Williams v. Houston Plants & Garden World, Inc. et al

Filing 178

MEMORANDUM AND ORDER entered GRANTING IN PART AND DENYING IN PART 77 MOTION for Summary Judgment, GRANTING IN PART AND DENYING IN PART 87 MOTION for Partial Summary Judgment as to Compass Bank. A Status Conference is set for 4/16/2014 at 03:00 PM in Courtroom 11B before Judge Lee H Rosenthal. (Signed by Judge Lee H Rosenthal) Parties notified.(leddins, 4)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
RANDY W. WILLIAMS,
CHAPTER 11 TRUSTEE,
Plaintiff,
V.
HOUSTON PLANTS & GARDEN
WORLD, INC., et al.,
Defendants.

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CIVIL ACTION NO. H-11-2545

MEMORANDUM AND ORDER
In this Chapter 7 adversary proceeding, Randy Williams, the trustee of the estate of debtor
Green Valley Growers, Inc. (“GVG”), asserts fraudulent-transfer claims under federal and state law
against Compass Bank. Compass Bank has moved for summary judgment, arguing that the evidence
does not support Williams’s claims and that some of the claims are time-barred. (Docket Entry No.
77). Williams has cross-moved for summary judgment, arguing that the transfers were avoidable,
as a matter of law. Based on a careful consideration of the record, the motions and responses, and
the applicable law, both motions are granted in part and denied in part. (Docket Entry No. 87). The
reasons are explained below.
I.

Factual Background
The Chapter 11 bankruptcy petition was filed on March 9, 2009, and converted to a Chapter

7 proceeding on April 5, 2011. Codefendant O. Wayne Massey owned GVG, a wholesale plant and
tree nursery located primarily on a roughly 866-acre tract of land near Willis, Texas. GVG leased
the land from OTWM, a Massey-owned entity. OTWM purchased the land using a loan from
Woodforest National Bank. OTWM used GVG’s lease payments to pay the Woodforest National

Bank note held against the land. On occasion, GVG would pay the Bank directly rather than pay
OTWM.
In 2001, OTWM’s loans were restructured and Compass Bank became the note holder, with
GVG guaranteeing the note. In 2004, GVG took out a loan from Metlife to pay off OTWM’s loan
from Compass Bank. The loan repayment occurred in three transfers: $1,344,384, $2,000,000, and
$1,293,350. Williams seeks summary judgment that these three transfers were fraudulent and that
he is entitled to avoid them.1 Compass Bank seeks summary judgment that the claims are timebarred or otherwise unsupported by the summary-judgment record.
II.

The Legal Standard for Summary Judgment
“The court shall grant summary judgment if the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to summary judgment as a matter of law.”
FED. R. CIV. PROC. 56(a). “A party asserting that a fact cannot be or is genuinely disputed must
support the assertion by citing to particular parts of materials in the record . . . .” FED. R. CIV. PROC.
56(c)(1)(A). “[T]he plain language of Rule 56[] mandates the entry of summary judgment, after
adequate time for discovery and upon motion, against a party who fails to make a showing sufficient
to establish the existence of an element essential to that party’s case, and on which that party will
bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
“Initially, the moving party bears the burden of demonstrating the absence of a genuine issue
of material fact.” Cannata v. Catholic Diocese of Austin, 700 F.3d 169, 172 (5th Cir. 2012) (citing
Celotex, 477 U.S. at 323). If the burden of proof at trial lies with the nonmoving party, the movant
may satisfy its initial burden by “‘showing’—that is, pointing out to the district court—that there
is an absence of evidence to support the nonmoving party’s case.” Celotex, 477 U.S. at 325. While
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GVG had some of its own valid debts to Compass Bank and Williams seeks only $2,923,175.20 from
Compass Bank. (See Docket Entry No. 87-2 at 3).

