Slone v. Brennan et al

UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION AT DAYTON
In re:
James A. Fisher,
Debtor.
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Case No. 03-33161
Chapter 7
Judge William A. Clark
Ruth A. Slone, Trustee,
Plaintiff,
v.
Rhonda Brennan, et al.,
Defendants.
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Adv. Pro. No. 04-3092
MEMORANDUM DECISION GRANTING JUDGMENT TO THE DEFENDANTS
RHONDA BRENNAN AND JAMES FISHER ON THE CASH TRANSFERS BETWEEN
FISHER AND BRENNAN AND GRANTING JUDGMENT TO THE PLAINTIFF,
TRUSTEE RUTH A. SLONE, ON THE TRANSFER OF INVENTORY TO BRENNAN
Dated at Dayton, Ohio this 20th day of January, 2006:
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: January 20, 2006
____________________________________________________________
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This matter is before the court on the Plaintiff Trustee Ruth A. Slone’s (“Trustee”)
Complaint 	filed 	against 	the 	Defendants 	in 	this 	Adversary 	Proceeding, 	Rhonda 	Brennan
(“Brennan”) and James A. Fisher (“Fisher” or “Debtor,” collectively “Defendants”). 	In the
Complaint, the Trustee alleges that Ms. Brennan received fraudulent and preferential transfers in
the form of money and property from the Debtor in the time preceding his bankruptcy filing.
The Trustee requests that the monetary transfers be set aside, that the property be returned to the
estate, and, if appropriate, that the Trustee be granted a judgment in the amount of the proceeds
of the sale of the property. 	In addition, based on allegations that the transfers in question were
willful attempts to obtain possession of property of the estate, the Trustee requests costs,
attorney’s fees, and punitive damages.
The Defendants denied all of the allegations set forth in the Complaint and after the
parties conducted extensive discovery, the court heard this matter at trial on October 12 and 14,
2005. At the close of the trial, the parties requested and the court agreed to a post-trial briefing
schedule. The parties filed simultaneous post-trial briefs on November 14, 2005, [Adv. Doc. #s
104, 105, 106], and reply briefs on December 5, 2005. [Adv. Doc. #s 110, 111, 112.]
In addition to the post-trial briefing schedule set forth by the court on October 27, 2005,
[Adv. Doc. # 97], the Trustee filed a Motion Seeking Leave to Respond to issues raised in
Brennan’s Reply Brief regarding the use of the depositions in this decision. [Adv. Doc. # 113.]
The court granted the motion, and the Trustee filed a Response to the Motion to Strike
Testimony on December 16, 2005 to which Brennan filed an additional response on December
21, 2005. [Adv. Doc. #s 115 & 121.] The court addresses those pleadings in Section II of this
decision.
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The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the
general order of reference entered in this district. This matter is a core proceeding pursuant to 28
U.S.C. § 157(b)(2). 	The following decision and corresponding order represent the court’s final
decision in this matter and constitute a final, appealable order.
I. Introduction
The Trustee’s claims in this matter concern transfers from the Debtor to Brennan prior to
the Debtor’s bankruptcy filing. The testimony and evidence presented at the two-day trial in this
matter concerned the relationship between and financial condition of the Debtor and Brennan in
the years prior to the filing. Vital to the Trustee’s case is the state of mind and intentions of the
Defendants at the time the transfers were made. 	This issue is complicated by the fact that the
Debtor and Brennan were not only coworkers but were cohabitants from November 2001
through the bankruptcy filing.
Although the court heard testimony from expert witnesses for both sides as well as a
small number of character and fact witnesses, the bulk of the testimony at trial came from the
Debtor and Brennan. 	As the trier of fact in this matter, the court “has the ability and
responsibility to evaluate the credibility of the witnesses and the other evidence presented.”
Thomasville Furniture Industries, Inc. v. Elder-Beerman Stores Corp., 250 B.R. 609, 631 (S.D.
Ohio 1998). This is particularly true when the trial court must make findings as to the “design,
motive and intent with which men act ….” 	In re McConnehea, 96 B.R. 121, 123 (S.D. Ohio
1988) (quoting United States v. Yellow Cab Co., 338 U.S. 338, 341 (1949)); see also Matter of
Seeskin, 91 B.R. 39, 40 (S.D. Ohio 1988); In re Holcomb Health Care Services, LLC, 329 B.R.
622, 656 (Bankr. M.D. Tenn. 2004).
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Those responsibilities of the court as a trier of fact became paramount in this case. 	Not
only are the Trustee’s allegations based solely on transfers between two defendants who are
intimately familiar with each other, but the outcome is dependent on the court’s findings
regarding the Defendants’ intent. 	And the court was required to make those findings based on
testimony given years after the transfers took place—a situation that gave the Defendants ample
time to rethink their motivations for acting in the manner they did.
