In Re: Daniel Fordu v.

arises from the bankruptcy court's disposition of an adversary In this case, the bankruptcy court concluded that the

proceeding initiated by a Chapter 7 trustee, comes to us by Trustee's conduct was reasonable under the circumstances.

way of our circuit's Bankruptcy Appellate Panel ("BAP"). First, the Trustee made reasonable inquiry into the facts of the

The appeal is brought by one of the defendants to the case before filing the complaint. Second, and most important,

adversary proceeding, Julie A. Fordu, the former wife of the the Trustee's claim that the lottery proceeds were indeed

Debtor, Daniel Fordu. Ms. Fordu contends that the BAP marital property is supported by existing law. Considering

erred by reversing two separate orders of the bankruptcy these facts, we cannot conclude that the bankruptcy court

court: the first order granted partial summary judgment in her abused its discretion by finding that sanctions were

favor and the second order dismissed the trustee's complaint. unwarranted. We therefore affirm the bankruptcy court's

We are urged by Ms. Fordu to reverse the decision of the BAP denial of Ms. Fordu's motion for attorney fees and costs.

and affirm the bankruptcy court's orders. Ms. Fordu also

seeks reversal of a third order of the bankruptcy court denying VI.

her motion for attorney fees and costs.¹

For the foregoing reasons, we REVERSE the bankruptcy 7054(b).²¹ Bankruptcy courts' decisions regarding the The issues before us are the same as those presented to the imposition of sanctions are reviewed under an abuse of BAP: (1) whether the bankruptcy court erred by granting discretion standard. Down , 103 F.3d at 478. Therefore, we partial summary judgment in favor of Ms. Fordu after

concluding that lottery proceeds won during her marriage to the Debtor constituted Ms. Fordu's separate property in which

these rules otherwise provides. Costs against the United States, it officers and agencies shall be imposed only to the extent permitted by law. Costs may be We review the bankruptcy court's denial of attorney fees under Fed. R. taxed by the clerk on one day's notice; on motion Bankr. P. 9011 and costs under Fed. R. Bankr. P. 7054(b) for an abuse of served within five days thereafter, the action of the discretion. S ee Mapother & Mapother, P.S.C. v. Cooper (In re Downs), clerk may be reviewed by the court. 103 F.3d 472, 480 (6th Cir. 1996).

I. IV.

In 1986, Ms. Fordu redeemed an Ohio lottery ticket The bankruptcy court dismissed the Trustee's third and entitling her to winnings of $388,888, payable in annual fourth causes of action without making findings of fact or installments of $19,444.40 through the year 2011. In 1990, conclusions of law. Fed R. Civ. P. 52(a), which is made the Fordus filed a petition to dissolve their marriage in the applicable in the adversary proceeding by Fed. R. Bankr. P. Common Pleas Court, Division of Domestic Relations, Lake 7052, states that "[i]n all actions tried upon the facts without County, Ohio ("Domestic Relations Court"). a jury . . . the court shall find the facts specially and state

separately its conclusions of law . . . ." See Orlett v.

On January 17, 1991, the Fordus executed a Separation Cincinnati Microwave, Inc. , 954 F.2d 414, 418 (6th Cir. Agreement that was incorporated into an agreed dissolution 1992)(quoting Fed. R. Civ. p. 52(a)). We have not interpreted decree entered by the Domestic Relations Court on May 6, Fed. R. Civ. P. 52 to require trials courts to explicitly treat 1991 ("Dissolution Decree"). The Separation Agreement each issue raised. See Grover Hill Grain Co. v. Baughman- provided that: (1) the Debtor would convey his entire right, Oster, Inc. , 728 F.2d 784, 792-93 (6th Cir. 1984). Rather, title and interest in the marital residence to Ms. Fordu; (2) findings are to be liberally construed in support of a neither spouse would be responsible for supporting the other judgment, even if the findings are not as explicit or detailed after the marriage ended; (3) the Debtor would not be required as might be desired. Id . at 793. "However, there must be to pay alimony to Ms. Fordu; (4) Ms. Fordu would waive any findings, in such detail and exactness as the nature of the case claim to an interest in a restaurant business venture that the permits, of subsidiary facts on which an ultimate conclusion Debtor was about to undertake; and (5) the Debtor would can rationally be predicated." Orlett , 954 F.2d at 418. And relinquish any and all rights he may have had in the lottery there must be sufficient findings of fact and conclusions of proceeds, except for one-half of the proceeds of the lottery law to give an appellate court a clear understanding of the installment received in 1990. basis of the trial court's decision and enable it to determine

the grounds on which the trial court reached its decision. See

Approximately two years after the Dissolution Decree was id. Because the bankruptcy court failed to make findings of entered, the Debtor's business failed and he filed a voluntary fact specific to the Trustee's third and fourth causes of action, petition for relief under Chapter 7 of the Bankruptcy Code. we AFFIRM the BAP's reversal of the judgment dismissing Harold A. Corzin, the duly appointed trustee for the Debtor's these claims and agree that the adversary proceeding should bankruptcy estate ("Trustee"),² brought an action pursuant to be remanded to the bankruptcy court for further findings. § 544 of the Bankruptcy Code against Ms. Fordu seeking to

V.

the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable²⁰ The version of Fed. R. Bankr. P. 9011(a) in effect at all relevant under section 502 of this title or that is not allowable times to the adversary proceeding stated in pertinent part: only under section 502(e) of this title.

