Investors lose appeal in lawsuit against lender Fair Finance

Victims of Indianapolis businessman Tim Durham, who was convicted in 2012 of running a Ponzi scheme that defrauded $ 200 million investors, encountered another roadblock after the 6e The Circuit Court of Appeal rejected an attempt to recoup some of their losses.

In a decision of September 10 In re: Brian A. Bash, Chapter 7 Trustee v. Textron Financial Corporation, 20-3351, the unanimous appeal panel blocked the bankruptcy trustee’s efforts to recover the money the Durham company, Fair Finance Co., had paid to Textron Financial Corp. under a $ 17.5 million revolving loan agreement. The circuit court, which called one of the trustee’s arguments complicated, upheld the North Ohio District court’s decision to grant partial summary judgment to Textron and found no errors in the instructions from the lower court to the jury.

Through his lawyer, Textron declined to comment. Chapter 7 Administrator Brian Bash also did not respond to a request for comment.

Bash filed adversarial proceedings against Textron in 2011 and in 2018 it was the last big trial rremaining of the more than 140 he had deposited. He alleged that Textron knew Fair Finance was a “house of cards,” but continued to lend money to the Akron, Ohio-based company. Additionally, Textron protected itself from damage and “helped prevent public exposure of Fair Finance’s precarious financial situation.”

Textron was paid in full in 2007, and two years later, Fair Finance’s Ponzi scheme was exposed. Bash claimed the millions of dollars in transfers to Textron were fraudulent under the Ohio Uniform Fraudulent Transfer Act.

The Ohio District Court was not convinced. While in pre-trial detention, he rejected two of Bash’s arguments but allowed the third, who deemed the 2004 deal a novelty, to appear before a jury. Bash argued that the lien Textron placed on the assets of Fair Finance in 2002 had been erased and replaced with a new deal the two companies entered into in 2004.

However, in March 2020, the jury issued a verdict iIn favor of Textron, which left Fair Finance investors empty-handed.

Before the 6the Circuit, Bash argued that the jury was given erroneous instructions that distorted Ohio law and poisoned their verdict. The appeals court concluded that if there was an error, it did not change the jury’s final decision.

“There is very little space between the direction proposed by the administrator and that given,” Judge John Nalbandian wrote for the panel. “He asked for an instruction that novation is never presumed but must be demonstrated by clear and definitive evidence. What he got was an instruction that said novation must be demonstrated by clear and definitive evidence. Any possible mistake was harmless.

Bash retaliated even with the jury’s verdict, the money transferred after 2004 could be clawed back because the 2004 deal extinguished the 2002 debt and replaced it with a new “obligation” debt. This new “obligation”, he told the court, is collectable under the OUFTA.

Textron called the trustee’s argument a “semantic overlap of the theory of novation” and the 6e Circuit accepted.

“So if we assume, as the trustee’s argument does, that the 2004 agreement renewed rather than novated the 2002 debt, then the 2004 agreement renewed rather than extinguished the debt obligation. from 2002, “Nalbandian wrote. “And that means there were no new ‘obligations entered into’ in 2004 that could be avoided as a fraudulent transfer. This district court rightly rejected this convoluted argument…. “

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