Essex Crane Rental Corp. v. Carter

• Decision Date: 07 June 2012
• Docket Number: Nos. 01–09–00813–CV, 01–11–00688–CV, 01–11–00689–CV.,s. 01–09–00813–CV, 01–11–00688–CV, 01–11–00689–CV.
• Citation: 371 S.W.3d 366
• Court: Texas Court of Appeals
• Parties: ESSEX CRANE RENTAL CORP. and Vincent A. Morano, Appellants, v. Eric G. CARTER d/b/a Eric G. Carter & Associates, Appellee. Essex Crane Rental Corp. and Vincent A. Morano, Appellants, v. Kenneth Beverly, Appellee. Essex Crane Rental Corp. and Vincent A. Morano, Appellants, v. David W. Farley, Appellee.

371 S.W.3d 366

ESSEX CRANE RENTAL CORP. and Vincent A. Morano, Appellants,

v.Eric G. CARTER d/b/a Eric G. Carter & Associates, Appellee.

Essex Crane Rental Corp. and Vincent A. Morano, Appellants,

v.Kenneth Beverly, Appellee.

Essex Crane Rental Corp. and Vincent A. Morano, Appellants,

v.David W. Farley, Appellee.

Nos. 01–09–00813–CV, 01–11–00688–CV, 01–11–00689–CV.

Court of Appeals of Texas, Houston (1st Dist.).

March 29, 2012.

Rehearing Overruled June 7, 2012.

Kenneth O. Corley, Thompson & Knight, L.L.P., Misty Annette Hataway–Cone', Robert Alan York, Godwin Ronquillo PC, Thomas W. Sankey, Thomas W. Sankey, P.C., Houston, TX, for Appellant.

Tammy Danberg–Farney, O. Kyler Carter, The Carter Law Firm, Teri H. Kelley, William C. Nantz, Finis E. Cowan, Richard M. Forrest, Forrest Law Group, David M. Smith, David M. Smith & Associates, David W. Farley, Houston, TX, for Appellee.

Panel consists of Justices KEYES, SHARP, and MASSENGALE.

OPINION

EVELYN V. KEYES, Justice.

Appellees, Eric G. Carter d/b/a Eric G. Carter & Associates, David W. Farley, and Kenneth Beverly, filed motions for rehearing and motions for en banc reconsideration of our opinion issued on August 25, 2011. We grant the motions for rehearing, deny as moot the motions for en banc reconsideration, withdraw our opinion and judgment of August 25, 2011, and issue this opinion and judgment in their stead.¹

Appellants Essex Crane Rental Corp. and Vincent A. Morano (collectively, “Essex”) appeal the trial court's judgments in favor of appellees and the trial court's order granting Beverly's motion to quiet title. In four issues, Essex contends that the trial court (1) improperly sustained Beverly's objections to its summary judgment evidence, (2) erroneously rendered summary judgment in favor of Beverly, (3) erroneously rendered summary judgments in favor of Carter and Farley, and (4) erroneously granted Beverly's motion to quiet title.

We reverse and remand.

FACTUAL BACKGROUND

A. The TWC Litigation and Settlement Agreement

In the mid–1990s, the Texas Workers' Compensation Insurance Fund (the “Fund”) and the Texas Workers' Compensation Facility (the “Facility”) filed separate suits against several business entities (the “McPherson Entities”) owned and/or operated by James W. McPherson, Sr. (“McPherson, Sr.”) seeking to collect millions in unpaid workers' compensation dues (the “Fund Litigation” and the “Facility Litigation,” collectively the “TWC Litigation”). Among the McPherson Entities sued in the TWC Litigation was Coastal Terminal Operators, Inc. (“Coastal”).

The TWC Litigation was settled prior to judgment in May 1999 when, pursuant to a plea and probation agreement in connection with criminal charges pending against him in federal court, McPherson, Sr. and the McPherson Entities entered into a settlement agreement (the “TWC Settlement Agreement”) whereby they agreed to pay a total of $900,000 to the Fund and the Facility over a period of several years, collateralized in part by equipment owned by the McPherson Entities. In the event the McPherson Entities filed bankruptcy, receivership, or insolvency proceedings, the Fund and the Facility reserved the right to seek damages against them of up to $3,147,844, the total amount of unpaid workers' compensation dues, with credit for payments previously made. In return, the Fund and the Facility released the McPherson Entities from any liability relating to the facts of the TWC Litigation.

These agreements were set out in Paragraph 10 of the TWC Settlement Agreement, which provided:

In the event of a bankruptcy, receivership, or insolvency proceeding, of any kind, by way of Coastal Defendant(s) or McPherson Interests, Ltd., that adversely affects in any manner the enforceability of any term of this Agreement or reduces any of the consideration to be derived from the Fund or the Facility hereunder, the Fund and the Facility's release of that defendant shall be null and void and the Fund and the Facility will be free to assert all causes of action, including causes of action for fraud and to contest the dischargeability of debts, that the Fund or the Facility now or hereunder may have against that defendant relating to the facts that form the basis for the Fund Lawsuit or the Facility Lawsuit seeking actual damages in the aggregate that do not exceed $3,147,844. In such event, all amounts previously paid toward the settlement hereunder will be credited against any Judgment obtained against that defendant. Any such bankruptcy proceeding shall not affect the validity of the remainder of this Agreement or the obligations of the other Parties hereto.