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the party moving for summary judgment must demonstrate the absence of a genuine dispute of
material fact, it does not need to negate the elements of the nonmovant’s case. Duffie v. United
States, 600 F.3d 362, 371 (5th Cir. 2010).
“A fact is ‘material’ if its resolution in favor of one party might affect the outcome of the
lawsuit under governing law.” Sossamon v. Lone Star State of Tex., 560 F.3d 316, 326 (5th Cir.
2009) (quotation omitted). “If the moving party fails to meet its initial burden, the motion for
summary judgment must be denied, regardless of the nonmovant’s response.” Duffie, 600 F.3d at
371 (internal quotation marks omitted).
“When the moving party has met its Rule 56[] burden, the nonmoving party cannot survive
a summary judgment motion by resting on the mere allegations of its pleadings.” Id. The
nonmovant must identify specific evidence in the record and articulate how that evidence supports
that party’s claim. Id. (internal quotation marks omitted). “This burden will not be satisfied by
‘some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated
assertions, or by only a scintilla of evidence.’” Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540
(5th Cir. 2005) (quoting Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc)).
“In deciding a summary judgment motion, the court draws all reasonable inferences in the light most
favorable to the nonmoving party.” Duffie, 600 F.3d at 371.
III.

Limitations
Williams’ second amended complaint asserts claims against Compass Bank under 11 U.S.C.

§§ 547 and 548 and Tex. Bus. & Com. Code §§ 24.005, 24.006. (See Docket Entry No. 17 ¶¶ 255270). A trustee may avoid certain payments made to a creditor under 11 U.S.C. § 547. Avoidance
is limited to payments made to a creditor within 90 days of the bankruptcy filing, or payments to a
insider within one year of the bankruptcy filing. 11 U.S.C. § 547(b)(4)(A)-(B). Similarly, a trustee

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may avoid fraudulent transfers made two years before the bankruptcy filing. See 11 U.S.C. §
548(a)(1). All three transfers at issue here occurred in 2004, five years before the bankruptcy
petition filing. (See Docket Entry No. 78-1 at 41). Williams’s §§ 547 and 548 claims are timebarred. Compass Banks’s summary judgment motion is granted as to these claims.
Williams also asserts fraudulent-transfer claims under Tex. Bus. & Com. Code §§ 24.005
and 24.006. (Docket Entry No. 17 ¶¶ 264-270). Compass Bank moved for summary judgment on
these claims as well, arguing that they are time-barred and unsupported by the summary-judgment
record. (Docket Entry No. 77 at 18). Williams responded to the merits challenge, but did not
address the statute of limitations. (See Docket Entry No. 111).
Section 24.010 provides the applicable statute of limitations:
(a) . . . a cause of action with respect to a fraudulent transfer or
obligation under this chapter is extinguished unless action is brought:
(1) under Section 24.005(a)(1) of this code, within four years after
the transfer was made or the obligation was incurred or, if later,
within one year after the transfer or obligation was or could
reasonably have been discovered by the claimant;
(2) under Section 24.005(a)(2) or 24.006(a) of this code, within four
years after the transfer was made or the obligation was incurred; or
(3) under Section 24.006(b) of this code, within one year after the
transfer was made.
Williams seeks to avoid transfers made more than five years before the bankruptcy petition.
All of Williams claims against Compass Bank under §§ 24.005(a)(2) and 24.006 are time-barred.
Compass Bank’s motion for summary judgment for those claims is granted.
IV.

The § 24.005(a)(1) Claim
Compass Bank has not argued that Williams’s § 24.005(a)(1) claim is time-barred. Instead,

Compass Bank argues that the claim is not supported by the record. On March 5, 2004, GVG made

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three transfers to Compass Bank. The payment amounts were $1,341,484.27, $1,266,525, and
$2,000,000. (See Docket Entry No. 78-1 at 41). Compass Bank also argues that it is entitled to the
affirmative defense under § 24.009(a) because it took the transfers in good faith and for reasonably
equivalent value. Williams argues that undisputed facts show that each transfer was made with the
actual intent to defraud creditors, making them avoidable as a matter of law. (Docket Entry No.
111).
A trustee may avoid a transfer if it was made “with actual intent to hinder, delay, or defraud
any creditor of the debtor.” TEX. BUS. & COM. CODE § 24.005(a)(1). The statute provides
nonexclusive factors that may be considered on determining if a transfer was made with actual intent
to defraud:
(1) the transfer or obligation was to an insider;
(2) the debtor retained possession or control of the property transferred after
the transfer;
(3) the transfer or obligation was concealed;
(4) before the transfer was made or obligation was incurred, the debtor had
been sued or threatened with suit;
(5) the transfer was of substantially all the debtor’s assets;
(6) the debtor absconded;
(7) the debtor removed or concealed assets;
(8) the value of the consideration received by the debtor was reasonably
equivalent to the value of the asset transferred or the amount of the obligation
incurred;
(9) the debtor was insolvent or became insolvent shortly after the transfer
was made or the obligation was incurred;
(10) the transfer occurred shortly before or shortly after a substantial debt
was incurred; and

