Ohio

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Paul D. Simpson v. James L. Sexton et al.,
2000.OH.0045316 (Ohio App. Dist.5 08/07/2000)

COURT OF APPEALS LICKING COUNTY, OHIO FIFTH APPELLATE DISTRICT

Case No. 99-CA-77

2000.OH.0045316

August 7, 2000

PAUL D. SIMPSON

PLAINTIFF-APPELLEE

V.

JAMES L. SEXTON, ET AL.,

DEFENDANT-APPELLANTS

CHARACTER OF PROCEEDING: Civil appeal from the Licking County Court of Common Pleas, Case No. 98-CV-00254

Appearances: For Plaintiff-Appellee David C. Morrison 987 Professional Parkway Heath, OH 43056-1698 For Defendant-Appellant Richard F. Swope 6504 East Main Street Reynoldsburg, OH 43068

Judges: Hon. W. Scott Gwin, P.J. Hon. John W. Wise, J. Hon. W. Don Reader, V.J. (Sitting by Supreme Court Assignment)

The opinion of the court was delivered by: Reader, V.J.,

Fraudulent transfers.

JUDGMENT: Affirmed in part and reversed in part and remanded

OPINION

Defendants James L. Sexton and Angela Sexton appeal a judgment of the Court of Common Pleas of Licking County, Ohio, which voided the Quit-Claim deed from James L. Sexton to Angela I. Sexton because of fraud. The court further found that because of the fraudulent transfer, Angela Sexton had forfeited her inchoate dower rights in the property. The court award Paul D. Simpson $6,272.77, plus attorney fees in the amount of $9,549.90, plus costs. The court further found appellee has a valid lien on the parties' real estate, which is the subject of the fraudulent transfer, in the amount of $25,000.00 plus interest at 10% per annum from April 8, 1998. The court directed appellants to pay the $25,000.00 judgment with interest and costs within five days of the judgment entry, or the property would be sold and the proceeds distributed, to various lien holders the court named, plus $5,000 to appellant James L. Sexton for his $5,000 statutory exemption under R.C. 2329.66. From this order appellant assigns nine errors to the trial court:

ASSIGNMENTS OF ERROR

ASSIGNMENT OF ERROR NO. 1

THE MAGISTRATE AND THE TRIAL COURT ERRED AND ABUSED THEIR DISCRETION IN DETERMINING THAT JAMES SEXTON WAS GUILTY OF MAKING A FRAUDULENT TRANSFER BECAUSE HE ACTED UPON ADVICE OF COUNSEL AND WITHOUT INTENT TO DEFRAUD BASED ON HIS UNDERSTANDING OF VALUE OF HIS INTEREST IN THE RESIDENCE.

ASSIGNMENT OF ERROR NO. 2

THE MAGISTRATE ERRED AND THE TRIAL COURT ERRED AND ABUSED THEIR DISCRETION IN DETERMINING THE VALUE OF THE REAL ESTATE AT THE TIME OF THE TRANSFER.

ASSIGNMENT OF ERROR NO. 3

THE MAGISTRATE AND THE TRIAL COURT ERRED AND ABUSED THEIR DISCRETION IN DETERMINING THAT DEFENDANT, JAMES SEXTON'S WIFE SHOULD NOT BE ENTITLED TO CLAIM DOWER INTEREST IN THE PROPERTY TRANSFERRED.

ASSIGNMENT OF ERROR NO. 4

THE MAGISTRATE AND THE TRIAL COURT ERRED AND ABUSED THEIR DISCRETION IN DISALLOWING THE SPECIAL ASSESSMENT WHICH SHOWS ON THE AUDITOR'S RECORDS.

ASSIGNMENT OF ERROR NO. 5

THE MAGISTRATE AND THE TRIAL COURT ERRED AND ABUSED THEIR DISCRETION IN CONCLUDING THERE WAS AN EQUITY OF $12,545.54, HALF OF WHICH BELONGED TO DEFENDANT.

ASSIGNMENT OF ERROR NO. 6

THE MAGISTRATE AND THE TRIAL COURT ERRED AND ABUSED THEIR DISCRETION IN FINDING THE DEFENDANT-APPELLANT JAMES SEXTON TO BE INSOLVENT.

ASSIGNMENT OF ERROR NO. 7

THE MAGISTRATE AND THE TRIAL COURT ERRED AND ABUSED THEIR DISCRETION IN FINDING ATTORNEY FEES SHOULD BE AWARDED IN THIS CASE.

ASSIGNMENT OF ERROR NO. 8

THE TRIAL JUDGE ERRED AND ABUSED HIS DISCRETION IN APPROVING AN ENTRY WHICH WAS NOT IN ACCORDANCE WITH THE DECISION AND WHICH AWARDED FEES WITHOUT HEARING.

