Court Opinion

ID: 33763
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:08:38+00
Date Added: 2024-06-11T08:49:43.734859
License: Public Domain

United States Court of Appeals
                                                               Fifth Circuit
                                                            F I L E D
                      REVISED JANUARY 9, 2004              December 17, 2003
                  UNITED STATES COURT OF APPEALS
                       For the Fifth Circuit            Charles R. Fulbruge III
                                                                Clerk

                           No. 01-10815

             UNITED STATES OF AMERICA, on behalf of
                 Small Business Administration,

                                               Plaintiff-Appellee,

                              VERSUS

              COMMERCIAL TECHNOLOGY, INC., ET AL.,
                                                         Defendants,

                   COMMERCIAL TECHNOLOGY, INC.,

                                              Defendant-Appellant.

          Appeal from the United States District Court
           For the Northern District of Texas, Dallas

Before DeMOSS, DENNIS, and PRADO, Circuit Judges.

DeMOSS, Circuit Judge:

     Commercial Technology, Inc. ("CTI") was found by a jury to

have violated the Texas Uniform Fraudulent Transfer Act (“TUFTA”)

when it transferred real property to Electric & Gas Technology,

Inc. (“EG&T”), a related entity.   On appeal, CTI claims that there

was insufficient evidence supporting the jury’s findings that CTI

violated TUFTA, that the district court erred in its admission of

Fed. R. Evid. 404(b) evidence, and that the district court erred in

denying CTI's motion for judgment as a matter of law on its statute
of limitations claim.

                   BACKGROUND & PROCEDURAL HISTORY

     In   1985,   Caddo   Capital   Corporation   (“Caddo”)   loaned   CTI

$150,000.   Caddo was a Small Business Investment Company licensed

by the Small Business Administration (“SBA”).          Caddo loaned the

funds to CTI under the Small Business Investment Act, a federal

program designed to increase the availability of capital to small

businesses by channeling federal funds to such companies.

     In December 1986, Caddo sued CTI in state court after CTI

defaulted on its payment obligations under the promissory note. On

June 21, 1988, Caddo obtained a final judgment against CTI for

$105,000, plus interest, attorney’s fees, and court costs.              On

June 28, 1988, the Dallas County Clerk’s Office issued, filed, and

recorded an abstract of judgment against CTI in favor of Caddo.

Almost three years later, on May 30, 1991, Caddo assigned all of

its rights in the judgment to the United States (the “government”),

on behalf of the SBA.

     In 1997, approximately one year before the judgment originally

obtained by Caddo was to become dormant under Texas property law,

the government retained the services of a company to identify

potential assets of CTI.1     The government contractor made contact

     1
       Section 34.001(a) of the Texas Civil Practice and Remedies
Code provides that a judgment is dormant if a writ of execution is
not issued within ten years after the rendition of the judgment.
If the writ is issued after the ten-year period, the judgment
becomes dormant and execution may not be issued unless it is
revived. Id. In the instant case, the judgment against CTI was

                                     2
with Mort Zimmerman, the President of CTI, by letter in April and

May 1997.       Neither CTI nor Zimmerman responded to either of the

government’s      letters.2       Between   June   1997    and   May   1998,   the

government continued its investigation into the existence of CTI’s

assets. A title search in Dallas County revealed one piece of real

property in CTI’s name—an office building located at 13636 Neutron

Road in Dallas, Texas (the “Neutron Road Property”).                 Ownership by

CTI was confirmed by an examination of the public records for the

Dallas County Appraisal District and the Farmers Branch property

records.

