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Timestamp: 2019-03-25 01:48:47
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Matched Legal Cases: ['§ 24', '§ 24', '§ 24', '§ 24', '§ 24', '§ 24', '§ 101', '§ 101', '§ 101', '§ 2577', '§ 24']

Matter of Holloway, 955 F.2d 1008 | Casetext
Matter of Holloway
955 F.2d 1008 (5th Cir. 1992)
United States Court of Appeals, Fifth CircuitMar 23, 1992
No. 91-1991 Summary Calendar.
J. Michael Sutherland, Steve Malin, Vinson Elkins, Dallas, Tex., for Browning Interests.
Kenneth Warren Nordeman, Lynch, Choppell Alsup, Dallas, Tex., for appellee.
The Browning Interests appeal from the district court's judgment affirming the judgment of the bankruptcy court which refused to set aside as a fraudulent conveyance the transfer of a security interest from the Debtor, Pat S. Holloway ("Holloway") to one of his ex-wives, Linda W. Allison ("Allison"). Under a correct application of the law, the evidence can only support the conclusion that Allison is an insider; therefore, the transfer of the security interest is voidable as a fraudulent conveyance. Accordingly, we reverse the judgment of the district court, vacate the judgment of the bankruptcy court, and remand the case for entry of judgment in favor of the Browning Interests in accordance with this opinion.
Jane H. Browning, individually and as Co-Independent Executrix of the Estate of William W. Browning, Jr., Deceased; Michael G. Starnes, individually and as Co-Independent Executor of the Estate of William W. Browning, Jr., Deceased, and as Trustee for Katherine Louise Browning cook, Averille Adams Browning Dawson, William Webb Browning, III, Winifred Fallon Browning Vaughn, and Robert Holland Browning; Katherine Agents Land Starnes, individually; Katherine Louise Browning Cook, individually; Averille Adams Browning Dawson, individually; Winifred Fallon Browning Vaughn, individually; and Robert Holland Browning, individually.
The Browning Interests contend that the collateral assignment to Allison is avoidable as a fraudulent conveyance under Tex. Bus.Com. Code Ann. § 24.006(b), and that the bankruptcy and district courts erred in holding that Allison was not an "insider."
Transfers made after September 1, 1987 are governed by the Uniform Fraudulent Transfer Act, Tex.Bus. Com. Code Ann. §§ 24.001, et seq. (West 1987). The transfer at issue is Holloway's granting of the security interest to Allison, which is deemed to have been made when it was filed of record so as to be perfected. Tex. Bus. Com. Code Ann. § 24.007(1)(B). Section 24.006(b) provides:
The record establishes, and the bankruptcy court found, that: (1) the Browning Interests' claims arose prior to the transfer, (2) the transfer was for an antecedent debt, (3) Holloway was insolvent at the time of the transfer, and (4) Allison knew that Holloway was insolvent. Therefore, the only disputed issue is whether Allison is an "insider". Section 24.002(7) defines an "insider" as follows:
Allison contends that the Browning Interests have not satisfied their burden of proof under § 24.006(b) because they introduced no evidence to prove their status as a present creditor of Holloway whose claim arose before the transfer was made. Allison made no such contention before the bankruptcy court, and that court found that, with the exception of Allison's status as an insider, all of the elements of § 24.006(b) were satisfied. It is clear and undeniable from the record that the Browning Interests' have a $72,000,000 judgment against Holloway and that their status is a present creditor whose claim arose prior to the transfer at issue.
Tex.Bus.Com. Code Ann. § 24.002(7) (emphasis added).
Memorandum Opinion at 5 (citation omitted; emphasis added). The bankruptcy court's finding was based upon an erroneous interpretation of the law. As the Texas Court of Appeals in Dallas recently made clear, the UFTA's definition of "insider" is not intended to limit an insider to the four listed subjects. Instead, "the drafters provided the list for purposes of exemplification." J. Michael Putman, M.D.P.A. Money Purchase Pension Plan v. Stephenson, 805 S.W.2d 16, 18 (Tex.App.-Dallas 1991, no writ).
The UFTA's definition of "insider" is very similar to the definition in the Bankruptcy Code, 11 U.S.C.A. § 101(31) (West Supp. 1991), and both parties agree that cases interpreting § 101(31) are instructive. Collier on Bankruptcy states that "[a]n `insider' generally is an entity whose close relationship with the debtor subjects any transactions made between the debtor and such entity to heavy scrutiny." 2 Collier on Bankruptcy ¶ 101.31 at 101-87 (15th ed. 1991). The legislative history of § 101(31) defines an insider as a person or entity with "a sufficiently close relationship with the debtor that his conduct is made subject to closer scrutiny than those dealing at arm's length with the debtor." S.Rep. No. 95-989, 95th Cong. 2d Sess., reprinted in 1978 U.S. Code Cong. Admin.News 5787, 5810.
