U.S. ex rel. S.B.A. v. Commercial Technology

• Citation: 354 F.3d 378
• Decision Date: 17 December 2003
• Docket Number: No. 01-10815.,01-10815.
• Parties: UNITED STATES of America, on Behalf of SMALL BUSINESS ADMINISTRATION, Plaintiff-Appellee, v. COMMERCIAL TECHNOLOGY, INC., et al., Defendants, Commercial Technology, Inc., Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 378

354 F.3d 378

UNITED STATES of America, on Behalf of SMALL BUSINESS ADMINISTRATION, Plaintiff-Appellee, v. COMMERCIAL TECHNOLOGY, INC., et al., Defendants, Commercial Technology, Inc., Defendant-Appellant.

No. 01-10815.

United States Court of Appeals, Fifth Circuit.

December 17, 2003.

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Katherine Savers McGovern, Asst. U.S. Atty. (argued), Dallas, TX, for Plaintiff-Appellee.

Joe B. Abbey (argued), Law Office of Joe B. Abbey, Mark A. Alexander (argued), Simpson, Woolley & McConachie, Dallas, TX, for Defendant-Appellant.

Appeal from the United States District Court for the Northern District of Texas.

Before DeMOSS, DENNIS and PRADO, Circuit Judges.

DeMOSS, Circuit Judge:

Commercial Technology, Inc. ("CTI") was found by a jury to have violated the Texas Uniform Fraudulent Transfer Act ("TUFTA") when it transferred real property to Electric & Gas Technology, Inc. ("EG&T"), a related entity. On appeal CTI claims that there was insufficient evidence supporting the jury's findings that CTI violated TUFTA, that the district court erred in its admission of Fed.R.Evid. 404(b) evidence, and that the district court erred in denying CTI's motion for judgment as a matter of law on its statute of limitations claim.

BACKGROUND & PROCEDURAL HISTORY

In 1985, Caddo Capital Corporation ("Caddo") loaned CTI $150,000. Caddo was a Small Business Investment Company licensed by the Small Business Administration ("SBA"). Caddo loaned the funds to CTI under the Small Business Investment Act, a federal program designed to increase the availability of capital to small businesses by channeling federal funds to such companies.

In December 1986, Caddo sued CTI in state court after CTI defaulted on its payment obligations under the promissory note. On June 21, 1988, Caddo obtained a final judgment against CTI for $105,000, plus interest, attorney's fees, and court costs. On June 28, 1988, the Dallas County Clerk's Office issued, filed, and recorded an abstract of judgment against CTI in favor of Caddo. Almost three years later, on May 30, 1991, Caddo assigned all of its rights in the judgment to the United States (the "government"), on behalf of the SBA.

In 1997, approximately one year before the judgment originally obtained by Caddo was to become dormant under Texas property law, the government retained the services of a company to identify potential assets of CTI.¹ The government contractor made contact with Mort Zimmerman, the President of CTI, by letter in April and May 1997. Neither CTI nor Zimmerman responded to either of the government's letters.² Between June 1997 and May 1998, the government continued its investigation into the existence of CTI's assets. A title search in Dallas County revealed one piece of real property in CTI's name — an office building located at 13636 Neutron Road in Dallas, Texas (the "Neutron Road Property"). Ownership by CTI was confirmed by an examination of the public records for the Dallas County Appraisal District and the Farmers Branch property records.

On May 22, 1998, the government obtained a writ of execution on the Neutron Road Property; however, attempts at levying the writ proved unsuccessful. The government thereafter sought to renew the Caddo abstract of judgment. On June 23, 1998, the government recorded a new abstract of judgment (the "First Government Abstract") against CTI for the amounts due it under the assignment from Caddo. The First Government Abstract was later replaced by a corrected abstract of judgment (the "Corrected Abstract"), which was issued on July 28, 1998, and recorded with the Dallas County Clerk's Office on August 4, 1998.³

In November 1999, the government sought to enforce its judgment against CTI through the judicial sale of the Neutron Road Property. However, CTI contested the sale, alleging that it only owned the Neutron Road Property until May 13, 1987. The events that are alleged to have transpired on May 13, 1987, bear great weight on this case, and therefore a detailed summary account of these alleged actions is necessary.

CTI claims that on May 13, 1987, while the suit brought against it by Caddo was pending, CTI transferred the Neutron Road Property to one of its subsidiaries, E&GT. The Neutron Road Property had originally been part of the security for a 1983 commercial loan between CTI and Allied American Bank for which CTI executed a note secured by deed of trust in favor of Allied American Bank. By May 1987, a number of other liens had attached to the Neutron Road Property as well. On May 13, 1987, Allied American Bank transferred the deed of trust and lien to First Texas Bank, for which Allied American Bank was paid $617,667.67.

