# Essex Crane Rental Corp. and Vincent A. Morano v. Kenneth Beverly

> Texas Court of Appeals, 1st District (Houston) · March 29, 2012 · 371 S.W.3d 366

URL: https://www.frixlaw.com/law-library/cases/3124468

## Case

- **Full name:** ESSEX CRANE RENTAL CORP. and Vincent A. Morano, Appellants, v. Eric G. CARTER D/B/A Eric G. Carter & Associates, Appellee; Essex Crane Rental Corp. and Vincent A. Morano, Appellants, v. Kenneth Beverly, Appellee; Essex Crane Rental Corp. and Vincent A. Morano, Appellants, v. David W. Farley, Appellee
- **Court:** Texas Court of Appeals, 1st District (Houston)
- **Decided:** March 29, 2012
- **Citations:** 371 S.W.3d 366; 2012 WL 1071231
- **Precedential status:** Published
- **Opinion:** Opinion
- **Judges:** Keyes, Sharp, Massengale
- **Cited by:** 104 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/3124468

## How later opinions describe it (automated extraction)

- stating that plaintiff in quiet-title claim must establish her superior equity and right to relief and must prove, as matter of law, that she has right of ownership and that defendant’s adverse claim is cloud on title that equity will remove
- stating plaintiff in quiet title claim must prove, as matter of law, a right of ownership and that defendant’s adverse claim is cloud on title that equity will remove
- concluding that creditor with judgment lien against debtor’s property had standing to sue transferee under TUFTA after property was sold and lien was extinguished
- holding that attorneys were not immune from claims that they knowingly assisted their clients in evading a judgment through a fraudulent transfer
- noting— as we have just done — that in Chu, the Texas Supreme Court “did not hold that attorneys are immune to suit for fraudulent acts undertaken in the representation of a client; it indicated exactly the opposite”

## Opinion text

Directory: C:\Documents and Settings\erak\Desktop\090813m - saved
Opinion issued March 29, 2012
In The
Court
of Appeals
For The
First
District of Texas
————————————
NOS. 01-09-00813-CV;
01-11-00688-CV; &
01-11-00689-CV
———————————
Essex Crane Rental Corp. and Vincent
A. Morano , Appellants
V.
Eric G. Carter D/B/A Eric G. Carter & Associates, Appellee
Essex Crane Rental Corp. and Vincent
A. Morano , Appellants
V.
KENNETH BEVERLY , Appellee
Essex
Crane Rental Corp. and Vincent A. Morano , Appellants
V.
David W.
Farley , Appellee
On Appeal from the 151st District
Court
Harris County, Texas
Trial Court Case Nos. 2002-62464-A,
2002-62464-B, & 2002-62464-C
O P I N I O
N
Appellees, Eric G. Carter d/b/a Eric G. Carter & Associates, David W.
Farley, and Kenneth Beverly, filed motions for rehearing and motions for en
banc reconsideration of our opinion issued on August 25, 2011. We grant the motions for rehearing, deny as
moot the motions for en banc reconsideration, withdraw our opinion and judgment
of August 25, 2011, and issue this opinion and judgment in their stead. [1]
Appellants
Essex Crane Rental Corp. and Vincent A. Morano (collectively, “Essex”) appeal the trial court’s judgments in favor
of appellees and the trial court’s order granting Beverly’s motion to quiet title. In four issues, Essex contends that the trial
court (1) improperly sustained Beverly’s objections to its summary
judgment evidence, (2) erroneously
rendered summary judgment in favor of Beverly , (3) erroneously rendered summary judgments in favor of Carter
and Farley, and (4) erroneously granted Beverly’s motion to quiet title.
We reverse and remand.
Factual Background
A.
The TWC
Litigation and Settlement Agreement
In the mid-1990s, the Texas Workers’ Compensation Insurance
Fund (the “Fund”) and the Texas Workers’ Compensation Facility (the “Facility”)
filed separate suits against several business entities (the “McPherson
Entities”) owned and/or operated by James W. McPherson, Sr. (“McPherson, Sr.”) seeking
to collect millions in unpaid workers’ compensation dues (the “Fund Litigation”
and the “Facility Litigation,” collectively the “TWC Litigation”). Among the McPherson Entities sued in the TWC
Litigation was Coastal Terminal Operators, Inc. (“Coastal”).
The TWC Litigation was settled prior to judgment in May 1999
when, pursuant to a plea and probation agreement in connection with criminal
charges pending against him in federal court, McPherson, Sr. and the McPherson
Entities entered into a settlement agreement (the “TWC Settlement Agreement”)
whereby they agreed to pay a total of $900,000 to the Fund and the
Facility over a period of several year s, collateralized in part by
equipment owned by the McPherson Entities.
In the event the McPherson Entities filed bankruptcy, receivership, or
insolvency proceedings, the Fund and the Facility reserved the right to seek
damages against them of up to $3,147,844, the total amount of unpaid workers’
compensation dues, with credit for payments previously made. In return, the Fund and the Facility released
the McPherson Entities from any liability relating to the facts of the TWC
Litigation.
These agreements were set out in Paragraph 10 of the TWC
Settlement Agreement, which provided:
In the event of a bankruptcy, receivership, or
insolvency proceeding, of any kind, by way of Coastal Defendant(s) or McPherson
Interests, Ltd., that adversely affects in any manner the enforceability of any
term of this Agreement or reduces any of the consideration to be derived from
the Fund or the Facility hereunder, the Fund and the Facility’s release of that
defendant shall be null and void and the Fund and the Facility will be free to
assert all causes of action, including causes of action for fraud and to
contest the dischargeability of debts, that the Fund or the Facility now or
hereunder may have against that defendant relating to the facts that form the
basis for the Fund Lawsuit or the Facility Lawsuit seeking actual damages in
the aggregate that do not exceed $3,147,844.
In such event, all amounts previously paid toward the settlement hereunder
will be credited against any Judgment obtained against that defendant. Any such bankruptcy proceeding shall not
affect the validity of the remainder of this Agreement or the obligations of
the other Parties hereto.
B.
The Essex
Litigation and Judgment in Favor of Essex
In the late 1990s, Coastal, one of the McPherson Entities and
a settling defendant in the TWC Litigation, contracted to rent cranes from
Essex. McPherson, Sr. personally
guaranteed the payment of all rentals to Essex.
In 2000, Essex sued Coastal and McPherson, Sr., seeking recovery of
unpaid crane rental fees (the “Essex Litigation”). On August 23, 2002, Essex was
awarded judgment against Coastal and McPherson, Sr. in the principal amount of
$491,261.87 (the “First Essex Judgment”). The principal and interest portion of that judgment
was affirmed on appeal in August 2004. See
Coastal Terminal Operators v. Essex Crane Rental Corp. , No. 14-02-00627-CV, 2004 WL
1795355 , at *9 (Tex. App.—Houston [14th Dist.] Aug. 12, 2004,
pet. denied ) (mem. op). The issue of attorney’s fees was severed and
remanded. Id. T he
trial court tried and awarded attorney’s fees and statutory interest on the
claim on March 22, 2006 (the “Second Essex Judgment”). Essex contends that the amount owed by Coastal
and McPherson on the two Essex Judgments, including post-judgment interest, now
exceeds $900,000.
C. The Underlying Lawsuit
In the latter part of 2002, Essex
began collection efforts on the First Essex Judgment, entered on August 23,
2002. Having no success, on December 10,
2002, Essex filed the underlying suit against McPherson, Sr. and Coastal, along with seven other
defendants, [2] alleging
that all of the defendants “conspired with each other to fraudulently transfer,
hide, secrete or otherwise conceal assets with the intent to avoid payment of
the debt” to Essex. Essex subsequently
amended its petition to raise similar allegations of fraud and conspiracy
against appellees Beverly, Carter, and Farley.
Specifically, Essex alleged that Beverly, Carter, and Farley conspired
with the McPherson Entities to fraudulently transfer assets in an attempt to
avoid satisfaction of the Essex Judgments.