The cases which have considered whether insider status exists generally have focused on two factors in making that determination: (1) the closeness of the relationship between the transferee and the debtor; and (2) whether the transactions between the transferee and the debtor were conducted at arm's length. E.g., In re Friedman, 126 B.R. 63, 70 (9th Cir. B.A.P. 1991) ("insider status may be based on a professional or business relationship with the debtor, in addition to the Code's per se classifications, where such relationship compels the conclusion that the individual or entity has a relationship with the debtor, close enough to gain advantage attributable simply to affinity rather than to the course of business dealings between the parties"); In re Schuman, 81 B.R. 583, 586 (9th Cir.B.A.P. 1987) ("The tests developed by the courts in determining who is an insider focus on the closeness of the parties and the degree to which the transferee is able to exert control or influence over the debtor."); In re Benson, 57 B.R. 226, 229 (Bankr.N.D.Ohio 1986) (an insider may be anyone "whose close relationship with the debtor subjects transactions made between the two parties to careful scrutiny"); Matter of Lemanski, 56 B.R. 981, 983 (Bankr.W.D.Wis. 1986) (a transferee "is an insider if, as a matter of fact, he exercises such control or influence over the debtor as to render their transaction not armslength"); Matter of Montanino, 15 B.R. 307, 310 (Bankr.D.N.J. 1981) (an insider "is one who has such a relationship with the debtor that their dealing with one another cannot be characterized as an arm's-length transaction").
The following undisputed facts demonstrate the closeness of the relationship between Holloway and Allison, which requires "careful scrutiny" of the subject transactions:
A. Well, I don't really — I mean often enough that it is difficult to say. Frequently.
3. Holloway wanted to protect Allison and keep her from becoming embroiled in the bitter controversy between him and the Browning Interests. At a hearing on February 27, 1989, Holloway testified that his third and current wife, Brenda, had borrowed money from Allison; however, Brenda did not sign the promissory notes. Holloway did not mention that the loans from Allison were secured by any collateral. At that same hearing, when Holloway was questioned on cross-examination about Allison, he was evasive. Before reluctantly admitting that she was his first wife and the "mother of my children," he first stated that "[s]he is the widow of Mr. Jimmy Allison"; and when asked about their relationship, Holloway replied, "She has an old friend relationship." Finally, he acknowledged that she was his former wife. At the hearing on Allison's motion, Holloway stated:
This court has likened that controversy to the feud between "the Hatfields and the McCoys." Browning v. Navarro, 887 F.2d 553, 554 (5th Cir. 1989).
4. Allison also desired to protect Holloway; she characterized herself and Holloway together as victims of a "siege," and testified that they tried to "protect each other."
5. Despite Allison's desire to avoid getting involved in the controversy between Holloway and the Browning Interests, the record indicates that she was keenly interested in that litigation and strongly supported Holloway's position. In addition to helping finance Holloway while he pursued the Browning litigation, she admitted that she had sat in the back of the courtroom a few times during hearings.
1. The loans were initially unsecured by any collateral. (Allison testified that she anticipated being repaid when Holloway prevailed, as she hoped he would, against the Browning Interests.) See In re Standard Stores, Inc., 124 B.R. 318, 325 (Bankr.C.D.Cal. 1991) (making a significant loan on an unsecured basis and without inquiring into the debtor's ability to repay the loan, is a significant factor in determining whether a transaction was conducted at arm's length).
4. Holloway, who had no apparent reason or standing to become involved in the priority dispute between Allison and other claimants, did not remain disinterested — instead, the record clearly reveals that he sided with Allison. In his response to her motion to determine the status of her claim, he "acknowledge[d] that the security interest held by Allison is valid, perfected and entitled to priority to any other competing claims against the collateral." Holloway also filed a motion to dismiss the cross-action of the Browning Interests against Allison and the fraudulent conveyance defenses of the United States to her claim.
Allison contends that she is not an insider even under an expansive interpretation of that term. She relies upon In re Schuman, 81 B.R. 583 (9th Cir.B.A.P. 1987), an action by the trustee to set aside as a preference the debtor's transfer of a community property residence to his ex-wife. The court concluded that the ex-wife was not an insider, stating:
805 S.W.2d at 18-19. Allison contends that there was no evidence that she and Holloway have any type of "special relationship" or "close personal relationship," based upon the following factors: (1) she lived in Dallas and Holloway lived in Giddings, Texas; (2) all contacts between her and Holloway were made by telephone, with one exception consisting of a meeting in her attorney's office at which her attorney negotiated a loan transaction; (3) both parties have remarried twice since their divorce; (4) there is no evidence of any ongoing social relationship; (5) there is no evidence of any business relationship outside of the loan transactions; (6) Holloway, a lawyer, has never represented Allison; and (7) their relationship was hostile in the past, as evidenced by an appeal from a lengthy custody battle, Holloway v. Allison, 494 S.W.2d 612 (Tex.Civ.App.-Tyler 1973, no writ).
