Case Information
*0 FILED IN 3rd COURT OF APPEALS AUSTIN, TEXAS 3/11/2015 9:53:10 AM JEFFREY D. KYLE Clerk NO. 03-14-00518-CV THIRD COURT OF APPEALS 3/11/2015 9:53:10 AM JEFFREY D. KYLE 03-14-00518-CV AUSTIN, TEXAS *1 ACCEPTED [4450891] CLERK IN THE COURT OF APPEALS THIRD DISTRICT OF TEXAS AUSTIN, TEXAS
JAMES POE AND SENIOR RETIREMENT PLANNERS, LLC, Appellants
vs. EDUARDO S. ESPINOSA, IN HIS CAPACITY AS RECEIVER OF RETIREMENT VALUE, LLC, Appellee Appeal from the 200 th Civil District Court of Travis County, Texas (Hon. Gisela Triana presiding) APPELLANTS’ BRIEF
Respectfully submitted, ALDRICH PLLC Scott Lindsey State Bar No. 24036969 1130 Fort Worth Club Tower 777 Taylor Street Fort Worth, Texas 76102 Telephone: 817-336-5601 Facsimile: 817-336-5297 slindsey@aldrichpllc.com ATTORNEY FOR APPELLANTS APPELLANTS REQUEST ORAL ARGUMENT *2
IDENTITIES OF PARTIES AND COUNSEL Appellants: James Poe and
Senior Retirement Planners, LLC Attorney for Appellants: Scott Lindsey
Aldrich PLLC 1130 Fort Worth Club Tower 777 Taylor Street Fort Worth, Texas 76102 Telephone: 817-336-5601 slindsey@aldrichpllc.com Trial attorney for Appellants: Robert L. Wright (retired)
4501 Blue Lake Ct.
Fort Worth, TX 76103 Appellee: Eduardo S. Espinosa, in his
capacity as Receiver of Retirement Value, LLC Attorneys for Appellee: John W. Thomas
John R. McConnell George, Brothers, Kincaid & Horton, L.L.P.
114 W. Seventh, Suite 1100 Austin, TX 78701-3015 Telephone: 512-495-1400 jthomas@gbkh.com jmcconnell@gbkh.com ii
TABLE OF CONTENTS
I. IDENTITIES OF PARTIES AND COUNSEL ....................................... ii
II. INDEX OF AUTHORITIES .................................................................. v
III. STATEMENT OF THE CASE ........................................................... viii
IV. STATEMENT REGARDING ORAL ARGUMENT .............................. ix
V. ISSUES PRESENTED ........................................................................ x
VI. STATEMENT OF FACTS ................................................................... 1
A. Parties Relevant to this Appeal ................................................. 1 B. RV’s Life Settlement Program and RV’s Value .......................... 3 C. Plan of Distribution .................................................................... 5 D. Espinosa as Litigation Plaintiff ................................................... 6 E. Espinosa Collects Unallocated Settlement Proceeds ................ 9 F. Espinosa’s Motion for Summary Judgment Against Poe ........... 9 G. Poe Seeks Credit for Unallocated
James Settlement Proceeds .................................................... 11 H. Judgment and Appeal .............................................................. 11 VII. SUMMARY OF THE ARGUMENT .................................................... 12
VIII. ARGUMENT ..................................................................................... 14
Issue One: Proper allocation of the one-satisfaction rule required that the trial court grant Appellants a settlement credit for unallocated settlement proceeds of $5.5 million. Because Appellants were found liable for an amount less than the unallocated settlement proceeds, the trial court erred, as a matter of law, by failing to render a take-nothing judgment in Appellants’ favor.
A. Standard of Review ................................................................. 14 B. Applicable Law ........................................................................ 14 C. Applicable Facts ...................................................................... 16 D. Application of Law to Fact ....................................................... 19 E. Espinosa’s Trial Court Arguments Missed the Point ................ 22 F. TUFTA Attorney Fee Award and Harmful Error ....................... 29 iii
Issue Two: The trial court abused its discretion by overruling Appellants’ objections to Espinosa’s summary judgment evidence.
A. Standard of Review ................................................................. 30 B. Argument ................................................................................. 30 1. Espinosa’s July 29, 2011 Affidavit .................................. 32 2. Espinosa’s May 1, 2013 Affidavit ................................... 35 3. Burchett May 1, 2013 Affidavit ....................................... 36 4. Reversible Error ............................................................. 37 Issue Three: The trial court erred by rendering summary judgment for Espinosa on his TUFTA claim against Appellants because Espinosa lacked standing and because genuine issues of material fact existed for at least one element of each of Espinosa’s TUFTA theories.
A. Standard of Review ................................................................. 38 B. Espinosa’s Grounds for Summary Judgment under TUFTA ... 38 C. Espinosa Lacks Standing to Recover Investor Money ............ 39 D. No Creditor has a Qualifying Claim under TUFTA ................... 41 E. Insufficient Evidence of Insolvency .......................................... 44 1. Insolvency ...................................................................... 44 2. Value of Remaining Assets ............................................ 57 F. Reasonably Equivalent Value .................................................. 59 G. Actual Intent ............................................................................. 60 H. Ponzi Scheme Allegations ....................................................... 62 IX. PRAYER ........................................................................................... 64
X. CERTIFICATE OF COMPLIANCE .................................................... 66
XI. CERTIFICATE OF SERVICE ............................................................ 66
XII. APPELLANTS’ APPENDIX ............................................................... 67
iv *5 INDEX OF AUTHORITITES Cases
Akin, Gump, Strauss, Hauer and Feld, L.L.P. v. E-Court ,
No. 03-02-00714-CV, 2003 Tex. App. LEXIS 3966 (Tex. App.—Austin May 8, 2003, no pet.) (mem. op.) ................ 39, 40 Austin Nursing Center, Inc. v. Lovato ,
171 S.W.3d 845 (Tex. 2005) ............................................................. 40 Buccaneer Homes of Alabama, Inc. v. Pelis ,
43 S.W.3d 586 (Tex. App.—Houston [1st Dist.] 2001, no pet.) ...................................................... 15, 19, 22, 23, 28, 29 Burrow v. Arce , 997 S.W.2d 229 (Tex. 1998) ............................. 32, 35
Caldwell v. State , 95 S.W.3d 563
(Tex. App.—Houston [1st. Dist.] 2002, no pet.) ................................ 63 Casso v. Brand , 776 S.W.2d 551 (Tex. 1989) .................................. 54
Cohen v. Arthur Anderson, L.L.P. , 106 S.W.3d 304
(Tex. App.—Houston [1st Dist.] 2003, no pet.) ......... 14, 15, 16, 22, 28 Crown Life Ins. Co. v. Casteel , 22 S.W.3d 378
(Tex. 2000) ............................................................... 15, 16, 22, 23, 27 Dalworth Restoration, Inc. v. Rife-Marshall ,
433 S.W.3d 773 (Tex. App.—Fort Worth
2014, pet. dism’d w.o.j.) ................................ 14, 16, 20, 22, 23, 27, 28 Diversicare Gen. Partner, Inc. v. Rubio ,
185 S.W.3d 842 (Tex. 2005) ............................................................. 38 E.I. du Pont de Nemours & Co. v. Robinson ,
923 S.W.2d 549 (Tex. 1995) ................................................. 33, 35, 37 Fairfield Fin. Group, Inc. v. Synnott ,
300 S.W.3d 316 (Tex. App.—Austin 2009, no pet.) .......................... 30 Galle, Inc. v. Pool , 262 S.W.3d 564
(Tex. App.—Austin 2008, pet. denied) ........................... 14, 21, 22, 28 Goldstein v. Morrison , 113 S.W.3d 769
(Tex. App.—Austin 2003, no pet.) ..................................................... 63 Goodyear Tire & Rubber Co. v. Mayes ,
236 S.W.3d 754 (Tex. 2007) ............................................................. 38 v
Goose Creek Consol. Indep. Sch. Dist.
of Chambers v. Jarrar’s Plumbing ,
74 S.W.3d 486 (Tex. App.—Texarkana
2002, pet. denied) ........................................................... 23, 25, 26, 27 Gutierrez v. Cayman Is. Firm of Delloitte & Touche ,
100 S.W.3d 261 (Tex. App.—San Antonio 2002, no pet.) ................ 63 Huckabee v. Time Warner Entertainment Co. L.P. ,
19 S.W.3d 413 (Tex. 2000) ............................................................... 54 Manaham v. Meyer , 862 S.W.2d 130
(Tex. App.—Houston [1st Dist.] 1993, writ denied) ........................... 40 Mobil Oil Corp. v. Ellender ,
968 S.W.2d 917 (Tex. 1998) ........................................... 15, 16, 19, 20 Neely v. Comm’n for Lawyer Discipline , 302 S.W.3d 331
(Tex. App.—Houston [14th Dist.] 2009, pet. denied) ........................ 30 Nixon v. Mr. Prop. Mgmt. , 690 S.W.2d 546 (Tex.1985) .................... 38
Osborne v. Jauregui, Inc. ,
252 S.W.3d 70 (Tex. App.—Austin
2008, pet. denied) (op. on reh’g) (en banc) .......................... 15, 22, 29 Owens-Corning Fiberglas Corp. v. Malone ,
972 S.W.2d 35 (Tex. 1998) ............................................................... 30 Parker Barber & Beauty Supply, Inc. v.
Wella Corp. , No. 03-04-00623-CV, 2006 Tex. App. LEXIS
8841 (Tex. App.—Austin Oct. 11, 2006, no pet.) (mem. op.) ............ 30 State Farm Fire & Cas. Co. v. S.S. ,
858 S.W.2d 374, 380 (Tex. 1993) .............................................. 61, 62 Tex. Ass’n of Bus. v. Tex. Air Control Bd .,
852 S.W.2d 440 (Tex. 1993) ............................................................. 40 Tex. Capital Securities, Inc. v. Sandefer ,
108 S.W.3d 923 (Tex. App.—Texarkana 2003, pet. denied) ............ 28 United Blood Servs. v. Longoria ,
938 S.W.2d 29 (Tex. 1997) ....................................... 31, 32, 34, 35, 36 Utts v. Short , 81 S.W.3d 822 (Tex. 2002) ................................... 16, 20
Valence Operating Co. v. Dorsett ,
164 S.W.3d 656 (Tex. 2005) ............................................................. 38 vi
32. Wein v. Sherman , No. 03-10-00499-CV, 2013 Tex. App. 10666
(Tex. App.—Austin Aug. 23, 2013, no pet.) (mem. op.) .................... 14 33. White v. Cole , 880 S.W.2d 292
(Tex. App.—Beaumont 1994, writ denied) ........................................ 40 Statutes
1. Tex. Bus. & Com. Code Ann. § 24.002 ............................................ 41
2. Tex. Bus. & Com. Code Ann. § 24.003 ............................................ 44
3. Tex. Bus. & Com. Code Ann. § 24.004 ............................................ 59
4. Tex. Bus. & Com. Code Ann. § 24.005
............................................... 2, 18, 37, 39, 41, 44, 57, 58, 59, 60, 61 5. Tex. Bus. & Com. Code Ann. § 24.006
............................................... 2, 18, 37, 39, 41, 44, 47, 57, 58, 59, 60 Rules
1. Tex. R. App. P. 39.1 .......................................................................... ix
2. Tex. R. App. P. 44.1 ................................................................... 30, 37
3. Tex. R. Civ. P. 166a ...................................... 30, 31, 32, 34, 35, 36, 38
4. Tex. R. Evid. 702 .............................................................................. 33
vii *8 STATEMENT OF THE CASE NATURE OF THE CASE: Espinosa, as Receiver for Retirement
Value, LLC, sued Appellants Poe and SRP and many others for the return of investor money loaned to Retirement Value for the purchase of life insurance policies. [CR 614] As to Poe and SRP, Espinosa sought the return of commissions paid to them by Retirement Value. [CR 614, 617, 705- 06] Poe and SRP asserted a general denial and affirmative defenses. [CR 721-26]
COURSE OF THE
PROCEEDINGS: The trial court granted partial summary
judgment for Espinosa on his fraudulent transfer claims against Poe and SRP. [CR 1973; Appx Tab 1] Espinosa nonsuited his remaining claim against Poe and SRP. [CR 1983] The trial court denied Poe and SRP’s motion to apply settlement credits [CR 1989; 2 RR 38] and severed Espinosa’s claims against Poe and SRP. [CR 2133] TRIAL COURT
DISPOSITION: The trial court signed the final judgment
on May 28, 2013. [1 st Supp CR 3-5; Appx Tab 2] Poe and SRP filed their Motion to Modify the Judgment or alternative Motion for New Trial on June 26, 2014, which was overruled by operation of law. [1 st Supp CR 6] Appellants timely appealed on August 20, 2014. [1 st Supp CR 64] viii
STATEMENT REGARDING ORAL ARGUMENT Appellants request oral argument pursuant to rule 39.1 of the rules of appellate procedure. Although Appellants believe the facts and legal
arguments are thoroughly presented in this brief and in the record,
Appellants also believe that this Court’s decisional process will be
significantly aided by oral argument. Application of the one-satisfaction rule
should be simple, but oral argument will aid the Court in applying the rule in
this multi-party and multi-theory case. For Appellants’ other issues, the
record in this case is significant in size, and oral argument will aid the Court
in identifying the relevant portions of the record as well as the many
genuine issues of material fact that should have precluded summary
judgment.
ix
ISSUES PRESENTED
Issue One: Proper allocation of the one-satisfaction rule required that the
trial court grant Appellants a settlement credit for unallocated settlement
proceeds of $5.5 million. Because Appellants were found liable for an
amount less than the unallocated settlement proceeds, the trial court erred,
as a matter of law, by failing to render a take-nothing judgment in
Appellants’ favor.
