Hinsley v. Boudloche

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 97-20967
_____________________

In The Matter Of: GEORGE R HINSLEY,

Debtor.

-------------------------------------

PATRICIA JO HINSLEY; GEORGE R HINSLEY,

Appellants,

v.

MIKE BOUDLOCHE,

Appellee.

_________________________________________________________________

Appeal from the United States District Court
for the Southern District of Texas
(CA-H-95-5713)
_________________________________________________________________
July 15, 1998
Before KING, BARKSDALE, and PARKER, Circuit Judges.

KING, Circuit Judge:*

Appellants George R. Hinsley and Patricia Jo Hinsley seek

reversal of certain orders entered by the district court in

George R. Hinsley’s bankruptcy proceeding. Specifically, Mr.

Hinsley challenges an order denying his discharge in bankruptcy

*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
that was entered without a hearing. Mrs. Hinsley challenges an

order of the district court authorizing the attachment of certain

property that she claims is her separate property and therefore

not part of Mr. Hinsley’s bankruptcy estate. Mr. and Mrs.

Hinsley both challenge an order entered in an adversary

proceeding initiated by the bankruptcy trustee setting aside

certain transfers of property from Mr. Hinsley to Mrs. Hinsley.

For the reasons that follow, we affirm in part, vacate in part,

and remand.

I. FACTUAL AND PROCEDURAL BACKGROUND

On December 31, 1985, Western Bank Westheimer (Western)

loaned the 6200 Kansas Street Partnership (the Partnership), a

general partnership in which George Hinsley (Mr. Hinsley) was a

partner, funds to purchase real estate. The Partnership’s

indebtedness to Western was evidenced by a $3.8 million

promissory note executed by the Partnership. In October 1987,

Western failed, and the Federal Deposit Insurance Corporation

(FDIC), as the bank’s receiver, succeeded to its rights in the

note. The FDIC claims that, as of August 1988, the note was in

default. Mr. Hinsley claims that the note was not in default

until the third quarter of 1989.

Between January 20 and July 7, 1989, Mr. Hinsley and

Patricia Jo Hinsley (Mrs. Hinsley), his wife, entered into a

series of partition agreements and ancillary assignments

2
(collectively, the Partition Agreements) purporting to transform

all of the couple’s passive, income-producing community property

into Mrs. Hinsley’s separate property. The Hinsleys claim that

they promptly and properly recorded all of the transfers effected

by the Partition Agreements in the appropriate property records.

In August 1991, the FDIC brought suit against Mr. Hinsley in

federal district court to collect on the promissory note that Mr.

Hinsley had executed on behalf of the Partnership, and, in May

1992, the district court rendered summary judgment in favor of

the FDIC. The district court entered final judgment in favor of

the FDIC for approximately $4.8 million.

In an attempt to collect on the judgment, the FDIC applied

to the district court for post-judgment turnover relief pursuant

to § 31.002 of the Texas Civil Practice and Remedies Code,

requesting that the court assign certain specific assets to it.

In May 1994, the district court entered an order granting

turnover relief and requiring Mr. Hinsley to provide an

accounting to the FDIC of assets owned by him that were subject

to levy and execution in satisfaction of the FDIC’s judgment

against him. In August 1994, the FDIC moved for sanctions,

alleging that Mr. Hinsley had failed to comply with the district

court’s May 1994 turnover order. During a hearing on the motion

on September 25, 1995, Mr. Hinsley testified about the Partition

Agreements. He stated that the agreements were the product of

marital difficulties and that he and his wife entered into the

3
agreements as part of an effort at marital reconciliation.

Additionally, he testified that, through the Partition

Agreements, he took the assets that required management, and his

wife took the liquid assets. Mr. Hinsley also stated that Mrs.

Hinsley had annual income of approximately $200,000 from the

assets that the Partition Agreements transferred to her. The

district court noted that, as a result of the Partition

Agreements, “it appears as though she got all the debt-free

property, income-producing type, which is personal and/or realty;

and you took all the debt and debts associated with the other

property which might have been income producing.”

In July 1995, the FDIC moved for injunctive relief barring

Mr. Hinsley from transferring his assets without leave of the

district court and for turnover relief. The district court held

an evidentiary hearing on these motions on July 25, 1995. On

July 27, 1995, the district court entered an order granting

turnover and injunctive relief to the FDIC (the Pre-Petition

Turnover Order). The order provided as follows:

[T]he assets held and/or controlled by George Hinsley,
his wife, agents or assigns are hereby frozen and
placed under the control of this Court. The defendant,
his wife, agents or assigns is hereby enjoined from
selling, withdrawing and/or transferring any assets
under their control save and except necessary household
expenses until further order of this Court, unless done
so with Court permission.

Further, it ordered Mr. and Mrs. Hinsley to “prepare, execute,

and file papers in this Court in form and content acceptable to

4
the FDIC, assigning to the FDIC all of the defendant’s, his

wife’s, agents’ or assigns’ right, title and interest” in the

following property, with the exception of $60,000 of exempt

personal property:

a promissory note payable to George Hinsley; household
goods with a reported value of $240,000; jewelry and
furs listed on [an insurance policy listing George
Hinsley as the beneficiary;] stocks, bonds, debentures,
financial instruments to which George Hinsley, his
wife, agents or assigns has an interest (ownership),
partially or totally, promissory notes payable to
George Hinsley, his wife, agents or assigns, life
insurance policies in the name of George Hinsley and/or
wherein George Hinsley is the beneficiary.

The Pre-Petition Turnover Order also contained the court’s

conclusion that the Partition Agreements between Mr. and Mrs.

Hinsley protected none of these assets from attachment because

“the community debt obligations transcend any attempt to shelter

or protect previously acknowledged community property.” Finally,

it ordered Mr. Hinsley not to “file or join with other persons or

entities in the filing of any cause of action in [federal

district court] or in the state court seeking relief against the

FDIC or any other party where such action arises out of the

judgment issued in [the district court] or the property upon

which turnover relief has been granted.”

On August 10, 1995, Mr. Hinsley filed his notice of appeal

from the Pre-Petition Turnover Order. On October 10, 1995, the

FDIC filed a motion to add Mrs. Hinsley as a party to the suit,

and the district court granted this motion on December 13, 1995.

5
On March 12, 1996, Mrs. Hinsley filed an answer requesting either

(1) that she be dismissed as a party to the suit, or (2) a

declaration that the property to which the Partition Agreements

with Mr. Hinsley purported to vest her with title was not

available to satisfy the FDIC’s judgment against Mr. Hinsley. No

further action has taken place in that case, except that this

court dismissed Mr. Hinsley’s appeal on August 6, 1996.1

On August 10, 1995, the same date that he filed his notice

of appeal in the FDIC action, Mr. Hinsley filed a petition for

Chapter 11 bankruptcy relief in bankruptcy court in the Corpus

Christi division of the Southern District of Texas. Mrs. Hinsley

did not join in Mr. Hinsley’s bankruptcy petition. On August 16,

1995, Mrs. Hinsley filed an adversary complaint in Mr. Hinsley’s

bankruptcy case seeking a declaratory judgment that the Partition

Agreements were valid and that the property which they purported

to convey to her was her separate property and not the property

of the bankruptcy estate. Mr. Hinsley answered on September 18,

1995, admitting all of the factual allegations in Mrs. Hinsley’s

complaint.2 On November 14, 1995 the bankruptcy court entered an

1
As indicated infra, Mr. Hinsley filed for bankruptcy the
same day that he filed his notice of appeal. His Chapter 7
bankruptcy trustee, as Mr. Hinsley’s successor in interest, filed
a motion to dismiss the appeal, which this court granted.
2
On March 4, 1996, the trustee filed a motion to
substitute himself for Mr. Hinsley as a representative party in
Mrs. Hinsley’s adversary proceeding, and the bankruptcy court
entered an order granting this motion on April 9, 1996. On
September 26, 1996, the trustee filed a motion seeking leave to

6
order converting Mr. Hinsley’s bankruptcy from Chapter 11 to

Chapter 7. The same day, the bankruptcy court appointed Michael

Boudloche (the Trustee) as trustee of Mr. Hinsley’s bankruptcy

estate. On December 19, 1995, the district court entered an

order withdrawing the reference of Mr. Hinsley’s bankruptcy case

to the bankruptcy court and ordering administration of the

bankruptcy case in the district court. The district court

subsequently consolidated all of the litigation involving Mr.

Hinsley, including the bankruptcy, all adversary proceedings, and

the FDIC action.

On September 11, 1996, the Trustee filed a “Motion for

Turnover of Assets,” whereby the Trustee requested that the

district court order Mr. Hinsley to turn over to the Trustee the

assets that the district court had ordered frozen in the Pre-

Petition Turnover Order. On October 25, 1996, the district court

entered an order (the Bankruptcy Turnover Order) ordering Mr.

Hinsley to “turnover physical possession of” these assets to the

Trustee within fifteen days.

On December 23, 1996, the Trustee filed a “Notice of Civil

and Criminal Contempt” based upon Mr. and Mrs. Hinsley’s alleged

noncompliance with the Pre-Petition Turnover Order and the

Bankruptcy Turnover Order. On February 4, 1997, the district

court held a contempt hearing at which both Mr. and Mrs. Hinsley

file an amended answer. Mrs. Hinsley took no further action in
the adversary proceeding, and it was closed on October 24, 1996.

