Court Opinion

ID: 4448450
Source: CourtListenerOpinion
Date Created: 2019-10-21 18:00:20.262729+00
Date Added: 2024-06-11T14:45:00.924258
License: Public Domain

Case: 18-20643     Document: 00515165585     Page: 1   Date Filed: 10/21/2019

         IN THE UNITED STATES COURT OF APPEALS
                  FOR THE FIFTH CIRCUIT
                                                           United States Court of Appeals

                                  No. 18-20643
                                                                    Fifth Circuit

                                                                  FILED
                                                           October 21, 2019
                                                             Lyle W. Cayce
In the matter of: DAVID C. RUSSELL,                               Clerk

             Debtor.
JANNA F. RUSSELL,
             Appellee,
versus
DAVID C. RUSSELL; RONALD J. SOMMERS,
             Appellants.

                  Appeals from the United States District Court
                       for the Southern District of Texas

Before OWEN, Chief Judge, and JONES and SMITH, Circuit Judges.
JERRY E. SMITH, Circuit Judge:

      Janna Russell sued David Russell, her ex-husband and a Chapter 7
debtor, in bankruptcy court over a debt of $32,500 plus interest. After an evi-
dentiary hearing, the bankruptcy court ruled for David on the record, finding
that David had paid the debt. The district court reversed, holding that David
had not satisfied his obligation to Janna as a matter of law. We affirm the
district court.
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                                 No. 18-20643
                                       I.
      This case presents one snippet of a ten-plus-year legal battle between ex-
spouses. The dispute began when Janna filed a petition to modify David’s and
her parent-child relationship order. A Texas state court ordered David and
Janna to mediation, where they executed a mediation settlement. The order
approving the settlement mandated that David pay Janna $32,500. On receipt
of payment, Janna was to execute certain deeds to David.

      After David either failed or refused to pay Janna, the state court ordered
the parties to arbitration. The resulting arbitration order awarded Janna
$32,500 plus interest. In relevant part, the arbitration order states,

      9.6   IT IS ORDERED that said money order, certified check or
            cashier’s check shall be made payable to “Janna Russell”
            only and shall not have any other endorsement.
      9.7   IT IS ORDERED that if payment of the judgment together
            with post judgment interest at 5% is made by DAVID
            CHRISTOPHER RUSSELL to JANNA RUSSELL in cash,
            then JANNA RUSSELL shall execute the Special Warranty
            Deeds listed above in 9.3.1, 9.3.2, 9.3.3 and DAVID CHRIS-
            TOPHER RUSSELL shall execute the Special Warranty
            Deed listed in 9.4.1 on the same day the judgments are paid
            in cash.
Janna expressly sought provisions requiring payments to go directly to her.

      During the state proceedings, Janna and her attorney Ellen Yarrell
found themselves at odds and decided to part ways. On December 23, 2010,
two days after the state court had entered its arbitration order, Yarrell moved
to withdraw from representing Janna. Janna agreed and signed the Order on
Motion of Withdrawal of Counsel on December 30, 2010. At that time, Yarrell
claimed that Janna owed her over $60,000 in unpaid attorney fees.

      In a December 30, 2010, email, Yarrell asked Janna to sign the deeds
due to David on receiving his $32,500 payment. Yarrell also asked Janna to
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                                        No. 18-20643
sign a statement authorizing Yarrell to collect David’s payment on her behalf.
Yarrell stated that she would then deposit the money to Janna’s account
balance with her law firm. In return, Yarrell offered to sign a complete release
for the rest of the disputed attorney fees. Janna rejected that offer and stated
that she had been “very clear about [her] position” with Yarrell, David, and
David’s attorneys, and she would “not be pressured or coerced . . . into signing
the deed without [David] first paying [her] directly the $32,500.” Janna also
expressed concern that Yarrell was not acting in her best interest and repeat-
edly informed Yarrell that she was not authorized to accept the $32,500.

       According to Janna, David tried to manipulate Janna’s conflict with Yar-
rell to “negotiate a better deal.” In particular, Janna claims that David threat-
ened to deliver the settlement funds to Yarrell unless Janna dismissed an un-
related appeal. To support that claim, Janna presents emails from David. 1