Also on May 13, 1987, CTI executed a new deed of trust on the Neutron Road Property in favor of First Texas Bank for an obligation owed by E&GT to First Texas Bank in the principal amount of $617,667.67. CTI also executed a hypothecation agreement ("Hypothecation Agreement") dated May 13, 1987, by which CTI agreed to allow the Neutron Road Property to be pledged as security for future loans from First Texas Bank to E&GT. The deed of trust and Hypothecation Agreement were recorded in the Dallas County Clerk's Office on May 18, 1987, and the transfer of lien was recorded on June 5, 1987.

However, it was not until November 24, 1998 — more than eleven years after the deed of trust, Hypothecation Agreement, and transfer of lien were executed and recorded — that CTI recorded a warranty deed and purchase agreement (both dated May 13, 1987), which purported to show that the Neutron Road Property had been sold by CTI to E&GT on May 13, 1987. CTI argued that the original warranty deed and purchase agreement had been lost by the title company, which CTI claimed had gone bankrupt and thus had failed to record the instruments.

Notwithstanding CTI's contention that it no longer owned the Neutron Road Property, the government filed a complaint in district court in November 1999, seeking a judicial sale of the Neutron Road Property to satisfy its judgment against CTI pursuant to the Federal Debt Collections Procedure Act ("FDCPA"), 28 U.S.C. § 3001 et seq. After the district court entered an order denying the government's initial application for enforcement of judgment and sale of real property,⁴ the government amended its complaint in August 2000, adding a claim against CTI under TUFTA, TEX. BUS. & COMM.CODE § 24.001 et seq. The essence of the government's TUFTA claim was its challenge of the purported May 13, 1987, transfer of the Neutron Road Property from CTI to E&GT.

In 2001, the TUFTA case was tried to a jury, which found that CTI had violated the Act by fraudulently transferring the Neutron Road Property to E&GT. Specifically the jury determined that E&GT did not take the property in good faith nor for reasonably equivalent value. CTI now timely appeals.

STANDARD OF REVIEW

We review de novo a district court's ruling on a motion for judgment as a matter of law. Mississippi Chem. Corp. v. Dresser-Rand Co., 287 F.3d 359, 365 (5th Cir.2002). However, when an action is tried by a jury, such a motion is a challenge to the legal sufficiency of the evidence supporting the jury's verdict. Brown v. Bryan County, OK, 219 F.3d 450, 456 (5th Cir.2000) (citation omitted). Accordingly, we consider the evidence, "drawing all reasonable inferences and resolving all credibility determinations in the light most favorable to the non-moving party." Id. "This Court grants great deference to a jury's verdict and will reverse only if, when viewing the evidence in the light most favorable to the verdict, the evidence points so strongly and overwhelmingly in favor of one party that the court believes that reasonable jurors could not arrive at any contrary conclusion." Dahlen v. Gulf Crews, Inc., 281 F.3d 487, 497 (5th Cir.2002).

We review a district court's evidentiary rulings for abuse of discretion. United States v. Sanders, 343 F.3d 511, 517 (5th Cir.2003). If we find an abuse of discretion, we review the error under the harmless error doctrine. Id.

DISCUSSION

I. Whether there was sufficient evidence to support a jury finding that CTI transferred the Neutron Road Property to E&GT in violation of TUFTA.

On appeal, CTI argues that it did not violate TUFTA because: (1) the transfer of the Neutron Road Property occurred on May 13, 1987; and (2) E&GT paid value for the property.

A. When the Neutron Road Property was "transferred" for purposes of TUFTA.

CTI offers two theories to support its contention that the transfer of the Neutron Road Property occurred on May 13, 1987. First, it insists that the Hypothecation Agreement executed on May 13, 1987, was sufficient to convey title to the Neutron Road Property from CTI to E&GT. In the alternative, CTI insists that the copies of the warranty deed and the purchase agreement it recorded on November 24, 1998, were previously executed on May 13, 1987, and that the 1987 date should control. In response, the government points to numerous CTI corporate documents that appear to not only contradict relevant bank documents, but also the testimony of CTI's own witnesses.

1. The Hypothecation Agreement

In order to determine whether there was a conveyance of the Neutron Road Property from CTI to E&GT on May 13, 1987, we must first establish the legal effect of the Hypothecation Agreement. In the Hypothecation Agreement, CTI pledged the Neutron Road Property as collateral so that First Texas Bank would extend credit to E&GT. The Hypothecation Agreement stated in pertinent part:

[F]or the purpose of enabling [E&GT] to obtain credit therefor, ... [CTI hereby certifies that] the said property has been duly assigned, released, transferred, and delivered by [CTI] to [E&GT], and by these presents [CTI] hereby assign[s], release[s], and transfer[s] unto [E&GT] all of [CTI's] right, title, and interest in and to said property, and hereby expressly authorize[s] [E&GT] to pledge or...