Issue Two: The trial court abused its discretion by overruling Appellants’
objections to Espinosa’s summary judgment evidence.
Issue Three: The trial court erred by rendering summary judgment for
Espinosa on his TUFTA claim against Appellants because Espinosa lacked
standing and because genuine issues of material fact existed for at least
one element of each of Espinosa’s TUFTA theories.
x
STATEMENT OF FACTS On May 5, 2010, the State of Texas filed suit against Retirement Value, LLC (“RV”) and others alleging that they were selling unregistered
securities, engaging in securities fraud, and violating the Texas Deceptive
Trade Practices Act. [2 nd Supp CR 72] [1] The State sought appointment of a
receiver for RV, temporary and permanent injunctions, and restitution for
alleged participant-investor losses. [2 nd Supp CR 72] Appellee Espinosa
was appointed as receiver for RV on that same date. [2 nd Supp CR 72]
According to Espinosa, RV had assets totaling more than $179 million
($154 million in life insurance policies and $25 million in cash and
securities) at the time of the receivership and had obtained loan proceeds
of about $77 million from participant-investors. [2 nd Supp CR 92-93]
A. Parties Relevant to this Appeal
Among the defendants and third-party defendants to the underlying lawsuit are Ronald James, Donald James, Michael Beste, and James
Settlement Services, LLC (collectively, the “James Defendants”). [CR 613,
615] Espinosa has alleged that the James Defendants promoted the life
*12 settlement model to RV, “participated or had the right to participate in
control of [RV],” and “played a key role in the organization and operation” of
RV. [CR 615, 665]
Appellants James Poe and Senior Retirement Planners, LLC (“SRP”), [2] Poe’s business entity, were not original parties to the lawsuit.
Espinosa eventually named them as third party defendants. Poe’s role was
limited to serving as an agent (called “Licensee” in the RV program) who
solicited participants for RV’s life settlement product. [CR 614, 617; 2
Supp CR 1029-31]
The trial court determined by summary judgment that Poe was liable under TUFTA [3] for the return of $485,564.13 in commissions that he
received from RV. [1 st Supp CR 3-5] However, the evidence relating to the
fair value of RV’s overall assets and liabilities, including the dates on which
participants’ loans had to be repaid following maturation of the life
insurance policies, are central to Espinosa’s TUFTA claims against Poe.
Discussed below, those claims required that Espinosa prove, among other
things, that commission payments to Poe rendered RV insolvent or caused
RV to be unable to pay its debts as they came due.
*13 B. RV’s Life Settlement Program and RV’s Value
Espinosa described the RV life-settlement program as follows in his initial report to the trial court:
From April 2009 through March 29, 2010, Retirement Value raised approximately $77 million from more than 900 investors through the sale of investments in its Re-Sale Life Insurance Policy Program.
Each of the investments was structured as a loan to Retirement Value, whereby the investors provided Retirement Value with funds in exchange for Retirement Value’s promise to pay a fixed sum of money at an undetermined date in the future. The amount that Retirement Value agreed to pay was tied to the calculated life expectancy of insureds under life insurance policies purportedly owned by Retirement Value. In all instances, Retirement Value agreed to pay a return of 16.5% simple interest per year for the insured's calculated life expectancy. Thus, Retirement Value would pay $18,800 on a $10,000 investment in a policy where the insured had a calculated life expectancy of 64 months. The date on which the insured under the policy died set the date that the investment matured and when Retirement Value would be required to repay the loan. The loan's maturity date did not affect the amount of money that Retirement Value was obligated to pay the investor, except that investors were entitled to a return of unused premiums, if any. [2 nd Supp CR 70, 75] Espinosa’s description of the RV program is generally consistent with the Loan Agreement that each participant signed when loaning money to
RV. [2 Supp CR 642-62] On maturity of the life insurance policies, RV
would eventually owe the participants, collectively, approximately $125
million, which represented the principal loaned to RV by the participants
and the interest RV had agreed to pay the participants upon maturity of the
respective insurance policies. [2 nd Supp CR 232] Espinosa acknowledged,
however, that the debts to participants were not due for quite some time
when he wrote that the “date on which the insured under the policy died set
the date that the investment matured and when Retirement Value would be
required to repay the loan.” [2 nd Supp CR 75] In a related bankruptcy
proceeding, Espinosa testified, consistently, that “the documents speak for
themselves, but if you want me to put a voice to them, the documents say
that the notes mature upon the maturity of that policy.” [2 nd Supp CR 75,
746]
In that same involuntary bankruptcy proceeding, Espinosa’s counsel made several statements regarding RV’s alleged insolvency, its ability to
pay debts when due, and the proposed plan of distribution that would repay
the participants “in full.” Espinosa’s counsel identified the RV participants
as the creditors [2 nd Supp CR 738] and represented to the bankruptcy court
that “there are real issues as to whether debts were paid when due, ‘due’
being the key word here” and that “there is a significant issue of whether
Retirement Value is paying debts as they come due, considering they’re
not really due.” [2 Supp CR 734] Espinosa’s counsel also represented
that RV owned 48 life insurance policies and had $29 million in cash, and
he said that RV needed only about $19 million to keep all of the policies to
maturity. [2 nd Supp CR 736] He also told the bankruptcy court that the plan
of distribution proposed to the trial court in this case would, in 97.5% of all
scenarios, pay back the participants-creditors “in full.” [2 nd Supp CR 736-
37]
C. Plan of Distribution
In July 2012, the trial court in this case adopted the Plan of Distribution that Espinosa’s counsel referred to in the bankruptcy
proceeding. [2 nd Supp CR 613] That plan established a claims process by
which participants could make claims against RV and by which Espinosa
was obligated to make pro rata distributions to participants. [2 nd Supp CR
614-19] The Plan ordered Espinosa to liquidate all RV’s assets other than
the life insurance policies, maintain the life insurance policies through
maturity, use the proceeds of maturing policies to pay premiums on
remaining policies, keep sufficient reserves to pay premiums on remaining
policies, and make pro rata distributions to participants. [2 Supp CR 620-
24] Although the plan limited participants’ claims against RV to the amounts
loaned to RV (without interest), the plan simultaneously removed the
participants’ prior obligation to pay necessary premiums beyond the
estimated life expectancy of an insured (plus 24 months) in order to keep
insurance policies in effect through maturity. [2 nd Supp CR 614, 620-21,
642-62] In short, the Plan of Distribution ordered Espinosa to hold all life
insurance policies to maturity and then return the participants’ initial loan
proceeds to them, with discretion to Espinosa to make interim distributions
from receivership assets. [2 Supp CR 618-21]
D. Espinosa as Litigation Plaintiff
In addition to proposing and gaining approval of the Plan of Distribution, Espinosa initiated litigation against the James Defendants and
others, who he claimed were responsible for RV’s downfall. [CR 613]
Espinosa also added claims against Poe and the other Licensees who
solicited participants for the RV program. [ see, e.g. , CR 613]
Espinosa’s live pleading was his Eighth Amended Cross-Claim and Third-Party Claim, filed on March 18, 2013. [CR 613] In that pleading,
Espinosa asserted claims against the James Defendants, Poe, and many
others for breach of fiduciary duty, conspiracy to breach fiduciary duty, and
aiding and abetting breach of fiduciary duty, and Espinosa alleged that
these parties were jointly and severally liable for $77 million, which included
the return of all commissions paid by RV to Poe and the other Licensees.
[CR 613, 615, 617, 640, 681, 685, 687-91] Espinosa alleged that the
James Defendants “promoted the scheme to Retirement Value” and
“participated or had the right to participate in control of Retirement Value.”
[CR 615] Espinosa alleged that the defendants, including the James
Defendants, “caused [RV] to operate a fraudulent investment scheme,” [CR
642] that RV sold the securities “through a group of agents which it called
‘Licensees,’” and that “the James Defendants assisted in the recruitment of
licensees by identifying potential targets for recruitment and working with
Gray to convince the potential licensees to sell Retirement Value’s
investment product.” [CR 641]
Other allegations in Espinosa’s live pleading include: The scheme took in approximately $77 million from over 900 investor-victims and promised to pay them approximately $130 million. [CR 646]
All of the Third-Party Defendants also conspired to breach the fiduciary duties they and the officers of Retirement Value owed to Retirement Value by using Retirement Value to pay themselves exorbitant and unconscionable fees and commissions in violation of the Texas Securities Act. [CR 663] The Conspiring Defendants – as identified below, and which includes the James Defendants and Beste – are jointly and severally liable for the full amount that Retirement Value has been ordered to pay in restitution to investors. All Licensee Defendants who are not also Conspiring Defendants are liable for the total amount of commissions they received. [CR 681] The James Defendants and Beste also owed Retirement Value a fiduciary duty by virtue of their special relationship with Retirement Value. [CR 687]
The Conspiring Defendants engaged in affirmative acts to further the goals of the conspiracy. The Conspiring Defendants, therefore, are jointly and severally liable for all losses that were proximately caused by any member of the conspiracy as well as losses incurred after Defendants left the conspiracy – assuming such withdrawal from the civil conspiracy actually occurred. [CR 690]
Retirement Value is now liable to the investor victims for damages, attorneys’ fees and for having to return to them all of the money they invested in Retirement Value. The Conspiring Defendants are thus jointly and severally liable for all of those damages, without regard to whether such Defendants participated in all aspects of the conspiracy. [CR 691] Espinosa thus sued Poe for the return of Poe’s commissions and sued the
James Defendants for all $77 million, which included Poe’s commissions,
alleging that the James Defendants were jointly and severally liable with
Poe for the return of Poe’s commissions.
Espinosa also asserted claims against the James Defendants that related solely to amounts the James Defendants received from RV (i.e., for
the James Defendants’ sole liability). Under a money had and received
theory, Espinosa sued the James Defendants for the return of
approximately $20 million, [CR 704-05] and Espinosa sued the James
Defendants under TUFTA for the return of $28,902,092, which Espinosa
alleged had been paid to the James Defendants to purchase life insurance
policies. [CR 705-06]
E. Espinosa Collects Unallocated Settlement Proceeds
About a month after filing his Eighth Amended Cross-Claim and Third-Party Claim, Espinosa entered into a Settlement Agreement and
Release of All Claims with the James Defendants (the “James Settlement
Agreement”). [CR 2023; Appx Tab 3] The James Defendants paid
Espinosa $5.5 million in unallocated funds to settle all claims against them.
