Tow v. Speer, 031015 TXSDC, H-11-3700

Docket NºCivil Action H-11-3700
Opinion JudgeLEE H. ROSENTHAL, District Judge.
Party NameRODNEY TOW, Plaintiff, v. JOHN SPEER, et al., Defendants.
Case DateMarch 10, 2015
CourtUnited States District Courts, 5th Circuit, Southern District of Texas

RODNEY TOW, Plaintiff,


JOHN SPEER, et al., Defendants.

Civil Action No. H-11-3700

United States District Court, S.D. Texas, Houston Division.

March 10, 2015


LEE H. ROSENTHAL, District Judge.

This adversary proceeding arises out of the Chapter 7 bankruptcy of Royce Homes, L.P., a large residential property developer and builder. Rodney Tow was appointed as bankruptcy trustee. Tow sued John Speer, the former owner of Royce Homes, and others, seeking to avoid, and to receive a money judgment for, allegedly fraudulent transfers from Royce Homes.

The claims against the defendants besides Speer were settled or resolved on motions. Speer was the only defendant to go to trial. A jury trial resulted in unanimous findings that some of the challenged transfers to Speer or for his benefit were fraudulent. The court accepted a partial verdict for the challenged transfers on which the jury unanimously agreed and declared a mistrial as to the others. A second jury trial on the remaining transfers resulted in a verdict. The verdicts in both trials resulted in findings that challenged transfers with a value totaling $20, 001, 907.29 were actually or constructively fraudulent, and findings that other transfers were not fraudulent.

Tow has moved for entry of judgment awarding the bankruptcy estate the monetary value of the transfers found to be fraudulent, as well as prejudgment and postjudgment interest, attorneys' fees, and costs. (Docket Entry Nos. 394, 398). Speer responded and filed a postverdict brief challenging the legal and factual bases for the verdicts and proposed judgment and for the fees and costs Tow claimed. Speer also moved to conduct discovery into alleged jury misconduct, based on a juror's online comments posted after the trial ended and the jury had been excused. (Docket Entry No. 395).

Based on the motions, responses, and replies; the postverdict briefs; the arguments of counsel; the record; and the applicable law, the court:

• denies Speer's motion to conduct discovery into alleged jury misconduct;

• grants Tow's motion for entry of judgment in the amount of $12, 129, 006.90 for the transfers the jury determined to be fraudulent;

• denies Tow's motion for attorneys' fees, without prejudice, and allows Tow to file, within 14 days after the judgment is entered, an amended motion for attorneys' fees containing additional information, including breaking out the number of hours for which a fee award is now sought for each of the 21 individual lawyers and legal assistants who worked on the case and the rates charged for those hours, because this is part of the information necessary to permit the court properly to conduct the lodestar analysis that the Fifth Circuit and Texas case law require;

• grants Tow's motion for an award of taxable costs, in the amount of $11, 948.03; and

• rules on the rates for pre- and postjudgment interest.

The reasons for these rulings are set out below.

I. Background

Much of the relevant background is set out in detail in the court's earlier opinions issued in the extensive motions practice leading up to the trials and is only briefly summarized again here. This background summary includes a brief description of trial evidence important to the issues raised in the posttrial motions as well.

Royce Homes was a Delaware limited partnership that built and sold single-family homes in the Houston area until August 2008. Manners founded Royce Homes and was its chief executive officer until July 1998, when he sold 50 percent of the equity to Speer and became a limited partner. Speer acted as general partner through the Hammersmith Group, a company he controlled.

In the spring of 2006, Speer bought Manners's remaining interest in Royce Homes, taking out a $2 million loan from Amegy Bank (the "Amegy Loan") and executing a $13, 342, 405 note payable to Manners (the "Manners Note") to finance the purchase. When Royce Homes took on the debt, Speer told Royce Homes's lenders that the Amegy Loan and the Manners Note would be repaid from Royce Homes's income, but Speer also assured them that Royce Homes would remain within the equity levels needed to comply with the lenders' debt-to-equity requirements and other loan covenants. The lenders consented to the payments on this basis.

A. The Amegy Loan Payments

Speer began paying the Amegy Loan in 2006. Speer made the payments using money he directed Royce Homes to transfer to his personal bank account. Royce Homes pulled this money from its lines of credit. As a result of these transfers to Speer, Royce Homes violated its loan covenants.

Speer made the first payment on the Amegy Loan using money transferred to him from Royce Homes on January 3, 2007. At trial, William D. Gathmann, Royce Homes's chief financial officer during this period, testified that Royce Homes and Speer delayed the transfer and payment from December 2006 until early January 2007 to avoid disclosing to Royce Homes's lenders in the last quarter of 2006 the consequences of the transfer for Royce Homes's loan covenants. (Tr. 2, Vol. 1, pp. 113-14, 124). Delaying the transfer and payment the few days deferred the disclosure obligation from the end of December 2006 to the end of the first quarter of 2007. In May 2007, after the transfer and loan-covenant violations were disclosed, Royce Homes sought waivers or modifications of the covenants from its lenders. (Docket Entry No. 389, Tr. 2, Vol. 8, pp. 23-39). Some of the lenders waived the violations or agreed to modify the loan covenants. Royce Homes later failed to comply with the debt-to-equity ratio requirements under the modified covenants. (Id.).

