Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-91-06196/USCOURTS-ca10-91-06196-0/pdf.json

Parties Involved:
Fina Oil and Chemical Company
Appellee
Johnnie L. Phelps
Appellant

Document Text:

• 

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

JOHNNIE L. PHELPS, ) 

) 

Plaintiff-Appellant, ) 

) 

v. ) No. 

) 

FINA OIL AND CHEMICAL COMPANY, ) 

) 

Defendant-Appellee. ) 

DEC 2 G 1991 

ROBERT L. HOECKER 

Clerk 

91-6196 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF OKLAHOMA 

(D.C. No. CIV-90-1092-R) 

Submitted on the briefs:* 

John D. Singleton and Brinda K. White of Linn & Helms, Oklahoma 

City, Oklahoma, for Plaintiff-Appellant. 

Donald E. Godwin, Thomas C. Barron, and Harvey G. Joseph of 

Godwin, Carlton & Maxwell, Dallas, Texas, for Defendant-Appellee. 

Before LOGAN, MOORE, and BALDOCK, Circuit Judges. 

BALDOCK, Circuit Judge. 

* After exam1n1ng the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); lOth Cir. R. 34.1.9. The case is therefore ordered 

submitted without oral argument. 

Appellate Case: 91-6196 Document: 01019336517 Date Filed: 12/26/1991 Page: 1 
Plaintiff-appellant Johnnie L. Phelps appeals from a district 

court judgment granting defendant-appellee Fina Oil & Chemical 

Company's motion for summary judgment and denying Phelps' motion 

for summary judgment. We have jurisdiction pursuant to 28 u.s.c. 

§ 1291. The issue is whether the district court correctly 

concluded that Phelps failed to offer sufficient evidence in 

support of his creditor's bill action against Fina. 

and remand. 

We reverse 

Phelps, David Brunson, and Warren Montgomery formed Paragon 

Energy, Ltd., to engage in the oil business. Paragon's main asset 

was a group of oil leases known as the Foster Tester leases. 

The leases were valued in the millions of dollars. Appellant's 

App. at 24. Phelps advanced substantial sums of money to Paragon 

and executed personal guarantees to secure payments of other loans 

to Paragon. These loans went toward the purchase of the Foster 

Tester leases. Id. at 26. 

In March 1983, Paragon assigned the leases to Dabon, Inc., 

for $1.00. In April 1984, Dabon assigned the leases to Cher-Oil 

for $1.00. Paragon and Dabon became insolvent as a result of 

these assignments. Id. at 25. 

Fina began purchasing hydrocarbons under the leases from 

Cher-Oil in April 1984, id. at 52, and continued to do so until at 

least October 14, 1988. 

As a result of these transactions, three actions, described 

more fully below, were commenced in the United States District 

Court for the Western District of Oklahoma. 

2 

Appellate Case: 91-6196 Document: 01019336517 Date Filed: 12/26/1991 Page: 2 
In case No. CIV 85-2626-R, Phelps' loans had not been repaid 

at the time of the assignments to Dabon and Cher-Oil. Id. at 26. 

On October 25, 1985, Phelps commenced an action, Phelps v. Paragon 

Energy, Ltd. (case No. CIV 85-2626-R), to have the assignments set 

aside as fraudulent. Fina was named as a defendant. Phelps filed 

a notice of lis pendens on December 30, 1985. Appellant's App. at 

33. 

In an October 14, 1988, order, the district court determined 

that Phelps was a creditor of Paragon at the time of both 

assignments, id. at 26, that the assignments of the leases were 

not for fair consideration, id. at 28-29, and that Paragon became 

insolvent as a result of the conveyances, id. at 28. The court 

concluded that the assignments were fraudulent as to Paragon's 

creditors, including Phelps, and must be set aside. Id. at 29. 

The court relied on United States v. Chapman, 756 F.2d 1237, 1240 

(5th Cir. 1985), for the proposition that when a conveyance is 

found to be fraudulent, legal as well as equitable title remains 

in the debtor for purposes of satisfying debts. Appellant's App. 

at 29. 