The court finds the Debtor and Brennan’s testimony at trial is completely lacking in
credibility. The testimony was, at times, beyond reason. Not only did both Defendants provide
testimony that conflicted with their own earlier depositions, they also provided testimony at the
trial in which they conflicted with each other. 	For example, at one point in her testimony,
Brennan clearly denied all knowledge of Fisher’s financial troubles, going so far as to say the she
and Fisher never spoke about the situation. She made these statements despite the fact that she
was in the courtroom when Fisher stated that he had told her of a judgment taken against him and
of his personal financial problems. She also stated as such despite the fact that she had worked
for Fisher’s corporation and cohabitated with him since November 2001.
Given the lack of credibility of Fisher and Brennan at trial, the court relied heavily on the
written evidence in issuing the findings of fact in this case. While certain nonessential facts can
be used from the testimony, the court finds that the written evidence, in the form of financial
summaries provided by the parties, e-mail and memoranda documentation between Fisher and
his new employer Globe Products, Inc., provide the court with the only reliable evidence
regarding the intent of the parties at the time of the transactions.
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II. Issues Regarding the Treatment of the Defendants’ Depositions
Prior to addressing the primary issues in the case, the court will address the post-briefing
motions filed by the parties. As noted, the Trustee filed a Motion Seeking Leave to Respond to
issues raised in Brennan’s Reply Brief regarding the use of the depositions in this decision.
[Adv. Doc. # 113.] In her reply brief, Brennan argued that the deposition testimony of Brennan
and Fisher was never properly entered as evidence before the court and should be ignored for
purposes of this decision.
The Trustee responded to that claim by arguing that the deposition testimony was
properly used as trial under Fed. R. Civ. P. 32, made applicable to these proceedings by Fed. R.
Bankr. P. 7032. 	The relevant portion of Rule 32 states that “[a]ny deposition may be used by
any party for the purpose of contradicting or impeaching the testimony of deponent as a witness,
or for any other purpose permitted by the Federal Rules of Evidence.” Fed. R. Civ. P. 32(a)(1).
The Trustee argues that the Defendants’ depositions can be used for several legitimate purposes
under the Federal Rules of Evidence.
The court agrees with the Trustee. 	The Defendants’ deposition testimony is permitted
under the Federal Rules of Evidence and, as such, may be used for “any other purpose” under
Rule 32. 	In addition, the deposition testimony was filed with the court on October 5, 2005.
[Adv. Doc. #s 78 & 79.] Those filings, labeled Notice of Filing Deposition, were not objected to
by either of the Defendants and no objection was entered at trial.
The court finds that the Defendants’ deposition testimony was properly utilized at trial
and, whether the Trustee formally requested that it be admitted into evidence at the trial or not, is
now properly before the court as evidence.
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III. Findings of Fact
A. Fisher and Fisher Data Products
James A. Fisher is an engineer. In August 1994, Fisher formed Fisher Data Products, an
Ohio “Subchapter S” corporation (“FDP”). 	The corporation manufactured test equipment for
commercial grade test motors. 	Fisher was FDP’s sole shareholder. 	In addition to FDP, Fisher
was also the sole shareholder of JF Properties, LLC, which owned the real estate where FDP was
located.
Fisher treated FDP as his alter ego. He consistently commingled the company’s and his
personal funds. 	There is evidence that he paid the company’s debts from his personal finances
and regularly transferred funds between his accounts and the companies’ accounts. 	He often
used the company’s credit card for personal expenses and then paid the debt with his own
money.
During his testimony, Fisher rarely distinguished between himself and the company and
often confused his own obligations with those of FDP when discussing the debts of each. When
Fisher did distinguish between himself and FDP at trial, it was while discussing his own personal
financial statement and he noted that he paid the corporation’s taxes; obligations that were
actually his own. Thus, he used the corporation as a pass through entity.
Although complete documentation of FDP’s financial history is not before the court, the
testimony and evidence that were admitted show that both FDP and Fisher were in financial
trouble by 1999. 	FDP had borrowed money from several financial institutions including
National City Bank, County Corporation, and the National Center for Industrial Competitiveness
Capital Fund (“NCIC”). 	Fisher personally guaranteed most of the loans made to FDP. 	In
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addition, Fisher personally borrowed substantial sums of money from National City Bank and his
parents.
In 2001, Fisher’s accountant provided him with a balance sheet showing that FDP
suffered a net loss of over $600,000 in the year 2000. That information also showed that FDP’s
income had been overstated in 1999 and indicated that FDP was insolvent by the end of the year
in 1999. The Financial Viability section of the report indicates that it is doubtful that FDP could
continue in business without significant changes.
FDP began defaulting on its loans in 2000 and 2001. Among the loans in default was a
loan from National City Bank to FDP. National City instituted a lawsuit on the loan in 2002 and
took a judgment against FDP in November of that year. FDP was dissolved shortly thereafter.
In early 2003, Fisher began working for Globe Products, Inc. (“Globe”). 	On April 16,
2003, Fisher filed for personal bankruptcy.
B. Fisher and Brennan
Fisher met Brennan in 1998 when she became employed by FDP in sales and marketing.
In 2000, Fisher and Brennan became romantically involved and in November 2001, Fisher
moved into Brennan’s home. In May 2002, Brennan purchased a new home on Schantz Avenue
and from that time forward, the two cohabitated at that location.
