Chase Commercial Corp. v. Donald Benson Accessories
| Decision Date | 08 October 1986 |
| Docket Number | Civ. A. No. CA 4-85-866-E. |
| Parties | CHASE COMMERCIAL CORPORATION v. DONALD BENSON ACCESSORIES, INC. |
| Court | U.S. District Court — Northern District of Texas |
Kenneth S. Carroll Joohnson & Cravens, Dallas, Tex., for plaintiff.
Joseph Colvin, Gilbert & Colvin, Fort Worth, Tex., for defendant.
Chase Commercial Corporation (Chase) initiated this appeal from an order entered by Judge Michael A. McConnell, United States Bankruptcy Judge, denying appellant's Motion to Lift Stay under 11 U.S.C. § 362(d) on October 24, 1985. Appellant brought its Motion to Lift Stay to consummate its garnishment action with respect to any loan repayment which Donald and Gertrude Mary Benson might make to Donald Benson Accessories, Inc., Debtor-in-Proceeding No XXX-XXXXX. Appellate jurisdiction is based on 28 U.S.C. § 158. After careful consideration of the parties' briefs, the record on appeal, and the applicable law, the Court comes to the following decision.
This Court is bound to accept the factual findings of the bankruptcy court unless such findings are clearly erroneous. Fed. R.Civ.P. 52(a); Bankruptcy Rule 8013; In re Missioniary Baptist Foundation of America, 712 F.2d 206, 209 (5th Cir.1983); In re Bardwell, 610 F.2d 228, 230 (5th Cir.1980). However, conclusions of law are "fully reviewable in this Court." Dallas-Fort Worth Regional Airport Board v. Braniff Airways, Inc., 26 B.R. 628 (D.C.N. D.Tex.1982). In this case there are no disputed facts; therefore, the Court need only review the conclusions of law drawn by the bankruptcy court.
Appellant Chase contends that it is a secured creditor of the debtor corporation, Donald Benson Accessories, Inc. (DBA), by reason of a prior garnishment action filed in state court against the debtor's sole shareholders, Donald and Gertrude Mary Benson (the Bensons). The appellant obtained a default judgment against the debtor for the sum of $43,221.51 in the 342nd Judicial District Court of Tarrant County, Texas on March 29, 1984. The appellant on July 24, 1984, caused a garnishment proceeding to be filed against Donald and Gertrude Mary Benson individually, and further caused a writ of garnishment to be served on them on August 27, 1984. The garnishment action was filed more than one year before the filing of this bankruptcy, and it claimed that the Bensons had closed DBA and transferred all of its assets to themselves without paying its creditors including Chase whose debt comprises 76% of DBA's outstanding debt. In sum, Chase claims (1) that the transfer was not contingent on the Benson's ability "to pay them (sic) DBA back when we could" but rather that the transfer is void; (2) that the transfer is garnishable because Chase is a secured creditor; and (3) that DBA has no equity in the transfer and the bankruptcy stay should be removed.
The first issue the Court must address is whether the transfer of $54,000.00 in assets from DBA, after it ceased doing business, to its sole stockholders Donald and Gertrude Mary Benson is void or was contingent on the Benson's ability to repay the transfer "when they could."
The Tex.Bus.Corp. Act, Art. 2.02(A)(6) specifically provides that each corporation shall have power:
(6) To lend money to, and otherwise assist, its employees, officers, and directors if such a loan or assistance reasonably may be expected to benefit, directly or indirectly, the lending or assisting corporation.
The ultimate effectiveness of such act involving lending or assisting employees, officers, or directors by a corporation is affirmative pleading, proof, and finding of fairness, of the transaction to the corporation. Allen v. Wilkerson, 396 S.W.2d 493 (Tex.Civ.App. — Austin 1965, writ ref'd n.r.e.). This is so even if the director owns all of the corporation's shares then outstanding. Allen, 396 S.W.2d at 503. Moreover, "if there are any creditors of the corporation at that time, then the purported shareholder action will be considered a complete nullity." Id.
From the evidence presented, the Court finds that there is no evidence to support a finding that the transfer of funds to the Bensons in any way benefitted the corporation. Thus, the Court concludes that the transfer is void.
Since the transfer has been found to be void, the Court must next decide if the debt is garnishable and if appellant is a secured creditor. Pursuant to Texas law, a writ of garnishment is permissible when "the Plaintiff has a valid, subsisting judgment." Tex.Rev.Civ.Stat. Art. 4076. After issuance of such a writ upon the garnishee, "it shall not be lawful for the garnishee to pay to the...
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