2004 WL 2550590 (W.D.Tex.); 2004 U.S. Dist. LEXIS 22783
United States District Court,
W.D. Texas, San Antonio Division.
In re: Royce Neil PRICE, Debtor,
THE SOCIETY OF LLOYD'S, Appellant
Royce Neil PRICE, Appellee
In re: Aubrey Linn WILSON, Sr. and Joan Burch Wilson, Debtors,
THE SOCIETY OF LLOYD'S Appellant
Aubrey Linn WILSON, Sr. and Joan Burch Wilson. Appellees.
No. SA-03-CA-0883, SA-03-CA-0931.
Oct. 27, 2004.
Andrew Michael Edison, Bracewell & Patterson, Houston, TX, for Appellant.
Thomas H. Crofts, Jr., Crofts & Callaway, P.C., Richard P. Corrigan, Attorney at Law, San Antonio, TX, for Appellee.
AMENDED ORDER REMANDING FINAL JUDGMENT OF THE UNITED STATES BANKRUPTCY COURT
*1 BEFORE THE COURT is Appellant the Society of Lloyd's ("Lloyd's") Appeal from the Final Judgment of the United States Bankruptcy Court denying Lloyd's objection to the Appellees' exemptions. Also before the Court are subsequent briefings in response to Lloyd's appeal. Because the above causes of action involve the same Appellant and identical questions of law, the cases were consolidated for review by this Court. The Court REMANDS the matter to the bankruptcy court for findings and a revised opinion consistent with this Order.
In the early 1980's, Royce Price and Aubrey and Joan Wilson (the "Debtors") became members (often called "Names") of Lloyd's. During the late 1980's and early 1990's, Names in the Lloyd's insurance market incurred billions of dollars in aggregate underwriting losses primarily due to liability for pollution and asbestos-related injuries and a series of natural disasters. A dispute concerning payment between the American-based Names and Lloyd's ensued. [FN1] In 1996, Lloyd's initiated litigation against Debtors in the High Court of Justice, Queen's Bench Division in London, England for premiums Debtors owed in connection with their underwriting obligations. Lloyd's obtained judgments (the "English Decisions") against Debtors on March 11, 1998. In January 2003, Lloyd's sought to domesticate the English Judgments so that they would be recognized in the United States.
FN1. See Haynesworth v. The Corporation, 121 F.3d 956, 958-960 (5 th Cir.1997) (offering background information as to the nature and structure of the Society of Lloyd's), cert. denied, 523 U.S. 1072, 118 S.Ct. 1513, 140 L.Ed.2d 666 (1998).
Shortly after the judgments were domesticated, Debtors filed for bankruptcy in the Western District of Texas. Debtors claimed exemptions under Texas state law in various items in personalty such as annuities, individual retirement accounts, and insurance policies (the "Assets"). [FN2] Lloyd's objected primarily on the grounds of Texas Property Code ¤ 42.004(a) that the Assets could not qualify as exempt because said Assets were acquired with non-exempt property with an intent to hinder, delay, or defraud Lloyd's from obtaining monies that it otherwise would have been entitled to seize to satisfy the liability it was owed. [FN3]
FN2. Price claimed Vanguard Variable Annuity, Contract No. 700019160, Vanguard Variable Annuity, Contract No. 700101399, and the Vanguard Variable Annuity, Contract No. 700109714 as exempt under ¤ 42.0021 of
the Texas Property Code, Art. 21.21 ¤ 1 of the Texas Insurance Act, and ¤ 118.051 of the Texas Insurance Code. Similarly, The Wilsons claimed several annuities, individual retirement accounts, and life insurance policies as exempt under ¤ 42.0021 of the Texas Property Code, Art. 21.21 ¤ 1 of the Texas Insurance Act, and ¤ 118.051 of the Texas Insurance Code.
FN3. See Tex. Prop.Code. ¤ 42.004(a) (Vernon 2002). Lloyd's also raised objections under Tex.Rev.Civ. Stat. Ann. Art. 21.22, ¤ 3 (Vernon Supp.2003), but those objections were neither a basis for the U.S. Bankruptcy Court's decision nor discussed on appeal.