D. The Agreed Judgments in the TWC Litigation and the Assignment of the
Fund’s and the Facility’s Rights Under the TWC Settlement Agreement to HII
The summary judgment evidence establishes that, following
entry of the First Essex Judgment, in late 2002, attorneys
Carter and Farley, representing McPherson, Sr. and the McPherson Entities, began
negotiating with the Fund and the Facility for an assignment of the Fund’s and
the Facility’s rights under the TWC Settlement Agreement (the “Assignment”). The Fund and the Facility agreed to assign
whatever rights they had under the Agreement to Houston Industrial Investments,
LLC (“HII”), an entity incorporated by Farley on March 8, 2002, in exchange for
payment to them of the remaining balance of $275,000 due under the terms of the
Agreement. James W. McPherson, Jr.,
McPherson, Sr.’s son, was the sole owner and managing member of HII, and Carter
was the registered agent. McPherson, Jr.
testified at his deposition that he sought the Assignment “in order to protect
[his] assets” and that HII was created to separate its assets from his
own. Carter and Farley drafted the
assignment.
Following the execution of the Assignment, HII entered into
two agreed judgments, likewise drafted and signed by Carter and Farley with
McPherson, Sr. in the TWC Litigation (the “TWC Agreed Judgments”). In both the Fund Litigation and the Facility
Litigation, HII, as successor in interest to the Fund and the Facility, took a
final judgment against several of the McPherson Entities for $1.5 million in
actual damages, $250,000 in attorneys’ fees, and foreclosure on certain
property the McPherson Entities had used to collateralize the TWC Settlement
Agreement. The TWC Agreed Judgments
totaled over $3 million.
McPherson, Sr. testified that HII took the Agreed Judgments
to help out the family. He also
testified that he consulted with Carter before he took the Agreed
Judgments. The Travis County court that
entered the Agreed Judgments was not informed of the relationship between the
plaintiff, HII, and the defendant, McPherson, Sr.—i.e., that HII was controlled
by the son of McPherson, Sr. Nor was it
informed that HII had obtained the Assignment of the Fund’s and the Facility’s
rights as judgment creditors against McPherson, Sr. and the McPherson Entities
in exchange for fully paying off the debt owed to the Fund and the Facility
under the terms of the TWC Settlement Agreement. Nor was it informed that the events that
triggered the Fund’s and the Facility’s right to seek actual damages against
the McPherson Entities under Paragraph 10 of the TWC Settlement Agreement—“[A]
bankruptcy, receivership, or insolvency proceeding, of any kind, by way of
Coastal Defendant(s) or McPherson Interests, Ltd., that adversely affects in
any manner the enforceability of any term of this Agreement or reduces any of
the consideration to be derived from the Fund or the Facility hereunder”—had
not occurred. Writs of execution were
issued under the TWC Agreed Judgments, and the collateralized assets of the
McPherson Entities (including equipment valued at $625,000) were transferred to
HII.
Essex contends, both at trial and on appeal, that the Agreed
Judgments were fraudulently procured and are a sham. It asserts that the TWC Settlement Agreement
capped the McPherson Entities’ liability to the Fund and the Facility at
$900,000; that all but $250,000 of this debt was paid over a period of time, and
that the remaining $250,000 was paid in return for the assignment of the Fund’s
and the Facility’s rights to payment from McPherson, Sr. and the McPherson Entities
to HII; and that, under the terms of the TWC Settlement Agreement and the
Assignment, the Fund and the Facility had no remaining rights to payment by
McPherson or the McPherson Entities to assign to HII, an entity wholly owned
and controlled by McPherson, Sr.’s son.
Therefore, the Agreed Judgments taken by HII and upon which execution
issued were fraudulent. Appellees,
however, contend that the provision Essex relies upon, set out in Paragraph 10
of the TWC Settlement Agreement, did not provide the exclusive remedy of the
Fund and the Facility against McPherson, Sr. and the McPherson Entities and
that HII, as assignee of the rights of the Fund and the Facility was entitled
to seek from McPherson and the McPherson Entities the full amount of the
judgments the Fund and the Facility had originally obtained.
E.
The Transfer of the Montgomery House
At the time of the Essex Judgments, McPherson, Sr. owned a
house in Montgomery County, Texas (the “Montgomery House”). Essex obtained a lien on the Montgomery
House, then in McPherson, Sr.’s name, through the filing of an abstract of
judgment relating to the Essex Judgments.
Beverly had worked as McPherson, Sr.’s accountant since 1989
or 1990 and was also a long-time friend. McPherson Sr. defaulted on the bank loan and
lien securing the Montgomery House, and the note was accelerated by the bank. On April 1, 2003, following entry of the two Essex
Judgments, and without ever seeing the subject
property, Beverly purchased the bank note and lien on the Montgomery House,
extinguishing Essex’s judgment lien. Beverly
purchased the bank note with the assistance of Dr. Jules Balette. Beverly and
Balette had a long-standing relationship, and Balette testified that he trusted
Beverly. Over the course of several
months, Balette and his fiancée, Cathy Muriel, loaned Beverly over $200,000
with respect to the Montgomery House. Balette
testified that he believed he was loaning the money for the Montgomery House to
McPherson, Sr. as a favor.
Despite being McPherson, Sr.’s accountant and friend, and
despite having purchased the note and lien on the Montgomery House prior to
foreclosure by the lender, Beverly testified that he did not previously know that
McPherson, Sr. owned the house. Beverly also
claimed that he was not attempting to help McPherson, Sr. and that this was
nothing more than a real estate investment.
However, McPherson, Sr., who was living in the house although it was not
his homestead, was never forced to move out. Instead, Beverly rented the Montgomery House
back to McPherson, Sr. and his family. McPherson,
Sr., either personally, or through one of the McPherson Entities, paid monthly
rent on the home and reimbursed Beverly for taxes and homeowners’ insurance
costs, even though he no longer owned the property.
Contrary to Beverly, McPherson, Sr. testified that Beverly
purchased the Montgomery House to try to help him out. Specifically, McPherson, Sr. testified that,
by purchasing the note on the Montgomery House, Beverly allowed him “more time
to get some money together to buy the property back.” Dr. Balette confirmed McPherson, Sr.’s version
of events by testifying that he understood he was giving money to Beverly and
that “Beverly was going to do something to help Mr. McPherson with his
house.” Balette also testified that
everything Beverly had said about the Montgomery House had been “a mixture of
lies and truth” and that he never would have gotten involved had he known the
truth because this “was not a clean deal.”
Following the sale of his homestead in Harris County,
McPherson, Sr . attempted to buy back the Montgomery
House. His intent was to use the
proceeds from the sale of his Harris County homestead to buy back the
Montgomery House from Beverly, designate it as his homestead, and thus protect
the Montgomery House from seizure.
However, Stewart Title declined to issue a title policy for McPherson,
Sr.’s repurchase because the person seeking to purchase the property (McPherson,
Sr.) was the same person who had owned the property prior to foreclosure, which
made the entire foreclosure questionable.
On December 22, 2005, around the time that the proceeds from
the sale of McPherson, Sr.’s Harris County homestead property would lose their
statutory exemption from execution, McPherson, Sr. wire-transferred $150,000 to
Beverly. Beverly testified that, at the
time he received these funds, he was not sure why they were sent to him. McPherson, Sr. claimed the payment was
intended for the repurchase of the Montgomery House, despite the fact that the
transfer occurred after the date scheduled for the closing on the sale of the
Montgomery House. As a result of Stewart
Title’s reservations, however, the repurchase of the Montgomery House was never
consummated and title to the Montgomery House remains in Beverly’s name. Beverly ultimately returned to McPherson over
$60,000 of the funds originally wire-transferred to him.
Procedural Background
On August 17, 2006, Carter filed a no-evidence motion for summary
judgment on Essex’s fraud and civil conspiracy claims against him. Essex timely responded and the motion was set
for submission on September 11, 2006. The trial court did not rule on Carter’s
first summary judgment motion.
On July 19, 2007, Carter filed a second motion, entitled
“Motion for Traditional Summary Judgment and Motion for Severance,” with
respect to the civil conspiracy to commit fraud claim pending against him.
Four days later, on July 23, 2007, Beverly filed a no-evidence
motion for summary judgment on Essex’s fraud and civil conspiracy claims against
him and a “Motion for Partial Summary Judgment on Lien Element of Conspiracy to
Commit Fraudulent Transfer.” Beverly’s partial
motion for summary judgment also included a motion to quiet his title to the
Montgomery House.
Also on July 23, 2007, Carter filed another, separate no-evidence
motion for summary judgment on Essex’s civil conspiracy claims, together with a
motion for summary judgment on damages and a motion for joinder in co-defendant
Beverly’s motion for summary judgment.
