Stokes v. Ferris, No. 03-02-00802-CV (TX 5/13/2004)

• Court: Texas Supreme Court
• Writing for the Court: Mack Kidd
• Decision Date: 13 May 2004
• Docket Number: No. 03-02-00802-CV,03-02-00802-CV
• Citation: Stokes v. Ferris, No. 03-02-00802-CV (TX 5/13/2004) (Tex. 2004)
• Parties: GEM STOKES AND JOHN JAY STOKES, JR., Appellants v. ANTHONY P. FERRIS, TRUSTEE FOR RICHARD FERRIS, Appellee.

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GEM STOKES AND JOHN JAY STOKES, JR., Appellants v. ANTHONY P. FERRIS, TRUSTEE FOR RICHARD FERRIS, Appellee.

No. 03-02-00802-CV

Court of Appeals of Texas, Third District, Austin.

Filed: May 13, 2004.

Appeal from the District Court of Travis County, 345th Judicial District, No. 98-03177, Honorable Suzanne Covington, Judge Presiding.

Affirmed.

Before Chief Justice LAW, Justices KIDD and PURYEAR.

MEMORANDUM OPINION

MACK KIDD, Justice.

Anthony P. Ferris as trustee for Richard Ferris (Ferris) sued appellants John Jay Stokes, Jr. (Jay Stokes) and Gem Stokes for violations of the fraudulent-transfer statute, seeking to void a transfer of money from Jay Stokes to Gem Stokes. The district court found in favor of Ferris and ordered appellants to turn over $1,033,280 to Ferris. In addition, the jury found that Ferris was entitled to recover $5,528,059.87 from Jay Stokes in exemplary damages. We will affirm.

FACTUAL AND PROCEDURAL BACKGROUND

In 1984, Jay Stokes sought to sell real estate he claimed he owned. In January of 1985, before finding a buyer, Jay Stokes's home and office, which were not located on the real estate Jay Stokes was attempting to sell, caught fire. Jay Stokes's insurance carrier, State Farm, refused to pay for the damages to his home and office. On March 19, 1985, Jay Stokes finally sold the real estate he claimed he owned to Ferris for $550,000. Ferris received a deed for the property that was allegedly executed by Jay Stokes.

In January of 1986, Ferris was informed by John Stokes, Sr., the father of Jay Stokes, that (1) the deed transferring the property from Jay Stokes to Ferris was a forgery and (2) John Stokes, Sr. was the lawful owner of the property. John Stokes, Sr. filed a lawsuit against Jay Stokes and Ferris to reclaim his property. Around the same time, Jay Stokes entered into a secret agreement that assigned certain claims, including his claim against State Farm, to his mother Gem Stokes in exchange for financial support for two to five years.

After John Stokes, Sr. filed suit against Jay Stokes and Ferris to reclaim his property, handwriting experts confirmed that the deed allegedly executed by Jay Stokes was a forgery. Ferris then filed a cross-claim against Jay Stokes for the return of the money that was paid for the property. On October 29, 1987, the district court found the deed was a forgery and entered a judgment by default against Jay Stokes. On the same day, Jay Stokes filed for bankruptcy.

After the bankruptcy stay was lifted, Ferris obtained a judgment against Jay Stokes for $1.7 million based on fraud. Ferris returned the disputed property to John Stokes, Sr., but Jay Stokes did not return the amount of the purchase price to Ferris. The judgment against Jay Stokes was never satisfied.

In 1998, Jay and Gem Stokes recovered $1,033,280 in the fire-claim lawsuit against State Farm. After learning Jay Stokes had assigned his fire claim to Gem Stokes and that appellants had been awarded $1,033,280 from State Farm, Ferris immediately filed this lawsuit against appellants seeking monetary damages. The district court entered final judgment ordering that (1) the transfer of the proceeds obtained in the State Farm trial by appellants is void; (2) any subsequent transfer of the proceeds obtained in the State Farm trial by appellants is void; (3) appellants are permanently enjoined from transferring the proceeds obtained in the State Farm trial; (4) appellants are to turn over all proceeds obtained in the State Farm case to Ferris; and (5) Ferris is entitled to an award of exemplary damages in the amount of $5,528,059.87 against Jay Stokes. Appellants filed a motion for new trial and a motion to modify the judgment, which were denied by the district court. Appellants jointly argue on appeal that the district court erred because: (1) it misstated the law in the jury charge by failing to include one of the elements of section 24.02(b) of the pre-1987 fraudulent-transfer statute; (2) it assessed a money judgment against appellants, which is a remedy available under the 1987 fraudulent-transfer statute but not the pre-1987 statute; (3) it failed to enter a take-nothing judgment against Ferris because, by applying the 1987 version of the fraudulent-transfer statute in awarding monetary damages, the court was required to follow section 24.001(a)(1) of the 1987 fraudulent-transfer statute that has a four-year statute of limitations with a one-year discovery rule; (4) it declared any subsequent transfer of the funds obtained in the State Farm case null and void and failed to submit to the jury separate fact questions regarding subsequent transfers; (5) it ordered a permanent injunction prohibiting the transfer of any proceeds in the amount of $1,033,280 because the pleadings were not sufficient to warrant a permanent injunction; (6) the evidence is factually insufficient to support the jury's finding of when Ferris, through reasonable diligence, should have discovered the transfer from Jay Stokes to Gem Stokes; (7) the evidence is legally insufficient to support the finding that appellants violated the pre-1987 fraudulent-transfer statute; and (8) the evidence is factually insufficient to support the finding that appellants violated the pre-1987 fraudulent-transfer statute.