The Bankruptcy court did not focus on whether Debtors committed fraud under ¤ 42.004(a); instead, the Court found that the dispute turned on whether Lloyd's claim was time-barred under ¤ 42.004(b) of the Code. [FN4] Section 42.004, Transfer of Nonexempt Property, provides:
FN4. See Tex. Prop.Code ¤ 42.004 (Vernon 2002).
(a) If a person uses the property not exempt under this chapter to acquire, obtain an interest in, make improvement to, or pay an indebtedness on personal property which would be exempt under this chapter with the intent to defraud, delay, or hinder an interested person from obtaining that to which the interested person is or may be entitled, the property, interest, or improvement acquired is not exempt from seizure for the satisfaction of liabilities. If the property, interest, or improvement is acquired by discharging an encumbrance held by a third person, a person defrauded, delayed, or hindered is subrogated to the rights of the third person.
*2 (b) A creditor may not assert a claim under this section more than two years after the transaction for which the claim arises. A person with a claim that is unliquidated or contingent at the time of the transaction may not assert a claim under this section more than one year after the claim is reduced to judgment. [FN5]
Unable to identify any cases construing ¤ 42.004(b), the bankruptcy court analyzed the plain language of the statute and held that the period during which Lloyd's could have asserted its objection had expired. The bankruptcy court first concluded that Lloyd's could not raise an objection under the first sentence of ¤ 42.004(b) because the most recent transaction in question occurred in 1996, nearly five years before Lloyd's asserted its claim in the bankruptcy case. The court next ruled that Lloyd's was barred from raising a claim under the second sentence because Lloyd's failed to bring a claim within one year after the English Decisions in 1998. The court determined that the English Decisions satisfied the term judgment as it is used in the statute because the English Decisions liquidated the parties' claims. [FN6]
FN6. See In Re: Aubrey Linn Wilson, Sr. & Joan Burch Wilson, Bankr. Case No. 03-50512-C, 3-6 (June 24, 2003).
Lloyd's appealed the bankruptcy court's decision to this Court, asserting that the bankruptcy court's order overruling Lloyd's objections should be reversed because it committed errors of law. This Court has jurisdiction over the matter pursuant to 28 U.S.C. ¤ 158(a) and Federal Rules of Bankruptcy Procedure 8001. Finding jurisdiction proper, the Court applies the same standard of review in a bankruptcy appeal that a court of appeals applies in reviewing a district court proceeding. [FN7] Accordingly, the Court reviews the bankruptcy court's findings of fact under the clearly erroneous standard and its conclusions of law de novo. [FN8]
FN7. 28 U.S.C ¤ 158(c)(2).
FN8. U.S. Abatement Corp. v. Mobil Exploration & Producing U.S., Inc., 79 F.3d 393, 397 (5th Cir.1996).
I. Interpreting "Transaction" Under Section 42.004(b)
While this Court agrees with the bankruptcy court that the language of ¤ 42.004(b) is ambiguous, this Court's view of the law is different from the bankruptcy court's. That court interpreted the first sentence of ¤ 42.004(b) in such a manner as to bar Lloyd's objection under ¤ 42.004(a). The first sentence of ¤ 42.004(b) states, "A creditor may not assert a claim under this section more than two years after the transaction for which the claim arises." [FN9] Transaction, as the term applies under ¤ 42.004(b), neither has been defined in the statute nor interpreted in case law. Moreover, the term transaction is not mentioned anywhere else in Chapter 42.
FN9. Tex.Prop.Code ¤ 42.004(b) (Vernon 2002).
With regard to this sentence, the bankruptcy court interpreted "transaction" to refer to the events in 1996 that gave rise to the English Decisions. The bankruptcy court held, "At the outset, it is clear that Lloyd's cannot raise an objection ... under the [first sentence] because the last transaction that could be attacked under section 42.004(a) occurred in 1996." [FN10] Due to the date of the transaction to which the court referred, the bankruptcy court held that Lloyd's claim was time-barred under the statute.