In case No. CIV 89-1823-R, Phelps was the sole shareholder of 

Paragon by virtue of the final judgment in case No. CIV 85-2626-R. 

Id. at 23. Paragon then, with Phelps as sole shareholder, 

commenced an action against Fina to establish Paragon's ownership 

rights to the hydrocarbons purchased by Fina. Paragon Energy, 

Ltd. v. Fina Oil & Chern. Co. (case No. CIV 89-1823-R). 

The court rejected Paragon's claims, citing the rule that, as 

between parties to a fraudulent conveyance, a party who 

3 

Appellate Case: 91-6196 Document: 01019336517 Date Filed: 12/26/1991 Page: 3 
fraudulently conveys property cannot thereafter assert any right, 

title, or interest in the property. Driskill v. Forbes, 566 

S.W.2d 90, 91 (Tex. Civ. App. 1978)(citing Letcher v. Letcher, 421 

S.W.2d 162, 169 (Tex. Civ. App. 1967)). The court reasoned that 

because Paragon had fraudulently assigned the leases, Paragon 

could not assert any right, title, or interest in the property 

against Fina. Appellant's App. at 71. 

In case No. CIV 90-1092-R, Phelps (in his own name) attempted 

to execute his judgment against Paragon's assets. Id. at 30. The 

writ of execution was returned nulla bona. Id. at 32. Phelps 

then commenced the present creditor's bill action against Fina. 

Phelps v. Fina Oil & Chern. Co. (case No. CIV 90-1092-R). His 

complaint alleged that 

Because the court [in case No. CIV 85-2626-R] determined 

that the assignments of the Foster Tester Leases were 

fraudulent and must be set aside insofar as necessary to 

satisfy Paragon's debt to Phelps, Fina acquired no 

interest in the hydrocarbons purchased from October 25, 

1985, until October 14, 1988 .... 

These hydrocarbons or their proceeds are property 

owed by Paragon to Phelps. 

Appellant's App. at 2-3. Phelps further alleged that, due to the 

filing of the lis pendens, Fina took its interest in the property 

subject to Phelps' rights as determined by the court in case No. 

CIV 85-2626-R. Id. at 2. 

Phelps and Fina filed cross motions for summary judgment. 

The district court applied the rule that "[i]n order to recover 

from Fina, Phelps must show that he is a judgment creditor of 

Paragon, and that Paragon has some claim against Fina." 

Concluding that Phelps failed to offer any evidence that Paragon 

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Appellate Case: 91-6196 Document: 01019336517 Date Filed: 12/26/1991 Page: 4 
had a claim against Fina, the district court granted Fina's motion 

and denied Phelps' motion. 

In reviewing a summary judgment order, we apply the same 

standard as that employed by the trial court under Fed. R. Civ. P. 

56(c). Osgood v. State Farm Mut. Auto. Ins. Co., 848 F.2d 141, 

143 (lOth Cir. 1988). We must examine the record to determine if 

any genuine issue of material fact was in dispute; if not, we must 

decide if the substantive law was correctly applied. Id. We 

examine the record in the light most favorable to the party 

opposing the motion. Because neither party disputes the 

facts, we proceed to resolve whether the substantive law was 

correctly applied. 

Fina contends the rule in Oklahoma1 is that a judgment 

creditor may bring a creditor's bill action against assets 

transferred by a judgment debtor only where the judgment debtor 

has an actionable claim against the transferee. Roxoline 

Petroleum Co. v. Wilson, 253 P. 59, 62 (Okla. 1926). Fina further 

contends that because the court concluded in case 

No. CIV 89-1823-R that Paragon has no claim against Fina for 

ownership or possession of the property, Phelps cannot maintain 

this creditor's bill action against Fina. 

We would agree with Fina if Roxoline were the only authority 

in Oklahoma governing creditor's bill actions. Another line of 

Oklahoma cases indicates, however, that an action in the nature of 

1 Both parties rely on Oklahoma law concerning creditor's bill 

actions. 