     On May 22, 1998, the government obtained a writ of execution

on the Neutron Road Property; however, attempts at levying the writ

proved unsuccessful. The government thereafter sought to renew the

Caddo abstract of judgment.             On June 23, 1998, the government

recorded    a    new   abstract    of   judgment    (the    “First     Government

Abstract”) against CTI for the amounts due it under the assignment

from Caddo.      The First Government Abstract was later replaced by a

corrected abstract of judgment (the “Corrected Abstract”), which

was issued on July 28, 1998, and recorded with the Dallas County

rendered on June 28, 1988, establishing June 28, 1998, as the ten-
year deadline by which the government was required to obtain a writ
of execution.
     2
       On June 9, 1997, Zimmerman caused CTI to execute a security
agreement pledging the Neutron Road Property as collateral on a
personal loan to Zimmerman in the amount of $140,000 by First Texas
Bank.

                                        3
Clerk’s Office on August 4, 1998.3

     In   November   1999,   the    government    sought    to   enforce      its

judgment against CTI through the judicial sale of the Neutron Road

Property.   However, CTI contested the sale, alleging that it only

owned the Neutron Road Property until May 13, 1987.                The events

that are alleged to have transpired on May 13, 1987, bear great

weight on this case, and therefore a detailed summary account of

these alleged actions is necessary.

     CTI claims that on May 13, 1987, while the suit brought

against it by Caddo was pending, CTI transferred the Neutron Road

Property to one of its subsidiaries, E&GT.                 The Neutron Road

Property had originally been part of the security for a 1983

commercial loan between CTI and Allied American Bank for which CTI

executed a note secured by deed of trust in favor of Allied

American Bank.    By May 1987, a number of other liens had attached

to the Neutron Road Property as well.             On May 13, 1987, Allied

American Bank transferred the deed of trust and lien to First Texas

Bank, for which Allied American Bank was paid $617,667.67.

     Also on May 13, 1987, CTI executed a new deed of trust on the

Neutron   Road   Property    in    favor   of   First   Texas    Bank   for    an

obligation owed by E&GT to First Texas Bank in the principal amount

of $617,667.67.      CTI also executed a hypothecation agreement

     3
       The First Government Abstract was inadequate because it
failed to include the amount of the judgment as required by
statute. TEX. PROP. CODE § 52.003(a)(6).

                                      4
(“Hypothecation Agreement”) dated May 13, 1987, by which CTI agreed

to allow the Neutron Road Property to be pledged as security for

future loans from First Texas Bank to E&GT.         The deed of trust and

Hypothecation Agreement were recorded in the Dallas County Clerk’s

Office on May 18, 1987, and the transfer of lien was recorded on

June 5, 1987.

     However, it was not until November 24, 1998——more than eleven

years    after   the   deed   of   trust,   Hypothecation   Agreement,   and

transfer of lien were executed and recorded——that CTI recorded a

warranty deed and purchase agreement (both dated May 13, 1987),

which purported to show that the Neutron Road Property had been

sold by CTI to E&GT on May 13, 1987.         CTI argued that the original

warranty deed and purchase agreement had been lost by the title

company, which CTI claimed had gone bankrupt and thus had failed to

record the instruments.

     Notwithstanding CTI’s contention that it no longer owned the

Neutron Road Property, the government filed a complaint in district

court in November 1999, seeking a judicial sale of the Neutron Road

Property to satisfy its judgment against CTI pursuant to the

Federal Debt Collections Procedure Act (“FDCPA”), 28 U.S.C. § 3001

et seq.     After the district court entered an order denying the

government’s initial application for enforcement of judgment and

sale of real property,4 the government amended its complaint in

     4
       The magistrate determined that the government was not
entitled to relief under the FDPCA because the original promissory

                                       5
August 2000, adding a claim against CTI under TUFTA, TEX. BUS. &

COMM. CODE § 24.001 et seq.           The essence of the government’s TUFTA

claim was its challenge of the purported May 13, 1987, transfer of

the Neutron Road Property from CTI to E&GT.

      In 2001, the TUFTA case was tried to a jury, which found that

CTI had violated the Act by fraudulently transferring the Neutron

Road Property to E&GT. Specifically, the jury determined that E&GT

did   not    take   the    property    in       good    faith   nor   for   reasonably

equivalent value.         CTI now timely appeals.

