Spring Street Partners - IV, L.P. v Lam et al
Filing
124
OPINION on Summary Judgment terminating 75 . (Signed by Judge Lynn N. Hughes) Parties notified. (ghassan, )
Spring Street Partners,
Plaintiff,
Civil Action H-08-107
versus
Douglass Lam, et al.,
Defendants.
Opinion on SummaryJudgment
I.
Introduction.
A company defaulted on a loan and petitioned for bankruptcy. The assignee of the loan
says that the company fraudulently transferred assets to avoid paying its debt. Because the
company transferred assets outside the ordinary course of business for no consideration, they
were fraudulent. The assignee will prevail.
1994
Bayou. Douglass Lam forms Bayou City Fish Company, Inc., a fish market
with retail and wholesale customers. It is located at 415 and 213 East
Hamilton. Ten Lam, Douglass's sister, and Vinh Ngo, her husband, are
employees.
2001
Wells. Douglass forms Wells Star Group, Inc.
roo5
Seafood. Douglass and Ten form L Seafood LP. Ten has a 50% interest
T
T
in it, L Seafood Management, LLC - a company owned by Ten - has a I%
interest, and Douglass has a 49% interest. Wells leases 41 5 East Hamilton
to Seafood. Wachovia loans Bayou $8.5 million.
2006
Famib. Wachovia assigns the loan to Spring Street Partners, L.P. Douglass
guarantees it. Douglass, Diane Lam, his wife, and his brothers, En Kha Lam
and Long Lam, form DKLGDTL Family Management, LLC. They each own
2 5%
2007
of it. Douglass conveys his 49% interest in Seafood to Family.
JNT.
JNT Group, LLC. Family sells its 49% interest in
Seafood to Vinh. Wells sells 41 5 East Hamilton to JNT. Gold Bank loans
JNT $ I million.
Douglass forms
Transfer: Bdyou to Seafood.
Bayou transferred its retail operations to Seafood. Spring Street says that the transfer
3.
was fraudulent because Seafood never paid Bayou for it.'
Bayou issued a note to Spring Street, and Douglass guaranteed it. Bayou defaulted on
the note and petitioned for bankruptcy protection. Spring Street sued
(I) Douglass, (2) some
of his family members, and (3) Family.
Spring Street says that assets have been fraudulently transferred among:
Douglass Lam
TenLam
Vinh Ngo
4
Family
Spring Street and the trustee of Bayou's bankruptcy estate have moved for partial
summary judgment on the transfers.
A. Limitations.
Because Spring Street sued more than four years after Bayou's transfer to Seafood,
Seafood and Ten say that the trustee's suit is time.barred.
The trustee's suit is not barred. A trustee may sue to avoid a transfer until two years
after the bankruptcy has closed.' Because Bayou's bankruptcy is still open, the trustee may still
sue Seafood and Ten.
'Tex. Bus. G Com. Code Ann. Cj 24.005 (a) (2) ( 1 ~ 8 ~ ) .
2~~
U.S.C. §§ 544(b), 546(a)
(1993).
(2011);
Tex. Bus. G Com. Code Ann. § 24.01o(a)
Pdymcnt.
B.
T e n swears to alternative facts. She deniesthat Bayou transferred anything to Seafood.
She also says, however, that if it did transfer something, Seafood paid for the transfer by
overpaying Bayou S73,ooo for inventory, insurance, and maintenance. Her only proof of this
overpayment are rent checks from Seafood to Wells and an illegible slip of paper with random
numbers written on it.
T e n cannot swear to contradictory facts. T h e rent payments from Seafood to Wells
covered only Seafood's occupancy of the building. If Seafood had overpaid Bayou, it would have
claimed that amount in its bankruptcy. It never did.
Bayou transferred assets to Seafood. Vinh swore that Douglass agreed to transfer
Bayou's retail operations to T e n and him. After Bayou filed for bankruptcy, its controller gave
the trustee a list of assets that Bayou had transferred to Seafood. These are valued at $I 50,000.
This list
-
coupled with Vinh's assertion that Seafood was created from Bayou's retail
operations - show that Bayou transferred assets to Seafood.
T h e defendants have no evidence that the transfers from Douglass to his relatives during
the bankruptcy had any purpose but to avoid paying his debt.