[CR 2024; Appx Tab 3] The James Settlement Agreement did not release
Espinosa’s claims against Poe, but it also did not allocate any of the
settlement proceeds by stating that the James Defendants were paying
damages for which only they were solely liable or that the James
Defendants were not paying damages for which Espinosa had alleged the
James Defendants and Poe were jointly and severally liable. [CR 2027,
2023-29; Appx Tab 3]
F. Espinosa’s Motion for Summary Judgment Against Poe
On May 1, 2013, soon after settling with the James Defendants, Espinosa filed his Motion for Partial Summary Judgment as to Licensee
Defendants (including Poe). [2 nd Supp CR 3] Poe filed his response to the
motion on October 1, 2013 and asserted objections to Espinosa’s summary
judgment evidence. [2 Supp CR 479, 571] The trial court overruled Poe’s
evidentiary objections by written order. [CR 1964] Judge Triana also
indicated at the hearing on the motion for summary judgment that she
intended to grant summary judgment for Espinosa on his TUFTA claims
against Poe. [CR 1966] On December 10, 2013, the trial court signed an
order granting partial summary judgment to Espinosa on his TUFTA claim
against Poe. The order contained a liability finding only against Poe, but it
was granted as to liability and damages against SRP. [CR 1973-74] The
order is not a general order; it is limited only to the TUFTA claim, does not
include a finding that RV operated as a Ponzi scheme, and does not rule
on Espinosa’s money had and received claim. [4]
Given Judge Triana’s indication that she would grant summary judgment against Poe based on the amount of commissions he received,
Espinosa and Poe entered into a stipulation that Poe had received
$485,564.13 in commissions from RV but not that those commissions were
properly recoverable as TUFTA damages or that Espinosa had proven his
entitlement to recovery of those damages. [CR 1966] The stipulation further
reserved all of Poe’s appellate arguments. [CR 1966-67]
*21 G. Poe Sought Credit for Unallocated James Settlement Proceeds
After the trial court adjudicated Poe’s liability, but before the trial court signed the judgment, Poe moved the trial court for a take-nothing judgment
under the one-satisfaction rule because Espinosa sued both the James
Defendants and Poe for recovery of Poe’s commissions and collected
unallocated settlement proceeds from the James Defendants, entitling Poe
to a credit for the $5.5 million, unallocated James Settlement. [CR 1989]
Judge Triana conducted a hearing on the motion but denied it. [2 RR 2-38]
H. Judgment and Appeal
On May 28, 2014, the trial court severed Espinosa’s claims against the various licensee defendants into separate lawsuits. [CR 2133] Also on
May 28, 2014, the trial court signed a judgment in the severed cause
against Poe and SRP for $485,564.13 in actual damages, $182,086.55 in
attorney’s fees, $7,142.86 in conditional appellate attorney’s fees, and
interest. [1 st Supp CR 3-5] Poe and SRP timely filed their Motion to Modify,
Reform, or Correct Judgment and Alternative Motion for New Trial on June
26, 2014, which was overruled by operation of law. [CR 2136] On August
20, 2014, Poe and SRP timely filed notice of this appeal. [1 st Supp CR 64]
SUMMARY OF THE ARGUMENT The trial court, as a matter of law, erred by failing to grant Poe a settlement credit for the unallocated settlement proceeds of $5.5 million
from the James Defendants. The one-satisfaction rule precludes a plaintiff
from recovering twice for the same injury. Espinosa sued the James
Defendants and Poe, asserting joint and several liability, for the recovery of
commissions Poe received from RV. Espinosa collected $5.5 million in
unallocated settlement proceeds from the James Defendants and did not
state within the settlement agreement that the settlement proceeds
represented payment for damages that were the sole liability of the James
Defendants. Espinosa could have so allocated, but he did not. Settled law
from this and other courts throughout Texas required that the trial court
grant Poe a settlement credit in the entire amount of the James
Defendants’ $5.5 million, unallocated settlement. Because Poe’s
adjudicated liability was for an amount less than the applicable settlement
credit, the trial court erred by refusing to render a take-nothing judgment in
Poe’s favor.
Alternatively, the trial court erred by granting summary judgment for Espinosa on his TUFTA claims against Poe. Espinosa lacks standing to
pursue these claims. In addition, Espinosa’s summary judgment evidence
was inadmissible, lacked credibility, and contained internal inconsistencies
that should have precluded summary judgment. Among other things,
Espinosa’s evidence regarding the fair value of RV’s assets and liabilities,
the values of which are necessary to determine whether RV was insolvent
and whether RV had sufficient remaining assets to pay its debts as they
came due, was shown through the summary judgment response to be little
more than mathematic gamesmanship in violation of applicable accounting
principles. Espinosa and his retained expert applied no discount rate to
RV’s liabilities in order to keep them as high as possible while applying
huge discount rates to RV’s assets, dropping the alleged value of the
insurance policies from more than $130 million to approximately $5 million
so that RV’s assets would purportedly be worth less than the liabilities. The
retained expert, however, admitted in his deposition that he should have
also applied a discount rate to RV’s liabilities and that a reduction in the
value of RV’s liabilities similar to his reduction of RV’s assets would mean
that RV was not insolvent. Moreover, Espinosa and his attorney
represented to a bankruptcy court that RV had sufficient assets and
premium reserves to pay all life insurance policies through maturation and
to repay all participant investors “in full.” Genuine issues of material fact
precluded summary judgment, and the trial court erred by granting
Espinosa’s motion.
ARGUMENT
Issue One: Proper allocation of the one-satisfaction rule required that
the trial court grant Appellants a settlement credit for unallocated
settlement proceeds of $5.5 million. Because Appellants were found
liable for an amount less than the unallocated settlement proceeds,
the trial court erred, as a matter of law, by failing to render a take-
nothing judgment in Appellants’ favor.
A. Standard of Review
The trial court’s settlement credit ruling should be reviewed de novo because there are no disputed fact issues. See Galle, Inc. v. Pool , 262
S.W.3d 564, 571 n.3 (Tex. App.—Austin 2008, pet. denied) (applying de
novo standard of review in the absence of disputed fact questions). If there
are disputed fact questions, the review is for an abuse of discretion. See
Dalworth Restoration, Inc. v. Rife-Marshall , 433 S.W.3d 773, 781 (Tex.
App.—Fort Worth 2014, pet. dism’d w.o.j.); see also Wein v. Sherman , No.
03-10-00499-CV, 2013 Tex. App. 10666, at *37-38 (Tex. App.—Austin Aug.
23, 2013, no pet.) (mem. op.) (discussing de novo and abuse of discretion
standards of review in settlement credit context).
B. Applicable Law
“The one satisfaction rule prohibits a plaintiff from recovering twice for a single injury.” Cohen v. Arthur Anderson, L.L.P. , 106 S.W.3d 304, 308
(Tex. App.—Houston [1st Dist.] 2003, no pet.) (citing Crown Life Ins. Co. v.
Casteel , 22 S.W.3d 378, 390 (Tex. 2000)). The rule applies “when multiple
defendants commit the same act or when multiple defendants commit
technically different acts that result in a single injury.” Id. (citing Crown , 22
S.W.3d at 390). As this Court has recognized, the one-satisfaction rule “is
not limited to tort claims, and whether the rule may be applied depends not
on the cause of action asserted but rather the injury sustained.” Osborne v.
Jauregui, Inc. , 252 S.W.3d 70, 75 (Tex. App.—Austin 2008, pet. denied)
(op. on reh’g) (en banc). “Thus, if the plaintiff has suffered only one injury,
even if based on ‘overlapping and varied theories of liability,’ the plaintiff
may only recover once.” Id. (quoting Buccaneer Homes of Alabama, Inc. v.
Pelis , 43 S.W.3d 586, 590 (Tex. App.—Houston [1st Dist.] 2001, no pet.)).
Under the common law, the nonsettling defendant has the initial burden of proving his entitlement to a settlement credit, which the
nonsettling defendant meets by “placing the settlement agreement or some
evidence of the settlement amount in the record.” Mobil Oil Corp. v.
Ellender , 968 S.W.2d 917, 927 (Tex. 1998). The burden then shifts to the
plaintiff “to tender a valid settlement agreement allocating the settlement
between (1) damages for which the settling and nonsettling defendant are
jointly liable, and (2) damages for which only the settling party was liable.”
Cohen , 106 S.W.3d at 310 (citing Crown , 22 S.W.3d at 392). The Supreme
Court of Texas established this burden-shifting framework in part because
the plaintiff, as one of the settling parties, is “in a better position than
nonsettling defendants to ensure that the settlement awards are properly
allocated.” Utts v. Short , 81 S.W.3d 822, 828 (Tex. 2002) (citing Ellender ,
968 S.W. 2d at 928). [5]
“[T]he plaintiff cannot rely on evidence that is extrinsic to the settlement agreement” in meeting his burden to prove allocation of
settlement proceeds. Dalworth Restoration, 433 S.W.3d at 781 (citing
Ellender , 968 S.W.2d at 928-29). If there is no allocation within the
settlement agreement itself, the nonsettling defendant must receive a credit
for the full amount of the settlement. Cohen , 106 S.W.3d at 310 (citing
Ellender , 968 S.W.2d at 928).
C. Applicable Facts
In his March 18, 2013 Eighth Amended Cross-Claim and Third-Party Claim, Espinosa asserted claims against the James Defendants, Poe, and
many others for breach of fiduciary duty, conspiracy to breach fiduciary
*27 duty, and aiding and abetting breach of fiduciary duty, and Espinosa
alleged that these parties were jointly and severally liable for $77 million,
which included the return of all commissions paid by RV to Poe and the
other Licensees. [CR 613, 615, 617, 640, 681, 685, 687-91] Espinosa
alleged in part as follows:
The Conspiring Defendants – as identified below, and which includes the James Defendants and Beste – are jointly and severally liable for the full amount that Retirement Value has been ordered to pay in restitution to investors [$77 million]. All Licensee Defendants who are not also Conspiring Defendants are liable for the total amount of commission they received.” [6] [CR 681]
Thus, Espinosa sued Poe for the return of Poe’s commissions and sued the
James Defendants for all $77 million, which included Poe’s commissions,
and Espinosa asserted that the James Defendants were jointly and
severally liable with Poe for the return of Poe’s commissions.
About a month after filing his Eighth Amended Cross-Claim and Third-Party Claim, Espinosa entered into a Settlement Agreement and
Release of All Claims with the James Defendants (the “James Settlement
Agreement”). [CR 2023; Appx Tab 3] The James Defendants paid
Espinosa $5.5 million in unallocated funds to settle all claims against them.
[CR 2024; Appx Tab 3] The James Settlement Agreement states that it did
*28 not release Espinosa’s claims against the Licensees (including Poe), but it
also did not allocate the settlement proceeds to any particular claim, theory
of recovery, or element of damages. Nor did the James Settlement
Agreement state that the James Defendants were not paying damages for
which the James Defendants and Poe were alleged to be jointly and
severally liable. [CR 2027, 2023-29; Appx Tab 3] The release language is
very broad and releases “any and all claims” and “causes of action of any
nature” between the parties. [CR 2025-26; Appx Tab 3] Nowhere within the
James Settlement Agreement is there any language stating or implying that
the James Defendants were paying only damages for which the James
Defendants were solely liable or that the James Defendants were paying
only for punitive damages. [CR 2023-29; Appx Tab 3]
On December 10, 2013, Judge Triana signed an order granting Espinosa’s Motion for Partial Summary Judgment as to Certain Licensees
on Espinosa’s TUFTA claim. [7] [CR 1973-74] As to Poe, the summary
judgment order adjudicated his alleged liability for $485,564.13, the amount
of commissions he and SRP collectively received. [CR 1973-74, 1966-67,
2142-43] After the summary judgment order, Poe filed his Supplement to
*29 Certain Licensees’ Motion for Application of Settlement Credits. [8] [CR 1989]
The trial court conducted a hearing on the motion on February 18, 2014,
but denied the motion. [2 RR 2, 38] Poe again raised the settlement credit
issue in his motion to modify the judgment, which was overruled by
operation of law. [CR 2136-38]
D. Application of Law to Fact
Poe clearly met his burden for application of settlement credits under the one-satisfaction rule. Poe asked the trial court, prior to judgment and
after Poe’s liability had been adjudicated by the trial court, to apply the
settlement credit and render a take-nothing judgment in his favor. [CR
1989, 1995] Poe’s motion established that Espinosa had sought joint and
several liability against both Poe and James Settlement Services for the
commissions that Poe received from RV, and Poe put the James
Settlement Agreement into the record, thereby advising the trial court of
both the amount of Espinosa’s settlement with the James Defendants and
the terms of that settlement. [CR 1989-95, 2023] See Ellender , 968 S.W.2d
at 927; Buccaneer Homes , 43 S.W.3d at 589. The burden then shifted to
Espinosa to show the trial court—by using only the James Settlement
*30 Agreement—that the James Settlement Agreement allocated the
settlement proceeds to include payment only for the James Defendants’
sole liability. See Dalworth Restoration , 433 S.W.3d at 781 (holding that
“the plaintiff cannot rely on evidence that is extrinsic to the settlement
agreement” in meeting his burden to prove allocation of settlement
proceeds). Espinosa did not meet his burden, and the trial court erred, as
a matter of law, by failing to grant Poe a credit for at least the $5.5 million,
unallocated settlement.
