INTERESTING CASES: January 9, 2019
Sallee S. Smyth
- In the Interest of X.L.B., 2018 Tex. App. LEXIS 9085 (Tex. App. – San Antonio November 7, 2018) (mem. op.) (Cause No. 04-17-00706-CV)
H and W divorced based on agreements reached in an MSA. The May 2017 decree named the parties as joint managing conservators of their three children and the decree provided for alternating weekly periods of possession. Neither party was designated as a primary parent or given the exclusive right to determine the residence of the children. In July 2017 H filed a petition to modify, asking that he be given the exclusive right to determine residence for the youngest child. W filed a motion to dismiss based on her claim that H’s petition did not contain an affidavit as required by TFC 156.102 when suit was filed within one year. The trial court granted the motion after a hearing and H appealed. In a single issue the COA reverses, holding that a 156.102 affidavit is not required when the underlying order does not designate a primary parent or give one party the exclusive right of domicile. An affidavit is only required in suits seeking to modify a designation within one year, not in a suit which seeks to establish one for the first time. Remanded for further proceedings.
- In the Interest of N.M.B., 2018 Tex. App. LEXIS 10197 (Tex. App. – San Antonio December 12, 2018) (mem. op.) (Cause No. 04-18-00111-CV)
Bio M conceived a child through artificial insemination while living with Beverly. The child was born in May 2015 and the parties were together for a year after the child’s birth and then they separated. Bio M and the child moved to Texas and Beverly was not allowed any access. In March 2017 Beverly filed suit for divorce based on a common law marriage claim or in the alternative a suit to establish parentage. Within both claims, Beverly sought to be named a JMC of the child. Bio M filed a motion to dismiss the SAPCR for lack of standing and after a hearing the trial court granted the motion. The court thereafter dismissed the divorce action finding that no informal marriage existed. Beverly appealed only the SAPCR dismissal. On appeal, Beverly claimed standing under TFC 160.602(a)(8) alleging that she was an intended parent. However the COA notes that this section addresses only a man alleged or claiming to be a father and thus it cannot apply. The COA dismisses Beverly’s arguments for standing by estoppel, wherein the COA notes that subject matter jurisdiction cannot be conferred under that theory. Finally, Beverly claims standing under TFC 102.003(9) which confers standing on persons with actual care, control and possession for at least six months, ending not less than 90 days before suit is filed. While Beverly conceded that her suit was filed more than 90 days after she and Bio M separated, she argues that the period should be “equitably tolled’ because she delayed filing in reliance upon Bio M’s representations that they would come to an agreement. The COA holds that equitable tolling is a court-created concept that will not apply if a statutory requirement is deemed jurisdictional. Because the Legislature has conferred standing by statute and it is a component of subject matter jurisdiction, equitable tolling cannot apply because Beverly has no standing and therefore dismissal of her SAPCR is affirmed.
- Etcheverry v. Lankford, 2018 Tex. App. LEXIS 10370 (Tex. App. – Austin December 18, 2018) (mem. op.) (03-17-00797-CV)
H and W divorced in 2013. The agreed final decree provided that each party would secure $250,000 in life insurance and designate the other as beneficiary in trust for the benefit of the children until both children reached the age of 18. They were each required to furnish proof to the other 30 days after the decree was signed and annually thereafter. W secured a $100,000 policy in November 2013 and a separate $150,000 policy a year later. W changed the beneficiary on each policy 4 days before she committed suicide in 2016. H filed suit two months later against the two newly designated beneficiaries, B1 and B2, as well as the life insurance company, seeking the imposition of a constructive trust over the insurance proceeds. B1 agreed to assign his rights to the proceeds to H and the insurance company paid them over. The court ordered the insurance company to place B2’s proceeds into the court’s registry and then dismissed B1 and the insurance company from the suit. Both H and B2 filed motions for summary judgment and the trial court granted H’s motion and denied B2’s and B2 appealed. The COA found that the record clearly supports the premise that the insurance proceeds in equity should be possessed by H in light of the terms of the final decree. The COA notes that the beneficiary of an insurance policy has no vested rights in the proceeds while the insured is living unless there is a contract, separate from the policy, that precludes or prevents the insured from making a change in beneficiary. Because the final decree was based on an agreement, H and W had contracted that each would be the beneficiary of the other’s policy while the children were minors and there was no dispute that this was the case when W died. As such, H acquired a vested equitable interest in the policy even before W died. Because W violated her obligation to maintain H as a beneficiary, B2 cannot benefit from that wrongdoing. B2 attempted to argue that H had unclean hands because he too had failed in his obligations under the decree regarding notice of his effective policy however the COA held that this was not relevant to H’s right to the proceeds from W’s policies. B2’s laches argument likewise failed because there was no evidence that B2’s position had changed to her detriment within the short period of time between W’s death and H’s suit. Judgment affirmed.