FN10. In Re: Aubrey Linn Wilson, Sr. & Joan Burch Wilson, Bankr. Case No. 03-50512-C, 4.
*3 This Court has a different interpretation. Rather than refer to the 1996 events, the term transaction here pertains to the transfer of nonexempt property discussed in ¤ 42.004(a). The bankruptcy court interpreted transaction to have this meaning in its analysis of the second sentence but afforded the term a different meaning in this first context. [FN11] Under rules of statutory construction, same terms used twice in a statute should have the same meaning, [FN12] and the plain language of the sentences bears out this interpretation. The clause, "the transaction from which this claim arises," indicates that the Texas Legislature intended for the term transaction to correspond with the transfer of nonexempt property specified in ¤ 42.004(a). The first sentence, consequently, can be restated with greater clarity in the following manner: a creditor may not assert a transferof-nonexempt-property claim under ¤ 42.004(a) more than two years after the alleged transfer of nonexempt property occurs. [FN13]
FN11. See id. at 4 (defining the term transaction in the second sentence of ¤ 42.004(b) as "the use of non-exempt property to acquire exempt personalty").
FN12. 2A NORMAN J. SINGER, SUTHERLAND STATUTORY CONSTRUCTION ¤ 46:06 (6th ed.2000); see Gustafson v. Alloyd Co., Inc., 513 U.S. 561, 115 S.Ct. 1061, 131 L.Ed.2d 1 (1995).
FN13. See 16-241 DORSANEO, TEXAS LITIGATION GUIDE ¤ 241.03 (interpreting the transaction to mean, "A creditor may not assert a claim under Property Code ¤ 42.004 more than two years after the transaction out of which the claim arises"); see also 9-132 DORSANEO, TEXAS LITIGATION GUIDE ¤ 132.11(4) (referring to the transaction as the one carried out by the debtor with the intent to defraud, delay, or hinder judgment creditor).
Whereas the claims adjudicated in the 1998 English Decisions arose from the transactions involving the underwriting losses, Lloyd's claims at bar under ¤ 42.004(a) arose from Debtors' alleged transfer of nonexempt property. If Lloyd's is deemed a creditor under the statute and Debtors purchased the Assets with other nonexempt property within two years of Lloyd's ¤ 42.004(a) objection, then Lloyd's claim would not be time-barred by the first sentence of ¤ 42.004(b). [FN14]
FN14. The bankruptcy court noted that most of the policies, annuities, and investments were acquired over a two year period between 1992 and 1994, but the court did not make more specific findings as to when the particular acquisitions occured. See In Re: Aubrey Linn Wilson, Sr. & Joan Burch Wilson, at 2.
II. Interpreting "Creditor" Under Section 42.004(b)
Under Section 42.004(b), Lloyd's would have standing to bring a claim only if it were deemed a creditor under the statute. The first sentence uses the term creditor but does not define it. The meaning of creditor, however, is implied by its juxtaposition with the term "a person with a claim that is unliquidated or contingent" in the second sentence. The two sentences offer alternate limitations for when a ¤ 42.004(a) claim may be asserted, and the Texas Legislature must be seen to have intended for each of these terms to have particular meanings. [FN15] Thus, according to the statute, a creditor is one with a claim that is liquidated and not contingent. [FN16] If the English Decisions were not contingent and liquidated when the alleged transfer of nonexempt property occurred, then Lloyd's would be deemed a creditor and the provisions in the first sentence would govern Lloyd's claim under ¤ 42.004(a). In contrast, if the English Decisions had not been "reduced to judgment" and remained contingent and unliquidated at the time of the transfer, then the provisions in the second sentence would govern whether Lloyd's was entitled to bring the claim.
FN15. See Bailey v. U.S., 516 U.S. 137, 145, 116 S.Ct. 501, 133 L.Ed.2d 472 (1995) (stating that when interpreting statutes, courts should assume that Congress intended each of its terms to have meaning).
FN16. See In Re: Aubrey Linn Wilson, Sr. & Joan Burch Wilson, at 4.