       1   Janna first presents a December 28, 2010 email in which David allegedly wrote,
       I suggest that you let me pay you directly the money. . . . [Yarrell] has tried to get me
       . . . to deposit the 32,500.00 into her trust account and I think that is so she could keep
       the money herself without paying you.
       By doing as I suggest, we each get our deeds and YOU get the money—not Ellen. In
       return for my goodwill, I would also like you to dismiss your appeal if we do things
       this way so that we can finally be done with all of this and we can stop paying lawyers.
At the hearing before the bankruptcy court, David claimed that Janna had fabricated that
email. The district court, misapplying the standard of review, erroneously relied on that
email to conclude that David threatened to deliver the funds to Yarrell unless Janna dis-
missed her appeal on an unrelated claim. But the district court could have based its con-
clusion on a January 27, 2011, email in which David wrote,
       I would much rather give this money to you than to your attorney, but I guess that is
       up to you. If you truly do have ALL the deeds signed, I do not see a problem meeting
       with you at Chase Bank. This really should not be that hard.
       [My attorney] just called while I was typing this.
       I can meet you at the Chase Bank on Louetta at 9:30 AM tomorrow. I will have the
       deeds I signed and had notarized. I will need to to [sic] have the deeds signed that
       you are to sign. You will also need to sign an appeal dismissal letter. I have attached
       this for your review. This can be notarized at the Bank as well.
At the hearing, David admitted to sending this and attaching an appeal dismissal letter.
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                                  No. 18-20643
      On April 15, 2011, David went to Yarrell’s office, unannounced, and paid
her $32,500 in cash. Because David did not receive Janna’s deeds—which, per
the arbitration order, he was entitled to on paying Janna $32,500—on June 6,
2011, David filed a motion “to compel signature on documents.” A Texas court
denied David’s motion.

      When David filed for Chapter 7 bankruptcy in 2016, Janna filed two
separate proofs of claim, the first of which is the subject of this appeal. David,
joined by Ronald Summers, the Chapter 7 trustee, objected to the first claim,
asserting that David had paid the claim by delivering cash to Yarrell. The
bankruptcy court held an evidentiary hearing on that claim, at the end of
which the court announced findings and conclusions on the record. Based on
inconsistencies in David’s and Janna’s testimony, the court “discount[ed] their
testimony to the extent that it [was] uncorroborated by documents that [the
court] believe[d] in.” After discounting both of their testimony, the court noted
that both parties agreed that David paid Yarrell the cash. Finding that Janna
got “the benefit of the money,” the court entered judgment for David, allowing
Janna’s claim for only the interest that had accrued as of the time that David
paid Yarrell. The district court reversed, holding that as a matter of law,
David’s payments did not satisfy his obligation to Janna.

                                       II.
      David and his trustee maintain that the district court erred in reversing
the bankruptcy court. “This [c]ourt reviews the district court’s decision by
applying the same standard of review to the bankruptcy court’s conclusions of
law and findings of fact that the district court applied.” Barron & Newburger,
P.C. v. Tex. Skyline, Ltd. (In re Woerner), 783 F.3d 266, 270 (5th Cir. 2015) (en
banc) (internal quotation marks omitted). Consequently, “[w]e review the
bankruptcy court’s findings of fact for clear error and its conclusions of law de

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                                        No. 18-20643
novo.” Robertson v. Dennis (In re Dennis), 330 F.3d 696, 701 (5th Cir. 2003).
“Moreover, when the bankruptcy court’s weighing of the evidence is plausible
in light of the record taken as a whole, a finding of clear error is precluded,
even if we would have weighed the evidence differently.” Bradley v. Ingalls (In
re Bradley), 501 F.3d 421, 434 (5th Cir. 2007). We “must give due regard to
the [bankruptcy] court’s opportunity to judge the witnesses’ credibility.” FED.
R. CIV. P. 52(a)(6).

       The bankruptcy court did not address whether Yarrell was authorized to
act on Janna’s behalf 2 but instead held that because Janna “got the benefit of
the money”—which Janna disputes—the debt had been paid. That reasoning
is incomplete. Debt payments made to a creditor’s agent do not bind the
creditor unless the agent is authorized to collect the payment on behalf of the
creditor. 3 Whether that authority exists “depends on some communication by
the principal either to the agent (actual or express authority) or to the third
party (apparent or implied authority).” Gaines v. Kelly, 235 S.W.3d 179, 182
(Tex. 2007). It does not depend on whether the principal benefits from the
transaction. 4 Because payment is an affirmative defense, the burden is on the
debtor to prove that the third party was authorized to receive payment on
behalf of the debtor. See TEX. R. CIV. P. 94–95; see also Brown v. Am. Transfer
& Storage Co., 601 S.W.2d 931, 936 (Tex. 1980). David’s payment to Yarrell
did not terminate his obligation to Janna because Yarrell was not authorized
to transact on Janna’s behalf.

       2   Appellees did, however, raise that issue at the bankruptcy court hearing.
       3 See Utils. Optimization Grp., L.L.C. v. TIN, Inc., 440 F. App’x 249, 252 (5th Cir.
2011) (per curiam) (“Absent actual or apparent authority, an agent cannot bind a principal.”)
(quoting Tex. Cityview Care Ctr., L.P. v. Fryer, 227 S.W.3d 345, 352 (Tex. App.—Fort Worth
2007, pet. dism’d)).
       4 The parties have not raised the issue of ratification at any point in this litigation, so
it is waived. See United States v. Thibodeaux, 211 F.3d 910, 912 (5th Cir. 2000).
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                                     No. 18-20643
                                           A.
       “Actual authority is authority that the principal intentionally conferred
on the agent or allowed the agent to believe was conferred.” Ebner v. First
State Bank of Smithville, 27 S.W.3d 287, 300 (Tex. App.—Austin 2000, pet.
denied). The terms of the arbitration order and Janna’s instructions to Yarrell
show that Janna did not actually authorize Yarrell to collect David’s payment.