                               STANDARD OF REVIEW

      We review de novo a district court's ruling on a motion for

judgment as a matter of law. Mississippi Chem. Corp. v. Dresser-

Rand Co., 287 F.3d 359, 365 (5th Cir. 2002).                         However, when an

action is tried by a jury, such a motion is a challenge to the

legal sufficiency of the evidence supporting the jury's verdict.

Brown   v.    Bryan       County,   OK,     219 F.3d 450,    456   (5th   Cir.

2000)(citation omitted).            Accordingly, we consider the evidence,

"drawing all reasonable inferences and resolving all credibility

determinations in the light most favorable to the non-moving

party." Id. “This Court grants great deference to a jury's verdict

and will reverse only if, when viewing the evidence in the light

most favorable to the verdict, the evidence points so strongly and

note between Caddo and CTI was not a “debt” owing to the United
States as defined by the federal statute because Caddo was not an
instrumentality of the government. See 28 U.S.C. § 3002(3)(A).

                                            6
overwhelmingly in favor of one party that the court believes that

reasonable jurors could not arrive at any contrary conclusion.”

Dahlen v. Gulf Crews, Inc., 281 F.3d 487, 497 (5th Cir. 2002).

     We review a district court's evidentiary rulings for abuse of

discretion. United States v. Sanders, 343 F.3d 511, 517 (5th Cir.

2003).   If we find an abuse of discretion, we review the error

under the harmless error doctrine. Id.

                             DISCUSSION

I.   Whether there was sufficient evidence to support a jury
     finding that CTI transferred the Neutron Road Property to E&GT
     in violation of TUFTA.

     On appeal, CTI argues that it did not violate TUFTA because:

(1) the transfer of the Neutron Road Property occurred on May 13,

1987; and (2) E&GT paid value for the property.

A.   When the Neutron Road Property was “transferred” for purposes
     of TUFTA.

     CTI offers two theories to support its contention that the

transfer of the Neutron Road Property occurred on May 13, 1987.

First, it insists that the Hypothecation Agreement executed on May

13, 1987, was sufficient to convey title to the Neutron Road

Property from CTI to E&GT.    In the alternative, CTI insists that

the copies of the warranty deed and the purchase agreement it

recorded on November 24, 1998, were previously executed on May 13,

1987, and that the 1987 date should control.      In response, the

government points to numerous CTI corporate documents that appear

to not only contradict relevant bank documents, but also the

                                 7
testimony of CTI's own witnesses.

     1.        The Hypothecation Agreement

     In order to determine whether there was a conveyance of the

Neutron Road Property from CTI to E&GT on May 13, 1987, we must

first establish the legal effect of the Hypothecation Agreement.

In the Hypothecation Agreement, CTI pledged the Neutron Road

Property as collateral so that First Texas Bank would extend credit

to E&GT.       The Hypothecation Agreement stated in pertinent part:

     [F]or the purpose of enabling [E&GT] to obtain credit
     therefor, . . . [CTI hereby certifies that] the said
     property has been duly assigned, released, transferred,
     and delivered by [CTI] to [E&GT], and by these presents
     [CTI] hereby assign[s], release[s], and transfer[s] unto
     [E&GT] all of [CTI’s] right, title, and interest in and
     to said property, and hereby expressly authorize[s]
     [E&GT] to pledge or hypothecate all or any part of said
     property for the indebtedness aforesaid, and all renewals
     and extensions thereof, and also for any and all other
     indebtedness of the same borrower to you . . . .

(Emphasis added).

     The Texas Property Code provides that “[a]n instrument that is

properly recorded in the proper county is ... notice to all persons

of the existence of the instrument.” TEX. PROP. CODE § 13.002(1); see

also Resolution Trust Corp. v. Kemp, 951 F.2d 657, 661 (5th Cir.

1992).    Texas law extends this principle further, recognizing that

“an instrument properly recorded is notice, not only of facts

therein expressly set forth, but also of all other material facts

which     an    inquiry   thereby   reasonably   suggested   would   have

disclosed.” Housman v. Horn, 157 S.W. 1172, 1173 (Tex. Civ. App.