7
invoked their Fifth Amendment privilege against self-

incrimination.3 On November 26, 1997, the district court entered

an order holding Mr. Hinsley in civil contempt and ordering him

incarcerated commencing December 8, 1997, until he complied with

the Pre-Petition Turnover Order and the Bankruptcy Turnover

Order. Mr. Hinsley subsequently executed quitclaim deeds to

certain real property to the Trustee, and the district court

entered an order on December 10, 1997 declaring that Mr. Hinsley

was in compliance with the Pre-Petition and Bankruptcy Turnover

Orders and ordering his release from custody. Mr. Hinsley timely

appealed the Bankruptcy Turnover Order, and this court affirmed

the order on September 3, 1997. See Hinsley v. Boudloche (In re

Hinsley), No. 96-21103 (Sept. 3, 1997) (unpublished).

On August 8, 1997, the Trustee filed his “Complaint for

Declaratory Judgment, To Avoid Transfers and for Turnover and

Accounting of Property of the Estate and for Injunctive Relief,”

in which the Trustee sought, among other things, a declaration

that the Partition Agreements between Mr. and Mrs. Hinsley were

void. Apparently treating the Trustee’s complaint as a motion,

on November 26, 1997, the district court entered an order

granting “[t]he Trustee’s motion to avoid transfers in this

3
Mr. Hinsley subsequently filed a motion to withdraw his
invocation of the privilege.

8
cause, to the extent not previously resolved by other Orders”

(the Transfers Order).4

On January 13, 1997, the Trustee filed a “Complaint

Objecting to Discharge.” Without conducting any sort of hearing

on the complaint, the district court entered an order (the

Discharge Order) sustaining the Trustee’s objection to discharge

on November 26, 1997.5

On April 21, 1997, the Trustee filed a “Motion to

Show[]Cause Why Writs Should Not Issue” in which he requested

that the district court hold a hearing at which Mr. and Mrs.

Hinsley would be required to show cause why writs of attachment

and assistance should not issue as to all of the assets covered

by the Pre-Petition and Bankruptcy Turnover Orders pursuant to

the All Writs Act, 28 U.S.C. § 1651(a), and Rule 70 of the

Federal Rules of Civil Procedure. On November 26, 1997, the

district court entered an order granting the motion as well as an

4
A review of the record reveals no “motion” by the Trustee
to avoid transfers.
5
The order states the following:

The Trustee’s objections to the discharge of the
debtor, George R. Hinsley, brought pursuant to 11
U.S.C. § 727(c)(1) is [sic] Sustained.
It is Ordered that the debtors shall not be
Discharged from any debts pending the resolution of all
proceedings.

While the second sentence of the order creates some
ambiguity as to the district court’s purpose in entering this
order, we conclude, as the parties do, that the order constitutes
a final denial of Mr. Hinsley’s discharge.

9
“Order and Judgment Issued Pursuant to 28 U.S.C. § 1651(a) and

FRCP 70” (the All Writs Order and Judgment). The All Writs Order

and Judgment “empowered, directed and authorized” the U.S.

marshal “to attach all of the personal property covered by (i)

the Partition Agreements between George and Patricia Hinsley and

(ii) the assets []which are identified either in [the Pre-

Petition Turnover Order], or in pleadings or evidence in the FDIC

Suit that support such Turnover Order, and (iii) all other assets

frozen by [the Pre-Petition Turnover Order].” It also

“empowered, directed and authorized” the U.S. marshal to take

possession of certain real property that Mrs. Hinsley claims is

her homestead.

II. DISCUSSION

Both Mr. and Mrs. Hinsley challenge the Transfers Order.

Additionally, Mrs. Hinsley challenges the All Writs Order and

Judgment, and Mr. Hinsley challenges the Discharge Order. We

address the viability of each of these orders in turn.

A. The Transfers Order

Mr. and Mrs. Hinsley each challenges the validity of the

Transfers Order. As noted earlier, in entering the Transfers

Order, the district court apparently treated the Trustee’s

“Complaint for Declaratory Judgment, To Avoid Transfers and for

Turnover and Accounting of Property of the Estate and for

Injunctive Relief” as a motion. However, the Trustee’s complaint

10
initiated an adversary proceeding, which in essence is an

independent law suit in a bankruptcy case. See In re Tribble,

205 B.R. 405, 406 n.1 (Bankr. E.D. Ark. 1997); 1 DANIEL R. COWANS,

BANKRUPTCY LAW AND PRACTICE § 3.19(a), at 308 (6th ed. 1994)

(“Adversary proceedings are contemplated to be a separate piece

of litigation under the overall bankruptcy case, i.e. in the

nature of an independent action.”). Mr. and Mrs. Hinsley each

filed an answer in the adversary proceeding, but none of the

parties filed any dispositive motions. As such, the Transfers

Order amounted to a sua sponte grant of summary judgment in favor

of the Trustee.6

While a district court may in some circumstances enter

summary judgment sua sponte, it must comply with certain

procedural requirements in doing so.

6
The Transfers Order states that “[t]he Trustee’s motion
to avoid transfers in this cause, to the extent not previously
resolved by other Orders, is Granted.” It is not entirely clear
what relief the district court intended to afford the Trustee
through this order. The Trustee’s complaint alleged a number of
causes of action and claims for relief, including fraud,
constructive trust, declaratory judgment, fraudulent transfer,
conspiracy, and injunctive relief. However, the Trustee concedes
on appeal that, “[t]o the extent that the order exceeds the
relief already granted through the turnover orders, it can be
modified to eliminate that excessive relief and affirmed.” We
therefore construe the Transfers Order as a judgment declaring
the invalidity of the Partition Agreements and ordering the
turnover of the assets that they purportedly conveyed to Mrs.
Hinsley to the Trustee.

11
 Under Fed. R. Civ. P. 56(c),7 a party must be served
with a motion for summary judgment at least 10 days
before a court grants the motion against him.
Similarly, a party must be given at least 10 days
notice before a court grants summary judgment sua
sponte. This requirement places a party on notice that
he is in jeopardy of having his case dismissed and
affords him the opportunity to put forth evidence to
show precisely how he intends to prove his case at
trial.

Millar v. Houghton, 115 F.3d 348, 350 (5th Cir. 1997) (footnotes

omitted). “Despite the strictness of this rule, our Court has

recognized that the district court’s failure to provide notice

may be harmless error.” Ross v. University of Tex. at San

Antonio, 139 F.3d 521, 527 (5th Cir. 1998); see also Nowlin v.

Resolution Trust Corp., 33 F.3d 498, 504 (5th Cir. 1994). This

is the case when the “nonmovant has no additional evidence or if

all of the nonmovant’s additional evidence is reviewed by the

appellate court and none of the evidence presents a genuine issue

of material fact.” Id. (internal quotation marks and emphasis

omitted).

As to Mr. Hinsley, we conclude that the Transfers Order is

valid because the Pre-Petition Turnover Order, with its attendant

legal determination that the Partition Agreements were invalid as

to creditors, and the Bankruptcy Turnover Order are res judicata

as to him. Application of the doctrine of res judicata is

appropriate if the following four criteria are satisfied: “(1)

7
Bankruptcy Rule 7056 renders Rule 56 of the Federal Rules
of Civil Procedure applicable to adversary proceedings. See FED.
R. BANKR. P. 7056.

12
the parties must be identical in the two actions; (2) the prior

judgment must have been rendered by a court of competent

jurisdiction; (3) there must be a final judgment on the merits;

and (4) the same cause of action must be involved in both cases.”

Eubanks v. FDIC, 977 F.2d 166, 169 (5th Cir. 1992); see also Howe

v. Vaughan (In re Howe), 913 F.2d 1138, 1143-44 (5th Cir. 1990).

No question exists as to the satisfaction of the first two

elements, and both the Pre-Petition and Bankruptcy Turnover

Orders constitute final judgments. See Maggio v. Zeitz, 333 U.S.

56, 68 (1948) (observing that a bankruptcy turnover order is “res

judicata and not subject to collateral attack”); Smith v. Revie

(In re Moody), 817 F.2d 365, 368 (5th Cir. 1987) (holding that a

turnover order entered by the bankruptcy court in an adversary

proceeding is a final order); In re Marriage of Long, 946 S.W.2d

97, 98 (Tex. App.--Texarkana 1997, n.w.h.) (“A turnover order is

a final, appealable judgment.”); Thomas v. Thomas, 917 S.W.2d

425, 436 (Tex. App.--Waco 1996, no writ) (“The post-judgment

turnover order is an appealable final judgment.”). As noted

earlier, the Transfers Order constituted an adjudication of

precisely the same issues raised in the Pre-Petition and

Bankruptcy Turnover Orders and did nothing more than grant the

same relief already granted by these orders. See supra note 6.

It is therefore clear from the record that Mr. Hinsley cannot

demonstrate the existence of a genuine issue of material fact

regarding the validity of the Partition Agreements. As such, the

13
district court’s failure to provide Mr. Hinsley with notice of

its intent to summarily dispose of the Trustee’s complaint

seeking avoidance of the transfers effected by the Partition

Agreements was harmless error.