- Mathis v. Mathis, 2018 Tex. App. LEXIS 10432 (Tex. App. – Houston [1st Dist.] December 18, 2018) (mem. op.) (01-17-00449-CV
H and W married in 1980. During marriage, H played professional baseball and when he retired he created and ran two companies involved in sanctioning youth baseball tournaments. W worked little outside the home and focused on raising the parties’ children. The couple lived primarily from H’s income but W had sporadic employment, even after back surgery in 2009. H filed for divorce in 2016 after becoming involved with another woman. H and W were the only witnesses at trial. At trial the testimony established that one company is called Nations Baseball Association LLC which is a national entity, with several individual part-owners and they pay H $5,000/month to run the company which sanctions youth baseball tournaments across the country. The second company is South Texas Nations Baseball, Inc. which is a local affiliated entity that provides H with an average income of $15,000 per month. W testified that H pays a lot of personal expenses through the South Texas company. H claimed the couple was broke and he admitted that he was withholding income to himself in an effort to reduce W’s spending habits. H agreed that the parties own a partial interest in Nations Baseball and they own 100% of South Texas Baseball. In addition, the couple owns a house in AZ, vehicles, funds in the bank, retirement accounts and insurance policies. The couple also had credit card debt, a debt to H’s mother and a tax lien. At trial, H valued both companies at zero but admitted that if he could market them for sale he would have no idea what value to place on them. At trial, W valued Nations Baseball at $500,000 in her testimony based on a multiplier of H’s income. This value did not match her inventory. W’s inventory valued South Texas at $200,000. The court ultimately divided the estate and awarded both companies to H and awarded W an equalization judgment of $380,000. The court also awarded W spousal maintenance of just over $4,000 per month for 10 years. H appealed. Focusing on the trial court’s valuation of the businesses as supporting the equalization payment to W, the COA notes that both parties have an obligation to provide the court with evidence of value. However, the court notes that it cannot uphold a property division where there is no evidence in the record to support the trial court’s valuation determination, unless the value is small and does not significantly impact the division. In this case, the division relied heavily on the values assigned to the two companies. At trial, there was conflicting evidence as to whether or not Nations Baseball was an entity separately owned by H or whether it was an asset owned by South Texas Baseball. Because there was evidence supporting both possibilities, the COA determined initially that the trial court did not err in treating Nations Baseball as an asset individually owned by H and therefore divisible upon divorce. As to value however, the COA examined the various methods for valuing closely held corporations such as Nations and South Texas. Noting three different but acceptable methodologies (market value, comparable sales method, and methods provided for in corporate documents), the COA examined whether there was sufficient evidence under any of these theories to justify the trial court’s valuation and division. Although the COA recognized that a party could give their opinion on market value under the property owner rule, the rule presumes that the party has familiarity with the assets and the market value. W’s testimony as to a multiplier of income was not an acceptable methodology and further she did not present any evidence of familiarity with the companies and her value did not account for existing restrictions on the parties share ownership. Further, the COA holds that market value is not an appropriate methodology to value community owned shares in a closely held corporation that are subject to restrictions. Looking at other, acceptable valuation methods, the COA notes that there was no evidence of value provided under these other theories. W argued on appeal that H waived his right to complain about a lack of valuation evidence because he offered no evidence of value for either company. The COA found that H valued both companies at zero but that he made no further no effort to provide the court with evidence of any other value, simply testifying that he did not know how much they were worth but that if he tried to sell them he would try to recover a profit. The COA distinguished this situation from cases where a party defaults, fails to file an inventory or fails to answer valuation questions at all, determining that H did not waive his right to complain about value on appeal in this case. The COA noted that although W also included values on her inventory, her inventory was just another form of testimony and the values identified there also required some other evidentiary support which was lacking here. The COA concluded that the trial court had insufficient evidence of value of the two companies to justify its division awarding W an equalization judgment of $380,000. The property division is reversed and remanded for further proceedings to include evidence properly valuing the companies.