                                     8
1913) (citation omitted); see also Westland Oil Dev. Corp. v. Gulf

Oil Corp., 637 S.W.2d 903, 908 (Tex. 1982) (“It is well settled

that   a    purchaser        is    bound    by   every    recital,     reference     and

reservation contained in or fairly disclosed by any instrument

which forms an essential link in the chain of title under which he

claims.”) (internal quotations and citations omitted); Lang v. City

of Nacogdoches, 942 S.W.2d 752, 758 (Tex. App.—Tyler 1997, writ

denied) (“[A] person is charged with constructive notice of the

actual knowledge that could have been acquired by examining public

records,        and   that        constructive     notice     in    law    creates    an

irrebuttable presumption of actual notice.”).

       CTI contends that the government should be charged, as a

matter of law, with constructive knowledge of the contents of the

Hypothecation Agreement and with all other facts that a follow-up

inquiry would have revealed. Matter of Estate of Matejek, 928
S.W.2d 742, 744 (Tex. App.—Corpus Christi 1996, writ denied); see

also Resolution Trust Corp., 951 F.2d at 660-61.                    The government’s

response has two elements. First, it argues that the Hypothecation

Agreement       simply     did     not   function    to     transfer      title.     The

government relies on the general principle that a hypothecation

agreement is a pledge, i.e., an encumbrance rather than a deed

translative of title or ownership. Second, the government contends

that whether the Hypothecation Agreement gave constructive notice

of the transfer is an issue of fact, not law.

       As   a    general     matter,       the   government    is    correct   in    its

                                             9
assertion that to hypothecate is “to pledge (property) as security

or collateral for a debt, without delivery of title or possession."

BLACK'S LAW DICTIONARY 747 (7th ed. 1999) (alteration in original).

However, whether a hypothecation necessarily involves delivering

title or possession does not appear to address the fact that even

a pledge could fall under TUFTA’s definition of “transfer.”         TUFTA

defines “transfer” broadly to include “every mode, direct or

indirect, absolute or conditional, voluntary or involuntary, of

disposing of or parting with an asset or an interest in an asset,

and includes payment of money, release, lease, and creation of a

lien or other encumbrance.” TEX. BUS. & COMM. CODE § 24.002(12)

(emphasis added).    Even if the Hypothecation Agreement could not

transfer title to the Neutron Road Property, the encumbrance

created by   the   Hypothecation   Agreement   may   well   have   been a

“transfer” under TUFTA.

     However, before we address whether a hypothecation is a

“transfer” under TUFTA, we must first determine the true meaning

and scope of the Hypothecation Agreement at issue here.                In

construing a contract under Texas law, courts must examine and

consider the entire writing and give effect to all provisions such

that none are rendered meaningless. Int’l Turbine Servs., Inc. v.

VASP Brazilian Airlines, 278 F.3d 494, 497 (5th Cir. 2002).         There

are two steps to an ambiguity analysis of a contract. Flagship

Hotel, Ltd. v. City of Galveston, 117 S.W.3d 552, 561 (Tex.

App.—Texarkana 2003, writ denied).       First, a court applies the

                                   10
applicable rules of construction and decides if the contract is

ambiguous. Id.     If the court finds the contract is ambiguous, the

trier of fact considers the parties' interpretation and other

extraneous evidence. Id.

