In re Wyly, CASE NO. 14-35043-BJH-11

• Decision Date: 29 June 2016
• Docket Number: CASE NO. 14-35043-BJH-11
• Parties: IN RE: SAMUEL EVANS WYLY, et al., DEBTORS.
• Court: U.S. Bankruptcy Court — Northern District of Texas

IN RE: SAMUEL EVANS WYLY, et al., DEBTORS.

CASE NO. 14-35043-BJH-11

UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

June 29, 2016

The following constitutes the ruling of the court and has the force and effect therein described.

(Jointly Administered)

Related to ECF Nos. 1249, 1252 & 1260

MEMORANDUM OPINION AND ORDER

Before the Court are cross motions for partial summary judgment filed by the Securities and Exchange Commission (the "SEC") and debtor Sam Wyly ("Sam"),¹ and a motion for partialsummary judgment filed by the SEC against debtor Caroline D. Wyly ("Dee")² (collectively, the "Motions for Partial Summary Judgment"). A hearing on the Motions for Partial Summary Judgment was held before this Court on June 13, 2016 (the "Hearing").³ The Motions for Partial Summary Judgment regarding Sam's claimed exemptions were taken under advisement at the conclusion of the Hearing. However, the Court granted the SEC and Dee leave to file post-Hearing briefs regarding the effect of Dee's prepetition contribution of the Roaring Fork Annuity (defined below) to a separate legal entity on the SEC's Motion for Partial Summary Judgment against her. Simultaneous post-Hearing opening briefs were filed on June 20, 2016, and simultaneous post-Hearing responsive briefs were filed on June 24, 2016. Thus, all of the Motions for Partial Summary Judgment are now ripe for ruling.

I. SUMMARY JUDGMENT STANDARD

In deciding a motion for summary judgment, a court must determine whether the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56, as made applicable by FED. R. BANKR. P. 7056. In deciding whether a fact issue has been raised, the facts and inferences to be drawn from the evidence must be viewed in the light most favorable to the non-moving party. Berquist v. Washington Mut. Bank, 500 F.3d 344, 349 (5th Cir. 2007). A court's role at the summary judgment stage is not to weigh the evidence or determine the truth of the matter, but rather to determine only whether a genuine issue of material fact exists for trial. Peel & Co., Inc. v. The Rug Market, 238F.3d 391, 394 (5th Cir. 2001) ("the court must review all of the evidence in the record, but make no credibility determinations or weigh any evidence") (citing Reeves v. Sanderson Plumbing Prods, Inc., 530 U.S. 133, 135 (2000)); see also U.S. v. An Article of Food Consisting of 345/50 Pound Bags, 622 F.2d 768, 773 (5th Cir. 1980) (the court "should not proceed to assess the probative value of any of the evidence...."). While courts must consider the evidence with all reasonable inferences in the light most favorable to the non-movant, the nonmoving party must come forward with specific facts showing that there is a genuine issue for trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Pylant v. Hartford Life and Acc. Ins. Co., 497 F.3d 536, 538 (5th Cir. 2007) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

"After the movant has presented a properly supported motion for summary judgment, the burden then shifts to the nonmoving party to show with 'significant probative evidence' that there exists a genuine issue of material fact." Hamilton v. Segue Software Inc., 232 F.3d 473, 477 (5th Cir. 2000) (internal citation omitted). However, where "the burden at trial rests on the non-movant, the movant must merely demonstrate an absence of evidentiary support in the record for the non-movant's case." Miss. River Basin Alliance v. Westphal, 230 F.3d 170, 174 (5th Cir. 2000) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)).

On cross-motions for summary judgment, the court must review each party's motion independently, and view the evidence and inferences in the light most favorable to the non-moving party. Cooley v. Housing Auth. of the City of Slidell, 747 F.3d 295, 298 (5th Cir. 2014).

II. JURISDICTION AND VENUE

The District Court for the Northern District of Texas has subject matter jurisdiction over the debtors' jointly-administered bankruptcy cases (collectively, the "Cases" and individually, the"Case") under 28 U.S.C. § 1334. Venue of the Cases is proper in this district under 28 U.S.C. § 1408(1). Moreover, the objections to the debtors' claimed exemptions are core proceedings under 28 U.S.C. § 157(b)(2)(B) (determination of exemptions).

The Cases and all core and non-core proceedings in the Cases have been referred to this Court under the Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc adopted in this district on August 3, 1984. The objections to exemptions are contested matters under Federal Rule of Bankruptcy Procedure 9014. As such, this Court may make findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052, as made applicable to this core proceeding by Federal Rule of Bankruptcy Procedure 9014(c).