Between 2000 and 2002, Brennan stayed with FDP increasing her responsibilities until
July 2002 when she took a voluntary layoff from the company. She then remained unemployed
until January 2003 when she started working on a contract basis for Globe.
As partners living together, Fisher and Brennan shared financial responsibilities. 	In
testimony that the court found somewhat credible, they each described a living arrangement
similar to a marriage with two wage earners. 	They shared financial responsibilities for the
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household, each paying a portion of their expenses including the monthly mortgage, utilities, and
general living expenses. Each Defendant has children and the expense of raising those children
also appears to have been shared.
Because of this living arrangement, Fisher and Brennan had a number of financial
transactions between themselves during the years prior to Fisher’s bankruptcy. 	It is upon these
transactions that the Trustee seeks judgment.
The transactions between Fisher and Brennan can be separated into two distinct groups.
The first group is a large number of fund transfers back and forth between the two which began
in December 2000 as documented in the evidence through April 2004. 	Each party provided
documentation for these transfers. See Pl.’s Ex. 1, 2 & 3; Def.’s Ex. B & C.
In total, there appear to have been eighty-seven (87) transfers between Fisher and
Brennan between December 7, 2000 and April 16, 2003, the date of Fisher’s bankruptcy filing.
Eight (8) of those transfers occurred between December 7, 2000 and April 15, 2002. Of the eight
(8) transfers prior to April 15, 2002, three (3) were from Fisher to Brennan and five (5) were
from Brennan to Fisher. 	The transfers were all $1,000.00 or more in increments of $1,000.00.
According to the evidence before the court, the transfers from Brennan to Fisher totaled
$15,000.00 and those from Fisher to Brennan totaled the same. The net amount of gain or loss
by either party was zero during that period of time.
Fisher and Brennan both testified that these transfers were personal loans from Brennan
to Fisher and his repayment of those loans. There is no documentation, however, that identifies
the transfers as loans.
Seventy-nine (79) transfers occurred in the year prior to the bankruptcy filing. 	Of the
seventy-nine transfers that occurred between April 16, 2002 and April 16, 2003, sixteen (16)
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were from Fisher to Brennan and the remaining sixty-three (63) were from Brennan to Fisher.
The transfers range in amount from $20.00 up to $11,000.00. Based on the evidence before the
court, the total amount transferred from Fisher to Brennan was $33,233.11 and the total amount
transferred from Brennan to Fisher was $34,600.98. 	These transfers do not appear to be loans,
but are simply the transfer of funds between two cohabitating persons.
The testimony and other exhibits regarding these routine transfers are of little use.1 The
Trustee’s counsel argues that Brennan and Fisher fabricated or omitted portions of the list of
transactions provided in Plaintiff’s Exhibit 2 and Defendant’s Exhibit B and focused his
questioning on discrediting Brennan and Fisher instead of analyzing the transactions themselves.
Brennan and Fisher, as the court has already noted, provided little credible testimony. Given the
lack of worthwhile testimony and the complete failure of the Trustee to show any evidence
disproving the veracity of the Exhibits presented, specifically Defendant’s Exhibit B outlining
the transfers between Brennan and Fisher, the court finds that no other relevant monetary
transactions took place between the parties during the time prior to the bankruptcy.
The second major transaction in question between Brennan and Fisher was Brennan’s
purchase of FDP inventory. 	The record contains relatively little evidence regarding the demise
of Fisher’s company, FDP. 	As of November 2002, however, the company was no longer a
viable business entity but did have remaining assets in the form of inventory, outstanding orders,
and patents.
1 	In addition to Plaintiff’s Exhibits 1, 2, and 3 and Defendant’s Exhibit B, the parties provided the court with
complete records of Brennan’s personal bank accounts and salary history. While the court might have siphoned
some useful information from these records, it will not do so without prompting or direction from the Trustee. In
addition, there was much testimony and more exhibits regarding the status and demise of Fisher’s company, FDP.
The court can only assume that the Trustee introduced this evidence to show Fisher’s general lack of credibility.
While the court agrees based on the evidence before it that Fisher apparently mismanaged or just plain bled the
company into oblivion, these facts have little relevance in the present matter.
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In December 2003, Fisher began negotiations with one of FDP’s competitors, Globe.
These negotiations during Fisher’s deteriorating financial condition are detailed in a series of
memoranda and e-mails certified as accurate by the president of Globe. See Pl’s Ex. 6(a), 6(b),
6(c), 6(d), & 6(e). It appears that the parties started out negotiating for Globe’s purchase of FDP.
Those negotiations evolved, however, into discussions focused on Fisher’s future employment
with Globe and Globe’s purchase of parts to complete some of FDP’s backlog orders. See Pl’s
Ex. 6(a).