However, the same cannot be said of the district court’s

failure to provide Mrs. Hinsley with such notice. For the

reasons set forth below, we conclude that neither the Pre-

Petition Turnover Order nor the Bankruptcy Turnover Order has any

binding effect on Mrs. Hinsley. We further conclude that the

record before us does not otherwise demonstrate the Trustee’s

entitlement to judgment as a matter of law regarding the validity

of the Partition Agreements.

1. The Pre-Petition Turnover Order

Mrs. Hinsley contends that the Pre-Petition Turnover Order

could not have adjudicated her rights in the property that the

Partition Agreements purported to convey to her because she was

not a party to the FDIC action at the time that the district

court entered the order. We agree.

In Martin v. Wilks, 490 U.S. 755 (1989), the Supreme Court

observed,

“[i]t is a principle of general application in
Anglo-American jurisprudence that one is not bound by a
judgment in personam in a litigation in which he is not
designated as a party or to which he has not been made
a party by service of process.” Hansberry v. Lee, 311
U.S. 32, 40 (1940). See, e.g., Parklane Hosiery Co. v.
Shore, 439 U.S. 322, 327, n.7 (1979); Blonder-Tongue
Laboratories, Inc. v. University Foundation, 402 U.S.

14
 313, 328-329 (1971); Zenith Radio Corp. v. Hazeltine
Research, Inc., 395 U.S. 100, 110 (1969). This rule is
part of our “deep-rooted historic tradition that
everyone should have his own day in court.” 18 C.
Wright, A. Miller, & E. Cooper, Federal Practice and
Procedure § 4449, p. 417 (1981) . . . . A judgment or
decree among parties to a lawsuit resolves issues as
among them, but it does not conclude the rights of
strangers to those proceedings.

Id. at 761-62 (brackets in original). When the district court

entered the Pre-Petition Turnover Order, Mrs. Hinsley was not a

party to the FDIC action. We therefore conclude that the

fundamental legal tenets discussed in Wilks dictate that the Pre-

Petition Turnover Order could have no binding effect on her. We

find the arguments to the contrary advanced by the Trustee and

the FDIC as amicus curiae unpersuasive.

The Trustee first contends that the Pre-Petition Turnover

Order was enforceable against Mrs. Hinsley pursuant to Rule 71 of

the Federal Rules of Civil Procedure. Rule 71 provides in

relevant part that, “when obedience to an order may be lawfully

enforced against a person who is not a party, that person is

liable to the same process for enforcing obedience to the order

as if a party.” FED. R. CIV. PROC. 71.

“Rule 71 does not undertake to say when an order can be made

in favor of or against a person not a party. It merely provides

that when this can be done nonparties have recourse to, and are

subject to, process in the same measure as parties.” 12 CHARLES

ALAN WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 3031, at 173 (2d ed.

1997). Thus, the Trustee’s reliance on Rule 71 merely begs the

15
question of whether the Pre-Petition Turnover Order is an order

of a type that may be lawfully enforced against a nonparty, and

the Trustee has not demonstrated that it is.

The Trustee next contends that the district court’s

subsequent entry of an order joining Mrs. Hinsley as a party to

the FDIC action rendered the Pre-Petition Turnover Order

effective as to her because Mrs. Hinsley could have appealed the

Pre-Petition Turnover Order or filed a motion for reconsideration

of that order in the district court. He has cited no authority

in support of this proposition, and we conclude that it is simply

untenable. Mrs. Hinsley was not a party to the Pre-Petition

Turnover Order because she was not a party to the action when the

district court entered the order. The district court’s addition

of Mrs. Hinsley as a party months after its entry of the Pre-

Petition Turnover Order cannot operate to retroactively render

her a party to that order based simply on the fact that she might

have been able to file a motion for relief from judgment with

respect to that order pursuant to Rule 60(b) of the Federal Rules

of Civil Procedure.

Moreover, assuming arguendo that Mrs. Hinsley could have

under any circumstances appealed the Pre-Petition Turnover Order

given her status as a nonparty at the time of the order’s entry,

any such appeal would have been time-barred. Rule 4(a) of the

Federal Rules of Appellate Procedure provides that a party

generally must file a notice of appeal within sixty days of entry

16
of the judgment or order from which the appeal is taken in a case

in which the United States or an officer or agency thereof is a

party or within fourteen days of a notice of appeal filed by

another party, whichever is later. See FED. R. APP. PROC. 4(a)(1),

(3). When a party fails to file a notice of appeal within the

allotted time period, the rule allows the district court to grant

a request for an extension by the party “upon a showing of

excusable neglect or good cause.” Id. 4(a)(5).

The party must file that request not later than thirty
days after the initial period allowed for filing notice
of appeal expires. A district court which grants such
a request may not expand the period for filing notice
of appeal beyond the later of thirty days after
expiration of the original filing period or ten days
after entry of the order granting the request.

Allied Steel, General Contractor v. City of Abilene, 909 F.2d

139, 142 (5th Cir. 1990); see also FED. R. APP. PROC. 4(a)(5). The

district court did not enter its order adding Mrs. Hinsley as a

party to the lawsuit until December 13, 1995, and Mrs. Hinsley

was not served until February 22, 1996, nearly seven months after

the district court entered the Pre-Petition Turnover Order. By

the time Mrs. Hinsley could have filed a notice of appeal

(assuming once again that she could have filed one at all), the

time period during which Rule 4 would have allowed her to file a

notice of appeal or a request that the district court extend the

time limit for doing so had long passed.8

8
The Trustee contends, without supporting analysis or
authority, that the timetable for Mrs. Hinsley to file a notice

17
 The Trustee also makes much of the fact that Mrs. Hinsley

had knowledge of the Pre-Petition Turnover Order and could have

intervened earlier in the FDIC action to protect her interests.

However, it has been long established that “[t]he law does not

impose upon any person absolutely entitled to a hearing the

burden of voluntary intervention in a suit to which he is a

stranger. . . . Unless duly summoned to appear in a legal

proceeding, a person not a privy may rest assured that a judgment

recovered therein will not affect his rights.” Chase Nat’l Bank

v. Norwalk, 291 U.S. 431, 441 (1934); see also Martin, 490 U.S.

at 765 (“Joinder as a party, rather than knowledge of a lawsuit

and an opportunity to intervene, is the method by which potential

parties are subjected to the jurisdiction of the court and bound

by a judgment or decree.”). Therefore, Mrs. Hinsley’s failure to

intervene in the FDIC action provides no basis for concluding

that the Pre-Petition Turnover Order adjudicated her interest in

the property purportedly transferred to her by the Partition

Agreements.

The FDIC, as amicus curiae, contends that, even if the Pre-

Petition Turnover Order is not binding upon Mrs. Hinsley by

virtue of her joinder as a party to the FDIC action after entry

of the order or her knowledge of the proceedings in the action,

of appeal did not begin to run until she appeared and answered.
However, we find no support in the plain language of Rule 4 or in
our precedent for this conclusion.

18
the order is nonetheless binding on her because she was in

privity with Mr. Hinsley. We disagree.

While the parties cite a great deal of Texas law regarding

privity in advancing their respective positions, we note that it

has been long established in this circuit that federal law

governs the preclusive scope of a prior federal judgment,

regardless of whether that judgment rests upon an issue governed

by state law. See RecoverEdge L.P. v. Pentecost, 44 F.3d 1284,

1290 (5th Cir. 1995) (“Although the [federal] court’s judgment in

[a prior] case [is] based on state law, federal law determines

the judgment’s preclusive effect.”); Terrell v. DeConna, 877 F.2d

1267, 1270 (5th Cir. 1989) (“[W]hen a federal court renders a

decision in a diversity case, the decision’s preclusive effect is

measured by federal principles of preclusion.”); Avondale

Shipyards, Inc. v. Insured Lloyd’s, 786 F.2d 1265, 1269 n.4 (5th

Cir. 1986) (“We apply federal law to the question of the res

judicata or collateral estoppel effect of prior federal court

proceedings, regardless of the basis of federal jurisdiction in

either the prior or the present action.”); Johnson v. United

States, 576 F.2d 606, 612-13 (5th Cir. 1978) (holding that

federal rules of res judicata and collateral estoppel determined

the preclusive effect of prior FTCA judgments, even though

liability was based on state law). This includes the

determination of whether the judgment may bind a nonparty to the

original action. See Aerojet-General Corp. v. Askew, 511 F.2d

19
710, 717 (5th Cir. 1975) (“We see no persuasive reason to look to

state law for some elements of res judicata, such as the scope of

the cause of action or similarity of the parties, in light of the

prominent influence of federal law on other elements of the

doctrine. To do so would sacrifice the uniformity of the law

which federal courts must apply.”); see also Terrell, 877 F.2d at

1271-72 (noting that the court was bound by Aerojet to conclude

that federal law controlled the determination of whether a

nonparty to a prior federal judgment in which jurisdiction was

predicated upon diversity was bound by that judgment in a

subsequent federal suit); Freeman v. Lester Coggins Trucking,

Inc., 771 F.2d 860, 862-63 (5th Cir. 1985) (applying federal law

in determining whether individuals who were not parties to a

prior judgment in a federal diversity action were bound by the

judgment in that case in a later federal suit).