ASSIGNMENT OF ERROR NO. 9

THE TRIAL COURT'S DECISION IS NOT SUPPORTED BY SUFFICIENT EVIDENCE AND IS AGAINST THE MANIFEST WEIGHT OF THE EVIDENCE.

The record indicates appellee originally sued appellant James L. Sexton on a dishonored check for $25,000.00. While that case was pending, appellant executed a Quit-Claim deed which transferred appellant James Sexton's undivided one-half interest in certain real estate originally held with right of survivorship with his wife, Angela Sexton. The transfer form indicated the transfer was a gift. Roger Weaver, appellant's attorney, testified he had recommended the transfer of the property, partially because of the pending lawsuit on the dishonored check. At the time of the transfer the property was encumbered by a first mortgage, in the amount of $115,000. There were also real estate taxes due on the property. The parties obtained two appraisals on the property. David Rapp evaluated the property's market value as $140,000. Appellants submitted a written appraisal by another expert, who did not testify at trial. The second appraisal valued the home at $123,500.

I.

In his first assignment of error, appellant urges the magistrate and trial court erred in finding the transfer was fraudulent. Appellant urges he acted on the advice of counsel, and had no intention to defraud appellee. The magistrate found the transfer of property was a fraudulent conveyance pursuant to R.C. 1336.04. The statute provides in pertinent part:

(A) A transfer made or an obligation incurred by a debtor is fraudulent as to the creditor, whether the claim of the creditor arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation in either of the following ways:

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

(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and if either of the following applies: *** (b) the debtor intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.

R.C. 1336.05 provides the transfer is fraudulent as to a creditor whose claim arose before the transfer was made if the debtor made the transfer without receiving reasonable value and the debtor was insolvent or became insolvent as a result of the transfer. The magistrate noted under R.C. 1336.04, intent must be established, while under R.C. 1336.05 intent need not be demonstrated. The magistrate found appellee is a creditor of the appellants for purposes of the statutes because of the judgment rendered on the dishonored check. The magistrate cited Wagner v. Galito (1994), 97 Ohio App. 3d 302 and R.C. 1336.04 (B) as authority for the proposition actual intent may be impossible, to prove directly, but there are certain indicia of fraud which courts have recognized. Those indicia are 1) inadequate consideration 2) transfer of the debtor's entire interest in an estate 3) insolvency of the debtor due to the transfer 4) the relationship of the party involved in the transfer 5) a reservation of interest in the property and 6) threat or pendency of litigation, Galito, supra. The magistrate found with the exception of reserving the interest in property, this transfer carried all indicia of fraud. We have reviewed the record, and we find the trial court did not err or abuse its discretion in accepting and adopting the magistrates report and recommendation. The first assignment of error is overruled.

II.

The second assignment of error challenged the court's determination of the value of the real estate at the time of transfer. Appellant argues the appraisals were not done until approximately two years after the transfer. Appellants argue they made certain improvements to the property after the transfer, and if those improvements are disregarded, the parties had no equity in the property after subtracting the mortgage, the taxes which were due, the $5,000 exemption, and the dower value. The magistrate's findings of fact and conclusions of law articulate how it established the value of the property. The magistrate took the value of the property as $140,000, based on the testimony of David Rapp. Rapp testified he had added $10,000.00 to his appraisal to account for the improvement on the property, namely the pole barn. The court found, at the time of the transfer of the property, the barn was substantially complete, although appellants dispute this. The magistrate determined the second appraisal, for the lower amount, was unreliable because the expert who prepared it did not testify, and because the appraisal was conducted before any of the improvements were undertaken. We have reviewed the record, and we find the trial court's determination of the value of the property is supported by the record. Accordingly, we conclude the trial court did not err. The second assignment of error is overruled.

III.

Appellants' third assignment of error challenges the court's finding appellant Angela Sexton forfeited her claim to a dower interest in the property. The magistrate cited Sigree v. Welch (1877), 32 Ohio St. 320. In dicta, the Supreme Court found the effect of fraud is to divest the wife of her dower rights. In The Peoples Savings Company v. Parisette (1903), 68 Ohio St. 450, the Oho Supreme Court held where a wife does not agree to sale of property, or release her dower rights, and if the purchaser knew the vendor had a wife who is entitled to a right of dower, then specific performance of the sale of the land is not appropriate as long as there is no collusion between the husband and wife relating to the contract for sale. The magistrate correctly interpreted this as meaning a dower interest is protected absent any fraud by both husband and wife with regard to transfer the property. Our review of the record leads us to conclude the trial court's determination that appellant Angela Sexton had forfeited her dower rights to the subject property is supported by the record. The third assignment of error is overruled.