In one memorandum dated December 25, 2002, W. Patrick Winton of Globe states that
he and Fisher have come up with an idea in which National City Bank, FDP’s secured lender,
would assign FDP’s raw stock inventory to Globe for the period of time that Globe needed to
finish FDP’s backorders. See Pl’s Ex. 6(a). The idea was for Globe to pay for that inventory as
they needed it. 	In another memorandum originally dated December 24, 2002 and updated on
December 26, 2002, Winton stated that “JAF is arranging to take the raw stock and is working
this out with the bank. We do not have to agree to buy any of the stock, but it will be available
to us. I assume he will get this deal done.” See Pl’s Ex. 6(c).
The deal was consummated with Globe purchasing several of FDP’s patents, but not
FDP’s inventory. 	It is clear to the court that in Fisher’s employment negotiations with Globe,
one of Fisher’s bargaining chips was the FDP inventory that was specific to the patents
purchased by Globe. If Fisher could find a way to cheaply get this inventory from FDP to Globe,
he would be able to offer not only his expertise, but also the inventory that Globe could use in its
future business. 	Given this dilemma, Fisher needed to find a way to get FDP’s inventory to
Globe.
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At deposition, Fisher testified that he could not purchase the inventory personally
because a future bankruptcy trustee would gain access to it.2 Thus, Fisher and Brennan
formulated a plan in which she would purchase the inventory from FDP and then sell it on an “as
needed” basis to Globe.3
In January 2003, Brennan began working for Globe on a contract basis. On January 23,
2003, shortly after Brennan became employed with Globe, Brennan sent a letter to Craig Loffer
at National City Bank offering to purchase the FDP inventory for $3,800.00. Mr. Loffer quickly
responded that, although National City Bank held a security interest in the inventory, FDP still
owned the inventory and any offer to purchase the inventory should be made to Fisher.
Thus, on January 30, 2003, when both Brennan and Fisher were employed by Globe and
after Brennan and Fisher had been cohabitating for almost two years, Brennan sent a letter to
Fisher offering to purchase the inventory from FDP for $3,850.00. 	Fisher signed the letter
accepting the offer and Brennan purchased the inventory for $3,850.00 by check dated February
3, 2003.4
The evidence appears to show that Brennan moved the inventory to Globe’s facility
where it was segregated from Globe’s material. Globe purchased a portion of the inventory from
2 At trial, Fisher testified that he did not want Brennan to purchase the inventory. He cited several reasons,
including the appearance of impropriety and the financial risk. The trial testimony contradicts Fisher’s deposition
testimony as well as the e-mail documentation regarding Fisher’s employment negotiations.
3 As noted above, this finding directly contradicts both Fisher and Brennan’s testimony. Ms. Brennan’s attorney
even went so far as to place her on the stand to discuss the technical aspects of the inventory itself. This testimony
showed her expertise as to the inventory. The court does not doubt that Ms. Brennan is fully conversant with the
inventory, but it does negate the inference that Fisher and Brennan planned to benefit from the sale of the inventory
to Globe.
4 There was a significant amount of controversy over where the funds for the $3,850.00 came from. The Trustee
produced evidence that Fisher transferred $5,500.00 to Brennan’s account on January 31, 2003. The transfer was in
the form of a paycheck from Globe. It is possible, although not entirely clear, that Brennan would not have had the
cash to purchase the inventory without the funds transferred from Fisher on that date.
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Brennan for $10,326.11 on February 7, 2003. 	And Globe has continued to purchase the
inventory as needed for a total of $99,128.65 through at least October 2004.
Based on the evidence presented at trial, the total amount returned through October 2004
on Brennan’s $3,850.00 investment is $99,128.65. Brennan has used a majority of the money for
supplemental income, jewelry, vacations, and other typical personal expenses. She also spent a
significant amount of the money to make “gifts” to former employees of FDP. 5
IV. Discussion
The Trustee requests relief as follows: (1) $15,000.00 in fraudulent transfers more than
one year before the petition date; (2) $30,748.00 in fraudulent transfers during the year before
the petition date; (3) $99,128.65 in proceeds from the sale of the FDP inventory; and (4)
$25,000.00 in punitive damages. 	The transfers between Fisher and Brennan are best separated
into two categories—the large group of pre-petition transfers that occurred between Fisher and
Brennan because of their status as cohabitants and the single transfer of FDP inventory that
occurred between Brennan and FDP. The court will address the Trustee’s claims in that manner.
A. The Fisher-Brennan Transfers
The Trustee alleges that $45,748.00 in pre-petition transfers from Fisher to Brennan were
preferential under the Bankruptcy Code or fraudulent under either the Bankruptcy Code or
Ohio’s fraudulent transfer provisions. 	Based on the court’s best interpretation of the evidence,
the court identified $48,233.11 in transfers from Fisher to Brennan over the same time frame.
The difference between the court’s calculations and the Trustee’s allegations appears to
be that the Trustee does not claim as preferential or fraudulent three transfers from Fisher to
5 When questioning Brennan at trial, Trustee’s counsel suggested that the amounts paid to FDP’s former employees
were wages. Ms. Brennan vehemently denied the suggestion, insisting that the transfers were gifts. Although the
Trustee did not provide any evidence as to the salaries of the FDP employees that received “gifts,” the court finds it
telling that the amounts of the “gifts” were not round numbers, but instead precise amounts which reasonably could
represent back pay due from FDP.