B. The Manners Note Payments

At Speer's direction, Royce Homes made Manners Note payments on Speer's behalf. The payments were billed to Royce Homes as "management fees" for Manners's work on home construction and home closings. Manners testified at trial that he did not provide services for these fees. Characterizing the disbursements as management fees allowed Royce Homes to capitalize the payments on the Manners Note as part of the lot values, enhancing those values and allowing Royce Homes to increase its stated revenues. By June 2007, Royce Homes had paid $3, 085, 100 in management fees on the Manners Note, discharging the obligations Speer owed to Manners for buying out his partnership interest.

C. Other Payments

Besides the Manners Note payments, Royce Homes also paid Manners over $200, 000 after he sold his remaining 50 percent interest to Speer. These payments included a $160, 000 annual salary, health insurance, and other benefits.

Royce Homes also made salary and monthly $50, 000 payments to Speer's now-deceased ex-wife, Donnie Lou Speer, through Royce Homes's parent company, First Duval, which Speer partly owned. Speer used these payments to cover amounts he owed Donnie Lou Speer under their divorce decree.

Speer himself received additional distributions from Royce Homes. From September 2006 to January 2008, Speer received monthly $150, 000 distributions from Royce Homes in addition to his salary. (Docket Entry No. 390, Tr. 2, Vol. 9, pp. 40, 223). Evidence at trial included testimony and exhibits describing various personal ways in which Speer used these distributions. (Id. at p.254). Speer also received a $1, 587, 009 check from Royce Homes, which he used to purchase a property from the company.

D. Procedural History

Tow initiated adversary proceedings in October 2011 against Speer and Manners and companies affiliated with them, Donnie Lou Speer, and Amegy Bank. The court granted summary judgment dismissing some of the claims and defendants. The other defendants besides Speer settled.

The claims against Speer were tried in March 2014. The jury returned a partial verdict, unanimously finding that some of the challenged transfers were fraudulent and that others were not. The jury could not reach agreement on other challenged transfers. The court accepted a partial verdict based on the unanimous jury answers and declared a mistrial as to the remaining transfers at issue. (Docket Entry No. 372). The transfers not resolved in the first trial were the subject of a second jury trial in June 2014. This resulted in a unanimous verdict as to all the transfers Tow challenged.

The juries in the two trials found that the following transfers were made with the intent to hinder, delay, or defraud a creditor of Royce Homes, making them actually fraudulent:

Transfers to John Speer for Payments to Amegy Bank for the Partner Buyout Date Amount 1/3/2007 $ 10, 000, 000.00 4/2/2007 $ 79, 652.78 4/25/2007 $ 77, 083.33 5/29/2007 $ 79, 652.78 7/2/2007 $ 2, 577, 083.33 7/25/2007 $ 62, 951.39 8/30/2007 $ 59, 739.59 9/28/2007 $ 57, 812.50 11/2/2007 $ 55, 260.4111/29/2007 $ 53, 125.00 1/4/2008 $ 2, 553, 854.17 2/13/2008 $ 40, 104.17 2/27/2008 $ 27, 187.50 3/28/2008 $ 28, 784.72 5/612008 $ 26, 041.67 6/2/2008 $ 25, 833.33 6/30/2008 $ 25, 000.00 Transfers to Michael Manners for the Partner Buyout (Note Payments) Date Amount 4/4/2007 $ 292, 500.00 5/10/2007 $ 271, 500.00 Transfers to Donnie Lou Speer from First Duval Date Amount 7/5/2007 $ 50, 000.00 8/2/2007 $ 50, 000.00 9/4/2007 $ 50, 000.00 10/1/2007 $ 50, 000.00 11/1/2007 $ 50, 000.00 12/3/2007 $ 50, 000.00 1/2/2008 $ 50, 000.00 Transfers to Donnie Lou Speer for Salary Date Amount 1/12/2007 $ 6, 231.97 1/31/2007 $ 6, 231.98 2/15/2007 $ 6, 231.97 2/28/2007 $ 6, 231.97 3/15/2007 $ 6, 231.97 3/30/2007 $ 6, 231.98 4/13/2007 $ 6, 231.97 4/30/2007 $ 6, 231.98 5/15/2007 $ 6, 231.97 5/31/2007 $ 6, 357.53 6/15/2007 $ 6, 849.03 6/29/2007 $ 6, 849.02 7/13/2007 $ 6, 849.03 7/31/2007 $ 6, 849.03 8/15/2007 $ 6, 849.03 8/31/2007 $ 7, 184.03 9/14/2007 $ 7...

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