We have observed that “‘the term privity in itself does not

state a reason for either including or excluding a person from

the binding effect of a prior judgment, but rather it represents

a legal conclusion that the relationship between the one who is a

party on the record and the non-party is sufficiently close to

afford application of the principle of preclusion.’” Southwest

Airlines Co. v. Texas Int’l Airlines, Inc., 546 F.2d 84, 95 (5th

Cir. 1977) (quoting Allan D. Vestal, Preclusion/Res Judicata

Variables: Parties, 50 IOWA L. REV. 27, 45 (1964)); see also Meza

v. General Battery Corp., 908 F.2d 1262, 1266 (5th Cir. 1990).

20
For purposes of determining the preclusive effect of a prior

judgment,

this court has held that privity exists in just three,
narrowly-defined circumstances: (1) where the
non-party is the successor in interest to a party’s
interest in property; (2) where the non-party
controlled the prior litigation; and (3) where the
non-party’s interests were adequately represented by a
party to the original suit.

Id.; see also Howell Hydrocarbons, Inc. v. Adams, 897 F.2d 183,

188 (5th Cir. 1990); Southwest Airlines, 546 F.2d at 95.

Clearly, Mrs. Hinsley is not a successor in interest to Mr.

Hinsley regarding any interest asserted in the FDIC action.

Additionally, the record provides no indication that Mrs. Hinsley

in any way controlled the litigation in the FDIC action. In

order for a prior judgment to bind a nonparty on the basis that

she controlled the prior litigation,

“it is not enough the nonparty supplied an attorney or
is represented by the same law firm; helped to finance
the litigation; appeared as an amicus curiae; testified
as a witness; participated in consolidated pretrial
proceedings; undertook some limited presentations to
the court; or otherwise participated in a limited way.
Even a nonparty who was ‘heavily involved’ may remain
free from preclusion.”

Benson and Ford, Inc. v. Wanda Petroleum Co., 833 F.2d 1172, 1174

(5th Cir. 1987) (quoting 18 WRIGHT ET AL., supra, § 4451, at 430-31

(1981)). Mrs. Hinsley is thus bound by the Pre-Petition Turnover

Order only if Mr. Hinsley adequately represented her interests in

the FDIC action.

[T]he concept of “adequate representation” does not
refer to apparently competent litigation of an issue in

21
 a prior suit by a party holding parallel interests;
rather, it refers to the concept of virtual
representation, by which a nonparty may be bound
because the party to the first suit is so closely
aligned with his . . . interests as to be his virtual
representative.

Freeman, 771 F.2d at 864 (internal quotation marks, footnote, and

citations omitted); see also Eubanks v. FDIC, 977 F.2d 166, 170

(5th Cir. 1992). “Virtual representation does not exist between

two [parties] merely because they raise similar claims and employ

the same counsel. Nor will these two elements in combination

with a familial relationship between the [parties] suffice to

establish virtual representation for issue preclusion purposes.”

Terrell, 877 F.2d at 1271. We have on several occasions held

that “[v]irtual representation demands the existence of an

express or implied legal relationship in which parties to the

first suit are accountable to non-parties who file a subsequent

suit raising identical issues.” Pollard v. Cockrell, 578 F.2d

1002, 1008 (5th Cir. 1978); see also Royal Ins. Co. of Am. v.

Quinn-L Capital Corp., 960 F.2d 1286, 1297 (5th Cir. 1992); Meza,

908 F.2d at 1272; Talbott Big Foot, Inc. v. Boudreaux (In re

Talbott Big Foot, Inc.), 887 F.2d 611, 614 n.4 (5th Cir. 1989);

Benson and Ford, 833 F.2d at 1175; Hardy v. Johns-Manville Sales

Corp., 681 F.2d 334, 340 (5th Cir. 1982).

The parties have pointed to no evidence in this record

manifesting the existence of an express or implied legal

relationship between Mr. and Mrs. Hinsley obligating Mr. Hinsley

22
to represent Mrs. Hinsley’s interests in the FDIC action

regarding the property purportedly conveyed to Mrs. Hinsley

through the Partition Agreements. Moreover, we note that it is

not even clear that an identity of interests regarding this

property otherwise existed between Mr. and Mrs. Hinsley. At a

minimum, Mr. Hinsley did not possess as strong an incentive to

have the property at issue adjudicated as Mrs. Hinsley’s separate

property as Mrs. Hinsley would have. Were the property

adjudicated Mrs. Hinsley’s separate property, it would be subject

to her “sole management, control, and disposition.” TEX. FAM.

CODE ANN. § 3.101 (Vernon Pamphlet 1998). While it is undoubtedly

true based on the positions taken by Mr. Hinsley below that he

would prefer to have the property conveyed to Mrs. Hinsley by the

Partition Agreements declared her separate property, it does not

follow that Mr. Hinsley’s interest in such an adjudication is as

strong as Mrs. Hinsley’s. Moreover, Mr. Hinsley’s interests to

some degree conflict with Mrs. Hinsley’s because, ceteris

paribus, Mr. Hinsley is better off having his judgment to the

FDIC paid off rather than having it linger. Payment of the

judgment out of the property conveyed to Mrs. Hinsley through the

Partition Agreements is not possible if it is adjudicated her

separate property. We therefore conclude that Mr. Hinsley was

not “so closely aligned with [Mrs. Hinsley’s interests in the

property conveyed to her by the Partition Agreements in the FDIC

action] as to be [her] virtual representative.” Aerojet, 511

23
F.2d at 719; cf. Eubanks, 977 F.2d at 170 (concluding that the

disposition of a husband’s claim was res judicata as to his wife

regarding claims held by her that were purely derivative of her

husband’s claim); Terrell, 877 F.2d at 1272 (allowing a

“twice-sued defendant to raise issue preclusive defenses in [a]

subsequent suit by a spouse raising derivative claims”).9

9
The Terrell panel, while acknowledging that it was bound
by Aerojet’s holding that federal law dictates whether a federal
court judgment resolving state law issues will bind a nonparty to
the original action, observed that “[s]ome commentators have
suggested that application of the Aerojet rule may have to be
tempered by a sensitivity to substantive policy concerns
underlying the distinctions in state claim preclusion doctrine.”
Terrell, 877 F.2d at 1272; see also Lowell Staats Mining Co. v.
Philadelphia Elec. Co., 878 F.2d 1271, 1274 (10th Cir. 1989)
(“As a general rule we apply federal law to the res judicata
issue in successive diversity actions, but federal law will
incorporate state law when the issue is more distinctly
substantive, as with the concept of ‘privity.’”); Brooks v.
Arlington Hosp. Ass’n, 850 F.2d 191, 195 (4th Cir. 1988)
(“A federal court should apply the federal doctrine of res
judicata unless the application of res judicata touches an
important question of state law, such as privity.”); 18 WRIGHT ET
AL., supra § 4472, at 737 (noting that the rule announced in
Aerojet “ignores the compelling reasons that may exist for
looking to state law on such questions as the scope of the cause
of action or the parties bound”).

While we recognize the importance of these concerns, we
likewise recognize our obligation to adhere to Aerojet as the law
of the circuit. However, we note that the same conclusion
regarding privity would obtain under Texas law. As noted
earlier, under Texas law, “[e]ach spouse has the sole management,
control, and disposition of that spouse’s separate property.”
TEX. FAM. CODE ANN. § 3.101 (Vernon Pamphlet 1998). Pursuant to
this statute, a husband cannot bind his wife regarding the
disposition of her separate property absent her consent. See
Reed Tool Co. v. Copelin, 610 S.W.2d 736, 740 (Tex. 1980)
(holding that, because a wife’s claim for impairment of
consortium constituted her separate property, her husband’s
acceptance of workers’ compensation benefits could not bar her
later suit for intentional impairment of consortium); Whittlesey

24
 The FDIC also argues that the Pre-Petition Turnover Order

constitutes law of the case as to Mrs. Hinsley because this court

determined in disposing of Mr. Hinsley’s appeal from the

Bankruptcy Turnover Order that the Pre-Petition Turnover Order

was “final and executory.” It contends that this court’s opinion

disposing of the prior appeal in this case renders the

proposition that the Partition Agreements were ineffective to

change the community-property character of the assets they

purported to convey to Mrs. Hinsley the law of the case. The

FDIC thus argues that “it is irrelevant to this Court’s analysis

. . . whether Mrs. Hinsley is correct in her assertion that the

district court’s determination in the [Pre-Petition Turnover

Order] was in error.”

To the extent that the Pre-Petition Turnover Order is final

and executory, the law of the case doctrine has no application.