Essex timely responded to Beverly’s and Carter’s various
motions.
On August 10, 2007, Carter filed objections to Essex’s
summary judgment evidence. The trial
court never ruled on these objections.
On August 15, 2007, following a
hearing on August 13, the trial court granted Beverly’s no-evidence motion for summary
judgment. Also on August 15,
2007, the trial court signed separate orders (1) granting Carter’s motion for summary
judgment as to Essex’s fraud and civil conspiracy claims [3]
and (2) severing Essex’s claims against Carter and Beverly into the same
severed cause of action. [4]
On August 27, 2007, Essex filed a motion to set aside and/or amend
the severance orders and a separate motion to reconsider the summary judgments
rendered in Carter’s and Beverly’s favor.
On August 30, 2007, Farley filed a motion for summary judgment
and severance on the same grounds raised by Carter in his previously granted
motion for summary judgment. Farley
incorporated by reference the arguments presented in Carter’s prior motions and
contended that, as an attorney similarly situated to Carter, he was entitled to
summary judgment for the same reasons as Carter. Essex again timely responded and the matter
was fully briefed.
On September 4, 2007, Beverly filed his “Objections to
Evidence Cited in Plaintiffs’ Response to No-Evidence Motion for Summary
Judgment”—a motion which the trial court had already granted on August 15. Essex did not respond to Beverly’s
objections.
On September 24, 2007, the trial court denied Essex’s motion
to set aside or amend the severance orders and its motion to reconsider the
summary judgments rendered in Carter’s and Beverly’s favor. That same day, the trial court signed an order
quieting Beverly’s title to the Montgomery House. The next day, September 25, 2007, the trial
court granted Farley’s motion for summary judgment and motion to sever. [5]
On September 26, 2007, the trial court signed an order
granting Beverly’s objections to Essex’s summary judgment evidence in their
entirety. This is the only trial court
order sustaining any objections to the summary judgment evidence.
To avoid trying the remaining case against only some of the
defendants, Essex entered into a tolling agreement with the remaining
defendants and agreed to nonsuit its claims against them without prejudice
pending appeal of the motions granted by the trial court.
STANDARD OF REVIEW
We review a trial court’s grant of summary
judgment de novo. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d
211, 215 (Tex. 2003) .
When a party has filed both a traditional
and a proper no-evidence summary judgment motion, we first review the trial
court’s summary judgment under the no-evidence standard of Texas Rule
of Civil Procedure 166a( i) . See Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 600 (Tex. 2004) .
To prevail on a no-evidence motion for summary judgment, the
movant must establish that there is no evidence to support an essential element
of the non-movant’s claim on which the nonmovant would have the burden of proof
at trial. Tex. R. Civ. P. 166a( i); Hahn v. Love , 321 S.W.3d 517 , 523–24
(Tex. App.—Houston [1st Dist.] 2009, pet. denied); see Flameout Design &
Fabrication, Inc. v. Pennzoil Caspian Corp. , 994 S.W.2d 830, 834 (Tex. App.—Houston [1st Dist.] 1999, no
pet.). The burden then shifts to the nonmovant
to present evidence raising a genuine issue of material fact as to each of the
elements specified in the motion. Mack Trucks, Inc. v. Tamez , 206 S.W.3d 572, 582 (Tex. 2006); Hahn , 321 S.W.3d at 524 . “The movant ‘must be specific in challenging
the evidentiary support for an element of a claim or defense; paragraph (i)
does not authorize conclusory motions or general no-evidence challenges to an
opponent’s case.’” Hahn , 321 S.W.3d at 524 (quoting Tex.
R. Civ. P. 166a( i), 1997 cmt.).
“The trial court must grant the motion unless the nonmovant
produces more than a scintilla of evidence raising a genuine issue of material
fact on the challenged elements.” Flameout
Design & Fabrication , 994 S.W.2d at 834 . More than a scintilla of evidence
exists if the evidence “rises to a level that would enable reasonable and
fair-minded people to differ in their conclusions.” Merrell Dow Pharms.,
Inc. v. Havner , 953 S.W.2d
706, 711 (Tex. 1997). However, “[w]hen
the evidence offered to prove a vital fact is so weak as to do no more than
create a mere surmise or suspicion of its existence, the evidence is no more than
a scintilla and, in legal effect, is no evidence.” Kindred v. Con/Chem,
Inc. , 650 S.W.2d 61, 63
(Tex. 1983). In determining
whether a material fact question exists, we may consider both direct and
circumstantial evidence. Ridgway , 135 S.W.3d at 601 .
To prevail on a traditional summary judgment motion, the
movant has the burden of proving that he is entitled to judgment as a matter of
law and that there are no genuine issues of material fact. Tex. R. Civ. P . 166a(c); Cathey v.
Booth , 900 S.W.2d 339, 341
(Tex. 1995). Rule 166a( i),
governing no-evidence summary judgment motions, “does not apply to ordinary
motions for summary judgment under paragraphs (a) or (b), in which the movant
must prove that it is entitled to summary judgment by establishing each element
of its claim or defense as a matter of law.”
Hahn , 321 S.W.3d at 524
(quoting Tex. R. Civ. P. 166a( i), 1997 cmt.); Brown v. Hearthwood II Owners Ass’n,
Inc. , 201 S.W.3d 153 , 157–58 & n.7 (Tex. App.—Houston [14th Dist.]
2006, pet. denied).
A defendant
moving for summary judgment based on his own affirmative defense
must conclusively establish each element of that defense as a matter of law. See Sci. Spectrum, Inc.
v. Martinez , 941 S.W.2d 910, 911
(Tex. 1997). Therefore, to avoid summary judgment in favor
of a defendant on the defendant’s affirmative defense, a plaintiff must raise a
fact issue as to at least one element of the defense. See id. ; City of Houston v. Clear
Creek Basin Auth ., 589 S.W.2d 671, 678 (Tex. 1979).
In
reviewing the trial court’s summary judgment, we take all evidence favorable to
the non-movant as true, and indulge every reasonable inference in his favor. Sci. Spectrum , 941 S.W.2d at 911 .
SUMMARY
JUDGMENTS IN FAVOR OF CARTER AND FARLEY
In its third issue, Essex contends that Carter and Farley engaged in a civil
conspiracy with several of the other original defendants in the underlying suit
to fraudulently transfer assets of McPherson, Sr. and the McPherson Entities out
of its reach in violation of the Texas Uniform Fraudulent Transfer Act (“TUFTA”). Essex does not contend that either Carter or
Farley is directly liable for violating TUFTA. [6]
In their no-evidence
motions for summary judgment, Carter and Farley argued
that there was no evidence that their “zealous representation of [their]
former clients involved acts which are contrary to law, wrongful and harmful
toward Plaintiff or were carried out by unlawful means” and that there was no evidence that they
enjoyed the fruits of the transaction or that their legal fees depended upon keeping
the assets from Essex.
In their traditional motions for summary judgment, Carter and
Farley contended that they were entitled to summary judgment because Essex
failed to plead an actionable claim against them. They argued that Essex’s claims were premised
on conduct undertaken by them as attorneys in the representation of their clients
in litigation and that they were immune from suit by non-clients in the
litigation for such conduct. Carter and
Farley also contended that, even if Essex had pled an actionable claim against
them for civil conspiracy, no genuine issues of material fact precluded the
granting of their traditional or no-evidence motions for summary judgment on
those conspiracy claims.
Essex contends that the trial court
erred in rendering summary judgment in Carter and Farley’s favor because (1) Essex
produced more than a scintilla of evidence that Carter and Farley “knowingly
participated in a conspiracy to fraudulently transfer assets out of the reach
of Essex and Morano, as judgment creditors” and (2) Carter and Farley were not
immune from suit for their actions in furtherance of the conspiracy.
A.
Fraudulent Transfer
“A transfer made or
obligation incurred by a debtor is fraudulent as to a creditor, whether the
creditor’s claim arose before or within a reasonable time after the transfer
was made or the obligation was incurred, if the debtor made the transfer or
incurred the obligation . . . with actual intent to hinder, delay, or
defraud any creditor of the debtor.” Tex. Bus. & Com. Code Ann. §
24.005(a )( 1) (Vernon 2009); see Nobles v. Marcus , 533 S.W.2d 923, 925 (Tex. 1976); Hahn , 321 S.W.3d at 524–25.
