Resolution Trust Corp. v. Texas Moline Ltd.

• Decision Date: 21 January 2000
• Docket Number: Civil Action No. H-92-1692.
• Citation: 96 F.Supp.2d 644
• Parties: RESOLUTION TRUST CORPORATION As Receiver for First Savings Arkansas, S.A. Plaintiff, v. TEXAS MOLINE LTD., and Dean H. Maddox, Defendants.
• Court: U.S. District Court — Southern District of Texas

96 F.Supp.2d 644

RESOLUTION TRUST CORPORATION As Receiver for First Savings Arkansas, S.A. Plaintiff, v. TEXAS MOLINE LTD., and Dean H. Maddox, Defendants.

Civil Action No. H-92-1692.

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

January 21, 2000.

John C. Landon, Alonso & Cersonsky, Houston, TX, for plaintiffs.

Dean H Maddox, Houston, TX, pro se.

Trent L. Rosenthal, Boyar Simon et al, Houston, TX, for garnishees.

MEMORANDUM AND ORDER

ROSENTHAL, District Judge.

Value Recovery Group ("VRG"), the current owner of the judgment previously rendered in this case, seeks to satisfy a portion of that unsatisfied judgment by proceeding against one of the judgment debtors, Dean H. Maddox ("Maddox"). VRG renews its applications for writs of garnishment against three business entities: T and N, Inc., Creme de la Creme Joint Venture, and Maddox Hotel Corporation. (Docket Entries No. 29, 30, and 31). VRG also applies for turnover relief against Maddox, seeking to seize money he periodically receives as management fees, accounting fees, administrative fees, and tax fees for services he renders to several different entities. (Docket Entry No. 32). VRG asserts that Maddox receives these fees on a recurring and periodic basis, so that they cannot effectively be attached or levied upon by ordinary legal process, such as garnishment.

In his opposition to the motion for turnover relief, Maddox claims that the payments he receives are exempt from seizure as wages paid to him in master-servant relationships, rather than management and investment banking fees paid to him as an independent contractor.

This court GRANTS the applications for the three writs of garnishment. (Docket Entries No. 29, 30, and 31). This ruling moots the motions to dismiss the previously issued writs for lack of effective service. (Docket Entry No. 28). This court finds and concludes that the income VRG seeks by turnover order is not current wages for personal service exempt from seizure, but rather commissions and income to an independent contractor, properly subject to turnover. The reasons are set out below.

I. The Applicable Legal Standard

The Texas Turnover Statute, TEX. CIV. PRAC. & REM. CODE ANN. § 31.002 provides in part:

(a) A judgment creditor is entitled to aid from a court of appropriate jurisdiction through injunction or other means in order to reach property to obtain satisfaction on the judgment if the judgment debtor owns property, including present or future rights to property, that:

(1) cannot readily be attached or levied on by ordinary legal process; and

(2) is not exempt from attachment, execution, or seizure for the satisfaction of liabilities.

(b) The court may:

(1) order the judgment debtor to turn over nonexempt property that is in the debtor's possession or is subject to the debtor's control, together with all documents or records related to the property, to a designated sheriff or constable for execution ...

(3) appoint a receiver with the authority to take possession of the nonexempt property, sell it, and pay the proceeds to the judgment creditor to the extent required to satisfy the judgment.

The statute is the procedural device "`by which judgment creditors may reach assets of a debtor that are otherwise difficult to attach or levy on by ordinary legal process.'" RTC v. Smith, 53 F.3d 72, 77 (5th Cir.1995) (quoting Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 224 (Tex.1991)). It allows a court to reach assets owned and subject to the control of a judgment debtor. See Norsul Oil & Mining Ltd. v. Commercial Equip. Leasing Co., 703 S.W.2d 345, 349 (Tex.App.— San Antonio 1985, no writ).

The Fifth Circuit has held that under the Texas turnover statute, while there are no specific required standards for pleadings and proof in claiming property to be exempt from levy or execution, a debtor must in most cases allege or make known tangible facts necessary to show that a particular asset falls within a statutorily exempt classification. Santibanez v. Wier McMahon & Co., 105 F.3d 234, 239 (5th Cir.1997); see also Lozano v. Lozano, 975 S.W.2d 63, 67 (Tex.App.—Houston [14th Dist.] 1998, writ denied) (burden of proof of exemption is on judgment debtor) (citing Rucker v. Rucker, 810 S.W.2d 793, 795-96 (Tex.App.—Houston [14th Dist.] 1991, writ denied); Roosth v. Roosth, 889 S.W.2d 445, 459-60 (Tex.App.—Houston [14th Dist.] 1994, writ denied)). The "`mere statement that the property is exempt is but a conclusion of law and unavailing.'" Id. (quoting State ex rel. Bartol v. Justice of the Peace Court of Stanford Township, 102 Mont. 1, 55 P.2d 691, 692 (1936)). "The Texas courts' approval of these pleading requirements is implied by their adoption of the general rule that the party who claims or alleges that property is exempt has the burden of producing evidence to show facts establishing the applicability of the statutory exemption." Id. (citing Roosth, 889 S.W.2d at 459-60; Jacobs v. Adams, 874 S.W.2d 166 (Tex. App.—Houston [14th Dist.] 1994, no writ); Watts v. Gibson, 33 S.W.2d 777 (Tex.Civ. App.—Fort Worth 1930, no writ); Dale v. Finance Am. Corp., 929 S.W.2d 495 (Tex. App.—Fort Worth 1996, writ denied); Rucker, 810 S.W.2d 793).