(a) Signature . Every petition, pleading, motion and

Another fundamental requirement of claim preclusion is avoid and recover transfers that she received pursuant to the that the second action raises claims that were or could have Separation Agreement. Invoking the "strong-arm" powers been litigated in the first action. See Hapgood , 127 F.3d at afforded by § 544(a) of the Bankruptcy Code,³ the Trustee's 493. Here, it is readily apparent that the Trustee's actual complaint sought the avoidance of the Debtor's transfers of fraudulent transfer claims could not have been litigated in the his interest in the marital residence and lottery proceeds as Domestic Relations Court proceeding. The Trustee's fraudulent and/or preferential transfers. Although the complaint alleged that the Debtor transferred his interest in Trustee's complaint did not specifically reference t the lottery proceeds with intent to hinder, delay and/or⁴

he state

statutes under which relief was sought, presumably the defraud his creditors. If, as the Trustee alleges, the Debtor Trustee sought avoidance of the transfers made pursuant executed the Separation Agreement as part of a scheme to to the Separation Agreement under Ohio hinder, delay or defraud his creditors, then, as a willing

participant in this scheme, the Debtor certainly would not

have acted to protect the interest of those same creditors in the

dissolution proceeding. Accordingly, there clearly was not an

opportunity to litigate the intentional fraudulent transfer

claims in the Domestic Relations Court. See XYZ Options ,¹¹ U.S.C. § 544(b)(1).

154 F.3d at 1269 (consent judgment not entitled to preclusive³

effect "where [it] was obtained as part of a collusive scheme "[T]he section 544 'strong-arm' provision of the Code allows the

on the part of [the debtor and its transferee] to hinder, delay, t vo ru i s d te able under state f e to 'step into the r sh audulent conv oes' of a cre ey dance acts f itor in ordeo r t r the benef o nullify tr it of ansfe all rs

or defraud creditors"); In re Hope , 231 B.R. at 422 ("A creditors." NLRB v. Martin Arsham Sewing Co., 873 F.2d 884, 887 (6th

bankruptcy trustee is not bound by a judgment to which he Cir. 1989), modified on reh'g on other grounds , 882 F.2d 216 (6th Cir.

was not a party . . . if the judgment was a collusive effort to^1989). See also Craig v. Seymour (In re Crabtree) , 871 F. 2d 36, 37 (6th

hinder, delay or defraud creditors."). Cir. 1989) ("Section^544(a) gives a bankruptcy trustee the rights and

powers of a judicial lien creditor or a bona fide purchaser of real property

For the foregoing reasons, we conclude that the Dissolution and any oblig allow ati s the trustee to av on incurred by the debtor that is oid any transfer of v property oidable by of a j the debtor or udicial lien Decree was not entitled to claim-preclusive effect. The creditor or a bona fide purchaser of real property."). bankruptcy court's dismissal of the Trustee's avoidance

claims based on preclusion principles therefore was⁴ The Trustee's complaint asserted that the transfers of the Debtor's

erroneous. interest in the lottery proceeds and marital residence that were made

pursuant to the Separation Agreement constituted fraudulent and preferential transfers. The challenged transfers were made nearly two years before the Debtor's bankruptcy filing. The Bankruptcy Code's preference provision--11 U.S.C. §547(b)--applies only to transfers made

Rev. Code Ann. §§ 1336.04(A),⁵ 1336.05,⁶ would not satisfy the Sorlucco standard. Certainly, the

Debtor's transfer of his interest in the marital residence and a future stream of lottery proceeds valued at approximately

the transfer or incurred the obligation in either of the following ways:¹⁹

(1) With actual intent to hinder, delay, or defraud The Supreme Court's recent decision in BFP v. Resolution Trust

any creditor of the debtor; Corp ., 511 U.S. 531 (1994), contains language that, upon first blush,

(2) Without receiving a reasonably equivalent seemingly would support the rule enunciated in Sorlucco and applied by

value in exchange for the transfer or obligation, and if the Falk and Hoyt courts. In BFP , the Court held that absent evidence of either of the following applies: collusion, the consideration received from a regularly conducted real

(a) The debtor was engaged or was about to engage estate mortgage foreclosure sale constitutes "reasonably equivalent value"

in a business or a transaction for which the remaining for the foreclosed property within the meaning of 11 U.S.C. § 548(a)(2) assets of the debtor were unreasonably small in relation (the Bankruptcy Code's constructive fraudulent transfer provision), to the business or transaction; provided that compliance with applicable state foreclosure law is

(b) The debtor intended to incur, or believed or demonstrated. See id . at 545-46. One could argue that the BFP holding

reasonably should have believed that he would incur, should be extended to the domestic relations area, i.e. , absent evidence of debts beyond his ability to pay as they became due. collus property ion, trans division should be dee fers made in accordance w med to hav ith a s e been exchang tate court approv ed f ed or

Ohio Rev. Code Ann. § 1336.04 (Anderson 1993). reas applied by onably equiv the Sorlucco alent value. This court. Upon closer ex is essentially the a rule f mina o tion of rmulated and BFP , property, and in that respect the court's disposition appears 1313.56⁷ and 1313.57.⁸

'just' and 'fair'. [sic] Nevertheless, the Bankruptcy Code

requires the disposition to be measured by different While the Trustee's complaint pled four distinct causes of

standards."). action arising under various Bankruptcy Code and Ohio

Falk and Hoyt also are clearly factually distinguishable

from the present situation. In each of those cases, it was the⁷

individual debtor (the Chapter 11 debtor in Falk and the Section 1313.56 provides:

Chapter 13 debtor in Hoyt ) who actually had participated in

the domestic relations proceedings, rather than a court- assig A sale, conv nment, made in trust or otherw eyance, transfise by er, m a debtor, and ortgage, or

appointed trustee, who sought to set aside the earlier property every judgment suffered by him against himself in

division. See Falk , 98 B.R. at 473; Hoyt , 97 B.R. at 734. contemplation of insolvency and with a design to prefer