A. The English Decisions Liquidated the Underlying Claims
Although this matter must be remanded to the bankruptcy court for fact findings to determine when the alleged transfer of nonexempt property occurred, this Court can specify at what point Lloyd's should be deemed a creditor under the statute. The status of the liquidation element is clear. The English Decisions in March 1998 liquidated Lloyd's claims because they specified the amount of liability Debtors owed to Lloyd's. [FN17]
FN17. BLACKS LAW DICTIONARY 930 (6th ed.1990); See In Re: Aubrey Linn
Wilson, Sr. & Joan Burch Wilson, at 5 (finding that English Decisions liquidated the underlying claims); See Murchison v. Levy Plumbing Co., 73 S.W.2d 967, 968 (Tex.Civ.App.1934).
B. The English Decisions Did Not Remain Contingent After They Were Rendered
*4 Greater uncertainty persists, however, concerning whether the underlying claims remained contingent after the English Decisions were rendered. Although the bankruptcy court held that Lloyd's became a creditor when the English Decisions were issued in 1998, Lloyd's maintains that the English Decisions stayed contingent until they were domesticated in January 2003. [FN18] Although different jurisdictions afford foreign country judgments various levels of recognition, this Court's analysis is guided by Texas law. The Uniform Foreign Country Money-Judgment Recognition Act (the "Texas Recognition Act") has been adopted by Texas and governs foreign country judgments such as the English Decisions. [FN19] In Hunt v. BP Exploration Company, the Northern District of Texas succinctly summarized the import of the Texas Recognition Act:
FN18. In Re: Aubrey Linn Wilson, Sr. & Joan Burch Wilson, at 5-6.
FN19. Tex. Civ. Prac. & Rem.Code Ann. ¤ 36.002 (Vernon 1997);
Don Docksteader Motors, Ltd. v. Patal Enters., Ltd., 794 S.W.2d 760, 760 (Tex.1990).
The Texas Act provides that a foreign country judgment, conclusive where rendered, is conclusive in Texas between the parties to the extent that it grants or denies recovery of a sum of money, and that it is 'enforceable in the same manner as the judgment of a sister state that is entitled to full, faith and credit.' [FN20]
FN20. 580 F.Supp. 304, 307 (N.D.Texas, 1984) (referring to TEX. CIV. PRACT. & REM.CODE ¤¤ 36.002-4).
A foreign country judgment is prima facie evidence of a conclusive judgment. To avoid recognition of the judgment, the burden of proof is on the judgment debtor to prove one or more of the statutory grounds for nonrecognition. [FN21] Even if a Texas court subsequently does not recognize the foreign country judgment, "it merely denies a remedy leaving unimpaired the plaintiff's substantive right, so that he is free to enforce it elsewhere." [FN22] The Texas Recognition Act's presumption of recognition for foreign country judgments, its placement of the burden of proof for nonrecognition upon the debtor, and the unimpaired status of nonrecognized judgments indicates that the English Decisions should not be considered contingent for purposes of Property Code ¤ 42.004(b).
FN21. Banque Libanaise Pour Le Commerce v. Kheich, 915 F.2d 1000, 1005 (5th Cir.1990); see Courage Company, L.L.C. v. The Chemshare Corp., 93 S.W.3d 323, 331 (Tex.App.--Houston [14th Dist.] 2002, no pet.); see Dart v. Balaam, 953 S.W.2d 478, 480 (Tex.App.--Fort Worth 1997, no writ); Hunt v. BP Exploration Co. 580 F.Supp. at 307; see Tex. Civ. Prac. & Rem.Code ¤ 36.005 (Vernon 2003).
FN22. Bradford Electric Light Co. v. Clapper, 286 U.S. 145, 160, 52 S.Ct. 571, 76 L.Ed. 1026 (1932); see Southwest Livestock and Trucking Co., Inc. v. Ramon, 169 F.3d 317, 322 (5th Cir.1999).