       CTI certified in the Hypothecation Agreement that the Neutron

Road   Property    was   “duly   assigned,    released,      transferred,     and

delivered” by CTI to E&GT, adding that CTI assigned, released, and

transferred to E&GT “all of [CTI’s] right, title, and interest in

and to said property.”      On its face, this portion of the instrument

appears to fully contemplate an absolute transfer of the Neutron

Road Property from CTI to E&GT.              However, when read with the

provision    immediately      following      the    above     statement,      this

conclusion is called into doubt.              The next provision of the

Hypothecation     Agreement      states    that     CTI     “hereby    expressly

authorize[s] [E&GT] to pledge or hypothecate all or any part of

said property for the indebtedness aforesaid.”                If CTI had truly

transferred the Neutron Road Property to E&GT outright, then CTI’s

express authorization to E&GT to pledge or hypothecate the Neutron

Road Property as collateral for future loans would certainly be

unnecessary.      It seems odd to transfer “all right, title, and

interest”   in    real   property   to    someone   and     at   the   same   time

expressly authorize that person to do certain things with the

property after the transfer has been effectuated. In addition, the

Hypothecation Agreement provides that E&GT may pledge the Neutron

Road Property as collateral for any and all indebtedness it seeks

                                     11
to create “at any time before this authorization shall have been

revoked in writing.”     CTI’s retention of a power to revoke further

indicates that the Hypothecation Agreement was not intended to be

an outright conveyance of the Neutron Road Property.

     Although CTI contends that the Hypothecation Agreement served

to transfer the Neutron Road Property to E&GT, a simple reading of

the instrument reveals that it is susceptible to more than one

interpretation. As such, an ambiguity exists as to the meaning and

scope of the Hypothecation Agreement.        Therefore, to determine the

legal effect of the instrument, it becomes necessary to look at the

intent and conduct of the parties.

     As noted previously, CTI argues that it sold the Neutron Road

Property to E&GT on May 13, 1987.            However, it was not until

November   23,   1998,   that   the    corresponding   warranty   deed   and

purchase agreement reflecting this transfer were recorded in the

Dallas County Clerk’s Office.         Substantial evidence shows that, in

these intervening eleven years, CTI held itself out as the owner of

the Neutron Road Property.       For instance, government tax records

show CTI as the owner of the Neutron Road Property as late as

December 1998.    Specifically, during the period from 1987 to 1998,

both the Dallas County Appraisal District and the Dallas County Tax

Collector issued property tax statements to CTI as owner of the

Neutron Road Property.      In addition, on November 24, 1993, CTI,

through Zimmerman, executed a deed of trust, security agreement, an

assignment of rent, and a financing statement involving the Neutron

                                       12
Road Property to secure the indebtedness and obligations therein to

CIT Group/Credit Finance, Inc., another creditor.              This deed of

trust was filed of record with the Dallas County Clerk’s Office on

December 7, 1993.      Moreover, on April 23, 1997, CTI, through

Zimmerman, executed a deed of trust to secure a promissory note

payable to First Texas Bank.         This deed of trust was filed of

record with the Dallas County Clerk’s Office on June 5, 1997.

      Based on the terms of the Hypothecation Agreement and the

conduct of CTI and E&GT after executing the agreement, we interpret

the Hypothecation Agreement as simply being a pledge from CTI to

E&GT as collateral for obtaining future loans and not as an

instrument conveying title to E&GT.

      2.   Warranty Deed and Purchase Agreement

      In the alternative, CTI claims that although the warranty deed

and   purchase   agreement   were   recorded   in   November    1998,   both

instruments were actually executed on May 13, 1987. Therefore, CTI

argues that title to the Neutron Road Property was passed from CTI

to E&GT on the date of execution, not the date of recordation.

      At trial CTI was unable to satisfactorily explain to the jury

why it had two different, but executed, versions of each document

dated May 13, 1987.    Examination of the two copies of the warranty

deed and the two copies of the purchase agreement reveal that the

signatures and text alignment are different.           In addition, the

notary blocks bear different and inconsistent dates for expiration,

                                    13
and one version of the notary block is handwritten whereas the

other is typed.    CTI also failed to explain how the title company

it claimed had gone bankrupt managed to properly file and record

the deed of trust, transfer of lien, and Hypothecation Agreement,

but failed to file and record the warranty deed and purchase

agreement   when   all   five   instruments   were    allegedly   executed

simultaneously on May 13, 1987.