As the Texas Supreme Court has recognized, Espinosa was in the best position to allocate the James Defendants’ settlement payment. See
Utts , 81 S.W.3d at 828; Ellender , 968 S.W.2d at 928. Espinosa could have
allocated had he chosen to do so. For example, Espinosa asserted claims
against the James Defendants for which Poe and the James Defendants
would not have had joint and several liability, including a claim against the
James Defendants under a money had and received theory for the return of
approximately $20 million in profits [CR 704-05] and a claim against the
James Defendants under TUFTA for the return of $28,902,092, which
Espinosa alleged had been paid from RV to the James Defendants to
purchase life insurance policies. [CR 705-06] The James Settlement
Agreement could have allocated the settlement proceedings by stating that
the James Defendants were settling only for punitive damages, only for the
profits that they allegedly received from RV, or only for the return of money
paid to the James Defendants by RV for the purchase of insurance policies.
There is no such allocation language in the James Settlement Agreement.
[CR 2023-29; Appx Tab 3]
This Court has explained a similar situation as follows: Although it is theoretically possible that some of the damages the [plaintiffs] sought to recover against Allstate and for which they were compensated in the settlement agreement may have been separate rather than joint, it was the [plaintiffs’] burden to offer evidence allocating the settlement between actual damages for which only Allstate was liable and those for which Allstate and Galle were jointly liable, in order to limit the credit to the former. They failed to do so.
Galle , 262 S.W.3d at 573 (citation omitted). As in Galle , it is theoretically
possible that some of the damages Espinosa sought from the James
Defendants—and for which Espinosa was compensated by the unallocated
settlement proceeds—may have been separate rather than joint damages,
but Espinosa had the burden and duty to include allocation of separate
damages within the James Settlement Agreement. He failed to do so.
Because there is no allocation for separate, as opposed to joint, damages within the James Settlement Agreement, the trial court was
required to give Poe a credit for the entire amount of the James
Defendants’ $5.5 million settlement and render a take-nothing judgment
against Espinosa on his claims against Poe. See, e.g., Crown , 22 S.W.3d
at 392 (finding nonsettling insurance agent entitled to offset of damages
paid in settlement by insurance company); Dalworth Restoration , 433
S.W.3d at 785; Galle , 262 S.W.3d at 573. As a matter of law, the trial court
erred by failing to do so.
E. Espinosa’s Trial Court Arguments Missed the Point
Espinosa argued to the trial court that settlement credits cannot apply to the damages awarded against Poe because Poe was found, via no-
evidence summary judgment, not to have engaged in a civil conspiracy as
Espinosa had alleged. [CR 2085] This is wrong because application of the
one-satisfaction rule does not hinge on the existence of a conspiracy, nor
does the rule depend on the cause of action asserted. Instead, the rule is
applied by looking to the specific injury at issue. Osborne , 252 S.W.3d at
75 (“The application of the [one-satisfaction] rule is not limited to tort
claims, and whether the rule may be applied depends not on the cause of
action asserted but rather the injury sustained.”). [9] In fact, appellate courts
have routinely applied settlement credits in favor of nonsettling defendants
*33 when there was no allegation of conspiracy. See, e.g. , Dalworth
Restoration , 433 S.W.3d at 776, 782-83; Goose Creek Consol. Indep. Sch.
Dist. of Chambers v. Jarrar’s Plumbing , 74 S.W.3d 486, 504 (Tex. App.—
Texarkana 2002, pet. denied); Buccaneer Homes , 43 S.W.3d at 588-91.
The question is whether Espinosa sued both Poe and the James
Defendants to recover for the same injury—the commissions paid to Poe.
There can be no legitimate dispute that, at the time of the unallocated
James Defendants’ settlement, the allegations in Espinosa’s live pleading
sought joint and several liability against the James Defendants and Poe for
the return of Poe’s commissions.
Moreover, while Poe did prevail on the conspiracy claim against him individually, the conspiracy and other claims against the James Defendants
were never adjudicated because of the James Defendants’ settlement.
See Crown , 22 S.W.3d at 391 (“Normally, claims against the settling party
are dropped before the jury returns a verdict, so the amount of sole
damages that the settling party is potentially liable for is rarely
determined.”). Had those claims been adjudicated, the trial court may have
rendered judgment against the James Defendants for the entire $77 million
that Espinosa had sued the James Defendants to recover, including Poe’s
commissions.
Espinosa also argued to the trial court that “settlement credits do not apply to any other licensee on the TUFTA claims because no licensee is
jointly and severally liable under TUFTA for any commissions that were
paid to other licensees .” [CR 2082] [Emphasis added.] To support his
argument, Espinosa analogized the current situation to one in which ABC
Investments paid commissions of $10,000 to Licensee X and ninety-nine
other licensees and in which the plaintiff asserted commission claw-back
claims against all 100 licensees. [CR 2083] Espinosa then asserted that
Licensee X would not be entitled to a settlement credit based on another
licensee’s settlement for $10,000 because doing so would leave $990,000
in unrecovered commissions from the other ninety-nine licensees. [CR
2083] Espinosa’s analogy is fatally flawed because it makes no mention of
a claim against, and an unallocated settlement from, ABC Investments
exceeding $10,000. Espinosa incorrectly focused only on credits from one
licensee to another and completely omitted the only relevant settlement.
Poe does not seek a credit for another licensee’s settlement. Rather, if Poe were Licensee X, he would be entitled to a credit for an unallocated
settlement with ABC Investments because of an allegation of joint and
several liability between ABC Investments and Licensee X. ABC
Investments in the analogy is similar to the James Defendants in this case.
Poe is entitled to a credit for the unallocated James Defendants’ settlement
because Espinosa sued both the James Defendants and Poe for the return
of Poe’s commissions and settled with the James Defendants without
allocating the settlement proceeds. The single injury at issue, and for
which Espinosa already recovered unallocated settlement funds from the
James Defendants, is the amount of Poe’s commission.
A better analogy for application of the one-satisfaction rule in this case is that of a construction defect lawsuit against the general contractor
and numerous subcontractors for unrelated defects in the completed
building. See Goose Creek , 74 S.W.3d at 502-04. In Goose Creek , Goose
Creek sued the general contractor and the architects for defects in three
newly-constructed schools. Id. at 491. The general contractor filed third-
party actions against other parties responsible for the design or installation
of various defective systems, including the plumbing contractor. Id. Goose
Creek then added a direct claim against the plumbing contractor. Id. at
491-92. Goose Creek settled with the general contractor and other parties
for $1.9 million. Id. at 502. The settlement agreement released the general
contractor and all subcontractors but did not release the plumbing
contractor. Id. at 492. The jury ultimately determined that Goose Creek
had suffered $405,000 in plumbing-related damages. Id. at 502. At the
time of Goose Creek’s settlement with the general contractor and others,
Goose Creek’s live pleading “included allegations against the settling
defendants for plumbing damages and negligence similar to those retained
in Goose Creek’s amended pleadings” against the plumbing contractor. Id.
at 503.
After trial, the plumbing contractor asked the trial court to apply a settlement credit and render a take-nothing judgment in its favor because
Goose Creek’s settlement with the general contractor and others exceeded
the plumbing contractor’s liability as determined by the jury. Id. at 502.
The trial court reviewed the settlement agreements, “found that there was
no allocation within the agreements stating the amount allocated for the
plumbing problems,” applied a settlement credit for the full amount of the
settlement proceeds, and rendered a take-nothing judgment in favor of the
plumbing contractor because the unallocated settlement proceeds
exceeded the plumbing contractor’s liability as determined by the jury. Id.
at 502, 502-04. The appellate court affirmed the trial court’s correct
application of settlement credits. Id. at 504.
The general contractor and subcontractor scenario in the Goose Creek opinion is a better illustration of how the trial court should have
applied the one-satisfaction rule in this case. Just as the plumbing defects
in Goose Creek were a single injury for which Goose Creek sought
recovery from both the general contractor and the plumbing contractor, the
commissions paid to Poe in this case were the single injury for which
Espinosa sought recovery, jointly and severally, from both the James
Defendants and Poe. Had Goose Creek also sued for electrical defects in
the buildings, the electrical defects would have been a separate injury for
which the plumbing contractor would not have shared joint liability.
The licensees in this case are similar to subcontractors on a construction project who worked on different aspects of the building. One
subcontractor does not have joint liability with another subcontractor, but
the subcontractor and general contractor do have joint and several liability
for common damages. If the plaintiff settles with the general contractor
after having sued both the general contractor and the plumbing
subcontractor for plumbing damages, the plaintiff must ensure that the
settlement agreement allocates damages to clarify that the general
contractor was not paying for plumbing damages. The failure to do so
entitles the subcontractor to a settlement credit equal to the full amount of
the general contractor’s settlement with the plaintiff. See id. at 502-04; see
also Crown , 22 S.W.3d at 392 (finding nonsettling insurance agent entitled
to offset of damages paid in settlement by insurance company); Dalworth
Restoration , 433 S.W.3d at 785 (noting overlap of settled and tried claims
and rendering judgment for home restoration company based on settlement
between plaintiff and her insurance company in a related federal court suit);
Galle , 262 S.W.3d at 573 (reversing and rendering judgment for
remediation contractor in mold suit based on plaintiffs’ settlement with
insurance company); Tex. Capital Securities, Inc. v. Sandefer , 108 S.W.3d
923, 926-27 (Tex. App.—Texarkana 2003, pet. denied) (in securities fraud
case, discharging brokerage firm defendant from further liability because of
settlement between plaintiff and a stock promoter); Cohen , 106 S.W.3d at
310-11 (rendering judgment for accounting firm because plaintiffs’
settlement with other defendants for common damages of loss of trust
assets exceeded accounting firm’s liability); Buccaneer Homes , 43 S.W.3d
at 589-91 (reversing and rendering judgment for mobile home manufacturer
based on plaintiff’s settlement with mobile home seller in suit alleging
defects in mobile home).
The single injury for which the trial court found Poe liable is the $485,564.13 in commissions he received. Espinosa sued Poe and the
James Defendants for that same $485,564.13, alleging that they were
jointly and severally liable for those commissions. But Espinosa already
recovered more than that amount in unallocated settlement proceeds from
the James Defendants (who paid Espinosa $5.5 million). Poe is entitled to
a settlement credit for the entire $5.5 million, unallocated settlement, which
exceeds Poe’s alleged liability to Espinosa. The trial court therefore erred,
as a matter of law, by failing to render a take-nothing judgment against
Espinosa on his claims against Poe.
F. TUFTA Attorney Fee Award and Harmful Error
Poe is entitled to rendition of judgment in his favor on the damage award against him as determined by the trial court. Because the damage
award against Poe must be reversed, the attorneys’ fee award must also
be reversed and rendered in Poe’s favor. See Osborne , 252 S.W.3d at 76-
77 (holding plaintiffs could not recover attorneys’ fees from nonsettling
defendant when application of one-satisfaction rule barred plaintiffs’
damage recovery against the nonsettling defendant); Buccaneer Homes ,
43 S.W.3d at 590-91 (applying one-satisfaction rule, reversing and
rendering judgment in nonsettling defendant’s favor, and holding that
because the one-satisfaction rule prevented the plaintiff’s recovery against
the nonsettling defendant on the liability theory, attorney fee award also
could not stand).
Finally, the trial court’s error was obviously harmful and reversible.
The trial court’s failure to properly apply settlement credits led to rendition
of judgment for $667,650.68 plus interest and appellate attorneys’ fees
rather than a take-nothing judgment in Poe’s favor. [CR 2142-44] See Tex.
R. App. P. 44.1(a).
Issue Two: The trial court abused its discretion by overruling
Appellants’ objections to Espinosa’s summary judgment evidence.