The actual intent to defraud is shown by, among other things,
evidence that the transfer was made to an insider, including a relative; the
debtor retained possession or control of the transferred property after the
transfer; the transfer or obligation was concealed; the debtor was sued or
threatened with suit before the transfer was made or the obligation incurred; the
value of the consideration received by the debtor was reasonably equivalent to
the value of the asset transferred; the debtor was insolvent or became
insolvent shortly after the transfer was made or obligation incurred; the
transfer occurred shortly before or after a substantial debt was incurred; or the
debtor transferred the essential assets of the business to a lienor who
transferred the assets to an insider of the debtor. Tex.
Bus. & Com. Code Ann. § 24.005(b); see Hahn , 321 S.W.3d at 525 .
The facts and circumstances
set out in section 24.005(b) to be considered in determining fraudulent intent
are mere “badges of fraud” and are non-exclusive. Flores v. Robinson Roofing & Constr.
Co., Inc. , 161 S.W.3d 750, 755 (Tex. App.—Fort Worth 2005, pet.
denied). Therefore, because “fraudulent
intent is only to be deduced from facts and circumstances which the law
considers as mere badges of fraud, and not fraud per se, these must be
submitted to the trier of fact, which draws the inference as to the fairness or
fraudulent character of the transaction.” Id. (quoting Coleman Cattle Co. v.
Carpentier , 10 S.W.3d 430, 434 (Tex. App.—Beaumont 2000, no pet.)); see
also Quinn v. Dupree , 303 S.W.2d 769, 774 (Tex. 1957). Thus, “[t]he question of whether a debtor
conveyed property with the intent to defraud creditors is ‘ordinarily a
question for the jury or the court passing on the fact.’” Flores , 161 S.W.3d at
755 (quoting Coleman Cattle Co. , 10
S.W.3d at 433 ); see also Equitable Trust Co. v. Roland , 644 S.W.2d 46,
51 (Tex. App.—San Antonio 1982, writ ref’d n.r.e.) ( pointing
out that trial court’s decision to grant instructed verdict on fraudulent
conveyance issues “was in contradiction of the general rule that the existence
of a fraudulent conveyance is a question for the trier of the facts”). “Intent is a fact question uniquely within
the realm of the trier of fact because it so depends upon the credibility of
the witnesses and the weight to be given to their testimony.” Flores , 161 S.W.3d
at 755 .
A transfer to an insider is one of the factors in proving
actual intent to defraud under TUFTA. See
Tex. Bus. & Com. Code Ann. § 24.005(b )( 1) . An “insider” includes, if the debtor is an
individual, a relative of the debtor, a general partner of the debtor, or a
partnership in which the debtor is a general partner. Id.
§ 24.002(7 )( A) (Vernon 2009). If the debtor is a corporation, an “insider”
includes, among others, an officer of the debtor, a person in control of the
debtor, or a relative of a general partner, director, officer, or person in
control of the debtor. Id. § 24.002(7 )( B). Insider status is not limited, however, to persons
in the capacities listed in section 24.002(7); rather, the lists in subsections
24.002(7 )( A) and (B) are provided “for purposes of
exemplification.” Hahn , 321 S.W.3d at 525 n.8;
Putman v. Stephenson , 805 S.W.2d 16, 18 (Tex.
App.—Dallas 1991, no writ).
In general, an “insider” is a person or “an entity whose close
relationship with the debtor subjects any transactions made between the debtor
and the insider to heavy scrutiny.” Tel. Equip. Network, Inc. v. TA/Westchase Place, Ltd. , 80
S.W.3d 601, 609 (Tex. App.—Houston [1st Dist.] 2002, no pet.).
In
determining insider status, courts are to consider (1) the closeness of the
relationship between the transferee and the debtor and (2) whether the
transactions were at arm’s length. Id.
(citing In re Holloway , 955 F.2d 1008, 1010 (5th Cir. 1992)). However, it is not necessary to prove that a
transferee is an insider in order to prove the transferee’s knowledge of the
transferor’s fraudulent intent. See
Tex. Bus. & Com.
Code Ann. § 24.005(b); Hahn , 321 S.W.3d at 525 n.8 ; Flores ,
161 S.W.3d at 755 . If
“fraudulent intent is only to be deduced from facts and circumstances which the
law considers as mere badges of fraud and not fraud per se, these must be
submitted to the trier of fact, which draws the inference as to the fairness or
fraudulent character of the transaction.”
Flores , 161 S.W.3d at 754 (quoting Coleman Cattle Co. , 10
S.W.3d at 434 ).
B.
Conspiracy to Commit Fraudulent Transfer
Carter and
Farley contend that (1) there is no evidence that they either committed a
fraudulent transfer themselves or conspired to commit a fraudulent transfer and
(2) their actions were all undertaken in representation of their clients in
litigation, entitling them to immunity from suit for conspiracy to commit a
fraudulent transfer.
“Conspiracy
is a derivative tort requiring an unlawful means or purpose, which may include an
underlying tort.” Chu v. Hong , 249
S.W.3d 441, 444 (Tex. 2008); see also
Gary E. Patterson & Assocs. v. Holub , 264 S.W.3d 180, 204 (Tex.
App.—Houston [1st Dist.] 2008, pet. denied).
Thus, to negate summary judgment on a conspiracy claim in a fraudulent
transfer case, there must be some evidence of the movant’s participation in a
conspiracy to commit a fraudulent transfer.
See Chu , 249
S.W.3d at 444 .
An attorney
for an opposing party may not be held liable for breach of fiduciary duty or
fraud merely for making representations to the opposing party in litigation
that further the best interests of his own clients. Id.
at 446 & n.19; McCamish, Martin,
Brown, & Loeffler v. F.E. Appling Interests , 991 S.W.2d 787, 794 (Tex.
1999); Alpert v. Crain, Caton & James,
P.C. , 178 S.W.3d 398, 406 (Tex. App.—Houston [1st Dist.] 2005, pet.
denied); see also Finserv Cas . Corp. v. Settlement Funding, LLC , 724 F. Supp. 2d 662, 671 (S.D. Tex. 2010). However, “[a]n attorney who personally . . .
tells lies on a client’s behalf may be liable for . . . fraud
in some cases.” Chu , 249 S.W.3d at 446 . Thus, an attorney may be held liable for
conspiracy to defraud by knowingly assisting a client in evading a judgment
through a fraudulent transfer. See id. at 446 & n.19; Estate of Stonecipher v. Estate of Butts ,
686 S.W.2d 101, 103 (Tex. 1985); Likover
v. Sunflower Terrace II, Ltd ., 696 S.W.2d 468, 472 (Tex. App.—Houston [1st
Dist.] 1985, no writ) (holding that “[a]n attorney is liable if he knowingly
commits a fraudulent act that injures a third person, or if he knowingly enters
into a conspiracy to defraud a third person” in the course of representing his client). In order to be held liable for conspiracy to
defraud by so assisting his client, however, the attorney must have agreed to
the injury to be accomplished, not merely the conduct ultimately resulting in
injury. Chu , 249 S.W.3d at 446–47 .
1. Evidence of Conspiracy to
Commit a Fraudulent Transfer
In their no-evidence motions for summary judgment, Carter and
Farley contend they could be liable for
conspiracy only if they agreed to the injury
to be accomplished; inferring an agreement as to the ultimate injury generally arises “from joint
participation in the transactions
and from enjoyment of the fruits of the transactions”; there is no evidence of an
agreement or meeting of the minds between themselves and any other party to
this suit to “fraudulently transfer, hide, secret or otherwise conceal assets
with the intent to avoid payment of the debt” to Essex, to its harm; and there is no
evidence that they enjoyed the fruits of the transaction or that their legal
fees depended upon keeping the assets from Essex.
Essex contends that the record reveals that both Carter and
Farley were intertwined in the transaction between HII and the McPherson
Entities and that genuine issues of material fact exist as to whether Carter
and Farley had a “meeting of the minds” with the McPherson Entities to assist
in the transfer and shelter of assets from possible seizure by the McPherson
Entities’ creditors, to its harm, making both no-evidence and traditional summary
judgment improper.