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Brennan that occurred in March and April, 2003. The three transfers were $831.74 on March 31,
2003, $842.07 on April 7, 2003, and $811.22 on April 11, 2003. See Pl’s Ex. 2.6 Whether those
calculations are included or not, Plaintiff’s Exhibits 1, 2, and 3 and Defendant’s Exhibit B all
agree that Brennan transferred more money to Fisher than Fisher transferred to her during this
time.
As with most of the Trustee’s pleadings regarding this large group of transfers, the court
finds the Trustee’s assertions unclear. 	There is no obvious explanation for the Trustee’s
omission of the additional transfers in the preference and fraudulent transfer claims. Nor is there
any real explanation for the inclusion of the amounts that are claimed as preferential and
fraudulent transfers. The entirety of the Trustee’s case regarding these transfers appears to be an
attempt to show the court how the Defendants, specifically Fisher, clearly knew that a
bankruptcy was close at hand and planned for it. Then, the Trustee asks the court to blindly find
culpability in the Defendants actions without support of any kind other than the counter-
productive testimony of the Defendants themselves.
While the court agrees that the Defendants’ testimony was evasive and contradictory, that
testimony was not indicative of preferential or fraudulent intent with regard to this group of
transfers. 	The parties were living together. 	The Defendants themselves admit that their
partnership should be treated as a marriage and not as a debtor-creditor relationship. 	See 11
U.S.C. § 547(b)(1). 	Thus, the preference statute of the Bankruptcy Code is simply not
implicated.7
6 The court based its calculations regarding all of these transfers on Plaintiff’s Exhibits 1, 2, and 3 and Defendant’s
Exhibit B. Plaintiff’s Exhibit 2 and Defendant’s Exhibit B are virtually identical. Defendant’s Exhibit B is slightly
different because Brennan created the Exhibit and her version was updated. Essentially, however, the parties agree
on the amount and nature of the transfers that took place between Fisher and Brennan.
7 Although not necessary for this opinion, the court finds and the parties freely admitted at trial that Brennan is an
insider for purposes of the Bankruptcy Code.
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As to the fraudulent transfer claims, the Trustee’s counsel conveniently and inexplicably
forgets that his own Exhibits show that Brennan, a Defendant because she received money from
the Debtor, transferred more to the Debtor than she received over the period of time in question.
Fisher transferred $48,233.11 to Brennan between December 2000 and April 2003. In that same
time period, Brennan transferred $49,600.98 to Fisher. 	The numbers alone prove that Fisher
received reasonably equivalent value for the transfers made to Brennan. 	See 11 U.S.C. §
548(a)(1)(B)(i).
None of the evidence that the Trustee or the Defendants placed before the court shows
that the Defendants made these transfers with the “intent to hinder, delay, or defraud” any of the
Debtor’s creditors. 	11 U.S.C. § 548(a)(1)(A). 	The Defendants were paying the bills that they
shared as cohabitants. 	The transfers were used to make house payments, pay utility bills and
personal expenses.
Although the Trustee argues that Brennan was not providing the majority of the support
for the household, the Trustee provided little evidence that indicates that assertion.8 The
evidence that was presented to the court showed simply that Brennan transferred more money to
Fisher prior to Fisher’s bankruptcy filing. The Trustee’s arguments regarding constructive fraud
and the many badges of fraud that are present in the Defendants’ relationship are to no avail if
the Trustee cannot produce any intelligible evidence showing that Fisher transferred more money
to Brennan than he received.
8 The Trustee provided some evidence and did many calculations regarding the financial status of the Defendants
and the apparent inability of Brennan to cover a majority of the household expenses. The court appreciates this
work, but finds the evidence and the calculations to be lacking. The Trustee did not provide one piece of verifiable
evidence that proved that Plaintiff’s Exhibit 2 was not the entirety of the transactions between Fisher and Brennan.
For the court to go beyond that piece of evidence would require the court to create facts that simply were not proven
at trial.
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As it stands, the court finds that the large group of transfers between Fisher and Brennan
were simply transfers made between two people living together and working to pay the living
expenses of the household. 	Although it is entirely possible and, in light of the Defendants’
testimony, probable that they were wary of an ensuing bankruptcy for which they prepared as
best they could. The court finds the evidence insufficient to prove the elements of preference or
fraudulent transfer pursuant to the Bankruptcy Code or Ohio state law.
The court finds that Fisher received reasonably equivalent value for each of the transfers
made to Brennan in that time. Fisher was simply providing support to his household in the form
of mortgage payments, utility bills, household expenses and maintenance. Although the Trustee
is correct in stating that courts must be wary of intra-family transfers, these transfers are no more
than daily maintenance of a household—not the kind of transfers that are found to be fraudulent.
The Trustee’s claims regarding the large group of transactions between Fisher and
Brennan made between December 2000 and April 2003 are unsupported by the evidence and are
dismissed.
