US v. Shepherd
| Decision Date | 05 August 1993 |
| Docket Number | Civ. A. No. 5:92-CV-178-C. |
| Parties | UNITED STATES of America, Plaintiff, v. John SHEPHERD, Individually and as Substitute Trustee; Slygo Farms, Inc.; Clifton Royce Harvey; Dora Harvey; and DHR Farm Co., Defendants. |
| Court | U.S. District Court — Northern District of Texas |
COPYRIGHT MATERIAL OMITTED
Edwin Scott Frost, U.S. Attys. Office, Lubbock, TX, for plaintiff.
John L. Shepherd, trustee.
James Ray Caton, Seminole, TX, for defendants.
After hearing the testimony and reviewing the exhibits admitted into evidence, the Court makes the following findings of fact:
1. The Court refers to and incorporates herein the stipulated facts contained in the Joint Pretrial Order.
2. The purchases of the first liens on Sections 686 and 687, Block D, John H. Gibson Survey, Yoakum County, Texas (hereafter referred to as Sections 686 and 687) by Slygo Farms, Inc. were effected for the purpose of foreclosing the liens to cut off the junior liens held by Plaintiff.
3. The foreclosure sales purportedly held on February 5, 1991, March 5, 1991, and May 7, 1991, were not conducted or were not properly conducted by Defendant John Shepherd so as to ensure that Defendant Slygo Farms, Inc. became the owner of Sections 686 and 687 and to cut off the junior liens held by Plaintiff.
4. The foreclosure sales noticed for February 5, 1991, March 5, 1991, and May 7, 1991, were never conducted by Defendant John Shepherd.
5. The foreclosure sales noticed for February 5, 1991, March 5, 1991, and May 7, 1991, if conducted, are void or voidable in that the sales were not properly conducted by Defendant John Shepherd.
6. The foreclosure sales noticed for February 5, 1991, March 5, 1991, and May 7, 1991, if conducted, are void or voidable in that proper notices were not given or posted prior to the sales.
7. The foreclosure sales noticed for February 5, 1991, March 5, 1991, and May 7, 1991, if conducted, are void or voidable in that the filing of Transfers and Assignments of Liens by Defendant Slygo Farms, Inc., was intentionally delayed to mislead the Plaintiff as to the identity of the holders of the liens to prevent the Plaintiff from taking action to protect its liens on Sections 686 and 687.
8. The foreclosure sales noticed for February 5, 1991, March 5, 1991, and May 7, 1991, if conducted, are void or voidable in that the Notices of Sales were not posted or were not posted in the proper place or were posted then pulled repetitively to intentionally mislead Plaintiff from attending the foreclosure sales to protect its liens.
9. The foreclosure sales noticed for February 5, 1991, March 5, 1991, and May 7, 1991, if conducted, are void or voidable in that Defendant Clifton Royce Harvey intentionally allowed the debt secured by Sections 686 and 687 to become delinquent to allow Defendant Slygo Farms, Inc., to foreclose on Sections 686 and 687.
10. The foreclosure sales noticed for February 5, 1991, March 5, 1991, and May 7, 1991, if conducted, are void or voidable in that the Trustee's Deeds filed and executed by Defendant John Shepherd, allegedly conveying Sections 686 and 687 to Defendant Slygo Farms, Inc., contain false and misleading information.
11. The Trustee's Deeds filed by Defendant John Shepherd on March 28, 1991, purportedly evidencing foreclosure sales on February 5, 1991, and March 5, 1991, were intentionally filed in order to mislead Plaintiff as to the status of title to Section 686 and 687, in furtherance of a scheme by Defendants to defraud, hinder, or delay the United States from recovering its collateral.
12. The foreclosure sales noticed for February 5, 1991, March 5, 1991, and May 7, 1991, if conducted, are void or voidable in that the consideration received at the alleged foreclosure sales was grossly inadequate in relation to the value of Sections 686 and 687.
13. The foreclosure sales which culminated in the Trustee's Deeds to Defendant Slygo Farms, Inc. are void or voidable, thus the resulting Warranty Deed to Defendant Dora Harvey is void as well.
14. Defendant Dora Harvey is not a bona fide purchaser in that she had actual and/or constructive knowledge that the foreclosure sales conducted by Defendant John Shepherd were not properly noticed or conducted.
15. The judgment entered on or about July 20, 1992, by the 121st District Court of Yoakum County, Texas, is void or voidable and should be set aside as Defendants John Shepherd and DHR Farm Co. knew or should have known that the United States claimed an interest to the subject property, yet failed to serve the United States with the citation or name the United States as a party defendant.
