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Bradley v. Miller

United States District Court, Sixth Circuit

May 30, 2013

DIANA BRADLEY, et al., Plaintiffs,
v.
KEVIN MILLER, et al., Defendants.

ORDER RESOLVING VARIOUS PENDING MOTIONS

TIMOTHY S. BLACK, District Judge.

This civil action is pending before the Court on: (1) Defendant James W. Powell's motion to dismiss (Doc. 93) and the parties' responsive memoranda (Docs. 97, 98); (2) the Magistrate Judge's Report and Recommendations (Doc. 103) and the parties' objections thereto (Docs. 108, 116, 122); (3) Plaintiffs' motion for leave to file a supplemental memorandum (Doc. 112) and the parties' responsive memoranda (Docs. 115, 122); (4) Defendant James W. Powell's motion to strike the affidavit attached to Plaintiffs' motion for leave (Doc. 117) and Plaintiffs' responsive memorandum (Doc. 143); (5) Defendant James D. Powell's motion for an extension of time (Doc. 120) and the parties' responsive memoranda (Docs. 123, 134, 138); and (6) Plaintiffs' objection to the Magistrate Judge's Amended Order (Doc. 139).

I. FACTUAL BACKGROUND

Plaintiffs Diana and James Bradley[1] and Cora May Pyles[2], were allegedly the victims of a real estate/securities Ponzi scheme. Mr. and Mrs. Bradley allegedly lost approximately $134, 354.46 and Mrs. Pyles lost approximately $50, 000. Plaintiffs filed this lawsuit in an effort to recover those losses. Defendants who allegedly perpetrated the fraud include Kevin Miller, James D. Powell, [3] Capital Investments, Great Miami Debentures, Great Miami Real Estate, LLC, James W. Powell, Curtis Powell, Deanna Powell, Hubert Rials, and Chatsworth Jacobs. This Court incorporates herein the facts as explained in detail by the Magistrate Judge. ( See Doc. 103).

II. ANALYSIS

A. Motion to Dismiss

The Magistrate Judge recommended that the motion to dismiss (Doc. 93) be granted in part as to counts eleven and twelve, but denied as to counts six and seven. Additionally, the Magistrate Judge recommended that Plaintiffs' claims against Defendants Chatsworth Jacobs, Capital Investments, Great Miami Debentures, and Great Miami Real Estate, LLC be dismissed for failure to prosecute.

1. Counts eleven (fraudulent transfer) and twelve (conspiracy)

Counts eleven and twelve allege that the Defendants (collectively) engaged in conduct that amounts to a fraudulent transfer under Ohio's Uniform Fraudulent Transfer Act ("UFTA"), as well as a violation of Ohio's civil conspiracy law concerning that Act. (Doc. 46 at ¶¶ 231, 233). These Counts are based upon the transfer of the Midwest Trailer Park property.

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." Esteco, Inc. v. Kimpel, No. 07-co-3, 2007 Ohio App. LEXIS 6323, at *4 (Ohio Ct. App. Dec. 20, 2007). Defendant James W. Powell argues that Plaintiffs' UFTA claims are barred by the applicable four-year statute of limitations. Specifically, the deed that reflects the transfer of the Midwest Trailer Park back to him and/or Curtis Powell was publicly recorded on August 20, 2007, but the amended complaint naming him was not filed until May 17, 2012 (more than four years later). Plaintiffs do not dispute these dates, but argue that a one-year discovery savings clause should be applied. Plaintiffs maintain that they did not learn that the Midwest Trailer Park had been transferred to James W. Powell until "January or February of 2012, when they discovered the transfer on the Butler County Recorder's website." (Doc. 97 at 16 citing Doc. 46 at ¶ 176).

There is a one-year discovery rule for fraudulent transfer claims. Ohio Rev. Code § 1336.09(A). Ohio's UFTA specifically contemplates "constructive discovery" by permitting actions brought outside the four-year period only if they are brought "within one year after the transfer... was or reasonably could have been discovered." In re Spitaleri, No. 05-94988, 2006 Bankr. LEXIS 4155, at *2 (N.D. Ohio May 9, 2006). See also Adcor Indus., Inc. v. Bevcorp, LLC, 411 F.Supp.2d 778, 785-86 (N.D. Ohio 2005) (stating that the Ohio discovery rule imposes a duty to inquire and that a party is charged with the knowledge he would have acquired with reasonable inquiry).[4] In determining whether a party should have discovered wrongful conduct, the relevant inquiry is whether the facts known "would lead a fair and prudent man, using ordinary care and thoughtfulness, to make further inquiry." Hambleton v. R.G. Barry Corp., 465 N.E.2d 1298, 1300-01 (Ohio 1984). If the party has such knowledge and fails to make an inquiry "he is chargeable with knowledge which by ordinary diligence he would have acquired." Id. at 1301.

In sum, because the deed to the trailer park was filed on August 20, 2007, the relevant question is whether, prior to August 20, 2011, Plaintiffs discovered, or by the exercise of reasonable diligence, should have discovered that Defendants fraudulently transferred the Midwest Trailer Park property. Based on the relevant evidence articulated in detail below, this Court concludes that Plaintiffs, three ordinary citizens, did employ reasonable diligence to uncover such alleged fraudulent transfer.[5]

This lawsuit was filed on October 29, 2010. (Doc. 1). Based on the 120 day limit, Plaintiffs had until March 8, 2011 to complete service. Fed.R.Civ.P. 4(m). At the time, Defendant James D. Powell was in the middle of his criminal proceedings, sentencing, and restitution hearings. While James D. Powell was sentenced for the acts that gave rise to this lawsuit on September 28, 2010, the restitution hearing was not held until December 7, 2010, and he was not incarcerated until January 2, 2011. United States v. Powell, 1:10cr75 (S.D. Ohio) (Doc. 22). Service upon the Defendants was perfected by March 28, 2011. (Doc. 12). On May 19, 2011, Plaintiffs issued subpoenas to several banks to investigate possible claims. (Doc. 108, Ex. 20 at ¶ 7). In June 2011, the banks responded to the subpoenas. ( Id. at ¶ 9). On July 27, 2011, Plaintiffs issued three more subpoenas. (Docs. 17, 18, 19).[6] On October 11, 2011, Plaintiffs issued another subpoena asking for additional financial records. (Doc. 108 at 4). Shortly thereafter, on October 21, 2011, Plaintiffs issued subpoenas to eight additional financial institutions requesting additional documents related to six potential new defendants. ( Id. at 4). On October 31, 2011, Plaintiffs issued yet another subpoena asking for additional financial documents. (Doc. 26).

At this point in the litigation, a Rule 26(f) report had yet to be filed because all parties had yet to answer. A scheduling order was finally docketed on January 5, 2012. (Doc. 35). In February and March 2012, based on the review of financial documents from sixteen subpoenas, Plaintiffs sent letters to seven potential defendants who appeared to have financial involvement in James D. Powell's fraudulent conduct. (Doc. 108, Ex. 20 at ¶¶ 13-14). Plaintiffs' counsel then engaged in significant communication with the potential defendants' lawyers. (Doc. 108 at 5). On March 23, 2012, while discussions were ongoing, Plaintiffs sent a subpoena to Bayview Loan Servicing requesting financial documents related to the Midwest Trailer Park. ( Id., Ex. 20 at ¶ 15). On April 3, 2012, Plaintiffs learned that the Midwest Trailer park had an appraised value of $1, 050, 000. ( Id. at ¶ 17). Based on the information acquired on April 3, 2012, Plaintiffs finally had sufficient information to bring a ...


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