     CTI fails to direct this Court to any compelling evidence

indicating that E&GT has been the owner of the Neutron Road

Property since May 1987, or conversely, that CTI was not the owner

of the property from 1987 to 1998.       Therefore, we conclude that

evidence clearly shows that CTI was the owner of the Neutron Road

Property until at least November 23, 1998.

B.   Reasonably Equivalent Value

     In its second argument, CTI contends that E&GT paid reasonably

equivalent value for the Neutron Road Property. However, CTI fails

to articulate specific reasons to overturn the jury's verdict.

Additionally, we have already determined that the actual transfer

at issue occurred in November 1998 when CTI recorded the warranty

deed and purchase agreement in the Dallas County Clerk’s Office.

There has never been any evidence proffered by CTI that shows E&GT

paid any such value either in 1987 or 1998.          In the absence of any

compelling evidence or specific arguments from CTI, there is ample

evidence in the record to support the jury’s finding that no

                                    14
equivalent value was ever paid by E&GT to CTI.

      As such, we conclude that the jury had sufficient evidence

with which to conclude that CTI conveyed the Neutron Road Property

to E&GT in November 1998 in violation of TUFTA.

II.   Whether the Neutron Road Property was an “asset” as defined by
      TUFTA.

      CTI argues that the Neutron Road Property was not an "asset,"

as defined by TUFTA, when it was transferred from CTI to E&GT.5

Specifically, CTI claims that, in 1987, there was no equity in the

Neutron Road Property because the property was subject to numerous

liens.     The government responds by referring to documentation

revealing that various lending institutions accepted the Neutron

Road Property as security from CTI on numerous occasions from 1987

through 1998.

      In order for CTI to prevail on its argument that the Neutron

Road Property was not an “asset” at the time CTI claims it was

transferred, CTI must prove, as a preliminary matter, that the

“transfer” occurred on May 13, 1987.           As previously discussed,

there was sufficient evidence presented to the jury to support its

finding that the Neutron Road Property was not conveyed on May 13,

1987, but rather that the conveyance occurred when CTI recorded the

warranty   deed   and   purchase   agreement    on   November   24,   1998.

      5
       TUFTA defines an "asset" as "the property of a debtor," but
an asset does not include, among other things, “property to the
extent it is encumbered by a valid lien.” TEX. BUS. & COMM. CODE §
24.002(2)(A).

                                    15
Therefore, CTI must show that the Neutron Road Property was not an

asset at the time of the recordation in 1998.

      CTI focuses the entirety of its analysis of whether the

Neutron Road Property was an asset on the period of time leading up

to and including 1987.     CTI fails to provide any evidence as to the

absence of equity in the Neutron Road Property at the relevant time

period in 1998.     Meanwhile, there are numerous portions of the

record revealing that the Neutron Road Property was the subject of

security for at least eight separate loans between 1987 and 1998.

It is axiomatic that a creditor would not extend a loan, much less

eight separate loans, when the collateral made the basis for that

loan lacked equity.    Therefore, we find that there is sufficient

evidence to support the jury's finding that the Neutron Road

Property was an "asset" as contemplated by TUFTA when the property

was transferred in 1998.

III. Whether the Hypothecation Agreement put the government on
     constructive notice of CTI’s “transfer” of the Neutron Road
     Property to E&GT, thereby triggering the relevant statute of
     limitations.

      The gravamen of CTI’s statute of limitations argument is that

the   instruments   that   were   recorded   in   1987——particularly   the

Hypothecation Agreement——gave the world constructive notice that

the Neutron Road Property had been transferred from CTI to E&GT.

Stated differently, CTI claims Caddo (and therefore the government)

can be charged with knowledge of the purported transfer because the

Hypothecation Agreement said as much.