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(11) 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 § 24.005(b). These factors are commonly called “badges of fraud.” See,
e.g., In re Soza, 542 F.3d 1060, 1066 (5th Cir. 2008). “Not all, or even a majority, of the badges of
fraud must exist to find actual fraud. ‘Indeed, [w]hen several of these indicia of fraud are found, they
can be a proper basis for an inference of fraud.’” Id. at 1067 (quoting Roland v. United States, 838
F.2d 1400, 1402–03 (5th Cir.1988)).
Williams responds that several of the badges of fraud exist here: the transfers were made to
insiders; GVG was insolvent at the time of the transfers; each “transfer occurred shortly before or
shortly after a substantial debt was incurred”; and GVG received no value in exchange for the
transfers. (Docket Entry No. 87-3 at 1-3). Compass Bank responds that “the summary judgment
evidence shows that there was no actual fraudulent intent on the part of GVG,” (Docket Entry No.
109 at 12-13), and that it gave reasonably equivalent value for the transfers because “GVG merely
replaced one set of obligations . . . with another obligation.” (Docket Entry No. 77 at 21).
Each argument is analyzed below.
A.

Transfers to an Insider

The statute defines an “insider” of corporate debtor as including:
(B)(I) a director of the debtor;
(ii) an officer of the debtor;
(iii)

a person in control of the debtor;

(iv) a partnership in which the debtor is a general partner;
(v) a general partner in a partnership described in Subparagraph (iv) of this
paragraph; or
(vi) a relative of a general partner, director, officer, or person in control of the
debtor;
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(D) an affiliate, or an insider of an affiliate as if the affiliate were the debtor; and
(E) a managing agent of the debtor.
TEX. BUS. & COM. CODE § 24.002(7)(B). Williams argues that although the transfers were to
Compass Bank, they were credited against the debts of O. Wayne Massey, Travis Massey, OTWM
and Houston Plants and Garden World, which GVG had guaranteed. (See Docket Entry No. 87-3
at 1-2). But this badge of fraud is not present because the payments went to Compass Bank, who
is not an insider of GVG. “[A] bank impounding funds under a writ of garnishment would not
qualify as a transferee, nor would a law firm holding its client's money in trust, because neither could
freely spend the funds in its possession.” Wohlstein v. Aliezer, 321 S.W.3d 765, 776 (Tex.
App.—Houston [14th Dist.] 2010). Williams has not argued that Compass Bank had any restriction
on the use of the funds transferred. (See Docket Entry No. 87-3 at 1-2). “[A] party is a ‘transferee,’
within the meaning of TUFTA, if it could freely ‘invest the whole [amount] in lottery tickets or
uranium stocks,’ if it so desired.” Wohlstein, 321 S.W.3d at 776 (quoting Matter of Coutee, 984
F.2d 138, 141 (5th Cir.1993) (second modification in original). The transfer here was made to
Compass Bank; Williams has failed to show that the benefit that passed to the Masseys is relevant
to the determination of whether Compass Bank is an insider. (See Docket Entry No. 87-3 at 1-2).
The fact that the Massey insiders received a benefit from the transfers to Compass Bank might have
been relevant under Williams’ time barred claim under 11 U.S.C. §§ 547, 548; transfers avoided
under §§ 547, 548 may be recovered from “(1) the initial transferee of such transfer or the entity for
whose benefit such transfer was made; or (2) any immediate or mediate transferee of such initial
transferee.” See 11 U.S.C. § 550(a) (emphasis added). Williams’ has failed to show that this badge
of fraud is present. See TEX. BUS. & COM. CODE § 24.005(b)(1).
B.