Law of the case “rules do not involve preclusion by final

judgment; instead, they regulate judicial affairs before final

v. Miller, 572 S.W.2d 665, 669 (Tex. 1978) (holding that, absent
consent, a husband could not enter into a settlement binding upon
his wife regarding her claim for loss of consortium because the
claim constituted her separate property). We therefore conclude
that, under Texas law, Mr. and Mrs. Hinsley were not in privity
regarding the adjudication of Mrs. Hinsley’s rights in the
property purportedly conveyed to her by the Partition Agreements.
See Fidelity Lumber Co. v. Howell, 206 S.W. 947, 950 (Tex. Civ.
App.--Beaumont 1918) (“There is no legal privity between the
husband and wife in such sense that a judgment for or against the
one will conclude the other, where the action concerns their
separate property rights or interests not derived from each
other.” (internal quotation marks omitted)), aff’d, 228 S.W. 181
(Tex. Com’n App. 1921, judgm’t adopted).

25
judgment.” 18 WRIGHT ET AL., supra § 4478, at 788. Rather,

principles of res judicata apply. See Arizona v. California, 460

U.S. 605, 618-19 (1983) (“[L]aw of the case doctrine was

understandably crafted with the course of ordinary litigation in

mind. Such litigation proceeds through preliminary stages,

generally matures at trial, and produces a judgment, to which,

after appeal, the binding finality of res judicata and collateral

estoppel will attach.”). As we have already observed, because

Mr. Hinsley was not in privity with Mrs. Hinsley with respect to

the FDIC action, fundamental principles of due process dictate

that the Pre-Petition Turnover Order is not res judicata as to

Mrs. Hinsley.

2. The Bankruptcy Turnover Order

The Trustee contends that, even if the Pre-Petition Turnover

Order did not constitute an adjudication of Mrs. Hinsley’s rights

in the property purportedly conveyed to her by the Partition

Agreements, the Bankruptcy Turnover Order nonetheless constituted

such an adjudication. He contends that, because Mrs. Hinsley was

served with a copy of the Trustee’s Motion for Turnover of Assets

in the bankruptcy case and failed to request a hearing on the

issue, she is bound by the Bankruptcy Turnover Order. We cannot

agree.

As an initial matter, Mrs. Hinsley correctly observes that

the Bankruptcy Turnover Order does not purport to order her to do

26
anything. To the contrary, it merely orders Mr. Hinsley to turn

over certain property to the Trustee.10 Moreover, even if the

Bankruptcy Turnover Order could be construed as ordering a

turnover of property by Mrs. Hinsley, the order is invalid in

this regard. Section 542 of Title 11 of the United States Code

provides for turnover of property of the bankruptcy estate to the

bankruptcy trustee. See 11 U.S.C. § 542. Rule 7001 of the

Bankruptcy Rules provides that an action by the Trustee against a

third party for turnover relief pursuant to § 542 constitutes an

adversary proceeding. See FED. R. BANKR. P. 7001(1) (providing

that a proceeding “to recover money or property, except a

proceeding to compel the debtor to deliver property to the

trustee” constitutes an adversary proceeding); Haber Oil Co. v.

Swinehart (In re Haber Oil Co.), 12 F.3d 426, 437 (5th Cir. 1994)

(“[A] proceeding to recover money or property is an adversary

proceeding . . . .” (internal quotation marks omitted)).

“Adversary proceedings are governed by Part VII of the Bankruptcy

Rules, Bankruptcy Rule 7001, and the rules in Part VII generally

‘either incorporate or are adaptations of most of the Federal

Rules of Civil Procedure.’” Id. (quoting FED. R. BANKR. P. 7001

advisory committee’s note). As such, a request for turnover

10
Indeed, the district court observed that Mr. Hinsley had
fully complied with the Bankruptcy Turnover Order by executing
quitclaim deeds to the real property described in the Pre-
Petition Turnover Order and by representing that he did not have
possession of or control over the other property described in the
Pre-Petition Turnover Order.

27
relief against someone other than the debtor must be commenced by

complaint rather than by motion. See FED. R. BANKR. P. 7003

(providing that an adversary proceeding “is commenced by filing a

complaint with the court”); In re Perkins, 902 F.2d 1254, 1258

(7th Cir. 1990) (“A turnover proceeding commenced by motion

rather than by complaint will be dismissed, and a turnover order

entered in an action commenced by motion will be vacated.”

(citations omitted)); Smith v. Wheeler Tech., Inc. (In re Wheeler

Tech., Inc.), 139 B.R. 235, 240 (B.A.P. 9th Cir. 1992) (“A

turnover action is an adversary proceeding which must be

commenced by a properly filed and served complaint.” (internal

quotation marks omitted)); Mayex II Corp. v. Du-An Prods., Inc.

(In re Mayex II Corp.), 178 B.R. 464, 467 (Bankr. W.D. Mo. 1995)

(dismissing a motion for turnover relief on the ground that an

action for turnover relief must be commenced by a properly filed

and served complaint); In re Taronji, 174 B.R. 964, 966 (Bankr.

N.D. Ill. 1994) (“Ordinarily, a trustee must bring a separate

adversary proceeding in order to recover disputed property of the

estate, but when the property is held by the debtor, the trustee

may proceed by motion.”); In re Realty Southwest Assocs., 140

B.R. 360, 365 n.2 (Bankr. S.D.N.Y. 1992) (“Pursuant to 11 U.S.C.

§ 542, ‘turnover’ involves an action by the debtor or trustee to

recover money or property to the estate. Such an action must be

accomplished by adversary proceeding.”). Here, the district

court entered the Bankruptcy Turnover Order pursuant to a motion

28
seeking turnover relief. Because the Trustee may only seek

turnover relief from Mrs. Hinsley via a properly filed and served

complaint in an adversary proceeding, the Bankruptcy Turnover

Order is in no way binding upon her. Cf. Hill v. Jeffery (In re

Jeffery), 2 B.R. 197, 199 (Bankr. S.D. Tex. 1980) (holding that

the bankruptcy court lacked jurisdiction to adjudicate the

interest of the debtor’s spouse in community property in a

turnover proceeding because the trustee elected not to join the

debtor’s spouse as a party to the proceeding). The fact that

Mrs. Hinsley had notice that the Trustee was seeking turnover of

assets that she claimed as her separate property provides no

basis for concluding that the Bankruptcy Turnover Order is

binding upon her. See Martin, 490 U.S. at 765 (“Joinder as a

party, rather than knowledge of a lawsuit and an opportunity to

intervene, is the method by which potential parties are subjected

to the jurisdiction of the court and bound by a judgment or

decree.”).

In addition to concluding that the Pre-Petition Turnover

Order and the Bankruptcy Turnover Order have no preclusive effect

with respect to Mrs. Hinsley that would render the district

court’s entry of summary judgment sua sponte and without notice

harmless error, we also conclude that the record before us does

not otherwise conclusively demonstrate the absence of a genuine

issue of material fact regarding the validity of the Partition

Agreements entitling the Trustee to judgment as a matter of law.

29
Demonstration of this conclusion requires an identification of

what facts are material to the validity of the Partition

Agreements, which in turn requires a summary of relevant Texas

law.

3. Texas Law of Community Property
and Fraudulent Conveyances

Under Texas law, the availability of a particular piece of

property to satisfy a judgment against a spouse depends upon

whether the property constitutes one spouse’s separate property;

community property subject to joint management, control, or

disposition by both spouses; or community property subject to one

spouse’s sole management, control, or disposition. Section 3.202

of the Texas Family Code describes the liabilities to which each

type of property is subject as follows:

(a) A spouse’s separate property is not subject to
liabilities of the other spouse unless both spouses are
liable by other rules of law.
(b) Unless both spouses are personally liable as
provided by this subchapter, the community property
subject to a spouse’s sole management, control, and
disposition is not subject to:
(1) any liabilities that the other spouse incurred
before marriage; or
(2) any nontortious liabilities that the other
spouse incurs during marriage.
(c) The community property subject to a spouse’s sole
or joint management, control, and disposition is
subject to the liabilities incurred by the spouse
before or during marriage.
(d) All community property is subject to tortious
liability of either spouse incurred during marriage.

TEX. FAM. CODE ANN. § 3.202 (Vernon Pamphlet 1998).

30
 Section 4.102 of the Family Code expressly authorizes the

conversion of community property to separate property via

partition agreement between the spouses:

At any time, the spouses may partition or exchange
between themselves any part of their community
property, then existing or to be acquired, as the
spouses may desire. Property or a property interest
transferred to a spouse by a partition or exchange
agreement becomes that spouse’s separate property.

Id. § 4.102.11 However, the Family Code and the Business and

Commerce Code place limits on such partitions in order to protect

creditors. In his complaint, the Trustee sought to take

advantage of these limits through a cause of action pursuant to

11
The Family Code provides that “[p]roperty possessed by
either spouse during or on dissolution of marriage is presumed to
be community property,” and “[t]he degree of proof necessary to
establish that property is separate property is clear and
convincing evidence.” TEX. FAM. CODE ANN. § 3.003 (Vernon Pamphlet
1998). The community property presumption may be rebutted and a
presumption of separate property created

when (1) one spouse is grantor and the other spouse is
grantee, or (2) one spouse furnishes separate property
consideration and title is taken in the name of the
other spouse, or (3) the instrument of conveyance
contains a “significant recital” that states that the
consideration is paid from the separate funds of a
spouse or that the property is conveyed to a spouse as
his or her separate property.