A. Standard of Review
This Court reviews the trial court’s rulings on objections to summary judgment evidence under an abuse of discretion standard. See Fairfield
Fin. Group, Inc. v. Synnott , 300 S.W.3d 316, 319 (Tex. App.—Austin 2009,
no pet.). A trial court abuses its discretion when it acts without regard for
guiding rules or principles. Owens-Corning Fiberglas Corp. v. Malone , 972
S.W.2d 35, 43 (Tex. 1998). [10]
B. Argument
Testimonial evidence from an interested witness or expert must be “clear, positive and direct, otherwise credible and free from contradictions
and inconsistencies” and readily controvertible. Tex. R. Civ. P. 166a(e).
“Texas Rule of Civil Procedure 166a(f) requires that in summary judgment
*41 proceedings, supporting and opposing affidavits ‘shall set forth such facts
as would be admissible in evidence, and shall show affirmatively that the
affiant is competent to testify to the matters stated therein.’” United Blood
Servs. v. Longoria , 938 S.W.2d 29, 30 (Tex. 1997)
(quoting Tex. R. Civ. P. 166a(f)). “When a party relies on expert testimony,
this requirement includes proof of the expert’s qualifications.” Id.
Poe objected to certain paragraphs within Espinosa’s July 29, 2011 Affidavit, Espinosa’s May 1, 2013 Affidavit, and Burchett’s May 1, 2013
Affidavit because the affidavits did not establish the affiants’ qualifications
to offer the expert opinions within them (phrased as competence in the
written objections). [2 Supp CR 496, 500-01] See Longoria , 938 S.W.2d
at 30; Tex. R. Civ. P. 166a(f) (requiring affidavit to set forth affiant’s
“competence” to testify). None of the matters within these paragraphs is
within the common knowledge of a layperson.
Poe also objected to the Espinosa and Burchett affidavits on the following grounds: (1) the opinions asserted in the affidavits are not
reliable in that they (a) contain an incorrect calculation of the fair value of
RV’s assets and liabilities; (b) violate accounting principles by failing to
apply the same discount rate to value RV’s liabilities that was applied to
value RV’s insurance policy assets; (c) rely on inadequate information from
Lewis & Ellis which the affiants did not test, and Lewis & Ellis itself relied on
unverified data; and (d) merely parrot the work of others or apply
mathematical calculations to work performed by others; and (2) the
opinions in the affidavits are merely impermissible conclusions. [CR 571-
72]
1. Espinosa’s July 29, 2011 Affidavit [2 nd Supp CR 53] Poe objected to Paragraph 7 of Espinosa’s July 29, 2011 Affidavit, in which Espinosa opined that RV was insolvent because the market value of
its assets ($29 million in cash and insurance policies “with an estimated
liquidation value of $5.7 million”) was far less than its alleged debts of
$125.1 million. [11] [2 nd CR Supp 571-72, 55] The trial court abused its
discretion by overruling objections to this paragraph because Espinosa’s
affidavit does not establish his qualifications to render these expert
opinions (such as market value of assets or present-value of debts). See
Longoria , 938 S.W.2d at 30; Tex. R. Civ. P. 166a(f). The proffered
opinions are also conclusory because the affidavit does not set forth the
underlying facts that allegedly support the conclusions. See Burrow v.
Arce , 997 S.W. 2d 229 (Tex. 1998) (“[I]t is the basis of the witness’s
*43 opinion, and not the witness’s qualifications or his bare opinions alone, that
can settle an issue as a matter of law; a claim will not stand or fall on the
mere ipse dixit of a credentialed witness.”). In other words, Espinosa does
not explain how or why the insurance policy assets (with $130 million in
face value) are valued at only $5 million or why debts that are not due for
years are kept at face value. Also, even if Espinosa were somehow
qualified as a valuation expert, his asserted opinions are inherently
unreliable because they violate accounting principles by failing to apply the
same (or any) discount rate to RV’s debts that was applied to RV’s assets.
Espinosa applied a huge discount rate to RV’s assets but applied no
discount rate to RV’s liabilities. See E.I. du Pont de Nemours & Co. v.
Robinson , 923 S.W.2d 549, 557 (Tex. 1995) (“Unreliable evidence is of no
assistance to the trier of fact and is therefore inadmissible under Rule
702.”). By way of illustration, Espinosa put forward other summary
judgment evidence that RV’s portfolio of policies had a “total face amount
of $134,835,000 at the time of the receivership,” an amount that exceeds
the alleged debts of $125.1 million. [2 nd Supp CR 257, 55] It is only through
unexplained manipulation of discount rates to RV’s $135 million in assets
that Espinosa proffers in his affidavit that the $135 million in insurance
policies is supposedly worth only $5.7 million. [2 CR Supp 55] Despite
this mysterious application of an enormous discount rate, Espinosa’s
affidavit contains a purported estimate of RV’s liabilities that does not have
any discount rate applied. [12] [2 nd Supp CR 55] The trial court abused its
discretion by overruling Poe’s objection to Paragraph 7 of Espinosa’s July
29, 2011 Affidavit.
Poe also objected to Paragraphs 34 through 37 of Espinosa’s July 29, 2011 Affidavit on the same grounds. [2 nd Supp CR 571-72; 2 nd Supp CR
65-67] In those paragraphs, Espinosa discusses alleged premium reserve
deficiencies in RV’s accounts and discusses the alleged unreasonableness
of the life expectancy calculations performed by Midwest Medical.
Espinosa’s Affidavit contains no discussion of his qualifications to render
these expert opinions, and all opinions in Paragraphs 34 through 37 should
have therefore been stricken. See Longoria , 938 S.W.2d at 30 (expert
affidavit must contain qualifications); Tex. R. Civ. P. 166a(f). Moreover, the
opinions are conclusory and are simply wrong and therefore unreliable.
For example, Espinosa opines that RV reserved too little money to pay
premiums because the life expectancy estimates were too short, but RV
was never responsible for paying additional premiums once a certain policy
*45 reached the estimated life expectancy plus 24 months. Under the contract
each participant signed, the participant had the responsibility to pay policy
premiums beyond the estimated life expectancy (plus 24 months). [2 nd
Supp CR 642, 645] Espinosa’s opinion to the contrary is unexplained (and
therefore conclusory) and is directly contradicted by the applicable
contracts (and therefore unreliable). See Burrow , 997 S.W.2d at 235
(conclusory opinions prohibited); Robinson , 923 S.W.2d at 557 (unreliable
expert opinions inadmissible). The trial court abused its discretion by
overruling Poe’s objections to Paragraphs 34 through 37 of Espinosa’s July
29, 2011 Affidavit.
2. Espinosa’s May 1, 2013 Affidavit [2 nd Supp CR 231] Poe objected to Paragraph 7 of Espinosa’s May 1, 2013 Affidavit. [2 nd Supp CR 571-72] In that paragraph, Espinosa asserted various opinions
about shortfalls in RV’s premium reserves. [2 Supp CR 232] However,
Espinosa’s Affidavit contains no discussion of his qualifications to render
expert opinions, and the trial court abused its discretion by overruling Poe’s
objection to Paragraph 7 of Espinosa’s May 1, 2013 Affidavit. See
Longoria , 938 S.W.2d at 30 (expert affidavit must contain qualifications);
Tex. R. Civ. P. 166a(f).
3. Burchett May 1, 2013 Affidavit [2 nd Supp CR 233]
Poe objected to Paragraphs 5 through 14 of Burchett’s May 1, 2013 Affidavit. [2 nd Supp CR 571-72; see 2 nd Supp CR 233] First, the trial court
abused its discretion by overruling Poe’s objection to Burchett’s affidavit
because his affidavit does not establish his qualifications to render opinions
about the value of life insurance policies or the application of discount rates
to assets and liabilities, yet all of Burchett’s opinions in Paragraphs 5
through 12 are beyond the common knowledge of a layperson. See
Longoria , 938 S.W.2d at 30 (expert affidavit must contain qualifications);
Tex. R. Civ. P. 166a(f).
In addition, the assertions in paragraphs 5 through 14 of the Burchett Affidavit are inherently unreliable. Similar to the Espinosa affidavit
assertions regarding the alleged “fair” value of RV’s assets and liabilities,
Burchett parroted an enormous 20% discount rate to drop the alleged value
of RV’s insurance policies from $135 million to about $5 million. He then
opined that RV’s debts are “fairly” valued at about $80 million, but that
value is without any discount rate even though the obligations do not arise
for years in the future in many instances. [2 Supp CR 758] Despite the
assertions in his affidavit and attached expert report that do not include
discount rates for RV’s liabilities, Burchett admitted in his deposition that a
fair valuation of RV’s debts required application of the same or a similar
discount rate as was applied to the assets. [2 Supp CR 762] See
Robinson , 923 S.W.2d at 557 (unreliable expert opinions inadmissible).
The Burchett valuation opinions are unreliable and inadmissible, and the
trial court abused its discretion by overruling Poe’s objections.
4. Reversible Error
The trial court abused its discretion by overruling Poe’s objections to the Espinosa and Burchett affidavits. Had the trial court sustained the
objections, the trial court would have been compelled to deny Espinosa’s
motion for partial summary judgment against Poe because, without the
inadmissible evidence, Espinosa did not meet his summary judgment
burden. See Tex. R. App. P. 44.1(a). All of Espinosa’s TUFTA claims
against Poe required that Espinosa prove, as a matter of law, the fair value
of RV’s assets, liabilities, and remaining assets following transfers to Poe,
and these affidavits were central to Espinosa’s attempt to do so. See Tex.
Bus. & Com. Code Ann. §§ 24.005(a), .006(a).
Issue Three: The trial court erred by rendering summary judgment
for Espinosa on his TUFTA claim against Appellants because
Espinosa lacked standing and because genuine issues of material
fact existed for at least one element of each of Espinosa’s TUFTA
theories.
A. Standard of Review
This court reviews a traditional summary judgment de novo. Valence
Operating Co. v. Dorsett , 164 S.W.3d 656, 661 (Tex. 2005). To obtain
summary judgment, the movant must establish that there are no issues of
material fact and that he is entitled to judgment as a matter of law. Tex. R.
Civ. P. 166a(c); Diversicare Gen. Partner, Inc. v. Rubio , 185 S.W.3d 842,
846 (Tex. 2005); Nixon v. Mr. Prop. Mgmt. , 690 S.W.2d 546, 548
(Tex.1985). “An appellate court reviewing a summary judgment must
consider all the evidence in the light most favorable to the nonmovant,
indulging every reasonable inference in favor of the nonmovant and
resolving any doubts against the motion.” Goodyear Tire & Rubber Co. v.
Mayes , 236 S.W.3d 754, 756 (Tex. 2007). The reviewing court “must
consider whether reasonable and fair-minded jurors could differ in their
conclusions in light of all the evidence presented.” Id. at 755.
B. Espinosa’s Grounds for Summary Judgment under TUFTA
Espinosa’s motion sought judgment as a matter of law against Poe under sections 24.005(a)(1), 24.005(a)(2)(A), 24.005(a)(2)(B), and
24.006(a) of the Texas Uniform Fraudulent Transfers Act. [2 nd Supp CR 15-
17] See Tex. Bus. & Com. Code Ann. §§ 24.005, .006. Because there are
several common elements to Espinosa’s various theories, the common
elements (and the fact issues remaining on those elements) are discussed
together.
C. Espinosa Lacks Standing to Recover Investor Money
The summary judgment cannot stand because Espinosa does not have standing to recover the “investor money” he seeks. Espinosa stated
unequivocally in his motion for summary judgment that “[t]o date, the
investors have received only $5.2 million of their own money back, while
the Licensees collectively continue to hold more than $12 million of
investor’s money.” [2 Supp CR 3] Espinosa repeated this assertion in
various forms throughout his motion and his live pleading.
Espinosa lacks standing to recover “investor money.” RV does not have an ownership interest in “investor money.” “Investor money” is not a
corporate asset of RV that Espinosa has standing to recover in his capacity
as receiver. As this court held in Akin, Gump, Strauss, Hauer and Feld,
L.L.P. v. E-Court , No. 03-02-00714-CV, 2003 Tex. App. LEXIS 3966 (Tex.
App.—Austin May 8, 2003, no pet.) (mem. op.), a case relied upon heavily
by the Receiver:
But a receiver does not have an unfettered right to represent creditors and shareholders of a corporation. A receiver may represent creditors and shareholders only to the extent that the cause of action seeks to preserve or recover corporate assets.