Transfers When the Debtor was Insolvent

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Williams argues that GVG was insolvent at the time of the transfers. The statute defines
“insolvency” as follows:
(a) A debtor is insolvent if the sum of the debtor’s debts is greater
than all of the debtor’s assets at a fair valuation.
(b) A debtor who is generally not paying the debtor’s debts as they
become due is presumed to be insolvent.
(c) Repealed by Acts 2013, 83rd Leg., ch. 9 (S.B. 847), § 11.
(d) Assets under this section do not include property that has been
transferred, concealed, or removed with intent to hinder, delay, or
defraud creditors or that has been transferred in a manner making the
transfer voidable under this chapter.
(e) Debts under this section do not include an obligation to the extent
it is secured by a valid lien on property of the debtor not included as
an asset.
TEX. BUS. & COM. CODE § 24.003. As evidence of insolvency, Williams points to an August 2003
memo and a March 2004 written recommendation from Mike Peyton, a Compass Bank employee.
(Docket Entry No. 87-7 at 11-14). Williams also attaches a document from Capital One Bank.
(Docket Entry No. 87-7 at 35).2 Compass Bank argues that Williams’s production of documents
before and after the transfers fails to “address[] the ability of GVG to pay loans as they became due
on March 5, 2004.” (Docket Entry No. 109 at 16). The first shows that collectively GVG, HPGW,
OTWM, and Wayne and Jonell Massey were unable to meet their monthly loan payments to
Compass Bank, but the memo does not indicate to what extent GVG was itself insolvent. (Docket
Entry No. 87-7 at 11).

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Compass Bank objected to the Capital One material on the ground that it was not properly authenticated.
(Docket Entry No. 109 at 16). The authenticating affidavit is signed by Williams’s counsel and states that the document
was “produced to [her] in the main bankruptcy case by counsel for Capital One Bank in response to [her] request for
production served on Capital One Bank.” (Docket Entry No. 87-9 at 2-3). This evidence that the document is what it
claims to be satisfies Fed. R. Evid. 901(b)(1).

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The March 2004 recommendation states that “[i]n 2003, a . . . loan was made to Green
Valley Growers, Inc. to fund expenses associated with sales orders in the amount of $2.1MM.
Customer could not meet principal reduction requirements for this loan, which was subsequently
renewed and extended. This loan will be paid in full with proceeds from Metropolitan Life
Insurance Company.” (Id. at 14). This document is dated five days after the transfers in question.
(Compare id. with Docket Entry No. 94). Compass Bank does not address this document directly;
it instead points to Peyton’s deposition testimony that he believed GVG was solvent when the
transfers occurred. (Docket Entry No. 78-4 at 4:18-22). Peyton stated that “solvency” meant that
a company “could be operated as a profitable ongoing entity.” (Docket Entry No. 78-4 at 5:9-10).
He then testified that he had no reason to believe that GVG had debts that exceeded its assets or that
it was not generally paying debts as they became due. (Id. at 11-16). It is unclear that Peyton was
in a position to know GVG’s financial status. Moreover, his deposition is contradicted by his own
writings regarding the transfers when they were made.
Compass Bank submits an opinion by its accounting expert, Saul Soloman. He stated
“GVG’s total equity actually increased from $1.2 million as of December 31, 2003 to $1.3 million
as of December 31, 2004. (Docket Entry No. 109 at 18 (citing Docket Entry No. 109-1 at 11)). But
as Compass Bank itself argued, such a comparison alone fails to “address[] the ability of GVG to
pay loans as they became due” after the transfers. (Docket Entry No. 109 at 16). Compass Bank’s
expert report comparing GVG’s total equity on December 31, 2003 and December 31, 2004
similarly fails to “address[] the ability of GVG to pay loans as they became due on March 5, 2004.”
(Id.).

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Compass Bank also argues that GVG was “profitable” and that its sales increased during the
relevant time periods. (See Docket Entry No. 109 at 16-18). But this does not equate to solvency
when the transfers were made.
Williams also attaches a December 31, 2003 record of a different bank showing that GVG
was past due in paying a $1,065,360 debt.3 Compass Bank objects that the record is relevant to the
date in question, not the date of the transfers. (Docket Entry No. 109 at 16).
To summarize, neither party produces documentation of GVG’s solvency or insolvency when
the transfers occurred. But neither party disputes that in 2004 GVG borrowed from Metlife in part
to pay off a Compass Bank loan that had previously been in arrears. On this record, Williams has
failed to show that GVG was insolvent when the transfers were made. See TEX. BUS. & COM. CODE
§ 24.005(b)(9).
C.