Under those circumstances, the equities weighed strongly one or more creditors to the exclusion in whole or in

against permitting the same individual who had negotiated the part of others, and a sale, conveyance, transfer,

state court-approved property division to attempt to set aside m by o rtg him ag to be rendered, in any e, or assignment made, or j manner, w udgme ith intent to nt procured

the agreement wearing the mantle of a fiduciary at a later date. hinder, delay, or defraud creditors, is void as to

creditors of such debtor at the suit of any creditor. In

Further, Falk and Hoyt rely on the rationale of Harman v. a suit brought by a creditor of such debtor for the Sorlucco (In re Sorlucco ), 68 B.R. 748, 752 (Bankr. D.N.H. purpose of declaring such sale void, a receiver may be 1986), wherein the bankruptcy court established the following appointed who shall take charge of all assets of such standard to be applied when a property division approved by debtor, including transferred, mortg t a h g e property ed, or assig so sold, conv ned, and also eyed, a state court is subsequently challenged as a constructive administer all the assets of the debtor for the equal fraudulent transfer: benefit of the creditors of the debtor in proportion to

the amount of their respective demands, including those

It must be shown that the property division was the result which are unmatured. of arms-length bargaining in the light of the likely range of distribution that the divorce court might order if the Ohio Rev. Code Ann. § 1313.56 (Anderson 1993). matter went to a contested trial. Settlements reached in⁸ the shadow of an imminent bankruptcy filing would raise Section 1313.57 states: a clear factual question as to the bona fides of such Section 1313.56 of the Revised Code does not bargaining. apply unless the person to whom such sale,

conveyance, transfer, mortgage, or assignment is made, Id . at 755. According to the Sorlucco court, only property knew of such fraudulent intent on the part of such divisions falling outside this "likely range of distribution" are debtor. Said section does not vitiate or affect any subject to constructive fraudulent transfer attack. Id . In our m liability ortgag created s e made in g imultaneous ood faith to secure an ly with such mo y rtg de ag bt or e, if view, Sorlucco is a policy-based decision that usurps the such mortgage is filed for record in the county wherein legislative prerogative. For if the Ohio legislature had seen fit the property is situated, or as otherwise provided by to exempt court-approved property divisions from challenge law, within three days after its execution, and when, as constructive fraudulent transfers, it could have expressly upon foreclosure or taking possession of such property, done so. Even if we were to follow the holding of Sorlucco , the mortgagee fully accounts for the proceeds thereof. which we are not inclined to do, the Fordus' property division Ohio Rev. Code Ann. § 1313.57 (Anderson 1993). statutory provisions, the claims stem from the following of time, to the spouse with custody of the children of the essential allegations: (1) that, pursuant to the Separation marriage;

Agreement incorporated into the Dissolution Decree, the (4) The liquidity of the property to be distributed;

Debtor transferred to Ms. Fordu his interest in approximately (5) The economic desirability of retaining intact an asset

$380,000 in future lottery proceeds and the parties' marital or an interest in an asset;

residence for less than reasonably equivalent value; (2) that (6) The tax consequences of the property division upon

the transfers effected by the Dissolution Decree were made the respective awards to be made to each spouse;

with actual intent to hinder, delay, or defraud creditors, or (7) The costs of sale, if it is necessary that an asset be

were made at a time when the Debtor knew or should have sold to effectuate an equitable distribution of property;

known that he was insolvent or was about to engage in a (8) Any division or disbursement of property made in a

business for which he lacked sufficient assets; (3) that Ms. separation agreement that was voluntarily entered into by

Fordu was aware of, or should have known, this information; the spouses;

(4) that the Debtor preferred payment of Ms. Fordu's claims (9) Any other factor that the court expressly finds to be

over payment of the claims of other creditors; and (5) that, as relevant and equitable.

a consequence of these transfers, Ms. Fordu held property of

the Debtor's bankruptcy estate that should be turned over to Ohio Rev. Code Ann. § 3105.171(F) (Anderson 1996).

the Trustee. The Trustee's complaint included the language

necessary to support the state and federal causes of action Thus, the test used to determine whether a transfer was

asserted. Nevertheless, without affording the Trustee an supported by reasonably equivalent value focuses on whether

opportunity to adduce evidence supporting his claims, the there is a reasonable equivalence between the value of

bankruptcy court entered the two separate orders described property surrendered and that which was received in

below that granted judgment in favor of Ms. Fordu as a matter exchange. Ohio domestic relations courts, in making a

of law. division of property, are not constrained by a reasonable

equivalence standard. Rather, they may take into account a

First, the bankruptcy court entered partial summary number of equitable factors that conceivably could produce a judgment against the Trustee, holding that the lottery ticket division of marital property that would satisfy the and its proceeds were the separate property of Ms. Fordu requirements of Ohio Rev. Code Ann. § 3105.171(F), yet not rather than marital property. As such, the Debtor held no pass muster under the reasonable equivalence test. Given interest in the lottery winnings to which the Trustee could these divergent decisional standards, we believe that the succeed, the bankruptcy court concluded. Second, following Dissolution Decree cannot be accorded claim-preclusive opening statements at the trial of the Trustee's remaining effect. Raleigh v. Haskell (In re Haskell ), No. 96B14602, claims, the bankruptcy court entered a separate order granting 1998 WL 809520, at *8 (Bankr. N.D. Ill. Nov. 19, 1998) Ms. Fordu's motion to dismiss the claims.⁹ Because the (declining to grant preclusive effect to agreed divorce decree

in fraudulent transfer action because the "factors outlined in connection with the parties' property division were supported Dissolution Decree contained language reciting that the by reasonably equivalent value. Separation Agreement constituted a fair, just and equitable

division of the parties' marital property, the bankruptcy court

A fundamental element of a constructive fraudulent transfer determined that principles of collateral estoppel precluded the claim is a transfer made in exchange for less than reasonably Trustee from litigating the issue of whether the Debtor equivalent value. See Ohio Rev. Code Ann. §§ 1336.04(A)(2) received reasonably equivalent value in exchange for the and 1336.05(A). In assessing whether a challenged transfer transfer of hi

is supported by reasonably equivalent value, courts generally¹⁰

s interest in the lottery proceeds and the marital

residence.