                                    16
     We have previously concluded that CTI was the owner of the

Neutron Road Property until at least November 23, 1998.               As such,

whether the government was put on notice of the existence of the

Hypothecation Agreement is irrelevant to our inquiry.              Because the

relevant transfer made the subject of the government’s TUFTA suit

is CTI’s recordation of the warranty deed and purchase agreement on

November   23,   1998,   the    focus    of   our   inquiry   is   whether   the

government filed suit within the appropriate limitations period

with respect to that date.

     TUFTA states that “a cause of action with respect to a

fraudulent transfer . . . is extinguished unless action is brought

. . . within four years after the transfer was made.”               TEX. BUS. &

COMM. CODE § 24.010(a)(1), (2).          The government first filed suit

under the FDCPA, seeking to satisfy its judgment against CTI on

November 23, 1999, less than one year after CTI recorded the

warranty deed and purchase agreement and well within the four-year

statute of limitations.        The government’s second amended complaint

added the TUFTA claim in August 2000.           It is well settled that for

limitation purposes, under Fed. R. Civ. P. 15(c), an amendment to

a complaint will relate back to the date of the original complaint

if the claim asserted in the amended pleading “arises out of the

conduct, transaction, or occurrence set forth or attempted to be

set forth in the original pleading."           In re Coastal Plains, Inc.,

179 F.3d 197, 216 (5th Cir. 1999) (internal quotation marks and

                                        17
citations omitted).         It is clear that the government’s original

complaint and its second amended complaint both arose from its

claim that CTI fraudulently transferred the Neutron Road Property

to E&GT.     Therefore, we find that CTI’s statute of limitations

claim is without merit.

IV.   Whether the trial court committed reversible error by
      permitting the jury to hear evidence concerning a prior
      conviction of CTI’s President and CEO.

      CTI   argues    that    the    district       court    erred      in   admitting

allegedly    inflammatory         evidence      against     Mort    Zimmerman,        the

President and CEO of both CTI and E&GT.                    The evidence at issue

consists of an SBA form completed by Zimmerman as part of a loan

application    he     submitted     on     behalf    of     E&GT   in    1994.        The

application form (“Government Exhibit No. 104") contained a section

entitled "Statement of Personal History" in which Zimmerman denied

ever being charged with, arrested for, or convicted of any criminal

offense.    However, in a published 1981 opinion, the D.C. Circuit

makes    reference    to    the    fact    that     Zimmerman,      pursuant     to   an

indictment returned in the United States District Court for the

Southern District of Florida, in a matter involving sales of

securities of another company, was fined $30,000 and placed on five

years'    probation    on    his    plea     of   guilty     to    three     counts    of

securities fraud and one count of mail fraud. SEC v. Savoy Indus.,

Inc., 665 F.2d 1310, 1312 n.3 (D.C. Cir. 1981).                     The trial court

admitted Government Exhibit No. 104 into evidence and permitted the

                                           18
government to cross-examine Zimmerman on the discrepancy between

his responses provided in the loan application and his prior guilty

plea.

     CTI argues that the loan application is inadmissible as a

"prior bad act" under Fed. R. Evid. 404(b), and the improper

admission of such evidence necessitates a new trial.             In response,

the government contends that the extrinsic evidence and the charged

actions   in   this    case,   i.e.,   orchestrating     fraudulent    schemes

through     personal    and    representative     misrepresentations        and

omissions, are not only relevant, but identical and thus should be

accorded great probative value.

     Normally,    whether      the   district   court    erred   in   admitting

Rule 404(b) evidence depends on whether its decision satisfies the

two-prong Beechum test adopted by this Court for examining the

admissibility of extrinsic evidence. Sanders, 343 F.3d at 517

(citing United States v. Beechum, 582 F.2d 898, 911 (5th Cir.

1978)). Under the Beechum analysis, the court must first determine

whether the extrinsic evidence is relevant to an issue other than

the defendant's       character,     i.e.,   motive,    opportunity,    intent,

preparation, plan, knowledge, identity, or absence of mistake or

accident. Id. at 518. Second, "the evidence must possess probative

value that is not substantially outweighed by its undue prejudice

and must meet the other requirements of Rule 403." Id. (citation

omitted).