B. The FDP-Brennan Inventory Transfer
The Trustee also alleged that the transfer of FDP inventory made in January 2003 was
either preferential or fraudulent. 	There is no dispute that the transfer took place or confusion
over the facts surrounding the transfer as there is regarding the other transfers in question. The
Defendants rely heavily on the argument that the transfer was from FDP and not Fisher and,
therefore, the transfer was not from the Debtor in this bankruptcy. 	The first issue, therefore, is
whether Fisher and FDP should be treated as one entity as the Trustee contends.
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1. Fisher and FDP
The Trustee argues that FDP was legally Fisher’s alter ego. 	FDP was an established
Ohio corporation and, under Ohio law, is considered a different entity from Fisher. 	See
Zimmerman v. Eagle Mortgage Corp., 675 N.E. 2d 480, 485, 110 Ohio App. 3d 762 (Ohio App.
1996) (holding that a “corporation is a separate legal entity from its shareholder even where there
is only one shareholder in the corporation”). Ohio has long recognized the doctrine that “where
the stock of a corporation is owned entirely by one party, and the party in interest is the
stockholder, the fiction of the separate entity of the corporation may be disregarded where the
ends of justice require it.” 	Knight v. Burns, 154 N.E. 345, 347, 22 Ohio App. 482 (Ohio App.
1926). This doctrine is often referred to as the alter ego doctrine.
Under the alter ego doctrine, Ohio courts consider many nonexclusive, factors including
“(1) grossly inadequate capitalization, (2) failure to observe corporate formalities, (3) insolvency
of the debtor corporation at the time the debt is incurred, (4) shareholders holding themselves out
as personally liable for certain corporate obligations, (5) diversion of funds or other property of
the company property for personal use, (6) absence of corporate records, and (7) the fact that the
corporation was a mere façade for the operations of the dominant shareholder(s).” Taylor Steel,
Inc. v. Keeton, 417 F.3d 598, 605 (6 th Cir. 2005) (quoting LeRoux’s Billyle Supper Club v. Ma,
602 N.E. 2d 685, 689, 77 Ohio App. 3d 417 (Ohio App. 1991)); see also Carter-Jones Lumber
Co. v. LTV Steel Co., 237 F.3d 745, 749 (6th Cir. 2001) (stating that “no list of factors can be
exclusive or exhaustive” under Ohio’s veil-piercing doctrine).
The parties did not specifically argue these points at trial and the Trustee inexplicably
presented no evidence regarding Fisher’s actions with regard to the corporate formalities
required for the separateness of FDP. 	FDP is an Ohio “S” corporation meaning that the tax
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liabilities of the corporation flow directly through to Fisher. 	Fisher was always the sole
shareholder of FDP.
The Trustee presented evidence regarding Fisher’s mismanagement of FDP. 	Fisher
frequently commingled his funds with FDP’s and treated FDP’s debts as his own. 	He put FDP
cash into his account and paid FDP expenses. He paid his own expenses from the commingled
funds. One of the Trustee’s experts, Robert Bowman, a former vice president of NCIC, testified
that Fisher literally bled the corporation of capital prior to its demise. See Pl’s Ex. # 19.
Even Fisher had a difficult time remembering to distinguish between himself and his
corporation during testimony. The documentary evidence regarding the potential sale and
inventory transfer to Globe also supports the conclusion that Fisher and FDP were one and the
same. 	Although the memoranda from Globe mention that FDP is a corporation, it is apparent
that Fisher treated FDP as an alter ego when discussing the Fisher’s financial problems. 	The
memorandum dated December 14, 2002 states that Fisher “is now prepared to go into bankruptcy
as he feels he is doomed.” 	See Pl’s Ex. 6(e). 	Notably, the memorandum does not state that
Fisher felt that FDP was doomed or that Fisher was contemplating bankruptcy for FDP, but only
for himself.
Based on that evidence and the total lack of evidence regarding Fisher’s treatment of FDP
as a separate entity, the court finds that FDP was Fisher’s alter ego. 	The transfer of FDP’s
inventory in January 2003 to Brennan was a transfer from Fisher to Brennan.
2. The Inventory was Property of the Estate
Since the court finds FDP to be Fisher’s alter ego and that the transfer of inventory from
FDP to Brennan was, in actuality, a transfer from Fisher to Brennan, the question remains
whether the inventory was property of Fisher’s bankruptcy estate.
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The court finds that the FDP inventory transferred to Brennan is property of the estate
under 11 U.S.C. § 541. 	Section 541 states that the estate is comprised of “any interest in
property that the trustee recovers under section … 550 … .” 11 U.S.C. § 541(a)(3). In this case,
the Trustee is attempting to recover property based on 11 U.S.C. § 548 as made applicable by 11
U.S.C. § 550. Thus, whatever property the Trustee recovers is considered property of the estate.
In addition, section 541 states that property of the estate consists of “[p]roceeds, product,
offspring, rents, or profits of or from property of the estate.” 	11 U.S.C. § 541(a)(6). 	Thus, the
court finds that any proceeds that Brennan received from the sale of the FDP inventory are also
recoverable property of the estate.
