law-UFTA (fraudulent transfers to avoid collection of judgment)

law-UFTA

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; and 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) (Vernon 2009); 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).

HOUSTON CASES

Hahn v. Love (Tex.App.- Houston [1st Dist.] Nov. 6, 2008)(Higley)
(real estate law , judgment lien, cloud on title, constructive trust counterclaim, intervention,
satisfaction of judgment)
REVERSE TC JUDGMENT AND REMAND CASE TO TC FOR FURTHER PROCEEDINGS:
Opinion by Justice Keyes
Before Chief Justice Radack, Justices Keyes and Higley
01-07-00096-CV Allon R. Hahn, Individually and d/b/a Hahn's Gulf Service v. Bertrand Love
Appeal from 157th District Court of Harris County
Trial Court Judge: Hon. Ronald L. Wilson

General Electric Cap. Corp. v. Knapp, Jr. (Tex.App.- Houston [1st Dist.] Feb. 21, 2008)
(Higley) (UFTA, fraudulent transfer)
AFFIRM TC JUDGMENT: Opinion by Justice Higley
Before Justices Nuchia, Hanks and Higley
01-07-00010-CV General Electric Capital Corporation v. A. John Knapp, Jr., also known as
A. John Knapp
Appeal from 113th District Court of Harris County (Hon. Patricia Hancock)

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