Raul Galaz v. Lisa Galaz
850 F.3d 800
| 5th Cir. | 2017Background
- Raul Galaz transferred Artist Rights Foundation (ARF)’s royalty rights to “Segundo Suenos” in June 2005 without notifying co-owner Julian Jackson or ARF member Lisa Galaz (Lisa). Segundo was not formed as an LLC until three months later.
- Lisa held a 25% economic interest in ARF from her divorce and received none of the royalties after the transfer; nearly $969,318 grossed from the royalties through trial.
- Raul assisted in forming Segundo (purportedly owned by his father Alfredo), continued to manage or control the royalties, and dissolved ARF in December 2006.
- Lisa sued in bankruptcy court alleging a fraudulent transfer under the Texas Uniform Fraudulent Transfer Act (TUFTA); bankruptcy and district courts found the transfer invalid, awarded actual and exemplary damages, and the case underwent multiple appeals and remands.
- On final review, the district court (after adopting bankruptcy findings) concluded Raul acted with actual intent to defraud, set aside the transfer, awarded Lisa $241,309.10 in actual damages (25% of gross royalties less limited adjustments), and $250,000 in exemplary damages.
Issues
| Issue | Plaintiff's Argument (Lisa) | Defendant's Argument (Raul/Segundo) | Held |
|---|---|---|---|
| Whether the transfer was fraudulent under TUFTA (actual intent) | Transfer was made to deprive Lisa of her 25% share; badges of fraud present | Transfer was legitimate; no fraudulent intent and transfer offered to non-insiders first | Transfer was fraudulent; district court’s finding of actual intent affirmed (clear-error review) |
| Whether transfer recipient was an insider and controlled by Raul | Secondo was effectively controlled by Raul; transfer to insider supports fraud finding | Argued transfer to insider shouldn’t be dispositive when offered to non-insider first | Transfer to an insider (Alfredo/Segundo) was a badge of fraud; appellants’ argument unavailing |
| Proper measure of actual damages under TUFTA | Lisa entitled to 25% of gross royalty receipts (restoration remedy), less pre-transfer ARF expenses | Damages should be limited to value at time of transfer (nominal) or reduced by Segundo’s operating expenses | Award of 25% of gross royalties less limited pre-transfer expenses affirmed; defendants failed to prove reasonable deductions |
| Award of exemplary (punitive) damages | Exemplary damages warranted by clear-and-convincing evidence of fraud/malice/gross negligence | No basis for punitive damages; lack of evidence and improper doubling of compensatory damages | Exemplary damages ($250,000) affirmed; clear-and-convincing standard met and arguments waived for inadequate briefing |
Key Cases Cited
- In re Galaz (Galaz I), 765 F.3d 426 (5th Cir. 2014) (prior appellate disposition addressing jurisdiction and core/non-core issues)
- Monge v. Rojas (In re Monge), 826 F.3d 250 (5th Cir. 2016) (standard of review for district court findings in bankruptcy appeals)
- In re TransTexas Gas Corp., 597 F.3d 298 (5th Cir. 2010) (clear-error review of factual findings)
- Anderson v. City of Bessemer City, N.C., 470 U.S. 564 (1985) (deference where two permissible views of evidence exist)
- Walker v. Anderson, 232 S.W.3d 899 (Tex. Ct. App. 2007) (use of TUFTA badges of fraud and proof standards)
- Shafer v. Army & Air Force Exch. Serv., 376 F.3d 386 (5th Cir. 2004) (standard for reviewing factual findings when district court applies correct standard)
- Procter & Gamble Co. v. Amway Corp., 376 F.3d 496 (5th Cir. 2004) (argument-waiver for inadequate briefing)
- Airflow Hous., Inc. v. Theriot, 849 S.W.2d 928 (Tex. Ct. App. 1993) (broad equitable relief under TUFTA)