The fact that both parties have remarried twice since their divorce only highlights the extraordinary nature of both their continued relationship and the generous and casual loan transactions. Although there is little evidence of a social relationship between Holloway and Allison, the record reveals the existence of a committed personal and even emotional relationship, as evidenced by Allison's characterization of herself and Holloway as joint victims of a "siege," which was largely his right, and by the bond between them resulting from their daughter's tragic accident.
Courts that have considered the issue, albeit in somewhat different contexts, have concluded that the determination of insider status is a question of fact. E.g., Matter of Missionary Baptist Foundation of America, 712 F.2d 206, 210 (5th Cir. 1983); In re Friedman, 126 B.R. 63, 67 (9th Cir. B.A.P. 1991); In re Hydraulic Industrial Products Co., 101 B.R. 107, 109 (Bankr. E.D.Mo. 1989). Cf. In re Schuman, 81 B.R. at 586 n. 1 ("[W]here the underlying facts are undisputed, a trial court is free, on a motion for summary judgment, to determine whether the established facts satisfy the statutory standard. In this sense, it would be more accurate to consider the insider determination as a mixed question of law and fact.") Although it would appear to us that once the underlying facts are resolved, insider status ultimately is question of law, we need not address that prickly problem.
The bankruptcy court found that Allison's "only substantial contact with [Holloway] was to provide him with funds to help defray living and legal expenses," and concluded that she was not an insider. However, because that finding was based upon an incorrect, narrow interpretation of the statute, it is not subject to the "clearly erroneous" standard of review. See Bose Corp. v. Consumers Union of United States, Inc., 466 U.S. 485, 501, 104 S.Ct. 1949, 1959, 80 L.Ed.2d 502 (1984) ("Rule 52(a) does not inhibit an appellate court's power to correct errors of law, including those that may infect a so-called mixed finding of law and fact, or a finding of fact that is predicated on a misunderstanding of the governing rule of law."). Because the bankruptcy court made no findings applying the correct legal standards, we ordinarily would remand the case for a new determination of Allison's status based upon the proper interpretation of the law. However, "it is settled that findings are not jurisdictional and the appellate court may decide the appeal without further findings if it feels that it is in a position to do so." 9 C. Wright A. Miller, Federal Practice Procedure, § 2577 at 699-70 (1971). We are in a position to do so in this case and on this record, where the underlying facts are undisputed, where there are no credibility resolutions to be made, and where no view of the record would permit a finding that Allison was not an insider. See Tomlin v. Ceres Corp., 507 F.2d 642, 648 (5th Cir. 1975) (where the only factual finding supportable by the record was that Ceres Ranches was not a party to an agreement, a remand was not necessary; "[s]uch a finding, if the trial judge had made it, would be clearly erroneous"); Smithkline Diagnostics v. Helena Laboratories Corp., 859 F.2d 878, 886 n. 4 (Fed. Cir. 1988) (remand is unnecessary when "as a matter of law, the court could only make one finding of fact or decide the fact in only one way. Otherwise, protracted litigation and unnecessary delay and expense would occur.").
It appears to us that the fact that Allison was willing to support Holloway personally and to help finance his litigation with the Brownings demonstrates the closeness of their relationship and, consequently, militates in favor of insider status.
See also Matter of Legel, Braswell Gov't Securities Corp., 648 F.2d 321, 327 n. 8 (5th Cir. 1981) (remand for finding of fact on whether party acted in good faith unnecessary where "a complete and fair resolution of this issue may be made from the record on appeal and that . . . record as a whole reflects that there was no genuine issue of material fact regarding Irving Trust's good faith"); Adams v. Agnew, 860 F.2d 1093, 1097 (D.C. Cir. 1988) (remand for finding on question of whether party had reasonable time for performance of contract unnecessary because decision of appellate court "based on undisputed historic facts contained in the record"); Otto v. Variable Annuity Life Ins. Co., 814 F.2d 1127, 1138 n. 11 (7th Cir. 1986), cert. denied, 486 U.S. 1026, 108 S.Ct. 2004, 100 L.Ed.2d 235 (1988) (in the interest of judicial economy, remand is unnecessary where issues are clear and turn on undisputed facts in the record).
We believe that a remand for a new determination of Allison's status based upon the proper interpretation of the law would be only a hollow ritual. The undisputed, established facts can only support one inescapable conclusion: Allison was an insider at the time of the transfer. Any other finding would be clearly erroneous. Therefore, the transfer of the security interest from Holloway to Browning should have been set aside as a fraudulent conveyance pursuant to Tex.Bus. Com. Code Ann. § 24.006(b). We see no compelling reason to subject the parties and the courts to further delays and expense by remanding the case for application of the proper legal standard to the undisputed facts. Accordingly, we REVERSE the judgment of the district court, VACATE the judgment of the bankruptcy court, and REMAND the case to the district court for the entry of judgment against Allison and in favor of the Browning Interests in accordance with this opinion.