U.S. v. Chapman

• Decision Date: 12 April 1985
• Docket Number: No. 84-1221,84-1221
• Citation: 756 F.2d 1237
• Parties: -1364, 85-1 USTC P 9337 UNITED STATES of America, Plaintiff-Appellee, v. Bobby Joe CHAPMAN, a/k/a B.J. Chapman, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1237

756 F.2d 1237

55 A.F.T.R.2d 85-1364, 85-1 USTC P 9337

UNITED STATES of America, Plaintiff-Appellee, v. Bobby Joe CHAPMAN, a/k/a B.J. Chapman, et al., Defendants-Appellants.

No. 84-1221.

United States Court of Appeals, Fifth Circuit.

April 12, 1985.

Wm. M. Ravkind, Dallas, Tex., for defendants-appellants.

Michael L. Paup, Chief, Appellate Section, Glenn L. Archer, Jr., Asst. Atty. Gen., Tax Div., William S. Estabrook, Joan I. Oppenheimer, U.S. Dept. of Justice, Washington, D.C., for plaintiff-appellee.

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

Before CLARK, Chief Judge, GOLDBERG, and TATE, Circuit Judges.

TATE, Circuit Judge:

The principal issue before us concerns whether the United States may enforce a tax lien against property titled to the taxpayer's daughter, on the ground that the transfer into her name with intent to defraud the United States was void as against that creditor. We affirm, as not clearly erroneous, Fed.R.Civ.P. 52(a), the district court's factual determination that the transfer was made with such intent. We likewise affirm the district court's rejection of the taxpayer's alternative contention that--if the transfer was indeed void as against the creditor--the taxpayer's wife's homestead interest in the property should be recognized in any distribution of the proceeds of an execution sale against the property; again we do not find, on the evidence in the record before us, reversible error in the district court's factual determination that neither the taxpayer nor his wife had the requisite intent to claim that property (in which they lived, as alleged renters from their daughter) as their homestead.

Procedural Context

The United States obtained judgment in the amount of $485,185 against the taxpayer Chapman, a Texas resident, for unpaid wagering excise taxes, Section 4401 of the Internal Revenue Code of 1954, 26 U.S.C. Sec. 4401. These taxes had accrued and were due in 1971 and 1972, and were admittedly owed by him as (then) a large-scale bookmaker.

By the present proceedings, the United States successfully sought recognition of a tax lien upon a valuable Texas residential property (the "Shannon Court" property), title to which was in the name of the taxpayer's daughter (Kitty Joy). The government successfully contended that the property had been placed in the daughter's name with intent to defraud the United States from collecting unpaid taxes and that, under Texas law, the transfer into the daughter's name was void as against the creditor intended to be defrauded thereby.

The taxpayer, his wife, and his daughter appeal the district court judgment permitting execution of the judgment which was against the taxpayer (only), against the Shannon Court property (titled to the daughter), and further decreeing that the taxpayer's wife had no homestead right (as alternatively contended by the defendants) recognizable as a claim against the proceeds.

I.

Before adverting to the factual setting, we briefly outline the legal context in which the issue of fraudulent transfer arises. The state law of Texas defines whether the taxpayer has a property right in the Texas-sited realty; if he does, it is subject to the government tax lien. Aguilino v. United States, 363 U.S. 509, 513-14, 80 S.Ct. 1277, 1280-81, 4 L.Ed.2d 1365 (1960). In this instance, whether the taxpayer retained a property interest subject to the federal lien is governed by the application of the Texas Fraudulent Transfers Act, Tex.Bus. & Com.Code Ann. Secs. 24.02, 24.03 (Vernon 1968). Section 24.02(a) provides, generally, that a transfer of property is void as to a creditor if the transfer was intended to delay, hinder, or defraud any creditor from obtaining "that to which he is, or may become, entitled." ¹ Section 24.03 provides that a transfer is void with respect "to an existing creditor" if "not made for a fair consideration." ²

As this court has construed these Texas statutory provisions,

a transfer in fraud of creditors is voidable in the general sense that good title may be passed to a transferee who does not have notice of the fraud, Tex.Bus. & Com.Code Ann. Sec. 24.02(b), and void in the very limited sense that creditors may otherwise treat the transferred property as though the transfer had never taken place, see Texas Sand Co. v. Shield, 381 S.W.2d 48, 55 (Tex.1964).

In re MortgageAmerica Corporation, 714 F.2d 1266, 1272-73 (5th Cir.1983). Under these Texas statutes, "a conveyance which is found to be fraudulent as to creditors is wholly null and void as to such creditors", and "the legal as well as the equitable title remains in the debtor for the purpose of satisfying debts." Texas Sand Company v. Shield, 381 S.W.2d 48, 54 (Tex.1964). Thus, a judgment creditor with a lien on the debtor's property may enforce that lien directly against realty that had been placed in the name of another with intent to defraud the creditor. Id., 381 S.W.2d at 54-55.

