Mark Boozer, Jerrod Raymond, & Ctmi, LLC v. Ray Fischer & Corporate Tax Mgmt., Inc.

• Jurisdiction: Texas,United States
• Court: Texas Supreme Court
• Writing for the Court: Justice Young delivered the opinion of the Court.
• Citation: Mark Boozer, Jerrod Raymond, & Ctmi, LLC v. Ray Fischer & Corporate Tax Mgmt., Inc., 674 S.W.3d 314 (Tex. 2023)
• Docket Number: 22-0050
• Decision Date: 30 June 2023
• Parties: Mark BOOZER, Jerrod Raymond, and CTMI, LLC, Petitioners, v. Ray FISCHER and Corporate Tax Management, Inc. n/k/a RY Fischer & Associates, Inc., Respondents
• topic: Commercial Litigation,Contracts,Trust Law,Creditor Rights / Civil Enforcement

674 S.W.3d 314

Mark BOOZER, Jerrod Raymond, and CTMI, LLC, Petitioners,

v.Ray FISCHER and Corporate Tax Management, Inc. n/k/a RY Fischer & Associates, Inc., Respondents

No. 22-0050

Supreme Court of Texas.

Argued March 22, 2023

OPINION DELIVERED: June 30, 2023

Scott Christopher Faciane, John J. Shaw, David E. Keltner, Jody S. Sanders, Fort Worth, Robert J. Myers, San Antonio, for Petitioners.

Kenneth J. Lambert, C. Gregory Shamoun, Steven Knowles Hayes, Kevin C. Moran, Brandy Hoge, Farmers Branch, for Respondents.

Justice Young delivered the opinion of the Court.

As part of a larger settlement agreement, the parties in this case trusted Wesley Holmes, an attorney representing the owners of CTMI, to hold about $1 million in escrow. Holmes held those funds in an account under CTMI's name—at least, he did so up until he drained the money from the account and took it for himself. The settlement agreement provided that Fischer, the party adverse to CTMI and its owners, would receive those funds if this Court ruled in his favor, as it eventually did. Only after that ruling did the parties learn of Holmes's actions. The bottom-line question is whether CTMI was still required to pay Fischer or whether CTMI's payment of the required amounts into the escrow account discharged its liability. In other words, the outcome of the parties’ dispute ultimately turns on who bore the risk of loss caused by the escrow's failure.

The court of appeals resolved the case by holding that there never really was an escrow agreement. The court believed that an escrow holder must be neutral. Holmes—a lawyer on one side of the dispute—was decidedly not neutral. Placing the funds with him, the court of appeals accordingly held, could not constitute an escrow. And if Holmes did not hold the money in escrow, he must have held it in the ordinary way that lawyers routinely hold client funds. A lawyer's theft of his client's funds, while outrageous and unfortunate, would not satisfy that client's contractual obligations to a third party like Fischer. Presumably based on this logic, the court of appeals ruled for Fischer.

We disagree with the premise of this rationale. Making one side's lawyer an escrow holder may seem imprudent, especially in hindsight. But it is not unlawful. If parties find it sensible and efficient for a non-neutral party to be an escrow holder, the law does not forbid them from making that choice. The law only demands clarity. While a non-neutral individual like one party's attorney is presumptively not an escrow holder, the parties’ unmistakable agreement to the contrary will rebut that presumption. We hold that the parties unambiguously created an escrow to be held by Holmes until the conclusion of their litigation, at which point the prevailing party should have received the escrowed funds.

We nonetheless affirm the court of appeals’ judgment. The choice for parties in adversarial litigation to use one party's attorney as an escrow holder and to keep the funds in an account opened under that party's name will not defeat an escrow if all parties clearly consent, but that choice remains significant for the risk of loss. When one party agrees to retain title to property and to allow its attorney (or other fiduciary) to control the property, that party presumptively retains the risk of loss. More to the point, the party that lacks title to the escrowed property and whose lawyer is not the escrow holder cannot be regarded as having accepted the risk of loss without something more than the existence of the escrow itself. Express contractual language or necessary implication from its text is indispensable in this situation. Nothing in these parties’ contractual relationship, however, establishes any such agreement. We therefore hold that CTMI bore the risk of loss.

I

This is the second time this Court has taken up this case. Our prior decision described the facts in greater detail, see Fischer v. CTMI, L.L.C. , 479 S.W.3d 231, 233–36 (Tex. 2016), and we provide only a condensed version relevant to the dispute as it returns to us.

Ray Fischer agreed to sell his tax-consulting business to CTMI, a business that Mark Boozer and Jerrod Raymond created for the purpose of receiving the assets of, and then operating, Fischer's old company.