Pemelton v. Pemelton, 809 S.W.2d 642, 646 (Tex. App.--Corpus
Christi 1991), rev’d on other grounds, Heggen v. Pemelton, 836
S.W.2d 145 (Tex. 1992); see also Dalton v. Pruett, 483 S.W.2d
926, 929 (Tex. Civ. App.--Texarkana 1972, no writ) (“When there
has been a conveyance of property from the husband to the wife
and a delivery of the deed, the presumption exists that it was
his intention to make the property the separate property of his
wife either by gift or by purchase; and, in the absence of fraud,
accident or mistake, such conveyance cannot be disturbed.”).

31
11 U.S.C. § 544(b), which allows a bankruptcy trustee to “avoid

any transfer of an interest of the debtor in property or any

obligation incurred by the debtor that is voidable under

applicable law by a creditor holding an unsecured claim.” 11

U.S.C. § 544(b).

A review of the relevant Texas statutory provisions

indicates that, while the Trustee may be entitled to the relief

he seeks under them (perhaps even in a summary disposition upon

the district court’s providing Mrs. Hinsley with proper notice

and an opportunity to be heard), the district court’s sua sponte

entry of summary judgment on these claims against Mrs. Hinsley

without notice was not harmless error.

Chapter 24 of the Texas Business and Commerce Code

establishes a cause of action whereby creditors may avoid

fraudulent transfers by debtors. Sections 24.005 and 24.006

define certain types of conveyances as fraudulent.

The version of § 24.005 applicable to the Partition

Agreements provides in relevant part as follows:

(a) A transfer made or obligation incurred by a debtor
is fraudulent as to a creditor, whether the creditor’s
claim arose within a reasonable time before or after
the transfer was made or the obligation was incurred,
if the debtor made the transfer or incurred the
obligation:
(1) with actual intent to hinder, delay, or defraud
any creditor of the debtor; or
(2) without receiving a reasonably equivalent value
in exchange for the transfer or obligation, and the
debtor:
(A) was engaged or was about to engage in a
business or a transaction for which the remaining

32
 assets of the debtor were unreasonably small in
relation to the business or transaction; or
(B) intended to incur, or believed that the
debtor would incur, debts beyond the debtor’s ability
to pay as they became due.

TEX. BUS. & COM. CODE ANN. § 24.005 (Vernon 1987).12 Subsection (b)

of the statute provides a nonexclusive list of “badges” of fraud

that may create an inference of fraudulent intent on the part of

the transferee, including the following:

(1) the transfer or obligation was to an insider;
(2) the debtor retained possession or control of the
property transferred after the transfer;
(3) the transfer or obligation was concealed;
(4) before the transfer was made or obligation was
incurred, the debtor had been sued or threatened with
suit;
(5) the transfer was of substantially all the
debtor’s assets;
(6) the debtor absconded;
(7) the debtor removed or concealed assets;
(8) the value of the consideration received by the
debtor was reasonably equivalent to the value of the
asset transferred or the amount of the obligation
incurred;
(9) the debtor was insolvent or became insolvent
shortly after the transfer was made or the obligation
was incurred;
(10) the transfer occurred shortly before or shortly
after a substantial debt was incurred; and
(11) the debtor transferred the essential assets of
the business to a lienor who transferred the assets to
an insider of the debtor.

Id. § 24.005(b). Section 24.008 provides creditors injured by a

transaction defined as fraudulent by § 24.005 with a number of

12
Section 24.005 was amended in 1993, see TEX. BUS. & COM.
CODE ANN. § 24.005 (Vernon Supp. 1998), but the amended version of
the statute is inapplicable to the Partition Agreements because
they occurred prior to the effective date of the amended version
of the statute, see BMG Music v. Martinez, 74 F.3d 87, 89 n.8
(5th Cir. 1996).

33
potential remedies, including “avoidance of the transfer or

obligation to the extent necessary to satisfy the creditor’s

claim.” Id. § 24.008(a)(1) (Vernon 1987).

The plaintiff creditor bears the burden of proving the

existence of fraudulent intent on the part of the grantor in

order to demonstrate the fraudulence of a transfer under

§ 24.005. See Mancuso v. T. Ishida USA, Inc. (In re Sullivan),

161 B.R. 776, 781 (Bankr. N.D. Tex. 1993); Grand Prairie Indep.

Sch. Dist. v. Southern Parts Imports, Inc., 803 S.W.2d 762, 765-

66 (Tex. App.--Dallas 1991) (construing the predecessor of

§ 24.005, which contained language similar to § 24.005(a)(1)),

aff’d in part and rev’d in part on other grounds, 813 S.W.2d 499

(Tex. 1991).13

The existence of fraudulent intent for purposes of § 24.005

is typically a question of fact. See Connell v. Connell, 889

S.W.2d 534, 542 (Tex. App.--San Antonio 1994, writ denied).

While it is true that fraudulent intent for purposes of § 24.005

13
We note that, while subsection (a)(2) appears to create
an independent ground for deeming a transfer fraudulent without a
specific intent element, we have construed this subsection as
merely “providing that the debtor’s failure to receive
consideration for the transfer of property is one indicator of a
fraudulent conveyance.” BMG Music, 74 F.3d at 90 n.11; see also
Klutts v. United States (In re Klutts), 216 B.R. 558, 561 (Bankr.
W.D. Tex. 1997) (“Even though the Texas statute provides two
alternative grounds for inferring a fraudulent transfer, none of
the cases the Court has researched, including the Texas cases,
have treated inadequate consideration as a separate grounds for
inferring fraudulent transfer. They have considered inadequate
or no consideration as merely one element in proving fraudulent
intent, i.e. an ‘indicia of fraud’”).

34
may be established as a matter of law, as when a defendant does

not dispute the existence of numerous badges of fraud and offers

nothing more than “conclusory, self-serving statements” denying

the existence of a fraudulent motive, see BMG Music v. Martinez,

74 F.3d 87, 90-91 (5th Cir. 1996), the Trustee has not set forth

competent summary judgment evidence demonstrating that this is

such a case. Indeed, because the Trustee has not moved for

summary judgment, he has had no occasion to set forth any summary

judgment evidence at all. We therefore conclude that the

district court’s sua sponte grant of summary judgment in favor of

the Trustee without notice to Mrs. Hinsley is not sustainable as

harmless error on the basis of § 24.005. Cf. Celotex Corp. v.

Catrett, 477 U.S. 317, 322 (1986) (“[T]he plain language of Rule

56(c) mandates the entry of summary judgment, after adequate time

for discovery and upon motion, against a party who fails to make

a showing sufficient to establish the existence of an element

essential to that party’s case, and on which that party will bear

the burden of proof at trial.” (emphasis added)).

Section 24.006 of the Business and Commerce Code defines

another class of transfers as fraudulent. The section provides

as follows:

(a) A transfer made or obligation incurred by a
debtor is fraudulent as to a creditor whose claim arose
before the transfer was made or the obligation was
incurred if the debtor made the transfer or incurred
the obligation without receiving a reasonably
equivalent value in exchange for the transfer or
obligation and the debtor was insolvent at that time or

35
 the debtor became insolvent as a result of the transfer
or obligation.
(b) A transfer made by a debtor is fraudulent as to a
creditor whose claim arose before the transfer was made
if the transfer was made to an insider for an
antecedent debt, the debtor was insolvent at that time,
and the insider had reasonable cause to believe that
the debtor was insolvent.

Id. § 24.006 (Vernon 1987). Section 24.008 renders transfers

defined as fraudulent by § 24.006 actionable to the same extent

as those defined as fraudulent by § 24.005. See id. § 24.008

(Vernon 1987).

We have recently construed § 24.006(a) to “require[] the

claimant to prove that the transferor was (1) insolvent at the

time of the transfer and (2) received less than fair value for

the consideration it paid.” Askanase v. Fatjo, 130 F.3d 657, 673

(5th Cir. 1997). While we have found no case law expressly

addressing the appropriate placement of the burden of proof

regarding the transferor’s insolvency under § 24.006(b), we see

no reason why it should not be placed upon the claimant, as with

§ 24.006(a).

As with his claim under § 24.005, the Trustee has not

presented any summary judgment evidence establishing that Mr.

Hinsley was insolvent at the time of or as a result of the

Partition Agreements or that Mr. Hinsley did not receive adequate

consideration for the property that he transferred to Mrs.

Hinsley through the Partition Agreements. Thus, at this stage,

the Trustee could not have carried his burden of establishing as

36
a matter of law that the transfers effected by the Partition

Agreements were fraudulent under § 24.006. We therefore conclude

that the district court’s sua sponte entry of summary judgment in

favor of the Trustee without notice to Mrs. Hinsley is not

sustainable as harmless error on the basis of § 24.006.

Section 4.106 of the Family Code provides that “[a]

provision of a partition or exchange agreement made under this

subchapter is void with respect to the rights of a preexisting

creditor whose rights are intended to be defrauded by it.” TEX.

FAM. CODE ANN. § 4.106 (Vernon Pamphlet 1998). No court has

construed the placement of evidentiary burdens under this

statute. However, we find the cases placing the burden of

proving fraudulent intent under § 24.005 of the Business and

Commerce Code on the plaintiff creditor instructive as to the

proper placement of the burden of proving fraudulent intent under

§ 4.106 of the Family Code. Nothing in the language of § 4.106

would indicate that the burden of proof regarding fraudulent

intent should rest on a different party under § 4.106 than under

§ 24.005.