Although this issue is one of first impression, the holding comports with widely accepted interpretations of the term contingent. Its common meaning is "of possible occurrence: likely but not certain to happen;" "dependent on, associated with, or conditioned by something else." [FN23] In the bankruptcy setting where this matter rests, courts have held, "Claims are contingent as to liability if the debt is one which the debtor will be called upon to pay only upon the occurrence or happening of an extrinsic event which will trigger the liability of the debtor to the alleged creditor and if such triggering was one reasonably contemplated by the debtor and creditor at the time the event giving rise to the claim occurred." [FN24] Beyond bankruptcy decisions, Texas courts have held, "a contingent obligation is one in which liability has not been incurred with certainty." [FN25] In the instant case, Lloyd's claim is not dependent upon an extrinsic event to trigger liability, and liability has been incurred with certainty. The English Decisions found Debtors liable, and Texas law recognizes foreign country judgments unless proven otherwise. These interpretations support the view that Lloyd's claims concerning the underwriting losses were reduced to judgments and became liquidated and non-contingent when the English Decisions were delivered in March 1998.
FN23. WEBSTER'S NEW INTERNATIONAL DICTIONARY 493 (Phillip B. Gove ed., 1986).
FN24. First City Beaumont v. Durkay, 967 F.2d 1047, 1051 (5th Cir.1992); In re All Media Properties, Inc., 5 B.R. 126, 133 (Bankr.S.D.Tex.1980), aff'd per curium, 646 F.2d 193 (5th Cir.1981); see also In re Albano, 55 B.R. 363, 366 (N.D.Ill.1985); In re Duty Free Shops Corp., 6 B.R. 38, 39 (Bankr.S.D.Fla.1980) ("A contingent claim is one which may arise upon the occurrence of a future event."); COLLIER ON BANKRUPTCY, par. 303.08 at 303-33 (15th ed. 1990) ("When the duty to pay a claim does not rest upon the occurrence of a future event, the claim is not contingent.... A note which is in default ... [is an] example of [a claim] not contingent as to liability.").
FN25. Arch Petroleum. Inc., v. Sharp, 958 S.W.2d 475, 478 (Tex.App.--Austin 1997).
*5 In contrast to the reasoning above, Lloyd's argues that the decision in Reading & Bates Construction Co. v. Baker Energy Resources Corporation demonstrates that the English Decisions remained contingent until they were domesticated. [FN26] In that case, the Court of Appeals of Texas addressed a different issue than the one at bar and held that Texas courts were not required to give a Louisiana judgment full faith and credit when the underlying judgment was one of a foreign country. [FN27] The Court in Baker Energy Resources Corp. observed, "[Foreign country] judgments are subject to a number of statutory objections in addition to the objections applicable to sister state judgments. Once objections for nonrecognition have been timely asserted, the foreign country judgment will not be recognized or enforced until those objections have been expressly overruled by the trial court." [FN28]
FN26. 976 S.W.2d 702 (Tex.App.--Houston [1st Dist.] 1998, rehearing overruled).
FN27. Id. at 714.
FN28. Id. at 715 (citations omitted).
This Court acknow ledges that the Texas Recognition Act sets forth ten specific grounds for which a foreign country judgment may not be recognized. [FN29] However, these statutory limitations are insufficient to characterize foreign country judgments as contingent for purposes of Texas Property Code ¤ 42.004. Foreign country judgments are presumed recognized under the Texas Recognition Act, and the Act further commands that the judgments are "enforceable in the same manner as a judgment of a sister state that is entitled to full faith and credit." [FN30] The Restatement (Second) Conflict of Laws reflects this view that the English Decisions did not remain contingent after the decisions were rendered. It emphasizes that, in most respects, valid judgments rendered in a foreign nation are accorded the same degree of recognition as sister state judgments because the public interest requires there be an end to litigation. [FN31]
FN29. TEX. CIV. PRACT. & REM.CODE ¤ 36.005.
FN30. Id. at 36.004.
FN31. Restatement (Second) of Conflict of Laws ¤ 98, cmt. b (1971).