compare the value of the property transferred with the value

of that received in exchange for the transfer. See, e.g., The bankruptcy court did not make a specific ruling on the

Aristocrat Lakewood Nursing Home v. Mayne , No. 73328, Trustee's third and fourth claims for relief, i.e. , the state-law

1999 WL 285386, at *8 (Ohio Ct. App. May 6, 1999) (where preference claim and the claim for turnover of property of the

transferor "gave up a certain asset of $7,500" in return for "a Debtor's bankruptcy estate. Rather, the court simply entered

highly contingent potential opportunity to rent a home" from a judgment dismissing these claims. Finally, the bankruptcy

the transferee, "record does not show that [transferor's] court denied Ms. Fordu's motion for recovery of attorney fees

benefit was 'reasonably equivalent' to the value [he] and costs. Ms. Fordu's motion asserted that the Trustee

surrendered . . . ."); Deitering v. Amann , No. 12864, 1992 WL violated Fed. R. Bankr. P. 9011 by continuing prosecution of

127654, at *2 (Ohio Ct. App. June 11, 1992) (measuring the adversary proceeding after the bankruptcy court had

value of property transferred and comparing it to value granted partial summary judgment in Ms. Fordu's favor on

received by transferor); see also Barber v. Golden Seed Co., the basis of its finding that the Debtor held no property

Inc., 129 F.3d 382, 387 (7th Cir. 1997) ("The test used to interest in the lottery proceeds. Although the bankruptcy

determine reasonably equivalent value in the context of a court ultimately rejected the Trustee's arguments, it ruled that

fraudulent conveyance requires the court to determine the

value of what was transferred and compare it to what was

received.") (citing Matter of Vitreous Steel Prod. Co. , 911 §§ 1313.56, 1336.04(A), and 1336.05(A) and (B). A "transfer" is defined

F.2d 1223, 1234-35 (7th Cir. 1990)); Harman v. First in Ohio Rev. Code Ann. § 1336.01(L) as "every direct or indirect,

American Bank (In re Jeffrey Bigelow Design Group, Inc. ), absolute or conditional, and voluntary or involuntary method of disposing

956 F.2d 479, 484 (4th Cir. 1992) ("[P]roper focus is on the of or parting with an asset or an interest in an asset, and includes payment

net effect of the transfers on the debtor's estate . . . ."). of Ohio Rev money, . release, lease, and c Code Ann. § 1336.01(L reation of ) (Anderson 1993). a lien or other encum A finding b rance." that, at

Ohio domestic relations courts, in making an equitable the tim lottery proceeds e of the dis to trans solution proceeding fer should hav , the D e been outcom ebtor had no interes e determinativ t in the e of division of property in a divorce proceeding, apply a markedly the Trustee's avoidance claims. Thus, the second ruling addressing the different standard than the reasonably-equivalent-value test. preclusive effect of the Dissolution Decree appears to have been All the following factors must be considered by a domestic unnecessary, at least insofar as the lottery proceeds were concerned. relations court when a division of marital property is made:¹⁰

The Trustee's complaint seeks the avoidance and recovery of the

(1) The duration of the marriage; transfers of the Debtor's interest in both the marital residence and the (2) The assets and liabilities of the spouses; lottery proceeds. Neither the Trustee nor Ms. Fordu addressed the marital (3) The desirability of awarding the family home, or the res this idence in the proceeding appeal. While our decis s bef ion o applies re the bank equally ruptcy to the m court, arital res the BAP idence, , or in right to reside in the family home for reasonable periods because the parties chose in their briefs and oral argument to ignore the

marital residence, this opinion focuses solely on the lottery proceeds. imposition of Rule 9011 sanctions was not justified because The bankruptcy court, in determining that the Dissolution the Trustee's claims were made after appropriate factual Decree was entitled to preclusive effect, relied on two inquiry and warranted by existing law. decisions cited by Ms. Fordu in her brief: Falk v. Hecker (In