C. Remaining Assets.
T h e trustee says that after the transfer to Seafood, Bayou's remaining assets could not
pay its debts. This is obvious because Bayou combined its financial statements with Seafood
to borrow more money from Wachovia. Although Douglass blames this o n the bank's
accountants
- who
he says told him to combine the statements - he never gave the bank the
two statements or told it to separate them.
Bayou and Seafood told Wachovia that their assets would support the debt repayment.
They are stuck with this commitment. W h e n Bayou transferred its assets to Seafood, it made
no provision for its creditors - directly or indirectly. T h e assets Bayou transferred to Seafood
stay with Bayou; they belong to its creditors.
4.
Transfer: Douglass to Farnib.
O n November 10, 2006
-
over five months after Bayou had defaulted - Wachovia
notified Bayou of its intent to accelerate the loans. O n November 20, Douglass, Diane Lam,
his wife, and his brothers, En Kha Lam and Long Lam, formed Family - each owning a 25%
interest. In December, Douglass began transferring many of his assets - including his 49%
interest in Seafood - to Family. Spring Street says that because Family did not pay Douglass,
he is entitled to the value of the transfer.
A debtor may not transfer assets outside the ordinary course of business for the benefit
of family members for no consideration when his remaining assets are unreasonably small to
pay his debts.3
A. Charter Revocation.
Family says that this court cannot enterjudgment against it because the Texas Secretary
of State revoked its charter.
When a company owes a debt and its charter has been revoked, its shareholders are
personally liable for the debt.4
After the revocation of its charter, Family lost the privilege of defending itself. It does
not have immunity from suit. Both Family and its shareholders are liable for their debt.
B. Payment.
Douglass says that he transferred the assets to Family as a gift to protect them for his
children. He confesses what the law forbids - preference of family to creditors.
Family did not pay Douglass for the assets, and they were not transferred in the
ordinary course of business. After the transfer, Douglass did not pay his debt to Spring Street.
The value of the assets that Douglass transferred to Family must flow back through him.
5.
Transfer: Famib to Vinh.
In November of 2007, Family transferred its 49% interest in Seafood to Vinh. Spring
Street says that Vinh did not pay for this interest. Vinh says that he and Ten, his wife, formed
JNTGroup, Inc., and paid Douglass $1.25 million for both the 49% interest and the 415 East
Hamilton property where Seafood is located. Douglas says that after paying his loan on the
building, Vinh paid him the remaining $350,800 for the 49% interest.
-
3Tex. Bus. O Com. Code Ann. 5 zq.oo~(a)
(2)
4Tex.Tax Code Ann. 3 171.255.
(1982).
( I ~ ~ ~ ) .
The defendants have offered little evidence of Vinh's payment and Douglass's receipt.
Vinh and Douglass say that these documents show a transaction between JNT and Wells owned by Douglass:
A $I million promissory note from JNT to Golden Bank;
A bank statement for Wells showing two deposits for $350,803;
Checks from Vinh to Wells and others; and
A settlement statement showing a $1.25 million payment from J N T to
Wells for the property.
These documents do not prove that Vinh paid Family or that JNT paid Wells for the
49% interest. Rather, they establish that Golden Bank agreed to loan JNT $ I million for the
purchase of the East Hamilton property and thatJNT paid Wells $ I .2 5 million for it. At most,
this is a transaction between Douglass, Ten, and Vinh to purchase the property.
The value of the 49% interest in Seafood remains with Douglass; its value belongs to
his creditors.
6.
ConcIusion.
Spring Street says that Douglass Lam is liable under legal theories of fraudulently
transferred assets, single business enterprise, joint venture, joint enterprise, and partnership.
Bayou, Douglass, and Family transferred assets outside the ordinary course of business
for zero consideration and have lied about it ever since. As the recipients of these transfers,
Seafood, Family, Ten, andVinh will return the value of the transfers to Bayou and Douglass for
the benefit of Bayou's and Douglass's creditors.
Seafood is also liable for representing to Wachovia that it and Bayou were the same
entity by combining their financial statements and maintaining the same address.
Signed on December 17, 2011, at Houston, Texas.
1
Lynn N. Hughes
United States District Judge
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