IV.

In his fourth assignment of error, appellant urges the trial court should have included a special assessment when listing the various liens and claims against the property. Appellant are not more specific in their brief, and our review of the magistrate's report shows a $6,825.20 special assessment, of which $5,148.80 remained unpaid. The magistrate's decision and the trial court's judgment entry conclude this assessment and the list of encumbrances . Accordingly, the record does not support appellant's assertion the trial court disregarded or omitted this assessment. The fourth assignment of error is overruled.

V.

Appellants here argue the trial courts improperly calculated the equity of the property. The magistrate and trial court found there was equity of $12,545.54, half of which belonged to appellant James Sexton. The gist of appellants' argument is that had the property been sold at a sheriff's sale, it would not have brought that amount of money. Appellants misconstrue the way the damages must be computed. The real estate was worth $140,000, subject to a $115,000 mortgage, $2,305.66 in taxes, and $5,148.80, for a total encumbrance of $122,454.46. Deducting this amount from the $140,000 market value leaves $17,545.54. From this the court deducted appellants' $5,000 exemption pursuant to R.C. 2329.66. This leaves a total of $12,5454.54, which the trial court found was the actual equity in the house prior to the fraudulent transfer. The court properly found half of the equity belonged to appellant James Sexton. The fact that a property sold at a sheriff's sale does not necessarily bring fair market value does not affect this calculation. The fifth assignment of error is overruled.

VI.

Next appellants argue the trial court erred in finding appellant Sexton was insolvent. Appellant testified at the time of trial he was unable to pay the underlying $25,000 judgment. Appellants argue there was no evidence appellants were insolvent at the time of the transfer. We have reviewed the record, and we note James Sexton testified he did not pay appellee because he lacked the funds to do so. He further testified he believed a sale of his assets would not have generated enough money to pay all of his debts, prior to the transfer of the property. The magistrate also considered the fact appellants had represented they might file for bankruptcy if appellee pursued his claim on the dishonored check. We have reviewed the record, we find appellants are incorrect when there is no evidence of insolvency at the time of the transfer, but rather just at the time of trial. In fact, the record supports the trial court's finding appellant James Sexton was insolvent because he admitted he was unable to pay the previous judgment because of the lack of funds. The sixth assignment of error is overruled.

VII.

Appellants' seventh assignment challenges the court's award of attorney fees. Appellants argue they acted on the advice of counsel, and at the time of transfer believed the transfer was not fraudulent. Appellants assert at the time of transfer they believed the property had no value which could be attached by the appellee to satisfy the judgment. Because we find the court did not err in finding this transfer was fraudulent, the award of reasonable attorney fees is appropriate see Locafrance United States Corporation v. Interstate Distributing Services, Inc. (1983), 6 Ohio St. 3d 198. The seventh assignment of error is overruled.

VIII.

In their eighth assignment of error, appellants point out the magistrate recommended an award of attorney fees, but did not recommend an amount. The trial court, going beyond the magistrate's report and recommendation, awarded attorney fees without a hearing. The court also ordered certain actions not recommended by the magistrate. Pursuant to Civ. R. 53, a trial court may modify the magistrate's decision after reviewing the record and recommendations. The trial court is not bound in any way by the magistrate's recommendations. However, appellants urge, and appellee apparently does not dispute, that the trial court established the award of attorney fees based upon an affidavit, and without a hearing. R.C. 2323.51 requires a trial court to conduct an evidentiary hearing and allow parties to present evidence in support of or opposition to an award, and the amount of the award. The record does not demonstrate the trial court took evidence, or permitted appellants to respond to appellee's representation of the expenses incurred in this action. The eighth assignment of error is sustained.

IX.

In their last assignment of error, appellants argue the trial court's decision is against the manifest weight and sufficiency of the evidence. Appellant reiterates the essence of his argument, supra. Our standard of reviewing a claim that a court's judgment is against the manifest weight of the evidence is to review the record and determine whether there is sufficient competent and credible evidence supporting each element, C.E. Morris Company v. Foley Construction Company (1978), 54 Ohio St. 2d 279. Our review of the record leads us to conclude the trial court's conclusion is supported by sufficient competent and credible evidence, with exception the matters discussed in VIII, supra. The ninth assignment of error is sustained in part and overruled in part. For the foregoing reasons, the judgment of the Court of Common Pleas of Licking County, Ohio, is affirmed in part and vacated in part. The portion of the trial court's judgment entry establishing attorney fees is hereby vacated, and the cause is remanded to the court with instructions to take evidence on the amount and reasonableness of the attorney fees.

By Reader, V.J., Gwin, P.J., and Wise, J., concur

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