The Fullers won a judgment against the Balthazars for a fraudulent transfer, arising from an earlier state court proceeding. The Fifth Court eliminated two elements of their judgment. First, it limited their recovery to “the value of the assets the Fullers proved were fraudulently transferred,” rather than the entire amount of the previous state-court judgment. Second, it did not allow recovery for a discovery sanction levied in the original case, as the Balthazars were not parties to it, and the sanction did not come within the statutory measure of “the value of the asset transferred . . . or the amount necessary to satisfy the creditor’s claim, whichever is less.” Balthazar & Sons v. Fuller, No. 05-17-00956-CV (June 25, 2018) (mem. op.)
Category Archives: Fraudulent Transfer
From publishing 600Camp about the Fifth Circuit, I have learned that as a result of the Erie doctrine, a substantial body of federal precedent addresses state-law issues, especially the contract and tort issues that commonly arise in homeowner wrongful foreclosure cases. Conversely, Texas courts have created a body of state authority about federal-law issues. Neither system’s intermediate court opinions bind the other, leading occasionally to a case like Osadon v. C&N Renovation Inc., in which the Dallas Court of Appeals declined to follow a Fifth Circuit opinion on a point of bankruptcy law, concluding (along with several other courts outside the Circuit) that the text of the relevant Code section dictated a different result. No. 05-17-00453-CV (May 9, 2018) (mem. op.)
Defendant won summary judgment, with a combination of no-evidence and traditional grounds, on fraudulent transfer claims. Renate Nixdorf v. Midland Investors LLC, No. 05-14-01258-CV (Dec. 8, 2015) (mem. op.) The Dallas Court of Appeals reversed, finding problems with what defensive matters were appropriately addressed by a no evidence summary judgment motion and what specific transactions were at issue, as well as proof of “reasonably equivalent value” that was conclusory.
Altus Brands II LC filed for a writ of garnishment against two officers of Swordfish Financial, Inc., seeking to enforce a $289,886 judgment from Minnesota against Swordfish. The trial court permitted Altus to execute on specific stock transferred to the officers by Swordfish in 2010, but refused to enter a money judgment against them. Altus appealed. The opinion is lengthy and exceedingly fact-specific — it’s the kind of case where dozens of findings of fact and conclusions of law get dropped into a single footnote.
Because the value of the stock had declined since the date of its transfer, the Court of Appeals held that the trial court had erred in only permitting Altus to execute on the stock, and that a money judgment was necessary to ensure that Altus’s position was not prejudiced by the fraudulent transfer. However, the amount of that money judgment was not to exceed the the value of the stock at the time of transfer, so as not to create a windfall in favor of Altus. The Court also affirmed the trial court’s findings regarding the cancellation of a $3.5 million promissory note from Swordfish to the officers, which Altus was apparently trying to use as further proof of its fraudulent transfer claim for the full amount of the Minnesota judgment.
Altus Brands II LLC v. Alexander, No. 05-13-06660-CV
Pattie and Warren Gilbert were married in 1959. During the course of the marriage, Pattie inherited investment assets from her parents and uncle, and in 1993 she rolled those assets into a trust for the benefit of the couple’s daughter. The following year, Pattie and Warren entered into a post-nuptial agreement that defined their separate and community property, including Pattie’s separate interest in the trust assets. Shortly thereafter, Beal Bank obtained a judgment against Warren for default on a note. In 2008, the bank sued Pattie and Warren, seeking to set aside the transfer of Pattie’s inherited assets to their daughter’s trust as a fraudulent transfer. The parties filed cross-motions for summary judgment, and the trial court ruled in favor of the Gilberts. The Court of Appeals affirmed.
Property acquired during the course of a marriage is presumed to be community property, and the bank sought to take advantage of that presumption in collecting on its judgment against Warren. In this case, however, the undisputed evidence established that Pattie had inherited the assets in the trust, and that made them her separate property. The Court of Appeals also rejected the bank’s argument that interest and dividends on those assets were community property that became commingled with the separate property in the trust account. The earnings from Pattie’s separate property might have been community property, but they were “sole management” community property, and that meant they were not subject to any non-tortious liability of her spouse. Because the bank was only a creditor of Warren, and not Patttie, her transfer of those assets to the trust was not a fraudulent transfer as to the bank.
