983 F.3d 766
5th Cir.2020Background
- A seven-and-a-half-acre commercial tract (the “Alabama property”) was owned by limited partnership Alabama & Dunlavy (A&D); Jay Cohen’s trust owned the majority limited interest and Matthew Dilick controlled A&D’s general partner.
- In early 2010, the property was transferred from A&D to Texas Abercrombie Family Interests, Ltd. (TAFI), an entity tied to Robert Abercrombie; shortly after, TAFI obtained a $19.9 million loan secured by the property.
- Cohen alleges Dilick orchestrated a self-dealing sale and refinance, concealed a lucrative HEB ground-lease negotiation and valuation reports, depressed the sale price from ~$16.7M to $13.5M to pay off imminent foreclosure, and caused about $1.06M of loan proceeds to flow to Dilick-controlled entities.
- Cohen sued in Texas state court for TUFTA fraudulent transfer, conspiracy to commit fraud, conspiracy/aid and participation in breach of fiduciary duty, and related relief; the state trial court granted summary judgment for Abercrombie and TAFI and expunged Cohen’s lis pendens.
- The case was later removed to federal court under bankruptcy jurisdiction; on appeal the Fifth Circuit held the state court abused its discretion in sustaining several evidentiary objections and that genuine issues of material fact precluded summary judgment on Cohen’s claims, but found the lis pendens issue moot because the property had been sold to a third party after expungement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of evidence/exclusion of affidavits and exhibits | State court improperly excluded key affidavits, appraisals, financials, and a funds-flow diagram that show concealment and value | Exclusion proper because some materials were not formally admitted before summary judgment | Court: state court abused discretion by sustaining broad objections without explanation; panel considered the evidence on appeal |
| TUFTA fraudulent-transfer (actual intent / insufficient value) | Transfer was to an insider, concealed, depleted A&D’s assets, and occurred for less than fair value — badges of fraud create factual disputes | Transfer was necessary to avoid imminent foreclosure; $13.5M was the practical market offer and thus reasonably equivalent value | Court: fact issues exist as to intent and reasonably equivalent value; summary judgment improper |
| Good-faith transferee defense under TUFTA | Cohen: TAFI/Abercrombie were not good-faith purchasers; there were red flags and willful blindness | TAFI/Abercrombie: took in good faith and paid fair value; lacked knowledge of fraud | Court: disputed whether defendants were on inquiry notice; willful ignorance and suspicious facts could defeat good-faith defense — issue for jury |
| Civil conspiracy / aiding and abetting breach of fiduciary duty | Dilick’s self-dealing and Abercrombie’s active participation (signatures, formation, closings, funds flow) show concerted scheme | Defendants: no intent to defraud; primary culpability lies with Dilick; defendants lacked requisite knowledge | Court: evidence supports reasonable inferences of conspiracy and aiding/participation; genuine disputes of material fact exist |
| Lis pendens expungement / remedies available | Cohen: reinstating lis pendens necessary because prevailing would permit recovery of title or encumbrances | Defendants: expungement proper; property later sold to bona fide third party | Court: because TAFI sold the property to a third-party purchaser after expungement, title cannot be restored through these defendants and lis pendens reinstatement is inappropriate — lis pendens issue moot |
Key Cases Cited
- In re Meyerland Co., 960 F.2d 512 (5th Cir. 1992) (federal court that receives a removed case treats state-court rulings as its own for appellate purposes)
- Granny Goose Foods, Inc. v. Brotherhood of Teamsters, 415 U.S. 423 (U.S. 1974) (promotes judicial economy by giving state-court proceedings force and effect in federal court)
- Ford Motor Credit Co. v. Bright, 34 F.3d 322 (5th Cir. 1994) (standard on what record evidence federal appellate court may consider on review)
- Underwriters at Lloyd’s, London v. Axon Pressure Prods., Inc., 951 F.3d 248 (5th Cir. 2020) (trial court may abuse discretion by excluding evidence without reasoned explanation)
- Janvey v. GMAG, L.L.C., 592 S.W.3d 125 (Tex. 2019) (TUFTA fraudulent intent and badges-of-fraud framework)
- Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509 (Tex. 1942) (aiding and abetting a breach of fiduciary duty renders aider a joint tortfeasor)
- Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667 (Tex. 1998) (elements of actionable fraud and material misrepresentation)