re Falk) , 98 B.R. 472 (D. Minn. 1989) and Hoyt v. Hoyt (In

The Trustee appealed to the BAP the bankruptcy court's re Hoyt) , 97 B.R. 730 (Bankr. D. Conn. 1989). Falk and Hoyt two orders that, collectively, resulted in dismissal of his hold that a state court's approval of an agreed property complaint. Ms. Fordu cross-appealed the bankruptcy court's division as fair and equitable in a domestic relations denial of her motion for attorney fees and costs. The BAP proceeding is tantamount to a determination by the court that reversed the bankruptcy court's first order granting partial the transfers made by the parties were supported by summary judgment, holding that the Debtor had an interest in reasonably equivalent value. Accordingly, the Falk and Hoyt the lottery proceeds at the time the parties' marriage was courts granted preclusive effect to the state court orders in dissolved. The BAP also reversed the bankruptcy court's subsequent fraudulent transfer litigation. See Falk , 98 B.R. at second order, which dismissed the Trustee's remaining claims 474 ("The measure of reasonably equivalent value is the same for relief, determining that the recitation in the Dissolution measure called for in a fair and equitable [property] division Decree that the Separation Agreement constituted a fair, just . . . ."); Hoyt , 97 B.R. at 733 ("[U]nder the division of and equitable property division did not preclude the Trustee property scenario, the state court found that the value of from litigating the issue of whether the challenged transfers releasing the plaintiff from the mortgage and loan obligations were made in exchange for reasonably equivalent value. was reasonably equivalent to the transfer of whatever property Because the bankruptcy court failed to state its grounds for interest he held in the real estate and the trust."). As we dismissing the Trustee's third and fourth causes of action, the explain below, the standards for measuring the fairness of a BAP reversed the bankruptcy court's dismissal of these property division in the domestic relations arena and claims. Finally, the BAP affirmed the bankruptcy court's reasonably equivalent value in a fraudulent transfer case are denial of Ms. Fordu's motion for attorney fees and costs. The separate and distinct. We thus do not equate the Domestic BAP remanded the adversary proceeding to the bankruptcy Relations Court's approval of the Dissolution Decree with a court for proceedings consistent with its opinion. This timely determination by the court that the transfers made in appeal followed.

II.

Although the issue of what property is properly included in 1107(a). Thus, it follows that after conversion of a bankruptcy case from the debtor's bankruptcy estate raises a federal question, it is a reorganization to a liquidation proceeding, a Chapter 7 trustee often will well-settled that a debtor's property rights are created and be held to have been in privity with his predecessor fiduciary, i.e., either defined by state law. See Demczyk v. Mutual Life Ins. Co. (In the debtor-in-possession or Chapter 11 trustee. See Sanders re Graham Square, Inc.) , 126 F.3d 823, 827 (6th Cir. 1997) Confectionary 1992). Oshero Prods. w v. Buccino & v. Heller Fin., Inc., Assocs., Inc. ( 973 F.2d 474, 480- In re Intelogic T⁸¹ (6th race, Inc.) Cir. , ("To determine the extent of an estate's interest in property, No. 96-5222-C, 1998 Bankr. LEXIS 1647, at *7-*11 (Bankr. W.D. Tex. we must look to property rights defined under state law."); see May 21, 1998), aff'd , 226 B.R. 382 (W.D. Tex. 1998). Further, upon a also Nobleman v. American Savings Bank, 508 U.S. 324, 329 factual showing that a pre-petition debtor adequately represented the (1993) ("Congress has 'left the determination of property interests of his/her creditors in a prior proceeding, the Chapter 7 trustee rights in the assets of a bankrupt's estate to state law,' since m fo a rm y b er adj e he u ld dication. to be in See Sanders, privity with t 973 F.2d at 481 (" he debtor and, thus, Privb ity ound by . . . means the such 'property rights are created and defined by state law.'") . . . one whose interests were adequately represented [in the former

proceeding].").

Keating (In re XYZ Options, Inc.) , 154 F.3d 1262, 1269 (11th (quoting Butner v. United States, 440 U.S. 48, 54-55 (1979)).

Cir. 1998) ("Trustee [is not in privity with debtor because he] We therefore must look to Ohio law to determine what

represents the rights of the [debtor's] creditors . . . who were interest, if any, the Debtor had in the lottery proceeds at the

not parties to the . . . consent judgment and whose interests time his marriage was dissolved.

were not represented by [the debtor] . . . ."); Coleman v.

Alcock , 272 F.2d 618, 621-22 (5th Cir. 1959) (Because the Under Ohio law, the Ohio Lottery Commission recognizes

trustee is invested with "extraordinary rights . . . as a general the claimant who submits a winning ticket as the only

representative of . . . creditors," he is "not bound, either on res individual entitled to receive payment of lottery winnings.

judicata or judicial collateral estoppel [grounds] by the prior See Ohio Rev. Code Ann. § 3770.07(A) (Anderson 1997).

state proceedings."); Webster v. Hope (In re Hope ), 231 B.R. Section 3770.07(A) provides that persons entitled to lottery

403, 422-23 (Bankr. D. Distr. Col. 1999) ("[T]here is no winnings cannot voluntarily assign their rights to receive

privity between the trustee in suing under § 548(a)(2) and the payment; nor, with limited exceptions, may a third party

debtor as a party in the prior divorce proceeding which was attach lottery proceeds. Based on this Ohio statutory

resolved consensually."); Germain v. Colorado State Univ. provision governing payment of lottery winnings, the

(Matter of Windrush Assocs. II), 105 B.R. 195, 197 (Bankr. bankruptcy court determined that the lottery proceeds were

D. Conn. 1989) (because "[c]reditors of the debtors . . . were the separate property of Ms. Fordu and that the Debtor had no

not necessary parties" to state court action, trustee held "not interest in them. Because the Debtor had no property interest

[to] be in privity with the debtor"); Stainer v. McCall (In re in the lottery proceeds, the bankruptcy court reasoned, the

Nevada Natural, Inc.) , 92 B.R. 934, 937 (Bankr. N.D. Okla. Trustee could not assert an entitlement to the proceeds.