As with his claims under §§ 24.005 and 24.006, the Trustee

has set forth no summary judgment evidence establishing as a

matter of law that the Partition Agreements were intended to

defraud any creditors. We therefore conclude that the district

court’s sua sponte entry of summary judgment in favor of the

Trustee without notice to Mrs. Hinsley is not sustainable as

37
harmless error on the basis of § 4.106.14

In sum, the Transfers Order amounted to a sua sponte grant

of summary judgment that was erroneous because of the lack of

notice to the Hinsleys. As to Mr. Hinsley, the error was

harmless because the res judicata effect of the Pre-Petition and

Bankruptcy Turnover Orders preclude him from establishing a

genuine issue as to any fact material to the Trustee’s

entitlement to avoid the transfers effected by the Partition

Agreements. However, as to Mrs. Hinsley, the error was not

harmless because the Trustee presented no summary judgment

evidence that could meet his evidentiary burden under the

statutes whereby he sought to avoid the transfers, much less

establish his entitlement to avoid the transfers as a matter of

law. We recognize that this constitutes a somewhat awkward

result because, as to Mr. Hinsley, the Partition Agreements have

been adjudicated invalid, but as to Mrs. Hinsley, at least at

this stage of the litigation, they have not. However, this is

14
As we have previously concluded, the Pre-Petition
Turnover Order has no preclusive effect as to Mrs. Hinsley.
However, it is worth noting that it is unclear from the language
of the Pre-Petition Turnover Order whether the district court
even predicated its holding that the Partition Agreements were
void on a conclusion that the agreements were fraudulent. The
order merely states that “the community debt obligations
transcend any attempt to shelter or protect previously
acknowledged community property.” The district court made no
findings of fact regarding any of the elements of a cause of
action based on § 24.005 or § 24.006 of the Business and Commerce
Code or § 4.106 of the Family Code.

38
the result that due process mandates.15 See Blonder-Tongue Lab.,

Inc. v. University of Ill. Found., 402 U.S. 313, 329 (1971)

(“Some litigants--those who never appeared in a prior action--may

not be collaterally estopped without litigating the issue. They

have never had a chance to present their evidence and arguments

on the claim. Due process prohibits estopping them despite one

or more existing adjudications of the identical issue which stand

squarely against their position.”).

B. The All Writs Order and Judgment

Mrs. Hinsley challenges the All Writs Order and Judgment on

the ground that the district court lacked the power, either under

Rule 70 of the Federal Rules of Civil Procedure or the All Writs

Act, to order the attachment of the property purportedly conveyed

to her by the Partition Agreements. Given our conclusion that

the Pre-Petition Turnover Order, the Bankruptcy Turnover Order,

and the Transfers Order all lack any binding effect on Mrs.

Hinsley, we agree.

Pursuant to the All Writs Act, “[t]he Supreme Court and all

courts established by Act of Congress may issue all writs

necessary or appropriate in aid of their respective jurisdictions

15
Mrs. Hinsley also contends that the Trustee’s attempt to
avoid the transfers effected by the Partition Agreements is
barred by limitations. Mrs. Hinsley has neither moved for
summary judgment nor had judgment as a matter of law entered in
her favor. We decline to consider Mrs. Hinsley’s potential
entitlement to judgment as a matter of law in the absence of a
previous resolution of the issue by the district court.

39
and agreeable to the usages and principles of law.” 28 U.S.C.

§ 1651(a). The authority conferred by the All Writs Act “‘is

firmly circumscribed, its scope depending on the nature of the

case before the court and the legitimacy of the ends sought to be

achieved through the exercise of the power.’” Williams v.

McKeithen, 939 F.2d 1100, 1104 (5th Cir. 1991) (quoting

ITT Community Dev. Corp. v. Barton, 569 F.2d 1351, 1358-59 (5th

Cir. 1978)). “The authority of the All Writs Act cannot support

an order . . . that is not directed at conduct which, left

unchecked, would have had the practical effect of diminishing the

court’s power to bring the litigation to a natural conclusion.”

Id. (internal quotation marks omitted). In this case, Mrs.

Hinsley’s continued possession of the property purportedly

conveyed to her through the Partition Agreements in no way

diminishes the district court’s ability to bring this litigation

to a natural conclusion. As discussed supra, the Trustee’s

entitlement to turnover of this property may be properly

determined via the adversary proceeding initiated by the

Trustee’s complaint seeking avoidance of transfers.

Rule 70 of the Federal Rules of Civil Procedure provides in

relevant part as follows:

If a judgment directs a party to execute a conveyance
of land or to deliver deeds or other documents or to
perform any other specific act and the party fails to
comply within the time specified, the court may direct
the act to be done at the cost of the disobedient party
by some other person appointed by the court and the act
when so done has like effect as if done by the party.

40
FED. R. CIV. P. 70. Rule 70 vests the district court with “power

to deal with parties who seek to thwart judgments by refusals to

comply with orders to perform specific acts.” 12 WRIGHT ET AL.,

supra, § 3021. Its applicability, of course, presupposes the

validity of the orders with which compliance is sought. See Gary

W. v. Louisiana, 622 F.2d 804, 806 (5th Cir.1980) (“‘[W]here a

[party] expresses its unwillingness to comply with a valid

judgment of a federal district court, the court may use any of

the weapons generally at its disposal to ensure compliance.’”

(quoting Gates v. Collier, 616 F.2d 1268, 1271 (5th Cir. 1980))

(emphasis added)). Because no order entered by the district

court has created an obligation for Mrs. Hinsley to turn over

property, Rule 70 cannot be used to accomplish this end. We

therefore conclude that the All Writs Judgment and Order must be

vacated.16

C. The Discharge Order

Mr. Hinsley claims that the district court erred in entering

the Discharge Order denying his discharge in bankruptcy without

notice or a hearing. As the Trustee concedes, a proceeding to

object to a debtor’s discharge in bankruptcy is an adversary

16
Mrs. Hinsley also contends that the All Writs Order and
Judgment is invalid on the ground that it authorized the seizure
of property that she claims is her homestead. As with her
limitations defense, we express no opinion as to the legal or
factual viability of her homestead claim, as this is an issue
that the district court should properly address in the first
instance in connection with the adversary proceeding initiated by
the Trustee’s complaint to avoid transfers.

41
proceeding. See FED. R. BANKR. P. 7001(4) (defining adversary

proceedings to include a proceeding “to object to or revoke a

discharge”). The Trustee utilized the proper procedural vehicle

for lodging his objection to Mr. Hinsley’s discharge by filing a

complaint stating the bases for the objection. See FED R. BANKR.

P. 7003, 4004(d). However, as with the Trustee’s complaint

seeking the avoidance of transfers, Mr. Hinsley answered, and

neither the Trustee nor Mr. Hinsley filed any dispositive

motions. As such, the district court’s Discharge Order amounts

to a sua sponte entry of summary judgment without notice. As

discussed in relation to the Transfers Order, the district

court’s sua sponte entry of summary judgment without notice to

the party against whom it is granted constitutes error. See

Millar v. Houghton, 115 F.3d 348, 350 (5th Cir. 1997).

Furthermore, the order is devoid of any explanation of the

basis for the district court’s decision to summarily deny Mr.

Hinsley’s discharge. As we have observed on numerous occasions,

“[a]lthough nothing in F. R. Civ. P. 56, governing summary

judgment, technically requires a statement of reasons by a trial

judge for granting a motion for summary judgment, we have many

times emphasized the importance of a detailed discussion by the

trial judge.” Heller v. Namer, 666 F.2d 905, 911 (5th Cir.

1982); see also Myers v. Gulf Oil Corp., 731 F.2d 281, 283 (5th

Cir. 1984). “In all but the simplest case, such a statement [is]

not only helpful, but essential.” Jot-Em-Down Store (JEDS) Inc.

42
v. Cotter & Co., 651 F.2d 245, 247 (5th Cir. Unit A July 1981).

“When we have no notion of the basis for a district court’s

decision, because its reasoning is vague or was simply left

unsaid, there is little opportunity for effective review.”

Myers, 731 F.2d at 283-84; see also White v. Texas Am.

Bank/Galleria, N.A., 958 F.2d 80, 82 (5th Cir. 1992) (“Although

we review grants of summary judgment de novo, we remain a court

of error. Without adequate findings of fact and conclusions of

law, we are severely hampered if not completely obstructed in our

review.”); Williamson v. Tucker, 645 F.2d 404, 410-11 (5th Cir.

May 1981) (“[A]n explanation of the basis of the district court’s

decision can be invaluable even in cases where Rule 52(a) clearly

does not require findings of fact.”).

In his complaint, the Trustee claimed that denial of Mr.