Id. at *13.
Whatever the status of the receiver’s claims on behalf of “innocent investors,” the law is clear that a receiver may represent creditors and shareholders only to the extent that the cause of action seeks to preserve or recover corporate assets, not individual assets.
Id. at *20.
Espinosa’s repeated admissions that he seeks to recover “investor money” constitute judicial admissions that he lacks standing with regard to
all of the claims on which he seeks summary judgment. “Assertions of fact
in live pleadings are formal judicial admissions and summary judgment may
be rendered on the pleadings when they contain judicial admissions.”
White v. Cole , 880 S.W. 2d 292 (Tex. App.—Beaumont 1994, writ denied)
(citing Manaham v. Meyer , 862 S.W. 2d 130 (Tex. App.—Houston [1 st Dist.]
1993, writ denied)). Espinosa’s admissions destroy his standing and the
trial court’s subject matter jurisdiction. “Without standing, a court lacks
jurisdictions to hear a case.” Austin Nursing Center, Inc. v. Lovato , 171
S.W. 3d 845, 849. (Tex. 2005) (citing Tex. Ass’n of Bus. v. Tex. Air Control
Bd ., 852 S.W. 2d 440, 443 (Tex. 1993)).
All of Espinosa’s claw-back claims seek recovery of what Espinosa admits is “investor money.” The trial court erred by granting summary
judgment on claims over which it had no jurisdiction.
D. No Creditor has a Qualifying Claim under TUFTA
Section 24.005(a) requires that there be a creditor whose “claim arose before or within a reasonable time after the transfer was made or the
obligation was incurred,” and section 24.006(a) requires that there be “a
creditor whose claim arose before the transfer was made or the obligation
was incurred.” Tex. Bus. & Com. Code Ann. §§ 24.005(a), .006(a). TUFTA
defines “creditor” to mean “a person . . . who has a claim.” Id. § 24.002(4).
“Claim” is defined as “a right to payment or property, whether or not the
right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured.” Id. § 24.002(3). This element is common to all TUFTA
grounds asserted by Espinosa.
The “creditors” in this case are the participants who loaned money to RV for the purchase of life insurance policies. [2 Supp CR 738-39] In his
initial report to the trial court in this case, Espinosa defined the date on
which RV participant-creditors had claims against RV, writing as follows:
Each of the investments was structured as a loan to Retirement Value, whereby the investors provided Retirement Value with *52 funds in exchange for Retirement Value’s promise to pay a fixed sum of money at an undetermined date in the future. . . . The date on which the insured under the policy died set the date that the investment matured and when Retirement Value would be required to repay the loan . [2 nd Supp CR 720] [Emphasis added.]
Espinosa repeated the italicized sentence in the fact section of his motion
for summary judgment, [2 nd Supp CR 4] and his description generally tracks
the terms of the Loan Agreements signed by the participants. [2 nd Supp CR
642-62] Espinosa has thus admitted, and the Loan Agreements provide,
that the participants did not have a claim until the life insurance policies
matured. [2 nd Supp CR 720] Only if a life insurance policy matures and RV
failed to pay a participant could there be a creditor claim by one of the
participants. [2 nd Supp CR 720, 642-62]
Espinosa and his attorneys made similar admissions that are reflected in other parts of the summary judgment record. At a September
27, 2011 bankruptcy hearing related to this case, Espinosa testified, “I think
the documents speak for themselves, but if you want me to put a voice to
them, the documents say that the notes mature upon the maturity of that
policy.” [2 Supp CR 746] At an August 22, 2011 bankruptcy hearing,
Espinosa’s attorney stated both that “I think there are real issues as to
whether debts were paid when due, ‘due’ being the key word here” and that
“there is a significant issue as to whether Retirement Value is paying debts
as they come due, considering that they’re not really due.” [2 nd Supp CR
734] Similarly, Poe’s affidavit in opposition to Espinosa’s motion for
summary judgment stated, in part, that his “clients were to receive their
share of death benefits when these policies matured . Retirement Value
would always be able to pay [his] clients their money back because the
death benefits would be available when the policies matured.” [2 nd CR
Supp 1031] [Emphasis added.]
Other evidence proffered by Espinosa showed that commissions were paid from the initial loan money given to RV by the participants, long
before participant claims could arise. Wendy Rogers testified in her
deposition that commission payments to licensees were made from the
participants’ initial loan proceeds to RV. [2 nd Supp CR 205] Commission
payments to Poe (i.e., the allegedly fraudulent transfers) were thus made at
or shortly after the time that the participant transferred the initial loan
proceeds to RV. [2 nd Supp CR 3, 6] As described above, however,
participants do not have “claims” against RV until a policy matures and RV
fails to pay the promised return under the Loan Agreements. [2 Supp CR
642-62, 720, 734, 746] Therefore, there are no creditors whose “claim
arose before or within a reasonable time after the transfer was made or the
obligation was incurred” or creditors “whose claim arose before the transfer
was made or the obligation was incurred” because creditor claims arise
long after Poe’s commissions were paid to him by RV. Tex. Bus. & Com.
Code Ann. §§ 24.005(a), .006(a) (emphasis added).
Viewed in the light most favorable to Poe, the evidence presented a genuine issue of material fact on an element common to each of
Espinosa’s TUFTA claims against Poe under sections 24.005(a) and
24.006(a) of the Texas Business and Commerce Code. Because all four
grounds for summary judgment rely on this element, the trial court erred by
granting summary judgment for Espinosa on his TUFTA claims against
Poe.
E. Insufficient Evidence of Insolvency
1. Insolvency
Espinosa’s claim under section 24.006(a) required Espinosa to prove as a matter of law that the transfer of commissions to Poe occurred when
RV was insolvent or that RV “became insolvent as a result of the transfer or
obligation.” Tex. Bus. & Com. Code Ann. § 24.006(a). TUFTA provides
that a “debtor is insolvent if the sum of the debtor’s debts is greater than all
of the debtor’s assets at a fair valuation .” Id. § 24.003(a) (emphasis
added).
To put Espinosa’s insolvency argument into perspective, Poe received commissions totaling $485,564.13. However, Espinosa told the
trial court that RV had, at the time of the receivership, assets totaling more
than $179 million ($154 million in life insurance policies and $25 million in
cash and securities) and had obtained loans totaling $77 million from
participants. [2 nd Supp CR 92-93] The receivership estate had about $29
million in cash in August 2011. [2 nd Supp CR 734-38] Payment of
commissions to Poe did not render RV insolvent.
Poe’s affidavit presented genuine issues of material fact on this element of Espinosa’s TUFTA claim. Poe’s affidavit provided, in relevant
part, that his “clients were to receive their share of death benefits when [the
life insurance] policies matured. Retirement Value would always be able to
pay [his] clients their money back because the death benefits would be
available when the policies matured.” [2 nd Supp CR 1031] Poe also
explained that “[l]inking the obligation to pay participants to the maturity
date of the policies ensured that Retirement Value would always be able to
pay its debts as they came due” and that “the value of Retirement Value’s
assets were equal to or greater than its liabilities because the life
settlement program assets and liabilities offset each other, at worst, and
Retirement Value always had other assets.” [2 CR Supp 1031]
In addition, Espinosa’s summary judgment evidence was internally inconsistent, not credible, and insufficient to establish his entitlement to
judgment as a matter of law. For example, he argued that paying
commissions affected RV’s ability to deliver the promised return to the
participants and that paying the commissions rendered RV incapable of
paying the participants as promised. [2 nd Supp CR 17] This is wrong. RV
promised to purchase life insurance policies and to pay the participants the
death benefits on the policies when they matured. [2 nd Supp CR 720, 642-
62] Payment of commissions did not affect RV’s promise to the participants
or its ability to satisfy its obligation to the participants to pay them the death
benefits when the policies matured because RV never had an obligation to
reserve premiums sufficient to cover all insurance policies through maturity.
[2 nd Supp CR 642-62] The participants were obligated to contribute once
the initial premium reserves were exhausted, and the participants’
additional premiums would keep the policies in effect. [2 nd Supp CR 645]
Then, and only then, the death benefits on the policies themselves (with
face value of $130 million) provided the funds to pay the participants as the
policies matured. [2 Supp CR 720, 645] That framework existed
independent of any commission payment to Poe, and payment of
commissions to Poe did not render RV insolvent. The trial court therefore
erred by granting summary judgment against Poe on the ground that
commission payments to him rendered RV insolvent. See Tex. Bus. &
Com. Code Ann. § 24.006(a).
There are also genuine issues of material fact as to whether RV was ever insolvent. Espinosa’s insolvency evidence is legally insufficient (or
sufficiently controverted to avoid summary judgment) for several reasons.
First, as argued above, the trial court should have excluded several parts of
the Espinosa and Burchett affidavits, without which Espinosa failed to meet
his burden as the summary judgment movant.
Second, Espinosa’s summary judgment evidence on insolvency is internally inconsistent and is contradicted by Poe’s summary judgment
evidence. Espinosa has testified by affidavit that RV had $29 million on
deposit and current trade payables of less than $100,000. [2 nd Supp CR 55]
Moreover, Espinosa and his counsel made representations to the
bankruptcy court about RV’s solvency and ability to pay its debts when due.
At a September 27, 2011 hearing, Espinosa testified that “the documents
say that the notes mature upon the maturity of that policy.” [2 nd Supp CR
746] Espinosa’s counsel made several statements regarding RV’s solvency
at an August 22, 2011 bankruptcy hearing:
• I think there are real issues as to whether debts were paid when due, “due” being the key word here. [2 Supp CR 734] *58 • [T]here is a significant issue of whether Retirement Value is paying debts as they come due, considering they’re not really due. [2 nd Supp CR 734]
• When we’re talking about the creditors, by and large, 99.9 percent are these note holders. There are a couple out there. There’s a lease, there’s a couple things. All told, not $100,000. [2 nd Supp CR 738]
• There are 48 policies. We’ve got about $30 million in cash. [2 nd Supp CR 736]
• We’ve got a plan of payment that was proposed on the eve of adoption. It will pay somewhere between 80 cents and 120 cents of [the participants’] investment amount, which is unheard of. [2 nd Supp CR 735]
• They’ve determined that in 97-1/2 of all likely scenarios – actually, of all scenarios – it will take $19 million in reserves to carry us to the end of the policies. Now, that involves using maturities from earlier policies to pay premiums on other policies. And we have $29 million, so that leaves a fair amount of excess money, which we were planning to distribute this year. [2 nd Supp CR 736]
• So we were on the cusp of approving a plan that would get everyone paid, we think, in full. [2 nd Supp CR 737] • And frankly, had the plan been adopted, we’d be done, largely. Once the plan is adopted, what we would be left with doing is supervising contingency counsel who are off suing a bunch of people, collecting on these insurance claims and cutting checks, once we got through a very quick and I think relatively painless proof of claim process. [2 Supp CR 735] Espinosa’s counsel thus represented to the bankruptcy court that RV had forty-eight life insurance policies and about $30 million in cash, that
Espinosa needed about $19 million in cash to pay for all of the policies
through maturity, that the creditor’s claims are not yet due, and that there is
sufficient cash in reserve to hold all life insurance policies to maturity and
pay all participants their money back “in full.” [2 nd Supp CR 734-38] Yet, the
trial court granted summary judgment on the ground that RV was insolvent.