- Rivers v. Rivers, 2018 Tex. App. LEXIS 10465 (Tex. App. – Austin December 19, 2018) (mem. op.) (0317-00690-CV)
H and W married in 2011 and separated in 2016. During marriage they purchased a house and each party contributed separate property funds to the purchase, they secured a mortgage for the balance and title was taken in both parties’ names. W contributed $65,000 in s/p funds and H contributed $8,650. Upon divorce, the trial court awarded an undivided 50% interest in the house to each party as their separate property, finding that neither party overcame the separate property presumption of gift created when you use your separate funds to purchase an asset but place title in joint names. W appealed and the COA quickly assessed W’s testimony and agreed that it was insufficient to overcome the presumption, allowing them to affirm the final judgment on this basis. COMMENT: I report this case really because of W’s second issue, in which she challenges the constitutionality of the Family Code provisions regarding her property rights and the division of property. [The opinion does not identify what Code provisions this might involve.] W’s arguments assert that she has a constitutional right to “the pursuit of happiness in the marital relationship and her free expression of love within that tarnished relationship” suggesting that her decision to provide separate property funds for property taken in the name of both parties was an act of love deserving of constitutional protection. The COA determines that this issue is waived for lack of briefing, however, doesn’t this argument actually support the idea that she gifted an interest in the property to H because of her love? I’m just sayin’.
- In the Interest of K.T.P., 2018 Tex. App. LEXIS 10752 (Tex. App. – Dallas December 21, 2018) (mem. op.) (05-17-00922-CV)
In a March 2016 final decree, H and W agreed that W could relocate her residence with the children to North Carolina. 48 days after the decree was signed, F filed suit to prevent M from moving. W filed a motion to dismiss for lack of the TFC 156.102 affidavit. H amended, included an affidavit and asked for temporary orders restricting the children to Collin County. After a hearing the trial court denied the request and allowed W and the children to move. Ten months later, H sought a discovery control plan and trial setting. W filed a motion to decline jurisdiction due to inconvenient forum under TFC 152.207. W’s motion addressed information under all of the relevant factors to be considered. H filed a response and countered with his own information. Further, both parties provided the court with additional briefing. At the hearing the attorneys discussed the information with the court, H’s counsel often referring to the information as “the evidence.” H’s attorney objected to certain evidence discussed by W’s counsel as not having been produced in discovery but he obtained no ruling on these objections. At the end of the hearing the judge asked counsel to submit additional information regarding the North Carolina court’s ability to efficiently deal with the issues. Both parties submitted additional information and an amicus brief was also provided by a local firm in NC discussing local rules and procedures. W’s counsel also sought attorneys fees and provided information to support the request via affidavit. Thereafter the trial court granted W’s motion to decline jurisdiction in favor of NC and awarded W $14,000 in fees. H appealed. H’s first issue argued that the trial court’s decision was not supported by any evidence. The COA held that TFC 152.207 does not require a formal “evidentiary hearing” but allows parties to simply provide the court with information upon which to base a decision. While H pointed out that counsel’s arguments were not evidence, he did not object to the manner in which the trial court proceedings were handled and thus he also failed to preserve any argument about this on appeal. H likewise complained that the record was insufficient to support the decision but the COA found that the information supported many of the factors and the trial court thus did not abuse its discretion. On the issue of fees, the COA reversed findings that the fee affidavit attempted to support fees under the Lodestar method but failed to include specifics on time spent and details on the nature of services. This award was reversed and remanded for further proceedings.
