In re: PAUL H. TITUS, Alleged Debtor
PAUL H. TITUS; BONNIE TITUS, Appellants ROBERT SHEARER, Trustee Appellant
January 7, 2019
from the United States District Court for the Western
District of Pennsylvania (D.C. Civil Action No.
2-17-cv-00479/548) District Judge: Honorable Joy Flowers
Douglas A. Campbell (Argued) Kathryn L. Harrison Campbell
& Levine Counsel for Appellants/Cross-Appellees
H. Levin (Argued) Freeborn & Peters Counsel for
Before: AMBRO, SHWARTZ, and FUENTES, Circuit Judges
his old law firm broke its lease, attorney Paul Titus was on
the hook for millions of dollars in unpaid commercial rent.
The landlord tried to recover the rent by targeting the wages
Mr. Titus was earning at his new firm. But Mr. Titus's
wages never passed through his hands alone; instead, they
were deposited by his new firm directly into a bank account
owned by both Mr. Titus and his wife as tenants by the
Mr. Titus was forced into bankruptcy and the landlord's
claim became a claim of the bankruptcy trustee. Now, after
two trials in the Bankruptcy Court and two appeals to the
District Court, we reach three conclusions. First, 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. Second, as for the precise measure of the
Tituses' liability, the bankruptcy trustee waived any
challenge to the method used by previous courts to calculate
fraudulent-transfer liability. Going forward, however, we
clarify how future courts should measure liability when faced
with an entireties account like the Tituses' - an account
into which deposits consist of both (fraudulent) wages and
(non-fraudulent) other sources, and from which cash is spent
on both (permissible) household necessities and
(impermissible) other expenditures. Until now, a trustee somehow
had to show that wage deposits were impermissibly spent on
non-necessary expenditures, even though wage and nonwage
deposits had become commingled in the account. Rather than
expect a trustee to trace the untraceable, future courts
should generally presume that wage deposits were spent on
non-necessary expenditures in proportion to the overall share
of wages in the account as a whole. Third, in evaluating the
Bankruptcy Court's application of the method in play at
the time of its decision, we perceive no clear error. Thus we
1999, the Pittsburgh law firm of Titus & McConomy
dissolved. One of the firm's named partners, Paul Titus,
joined another firm, Schnader Harrison Segal & Lewis LLP.
The Schnader firm began depositing Mr. Titus's wages into
a bank account he owned jointly with his wife.
the dissolved Titus firm had walked away from its commercial
lease. To recover rent that had gone unpaid since the
dissolution, the landlord brought a breach-of-contract suit
against the former partners of the Titus firm and ultimately
secured a multimillion dollar judgment against the partners,
including Mr. Titus.
with the breach-of-contract judgment, the landlord set its
sights on the wages that Mr. Titus's new employer, the
Schnader firm, was depositing into the Tituses' bank
account. It brought a fraudulent-transfer action in
Pennsylvania state court against Mr. and Mrs. Titus. This
triggered an involuntary bankruptcy against Mr. Titus. Thus
the landlord's fraudulent-transfer claim became a claim
of the bankruptcy trustee in the Bankruptcy
Procedural History in Bankruptcy
first trial, the Bankruptcy Court concluded that the direct
deposit of wages into the Tituses' bank account was a
fraudulent transfer that the trustee could recover from
either Mr. or Mrs. Titus, who jointly owned the account as
tenants by the entireties. As for the measure of liability,
Mr. and Mrs. Titus were liable for the amount of Mr.
Titus's wages that were "not spent on
necessities." In re Titus (Titus I), 467 B.R.
592, 620 (Bankr. W.D. Pa. 2012).
appeal, the District Court affirmed that the wage deposits
were a fraudulent transfer. It remanded for a new trial,
however, to give the Tituses a second chance to identify both
the source of certain "unexplained deposits" into
the bank account and the destination of certain "unknown
expenditures" from the account. Titus v. Shearer
(Titus II), 498 B.R. 508, 520, 525 (W.D. Pa. 2013).
second trial, the Bankruptcy Court made the following
findings as to deposits into, and expenditures from, the bank
In re Titus (Titus III), 566 B.R. 755, 797
(Bankr. W.D. Pa. 2017). A note on terminology: The Bankruptcy
Court divided the spending from the account into
"necessity expenditures" and "non-necessity
expenditures," which it sometimes called
"Non-Objectionable Expenditures" and
"Objectionable Expenditures," respectively.
See, e.g., id.; see also id. at
765, 768, 777-78. For simplicity, we use the
necessity/nonnecessity nomenclature. To give some content to
these terms, "necessities" included items such as a
lawnmower and batteries, id. at 792-93, while the
Tituses' "non-necessities" included, among
other things, their grandson's application fee to Notre
Dame, id. at 797.
the figures set out above, the Bankruptcy Court went about
calculating the Tituses' liability. But the Court
immediately hit a roadblock: Because money is fungible and
wage and nonwage deposits commingled in the account, it was
impossible to determine whether a dollar of wages was
eventually spent on a permissible "necessity" or an
impermissible "non-necessity." As a result, the
Court had to calculate liability indirectly.
so using what it could measure: nonwage deposits and
non-necessity spending, which are represented below the
dotted line in the chart. The Court's underlying
assumption was that all explained, nonwage sources of cash in
the account (both explained nonwage deposits and cash already
in the account) were spent on non-necessities before any wage
deposits were impermissibly spent on whatever non-necessities
remained. Thus the Tituses' total liability was:
(Non-Necessities) - (Explained Nonwages) - (Initial
= $1, 000, 133.51 - $634, 998.83 - $91, 272.00
= $273, 862.68.
Id. at 799. Over the Tituses' objection, the
Court did not offset their non-necessity spending even
further by the amount of unexplained nonwage
deposits. Had it done so, an additional $268, 167.09 would
have been shaved off the remaining nonnecessity spending,
leaving a judgment against the Tituses of only $5, 695.59.
District Court affirmed. Neither side is fully satisfied with
various rulings of the Bankruptcy and District Courts, and
both have appealed.
Jurisdiction and Standard of Review
District Court had jurisdiction to review the final order of
the Bankruptcy Court under 28 U.S.C. § 158(a). We have
jurisdiction to review the final order of the District Court
per 28 U.S.C. § 158(d) and 28 U.S.C. § 1291.
Because the District Court acted as an appellate court, we
review its determinations de novo. In re
Bocchino, 794 F.3d 376, 379 (3d Cir. 2015). We review
the legal conclusions of the Bankruptcy Court de
novo and its factual determinations for clear error.
Id. at 380.
two trials in the Bankruptcy Court, two appeals to the
District Court, and four rounds of briefing in our Court,