3. The Inventory Transfer
The issue remains as to whether that transfer was fraudulent under either the Bankruptcy
Code or Ohio law. 9
Section 548 of the Bankruptcy Code addresses fraudulent transfers and provides as
follows:
(a)(1) The trustee may avoid any transfer of an interest of the debtor in property,
or any obligation incurred by the debtor, that was made or incurred on or within
one year before the date of the filing of the petition, if the debtor voluntarily or
involuntarily—
(A) made such transfer or incurred such obligation with actual intent to
hinder, delay, or defraud any entity to which the debtor was or became, on or after
the date that such transfer was made or such obligation was incurred, indebted; or
(B)(i) received less than a reasonably equivalent value in exchange for
such transfer or obligation; and
(ii)(I) was insolvent on the date that such transfer was made or such
obligation was incurred, or became insolvent as a result of such transfer or
obligation;
(II) was engaged in business or a transaction, or was about to engage in
business or a transaction, for which any property remaining with the debtor was
an unreasonably small capital; or
9 The court will not address the potential preferential nature of this transfer and makes no findings as to whether
Brennan was a creditor of FDP. The issue is more readily resolved under a fraudulent transfer analysis and the
preference analysis is not required at this time.
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(III) intended to incur, or believed that the debtor would incur, debts that
would be beyond the debtor's ability to pay as such debts matured.
11. U.S.C. 548(a)(1). The Trustee can avoid the transfers from FDP to Brennan if Fisher made
those transfers with the actual intent to hinder, delay, or defraud any of his creditors or if Fisher
received less than reasonably equivalent value for the transactions. Trustee’s counsel presented
two lines of argument regarding the inventory transfer. The first, and the argument that will be
addressed in this opinion, is based on the court’s finding above that FDP was Fisher’s alter ego.
The second argument involved the Trustee tracing money from Fisher to Brennan and then to the
purchase of the inventory. 	While this argument may have merit, the court does not find it
necessary to discuss it here.
Notably, 	Brennan 	and 	Fisher 	focused 	on 	the 	Trustee’s 	second 	argument, 	barely
addressing the possibility that the court could find that FDP was Fisher’s alter ego. 	As such,
most of Brennan and Fisher’s arguments regarding the transfer of inventory are based on the
claim that Brennan had the business expertise and financial wherewithal to purchase the
inventory on her own. 	According to the argument, even if the court finds that a fraudulent
transfer took place, the only relief that the Trustee is entitled to is the money that changed hands
in the week before the inventory purchase.
Not only is Brennan’s legal argument misplaced, it is also based on the wrong
assumptions. Fisher was FDP. There is no legal difference between the two for purposes of the
inventory transfer. 	Moreover, while the court does not doubt that Brennan had the business
expertise and perhaps the personal finances to purchase the inventory on her own, that
conclusion is simply beyond reason given the surrounding facts.
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This transfer reeks of actual fraud. 	There is abundant evidence that Fisher undertook
careful pre-bankruptcy planning.10 Part of that planning was clearly the removal of the inventory
out of FDP and into Brennan’s hands. 	At deposition, Fisher testified to that simple fact stating
that he did not purchase the inventory himself because he knew that a future bankruptcy trustee
would take the inventory. 	Although Fisher directly refuted that testimony at trial, the court is
sufficiently convinced that Fisher’s deposition testimony was true. 	The court’s impression of
Fisher is that he is an adept business-person who was both capable of and willing to reap every
possible benefit from FDP prior to its demise—even if that required him to hatch a potentially
fraudulent scheme to move the inventory to the person he was living with prior to filing
bankruptcy.
The 	Globe 	memoranda 	detailing 	Fisher’s 	employment 	negotiations 	support 	this
conclusion. 	The memorandum dated December 24 and updated on December 26, 2002 states
that Fisher “is arranging to take the raw stock” and that he “will get this deal done” without
requiring Globe to purchase the inventory. 	See Pl’s Ex. 6(c). 	It is clear from the memoranda
that Fisher is working on a deal to get the inventory to Globe at a reduced price and without
requiring Globe to purchase the inventory directly.
In addition to the above, it is also compelling that Fisher knew the inventory had a much
greater value than National City Bank placed on it. In his deposition, he testified that the value
of the inventory was between $200,000.00 and $300,000.00, yet National City valued the
inventory at just $3,000.00. Fisher clearly indicated in his deposition and his trial testimony that
the inventory was a money-making opportunity.
10 The evidence as to Fisher’s pre-bankruptcy planning comes primarily from his deposition testimony and the fact
that Fisher repeatedly contradicted that testimony at trial. Among other admissions, Fisher stated in deposition that
he began depositing funds in Brennan’s account prior to bankruptcy because he did not want his own accounts
garnished.
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Finally, it is simply too convenient that the person Fisher was living with eventually
purchased the inventory. 	Fisher actually testified in court that he was against Brennan’s
purchase, but given the deposition testimony and the remaining evidence before the court, this
seems improbable. Given all the circumstances involved, the court finds that Fisher intentionally
created a plan to keep the value of the inventory for himself by having Brennan purchase it.