1988) (Trustee, "who represents the interests of all creditors

of the bankrupt estates[,]" was not in privity with the debtor Like the BAP, we conclude that the bankruptcy court's

since "rights and interests of the creditors . . . were not focus on the Ohio statute governing the payment of and

represented" in prior action.); Gray v. Fill (In re Fill) , 82 B.R. restricting assignment or attachment of lottery winnings was

200, 217 (Bankr. S.D.N.Y. 1987) (Trustee held not to stand misdirected. The fact that, under Ohio Rev. Code Ann.

in privity with the debtor, "[f]or it is plain that the rights of § 3770.07(A), only Ms. Fordu could claim the lottery

creditors are not considered in the pre-bankruptcy suit."); winnings and such winnings were not subject to attachment

Boyajian v. DeFusco (In re Giorgio) , 62 B.R. 853, 863 by her creditors is simply not legally relevant. Rather, the

(Bankr. D.R.I. 1986) ("'Operation of res judicata requires pertinent question is whether the Debtor had a property

identity of parties. Yet the creditors presently represented by interest in the lottery proceeds at the time they were

the trustee were not parties to the original action, nor were transferred to Ms. Fordu pursuant to the Separation

their interests represented therein. Thus, they cannot be Agreement. As we explain below, the lottery proceeds

bound by the dismissal of the action.'") (citation omitted).¹⁸ unquestionably constituted marital property in which the

Debtor had an interest at the time of the dissolution. property¹¹ and subject to division upon termination of the Ass'n , 81 Ohio St. 3d at 396, 692 N.E.2d at 144 (citation

omitted). Nor was the Debtor "so identified in interest with

(i) All real and personal property that currently is

owned by either or both of the spouses, including, but not limited to, the retirement benefits of the spouses, bankruptcy case by several years. and that was acquired by either or both of the spouses during the marriage;¹⁷ In analyzing whether privity existed between the Debtor and the

(ii) All interest that either or both of the spouses Trustee, the BAP applied the test adopted by the Ninth Circuit Bankruptcy

currently has in any real or personal property, Appellate Panel in Shuman v. McDonald (In re Shuman ), 78 B.R. 254, including, but not limited to, the retirement benefits of 256 (B.A.P. 9th Cir. 1987). In Shuman , the panel held that for privity to the spouses, and that was acquired by either or both of exist it must be shown that the interests of the debtor and the trustee were the spouses during the marriage; so closely related that "the [debtor] was [the trustee's] 'virtual

(iii) Except as otherwise provided in this section, representative' in the prior action." Id. (citation and internal quotation

all income and appreciation on separate property, due omitted). Here, the BAP erroneously applied a standard derived from to the labor, monetary, or in-kind contribution of either federal law in determining the existence of privity between the Trustee or both of the spouses that occurred during the and the Debtor. Marrese v. American Academy of Orthpaedic Surgeons, marriage; 470 U.S. 373, 384 (1985), teaches that a federal court must apply the law

(iv) A participant account, as defined in section of the state where the prior judgment was rendered in determining the

145.71 of the Revised Code, of either of the spouses, to extent to which a prior judgment should be given preclusive effect. See the extent of the following: the moneys that have been Hospital Underwriting Group, Inc. v. Summit Health Ltd. , 63 F.3d 486, deferred by a continuing member or participating 494-95 (6th Cir. 1995). Because the existence of privity is a necessary employee, as defined in that section, and that have been prerequisite to the application of preclusion principles, the BAP should transmitted to the Ohio public employees deferred have applied Ohio, rather than federal, law in ascertaining whether the compensation board during the marriage and any Trustee and the Debtor stood in privity in the dissolution proceeding. The income that is derived from the investment of those various formulations of the privity test applied by Ohio courts are closely moneys during the marriage; the moneys that have been akin to the "virtual representative" standard employed by the Ninth deferred by an officer or employee of a municipal Circuit BAP in Shuman. Compare Fort Frye Teachers Ass'n , 81 Ohio St. corporation and that have been transmitted to the 3d at 396, 692 N.E.2d at 144 (adopting "real party in interest" privity test) governing board, administrator, depository, or trustee and Deaton , 107 Ohio App. 3d at 413, 669 N.E.2d at 5 (holding that of the deferred compensation program of the municipal privity exists if "another . . . is so identified in interest with [a party in corporation during the marriage and any income that is first proceeding] . . . that he represents the same legal right") with derived from the investment of those moneys during Shuman , 78 B.R. at 256 ("A person who technically is not a party to the the marriage; or the moneys that have been deferred by prior action may be bound by the prior decision only 'if his interests are an officer or employee of a government unit, as defined so similar to a party's that the party was his 'virtual representative' in the in section 145.74 of the Revised Code, and that have prior action.'") (quoting A & A Concrete, Inc. v. White Mountain Apache been transmitted to the governing board, as defined in Tribe , 781 F.2d 1411 (9th Cir. 1986)). Thus, the BAP's application of a that section, during the marriage and any income that is federal privity standard that is nearly identical to the privity test applied derived from the investment of those moneys during by Ohio courts was harmless error. Had the BAP applied the privity the marriage. standards formulated by Ohio courts, the same legal conclusion was

(b) "Marital property" does not include any inevitable: the creditors of Debtor's bankruptcy estate simply were not

separate property. the "'real parties in interest'" in the dissolution proceeding. Fort Frye

Teachers Ass'n, 81 Ohio St. 3d at 396, 692 N.E.2d at 144 (citation identified in interest with such person that he represents the marriage unless such property falls within one of the specific same legal right." Deaton v. Burney , 107 Ohio App. 3d 407, categories of separate property enumerated in Ohio Rev. Code 413, 669 N.E.2d 1, 5 (1995) (citing Fightmaster v. Tauber , 43 Ann. § 3105.171(A)(6)(a).¹² Because the lottery proceeds Ohio App. 266, 268, 183 N.E. 116, 117 (1932)); see also were won during the Fordus' marriage and do not come Thompson , 70 Ohio St. 3d at 184, 637 N.E.2d at 923 ("As a within the ambit of any of the separate property exceptions set general matter, privity 'is merely a word used to say that a forth in Ohio Rev. Code Ann. § 3105.171(A)(6)(a), the relationship between the one who is a party on the record and proceeds were a part of the Fordus' marital estate at the time another is close enough to include that other within the res

judicata.'") (quoting Bruszewski v. United States , 181 F.2d

419, 423 (3rd Cir. 1950) (Goodrich, J., concurring)).