Specifically, Essex points to evidence that:
·
Carter and Farley represented the McPherson Entities in earlier proceedings
beginning in the late 1990s when Farley worked as an attorney for Carter’s law
firm;
·
Farley incorporated HII in March 2002;
·
Carter served as HII’s registered agent;
·
McPherson, Jr. was the owner and sole managing member of HII;
·
eight weeks after HII was incorporated, Carter and Farley negotiated with
the Fund and the Facility to acquire an assignment of their rights in the
Settlement Agreement for $275,000 for HII;
·
Carter and Farley drafted the assignment;
·
after the assignment, HII, represented by Farley, took final judgments
against McPherson, Sr. and the McPherson Entities for $3.5 million;
·
Carter represented McPherson, Sr. and the McPherson Entities in those
proceedings; and
·
Carter testified that the assignment was done as a form of “estate
planning,” specifically, to create a friendly creditor-debtor relationship
between McPherson, Jr.’s company and McPherson, Sr.’s entities.
Essex further contends that it can be logically inferred that
Carter and his client discussed and were in agreement as to whether McPherson,
Sr. would agree to pay the $3.5 million judgment entered against him and his
companies by his son’s company, HII. Essex
also contends that when asked if Carter and McPherson, Sr. had agreed on this
course of action Carter deferred to McPherson, Sr., who asserted the
attorney-client privilege. According to Essex,
to the extent that it had been unable to produce an admission of this agreement
between Carter and McPherson, “it is only because of Defendant’s use of the
attorney-client privilege.” Essex
further contends that the fact that there was no legal basis for the Agreed Judgments
is further circumstantial evidence of conspiratorial intent.
We conclude that Essex has
produced evidence sufficient to raise a material fact issue on each of the
elements of fraudulent transfer, including several of the “badges of fraud”
that form the basis for a finding of intent to defraud under TUFTA. See
Tex. Bus. & Com. Code Ann. §§
24.005(a )( 1), (b); Flores , 161 S.W.3d at
755 . Specifically, it has produced
summary judgment evidence from which a jury could reasonably infer that Carter
and Farley, acting as attorneys for McPherson, Sr., McPherson, Jr., and the
McPherson Entities, and with the specific intent of protecting McPherson, Sr.’s
and the McPherson Entities’ assets from collection by Essex, negotiated and
executed the Assignment of the Fund’s and the Facility’s right to payment by
McPherson, Sr. and the McPherson Entities under the TWC Settlement Agreement to
an insider, HII, a newly formed corporation entirely owned and controlled by
McPherson, Jr. Also, HII’s documents of
incorporation were drawn up by Farley, and Carter served as registered
agent. McPherson, Jr. testified that HII
was created to separate its assets from his own and that he sought the
Assignment to HII “in order to protect [his] assets.”
Carter and Farley drafted an Assignment of the Fund’s and the
Facility’s rights under the TWC Settlement Agreement to HII. They drafted Agreed Judgments under which the
McPherson Entities and HII agreed that the McPherson Entities would pay the
entire original amount of the satisfied debt, in the amount of $3,147,844, to
HII. They then filed the Agreed Judgments they
had drafted with the Travis County district court without informing the court
that the Assignment was of a previously satisfied debt as to which the assignor
retained no right of payment and that the Assignment had been made to an
insider controlled by a relative of the debtor.
They promptly proceeded to execute the judgments against the McPherson
Entities, removing from Essex’s reach assets otherwise available to satisfy the
judgment lien it had placed on the transferred assets. McPherson, Sr. testified that HII took the
Agreed Judgments to help out the family.
He also testified that the plan was discussed with Carter.
Each of these facts and
circumstances constitutes a “badge of fraud.”
See Tex. Bus. & Com. Code Ann. § 24.005(b); Hahn ,
321 S.W.3d at 525 ; Flores , 161 S.W.3d at 755 . Because “fraudulent intent is only to be deduced
from facts and circumstances which the law considers badges of fraud, these
must be submitted to the trier of fact, which draws the inference as to the
fairness or fraudulent character of the transaction.” Flores , 161 S.W.3d at 755 (quoting Coleman
Cattle Co. , 10 S.W.3d at 434 ); see also Quinn , 303 S.W.2d at 774 .
We conclude that Essex has raised fact issues regarding
Carter’s and Farley’s participation in a conspiracy to hide their clients’
assets in order to effect injury upon Essex by drafting the legal documents and
taking the legal actions that effected the transfer of McPherson, Sr.’s and the
McPherson Entities’ assets to HII that placed them beyond the reach of Essex. We further conclude that Essex has raised a
fact issue as to whether Carter and Farley promoted the scheme to earn a fee
for themselves that they would not have earned had they not assisted McPherson,
Sr. in a fraudulent transfer McPherson’s assets to protect them from creditors
such as Essex.
Thus, we hold that Essex has raised material fact issues as
to Carter’s and Farley’s knowing participation in a conspiracy to defraud.
We sustain the first part of Essex’s third issue.
2. Attorney
Immunity
In their traditional motions for summary judgment, Carter and
Farley contend that, because their actions with respect to McPherson, Sr. and
the McPherson Entities at issue were undertaken in their capacity as counsel
for those clients to advance their best interests in the litigation context,
they are immune from liability for their actions. Carter and Farley rely on Chu to support their claim to immunity
from liability for conspiracy to violate TUFTA.
See 249 S.W.3d at 447 .
Because immunity is an affirmative defense, we review the
summary judgment in Carter and Farley’s favor on this issue under the standard
of review for traditional summary judgments to determine whether Carter and
Farley established their affirmative defense as a matter of law or whether Essex
has raised a material fact issue as to at least one element of the
defense. See Tex. R. Civ. P.
166a(c), (i) & 1997 cmt.; see also Mendoza v. Fleming , 41 S.W.3d 781, 787 (Tex. App.—Corpus
Christi 2001, no pet.) (holding appellees failed to establish affirmative defense of attorney immunity as matter of law
because material fact issue existed concerning whether appellees’ actions were
within bounds of law); cf. Lackshin
v. Spofford , No.
14-03-00977-CV, 2004 WL 1965636 , at *5 (Tex. App.—Houston [14th Dist.] Sept. 7, 2004, pet. denied ) (mem.
op.) ( holding trial court did not err in
granting traditional summary judgment in appellee’s favor because summary judgment
evidence conclusively proved that appellee’s allegedly actionable conduct
occurred during his legal representation of client and appellant failed to
allege sufficient facts to show that appellee’s alleged conduct fell within an
exception to this affirmative defense).
We hold that Carter and Farley’s reliance on Chu to support their immunity defense is
misplaced.
Chu did not
hold that attorneys are immune to suit for fraudulent acts undertaken in the
representation of a client; it indicated exactly the opposite. See
249 S.W.3d at 446 &
n.19. In Chu , the supreme court commented, “An
attorney who personally steals goods or tells lies on a client’s behalf may be
liable for conversion or fraud in some cases.”
Id. ; see also Poole v. Houston
& T.C. Ry. Co. , 58 Tex. 134 , 137–38 (1882) (holding that attorney who
fraudulently diverted goods to evade lawful seizure by creditor “will not be
heard to deny his liability to appellant for the loss sustained by reason of
his wrongful acts, under the privileges of an attorney at law, for such acts
are entirely foreign to the duties of an attorney; neither will he be
permitted, under such circumstances, to shield himself from liability on the
ground that he was the agent of [his client], for no one is justified on that
ground in knowingly committing willful and premeditated frauds for another”).
In Chu , the supreme court held that a buyer’s attorney could not be held liable for drawing up a
bill of sale of community property, a shop, at his client’s request when he
knew that the seller was selling the shop without his spouse’s consent. 249 S.W.3d at 446 . It reasoned that the buyer’s attorney had a
fiduciary duty to further the best interests of his client, the buyer, and
imposing on him a second duty to the sellers “would inevitably conflict with
the first.” Id. ; see also Finserv Cas . Corp. , 724 F. Supp. 2d at 671 , 674
(quoting Chu ’s statement that “[a]n
attorney who personally steals goods or tells lies on a client’s behalf may be
liable for conversion or fraud in some cases,” but concluding that facts of
instant case were “not the type of situation indicated in Chu ,” which “all dealt with conspiracies to defraud,” and thus
upholding attorney’s immunity to claim of conversion by opposing party in
litigation); Alpert , 178 S.W.3d at
405–06 (holding that defendant attorney was immune from liability for actions
in representation of client sued upon, but stating that “[i]f a lawyer
participates in independently fraudulent activities, his action is ‘foreign to
the duties of an attorney’” and that “[a] lawyer thus cannot shield his own
willful and premeditated fraudulent actions from liability simply on the ground
that he is an agent of his client”) (quoting Poole , 58 Tex. at 137 ); Lackshin ,
2004 WL 1965636 , at *3 (concluding, after review, that complained of conduct
was not fraudulent or malicious, but stating, “If defendants prove as a matter
of law that their allegedly actionable conduct was undertaken in the
representation of a third-party client, then they have shown their entitlement
to summary judgment on all claims, except
for alleged torts based on fraudulent or malicious conduct ” (emphasis
added)); cf. McCamish, Martin, Brown & Loeffler , 991 S.W.3d at 794
(recognizing qualified attorney immunity for representations made in
adversarial context).