Moreover, obstacles to enforcement are not unique to foreign country judgments. Sister state judgments also can be contested even though they are entitled to full faith and credit under the United States Constitution. [FN32] The Restatement (Second) Conflict of Laws offers one example: "A judgment rendered in one State of the United States need not be recognized or enforced in a sister State if such recognition or enforcement is not required by the national policy of full faith and credit because it would involve an improper interference with important interests of the sister State." [FN33] Although a sister state judgment that appears to be valid and final makes prima facie case for enforcement, [FN34] the Supreme Court has declined to make full faith and credit an iron-clad rule. [FN35] The ability to contest a sister state judgment does not render it contingent until it is recognized. Similarly, a foreign country judgment that is conclusive and enforceable where rendered establishes a prima facie case for enforcement under Texas law, [FN36] and the opposing party's ability to contest recognition does not render the foreign judgment contingent under the Property Code ¤ 42.004.
FN32. U.S. CONST. art. IV, ¤ 1; Bard v. Charles R. Myers Ins. Agency, Inc., 839 S.W.2d 791, 794 (Tex.1992).
FN33. Restatement (Second) Conflict of Laws ¤ 103 (1988); see Thomas v. Washington Gas Light Co., 448 U.S. 261, 279, 100 S.Ct. 2647, 65 L.Ed.2d 757 (1980); Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 438, 64 S.Ct. 208, 88 L.Ed. 149 (1943) ("we assume ... that the command of the Constitution and the statute is not all-embracing, and that there may be exceptional cases in which the judgment of one state may not override the laws and policy of another").
FN34. Medical Administrators, Inc. v. Kroger Properties, Inc., 668 S.W.2d 719, 721 (Tex.App.--Houston [1st Dist.] 1983, no writ); see Knighton v. International Bus. Machines Corp., 856 S.W.2d 206, 209 (Tex.App.--Houston [1st Dist.] 1993, writ denied); Baker Energy Resources Corp., 976 S.W.2d at 714 ("A filed sister state judgment makes a prima facie case for the party seeking to enforce it and the burden is on the resisting party to prove the sister judgment is not valid or final").
FN35. Baker Energy Resources Corp., 976 S.W.2d at 713 (citing Milwalkee County v. M.E. White Co., 296 U.S. 268, 273, 56 S.Ct. 229, 80 L.Ed. 220 (1935)).
FN36. TEX. CIV. PRACT. & REM.CODE ¤¤ 36.002, 36.004, 36.0044.
*6 Based on the above analysis and for purposes of Property Code ¤ 42.004, the English Decisions reduced to judgment Lloyd's claim for underwriting losses, and the claim remained neither unliquidated nor contingent once the English Decisions were rendered in March 1998. Lloyd's, therefore, became a creditor for purposes of ¤ 42.004(b) on the date of the English Decisions. As a creditor, Lloyd's would not be barred by the time limitations of the first sentence of ¤ 42.004(b) if Debtor's transfer of nonexempt property took place between the time after Lloyd's became a creditor in March 1998 and within two years prior to the date Lloyd's asserted its ¤ 42.004 claims against Debtors. [FN37] If Lloyd's claim is not barred by the time limitations of ¤ 42.004(b), then a ruling should be made on the merits of Lloyd's ¤ 42.004 claim.
FN37. The second sentence of ¤ 42.004(b) would apply only if Debtor's transfer of non-exempt property occurred before the English Decisions were rendered. If the transfers occurred at that time, then Lloyd's claim would be precluded by that sentence's one-year time limitation.
III. Policy Considerations
This Court recognizes that ¤ 42.004(b) places a burden on judgment creditors to monitor the activities of debtors prior to the judgment's enforcement. If a debtor wrongfully transfers nonexempt property with the intent to defraud, delay, or hinder a creditor from enforcing a liability, then a creditor has two years to object to the transfer before its claim is barred by ¤ 42.004(b). Although this statute may have harsh consequences for creditors, it serves legitimate state interests to resolve matters and prevent lawsuits from pending indefinitely. [FN38] Texas Property Code ¤ 42.004 expresses a simple message to creditors: don't delay enforcing your debts.
FN38. See Restatement (Second) of Conflict of Laws ¤ 98, cmt. b (1971).
In light of this ruling, it is hereby ORDERED that this case be REMANDED to the bankruptcy court for findings as to when the particular transfers of nonexempt property occurred and for a revised opinion consistent with this Order.