A Transfer Shortly Before or Shortly Afer a Substantial Debt was Incurred

Williams next argues that “the transfer occurred shortly before or shortly after a substantial
debt was incurred.” (Docket Entry No. 87-3 at 2-3). “GVG incurred an additional debt of
$5,550,000.00 with Metlife to pay [Compass Bank] $2,934,175.20 for debt which was not owed by
GVG.” (Id. at 2). Compass Bank does not respond to this argument. (See Docket Entry No. 109).
This badge of fraud is present. TEX. BUS. & COM. CODE § 24.005(b)(10).
D.

Reasonably Equivalent Value

On June 22, 2001, Compass Bank loaned O. Wayne Massey and Travis Massey $5,500,000.
(Docket Entry No. 78-3 at 11-13). GVG guaranteed those loans. (Id. at 14-16). Williams argues
that the guaranty is a fraudulent transfer but does not move for summary judgment on this issue.

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Both parties assert that the document is dated December 31, 2002; the document itself is clearly
dated December 31, 2003. (Compare Docket Entry No. 87-3 at 2 and Docket Entry No. 109 at 15 with
Docket Entry No. 87-7 at 35).

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(See Docket Entry No. 17 ¶¶ 264-272; see also Docket Entry No. 87 at 2). If GVG’s guaranty of
OTWM’s loans was a fraudulent transfer, Compass Bank may not rely on satisfaction of the debt
as reasonable equivalent value for the transfers made to it. See TEX. BUS. & COM. CODE §
24.009(a); see also In re MortgageAmerica Corp., 714 F.2d 1266, 1272–73 (5th Cir.1983).
Similar facts were presented in Smith v. Am. Founders Fin. Corp., 365 B.R. 647 (S.D. Tex.
2007). Smith involved a corporate subsidiary that took a loan to repay a debt owed by its parent.
Id. at 656. The court found that a transfer in the form of a guarantee. “If the debt secured by the
transaction is not the debtor’s own, then his giving of security will deplete his estate without
bringing in a corresponding value from which his creditors can benefit, and his creditors will suffer
just as they would if the debtor had simply made a gift of his property or obligation.” Id. at 666
(citation omitted). Here, as in Smith, the loan guarantor received no value because the loan was used
to pay debts that were not the guarantor’s. This is a badge of fraud. See TEX. BUS. & COM. CODE
§ 24.005(b)(8). Compass Bank does not explain why GVG’s guaranty of OTWM’s loans was not
a fraudulent transfer or why GVG received reasonably equivalent value for its guaranty. (Docket
Entry No. 77). This factor supports a finding that the guaranty was a fraudulent transfer. TEX. BUS.
& COM. CODE § 24.005(a)(1). The guaranty to Compass Bank is an avoidable fraudulent transfer.
See TEX. BUS. & COM. CODE § 24.005(b)(8). The payments to Compass Bank to satisfy the guaranty
were not made for reasonably equivalent value. TEX. BUS. & COM. CODE § 24.005(b)(8). Williams
may treat these transfers “as though they had never taken place.” In re MortgageAmerica Corp.,
714 F.2d at 1272–73.
VI.

Conclusion
Compass Bank’s motion for summary judgment is granted as to Williams’s claims under 11

U.S.C. §§ 547 and 548, and Tex. Bus. & Com. Code §§ 24.005(a)(2) and 24.006. Compass’s motion

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is denied as to Williams’s claims under Tex. Bus. & Com. Code § 24.005(a)(1). Williams’s motion
for summary judgment is granted only as to his claims under Tex. Bus. & Com. Code § 24.005(a)(1)
for the payments used to satisfy the guaranty.
The issue of the proper amount of damages remains. Williams has settled with at least one
of the codefendants. (See Docket Entry No. 154). Compass Bank argues that it may be entitled to
a credit under that settlement to avoid double recovery. (See Docket Entry No. 109 at 22). Compass
Bank has also argued that some of the transfers were to pay off debts unrelated to the guaranty. (See
Docket Entry No. 77 at 7). Williams has not addressed these issues. A status conference is schedule
for April 16, 2014 at 3:00 p.m. in Courtroom 11-B to discuss remaining issues.
SIGNED on March 18, 2014, at Houston, Texas.

______________________________________
Lee H. Rosenthal
United States District Judge

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