For her part, Brennan was clearly a knowledgeable accomplice in Fisher’s plan. 	Once
again, the court does not question Brennan’s business acumen and was impressed with both the
testimony regarding her professionalism and her knowledge of the inventory. But, both Brennan
and Fisher’s testimony regarding the transfer was unbelievable. 	Not only did Brennan indicate
that she was not aware of Fisher’s financial status, but she also steadfastly claimed that it was her
idea to purchase the inventory.
Brennan’s testimony in this regard directly contradicts the Globe memoranda which
indicate Fisher was planning on getting the inventory in some manner or another well before
Brennan showed any interest. In addition, the Trustee produced evidence and Brennan verified
that although she purchased the inventory for only $3,850.00, she immediately sold a portion of
it for $10,326.11. Although Brennan went so far at trial as to testify that she was concerned over
whether she would be able to get rid of the inventory, this testimony is also directly contracted
by the Globe memoranda as well as common sense.
As of October 28, 2004, Brennan had sold inventory to Globe for the total amount of
$99,128.65. There was no testimony on the exact portion of the inventory now on hand, but it is
clear that some portion remains for Brennan to sell in the future. 	Brennan has not sold the
inventory to any other purchaser and there is no indication that she will need to because Globe’s
needs are not abating.
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All of these facts indicate to the court that Fisher and Brennan not only devised, but
executed, a effective plan to move the inventory from FDP for their benefit without having to
sacrifice any of the inventory’s value in Fisher’s bankruptcy. 	The final piece of evidence
regarding the inventory transfer that the court finds relevant is the information regarding
Brennan’s use of the proceeds from the sale of the inventory. 	Although a good portion of the
proceeds were used for typical expenses, Brennan used some of the money to pay former
employees of FDP. 	Brennan insisted at trial that the payments were gifts and the court
acknowledges that fact. But the amounts of the payments look very similar to payroll expenses.
Although that was not proven at trial, there is enough evidence that supports the conclusion that
Fisher and Brennan had empathy with the former employees who went unpaid when FDP closed.
Based on the evidence before the court and the testimony at trial, the court finds the
inventory sale from FDP to Brennan was fraudulent under 11 U.S.C. § 548. Fisher and Brennan,
with the knowledge that Fisher was going to file bankruptcy, operated in concert to receive the
benefit of the FDP inventory and, in doing so, fraudulently removed property from the reach of
the Trustee in this bankruptcy.
V. Conclusion and Damages
The Trustee’s motion to include the deposition testimony of Fisher and Brennan as
substantive evidence is granted. 	The depositions were properly filed before the court without
objection by the Defendants.
The Trustee requested damages in the amount of $45,748.00 based on the alleged
fraudulent nature of the large group of monetary transfers that took place between Fisher and
Brennan before Fisher’s bankruptcy filing. 	The court finds that those transfers were not
fraudulent, took place as part of Fisher and Brennan’s cohabitation relationship, and that Fisher
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received reasonably equivalent value for the transfers. The Trustee’s allegations regarding these
transfers are dismissed and no damages will be awarded.
The Trustee also requested damages in the amount of $99,128.65 based on the amount of
proceeds that Brennan received from the sale of the FDP inventory. The court finds that FDP is
Fisher’s alter ego, that the FDP inventory sold to Brennan is property of the bankruptcy estate
under 11 U.S.C. § 541, and that the sale of the inventory for a grossly undervalued price from
FDP to Brennan was a fraudulent transfer under 11 U.S.C. § 548. 	The Trustee is awarded
damages in the amount of $99,128.65 as the proceeds of the sale of the fraudulently transferred
inventory. See 11. U.S.C. § 541(a)(6).
The court orders Brennan to provide an accounting of the inventory for the period of time
between the date the inventory was purchased and the present within 30 days of the entry of this
decision and accompanying order. The court further orders Brennan to turn over any remaining
inventory purchased from FDP on January 30, 2003 to the Trustee within 20 days of providing
that accounting, or such other date as the parties may agree.
The Trustee also requested $25,000.00 in punitive damages. The court finds no basis for
punitive damages in the above matter and the Trustee’s request is denied. The Trustee’s request
for attorney’s fees and costs is denied. 	Attorney’s fees and costs will be paid by the separate
parties.
This decision is the court’s final decision in this matter and constitutes a final, appealable
order.
It is so ordered.
cc:
James A. Fisher, 324 E. Schantz Avenue, Dayton, Ohio 45409
Rhonda Brennan, 324 E. Schantz Avenue, Dayton, Ohio 45409
Ruth A. Slone, 22 Brown Street, P.O. Box 3340, Dayton, Ohio 45401-3340
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Stephen D. Brandt, 22 Brown Street, P.O. Box 3340, Dayton, Ohio 45401-3340
Ira Rubin, 1340 Woodman Drive, Dayton, Ohio 45432
James M. Hill, 2365 Lakeview Drive, Suite A, Beavercreek, Ohio 45431
United States Trustee
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