In addition, appellant Jay Stokes, individually, raises the following three issues on appeal: (1) the evidence is not clear and convincing that appellants violated the pre-1987 fraudulent-transfer statute, which is necessary to assess exemplary damages; (2) the evidence is legally insufficient to support the award of exemplary damages; and (3) the evidence is factually insufficient to support the award of exemplary damages.

Appellant Gem Stokes, individually, also raises two issues on appeal arguing that the district court erred by (1) including a turnover order in the final judgment because a turnover order should be the subject of a separate action under section 31.002 of the Texas Civil Practice and Remedies Code and (2) prohibiting counsel for Gem Stokes from finishing his argument that the evidence was insufficient to show that Gem Stokes had committed a fraudulent transfer under the pre-1987 statute.

DISCUSSION

Fraudulent-Transfer Jury Charge

In their first issue, appellants contend that the district court erred by misstating the law in the court's charge over appellants' objection by failing to include an element of the pre-1987 fraudulent-transfer statute. We review a claim that a trial court failed to give a particular instruction or definition in a jury charge under an abuse-of-discretion standard. State Farm Lloyds v. Nicolau, 951 S.W.2d 444, 451-52 (Tex. 1997); McReynolds v. First Office Mgmt., 948 S.W.2d 342, 344 (Tex. App.—Dallas 1997, no writ). When determining whether a trial court abused its discretion, we cannot substitute our judgment for that of the trial court. McReynolds, 948 S.W.2d at 344. We "may only decide whether the trial court's action was arbitrary or unreasonable." Id. (citing Landry v. Travelers Ins. Co., 458 S.W.2d 649, 651 (Tex. 1970)); European Crossroads Shopping Ctr., Ltd. v. Criswell, 910 S.W.2d 45, 54 (Tex. App.—Dallas 1995, writ denied).

The trial court is required to "submit such instructions as shall be proper to enable the jury to render a verdict." Tex. R. Civ. P. 277. When reviewing a jury instruction on appeal, the question is whether the jury instruction was proper. M.N. Dannebaum, Inc. v. Brummerhop, 840 S.W.2d 624, 631 (Tex. App.—Houston [14th Dist.] 1992, writ denied). For an instruction to qualify as proper, the instruction must (1) assist the jury, (2) be supported by the pleadings, and (3) accurately state the law. Texas Workers' Comp. Ins. Fund v. Mandlbauer, 34 S.W.3d 909, 912 (Tex. 2000) (citing Tex. R. Civ. P. 278; Criswell, 910 S.W.2d at 54). An explanatory instruction will be considered improper only if it misstates the law as applicable to the facts. Dannebaum, 840 S.W.2d at 631.

The purpose of the fraudulent-transfer statute is to prevent debtors from removing property from the reach of their creditors. Kaufmann v. Morales, 93 S.W.3d 650, 653 (Tex. App.—Houston [14th Dist.] 2002, no pet.); Harrisburg Nat'l Bank v. Geo. C. Vaughan & Sons, 204 S.W.2d 9, 12 (Tex. Civ. App.—Galveston 1947, writ dism'd). The charge given to the jury tracked the language of section 24.02(a) of the pre-1987 Texas Business and Commerce Code.¹ Appellants argue that the jury instruction should also have contained language from section 24.02(b) of the pre-1987 statute. Former section 24.02(b) concerns whether the title transferred to a purchaser for value is void if the purchaser lacks knowledge of fraudulent intent, but it is limited to cases where a title has been transferred. See Former Tex. Bus. & Comm. Code Ann. § 24.02(b).

In this case, Jay Stokes assigned to Gem Stokes the right to certain claims, including claims made on insurance policies for Jay Stokes's home and office for fire damage. Former section 24.02(b) does not apply to the transfer of a claim for potential lawsuits because a claim to a lawsuit is personal property and not real property. See Texas Mun. League v. Texas Workers' Comp. Comm'n, 74 S.W.3d 377, 387 (Tex. 2002) (personal property "means a claim, right, or interest that has value but cannot be measured or perceived by the senses"); see also Tex. Tax Code Ann. § 1.04(6) (West 2001). No title to real property was transferred between Jay Stokes and Gem Stokes. Therefore, because former section 24.02(b) does not apply in this case, the jury instruction that excluded former section 24.02(b) did not "misstate the law as to the applicable facts." Dannebaum, 840 S.W.2d at 631. In addition, rather than assisting the jury, the instruction might have confused the jury by raising an irrelevant issue. See Mandlbauer, 34 S.W.3d at 912. Because the district court's decision to exclude former section 24.02(b) from the jury instruction was not a clear...