Here, Essex
has not sued Carter and Farley for their representations to it or for their
lawful actions within the scope of their professional duty to represent
McPherson, Sr. and the McPherson Entities in this litigation. It has sued them for their actions in allegedly
drafting and filing fraudulent legal documents for the purpose of conspiring to
hide their clients’ assets from judgment creditors in violation of TUFTA. Attorneys have no immunity from knowingly drafting
fraudulent documents to evade the lawful seizure of property by a judgment
creditor, and they may not deny their liability to the judgment creditor for
the loss sustained by reason of their own wrongful acts on the ground that they
are the agents of their clients, “for no one is justified on that ground in
knowingly committing willful and premeditated frauds for another.” Poole ,
58 Tex. at 137–38; see also Chu , 249
S.W.3d at 446 & n.19; Alpert , 17
S.W.3d at 406; Likover , 696 S.W.2d at
472 . We sustain the second part of Essex’s
third issue and hold that Essex has raised a material fact issue as to whether Carter
and Farley are immune from their actions made the subject of this litigation.
We therefore hold that the trial court erred in entering
summary judgment in favor of Carter and Farley on their affirmative defense of
attorney immunity. [7]
We sustain Essex’s third issue.
SUMMARY JUDGMENTS IN FAVOR OF BEVERLY
Essex contends that the trial court
(1) improperly sustained Beverly’s objections to its summary judgment
evidence, (2) erroneously
rendered a no-evidence summary judgment in favor of Beverly , and (3) erroneously granted
Beverly’s motion to quiet title in the absence of any actual cloud on the title
arising from any actions by Essex. We
agree.
A.
Beverly’s
Objections to Essex’s Summary Judgment Evidence
In its first issue, Essex contends that the trial court improperly
sustained Beverly’s objections to the summary judgment evidence it filed in
response to Beverly’s no-evidence motion for summary judgment because the
objections were not filed until after the court had granted Beverly’s motion,
and they were, therefore, waived.
To preserve objections to summary judgment evidence for
appeal, a party asserting the objections must obtain a ruling at or before the
summary judgment hearing. “As a prerequisite to presenting a complaint for
appellate review, the record must show that . . . the complaint was made to the
trial court by a timely
request, objection ,
or motion. . . .” Tex. R. App. P. 33.1(a )( 1); s ee Tex. R. Civ. P. 166a(f) (stating, “Defects in the form
of affidavits or attachments will not be grounds for reversal unless
specifically pointed out by objection by an opposing party with opportunity,
but refusal, to amend”); Hogan v. J. Higgins Trucking, Inc. , 197 S.W.3d 879, 883 (Tex. App.—Dallas
2006, no pet.); see also McConnell v.
Southside Indep. Sch. Dist. , 858 S.W.2d 337 , 343 n.7 (Tex. 1993) (holding
that all issues must be expressly presented to trial court). Summary judgment evidence must be presented
in a form that would be admissible at trial. See, e.g. , Vice v. Kasprzak , 318 S.W.3d 1, 11
( Tex. App.—Houston [1st Dist.] 2009, pet. denied). If a party has objections to defects in the
form of supporting attachments, those objections must be made in writing and
placed before the trial court, or the objections will be waived. See Tex.
R. Civ. P. 166a( f); Grand Prairie Indep. Sch. Dist. v. Vaughan , 792 S.W.2d 944, 945 (Tex.1990).
A party’s failure to secure a ruling on
an objection also waives the issue on appeal. See, e.g. , Vice , 318 S.W.3d at 11 .
Here, the trial court granted Beverly’s no-evidence motion for
summary judgment by order entered on August 15, 2007, following a hearing on
August 13. On August 27, 2007, Essex
filed a motion to reconsider the summary judgments rendered in Carter’s and in
Beverly’s favor. On September 4, 2007,
Beverly filed his “Objections to Evidence Cited in Plaintiffs’ Response to
No-Evidence Motion for Summary Judgment.”
On September 24, the trial court denied Essex’s motion to reconsider. On September 26, the trial court signed an order
granting Beverly’s objections to Essex’s summary judgment evidence in their
entirety. Because Beverly’s objections were
untimely filed after summary judgment
had been entered on his claims and the trial court refused to reconsider its
ruling granting the summary judgment, the trial court’s order granting Beverly’s
untimely filed objections to the summary judgment evidence was erroneous. See
Tex. R. App. P . 33.1(a )( 1); Hogan , 197
S.W.3d at 883 .
We sustain Essex’s first issue.
B.
Beverly’s
No-Evidence Motion for Summary Judgment
Essex also contends that the trial court erred in granting
Beverly’s no-evidence motion for summary judgment because (1) it produced more
than a scintilla of evidence supporting its conspiracy claim, (2) Beverly’s
motion was procedurally inadequate, and (3) Beverly’s legal arguments lacked
foundation.
Beverly filed a no-evidence motion for summary judgment in
which he alleged that there was no evidence that (a) McPherson, Sr. transferred
the Montgomery House in violation of TUFTA; (b) the Montgomery House was an
“asset” as defined by TUFTA; (c) Beverly’s purchase of the promissory notes and lien securing the
Montgomery House constituted a fraudulent transfer; (d) Beverly’s purchase
of the Montgomery House was through a collusive or “sham” foreclosure, or was
an illegal object of a conspiracy; (e) Beverly’s purchase of the house prior to
foreclosure violated TUFTA; (f) Beverly’s rental of the Montgomery House to
McPherson was an illegal object of a conspiracy; (g) McPherson’s payment
of $150,000 to Beverly “the day before [the $150,000] lost its exempt status as
homestead proceeds” constituted fraudulent transfer of an asset; (h)–(i), and (k)
Beverly conspired to violate TUFTA; (j) and (l) “Plaintiffs possessed a final
judgment or a valid lien as alleged . . . , an essential element of conspiracy
to interfere with collection of a debt” because “[w]ithout a valid lien,
Plaintiffs were no more than general creditors” and “[a] general creditor has
no claim for conspiracy for fraudulent transfer”; (m) Essex “had any interest
in any claims or judgment against [McPherson, Sr.] after Essex’s assignment on
March 28, 2002 to Morano, Inc. [a related entity],” (n) Essex “ever had an
interest in any receivable, claim or judgment against Coastal Terminal
Operators, Inc.”; or (o) Essex “had any interest in any claims or judgment
against [McPherson, Sr.] at the time of the $150,000 payment to Beverly.” We construe Beverly’s motion as a hybrid
motion for summary judgment alleging essentially that there was no evidence of
an underlying wrongful act to support a claim against Beverly for conspiracy to
violate TUFTA and no evidence that Essex had standing to bring its claim
against Beverly.
1. Beverly’s
Participation in a Conspiracy to Violate TUFTA
Essentially, Beverly alleged, first, that Essex had failed to
raise a genuine issue of material fact as to the existence of a conspiracy to
violate TUFTA and as to his specific intent to conspire to violate TUFTA. The summary judgment evidence shows that, at
the time of the Essex Judgments, McPherson, Sr. owned the Montgomery
House. Essex obtained a lien on the
Montgomery House in McPherson, Sr.’s name through the filing of an abstract of
judgment relating to the Essex Judgments. After entry of these judgments, McPherson
defaulted on his loan on the Montgomery House. Prior to foreclosure, Beverly,
who had been McPherson Sr.’s accountant since 1989 or 1990 and who was also a
long-time friend, purchased the bank note and lien on the property and took a second
lien on the Montgomery House without ever seeing the property, thereby
extinguishing Essex’s judgment lien.