Beal Bank v. Gilbert, No. 05-12-00692-CV
Sauer obtained judgments in Pennsylvania and California against Valley Games, a foreign corporation. Sauer domesticated these judgments in the trial court, and filed suit against relator, Valley Games and others for fraudulent transfer and sought to pierce the corporate veil. Sauer obtained an ex parte order for a pre-judgment writ of attachment against relator, and an order requiring relator to deposit $260,000 into the court registry. The court of appeals conditionally granted a writ of mandamus as to both orders. The court found that it was error for the trial court to order the writ of attachment because Sauer’s claims were contingent and unliquidated. As the court noted, such writ “may be issued only when the demand is not contingent, is capable of ascertainment by the usual means of evidence, and does not rest in the discretion of the jury.” The order requiring relator to deposit money in the court’s registry was also error because it is a form of mandatory injunction, and Sauer had not proven that he was entitled to injunctive relief.
In Re Radiant Darkstar Productions, LLC, No. 05-13-00586-CV
Challenger Gaming Solutions made a loan to Mr. Earp. Shortly after the loan was made, the Earps settled an unrelated lawsuit for $1.1 million, with an initial payment to the Earps of $200,000. A few months later, Mr. Earp defaulted on his loan from Challenger, and the Earps divorced. Under the divorce decree, Mrs. Earp was awarded all the community assets, including the settlement proceeds, and Mr. Earp was ordered to assume all the couple’s debts. Challenger sued Mrs. Earp under the UFTA, contending that the transfer of settlement funds to Mrs. Earp constituted a fraudulent transfer. Mr. Earp was designated a responsible third party in Challenger’s suit. The jury found in favor of Challenger, but apportioned damages between the Earps. Challenger appealed.
The court of appeals held that the proportionate responsibility statute does not apply to UFTA claims because they do not lend themselves to a fault-allocation scheme. The focus of UFTA claims is to ensure the satisfaction of a creditor’s claim when the elements of a fraudulent transfer are proven. The UFTA allows recovery against the debtor, the transferee, or the person for whose benefit the transfer was made, but does not distinguish the forms of relief based on culpability. The court concluded that the proportionate responsibility statute conflicts with the liability scheme in the UFTA and cannot be reconciled. The court made Mrs. Earp liable for the entire award and affirmed the remainder of the trial court’s judgment.
Challenger Gaming Solutions, Inc. v. Earp, No. 05-11-01366-CV
Turner Brothers Trucking sued Kristal Baker, S/W Quality Hay and others in 2007 for breach of contract, fraud, and DTPA violations, among other things. The suit stemmed from the brokerage agreement between Baker and Turner Brothers under which Turner would invoice customers, receive payment and pay Baker a commission. S/W Quality was one of Baker’s customers who refused to pay Turner a commission. Turner won on summary judgment and was awarded damages and attorneys fees. But in March 2010, Turner sought an application for turnover so it could join the former managers and members of S/W Quality because those managers purportedly paid for and received life insurance proceeds with company funds. Turner thought this money should be available for creditors like itself. The court agreed with Turner and required S/W to turnover two computers, a tractor and a pickup truck, but refused to appoint a receiver to pursue legal claims against S/W’s managers.
On appeal, Turner challenged the court’s refusal to appoint a receiver as well as its conclusion that Turner was not entitled to attorneys’ fees. The Court of Appeals upheld the trial court’s refusal to appoint a receiver to go after the manager of S/W because, it held, “Texas courts do not apply the turnover statute to non-judgment debtors.” The Court, however, reversed the trial court’s holding on attorneys fees, noting that “a judgment creditor who obtains turnover relief is entitled to reasonable costs, including attorneys’ fees.”
The court reversed and remanded for a new trial a judgment for the plaintiff on its fraudulent transfer claims. MacArthur Ranch sued the owners of a nail salon for missed rent payments under their commercial lease. Just before summary judgment, the owners conveyed two assets to the two Hos, a parent and brother of the owners. MacArthur Ranch then filed a fraudulent transfer suit against the Hos under the Texas Uniform Fraudulent Transfer Act. The trial court found that the transfers were fraudulent and awarded damages and ordered execution on the transferred assets.
On appeal, the Hos argued that the evidence was factually and legally insufficient to support the finding of fraudulent transfers. But the court held that there was sufficient evidence that the transfers were intended to “hinder, delay, or defraud” MacArthur Ranch because they were made to insiders, without consideration, and before a substantial judgment, and thus were fraudulent. The court held, however, that the amount of MacArthur Ranch’s damages was not supported by the evidence because the expert testimony of MacArthur Ranch’s property manager was conclusory as to the fair market value of the assets. The manager provided no testimony as to how she reached those values, merely answering “yes” to counsels leading questions regarding those values. Because the record showed that the value of the assets was undetermined, but greater than zero, and liability was contested, the court remanded for a new trial.