5 

Appellate Case: 91-6196 Document: 01019336517 Date Filed: 12/26/1991 Page: 5 
a creditor's bill can be used to reach fraudulently conveyed 

property to satisfy a judgment or debt. For example, in 

Rucks-Brandt Construction Corp. v. Silver, 151 P.2d 399, 400 

(Okla. 1944), plaintiff Silver obtained a worker's compensation 

award against Rucks-Brandt Construction Company. Before the 

company paid the award, its officers formed Rucks-Brandt 

Construction Corporation and transferred all of its property to 

the new corporation. Id. at 400-01. Silver brought an action in 

the nature of a creditor's bill against the company and the 

corporation. Id. at 400. His petition alleged inter alia that 

the formation of the corporation was done to further a fraudulent 

scheme to defeat payment of the worker's compensation award. Id. 

at 401. 

The Oklahoma Supreme Court concluded that the debtor company 

fraudulently transferred its property to the corporation. Id. at 

402. It noted that "a petition alleging a valid judgment and 

fraudulent transfer of property by the judgment debtor was a 

creditor's bill and ancillary." Id. The court modified and 

affirmed the judgment in favor of the creditor. Id. at 403-04. 

While the decision in Rucks-Brandt Construction Corp. turned 

on issues not relevant to the present case, it is instructive 

because it characterized the action as a creditor's bill even 

though one of the defendants to the action had received property 

through fraudulent conveyance from the judgment debtor. For other 

Oklahoma decisions characterizing similar actions as creditor's 

bills, see Miller v. Melone, 67 P. 479, 482 (Okla. 1901); White v. 

Exchange Nat'l Bank of Ardmore, 44 P.2d 935, 936 (Okla. 1935)(per 

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Appellate Case: 91-6196 Document: 01019336517 Date Filed: 12/26/1991 Page: 6 
curiam). See also In re Bartlett Oil & Gas Corp., 44 F.2d 616, 

619 (N.D. Okla. 1930). 

Roxoline is distinguishable because it did not involve a 

fraudulent conveyance between the judgment debtor and the 

defendant to the creditor's bill action. If the Roxoline rule 

applied in all creditor's bill actions, the judgment creditors in 

the above cases could not have brought a creditor's bill action to 

reach property fraudulently conveyed by their debtors because the 

debtors, as parties to fraudulent conveyances, would not have had 

an actionable claim against their transferees for return of the 

property. Phoenix Ins. Co. v. First Nat'l Bank, 264 P. 142, 144 

(Okla. 1928). 2 We therefore conclude that in a creditor's bill 

action against a transferee to a fraudulent conveyance, a judgment 

creditor need not show that the judgment debtor has an actionable 

claim against the transferee. 

We agree with the district court that Phelps' filing of a lis 

pendens in Texas does not make Fina liable to Phelps for money 

damages. However, the lis pendens causes Fina to be bound by the 

judgment in case No. CIV 85-2626-R. Black v. Burd, 255 S.W.2d 

553, 555 (Tex. Civ. App. 1953). 

Phelps was not required to prove that Paragon had a claim 

against Fina to maintain a creditor's bill action. We therefore 

2 The term "creditor's bill" is used broadly to refer to 

various types of creditor actions including enforcing "payment of 

a debt out of property or interests of [the] debtor [that] cannot 

be reached by ordinary legal process" (a Roxoline-type action), as 

well as "setting aside fraudulent conveyances." 21 Am. Jur. 2d 

Creditor's Bills § 1 (1981). An equity court's jurisdiction to 

set aside fraudulent conveyances "is frequently invoked by means 

of a creditor's bill or an action in the nature of one." 37 Am. 

Jur. 2d Fraudulent Conveyances§ 167 (1968). 

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Appellate Case: 91-6196 Document: 01019336517 Date Filed: 12/26/1991 Page: 7 
reverse the grant of summary judgment in light of the above 

Oklahoma cases. 

The judgment of the United States District Court for the 

Western District of Oklahoma is REVERSED, and the case is REMANDED 

for further proceedings. 

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