Colonial Leasing Co. of New England, Inc. v. Logistics Control Group Intern.

• Decision Date: 10 June 1985
• Docket Number: No. 84-2238,84-2238
• Citation: 762 F.2d 454
• Parties: 18 Fed. R. Evid. Serv. 587 COLONIAL LEASING COMPANY OF NEW ENGLAND, INC., d/b/a Colonial-Pacific Leasing Co., Plaintiff-Appellee, v. LOGISTICS CONTROL GROUP INTERNATIONAL, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 454

762 F.2d 454

18 Fed. R. Evid. Serv. 587

COLONIAL LEASING COMPANY OF NEW ENGLAND, INC., d/b/a

Colonial-Pacific Leasing Co., Plaintiff-Appellee, v. LOGISTICS CONTROL GROUP INTERNATIONAL, et al., Defendants-Appellants.

No. 84-2238.

United States Court of Appeals, Fifth Circuit.

June 10, 1985.

Werner A. Powers, Barbara E. McElroy, Dallas, Tex., for Logistics, London & Gulf.

Mark K. Glasser, Houston, Tex., for plaintiff-appellee.

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

Before GOLDBERG, RUBIN, and HILL, Circuit Judges.

ROBERT MADDEN HILL, Circuit Judge:

Following a jury trial in an action brought under the Texas Fraudulent Transfer Act, judgment was entered in favor of plaintiff, Colonial Leasing Company of New England, Inc., (Colonial) and against defendants Logistics Control Group International, Ltd., Gulf Ports Crating Company, and London Capital Corporation. Before us are issues concerning the evidentiary showing necessary to demonstrate creditor status under the Fraudulent Transfer Act, Tex.Bus. & Com.Code Ann. Secs. 24.02, 24.03 (Vernon 1968), and the propriety of the district court's taking post-trial judicial notice of relevant facts under Fed.R.Evid. 201. Because we find that the requisite showing was not made and that the district court's taking judicial notice after trial was improper, we reverse.

I.

In December 1980, Gulf Ports Crating Company (Old Gulf Ports), an export packing business based in Houston, Texas, sold and transferred most of its assets and liabilities to Logistics Control Group International, Ltd., and its parent company, London Capital Corporation (collectively Logistics). Logistics continued Old Gulf Ports' packing operations under the name of Gulf Ports Crating Company (New Gulf Ports), which had become a wholly-owned subsidiary of Logistics. While the purchased assets were valued at approximately $10,000,000, Logistics allegedly paid consideration in an amount less than $600,000.

On the day of the transfer of Old Gulf Ports' assets to Logistics there was pending against Old Gulf Ports an action in an Oregon state court that had been brought by Colonial to recover damages for breach of an equipment lease. The action had been pending for almost a year at the time of the transfer of assets. Logistics was aware of the pending action. In the transfer documents the equipment lease was listed as an obligation that would not pass to Logistics. In February 1982, the Oregon state court entered judgment in favor of Colonial and awarded damages in the amount of approximately $288,988.

At some time subsequent to its victory in the Oregon action, Colonial discovered the occurrence of the 1980 assets transfer. Soon thereafter Colonial filed this action alleging, among other things, that the transfer of Old Gulf Ports' assets was a fraudulent conveyance because of inadequacy of consideration under the Texas Fraudulent Transfer Act, see Tex.Bus. & Com.Code Ann. Secs. 24.02, 24.03, and that the transfer violated the Texas Bulk Sales Act. Tex.Bus. & Com.Code Ann. Sec. 6.101 et seq. (Vernon 1968). Armed with these claims, Colonial proceeded against Logistics, New Gulf Ports, the Bala Corporation (the renamed successor of Old Gulf Ports), Arthur Tuchinsky (the sole shareholder of Old Gulf Ports and the Bala Corporation), and others. Neither Tuchinsky nor the Bala Corporation filed answers and they are not parties to this appeal.

At trial the Oregon judgment, which had been domesticated in Texas, in the United States District Court for the Southern District of Texas, Houston Division, was offered in evidence by Colonial. The district court sustained objections made on grounds of irrelevancy and hearsay; however, it is unclear which ground the ruling was based on. The lease agreement underlying the Oregon judgment was never offered in evidence. Logistics moved for a directed verdict at the close of Colonial's case arguing, in part, that Colonial had failed to prove it was a creditor at the time of the transfer of assets. When the district court took the motion under advisement, Logistics rested, declining to adduce any evidence. Before the jury retired, Colonial intimated that it intended to request the court to take judicial notice of the domesticated Oregon judgment. In response to the court's inquiry, however, Colonial declined to request that the evidence be reopened.

Upon instructions and interrogatories, the jury returned a verdict in favor of Colonial on the Fraudulent Transfer Act claim but in favor of Logistics on the Bulk Sales Act claim. The district court did not submit an interrogatory concerning actual damages. In answer to an interrogatory concerning punitive damages, the jury awarded $300,000.