Viewed in the light most favorable to Poe, there are fact issues regarding
RV’s insolvency because RV had sufficient reserves to allow participants to
be repaid in full in 97.5% of all scenarios. [2 nd Supp CR 736]
Espinosa also failed to establish insolvency based on the fair value of RV’s assets and liabilities. Espinosa presented no evidence of the fair
value of RV’s assets or the fair value of RV’s liabilities, particularly since
many of the liabilities are not yet due. As argued above, neither Espinosa
nor his retained expert, Burchett, are qualified to testify about fair valuation
of RV’s assets and liabilities. Moreover, as Espinosa admitted in his
bankruptcy court testimony, the receivership changed everything. [2 nd Supp
CR 744-46] The face value of RV’s debts dropped to about $77 million
because the participants are limited to the return of their investments. [2 nd
Supp CR 614, 608-625] Participants have no other claims against RV
beyond a pro rata claim to the combined death benefits of all policies. [2
Supp CR 614, 608-25] Espinosa and his counsel have stated that the
participants will recover “in full” what they invested and it is more than likely
that they will receive additional sums, depending on the obvious element
that was always the predominate element – the dates on which the
insureds pass. [2 nd Supp CR 736-37, 746] The participants are better off
than they were prior to the receivership because they will not have to meet
any premium calls despite the language of their Loan Agreements that
required as much. [2 nd Supp CR 645]
Even if this Court considers it, Burchett’s affidavit lacks credibility and was insufficient to sustain Espinosa’s burden as summary judgment
movement. Burchett testified in his deposition that he has no prior
experience with life settlements or viaticals; [2 nd Supp CR 750] that he has
no experience calculating life expectancies; [2 nd Supp CR 750] that he is
not familiar with the methodology used to calculate life expectancy; [2 nd
Supp CR 751] that he would not be able to vouch for and state that
someone else’s life expectancy calculation is accurate because this is not
his area of knowledge, experience, or expertise; [2 nd Supp CR 751] that he
relied on the value of the life insurance policies as provided by the firm of
Lewis & Ellis; [2 nd Supp CR 752] that he did not verify the work they did;
[2 nd Supp CR 753] that he is aware that Lewis & Ellis obtained life
expectancy estimates from another firm; [2 Supp CR 754] and that he
does not know what, if anything, Lewis & Ellis did to verify this information.
[2 nd Supp CR 754]
In order to perform a solvency analysis, Burchett was required to determine the fair value of the assets and liabilities of RV. His valuation
analysis did not comply with the AICPA Statement of Standards for
Valuation Services No. 1. [2 nd Supp CR 755] Whereas a true solvency
opinion (according to the AICPA Standards) “does not mention the word
value and does not conclude a number of any kind,” Burchett’s Report
includes numbers and uses the word “value” many times. [2 nd Supp CR
756] Contrary to AICPA Standards, Burchett’s Report lists what he claimed
to be RV’s monthly net asset value. [2 nd Supp CR 756]
Despite minimal testing and verification of Lewis & Ellis’s work, Burchett integrated Lewis & Ellis’s decision to apply the enormous 20%
discount rate to the face amounts of RV’s insurance policies while applying
no discount rate whatsoever to RV’s liabilities. Burchett conceded that he
relied on Lewis & Ellis’s work substantially and that the 20% discount rate
he used was Lewis & Ellis’s decision. [2 nd Supp CR 757, 753] Lewis & Ellis,
in turn, conceded that “[t]he discount rate is an assumption that drastically
affects the result of the actuarial value in [its] analysis.” [2 Supp CR 730]
Use of this discount rate purportedly reduced the value of the RV insurance
portfolio from $130 million to around $5 million. [2 nd Supp CR 758] Applying
the gargantuan 20% discount rate reduced the purported value of RV’s
assets by more than 95%, yet Burchett applied no discount rate to RV’s
stated $77 million obligation to the participants, despite the fact that these
amounts are not payable until the death of the insureds, which is projected
to occur years in the future. [2 nd Supp CR 758]
In light of these obvious discrepancies, Burchett admitted in his deposition that he likely should have applied the same discount rate to
RV’s liabilities as he applied to the face amount of the insurance policies.
[2 nd Supp CR 762] Burchett also conceded in his deposition that in order to
determine fair value, one must determine what a willing buyer would pay
and what a willing seller would accept for an asset or liability. [2 nd Supp CR
761] Burchett admitted that, on the open market, the liability represented by
the obligation to the participants would be discounted and that the fair value
of the liability was different from what he represented in his report. [13] [2 nd
Supp CR 761] He admitted that under the Policy Participation Agreements,
no amounts would be due to the participants until the policies matured
upon the death of the insured. [2 Supp CR 758-60] He admitted that at
policy maturity, RV would receive the face amount of the policy and would
*63 have more than enough money to pay his stated liability to the participants
($77 million). [2 nd Supp CR 758] Burchett agreed that at policy maturity,
there would be equal cash flow in (to RV from the policy) and out (to the
participants for payment based on the same event). [2 nd Supp CR 761-62]
Burchett also acknowledged that he did not perform any calculation to see if applying a 20% discount rate to RV’s liabilities would render RV
solvent under his analysis. [2 nd Supp CR 763] He admitted that if
application of the discount rate reduced the liability by more than $50
million, the company would be solvent (even applying the 20% discount
rate to RV’s assets). [2 nd Supp CR 763-64] He also admitted that if no
discount rate were applied to the cash flow from the policies, which would
be consistent with his failing to apply a discount rate to the cash flow of
payments to the participants, RV would be solvent. [2 Supp CR 765]
Similarly, had Burchett reduced RV’s liabilities by 95% as he had done with
the 95% reduction in RV’s assets, the liabilities would equal $3.8 million,
less than RV’s assets (even at Burchett’s steeply-discounted value),
meaning RV was not insolvent.
Burchett’s affidavit is incompetent summary judgment evidence and should have been stricken. Even so, Poe’s response controverted the
affidavit testimony and revealed, through Burchett’s own deposition
testimony, the credibility issues that must only be resolved by a jury, not the
trial court on summary judgment. See Huckabee v. Time Warner
Entertainment Co. L.P. , 19 S.W.3d 413, 422 (Tex. 2000) (“Texas law has
always emphasized that trial courts must not weigh the evidence at the
summary judgment stage. Instead, a trial court’s only duty at the summary
judgment stage is to determine if a material question of fact exists.”); Casso
v. Brand , 776 S.W.2d 551, 558 (Tex. 1989) (“If the credibility of the affiant
or deponent is likely to be a dispositive factor in the resolution of the case,
then summary judgment is inappropriate.”). Viewing the evidence in the
light most favorable to Poe, Burchett’s unexplained conclusions, deposition
concessions, and internal inconsistencies (which raise serious credibility
issues) presented genuine issues of material fact as to the alleged fair
value of RV’s assets and liabilities.
Espinosa’s affidavit opinion is similarly problematic. The affidavit fails to establish any expert witness qualifications, and it is conclusory.
Espinosa starts with the assertion that: “Retirement Value is insolvent.” [2 nd
Supp CR 55] This is a conclusory statement that is not probative. Espinosa
then states: “The market value of the assets [RV] holds is far less than its
debts.” [2 Supp CR 55] This statement, too, is an unsupported and
impermissible conclusion. It is also wrong. Because the primary assets
consist of the life insurance policies (with face value of more than $130
million) that will be held to maturity and used to fund the Plan of Distribution
that will make the participants whole, the enormously discounted present
value of these policies is irrelevant. [see 2 nd Supp CR 608-25] The Plan of
Distribution adopted by the trial court provides that all of the policies will be
held to maturity. [2 nd Supp CR 608-25] There is no intention to sell these
policies, and their market value has no bearing on the implementation of
the Plan of Distribution. Thus, any purported analysis of the value of the
policies if sold to “bottom feeders” on the open market is irrelevant.
Espinosa’s affidavit testimony regarding market value also contradicts his own reports to the trial court:
Unfortunately, there is no easily available market price for life settlement insurance policies. Unlike stocks, bonds and commodities, there is no public exchange for insurance policies. Each sale takes place in private between a single buyer and a single seller. The sales price is generally confidential and, in any event, there is no centralized database for sales of life insurance policies, such as there is for real estate. Accordingly, it is not generally possible to determine the market price for an insurance policy based on sales of comparable policies. [2 Supp CR 728]
On the next page of the same Report, after summarizing the figures
provided to him by others (portfolio market value between $5.3 and $8.3
million), Espinosa admits that: [T]he Receiver is not faced with a ‘buy’
decision, but rather whether to sell or to hold. Accordingly, the value of
these policies to the estate is potentially much higher .” [2 nd Supp CR 728]
[Emphasis added.] This evidence alone creates a genuine issue of material
fact on the value of RV’s assets because it contradicts Espinosa’s asserted
value of RV’s assets.
Espinosa, in his affidavit, continued: “Retirement Value owes $125.1 million in debt. Almost all of this debt is owed to the investors -- $77.6
million in principal and $47.2 million in interest.” [2 nd Supp CR 55] These
statements are no longer true, if they ever were. The Plan of Distribution
provides for the participants’ sole remedy against RV through the “hold to
maturity” process. [2 nd Supp CR 608-25] RV does not owe $125.1 million in
debt. Again, there are fact issues as to RV’s alleged debt.
Finally, Espinosa states: “To pay these debts Retirement Value has approximately $29 million in cash and a portfolio of policies with an
estimated liquidation value of $5.7 million.” [2 nd Supp CR 55] These
statements, too, are no longer true, if they ever were. The death benefits
from the policies will fund the Plan of Distribution. [2 Supp CR 608-25]
The cash on hand at any point in the receivership was more than sufficient
to pay the incidental debts of the receivership. Espinosa’s counsel said as
much to the bankruptcy court in 2011, representing to the bankruptcy judge
that RV had cash of about $29 million and that RV needed only $19 million
in policy reserves to hold all insurance policies to maturity and repay the
participants “in full.” [2 Supp CR 734-38] These representations are
material evidence that RV’s debts do not exceed its assets.
Espinosa’s evidence is insufficient to establish that RV was insolvent at the time the commissions were paid to Poe or that RV was ever
insolvent. The evidence was also contradicted in all material aspects.
Viewing the evidence in the summary judgment record in the light most
favorable to Poe, as this Court is required to do, there are genuine issues
of material fact on the insolvency element of Espinosa’s TUFTA claim
under section 24.006(a). The trial court therefore erred by granting
summary judgment for Espinosa on his TUFTA claim against Poe.
2. Value of Remaining Assets
Espinosa’s claims under sections 24.005(a)(2)(A) and (B) required Espinosa to prove as a matter of law that, as a result of the commission
transfers to Poe, “the remaining assets of [RV] were unreasonably small in
relation to [RV’s] business or transaction” or that RV, as a result of the
commission transfers to Poe, incurred or would incur “debts beyond [RV]’s
ability to pay as they became due.” Id. § 24.005(a)(2)(A) and (B). These
grounds for summary judgment fail for many of the same reasons that
Espinosa’s insolvency argument fails, and Poe incorporates the insolvency
arguments above as if set forth fully herein. The record in this case
conclusively establishes that RV had $29 million in cash, millions of dollars
in insurance policies, and sufficient reserves to pay policy premiums on all
policies through maturation. [2 nd Supp CR 734-38]
In addition, Poe’s affidavit presented genuine issues of material fact on this common element of Espinosa’s claims. That affidavit provided, in
relevant part, that
Retirement Value paid for the policies that my clients participated in. My clients were to receive their share of death benefits when these policies matured. Retirement Value would always be able to pay my clients their money back because the death benefits would be available when the policies matured. Linking the obligation to pay participants to the maturity date of the policies ensured that Retirement Value would always be able to pay its debts as they came due. This linking also ensured that the value of Retirement Value's assets were equal to or greater than its liabilities because the life settlement program assets and liabilities offset each other, at worst, and Retirement Value always had other assets. [2 CR Supp 1031] This evidence, and the evidence discussed above relating to RV’s alleged insolvency and the fair value of RV’s assets and liabilities, when
viewed in the light most favorable to Poe, presented genuine issues of
material fact as to whether RV had, as a result of paying commissions to
Poe, insufficient remaining assets or debts beyond RV’s ability to pay. See
Tex. Bus. & Com. Code Ann. §§ 24.005(a)(2)(A), (B), .006(a). The trial
court therefore erred by granting summary judgment for Espinosa on his
TUFTA claims against Poe.
F. Reasonably Equivalent Value
There are also fact issues on an element common to Espinosa’s claims under TUFTA sections 24.005(a)(2)(A) and (B) and section
24.006(a) because those claims require that RV did not receive
“reasonably equivalent value in exchange for the transfer or obligation.”
Tex. Bus. & Com. Code Ann. §§ 24.005(a)(2)(A), .006(a). “Reasonably
equivalent value” is defined in section 24.004 to “include[] without limitation,
a transfer or obligation that is within the range of values for which the
transferor would have sold the assets in an arm’s length transaction.” Id. §
24.004(d).