III. JUDICIAL NOTICE AND LAW OF THE CASE

In January 2016, this Court held a multi-week bench trial in the Cases on the debtors' motions to determine the tax liability owed by each of them to the IRS, as well the debtors' objections to the proofs of claim filed by the IRS in the Cases (the "Tax Trial"). Prior to the Tax Trial, Sam, Dee, and the IRS entered into lengthy and detailed stipulations of fact that were filed on the Court's docket in the Cases [ECF No. 1040] (the "Joint Stipulations"), which the Court ultimately adopted in its Memorandum Opinion entered on May 10, 2016 [ECF No. 1247] (the "Tax Memorandum Opinion").⁴ The Tax Memorandum Opinion contains findings of fact and conclusions of law directly relevant to the objections to exemptions and the Motions for Partial Summary Judgment.

Accordingly, and with the agreement of the parties,⁵ the Court takes judicial notice of the Joint Stipulations and the relevant findings of fact and conclusions of law set forth in the Tax Memorandum Opinion. See Meador v. First Security Nat'l Bank, 100 F.Supp.2d 433, 435 (E.D. Tex. 2000) (court may take judicial notice of its own judgments); see also Sherman v. Greenstone Farm Credit Services, ACA, 2011 WL 2038573, at *3 n.6 (N.D. Tex. May 24, 2011) ("Note that, in determining the merits of the Plaintiff's MSJ and the Defendant's MSJ, the Court also has discretion to take judicial notice of all documents filed in the Action.") (citing Goldberg v. Craig (In re Hydro-Action, Inc.), 341 B.R. 186, 188 (Bankr. E.D. Tex. 2006); FED. R. EVID. 201(b), (f)). Indeed, upon entry of the Orders liquidating Sam's⁶ and Dee's⁷ respective tax liability, the findings of fact and conclusions of law in the Tax Memorandum Opinion became the law of the case and will not be reconsidered here. See Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 816 (1988) ("As most commonly defined, the doctrine of the law of the case posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case." (internal citations and quotations omitted)); Gochicoa v. Johnson, 238 F.3d 278, 291 (5th Cir. 2000) ("With regard to factual matters, this doctrine applies only to issues actually decided and does not apply to obiter dicta.") (citing 18 James Wm. Moore et. al., Moore's Federal Practice § 134.20[3], at 134-45 (3d ed. 1999) ("The doctrine does not apply to statements made by the court in passing, or stated as possible alternatives.")).

IV. FACTUAL AND PROCEDURAL HISTORY

A. Sam Wyly

As found in the Tax Memorandum Opinion, on July 30, 2010, the SEC sued Sam and his brother, Charles Wyly ("Charles"),⁸ among others, for securities fraud in connection with certain securities transactions undertaken by various offshore trusts and offshore corporations that Sam and Charles caused to be established. Tax Memorandum Opinion at 29; see SEC v. Wyly et al., Case No. 10-5760-SAS (S.D.N.Y.) (the "SEC Action"). Following a jury trial on the liability phase and a bench trial on the remedies phase of the SEC Action, the District Court for the Southern District of New York (the "SDNY Court") entered judgment against Sam and the probate estate of Charles, who died in 2011, for $123,836,958.75 and $63,881,743.97, respectively, plus prejudgment interest (the "SDNY Judgment").⁹ Tax Memorandum Opinion at 3 & n.7-8; SEC Appx. [ECF No. 1251-4] at 00293-00304. On October 19, 2014, Sam filed his Case here. Soon thereafter (on October 23, 2014), Dee filed her Case here. As noted previously, the Cases are being jointly administered.

Sam filed his Amended Schedules of Assets and Liabilities [ECF No. 472] with this Court on February 27, 2015. In his Amended Schedule C—Property Claimed as Exempt—Sam listed the various assets he claimed as exempt under Texas law. Those relevant here are (i) Sam's home located at 3905 Beverly Drive, Dallas, Texas 75205 (the "Beverly Property"), which Sam values at $12,147,482 and claims $12,066,339.82¹⁰ as exempt under Texas Property Code §§ 41.001,.002, and .005, and (ii) the future payments Sam is to receive (the "Offshore Annuity Payments") from the so-called private annuity agreements Sam entered into that were then assigned to the Isle of Man ("IOM") corporations identified below (the "Annuity Agreements"),¹¹ which Sam claims as fully exempt under Texas Insurance Code § 1108.051:

Annuity Obligors

Scheduled Value12

West Carroll Ltd.

$ 6,562,293.00

Morehouse Ltd.

$ 6,717,331.00

Richland Ltd.

$ 7,874,756.00

Yurta Faf Ltd.

$ 7,014,605.00

Locke Ltd.

$69,183,748.00

Moberly Ltd.

$55,920,630.00

Audubon Ltd.

$40,352,520.00

Devotion Ltd.

$39,783,583.00

Sarnia Ltd.

$15,965,481.00

East Carroll Ltd.

$0.00

Tensas Ltd.

$0.00

East Baton Rouge Ltd.

...