Rosenberg v. Trautwein

• Decision Date: 21 August 1980
• Docket Number: No. 79-1587,79-1587
• Citation: 624 F.2d 666
• Parties: David H. ROSENBERG, Trustee in Bankruptcy, Plaintiff-Appellee, v. James TRAUTWEIN, etc. et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 666

624 F.2d 666

6 Bankr.Ct.Dec. 1028

David H. ROSENBERG, Trustee in Bankruptcy, Plaintiff-Appellee, v. James TRAUTWEIN, etc. et al., Defendants-Appellants.

No. 79-1587.

United States Court of Appeals, Fifth Circuit.

Aug. 21, 1980.

Payne & Spradley, John R. Guittard, Shank, Irwin, Conant, Williamson & Grevelle, Charles F. Guittard, Dallas, Tex., for defendants-appellants.

Kasmir, Willingham & Krage, Alan H. Cooper, David B. Winn, Ben L. Krage, Dallas, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before TJOFLAT, POLITZ and HATCHETT, Circuit Judges.

HATCHETT, Circuit Judge:

Appellants, James Trautwein and Susan Trautwein, appeal from a judgment notwithstanding the verdict for the bankruptcy trustee, appellee Rosenberg, where the jury found that certain transfers to James Trautwein within a year of bankruptcy were fair consideration for Trautwein's services to the bankrupt. Because we find that substantial evidence supports the jury's verdict on fair consideration, that the trial judge erroneously reversed the burden of proof and erroneously weighed the evidence and the credibility of the witnesses, we reverse and reinstate the jury's verdict.

FACTS

The bankruptcy trustee for the estate of Robert L. Arata, d/b/a Arata & Co., brought this action pursuant to section 67(d) of the Bankruptcy Act (11 U.S.C. § 107), ^* as one of approximately ninety-two actions seeking to set aside certain transfers of cash by the bankrupt within one year preceding the filing of a voluntary petition of bankruptcy on January 24, 1974. By order dated July 12, 1978, this case was consolidated with others for trial on all issues, except whether the cash payments to James Trautwein were for fair consideration. Trial of the consolidated cases, and of all other issues in this case, was in November, 1978. Trial of the issue of fair consideration in this case was in December, 1978. The trial judge set aside the jury's findings at the December trial that the payments to James Trautwein were for fair consideration and entered judgment notwithstanding the verdict in favor of the bankruptcy trustee.

A statement of background facts with respect to the bankrupt in the ninety-two similar cases consolidated for trial in November, 1978, is found in this panel's opinion of Rosenberg v. Collins, 624 F.2d 659 (5th Cir., 1980). Trautwein's relationship to the bankrupt, Arata, was unique; not only was Trautwein a customer of the bankrupt's company, he also kept the company's books and contributed other personal services. In the year prior to the bankruptcy, Trautwein made cash deposits totaling $1,250 with the bankrupt's company and received payments from the bankrupt totaling At Trautwein's separate trial in December, 1978, the issue was whether any funds Trautwein received were for services rendered rather than as distributions from the commodity accounts. There, Trautwein testified that he had an oral compensation agreement with Arata that he would get 2.5 percent of the closed profits of Arata & Co. on the profitable contracts. Trautwein testified that during 1973 he spent forty to fifty hours per week, working on quarterly statements and talking to all of the customers. Trautwein testified further that he did not learn that the statements showed fictitious amounts until December, 1973. He stated that his impression at the November, 1978, trial was that Arata paid him nothing for bookkeeping and that the monies he received were from the commodity account. He testified that he had a different impression at the December trial, having since read a deposition of Arata that he had not seen before, which indicated that Arata meant the money to be compensation to him.

$64,515.20. At the trial in November, 1978, Trautwein testified that the payments to him from the bankrupt were not compensation for services, but rather were withdrawals from his account with the bankrupt.

At the December, 1978, trial, Arata testified that Trautwein performed bookkeeping and other substantial services for him. He also confirmed the oral agreement for compensation that Trautwein had with him and the fact that Trautwein did not know the quarterly statements showed fictitious amounts until December 1973.