Application of the privity principles distilled from Ohio Ohio Rev. Code Ann. § 3105.171(A)(3) (Anderson 1996). case law leads to the inescapable conclusion that the Trustee

was not in privity with the Debtor in the dissolution¹² Under Ohio law, "separate property" means all real and personal

proceeding. A bankruptcy trustee is the representative of all property and any interest in real or personal property that is found by the

creditors of the bankruptcy estate. See Marlow v. Rollins court to be any of the following:

Cotton Co. (In re The Julien Co.), 146 F.3d 420, 423 (6th Cir. (a)(i) An inheritance by one spouse by bequest,

1998) ("[T]he trustee in bankruptcy. . . represents all creditors devise, or descent during the course of the marriage;

. . . .") (quoting Wells v. Dickinson , 403 F.2d 635, 636 (6th (ii) Any real or personal property or interest in real

Cir. 1968)); Bauer v. Commerce Union Bank , 859 F.2d 438, or personal property that was acquired by one spouse

441 (6th Cir. 1988) ("It is . . . clear that the trustee in prior to the date of the marriage;

bankruptcy acts as representative of the estate."). As such, the from (iii) P separate pro assive incom perty by e and appreciation acquired one spouse during the

Trustee is not simply the successor-in-interest to the Debtor: marriage;

he represents the interest of all creditors of the Debtor's (iv) Any real or personal property or interest in real

bankruptcy estate. or personal property acquired by one spouse after a

decree of legal separation issued under section 3105.17

Plainly, the Debtor's creditors were not the "'real parties in of the Revised Code;

interest'" in the dissolution proceeding.¹⁶ Fort Frye Teachers or personal p (v) Any real or personal property roperty that is excluded by or interest in real a valid

antenuptial agreement;

of the dissolution.¹³ Ohio courts, applying the foregoing collateral estoppel when, in fact, it intended to apply res

definitions of marital and separate property, consistently have judicata, or claim preclusion, principles, we will analyze

determined that lottery proceeds won during marriage whether the Dissolution Decree was entitled to claim-

constitute marital rather than separate property. See Leis v. preclusive effect.

Leis, 96-CA-20, 1997 WL 335145, at *3 (Ohio Ct. App. June

20, 1997) (holding that spouse had interest in lottery proceeds Under Ohio law, a necessary prerequisite to application of

even though not the official winning claimant because the the principle of claim preclusion is an identity of parties or

lottery winnings constituted marital property); Burden v. their privies. See Hapgood , 127 F.3d at 493; Grava , 73 Ohio

Burden , No. 2-86-20, 1987 WL 18222, at *1 (Ohio Ct. App. St. 3d at 381, 653 N.E.2d at 228. Although he was not a party

Oct. 7, 1987) (same); Fraiser v. Fraiser , No. 1538, 1981 WL to the Domestic Relations Court proceeding, the Trustee

6545, at *2 (Ohio Ct. App. Dec. 4, 1981) (same). would be bound by the Dissolution Decree if found to be in

privity with the Debtor. See Ameigh v. Baycliffs Corp. , 81

In sum, we conclude that the lottery proceeds were part of Ohio St. 3d 247, 249, 690 N.E.2d 872, 874 (1998) ("[I]n the Fordus' marital estate and the Debtor thus held a property order for res judicata [ i.e. , claim preclusion] to apply, a valid, interest in such proceeds that was transferred to Ms. Fordu final judgment must have been rendered upon the merits and under the Separation Agreement. This transfer was properly an identity of parties or their privies must exist.") (citing subject to challenge by the Trustee through the assertion of Whitehead v. General Tel. Co. , 20 Ohio St. 2d 108, 254 his avoidance claims. See Ernsberger v. Ernsberger , No. N.E.2d 10 (1969), overruled in part on other grounds by 2351, 1988 WL 107012, at *2 (Ohio Ct. App. Oct. 12, 1988) Grava v. Parkman Township , 73 Ohio St. 3d 379, 382, 653 (transfer made pursuant to divorce decree may be challenged N.E.2d 226, 229 (1995)); Hapgood , 127 F.3d at 493 (same). as a fraudulent transfer). We therefore conclude that the BAP

correctly reversed the bankruptcy court's order granting Ms. The bankruptcy court determined that the Trustee and the

Fordu partial summary judgment. Debtor stood in privity. On this basis, the court held that the

Trustee was bound by the Dissolution Decree's recitation that the property division effected by the Separation Agreement

litigated in the prior action, (2) was passed upon and III.

determined by a court of competent jurisdiction, and (3) when

the party against whom [issue preclusion] is asserted was a Ms. Fordu argues that the BAP erred in reversing the

party in privity with a party to the prior action." Thompson v. bankruptcy court's dismissal of the Trustee's causes of action