McPherson, Sr. was living in the house and was never forced
to move out. Instead, Beverly rented the
Montgomery House back to McPherson, Sr. and his family. McPherson, Sr., either personally or through
one of the McPherson Entities, paid monthly rent on the home and reimbursed
Beverly for taxes and homeowners insurance costs, even though he no longer
owned the property. Following the sale
of his homestead in Harris County, McPherson, Sr .
attempted to use the proceeds from that sale to buy back the Montgomery House
and to designate the Montgomery House as his homestead to protect it from
seizure. However, Stewart Title declined
to issue a title policy for McPherson, Sr.’s repurchase because McPherson, Sr. was
the same person who had owned the property prior to the sale of the house to
Beverly. On December 22, 2005, around
the time that the proceeds from the sale of McPherson, Sr.’s Harris County
homestead property were to lose their statutory exemption from execution,
McPherson, Sr. wire-transferred $150,000 to Beverly, claiming that the payment
was intended for the repurchase of the Montgomery House despite the fact that
the wire transfer occurred after the scheduled closing date for the sale of the
Montgomery House. Because the resale did
not occur, title to the Montgomery House remains in Beverly’s name.
We hold that the evidence is sufficient to raise a material
fact issue as to whether Beverly, McPherson, Sr.’s accountant and long-time
friend, had the specific intent to conspire to defraud Essex by assisting McPherson, Sr. in
evading payment of the Essex Judgments through fraudulent transfers of
McPherson, Sr.’s assets. See Tex. Bus.
& Com. Code Ann. § 24.005(b) (listing as indicia of intent to defraud,
inter alia , whether debtor retained
possession or control of property transferred after transfer, debtor was sued
or threatened with suit before transfer was made, debtor removed or concealed
assets, value of consideration received by debtor was reasonably equivalent to
value of asset transferred, debtor was insolvent or became insolvent shortly
after transfer was made, transfer occurred shortly before or after substantial
debt was incurred, and debtor transferred essential assets of business to lien or
who transferred assets to insider of debtor).
We further hold
that the evidence is sufficient to present a material fact issue as to whether
Beverly agreed not merely with the conduct that resulted in the injury—the
transfer of assets subject to Essex’s judgment lien—but with the injury to
Essex to be accomplished, i.e., evasion of payment of the judgment from assets
subject to the lien. See Chu , 249 S.W.3d at 446–47 &
n.19; Stonecipher , 686 S.W.2d at 808 .
We hold
that Essex has raised a material fact issue on each of the elements of its
claim against Beverly for conspiracy to violate TUFTA. The trial court, therefore, erred in granting
Beverly’s no-evidence motion for summary judgment on this ground.
2. Essex’s Standing
Beverly also argues that Essex
produced no evidence that it is a judgment creditor of McPherson, Sr. and the
McPherson Entities. His only argument is
that Essex lacked a valid judgment lien against the Montgomery House, which he argues
is an essential element of a fraudulent transfer claim when the party asserting
the fraudulent transfer would otherwise be a mere general creditor of the
judgment debtor. Beverly argues that
Essex produced no evidence of its judgment lien in response to his no-evidence
motion for summary judgment.
Essex produced its abstract of
judgment, which created a lien on McPherson, Sr.’s Montgomery House. Beverly argues, however, that because that
lien was extinguished by his purchase of the house, Essex is no longer a
judgment creditor, but merely a general creditor of McPherson, Sr., and that he
cannot be held liable to a general creditor for conspiracy to violate TUFTA. [8]
To show its standing to bring its
fraudulent conspiracy claim against Beverly, Essex had only to prove that it
had a right in McPherson, Sr.’s property that existed at the time of the
allegedly fraudulent transfer of McPherson, Sr’s assets to place them beyond
the reach of creditors, or that arose within a reasonable time thereafter, and
that Beverly was a direct or indirect transferee of the property. See Tex. Bus. & Com. Code Ann . § 24.005(a);
Stonecipher’s Estate v. Butler’s Estate ,
591 S.W.2d 806 , 808–10 (Tex. 1979); see
also Flores , 161 S.W.3d at 757 (holding that evidence raising fact issue as
to whether plaintiffs were creditors of debtor at time of alleged fraudulent
transfer and whether debtor made transfer with actual intent to hinder, delay,
or defraud plaintiffs was sufficient to preclude summary judgment against
plaintiffs).
Beverly cites to Stonechipher’s Estate as support for his claim that Essex had no
judgment lien on the Montgomery House at the time this suit was filed, as is
required for standing to sue for conspiracy to defraud under TUFTA for denial
of a property right. Therefore, Beverly
argues, Essex lacked standing to sue him for conspiracy to violate TUFTA. Stonecipher’s
Estate , however, supports Essex’s standing to sue Beverly for conspiracy to
violate TUFTA, not the opposite. See 591 S.W.2d
at 808–10.
In Stonecipher’s
Estate , Stonecipher obtained a $21,000 judgment against the Butts in 1950
but was only able to collect $5,000. Id. at 807. The Butts conveyed some land to their banker,
Newman, for $6,000 shortly before the trial and used that money to pay off
loans and to live on. Id.
Stonecipher did not extend its judgment against the Butts, and it became
dormant in 1961. Id. In 1970, Stonecipher
discovered that Newman had conveyed the property back to the Butts in 1967. Id. He brought an action against the Butts and
Newman in 1971, alleging that a conspiracy prevented him from collecting the
judgment lien and that the defendants’ fraud tolled the running of limitations. Id. The Texas Supreme Court observed that “courts
throughout the United States have long recognized a cause of action for damages
for a post-judgment conspiracy to prevent the collection of a judgment lien.” Id.
The court observed, “A creditor with a
lien has a right of action against persons who interfere with the property of
his debtor upon which he has a lien, so as to prevent the levy or sale by the
sheriff to satisfy his judgment.” Id. at 808. It reasoned that “[t]he damage in a conspiracy
for fraudulent conveyance is the interference with or loss of a property right
or lien of the creditor in the debtor’s property.” Id. It held “that a judgment creditor, with a
lien on the property made the basis of a cause of action for conspiracy to
prevent the collection of such lien, may recover such damages as result from
the conspiracy.” Id. The court further held
that the Butts’ fraud tolled the statute of limitations on the judgment lien
that had been extinguished, and it remanded the case to the trial court to
determine whether Stonecipher used reasonable diligence in attempting to
discover assets of the judgment debtors.
Id. at 809–10.
The situation in this case is much the
same. Here, Essex obtained a judgment
lien against McPherson, Sr.’s Montgomery House.
However, McPherson, Sr. defaulted on the mortgage loan on the house. Before foreclosure, the bank note and the
bank’s lien on the property were sold by the mortgage lender to Beverly,
McPherson, Sr.’s friend and accountant, and title was transferred to Beverly, extinguishing
Essex’s judgment lien on McPherson, Sr.’s property. Under Stonecipher’s
Estate , however, a lien extinguished by fraud satisfies the “property right
or lien” element of a claim of conspiracy to commit fraud. See id.
at 808–09 (stating, “fraud vitiates whatever it
touches”). Therefore, Essex’s lack of an
enforceable lien against the Montgomery House at the time suit was filed is no
bar to its suit against Beverly, assuming the suit was timely brought or that
“reasonable diligence was exercised to discover assets of the judgment debtors,”
as it was. See id. at 810; see also
Hollins v. Rapid Transit Lines, Inc. , 440 S.W.2d 57 , 59–60 (Tex. 1969)
(tort claimant not required to obtain judgment before bringing action under
fraudulent conveyance statute); Eckert v.
Wendel , 40 S.W.2d 796, 797 (Tex. 1931) (declaring that “a creditor, though
he have no specific lien, may maintain an action in equity to vacate a fraudulent
conveyance of his debtor’s land”).
The Fifth Circuit case of Mack v. Newton , which relied on Stonecipher’s Estate , is also instructive.
737 F.2d 1343 (5th
Cir. 1984). This was a trustee’s
suit against a debtor’s principals and lender seeking recovery on the basis of
civil conspiracy, conversion, fraudulent conveyances, and usury. Id.
at 1346–47. The bank was a financing
bank that held the mortgage on cattle transferred from the debtor to an insider
of the debtor, a transferee company. Id. at 1347–48. Citing Stonecipher’s
Estate , the Fifth Circuit held that the bank could not be held liable for
civil conspiracy to defraud because the bank was a general creditor of the
debtor and there was no provision in TUFTA “for recovery other than recovery of
the property transferred or its value from one who is, directly or indirectly,
a transferee or recipient thereof.” Id. at 1361. Here, by contrast, Beverly was the transferee
of the note and lien on the Montgomery House and is still the owner of the house,
for which he has received value from McPherson, Sr. Thus, he is subject to suit by Essex under
the rule set out in Stonecipher’s Estate
and Mack as a direct participant in an
alleged conspiracy to defraud Essex of its rights in McPherson, Sr.’s property
in violation of TUFTA.