- Yamin v. Carroll Wayne Conn., L.P., 2018 Tex. App. LEXIS 10713 (Tex. App. – Houston [14th Dist.] December 21, 2018) (14-16-00715-CV)
In 2006, W formed a pipe company called Black Iron. The share certificate was issued solely to W and stated that the shares were her sole and separate property. W claimed she used $1,000 to start the business which she acquired as a gift from her daughter. At the time, H and W were broke and were being supported by their daughter. At some unknown time later, H and W executed a bill of sale providing that H transferred his interest in Black Iron to W as her sole and separate property including his right to future income from the company. The bill of sale stated it was to be effective as of July 28, 2006. Black Iron was very successful. H ran Black Iron and paid for the parties’ expenses from Black Iron, including amounts for homes, yachts, jewelry and hundreds of thousands of gifts to family members. Both H and W were signatories on Black Iron accounts. In 2010, a $300,000+ judgment was awarded against H and in favor of creditor Conn (C) after default on a lease which he had personally guaranteed in 2004. In 2013 H and W executed a partition agreement which partitioned all property to W as her separate property except for H’s clothes, watches, 2 guns, a television, a chair and $4800 in cash which were partitioned to H. The partition agreement was recorded in the county records. Several months later, C sued both H and W, Black Iron and another company, asking that the bill of sale and the partition agreement be set aside based on fraud under both the Family Code and TUFTA (Tx. Uniform Fraudulent Transfer Act). C also sought to execute on Black Iron’s assets under a theory of “outsider reverse piercing of the corporate veil.” H and W asserted statute of limitations defenses and relied on their claims that Black Iron was W’s separate property which could not be reached to satisfy H’s judgment obligations. A jury determined that W did not acquire the Black Iron shares as a gift or with gift proceeds and that the Bill of Sale and the partition agreement were both fraudulent and that Black Iron is responsible for H’s debt. The jury found reasonable and necessary fees and segregated an amount attributable to the veil piercing claim. The trial court disregarded one jury finding but entered judgment voiding the bill of sale under the Family Code and the partition agreement under the Family Code and TUFTA and found that Black Iron’s assets were subject to execution by C for satisfaction of H’s debt. The court also held W and Black Iron jointly and severally liable for $215K in fees. W and Black Iron appealed. The COA first analyzed W’s defense that her shares in Black Iron were separate property and thus not subject to H’s debt. The COA notes that the share certificate, expressly stating that the shares were W’s s/p, initially replaced the community property presumption with a s/p presumption that C had to overcome before it could seek recourse against Black Iron for H’s debt. The jury found that the $1,000 used by W to acquire her shares in Black Iron was not a gift from the daughter. Because this was the only basis on which W relied to claim the shares were her s/p (ignoring the bill of sale and the partition agreement) the jury’s finding effectively established that the shares were community property. Then C was required to overcome the presumption that the shares were W’s “special community property” subject to her sole management and control. The jury was not asked to make this finding but the COA concluded that the evidence clearly established that H ran the company, he wrote the checks, the accounting was on his computer and in effect he had more control than W. Thus, the shares of Black Iron were community property subject to the joint control of both H and W. Next the COA examined the jury’s findings to void the bill of sale and partition agreement and found sufficient evidence to support both. The COA held that where a party seeks to void a transfer under both TUFTA and the Family Code, where evidence is sufficient to support voiding under TUFTA it is also sufficient to support voiding under the Family Code. The COA then examined the outside reverse piercing claim. A traditional piercing claim allows a creditor to hold a shareholder liable for the corporate entities obligation when the corporate form has been used as an inequitable device. In reverse piercing, the creditor is allowed to satisfy a shareholder’s obligation by executing on assets of the corporation in which the debtor owns shares. Black Iron challenged these rulings claiming (1) upholding such a theory is bad for business and should be left to the Legislature to create such a claim; (2) the claim should be established under the statute for traditional veil piercing (and not common law); (3) reverse piercing requires fraud touching upon the transaction and (4) reverse piercing only applies to a shareholders debts and H is not a shareholder. Examining each issue the COA determines that there is no basis to argue that reverse piercing is any worse for business than traditional piercing and that both were creatures of common law, such that a statute now existing for one and not the other is not determinative. The COA further determines that the traditional statute does not apply in this case based on the relief which is specifically sought. As to the claim that the traditional veil piercing statue requires that there must be some fraud in connection with the transaction (meaning H’s default on the lease which led to the judgment in favor of C must be connected to some fraud on the part of Black Iron), the COA held that since the claim was not governed by statute but by common law, no such connection had to be shown to obtain reverse piercing relief. Finally, the COA found that although H was not a named shareholder, the shares were held as community property in which H had an undivided interest and that the shares were subject to the joint management of H and W, making them subject to H’s contractual debts. The trial court’s judgment setting aside the bill of sale and the partition agreement and allowing execution by C against Black Iron assets was upheld. The COA however reversed the award of attorneys’ fees finding that C failed to properly segregate fees between claims upon which they could and could not recover them. Fees were reversed and remanded for further proceedings. Chief Justice Frost dissents on the basis that she believes that if reverse piercing claims are found to be analogous to traditional veil piercing claims, then the actual fraud requirements of Tex. Bus. Org. Code §21.223(b) applicable to traditional claims must be applied to reverse piercing claims as well and the majority should not have rejected Black Iron’s argument on this point.
