PHILADELPHIA — An appeals court has affirmed a bankruptcy court ruling involving funds owed to a commercial landlord by a former law office.
On Feb. 20, the U.S. Court of Appeals for the Third Circuit affirmed a bankruptcy court ruling when it refused to offset Paul and Bonnie Titus' liability funds owed to Robert Shearer, the trustee of Paul Titus' former law firm.
According to court documents, after Titus' Pittsburgh law firm dissolved in 1999, the firm never resolved issues with the lease for the commercial property. Instead, Titus became a partner at another firm that, court documents say, began depositing his wages into a bank account jointly owned with his wife, Bonnie.
In an effort to recoup unpaid rent from the lease that had not been paid since Titus' firm dissolved, the landlord of the commercial property brought a breach of contract suit against Titus, alleging he owed millions.
The bankruptcy court eventually ruled that Titus should pay back $273,862.68. The appeals court affirmed this ruling wrote in part, "Mr. and Mrs. Titus are liable for a fraudulent transfer. When the wages of an insolvent spouse are deposited into a couple’s entireties account, both spouses are fraudulent transferees."
Attorneys for the commercial property that was rented argued that they were entitled to paychecks that were deposited into the Titus' bank account in order to recoup the more than $900,000 in unpaid rent due. The appeals court finding, however, reduced that amount to the $273,000 figure.
The court also found that the bankruptcy court, "did not clearly err in its application of the Non-Necessities Approach. The District Court had set out a simple rule that the Tituses had to explain the source of their deposits into the account. Despite the parties’ stipulation that certain unexplained deposits were not wages, the Bankruptcy Court did not clearly err in refusing to offset the Tituses’ liability by the amount of those unknown deposits."