16. The following acts were part of a scheme by Defendants to defraud, hinder, or delay the United States from recovery of its collateral:
a. The formation of Slygo Farms, Inc., and DHR Farm Co.;
b. The purchasing of prior liens by Slygo Farms, Inc.;
c. The delay in recording Transfers of Liens;
d. The failure to properly post Notices of Sale;
e. The improper foreclosure procedures used by Defendant John Shepherd;
f. The repetitive filing of false and misleading Trustee's Deeds by Defendant John Shepherd;
g. The purchasing of Sections 686 and 687 by Slygo Farms, Inc.;
h. The grossly inadequate consideration received at the alleged foreclosure sales;
i. The conveyance of Sections 686 and 687 to Dora Harvey; and
j. The subsequent conveyance of said property by Dora Harvey to DHR Farm Co.
17. The scheme to defraud the United States from recovery of its collateral was orchestrated and controlled by Defendant John Shepherd, with the knowledge and consent of the named Defendants.
18. The United States relied on the Defendants' acts or omissions to its detriment.
19. The United States suffered damages based on the Defendants' acts or omission to act which were relied upon by the United States.
Based upon the above findings, the Court makes the following conclusions of law:
1. Transfers made after September 1, 1987, are governed by the Uniform Fraudulent Transfer Act ("UFTA"), Tex.Bus. & Com.Code Ann. §§ 24.001, et seq. (West 1987). Matter of Holloway, 955 F.2d 1008, 1010 (5th Cir.1992). However, as some of the actions by the Defendants occurred subsequent to the effective date of the Federal Fraudulent Conveyance Act, 28 U.S.C. §§ 3301, et seq., and since the actions complained of by the United States are part of a continuous scheme to defraud the United States, the federal act is also applicable.
2. The principles codified by the UFTA and its predecessor, the Texas Fraudulent Transfer Act, were established by case law prior to their effective dates and, indeed, the right to recovery for fraudulent conveyances is a common law right which exists independent of statute. Hadlock v. Eric, 23 F.Supp. 692, 693 (S.D.N.Y.1938).
3. A transfer made by a debtor is fraudulent if the debtor made the transfer with actual intent to hinder, delay, or defraud any creditor of the debtor. Uniform Fraudulent Transfer Act, § 24.005(a)(1); Colonial Leasing Co. of New England, Inc. v. Logistics Control Group Int'l, 762 F.2d 454, 458 (5th Cir.1985) (discussing Texas Fraudulent Transfer Act). See also 28 U.S.C. § 3304.
4. Since direct proof of fraud often is not available, courts may rely on circumstantial evidence to establish fraudulent intent. Roland v. United States, 838 F.2d 1400 (5th Cir.1988) (citing United States v. Chapman, 756 F.2d 1237, 1240-41 (5th Cir.1985); Williams & Chastain v. Laird, 32 S.W.2d 502, 505 (Tex.Civ.App.1930)).
5. Fraud is, in its very nature, not discernible by the direct evidence of the senses and is usually so covert or attended with such attempts at concealment as to be incapable of proof other than by circumstantial evidence. Its existence, in a given case, may be proved either by intrinsic evidence of unfairness in the transaction itself, or by evidence of facts and circumstances attending the transaction that, by the ordinary test by which people judge the motives to action, appear inconsistent with an honest purpose. 41 Tex.Jur.3d, Fraud and Deceit, Section 107, page 389 (citing Morgan v. Arnold, 441 S.W.2d 897 (Tex.Civ.App.1969, writ ref'd n.r.e.)).
6. When several indicia of fraud are found, they can form a proper basis for an inference of fraud. Roland, supra, 838 F.2d at 1403 (citing Chapman, supra, 756 F.2d at 1243; United States v. Fernon, 640 F.2d 609, 613 (5th Cir.1981)).
7. Such indicia of fraud are known as badges of fraud, i.e., evidence of fraud or a means of establishing fraudulent intent, Texas Sand Co. v. Shield, 381 S.W.2d 48, 53 (Tex.1964), and include:
Roland v. United States, supra, 838 F.2d at 1403.
8. While evidence of blood relationship between the grantor, a debtor, and the grantee in itself does not conclusively show fraud, such relationship may be of importance when coupled with other circumstances that tend to show fraudulent intent. Texas Sand Co. v. Shield, 381 S.W.2d 48 (Tex.1964, writ ref'd n.r.e.).
9. In determining actual intent, Texas has statutorily provided the following factors for consideration:
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