The particular issue before us concerns whether a transfer intended to defraud creditors is void, under the Texas Fraudulent Transfers Act, as to a creditor whose debt arises after the transfer has been made. As a general rule, the statutory provisions afford no remedy to a person who was not a creditor of the transferor at the time of the transaction. See Texas Jurisprudence, "Creditors Rights and Remedies", Sec. 576 (1982), and decisions therein cited. However, Id., Sec. 577, a different rule applies when the transfer is made with fraudulent intent at the time of transfer to evade future liabilities to a subsequent creditor. As the decisions cited in Sec. 577 and to be cited below show, in such instance the transfer is void as to the subsequent creditor.

Thus, the conveyance of his property by a tort-defendant, made with intent to defraud the tort-plaintiff, is subject to invalidation as a fraudulent conveyance, even though the liability to the prospective tort-creditor has not matured into a judgment at the time of the transfer. See, e.g., Hollins v. Rapid Transit Lines, Inc., 440 S.W.2d 57 (Tex.1969). A transfer "made with a fraudulent intent to evade future liabilities ... is void as to subsequent creditors." Hartman v. Hartman, 135 Tex. 596, 138 S.W.2d 802, 803 (1940). "[A] note made with no intention of payment for the purpose of defrauding creditors would be void as against existing or future creditors." Stevens v. Cobern, 213 S.W. 925, 925 (Tex.1919). In order for a conveyance to be held fraudulent as to one who became a creditor subsequent to the transaction, "it is necessary that the intent exist at the time [of the conveyance] to shield the property from debts thereafter to be incurred." Cates v. Clark, 24 S.W.2d 450, 453 (Tex.Civ.App.1930).

Further, as does not seem to be contested,

[a] creditor may follow property fraudulently conveyed by the debtor and subject the proceeds to the payment of the creditor's debt. The conversion of the property by the grantee into other property does not prevent the creditors from following the property in its converted form if they are able to do so.

Texas Jurisprudence, supra, Sec. 556 at p. 570.

II.

In the present instance, based upon application of these fraudulent-transfer principles, the district court held that the government's tax lien extended to the taxpayer Chapman's property rights in a residence in which he and his wife lived, but to which the title was held by his daughter, Kitty Joy. Briefly summarized, the factual context of this holding is as follows:

The taxpayer Chapman was a gambler engaged in large-scale bookmaking from 1962 to at least the early part of 1972. As such he was liable for an excise tax in the amount of 10% of each bet he took. He admitted he did not pay such tax as required, claiming not to know of it or--at one point--to have believed it was unconstitutional. He conceded that he was habitually late in paying his income taxes due to the United States, that he always had problems with the Internal Revenue Service, and that, because of these problems, he liked to keep his assets in cash "to avoid the reach of the IRS." R. II, p. 130.

In 1961 Chapman and his wife purchased a home on Cordova Street in Dallas, Texas, secured by a mortgage. In late 1968 he conveyed that home (valued at a minimum of $31,000) to his minor son ("Bobby E."), age 19, for no consideration except Bobby E.'s assumption of the mortgage (of balance due less than $9,000). ³ Chapman and his wife continued to live in the home and continued to make the mortgage payments, allegedly in lieu of rent to his son. At approximately the same time as this transaction, Chapman transferred his only other non-cash asset, a used car lot, to his two minor sons, Bobby E. and his twin brother. (A few days after the taxpayer's transfer of his Cordova Street home to his son, a raid and search was conducted of these premises, directed at the taxpayer's gambling operations thereupon.)

In 1973, the son Bobby E. conveyed the Cordova Street house to his sister, Kitty Joy, then age 18, for the alleged amount of some $3,535, which Kitty Joy borrowed and secured by mortgage on the home. Again, Chapman and his wife continued to live in the home, and there is evidence from which the trial court could find that Chapman continued to make the mortgage payments.

In 1975, Kitty Joy, who had no appreciable income at the time, exchanged the Cordova Street house and $35,000 cash for the Shannon Court house, executing a mortgage note for the $35,000 cash. She and her parents moved into the Shannon Court house where she lived until her marriage in 1978, after which her parents continued to live there. Again, Chapman made the mortgage payments totaling over $5,000 per year, allegedly in lieu of rent to Kitty Joy. He made substantial improvements and repairs to the house. Utility services have been provided to that residence always in the name of Chapman himself since the acquisition of the property.

...