B. The Essex Litigation and Judgment in Favor of Essex

In the late 1990s, Coastal, one of the McPherson Entities and a settling defendant in the TWC Litigation, contracted to rent cranes from Essex. McPherson, Sr. personally guaranteed the payment of all rentals to Essex. In 2000, Essex sued Coastal and McPherson, Sr., seeking recovery of unpaid crane rental fees (the “Essex Litigation”). On August 23, 2002, Essex was awarded judgment against Coastal and McPherson, Sr. in the principal amount of $491,261.87 (the “First Essex Judgment”). The principal and interest portion of that judgment was affirmed on appeal in August 2004. See Coastal Terminal Operators v. Essex Crane Rental Corp., No. 14–02–00627–CV, 2004 WL 1795355, at *9 (Tex.App.-Houston [14th Dist.] Aug. 12, 2004, pet. denied) (mem. op.). The issue of attorney's fees was severed and remanded. Id. The trial court tried and awarded attorney's fees and statutory interest on the claim on March 22, 2006 (the “Second Essex Judgment”). Essex contends that the amount owed by Coastal and McPherson on the two Essex Judgments, including post-judgment interest, now exceeds $900,000.

C. The Underlying Lawsuit

In the latter part of 2002, Essex began collection efforts on the First Essex Judgment, entered on August 23, 2002. Having no success, on December 10, 2002, Essex filed the underlying suit against McPherson, Sr. and Coastal, along with seven other defendants,² alleging that all of the defendants “conspired with each other to fraudulently transfer, hide, secrete or otherwise conceal assets with the intent to avoid payment of the debt” to Essex. Essex subsequently amended its petition to raise similar allegations of fraud and conspiracy against appellees Beverly, Carter, and Farley. Specifically, Essex alleged that Beverly, Carter, and Farley conspired with the McPherson Entities to fraudulently transfer assets in an attempt to avoid satisfaction of the Essex Judgments.

D. The Agreed Judgments in the TWC Litigation and the Assignment of the Fund's and the Facility's Rights Under the TWC Settlement Agreement to HII

The summary judgment evidence establishes that, following entry of the First Essex Judgment, in late 2002, attorneys Carter and Farley, representing McPherson, Sr. and the McPherson Entities, began negotiating with the Fund and the Facility for an assignment of the Fund's and the Facility's rights under the TWC Settlement Agreement (the “Assignment”). The Fund and the Facility agreed to assign whatever rights they had under the Agreement to Houston Industrial Investments, LLC (“HII”), an entity incorporated by Farley on March 8, 2002, in exchange for payment to them of the remaining balance of $275,000 due under the terms of the Agreement. James W. McPherson, Jr., McPherson, Sr.'s son, was the sole owner and managing member of HII, and Carter was the registered agent. McPherson, Jr. testified at his deposition that he sought the Assignment “in order to protect [his] assets” and that HII was created to separate its assets from his own. Carter and Farley drafted the assignment.

Following the execution of the Assignment, HII entered into two agreed judgments, likewise drafted and signed by Carter and Farley with McPherson, Sr. in the TWC Litigation (the “TWC Agreed Judgments”). In both the Fund Litigation and the Facility Litigation, HII, as successor in interest to the Fund and the Facility, took a final judgment against several of the McPherson Entities for $1.5 million in actual damages, $250,000 in attorneys' fees, and foreclosure on certain property the McPherson Entities had used to collateralize the TWC Settlement Agreement. The TWC Agreed Judgments totaled over $3 million.

McPherson, Sr. testified that HII took the Agreed Judgments to help out the family. He also testified that he consulted with Carter before he took the Agreed Judgments. The Travis County court that entered the Agreed Judgments was not informed of the relationship between the plaintiff, HII, and the defendant, McPherson, Sr.—i.e., that HII was controlled by the son of McPherson, Sr. Nor was it informed that HII had obtained the Assignment of the Fund's and the Facility's rights as judgment creditors against McPherson, Sr. and the McPherson Entities in exchange for fully paying off the debt owed to the Fund and the Facility under the terms of the TWC Settlement Agreement. Nor was it informed that the events that triggered the Fund's and the Facility's right to seek actual damages against the McPherson Entities under Paragraph 10 of the TWC Settlement Agreement—“[A] bankruptcy, receivership, or insolvency proceeding, of any kind, by way of Coastal Defendant(s) or McPherson Interests, Ltd., that adversely affects in any manner the enforceability of any term of this Agreement or reduces any of the consideration to be derived from the Fund or the Facility hereunder”—had not occurred. Writs of execution were issued under the TWC Agreed Judgments, and the collateralized assets of the McPherson Entities (including equipment valued at $625,000) were transferred to HII.

Essex contends, both at trial and on appeal, that the Agreed Judgments were fraudulently procured and are a sham. It asserts that the TWC Settlement Agreement capped the McPherson Entities' liability to the Fund and the Facility at $900,000; that all but $250,000 of...