See id. at 233. Disputes arose; litigation commenced.¹ The parties settled in open court through a Rule 11 agreement. See Tex. R. Civ. P. 11. Their settlement agreement, however, left one claim unresolved: CTMI's request for a declaratory judgment regarding Fischer's entitlement to revenue for projects begun, but not finished, before he left the company. See Fischer , 479 S.W.3d at 234–36. This claim was severed from the remainder of the case, and Fischer ultimately prevailed on it in this Court. Id. at 244.

The present litigation concerns the aspect of the settlement agreement that provided for what Fischer would receive if he won in the prior appeal and the mechanics of how those funds would be handled. At Fischer's demand, the parties agreed that the disputed funds would not stay with CTMI but would "be[ ] held in escrow." As revenue from specified projects came in, 15% of it would, "upon receipt, be paid into an interest bearing escrow account." If Fischer won after all appeals were exhausted, the settlement agreement provided that Fischer "will receive payment of" the funds.

But who would hold them in the meantime? One option was to make Fischer's attorney the holder of the amounts to be held in escrow. Fischer's counsel, however, made clear that he did not want "to be paying income tax on the interest that accrues on it." The parties then agreed that CTMI would place the funds in an account to be controlled by Wesley Holmes, the attorney for Boozer and Raymond. With the tax question in mind, they agreed that the account would "be a CTMI account, but" that they would "have it be controlled by [Holmes]." As Holmes put it, and the parties agreed, CTMI "will pay the taxes on it, but I'm on the hook."

After the attorneys hammered out these details in open court, they emphasized that "it's agreed by the parties that what is being entered onto the record in this Rule 11 setting, does not contemplate the parties sitting down and executing any further settlement agreement to be written or agreed upon. This is to be used as the settlement agreement, this transcript." The parties each took the stand and confirmed that they understood and agreed to these arrangements. The judge then called the jury back in, gave them the news that the case had settled, and complimented the lawyers on "some real fine lawyering."

Little did the judge—or anyone else—know what would come to pass. At first, all went smoothly. Based on the agreement, Holmes opened the account in CTMI's name, but he was the sole signatory and he alone had authority over the account. The address listed for CTMI was Holmes's law office. Over time, as the agreement required, CTMI transferred funds totaling nearly $1 million—$990,175.66, to be exact. After the court of appeals ruled for CTMI, this Court granted review and held oral argument. Only this Court's decision and mandate were necessary to determine the final distribution of the money. If we had denied the petition or affirmed the judgment, Holmes would have been obligated to return control of the funds to CTMI. If, as in fact happened, we reversed the judgment, then Holmes's duty was to pay the funds over to Fischer.

After we ruled for Fischer, he demanded that CTMI pay him the amounts due. By then, however, Holmes had absconded with the funds, which came to light only after we announced our decision. In response, CTMI filed this lawsuit, seeking a declaration that it had fulfilled its obligations under the settlement agreement. CTMI reasoned that, because it had paid every dollar of the funds at issue as the escrow agreement required, it owed nothing further to Fischer. Fischer counterclaimed for breach of contract, arguing that the agreement also required CTMI to pay him the proceeds.

In three partial summary judgments, the trial court ruled for CTMI, absolving it of further responsibility. The trial court first held that CTMI accurately calculated and properly deposited the funds into the escrow account; second, it concluded that the parties had created an escrow with Holmes as the sole escrow agent and that Holmes had converted the funds; and third, the trial court concluded that CTMI had no further liability to Fischer. Based on these rulings, it rendered a final judgment in favor of CTMI.²

The court of appeals reversed. 665 S.W.3d 46 (Tex. App.—Fort Worth 2021). It held that the settlement agreement did not create an escrow and therefore that CTMI's failure to pay Fischer the amounts due was a breach of the settlement agreement. See id. at 55–57. The court also awarded attorney's fees to Fischer and remanded for the trial court to address pre- and post-judgment interest. See id. at 57–59.

CTMI petitioned this Court for review of the court of appeals’ judgment. Like that court's opinion, the parties’ briefing here focused primarily on whether the settlement agreement created an escrow.³

II

The first question presented by this appeal is whether parties may form an escrow agreement that selects one party's attorney to serve as the escrow holder, even if those parties are actively engaged in litigation against each other. We conclude that they may.

A

Given how frequent the use of escrow is, and how familiar a concept it is even to nonlawyers, remarkably few discussions of escrow appear in this Court's cases. And despite a myriad of statutory provisions that refer to escrow or govern aspects of its use in specific contexts,⁴ the legislature has not adopted a baseline, generally applicable definition of the concept.⁵ For the most part, this dearth of law about escrow's core attributes likely reflects that we know what escrow is through frequent experience. But cases on the margins, like this one, also...