- Sykes v. Sykes, 2018 Tex. App. LEXIS 10845 (Tex. App. – Houston [14th Dist.] December 27, 2018) (mem. op.) (14-17-000049-CV)
H and W married in 2008. In 2011, H settled a discrimination suit against his employer for $775,000. The settlement agreement recited that it did not include any amounts for back pay, front pay or lost benefits, but was instead for mental anguish, pain and suffering and emotional distress. After fees, H recovered $447,000 and this sum was deposited into a USAA savings account. Later that year, H and W purchased a residence. Funds from the savings account were used for the down-payment, to make mortgage payments and to payoff the loan (taken only in W’s name) a year later. W filed for divorce in 2015 and H sought reimbursement for his separate property funds relating to the residence. (Wonder why he did not claim a portion was owned as his s/p?). W amended her pleadings just before trial to include claims of fraud, waste and reconstitution. H filed a motion to strike these claims as a surprise but his motion was denied. The settlement agreement from the discrimination suit was admitted into evidence in support of H’s s/p claims and reimbursement. Even so, the trial court found that because the agreement was only between H and his employer it was unclear whether the settlement proceeds were separate or community. Further the trial court found that because the agreement contained a confidentiality clause that said it could not be used as evidence in any proceeding beyond one involving H and the employer, the agreement was no evidence at all. The court denied H’s reimbursement claims, granted a divorce on the basis of cruelty and divided the property. H appealed. Although the COA agreed that the settlement agreement established that the proceeds deposited into savings were H’s s/p, the COA further agreed with the trial court that the discrimination settlement agreement could not be considered as evidence because of the confidentiality clause. Based on this determination, there was no other evidence supporting H’s s/p claims for reimbursement and therefore the trial court was correct in denying those claims. The balance of the opinion simply deals with the sufficiency of the evidence to support a finding of cruelty and a disproportionate division as well as a finding that H was not harmed by the amended pleading as he was able to cross-examine fully on those claims. Judgment affirmed. COMMENT: Really??? Shouldn’t the court have refused to admit the settlement agreement when offered? Didn’t the W have an obligation to object based on the existence of the confidentiality clause? If the clause was violated, wouldn’t that complaint be an issue between H and his employer separate and apart from the divorce? And if H was liable in some way for violating the settlement agreement, wouldn’t his liability be to the employer? Why should the W and the community estate benefit from any such breach? How can admitted evidence not be considered as evidence, particularly when the COA recognizes that if considered it would establish the s/p claim? This holding bothers me. Further, just so you know what the Houston 14th Court considers to be sufficient evidence of cruel treatment, there was one police report admitted establishing a verbal (not physical) argument between H and W. W testified that there had been times when H was physically violent and the couple discussed H going to anger management classes. Further, a text from H was admitted into evidence where he stated he was attending classes on anger management and domestic violence. That’s it. Nothing more and nothing less to support legally and factually sufficient evidence of cruel treatment. Go figure.