Raul Galaz and Segundo Suenos, L.L.C., Appellants v. Lisa Ann Galaz and Julian Jackson, Appellees
No. 15-51194
United States Court of Appeals, Fifth Circuit
FILED March 10, 2017
841 F.3d 316
This result is not changed by the fact that the underlying alleged direct infringement involved the CNLOP Board‘s exportation of allegedly infringing material to the United States. That the United States was the destination does not convert the CNLOP Board‘s conduct into domestic conduct for the purpose of the Copyright Act. The act of “exportation” occurred entirely in Canada, and is beyond the reach of the Copyright Act notwithstanding the destination. This division of cross-border conduct into discrete acts of “exporting” from one country and “importing” into another is supported by the Copyright Act, which does the same.67
Because we affirm on the basis of extraterritoriality, we need not consider whether the act of state doctrine would bar Geophysical‘s contributory infringement claim.
IV.
Because we remand this case for further development on one of Geophysical‘s claims, and because of a relevant intervening Supreme Court decision, we vacate the district court‘s award of attorneys’ fees and costs. Upon remand, the district court is free to entertain a motion for attorneys’ fees and costs after its disposition of Geophysical‘s remaining claim, mindful of the Supreme Court‘s recent guidance on awards of attorneys’ fees in copyright cases.68 We leave to the district court to apply the standard announced in Kirtsaeng II. It may consider in its entertain-ment of that motion the dismissal of the claims that we affirm here, but in the interest of allowing it to give full consideration and apply the appropriate standard, we vacate its award.
V.
We affirm the district court‘s dismissal of Geophysical‘s direct infringement claim to the extent that it was based on infringing acts by TGS after it received copies of Geophysical‘s seismic lines. We affirm the district court‘s dismissal of Geophysical‘s claim of removal of copyright management information. We reverse the district court‘s dismissal of Geophysical‘s direct infringement claim to the extent that it was based on importation of unlawfully made copies and remand for further proceedings on that claim in light of the principles discussed here. We affirm the district court‘s dismissal of Geophysical‘s contributory infringement claim. We vacate the district court‘s award of attorneys’ fees and costs, which the district court may reconsider at the appropriate time after its disposition of the remanded claim.
In the MATTER OF: Lisa Ann GALAZ, Debtor
Raul Galaz, Pro Se.
Julian Jackson, Pro Se.
Before SMITH, CLEMENT, and SOUTHWICK, Circuit Judges.
EDITH BROWN CLEMENT, Circuit Judge:
Appellants Raul Galaz (“Raul“) and Segundo Suenos, LLC1 appeal the district court‘s judgment awarding actual and exemplary damages to debtor Lisa Ann Katona, formerly known as Lisa Galaz (“Lisa“). We AFFIRM the judgment of the district court.
I
This case is on appeal before this court for the second time. See Galaz v. Galaz (In re Galaz I), 765 F.3d 426 (5th Cir. 2014). It is just the latest episode in a series of lawsuits dating back ten years.
Raul founded Artist Rights Foundation, LLC (“ARF“) with Julian Jackson (“Jackson“) in 1998, and each originally held a 50 percent membership interest in ARF. When Lisa divorced Raul in 2002, she obtained a 25 percent economic interest in ARF—half of his 50 percent interest. ARF‘s assets consisted of the rights to the royalties from the music of the Ohio Players, a former funk band.
In June 2005, without the knowledge of Jackson or Lisa, Raul transferred ARF‘s royalty rights to “Segundo Suenos“—which at the time, “was not organized as a business entity under the laws of any state.” In re Galaz I, 765 F.3d at 428. In September 2005, Raul assisted his father, Alfredo Galaz (“Alfredo“) in establishing Segundo Suenos, LLC (“Segundo“) in Texas. Raul asserts that Alfredo is the “sole owner” of Segundo. Soon after the transfer, the royalties began to generate a substantial amount of revenue. Segundo received nearly a million dollars from the transfer until trial in February 2010. Lisa did not receive any share of the revenue, despite her 25 percent interest in ARF. Raul unilaterally dissolved ARF in December 2006.
Lisa filed for Chapter 13 bankruptcy in December 2007. In April 2008, Lisa brought this adversary proceeding against Raul, Alfredo, and Segundo, alleging that they fraudulently transferred the assets of ARF to Segundo and defrauded Lisa of her interest. Raul, Alfredo, and Segundo filed a third-party complaint against Jackson, and Jackson asserted seven counterclaims against them. Id. at 429.
“After a five-day bench trial, the bankruptcy court found that the transfer of assets from ARF to Segundo Suenos was invalid, that it constituted a fraudulent transfer under TUFTA, that Raul owed fiduciary duties to [Jackson] and had breached those duties, and that Raul owed no fiduciary duties to Lisa.” Id. The bankruptcy court held Raul and Segundo liable, but held Alfredo not liable. Id. at 429 & n.4. The bankruptcy court awarded actual and exemplary damages to Lisa and Jackson. Id. at 429.
Raul and Segundo appealed to the district court, which affirmed the bankruptcy court‘s judgment as to liability but vacated and remanded for redetermination of actual and exemplary damages. Id. On remand, the bankruptcy court awarded actual and exemplary damages consistent with the district court‘s instructions. Id. Appellants
This court vacated and remanded the bankruptcy court‘s judgment on jurisdictional grounds, with instructions to dismiss Jackson‘s third-party counterclaims for lack of subject-matter jurisdiction. Id. at 431, 434. This court also determined that Lisa‘s claims were non-core bankruptcy claims, and remanded for the district court to enter final judgment after further consideration. Id.