Approximately one month after the jury returned its verdict, Colonial moved the district court to judicially notice the domesticated Oregon judgment and the pleadings in that action, pursuant to Fed.R.Evid. 201. The only reason advanced as justification for the motion was to permit the court to ascertain the amount of the debt originally owed by Old Gulf Ports to Colonial in order to decree the amount of the judgment lien to be placed against Logistics' assets. Asserting that this was a mere pretext and that the true purpose for the motion was to complete Colonial's proof that it had creditor status under the Fraudulent Transfer Act, Logistics argued that judicial notice of the judgment would be improper because of the nature of the facts of which notice was sought and because of the timing of the request. The court granted the motion, noticed the Oregon judgment, set aside the transfer to Old Gulf Ports to the extent of the Oregon judgment, and entered judgment on the verdict in the amount of $300,000 in punitive damages.

II.

Colonial's fraudulent transfer action is not barred by limitations. Logistics' argument that since the statute of limitations has run on the underlying debt (breach of the Oregon lease), it has run on the fraudulent transfer action itself, is without merit. Had the statute run on the breach of lease action prior to Colonial's filing suit in Oregon on the breach against Old Gulf Ports, Logistics' position would have some measure of coherence as an argument against Colonial's status as a creditor of Old Gulf Ports. See Markward v. Murrah, 138 Tex. 34, 156 S.W.2d 971, 974 (1941). However, Colonial obtained an enforceable judgment against Old Gulf Ports without running afoul of the statute of limitations on the breach of lease action. The cited case is clearly inapposite.

Fraudulent transfer actions are governed by Tex.Rev.Civ.Stat.Ann. art. 5529, a catch-all four-year statute of limitations. Hoerster v. Wilke, 138 Tex. 263, 158 S.W.2d 288 289 (1942). Logistics does not dispute the fact that Colonial brought the present action within that period, which commenced to run when Colonial discovered, or reasonably could have discovered, the alleged fraud. Thus, Logistics' limitations argument is devoid of merit.

III.

The Texas Fraudulent Transfer Act provides that a transfer of assets is void with respect to a "creditor, purchaser or other interested person" if the transfer was intended to hinder any such party from collecting a debt or to defraud any such party. Tex.Bus. & Com.Code Ann. Sec. 24.02(a). ¹ A transfer by a "debtor" may also be void with respect to "an existing creditor" if not made for "fair consideration." Id. Sec. 24.03(a). ² The jury found that Colonial was a "creditor" of Old Gulf Ports prior to December 1980, the date of the transfer. The only evidence before the jury concerning Colonial's status as a creditor at the time of the transfer was a stipulation by the parties that all concerned were aware that the Oregon action was pending on that date. The second issue presented is whether this evidence was sufficient to support the jury's finding.

Under Texas law, one may bring an action under the Fraudulent Transfer Act as a creditor of the transferor merely by virtue of a legal action, pending and unliquidated at the time of transfer, against the transferor. Hollins v. Rapid Transit Lines, Inc., 440 S.W.2d 57, 60 (Tex.1969) (dismissal of fraudulent transfer action improper when underlying action by claimant, in tort, still pending against transferor). ³ The rule is intended to serve the policy of the statute of preventing the fraudulent avoidance of obligations, whether arising in tort or contract. See Colby v. McClendon, 116 S.W.2d 505, 511 (Tex.Civ.App.--Amarillo 1938, no writ). Moreover, Texas courts have granted relief under the Act to creditors whose prior claims against the transferor, unliquidated on the date of transfer, had matured to judgment prior to the granting of relief. Cole v. Terrell, 71 Tex. 549, 9 S.W. 668, 671, 672 (1888) (decided under precursor of Sec. 24.03); Collier v. Perry, 149 S.W.2d 292 (Tex.Civ.App.--El Paso 1941, writ dism'd judgmt cor) (under precursors of Secs. 24.02 and 24.03); Colby v. McClendon, 116 S.W.2d 505 (under Oklahoma statute identical to precursors of Secs. 24.02 and 24.03). ⁴ Thus, to withstand summary judgment on this issue a claimant need only show it has asserted against the transferor a cause of action that accrued prior to the transfer. To be entitled to relief under the Act, however, the claimant must introduce evidence that judgment was rendered in its favor. ⁵

There was no evidence of the Oregon judgment or of the equipment lease on which it was based or even of the alleged date of the breach. In consequence, the jury's finding that Colonial was a creditor of Logistics is unsupported in the evidence and cannot stand. Thus, the judgment must be reversed unless the district court, by judicially noticing the Oregon judgment, properly cured the want of proof.

IV.

Logistics challenges the district court's taking judicial notice under Fed.R.Evid. 201, ⁶ after trial, of the Oregon judgment, claiming that in so doing the court supplied the missing link...