                                       19
    However, based on a review of the record, it appears that

CTI’s attorney failed to properly object to the introduction of

Government Exhibit No. 104 on 404(b) grounds.              Instead, CTI’s

counsel   simply   objected   to   the    authentication   of   Zimmerman’s

signature on the application.6           We find, therefore, that CTI’s

objections to the district court did not properly preserve the

    6
       The following is an excerpt from the trial transcripts
detailing the government’s introduction of the 1994 SBA loan
application:

    The Court:     Do you wish to offer this exhibit at this
    time?
    [The government]:   We do wish to offer this exhibit at
    this time.
    The Court:     Any objection?
    [CTI’s attorney]:   And that is No. 104? I believe we
    have already ruled on that preliminarily, judge.
    The Court:     Do you object to it?
    [CTI’s attorney]:   Yes.
    The Court:     State the grounds for your objection.
    [CTI’s attorney]:   In front of the jury?
    The Court:     That is what I am asking you to do. State
    the grounds for your objection. State the legal grounds
    for your objection without argument. I thought we set
    these ground rules at the pretrial conference.
    [CTI’s attorney]:   Lack of personal knowledge as to the
    signature of Mr. Zimmerman for one; could not
    authenticate.
    The Court:     Any further objections?
    [CTI’s attorney]:   Aside from what we talked to [sic] at
    the sidebar, no.
    The Court:     State for the record at this time the
    grounds for your objection to this exhibit. You have
    testified the lack of authenticity as to Mr. Zimmerman’s
    signature. Do you have any further objections?
    [CTI’s attorney]:   No, your honor.
    ...
    The Court:     If Mr. Zimmerman takes the stand, . . . is
    he going to deny his signature?
    [CTI’s attorney]:   Probably not, your honor.

                                    20
issue it now raises on appeal and we thus review CTI’s Rule 404(b)

challenge under the plain error doctrine. See Fed. R. Evid. 103(d).

     Error is plain only when it is clear or obvious and it affects

the defendant's substantial rights. United States v. Hickman,

331 F.3d 439, 443 (5th Cir. 2003).           A defendant's substantial

rights are only affected if the error affected the outcome of the

district court proceedings. Id. (citation and quotation omitted).

The defendant bears the burden of persuading the court that any

such error was prejudicial. United States v. Daniels, 281 F.3d 168,

184 (5th Cir. 2002).    Reversal for plain error is appropriate only

in extreme circumstances where a miscarriage of justice would

otherwise occur. United States v. Williams, 132 F.3d 1055, 1059

(5th Cir. 1998).

     Rule 404(b) prohibits the use of prior bad acts as proof of

the defendant’s character.     However, even had CTI made the proper

404(b) objection, Government Exhibit No. 104 and the corresponding

testimony could have been admitted to prove intent to defraud.

Even were we to conclude otherwise, such error would nonetheless

not have risen to the level where CTI’s substantial rights would

have been affected, i.e., that the outcome of the trial would have

been different. The district court set specific limitations on the

scope and nature of the government’s inquiry on the subject.

Specifically, the district court limited the government’s cross-

examination   of   Zimmerman   to   his   failure   to   answer   the   SBA’s

                                    21
application truthfully and did not allow the government to examine

Zimmerman in depth concerning the specific facts underlying his

prior indictments or convictions.                      Thus, we find that the district

court’s admission of Government Exhibit No. 104 was clearly not

plain error.

                                           CONCLUSION

          Having           carefully   reviewed    the    record   of   this   case,   the

parties' respective briefing and arguments, and for the reasons set

forth above, we affirm the jury’s findings that CTI transferred the

Neutron Road Property to E&GT in violation of TUFTA, that E&GT did

not take the property in good faith or for reasonably equivalent

value, and that the government’s claim was not barred by the

statute of limitations.                  In addition, we find that the district

court did not err in permitting testimony regarding the past

criminal conviction of CTI’s president.

AFFIRMED.

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