Opinion issued August 13, 2015
In The
Court of Appeals
For The
First District of Texas
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NO. 01-14-00564-CV
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KAY STEIN, Appellant
V.
GERARDA ELIZABETH DUENAS, Appellee
On Appeal from the County Court at Law No. 10
Bexar County, Texas
Trial Court Case No. 375064 *
MEMORANDUM OPINION
Appellant Kay Stein challenges the legal sufficiency of the evidence to
support the trial court’s judgment, which held her liable for the value of
*
Pursuant to its docket equalization authority, the Supreme Court of Texas
transferred the appeal to this Court. See Misc. Docket No. 14–9121 (Tex.
Jun. 23, 2014); see also TEX. GOV’T CODE § 73.001 (authorizing transfer of
cases).
fraudulently transferred assets as a first transferee under the Uniform Fraudulent
Transfer Act. See TEX. BUS. & COM. CODE § 24.009(b). Because the evidence is
legally sufficient to support the trial court’s finding that the debtor committed a
fraudulent transfer with actual intent to hinder and delay Duenas’s claim,
id. § 24.005(a)(1), we affirm the trial court’s judgment.
Background
Maria Isabel Leon has been a personal friend of Kay and Dennis Stein since
the early 2000s. They also had a business relationship. Leon sold imported
building materials from a property she owned on Braniff Drive in San Antonio,
Texas.Dennis Stein is a real estate developer and the sole owner of SteinReal
Corporation, which owned a piece of undeveloped property adjacent to Leon’s
business.
In 2005, Leon agreed to lease SteinReal’s adjacent property and use it to
store materials for her business. Leon eventually fell behind on her lease payments,
and by April 2011, she was 44 months behind on the rent, resulting in a debt to
SteinReal of over $100,000. Nevertheless, Leon collaborated with Dennis Stein on
a condominium development in 2010, with Leon providing materials to SteinReal.
In keeping with their personal friendship, Leon was “very friendly” with Dennis
Stein, who would sometimes visit the office, and she met with Kay Stein “on
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numerous occasions.” At times, Leon attended parties or other events with both of
the Steins.
In the meantime, while the debt to SteinReal for unpaid lease installments
was growing, Leon also became indebted to her good friend and former employee,
appellee Gerarda Elizabeth Duenas. This appeal arises from Duenas’s repeated
attempts to collect the money owed to her.
After incurring her debt to Duenas, Leon borrowed $100,000 from Kay Stein
in 2011, secured by a lien on Leon’s property on Braniff Drive, which was her only
valuable asset. Dennis Stein negotiated the transaction. However, only one-third of
the loaned money was actually given to Leon; the remaining two-thirds was
delivered directly to SteinReal. The resulting lien on Leon’s property had the effect
of impeding Duenas’s attempts to collect on Leon’s debt.
Duenas sued Leon and Kay Stein, alleging among other things that the 2011
loan and associated lien constituted a fraudulent transfer because “Leon granted
liens on the [Braniff property] to Stein . . . with actual intent to hinder, delay, or
defraud the creditor of the debtor.” See id. § 24.002(12) (defining “transfer” to
include “creation of a lien”). Accordingly, by her suit Duenas sought to set aside
the 2011 loan and satisfy the remaining debt of $10,500. Leon left the country and
Duenas proceeded on her cause of action to recover the value of the transferred
asset from Kay Stein, in her capacity as a “first transferee.” See id. § 24.009(b).
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The case was tried to the bench, and the trial court entered a judgment in favor of
Duenas and against Kay Stein on the UFTA claim. The court issued findings of
fact and conclusions of law to support its decision.
Analysis
Stein challenges the trial court’s judgment in a single issue on appeal. She
contends that the evidence was legally insufficient to support the trial court’s
conclusion that the 2011 transaction was a fraudulent transfer. She does not assert
any other legal challenge to Duenas’s ability to recover from her personally,
beyond her assertion that the loan transaction was not a fraudulent transfer.
In an appeal of a judgment rendered after a bench trial, the trial court’s
findings of fact have the same weight as a jury’s verdict, and we review the legal
and factual sufficiency of the evidence to support them in the same manner as we
would review a jury’s findings. Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex.
1994); Noble Mortg. & Invs., LLC v. D&M Vision Invs., LLC, 340 S.W.3d 65, 74
(Tex. App.—Houston [1st Dist.] 2011, no pet.).
When considering whether legally sufficient evidence supports a challenged
finding, we must consider the evidence that favors the finding if a reasonable
factfinder could, and disregard contrary evidence unless a reasonable factfinder
could not. See City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). We view
the evidence in the light most favorable to a finding and indulge every reasonable
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inference to support it. Id. at 822. We may not sustain a legal sufficiency, or “no
evidence,” point unless the record demonstrates (1) a complete absence of
evidence of a vital fact; (2) that the court is barred by rules of law or of evidence
from giving weight to the only evidence offered to prove a vital fact; (3) that the
evidence offered to prove a vital fact is no more than a mere scintilla; or (4) that
the evidence conclusively establishes the opposite of the vital fact. Id. at 810.
Because the trial court acts as the factfinder in a bench trial, it is the sole judge of
the credibility of witnesses. Zenner v. Lone Star Striping & Paving, L.L.C., 371
S.W.3d 311, 314 (Tex. App.—Houston [1st Dist.] 2012, pet. denied). As long as
the evidence at trial “would enable reasonable and fair-minded people to differ in
their conclusions,” we will not substitute our judgment for that of the factfinder.