Wing , 70 Ohio St. 3d 176, 183, 637 N.E.2d 917, 923 (1994). based on the principle of collateral estoppel. Specifically, the

bankruptcy court concluded that: (1) the Trustee and the

The bankruptcy court relied on the principle of collateral Debtor were in privity in the dissolution proceeding; (2) the estoppel-- i.e. , issue preclusion--in holding that the issue of whether the Debtor received reasonably equivalent Dissolution Decree barred litigation of the Trustee's value in exchange for the transfer of his interest in the lottery preference and fraudulent transfer claims. Because issue proceeds had been determined by the Domestic Relations preclusion applies only when a fact or issue has been actually Court's Dissolution Decree, which recited that the parties' and necessarily litigated in a prior action, see Metrohealth Separation Agreement was fair, just and equitable; and (3) Med. Ctr ., 80 Ohio St. 3d at 217, 685 N.E.2d at 533, the principles of collateral estoppel barred relitigation of the bankruptcy court's dismissal of the Trustee's claims based on reasonably equivalent value issue. These conclusions by the issue preclusion principles was erroneous. Although the issue bankruptcy court were erroneous. We therefore hold, as did of the fairness of the property division between the Debtor the BAP, that preclusion principles do not bar the Trustee's and Ms. Fordu was the subject of a recitation contained in the fraudulent transfer and preference claims. Dissolution Decree, it was not actually litigated in the

dissolution proceeding. Absent a judgment following actual "A fundamental precept of common-law adjudication,

litigation, the Dissolution Decree cannot be accorded issue- embodied in the related doctrines of collateral estoppel and

preclusive effect. See Gargallo , 918 F.2d at 663 n.6 res judicata, is that a 'right, question or fact distinctly put in

("[B]ecause . . . no substantive factual issues were adjudicated issue and directly determined by a court of competent

in the Ohio court, Ohio's issue preclusion principles are not jurisdiction . . . cannot be disputed in a subsequent suit

relevant to this case."). between the same parties or their privies . . . .'" Montana v.

United States , 440 U.S. 147, 153 (1979) (quoting Southern

Because the bankruptcy court's dismissal of the Trustee's Pac. R.R. Co. v. United States , 168 U.S. 1, 48-49 (1897)) claims was based on issue, rather than claim, preclusion (alterations in original). In Migra v. Warren City School principles, it was not necessary for the BAP to reach the issue District Board of Education , 465 U.S. 75, 77 n.1. (1984), the of the claim-preclusive effect of the Dissolution Decree. The United States Supreme Court expressed its preference for the BAP simply could have reversed the bankruptcy court's use of the terms "issue preclusion" and "claim preclusion" to dismissal of the Trustee's claims on the ground that, because refer to the preclusive effect of a judgment in foreclosing the parties did not actually litigate the question of the fairness future litigation rather than the more traditionally utilized of the property division in the Domestic Relations Court, the terms "collateral estoppel" and "res judicata." "Claim Dissolution Decree should not have been accorded issue- preclusion generally refers to the effect of a judgment in preclusive effect in the adversary proceeding. We recognize, foreclosing litigation of a matter that never has been litigated, however that considerable confusion has resulted from the because of a determination that it should have been advanced "seemingly conflicting terminology . . . attributable to the in an earlier suit." Migra , 465 U.S. at 77 n.1. Issue evolution of preclusion concepts over the years." Migra , 465 preclusion refers to the effect of a judgment in foreclosing U.S. at 77 n.1. Under the assumption that the bankruptcy relitigation of a matter that has been actually litigated and court may have fallen prey to this confusion and used the term decided. Id. This effect also is referred to as direct or collateral estoppel.¹⁴ Id . Both issue and claim preclusion the principle of claim preclusion, holding that "a valid, final serve the necessary function of conserving judicial and judgment rendered upon the merits bars all subsequent actions litigant resources and minimize the possibility of inconsistent based upon any claim arising out of the transaction or decisions. See Montana v. United States , 440 U.S. at 153-54. occurrence that was the subject matter of the previous action."

The court explained:

The full faith and credit statute, 28 U.S.C. § 1738, requires

a federal court to accord a state court judgment the same "When a valid and final judgment rendered in an action

preclusive effect that the judgment would have in a state extinguishes the plaintiff's claim pursuant to the rules of

court.¹⁵ See Marrese v. American Academy of Orthopaedic merger or bar * * *, the claim extinguished includes all

Surgeons , 470 U.S. 373, 384 (1985). When a federal court is rights of the plaintiff to remedies against the defendant

asked to give preclusive effect to a state court judgment, the with respect to all or any part of the transaction, or series

federal court must apply the law of the state in which the prior of transactions, out of which the action arose."

judgment was rendered in determining whether and to what

extent the prior judgment should be given preclusive effect in Id. (quoting Restatement (Second) of Judgments § 24(1)

a federal action. See 28 U.S.C. § 1738; Migra, 465 U.S. at (1982)) (alteration in original). The doctrine of claim

81; Bay Area Factors v. Calvert (In re Calvert) , 105 F.3d 315, preclusion encompasses "all claims which were or might have

317 (6th Cir. 1997); Hospital Underwriting Group, Inc. v. been litigated in the first lawsuit." Stuhlreyer v. Armco, Inc. ,

Summit Health Ltd. 63 F.3d 486, 494-95 (6th Cir. 1995). We 12 F.3d 75, 77 (6th Cir. 1993) (citing National Amusements,

thus look to Ohio preclusion principles to determine the effect Inc. v. Springdale , 53 Ohio St. 3d 60, 62, 558 N.E.2d 1178,

of the Dissolution Decree. See Gargallo v. Merrill Lynch, 1180 (1990), cert. denied , 498 U.S. 1120 (1991)).

Pierce, Fenner & Smith, Inc. , 918 F.2d 658, 661 (6th Cir.

1990). Claim preclusion has four elements in Ohio: (1) a prior

final, valid decision on the merits by a court of competent

In Grava v. Parkman Township , 73 Ohio St. 3d 379, 382, jurisdiction; (2) a second action involving the same parties, or 653 N.E.2d 226, 229 (1995), the Ohio Supreme Court applied their privies, as the first; (3) a second action raising claims

that were or could have been litigated in the first action; and (4) a second action arising out of the transaction or occurrence