      Paragraph 9.6 of the order requires that any negotiable instrument
“shall be made payable to ‘Janna Russell’ only and shall not have any other
endorsement.” Paragraph 9.7 specifies the timeline for Janna to deliver deeds
to David if the debt “is made by DAVID CHRISTOPHER RUSSELL to JANNA
RUSSELL in cash.” The text is clear—David must pay Janna directly. 5

      Janna also did not allow Yarrell to believe that she was authorized to
transact on Janna’s behalf. By the time Yarrell accepted David’s payment on
Janna’s behalf, their relationship had soured. They were fighting over $60,000
of disputed attorney fees, and Yarrell had already filed a motion to withdraw
from representation. Yarrell knew that Janna did not trust her to collect the
payment. When asked why the arbitration order included terms mandating
that any negotiable instrument be made to Janna Russell only, Yarrell re-
sponded, “Janna requested it.” On top of that, Janna also expressly rejected
Yarrell’s request for Janna to sign a statement authorizing Yarrell to collect
the money.

      When Yarrell accepted David’s payment on Janna’s behalf, she did so
against both the terms of the arbitration order and Janna’s instructions. Ac-
cordingly, Yarrell was not actually authorized to collect on Janna’s behalf.

      5 Supporting this conclusion, Yarrell testified that Janna specifically sought terms
mandating that David pay her directly. As the district court noted, that was necessary
because of the ongoing disputes.
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                                       No. 18-20643
                                              B.
       Apparent authority arises “either from a principal knowingly permitting
an agent to hold [himself] out as having authority or by a principal’s actions
which lack such ordinary care as to clothe an agent with the indicia of author-
ity, thus leading a reasonably prudent person to believe that the agent has the
authority [he] purports to exercise.” Gaines, 235 S.W.3d at 182 (quoting Bap-
tist Mem’l Hosp. Sys. v. Sampson, 969 S.W.2d 945, 948 (Tex. 1998)). “A court
may consider only the conduct of the principal leading a third party to believe
that the agent has authority in determining whether an agent has apparent
authority.” NationsBank, N.A. v. Dilling, 922 S.W.2d 950, 953 (Tex. 1996) (per
curiam). A principal is not bound where the other transacting party “has notice
of the limitations of the agent’s power.” G.D. Douglass v. Pan., Inc., 504 S.W.2d
776, 779 (Tex. 1974).

       David and his trustee contend that the record, in light of the credibility
of the witnesses as determined by the bankruptcy court, supports David’s claim
that Yarrell was apparently authorized to collect on Janna’s behalf. In support
of that contention, David and his trustee aver that Yarrell was apparently
authorized because she was still Janna’s attorney of record. Even though Yar-
rell had filed a motion to withdraw, they aver that “withdrawal is not complete
until the presiding judge signs an order of withdrawal.” 6

       After accounting for the bankruptcy court’s “discount[ing]” David’s and
Janna’s testimony to the extent it was “uncorroborated by documents that [the
court] believe[d] in,” the record still establishes that David knew Yarrell was
not authorized to collect the payment on Janna’s behalf. In David’s January 27

       6  David and his trustee cite TEXAS RULE OF DISCIPLINARY PROCEDURE § 1.15, cmt. 3
for this proposition, which provides that “[w]hen a lawyer has been appointed to represent a
client and in certain other instances in litigation, withdrawal ordinarily requires approval of
the appointing authority or presiding judge.”
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                                   No. 18-20643
email—which he admitted to sending—he conditioned paying Janna, as distin-
guished from Yarrell, on Janna’s signing an attached notice of non-suit per-
taining to an unrelated appeal. Whether Yarrell was Janna’s attorney of rec-
ord makes no difference. That does not negate David’s actual knowledge that
Janna did not authorize Yarrell to collect the payment. The terms of the arbi-
tration order and Yarrell’s motion to withdraw from representation also re-
inforce that David was on notice that Yarrell was not authorized to accept his
payment.

      Apparent authority is based on estoppel, an equitable doctrine. Gaines,
235 S.W.3d at 182. It would be inequitable to allow a debtor who transacts
with an unauthorized agent, against the wishes of the principal, to bind the
principal. “No principle is better settled in law, nor is there any founded upon
more obvious justice, than that if a person dealing with an agent knows that
he is acting under a circumscribed and limited authority and that his act is
outside of and transcends the authority conferred, the principal is not so
bound.” Gen. Contract Purchase Corp. v. Sumner, 49 S.W.2d 960, 961 (Tex.
Civ. App.—Amarillo 1932, writ dism’d). Because David “ha[d] notice of the
limitations of [Yarrell’s] power” to accept his payment, Janna is not bound by
it. See G.D. Douglass, 504 S.W.2d at 779.

                               *    *   *   *     *

      As a matter of law, David’s payment to Yarrell did not extinguish his
obligation to Janna. The judgment of the district court, reversing the bank-
ruptcy court, is AFFIRMED.

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