Poe’s affidavit, attached to his summary judgment response stated, The commissions on the Retirement Value products (in my case 10%) were not unusual because the nature of the product as an illiquid product meant that my client’s funds would not be available for reinvestment for several years. Based on my experience, illiquid products tend to pay higher commissions compared to managed funds, for example, which typically pay lower commissions on an annual basis. The 10% commission would be comparable to receiving a lower fee on an annual basis for the period of illiquidity of the life settlement product. Also, the payment of the commissions did not affect in any way the outcome of the transaction for my clients because they would receive their share of the death benefit when the policies in which they participated matured. [2 CR Supp 1030] *70 Poe’s affidavit also provided,
I earned the commissions I was paid because I identified potential participants, I presented the Retirement Value product to them as I had been instructed by Retirement Value, I answered their questions, I helped them fill out the paperwork, I submitted their paperwork to Retirement Value for approval, and I served as a liaison between my clients and Retirement Value. These efforts were valuable and their value was equivalent to the commissions I received. If I had sold other life settlement products to my clients who participated in the Retirement Value program, I would have received similar commissions. My Licensee Agreement provided that I would receive the commissions I received. Retirement Value paid these commissions voluntarily with knowledge of all material facts because it was Retirement Value’s product and Retirement Value’s life settlement program. [2 CR Supp 1030- 31]
Viewed in the light most favorable to Poe, this evidence presented genuine issues of material fact on the reasonably equivalent value element
of Espinosa’s TUFTA claims under sections 24.005(a)(2)(A) and (B) and
24.006(a). The trial court erred by granting Espinosa’s motion for summary
judgment under sections 24.005(a)(2)(A) and (B). See Tex. Bus. & Com.
Code Ann. §§ 24.005(a)(2)(A), (B), .006(a).
G. Actual Intent
Espinosa’s final argument for summary judgment against Poe is under section 24.005(a)(1). Espinosa’s only “evidence” to support this
argument is the summary judgment order in favor of the State and against
RV (which Espinosa did not contest) in which the trial court determined that
RV committed securities fraud. [2 nd Supp CR 15] Espinosa relied only on a
Ponzi scheme case to argue that every transfer made by RV was therefore
fraudulent under TUFTA. [2 nd CR Supp 15] The trial court did not, however,
grant summary judgment for Espinosa on his Ponzi scheme allegation for
the automatic return of commissions. The summary judgment order is
limited to Espinosa’s TUFTA claims and does not include the affirmative
Ponzi scheme finding that Espinosa sought in his motion. [2 Supp CR 13]
The summary judgment cannot be affirmed on that ground. See State
Farm Fire & Cas. Co. v. S.S. , 858 S.W.2d 374, 380 (Tex. 1993) (declining
to consider a ground for summary judgment not contained in trial court’s
order granting summary judgment on specific grounds).
In addition, as discussed above, this claim fails because there are no “creditors” with “claims” that “arose before or within a reasonable time after
the transfer was made or the obligation was incurred” since the participants
do not have claims against RV until the insurance policies mature. Tex.
Bus. Com. Code Ann. § 24.005(a)(1). It also fails because Espinosa wholly
failed to show that a transfer to Poe was made with intent to defraud.
Under Espinosa’s steamroller approach, even the receptionist at RV must
return all of her salary payments because every single transfer from RV
was made with intent to defraud. Texas law requires more. To be entitled
to judgment against Poe, Espinosa must prove that a transfer to Poe was
made with intent to defraud, and Espinosa did not even attempt to do so.
The trial court erred to the extent it granted summary judgment for
Espinosa under section 24.005(a)(1).
H. Ponzi Scheme Allegations
The trial court did not include a finding in the summary judgment order that RV was operated as a Ponzi Scheme and that Poe was therefore
required to return his commissions as a matter of law. [CR 1973-74] In
relevant part, Espinosa’s motion for summary judgment stated:
In the present case, Retirement Value was either a Ponzi scheme or, at the very least, quickly on its way to becoming one. Therefore, the Licensees have to return their commissions as a matter of law. In the alternative , even if it was not technically a Ponzi scheme, the elements of fraudulent transfer and money had and received are met as a matter of law . [2 CR Supp 13] [Emphasis added.]
Espinosa clearly requested, independent of his TUFTA claim, a Ponzi-
scheme finding from the trial court, but there is no such finding within the
trial court’s order granting summary judgment on only the TUFTA-specific
grounds, a ground upon which Espinosa sought relief in the alternative to
his Ponzi scheme allegation. [CR 1973] See State Farm Fire & Cas. Co. ,
858 S.W.2d at 380 (“[I]n this case, the trial court’s order explicitly specifies
the ground relied on for the summary judgment ruling; thus, the summary
judgment can only be affirmed if the theory relied on by the trial court is
meritorious, otherwise the case must be remanded.”). The Ponzi scheme
arguments in Espinosa’s motion are therefore not a ground on which this
Court can affirm the summary judgment.
In an abundance of caution, however, Poe also challenges Espinosa’s Ponzi scheme argument and contends that fact issues
prevented the trial court from granting summary judgment on that ground.
Ponzi schemes, named after their infamous creator Charles Ponzi, have as their defining characteristics the complete absence of underlying
assets and the use of subsequent investor’s funds to pay prior investors.
“A ‘Ponzi scheme’ is an investment fraud wherein investors are enticed with
the promise of extremely high returns or dividends over a short period of
time.” Goldstein v. Morrison, 113 S.W. 3d 769, 773 (Tex. App.—Austin
2003, no pet.) (citing Gutierrez v. Cayman Is. Firm of Delloitte & Touche ,
100 S.W. 3d 261, 266 (Tex. App.—San Antonio 2002, no pet.). “Investors
are paid ‘from monies obtained from later investors rather than from profits
of the underlying business venture.” Id. at 773 (citing Caldwell v. State , 95
S.W. 3d 563, 566 (Tex. App.—Houston [1st Dist.] 2002, no pet.).
That is not the case here, and Espinosa’s reports to the trial court (and the other summary judgment evidence in the record) shows that RV
was not operated as a Ponzi scheme because RV used participant funds to
purchase life insurance policies, and the participants were repaid on their
investments from the proceeds of those investment funds, not from other
investors’ money. [2 nd Supp CR 75] Espinosa himself testified that he had
never referred to RV as a Ponzi scheme. [2 Supp CR 583]
To the extent it is relevant to this appeal, and to the extent the trial court ordered via summary judgment that Poe must return his commission
payments from RV because RV operated as a Ponzi scheme, the trial court
erred by granting summary judgment on that ground.
PRAYER Appellants Poe and SRP respectfully request that the Court, after properly applying the one-satisfaction rule as the trial court failed to do,
reverse the trial court’s judgment in its entirety and render a take-nothing
judgment against Espinosa for all of his claims against Poe and SRP.
Alternatively, Appellants Poe and SRP pray that the Court reverse the trial
court’s judgment and remand for a new trial in light of the genuine issues of
material fact that should have precluded the trial court from granting
Espinosa’s motion for summary judgment. Finally, Appellants Poe and
SRP generally pray for rendition of judgment in their favor, or alternatively,
for remand for a new trial, based on any ground asserted within this brief
should this Court deem a remand necessary or appropriate.
Respectfully submitted, ALDRICH PLLC _______________________ Scott Lindsey State Bar No. 24036969 slindsey@aldrichpllc.com 1130 Fort Worth Club Tower 777 Taylor Street Fort Worth, Texas 76102 Telephone: 817-336-5601 Telecopier: 817-336-5297 ATTORNEYS FOR APPELLANTS JAMES POE AND SENIOR RETIREMENT PLANNERS, LLC *76 CERTIFICATE OF COMPLIANCE I certify that this brief was produced on a computer using Microsoft Word and contains 14,621 words, as determined by the computer
software’s word-count function, excluding the sections of the brief listed in
Texas Rule of Appellate Procedure 9.4(i)(1).
__________________________ Scott Lindsey CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing document was delivered pursuant to Rule 21a, Tex. R. Civ. P., to all
counsel or parties of record as shown below.
Dated this 11 th day of March, 2015.
Via electronic service and e-mail:
John W. Thomas
jthomas@gbkh.com
John R. McConnell
jmcconnell@gbkh.com
George, Brothers, Kincaid & Horton, L.L.P.
114 W. Seventh, Suite 1100
Austin, TX 78701-3015
ATTORNEYS FOR APPELLEE
__________________________ Scott Lindsey *77 NO. 03-14-00518-CV
IN THE COURT OF APPEALS THIRD DISTRICT OF TEXAS AUSTIN, TEXAS
JAMES POE AND SENIOR RETIREMENT PLANNERS, LLC, Appellants
vs. EDUARDO S. ESPINOSA, IN HIS CAPACITY AS RECEIVER OF RETIREMENT VALUE, LLC, Appellee APPELLANTS’ APPENDIX I. Summary judgment order [CR 1973] ........................................... Tab 1
II. Final Judgment [1 st Supp CR 3-5] ................................................ Tab 2
III. James Settlement Agreement [CR 2023-2037] ........................... Tab 3
IV. Stipulation [CR 1966-67] .............................................................. Tab 4
V. TUFTA Statutes ........................................................................... Tab 5
Tex. Bus. & Com. Code Ann. § 24.005 ............................................... A Tex. Bus. & Com. Code Ann. § 24.006 ............................................... B Tex. Bus. & Com. Code Ann. § 24.002 .............................................. C Tex. Bus. & Com. Code Ann. § 24.003 .............................................. D Tex. Bus. & Com. Code Ann. § 24.004 ............................................... E
[1] There are several volumes of the Clerk’s Record in this appeal. “CR” refers to the original Clerk’s Record filed on September 26, 2014, “1 st Supp CR” refers to the Clerk’s Record filed on November 3, 2014, “2 Supp CR” refers to the Clerk’s Record filed on December 8, 2014, and “3 rd Supp CR” refers to the Clerk’s Record filed on December 24, 2014.
[2] References herein to “Poe” include both appellants collectively.
[3] See Tex. Bus. & Com. Code Ann. §§ 24.005(a), .006(a).
[4] Espinosa subsequently nonsuited his money had and received claim, [CR 1983] leaving only the TUFTA claim against Poe. The trial court had granted summary judgment for Poe on Espinosa’s other causes of action against him. [CR 1974]
[5] This burden-shifting framework applies equally in cases involving application of the common law one-satisfaction rule and cases applying Chapter 33 of the Texas Civil Practice and Remedies Code. See Ellender , 938 S.W.2d at 927-28 (applying rule to Chapter 33 analysis); see also Utts , 81 S.W.3d at 832; Dalworth Restoration , 433 S.W.3d at 781 (“[S]ection 33.012(b) ‘upholds’ the common-law’s one-satisfaction rule.”).
[6] Some of Espinosa’s other allegations of joint and several liability are quoted in the fact section, above.
[7] See Tex. Bus. & Com. Code Ann. §§ 24.005, .006.
[8] Poe and other Licensee Defendants had filed other, earlier motions to determine the applicability of settlement credits, but those motions were filed and heard before the trial court had adjudicated the Licensee Defendants’ alleged liability for returning their commissions under TUFTA. [CR 1113, 1164]
[9] See also Cohen , 106 S.W.3d at 310 (“Although the causes of action alleged are technically different, they resulted in a single injury, loss of trust assets.”); Buccaneer Homes , 43 S.W.3d at 590 (“If there is only one injury, even if it is based on several overlapping and varied theories of liability, a plaintiff will be permitted only one recovery.”).
[10] Poe preserved error on his objections by filing written objections and getting express rulings from the trial court on each objection. [2 Supp CR 571-72; CR 1964- 65] See Neely v. Comm’n for Lawyer Discipline , 302 S.W.3d 331, 344 (Tex. App.— Houston [14th Dist.] 2009, pet. denied); Parker Barber & Beauty Supply, Inc. v. Wella Corp. , No. 03-04-00623-CV, 2006 Tex. App. LEXIS 8841 at *32-34 (Tex. App.—Austin Oct. 11, 2006, no pet.) (mem. op.).
[11] RV’s debt number is no longer $125 million, if it ever was, because the trial court limited participant claims to the amount of their initial investment. [2 Supp CR 614] The sum of all participant loans was approximately $77 million.
[12] To further illustrate the unreliability of Espinosa’s opinion, his own expert, Burchett, admitted in his deposition that a fair valuation of Retirement Value’s debts required application of the same or a similar discount rate as was applied to the assets. [2 Supp CR 762]
[13] This concession alone created a fact question regarding the value of RV’s liabilities, which in turn leaves a fact question about whether RV was insolvent.