Under the applicable law, Maddox, as the party claiming the exemption, has the burden of proving that the fees and income at issue are exempt wages paid to him as an employee.

II. The Record as to the Fees and Income

VRG has submitted evidence that Maddox does business as the Maddox Interests, a sole proprietorship. VRG asserts that Maddox "receives periodic management fees, accounting fees, administrative fees, and tax fees" for services rendered to the following entities: (a) Maddox Hotel Corporation/Lexington Hotel Suites; (b) Maddox Hotel II, L.L.C./Lexington Hotel; (c) New Bexar County Jail; (d) Creme de la Creme Joint Venture; (e) Maddox Equipment Leasing; and (f) T and N, Inc.

VRG specifically seeks turnover of the following:

1. All Fees paid to and/or received by Mr. Maddox personally and doing business as the Maddox Interests for services rendered to: (a) Maddox Hotel Corp./Lexington Hotel Suites; (b) Maddox Hotel II, L.L.C./Lexington Hotel; (c) New Bexar County Jail; (d) Creme de la Creme Joint Venture; (e) Maddox Equipment Leasing; and (f) T and N, Inc. (a.k.a. T & N, Inc.).

2. The value of any Fees paid by: (a) Maddox Hotel Corp./Lexington Hotel Suites; (b) Maddox Hotel II, L.L.C./Lexington Hotel; (c) New Bexar County Jail; (d) Creme de la Creme Joint Venture; (e) Maddox Equipment Leasing; and (f) T and N, Inc. (a.k.a. T & N, Inc.) to other parties for the benefit of Dean H. Maddox and the Maddox Interests.

(Docket Entry No. 32, pp. 2-3). VRG also seeks "the investment banking fee Mr. Maddox will receive from his work on the Tidewater project in Waco, Texas at such time as his fee may be paid him." (Docket Entry No. 32, p. 3).

VRG submitted evidence that included Maddox's deposition testimony, his 1997 federal income tax return, and a May 1999 letter from the Maddox Interests soliciting investment in the real estate development project in Waco, Texas. VRG asserts that the evidence shows that Maddox's income from the entities for which he provided financial services through Maddox Interests is nonexempt.

Maddox testified that after a career in public accounting, followed by thirteen years as chief financial officer of Tenneco, Inc. and sixteen years of heading his own investment syndication company, he formed Maddox Interests, a "small financial firm" with its own offices. Through Maddox Interests, Maddox provides services as an administrative partner or a general partner to investment organizations. (Docket Entry No. 32, Ex. B, p. 5). Through Maddox Interests, Maddox provided financial, accounting, management, and tax services to Creme de la Creme Joint Venture, T & N, Maddox Hotels II, L.L.C., Maddox Hotel Corporation, New Bexar County Jail, and Maddox Equipment Leasing, and investment banking services to Tidewater. It is the payments by these entities for the services Maddox provides that are at issue in this proceeding.

The evidence discloses the following information about the entities at issue:

Maddox Hotel Corporation and Maddox Hotel II, L.L.C. Maddox holds an 80 percent ownership interest in Maddox Hotel Corporation. He receives management fees from Maddox Hotel Corporation for managing a hotel in Dallas, Texas. The fees, based upon available revenues, are in the approximate amount of $4,000 per month. Maddox has a management contract. He spends one day each week at the Dallas hotel. (Id., p. 21). The Maddox Hotel Corporation comptroller writes the check to pay Maddox, but at Maddox's instruction. (Id., pp. 24-25). Maddox also performs a similar job under a management contract for a different hotel in Arlington, Texas, for Maddox Hotel II, L.L.C. Maddox held a 20 to 30 percent interest in Maddox Hotel II, L.L.C., through Maddox Financial Corporation II, a Subchapter S corporation in which he is the only stockholder. Maddox receives approximately $2,000 per month for his work for Maddox Hotel II, L.L.C., depending on the availability of cash from the hotel operations.

New Bexar County Jail. Maddox's financial interest in this project, a record storage center, was lost to foreclosure. He "still administratively manage[s]" the project, under the partnership agreement, by preparing the monthly financial statements, preparing the tax returns, paying the mortgage, and collecting the rental payments. As a management fee, the project pays a portion of Maddox's liability and property insurance costs, valued at approximately $3,000 per year. (Id., pp. 35-37).

Creme de la Creme Joint Venture. Maddox is the general partner in this child care facility. He no longer has a financial interest in the venture. Maddox performs the bookkeeping, collects the revenue, pays the bills, and issues monthly financial statements and quarterly reports, for which he is paid...