We hold that Beverly has failed to
carry his burden of showing, as a matter of law, that Essex lacks standing to
sue Beverly for conspiracy to violate TUFTA.
The trial court, therefore, erred in entering no-evidence summary
judgment in Beverly’s favor.
We sustain Essex’s second issue.
C.
Beverly’s
“Motion to Clear Beverly’s Title”
On July 23, 2007, Beverly filed a “Motion for Partial Summary
Judgment on Lien Element of Conspiracy to Commit Fraudulent Transfer” that also
included a “Motion to Quiet Title” to the Montgomery House. The trial court did not grant the motion for partial
summary judgment, but it granted Beverly’s motion to quiet title on September
24, 2007.
In its fourth issue on appeal, Essex contends that the trial
court erred in granting Beverly’s motion to quiet title because (1) the motion
was not properly pending before the court since Essex was never given notice of
a hearing on the motion, and (2) the motion for partial summary judgment predicated
the ruling lifting the cloud on Beverly’s title on a finding by the trial court
that Essex’s judgment lien on the Montgomery House was void—a finding that the
trial court never made.
A suit to clear title or quiet title—also known as a suit to
remove cloud from title—relies on the invalidity of the defendant’s claim to
the property. Longoria v. Lasater , 292 S.W.3d 156 , 165 n.7 (Tex. App.—San Antonio
2009, pet. denied). It exists “to enable
the holder of the feeblest equity to remove from his way to legal title any
unlawful hindrance having the appearance of better right.” Bell v. Ott , 606 S.W.2d 942, 952 (Tex. Civ. App.—Waco 1980, writ
ref’d n.r.e.) ( quoting Thomson v. Locke , 66 Tex. 383 , 1 S.W. 112, 115 (1886)); see also Hahn , 321 S.W.3d at 531 (quoting
Bell , 606 S.W.2d at 952 ). “A cloud on title exists when an outstanding
claim or encumbrance is shown, which on its face, if valid, would affect or
impair the title of the owner of the property.”
Hahn , 321
S.W.3d at 531 . The effect of a
suit to quiet title is to declare invalid or ineffective the defendant’s claim
to title. See id. ; Bell , 606 S.W.2d
at 952 (holding that quiet title enables holder of feeblest equity to remove
unlawful hindrance). “[ T]he plaintiff has the burden of
supplying the proof necessary to establish his superior equity and right to
relief.” Hahn , 321 S.W.3d at 531 ; see Bell ,
606 S.W.2d at 952 . The plaintiff must
prove, as a matter of law, that he has a right of ownership and that the
adverse claim is a cloud on the title that equity will remove. Hahn , 321 S.W.3d at 531 .
Beverly moved for partial summary judgment on the ground that
“[t]o prove conspiracy to interfere with collection of a debt, Plaintiffs must
have had a valid lien,” and he contended that Essex did not have a valid lien
against the Montgomery House. The trial
court never made the finding on which Beverly’s suit to quiet title was
predicated, namely that Essex lacked a valid lien on the Montgomery House, and,
as stated above, the present existence of a valid judgment lien at the time
suit is filed is not a necessary element of a claim for conspiracy to violate
TUFTA. See Tex. Bus. & Com.
Code Ann. § 24.002(3)–(4).
Moreover, Beverly did not supply “the proof necessary to establish his superior
equity and right to relief,” as required to support judgment in the plaintiff’s
favor in a suit to quiet title. Hahn , 321 S.W.3d at 531 ; see also Bell ,
606 S.W.2d at 952 .
We hold that the trial court’s order quieting title to the
Montgomery House was arbitrary and unreasonable and thus was an abuse of
discretion. See Downer v. Aquamarine Operators, Inc. , 701 S.W.2d 238 , 241–42
(Tex. 1985) (stating, “The test for abuse of discretion is . . . whether the
court acted without reference to any guiding rules and principles” or was
“arbitrary and unreasonable”).
We hold
that the trial court erred in granting Beverly’s motion to quiet title, which
was predicated in Beverly’s summary judgment pleadings on proving his
entitlement to summary judgment on “the lien element of conspiracy to
commit fraudulent transfer.”
We sustain Essex’s fourth issue.
Conclusion
We reverse
the judgment of the trial court and remand the case for further proceedings
consistent with this opinion.
Evelyn
V. Keyes
Justice
Panel consists of Justices Keyes, Sharp, and
Massengale.
Justice Sharp, dissenting in part.
[1]
See
Brookshire Bros., Inc. v. Smith , 176 S.W.3d 30 , 41 & n. 4 (Tex. App.—Houston
[1st Dist.] 2004, pet. denied) (holding that when party files both motion for
rehearing and motion for en banc reconsideration, “it has long been the
practice of this Court to present the motion for rehearing . . . to the
original panel of justices who heard the case” and that if original panel
grants rehearing, motion for rehearing en banc is rendered moot).
[2] Neither
Coastal Terminal Operators, Inc., James W. McPherson, Sr., nor any of the seven
other original defendants—Coastal Stevedoring Corporation, Jacintoport Corporation, Jacintoport Corporation,
McPherson Interests, Ltd., James W. McPherson
Family Trust, James W. McPherson, Jr. and Cara Hood—is a party to this appeal.
[3]
Carter filed four motions for summary judgment—two traditional motions
for summary judgment and two no-evidence motions for summary judgment. The
trial court’s order rendering summary judgment in Carter’s favor, however, does
not identify which of these motions it intended to grant. The order simply refers to “Carter’s Motion
for Summary Judgment as to Plaintiff’s claims of Fraud and Conspiracy.”
[4]
Because these two separate
orders eventually resulted in two different final judgments, this Court issued
an order assigning them two separate trial court cause numbers and separate
appellate cause numbers. Thus, all
claims between Essex and Carter were severed into trial court cause number
2002-62464-A and disposed of by the trial court on August 15, 2007, which
resulted in appeal number 01-09-00813-CV.
Regarding the claims between Beverly and Essex, the trial court issued
further orders following its August 15, 2007 severance and final judgment
pursuant to the parties’ post-judgment motions.
All claims between Beverly and Essex were finally disposed of on
September 24, 2007. Thus, we assigned
those severed claims the trial court cause number 2002-62464-B and appellate
cause number 01-11-00688-CV.
[5]
This Court issued an order
assigning this severed cause trial court cause number 2002-62464-C, which
resulted in appellate cause number 01-11-00689-CV.
[6]
Essex’ brief on appeal states, “As with Beverly, Essex and Morano
allege only that Carter and Farley are liable for conspiring with the McPherson
Entities to fraudulently transfer assets, and not that they are directly liable
for violating TUFTA.”
[7] Essex also alleges, and Carter and Farley
deny, that Carter and Farley’s summary judgment motion regarding damages was procedurally
defective. Because we have concluded
that the summary judgment must be reversed, we do not reach this issue.
[8]
Appellees Carter, Farley, and
Beverly all argue that Essex’s judgment lien was not valid because, although
Essex obtained and filed an abstract of judgment after the judgments were
entered, these summary judgments in Essex’s favor were determined by the
Fourteenth Court of Appeals in 2004—after the sale of the Montgomery House to
Beverly—not to have been final judgments, but interlocutory judgments, because
the summary judgments did not state that they disposed of all claims, causing
the appeal to be abated for entry of final judgment. See
Coastal Terminal Operators v. Essex Crane Rental Corp ., No. 14-02-00627-CV,
2004 WL 1795355 (Apr. 08, 2005, pet. denied) (op. on reh’g). Appellees have presented no argument or
authority to support their claim that the subsequent determination that the
summary judgments in Essex’s favor were interlocutory and the abatement of the
appeal of the summary judgments for entry of final judgments retroactively
invalidated Essex’s judgment lien, which existed at the time of McPherson,
Sr.’s transfer of the Montgomery House to Beverly, depriving Essex of standing
to assert its TUFTA claims to the extent its standing depends upon the
existence of its judgment lien on the house at that time. This argument is, therefore, waived for
inadequate briefing. See Tex.
R. App. P. 38.1 (i).

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/3124468. Public record. Not legal advice.