman.
Concepts: Ohio Uniform Fraudulent Transfer Act; Attorney Fees; Deceased Debtor; Intent of Transferee.
Nature of Case: Suit to recover attorney fees incurred in collecting judgment awarded as compensation for fraudulent transfer by deceased debtor.
Lower Ct. Decision: Hamilton County Court of Common Pleas found for the Koletis and awarded attorney fees in the amount of $8,833.91.

Introduction

Defendant-Appellant Martha Mehlman is the spouse of Timothy Mehlman, who defrauded Plaintiffs-Appellees of a purported real estate purchase deposit and was also criminally indicted on charges related to the fraud.1 The Koletis brought a successful suit and were awarded judgment against Timothy Mehlman for  the actual amount of their $50,000 loss, interest, and sanctions in the amount of $1,072.50.2 After attempting to collect funds Timothy had deposited in an account that was in his wife Martha’s name, but which had been withdrawn from the account prior to their collection attempt, the Koletis then brought a collection action against Martha.3 Before the lawsuit was resolved, the judgment against Timothy was satisfied, and then Timothy died.4 A bench trial was held in the case between the Koletis and Martha wherein the Koletis sought to recover from Martha their attorney fees for the action, arguing for recovery solely under the authority of the Ohio Uniform Fraudulent Transfer Act (the “OUFTA”).5 The Koletis alleged that Martha had secreted the funds in an attempt to defraud her husband’s creditors, alleged fraudulent conduct on the part of Martha herself, and were awarded attorney fees in the amount of $8,833.91.6

On appeal, Martha’s two assignments of error were that the trial court erred by finding in favor of the Koletis and that the trial court erred by awarding the Koletis attorney fees that were incurred after the judgment against Timothy had been satisfied.7 The Court of Appeals sustained the first assignment of error and did not reach the second.8

This case is important for estate planners because it offers insight into the question of how far Ohio courts will allow creditors to go of in pursuit of recovery from a malfeasant debtor when  such  a debtor transfers assets to a third party who is not herself a debtor without regard otherwise to the intent or knowledge of that third party, and conversely, what opportunities a malfeasant debtor has to transfer assets to benefit his own family members, potentially with his transferees’ complicity, at his creditors’ expense.

Background

The Ohio Uniform Fraudulent Transfer Act was enacted provide creditors with a right of action to set aside allegedly fraudulent transfers of assets.9 The intention of the statute is to prevent debtors from divesting themselves of assets in order to avoid paying either pending or future claims.10 It has also been broadly interpreted to grant courts broad equitable powers to rectify fraud.11 However, the Ohio Uniform Fraudulent Transfer Act is specific to the conduct and intent of the debtor, not the transferee of the funds.12 All parties to the appeal in this case agreed that regardless of how the funds ended up in Martha’s account, the debtor to the Koletis was not Martha13–it was her deceased husband Timothy. The Appellate Court concluded that the Koletis failed to establish that the OUFTA applied to Martha, and that the statute does not impute to the transferee liability for a fraudulent transfer.14

Case Description

In the Appellate decision, the Court of Appeals reversed the trial court and remanded the case with instructions to enter judgment for Martha.15

The trial court’s decision in finding in favor of the Koletis – Martha’s first point of error – was unsupported by the evidence; Martha was not the debtor, and from this the Appellate Court concluded that she was never liable for the money owed to the Koletis.16 Having sustained the first point of error, the Appellate Court declined to consider the second.

Despite the Appellate Court’s provision of context regarding the factors that one might initially take to be a consideration of Martha’s degree of blameworthiness,17 the opinion later makes clear that Martha’s intent as a non-debtor transferee had no consequence to the holding.18 The only theory upon which the Koletis sought recovery from Martha was the OUFTA, which is premised upon the intent of the debtor.19 Because the OUFTA did not permit recovery against a non-debtor, there was no evidence in the record to support the trial court’s conclusion that Martha could be liable for OUFTA relief.20

Conclusion

In conclusion, the Appellate Court interpreted the Ohio Uniform Fraudulent Transfer Act as authorizing recovery against only the debtor transferor only and not the transferee, regardless of the deceased debtor’s ultimate success in enriching his family at his creditors’ expense. Perhaps had they had the opportunity to argue alternative theories the Koletis might have reached a more favorable result; regardless, that the OUFTA did not provide a method for recovery under these facts may be interesting news for those planning estates for debtors.

  1. Koleti v. Mehlman, 1st Dist. Hamilton No.C-190015, 2020-Ohio-2708 at ¶ 2.
  2. Id.
  3. Id. at ¶ 3.
  4. Id. at ¶ 4.
  5. Id.; Ohio Rev. Code 1336.01 through 1336.11.
  6. Koleti, 2020-Ohio-2708 at ¶¶ 3, 6.
  7. Id. at ¶ 7.
  8. Id. at ¶¶ 16, 17.
  9. Id. at ¶ 9; see generally Ohio Rev. Code Ch. 1336.
  10. Id.
  11. See, e.g., Individual Bus. Servs. v. Carmack, 2nd Dist. Montgomery No. 25286, 2013-Ohio-4819 (discretionary appeal not allowed by Individual Bus. Servs. v. Carmack, 2014-Ohio-2021).
  12. Koleti, 2020-Ohio-2708 at ¶ 13.
  13. Id. at ¶¶ 14-15.
  14. Id. at ¶ 15.
  15. Id. at ¶ 18.
  16. Id. at ¶ 16.
  17. Id. at ¶ 5.
  18. Id. at ¶ 15.
  19. Id.
  20. Koleti, 2020-Ohio-2708 at ¶ 16.