On remand, the district court referred this adversary proceeding to the bankruptcy court. The bankruptcy court submitted proposed findings of fact and conclusions of law pursuant to
II
When the district court enters final judgment in a bankruptcy case, this court “review[s] the district court‘s findings of fact for clear error and its conclusions of law de novo.” Monge v. Rojas (In re Monge), 826 F.3d 250, 254 (5th Cir. 2016). “In examining for clear error, we review the record as a whole and not just the evidence supporting the finding.” Stanley v. U.S. Bank Nat‘l Ass‘n (In re TransTexas Gas Corp.), 597 F.3d 298, 304 (5th Cir. 2010). “Where there are two permissible views of the evidence, the factfinder‘s choice between them cannot be clearly erroneous.” Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 574 (1985).
III
A
The district court held that the purported transfer of the music rights from ARF to Segundo was fraudulent under the Texas Uniform Fraudulent Transfers Act (“TUFTA“),
We review for clear error because “whether the transfer was made with the actual intent to defraud creditors is a fact question.” Walker v. Anderson, 232 S.W.3d 899, 914 (Tex. Ct. App. 2007). Because “direct proof of fraudulent intent is often unavailable,” courts may consider circumstantial evidence to determine whether the transfer was made with fraudulent intent. Id. Section 24.005(b) of TUFTA sets forth a “non-exhaustive list of facts and circumstances, which are known as the ‘badges of fraud,’ to be considered in determining whether a transfer was made with actual intent to defraud.” Id. (citing
Although the district court did not explicitly identify which badges of fraud are present, it emphasized the following facts: “Raul transferred all of ARF‘s royalty rights to Segundo Suenos“; “Segundo Suenos was not organized as a business entity under the laws of any state” until three months after the transfer; “Raul assisted his father in filing the documents required to establish Segundo Suenos as a
At least six badges of fraud are present. First, Raul transferred ARF‘s assets to “an insider“—his father, Alfredo, who purportedly owns Segundo.2 See
Second, Raul “retained possession or control of the property transferred after the transfer.”
Third, Raul “concealed” the transfer from Lisa.
Fourth, the transfer was of substantially all of ARF‘s assets.
Fifth, ARF did not receive “reasonably equivalent” consideration for the transfer of the royalty rights.
Sixth, ARF “was insolvent or became insolvent shortly after the transfer was made.”
The district court did not clearly err in adopting the bankruptcy court‘s finding of fraudulent intent. The presence of these badges of fraud is sufficient evidence that Raul transferred ARF‘s royalty rights with the actual intent of defrauding Lisa of her 25 percent economic interest in ARF. Appellants’ arguments to the contrary are entirely unavailing.4 The district court did
B
The district court awarded Lisa $241,309.10 in actual damages. The royalties generated $969,317.93 in gross income between the time of the fraudulent transfer and trial. To restore Lisa to the position she would have had if the fraudulent transfer had not occurred, the district court awarded Lisa 25 percent of the gross income—which was $242,329.48—less certain allowable and reasonable expenses.6 The district court declined to reduce Lisa‘s actual damages by Segundo‘s alleged expenses because Segundo is “a wholly distinct entity formed for the purpose of defrauding [Lisa] of her share of revenue.” Appellants also failed to produce credible evidence of those alleged expenses. We affirm.
Section 24.008(a)(3)(C) of TUFTA is an equitable provision which states that a creditor may obtain “any other relief the circumstances may require.” This equitable provision “is quite broad.” Airflow Hous., Inc. v. Theriot, 849 S.W.2d 928, 934 (Tex. Ct. App. 1993). Section 24.009(c)(1) provides that actual damages for the value of property fraudulently transferred are “subject to adjustment as the equities may require.” Appellants argue that, as a matter of law, the district court should have limited compensatory damages to the value of the royalty rights at the time of the transfer from ARF to Segundo, and that the value was “nominal” at that time. Although Appellants acknowledge that
Appellants also argue that “[c]onsidering all appropriate expenses, Segundo Suenos actually has produced no net operating income“—and thus, Lisa should not receive anything in actual damages. But Appellants provided insufficient evidence of reasonable expenses. Segundo apparently “did not regularly keep any profit and loss statements or balance sheets” and failed to present “any evidence of invoices, receipts, work orders, or other documentation.” Segundo requested that the district court, in calculating Lisa‘s actual damages, deduct hundreds of thousands of dollars in unsupported expenses from the revenue generated by the royalty rights. The district court did not err in declining to reduce Lisa‘s award by these alleged expenses, especially given the finding of actual intent to defraud and the broad remedial authority conferred by
C
The district court awarded Lisa $250,000 in exemplary damages. Appel-
Appellants also summarily argue, without citing any precedent, that “it was error for the lower courts to simply double the already-inflated compensatory damages in order to assess punitive damages” and that the district court clearly erred when it assessed exemplary damages against Segundo because “there was no determination that ... Segundo ... engaged in any objectionable conduct.” These arguments are waived for lack of adequate briefing. See Procter & Gamble Co. v. Amway Corp., 376 F.3d 496, 499 n.1 (5th Cir. 2004). The district court did not err in awarding Lisa exemplary damages against both Raul and Segundo.
IV
We AFFIRM the judgment of the district court. We make no comment on the effect of the judgment on non-parties.
EDITH BROWN CLEMENT
UNITED STATES CIRCUIT JUDGE
UNITED STATES of America, Plaintiff-Appellee v. Nemessis BATES, also known as Nemesis Bates, also known as Nemo Bates, Defendant-Appellant
No. 15-31087
United States Court of Appeals, Fifth Circuit.
Filed March 10, 2017