Hinsley’s discharge was warranted under subsections (a)(2), (4),

(5), (6) and (7) of 11 U.S.C. § 727, which provides in relevant

part as follows:

(a) The court shall grant the debtor a discharge,
unless--
. . .
(2) the debtor, with intent to hinder, delay, or
defraud a creditor or an officer of the estate charged
with custody of property under this title, has
transferred, removed, destroyed, mutilated, or
concealed, or has permitted to be transferred, removed,
destroyed, mutilated, or concealed--
(A) property of the debtor, within one year
before the date of the filing of the petition; or
(B) property of the estate, after the date of
the filing of the petition;
. . .
(4) the debtor knowingly and fraudulently, in or in

43
 connection with the case--
(A) made a false oath or account;
(B) presented or used a false claim;
(C) gave, offered, received, or attempted to
obtain money, property, or advantage, or a promise
of money, property, or advantage, for acting or
forbearing to act; or
(D) withheld from an officer of the estate
entitled to possession under this title, any
recorded information, including books, documents,
records, and papers, relating to the debtor’s
property or financial affairs;
(5) the debtor has failed to explain
satisfactorily, before determination of denial of
discharge under this paragraph, any loss of assets or
deficiency of assets to meet the debtor’s liabilities;
(6) the debtor has refused, in the case--
(A) to obey any lawful order of the court, other
than an order to respond to a material question or
to testify;
(B) on the ground of privilege against
self-incrimination, to respond to a material
question approved by the court or to testify,
after the debtor has been granted immunity with
respect to the matter concerning which such
privilege was invoked; or
(C) on a ground other than the properly invoked
privilege against self-incrimination, to respond
to a material question approved by the court or to
testify . . . .
(7) the debtor has committed any act specified in
paragraph (2), (3), (4), (5), or (6) of this
subsection, on or within one year before the date of
the filing of the petition, or during the case, in
connection with another case, under this title or under
the Bankruptcy Act, concerning an insider . . . .

11 U.S.C. § 727. On appeal, the Trustee merely reiterates many

of the same bases for the denial of Mr. Hinsley’s discharge

contained in his complaint, including (1) Mr. Hinsley’s alleged

expenditure of funds of the bankruptcy estate to construct a

large home where he and Mrs. Hinsley now reside, (2) Mr.

Hinsley’s violation of the Bankruptcy Turnover Order, and (3) Mr.

44
Hinsley’s violation of the Pre-Petition Turnover Order. Yet the

Trustee “has as little inkling of the reasons for the [Discharge

Order] as have we.” Myers, 731 F.2d at 283.17

Additionally, the party objecting to the debtor’s discharge

based upon each of the subsections upon which the Trustee relies

in his complaint bears the burden of proving the existence of the

condition rendering discharge improper. See FED. R. BANKR. P.

4005 (“At the trial on a complaint objecting to a discharge, the

plaintiff has the burden of proving the objection.”); Beaubouef

v. Beaubouef (In re Beaubouef), 966 F.2d 174, 178 (5th Cir. 1992)

(holding that a party objecting to a debtor’s discharge pursuant

to § 727(a)(4)(A) bears the burden of proving that the debtor

made a statement under oath, that the statement was false, that

the debtor knew the statement was false, that the debtor made the

statement with fraudulent intent, and that the statement related

17
We have been severely hampered in our appellate review
of all aspects of this case because the district court made no
findings of fact or conclusions of law in connection with any of
the orders at issue. The lack of findings of fact and
conclusions of law is rendered even more problematic by the fact
that this is a consolidated case. As justification for many of
the orders that it has entered, the district court appears to
have relied upon prior determinations in other proceedings within
the consolidated case. In evaluating the Hinsleys’ claims, we
have been forced to parse through incomplete records of a number
of different proceedings in order to determine whether the
district court may have based an order relevant to a particular
proceeding within the consolidated case upon testimony or other
action taken in a different proceeding prior to consolidation.
If the district court intends to rely upon actions taken in other
proceedings as a basis for future orders, then it should make
careful reference to the matter upon which it relies so as to
facilitate effective appellate review.

45
materially to the bankruptcy case); Pavy v. Chastant (In re

Chastant), 873 F.2d 89, 90-91 (5th Cir. 1989) (holding that a

bankruptcy trustee objecting to the debtor’s discharge pursuant

to § 727(a)(2)(A) bears the burden of proving that the debtor

transferred property “with the intent to hinder, delay, or

defraud [creditors]”); 6 COLLIER ON BANKRUPTCY ¶ 727.04[1][a], at

727-36 (Lawrence P. King ed., 15th ed. rev. 1998) (“Under Federal

Rule of Bankruptcy Procedure 4005, the plaintiff has the burden

of proof on the elements necessary to sustain the charge of false

oath [pursuant to § 727(a)(4)(A)].” (footnote omitted)); 6 id.

¶ 727.08, at 727-44 (“Section 727(a)(5) must be read in

conjunction with Federal Rule of Bankruptcy Procedure 4005, which

imposes on the plaintiff the burden of ‘proving the objection.’

The initial burden of going forward with evidence is on the

objector, who must introduce more than merely an allegation that

the debtor has failed to explain losses. Once the objector has

introduced some evidence of the disappearance of substantial

assets or of unusual transactions, the debtor must satisfactorily

explain what happened.” (footnote omitted)); 6 id. ¶ 727.09[1],

at 727-46 (“The original burden of going forward, as well as the

ultimate burden of proof under section 727(a)(6)(A), is on the

objecting creditor to show that there has been a violation of a

lawful order of the court.”).18 While the Trustee adduced

18
As noted earlier, the Trustee also objected to Mr.
Hinsley’s discharge on the basis of § 727(a)(7). The Trustee

46
evidence at various hearings before the district court, including

Mr. Hinsley’s contempt hearing, that might be sufficient to carry

the Trustee’s burden of proving conduct that bars Mr. Hinsley’s

discharge, the Trustee has not demonstrated how he has

established such conduct as a matter of law.

Moreover, it does not appear that all of the bases upon

which the Trustee objected to Mr. Hinsley’s discharge are viable

bases for the district court’s denial of the discharge.

Specifically, the Trustee points to the fact that the district

court held Mr. Hinsley in civil contempt for violation of the

Bankruptcy Turnover Order. However, from our review of the

record, it appears that the only action that the district court

required Mr. Hinsley to take in order to purge himself of

contempt was the execution of quitclaim deeds to certain real

property that conveyed any interest in the property that he may

have had to the Trustee. Yet, any interest that Mr. Hinsley may

have had in these properties vested in the Trustee by operation

apparently predicated this objection on the assumption that Mr.
Hinsley’s Chapter 11 bankruptcy case constituted “another
bankruptcy case” within the meaning of § 727(a)(7). Even
accepting this dubious assumption and the concomitant conclusion
that the Trustee may be able to establish that a discharge is
improper under § 727(a)(7), it is clear that the Trustee also
bears the burden of proof under this subsection because it merely
provides for denial of a discharge based on conduct described in
other subsections of § 727 “in connection with another
[bankruptcy] case . . . concerning an insider.” See 11 U.S.C.
§ 727(a)(7). As indicated, supra, the objecting party bears the
burden of proof under these other subsections, and we see no
reason why this would be any different under § 727(a)(7). See
FED. R. BANKR. P. 4005.

47
of law upon Mr. Hinsley’s filing for bankruptcy. See 11 U.S.C.

§ 541; In re Swift, 129 F.3d 792, 795 (5th Cir. 1997) (“Upon the

filing of bankruptcy, Sec. 541 of the Bankruptcy Code creates an

estate that consists of all legal or equitable interests of the

debtor in property as of the commencement of the case.” (internal

quotation marks omitted)); Louisiana World Exposition v. Federal

Ins. Co., 858 F.2d 233, 245 (5th Cir. 1988) (“The filing of a

petition for reorganization under Chapter 11 of the Code creates

an estate.”). If the district court concluded that Mr. Hinsley

had come into compliance with the Bankruptcy Turnover Order

merely by executing a series of quitclaim deeds, it in essence

indicated that Mr. Hinsley had never violated the order in the

first place because he came into compliance with the order by

engaging in a series of formalities to undertake a conveyance

that had already occurred by operation of law.

Because the district court has provided no explanation as to

why it denied Mr. Hinsley’s discharge and because the Trustee has

not demonstrated the absence of a genuine issue of material fact

regarding any of the bases for denying a discharge contained in

his complaint, we vacate the Discharge Order and remand for

further proceedings. See Carter v. Stanton, 405 U.S. 669, 671-72

(1972) (vacating and remanding the district court’s order

granting summary judgment on the ground that it was “opaque and

unilluminating as to either the relevant facts or the law with

respect to the merits”); Myers, 731 F.2d at 284 & n.9. We

48
express no opinion as to whether a viable basis exists for

denying Mr. Hinsley’s discharge, either summarily (upon

compliance with applicable procedural requirements) or after a

full trial on the merits. If the district court wishes to

summarily dispose of the Trustee’s complaint objecting to Mr.

Hinsley’s discharge, then it must provide Mr. Hinsley with the

notice required by Rule 56 of the Federal Rules of Civil

Procedure and provide him with an opportunity to respond.

III. CONCLUSION

For the foregoing reasons, we VACATE the Transfers Order as

to Mrs. Hinsley but AFFIRM it as to Mr. Hinsley, VACATE the All

Writs Order and Judgment and the Discharge Order, and REMAND for

further proceedings consistent with this opinion. Mr. Hinsley

and the Trustee shall each bear his own costs, and the Trustee

shall bear Mrs. Hinsley’s costs.

49