At the close of the evidence, the bankruptcy trustee moved for a directed verdict on the grounds that: (1) Trautwein's previous testimony at the November trial established that the payments in question came to him as a result of his status as a customer or investor, rather than for services rendered; (2) the amounts of the payments were established by requests for admission; (3) the evidence with regard to services rendered was in the nature of an offset, which had not been pleaded and on which Trautwein failed to carry his burden of proof as to the amount of the offset; and (4) the evidence was insufficient to support a jury verdict. The trial judge favored granting the motion, but deferred ruling on the motion until after the jury rendered its verdict.

Before retiring the jury, the trial judge instructed the jury that in order to set aside a transfer of property by the bankrupt pursuant to section 67(d), the bankruptcy trustee must prove that the transfer was made without fair consideration, and that the transfers were without fair consideration if Arata lacked good faith when he made them. The jury returned a verdict in favor of Trautwein, finding every payment in 1973 to be with fair consideration. The trial judge then granted the bankruptcy trustee's motion and entered judgment notwithstanding the verdict. The trial judge reasoned that:

The evidence establishes, such that reasonable men exercising impartial judgment may not differ in their conclusion, see Brown v. State Farm Mutual Automobile Casualty Co., 506 F.2d 976, 978 (5th Cir. 1975), that defendant did not receive the transfers in question in exchange for services rendered to Arata. The testimony revealed that defendant agreed with Arata to receive 2.5 percent of the profits made by Arata & Co. in return for his services. Defendant failed to prove that Arata & Co. earned any profits. Further, defendant did not receive the transfers in question as profits but as withdrawals from his fictitious commodities account with Arata. These transfers were supposedly return on his investment and not compensation for his services. As such, they were not made for fair consideration.

ISSUE

We must determine whether the trial judge erred in granting the bankruptcy trustee judgment notwithstanding the verdict.

The bankruptcy trustee argues that the trial judge correctly granted judgment notwithstanding the verdict because:

(1) the evidence establishes as a matter of law that the transfers in question were withdrawals from Trautwein's fictitious commodities account, rather than paychecks pursuant to Trautwein's oral employment contract; and,

(2) the bankruptcy trustee's theory that services rendered constitute fair consideration for the transfers in question is a defensive issue or offset which was not pleaded nor tried by consent and on which Trautwein failed to carry his burden of proof.

STANDARD OF REVIEW

In Sulmeyer v. Coca Cola Co., 515 F.2d 835, 841 (5th Cir.), cert. denied, 424 U.S. 934, 96 S.Ct. 1148, 47 L.Ed.2d 341 (1975), this court stated the legal test to be applied when appeal is taken from a judgment notwithstanding the verdict:

Generally a motion for directed verdict or judgment n. o. v. should be granted only in two situations: "First, where there is a complete absence of pleading or proof on an issue or issues material to the cause of action or defense. . . . Second, where there are no controverted issues of fact upon which reasonable men could differ." 5A Moore's Federal Practice P 50.02(1) (2d ed. 1974). Accord Alman Bros. Farms & Feed Mill, Inc. v. Diamond Lab., Inc., 437 F.2d 1295 (5th Cir. 1971). In passing on the motion, the trial court must view the evidence in the light most favorable to the party opposing it, giving the party the benefit of all reasonable inferences in its favor. Boeing Co. v. Shipman, 411 F.2d 365 (5th Cir. 1969). The standard of review at the appellate level is the same. 9 C. Wright & A. Miller, Federal Practice and Procedure § 2524 (1971).

I

In light of the Sulmeyer standard, we consider the bankruptcy trustee's first contention: that the evidence establishes as a matter of law that the transfers in question were withdrawals from Trautwein's fictitious commodities account, rather than paychecks pursuant to Trautwein's oral employment contract.

The record contains substantial testimony that Arata had agreed to pay Trautwein for his services; that Trautwein rendered substantial services from 1969 to 1973, including solicitation for customers, handling customer questions, and preparation of quarterly statements to customers on their accounts based on information from Arata; and that Arata himself admitted after making the payments and before filing for bankruptcy that he probably owed Trautwein more money and that he had not paid Trautwein what Trautwein had earned for the company. Such...