City of Keller, 168 S.W.3d at 822.
The appellant may not challenge a trial court’s conclusions of law for factual
insufficiency, but a reviewing court may review the legal conclusions drawn from
the facts to determine their correctness. BMC Software Belgium, N.V. v. Marchand,
83 S.W.3d 789, 794 (Tex. 2002). We review the conclusions of law de novo, and
will uphold them on appeal if the judgment can be sustained on any legal theory
supported by the evidence. See id.; Hanford-Southport, LLC v. City of San Antonio,
387 S.W.3d 849, 853 (Tex. App.—San Antonio 2012, pet. denied). Thus, no
reversal is warranted if “controlling findings of fact will support the judgment
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under a correct legal theory.” Lifshutz v. Lifshutz, 199 S.W.3d 9, 17 (Tex. App.—
San Antonio 2006, pet. denied).
In this case, the trial court’s judgment held Stein liable for “engaging in a
fraudulent transfer in violation of the [UFTA] as set forth in [Duenas’s petition].”
In turn, Duenas’s petition alleged that the transaction in question was a fraudulent
transfer under multiple theories, including both actual-intent and constructive
fraudulent transfer. See TEX. BUS. & COM. CODE §§ 24.005–.006. Thus to prevail
on appeal, Stein must establish that the evidence is insufficient to support any of
the theories; we will affirm the court’s judgment if any theory is supported by the
evidence. Marchand, 83 S.W.3d at 794.
Among her issues on appeal, Stein contends that there was no evidence that
she engaged in the 2011 transaction with Leon with the actual intent to hinder,
delay, or defraud Duenas. See TEX. BUS. & COM. CODE § 24.005(a)(1). This
argument fails to articulate a valid legal challenge to the judgment to the extent it is
based on the actual-intent theory of fraudulent transfer.1
1
Stein appears to base her argument on the premise that the trial court found
that she, not Leon, made the transaction in question with fraudulent intent.
The court’s judgment actually states that Stein was liable to Duenas for
“engaging in a fraudulent transfer in violation of the [UFTA] as set forth in
Plaintiff’s First Amended Original Petition . . . .” (Emphasis supplied.)
Duenas’s live petition expressly stated that “Leon granted liens on the
property to Stein and Nederman with actual intent to hinder, delay or
defraud [Duenas], a creditor of the debtor.” To the extent that Stein is
referencing the trial court’s conclusions of law, which stated that “Kay Stein
6
A transfer made by a debtor is fraudulent for purposes of the UFTA if the
debtor made the transfer with actual intent to hinder, delay, or defraud any creditor
of the debtor. See id. § 24.005(a)(1). It is not an element of the cause of action to
show that the transferee also engaged in the transaction with fraudulent intent. Id.;
accord S.E.C. v. Res. Dev. Int’l., LLC, 487 F.3d 295, 301 (5th Cir. 2007)
(explaining that the transferee’s intent or knowledge is irrelevant to establishing a
fraudulent transfer, because the statute “requires only a finding of fraudulent intent
on the part of the ‘debtor’”). Because Leon is the debtor in this case and Stein is
the transferee, the evidence need not demonstrate any fraudulent intent on the part
of Stein to establish that the transaction in question was fraudulent as to Duenas.
The trial court found that the 2011 loan transaction was “intended to hinder and
delay” Duenas’s ability to collect the debt owed to her by Leon, specifically
finding that Leon was “not credible in denying” that “they were actively working
together to hinder and delay” Duenas’s ability to collect the debt owed to her by
Leon.
. . . entered into the transaction in question with actual intent to hinder,
delay, or defraud [Duenas],” we note that incorrect conclusions of law do
not require reversal if the controlling findings of fact support the judgment
under a correct legal theory. Lifshutz, 199 S.W.3d at 17.
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To the extent that Stein argues that the evidence was legally insufficient to
support the trial court’s finding that Leon engaged in the 2011 transaction with
actual intent to hinder, delay, or defraud Duenas, we disagree.
The UFTA provides the following non-exclusive list of factors, or “badges
of fraud,” that courts may consider in determining whether the transfer was made
with actual intent to hinder, delay, or defraud the creditor:
(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.
8
Id. § 24.005(b). Evidence of a single badge of fraud does not conclusively
demonstrate intent, but evidence of many “will always make out a strong case of
fraud.” G.M. Houser, Inc. v. Rodgers, 204 S.W.3d 836, 843 (Tex. App.—Dallas
2006, no pet.). “Intent is a fact question uniquely within the realm of the trier of
fact because it so depends on the credibility of the witnesses and the weight to be
given to their testimony.” Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434
(Tex. 1986). Thus, whether a transfer was made with intent to defraud creditors is
“ordinarily a question for the jury or the court passing on the fact.” Quinn v.
Dupree, 303 S.W.2d 769, 774 (Tex. 1957).
As part of its finding that Leon engaged in the 2011 transaction with actual
intent to hinder and delay Duenas, the court issued the following findings of fact
concerning the badges of fraud:
a. the transfer or obligation was to an insider . . . ;
b. [Leon] retained possession or control of the property
transferred after the transaction in question, notwithstanding
the fact she made no payments on the loan or lease at issue;
c. the $24,000 interest free loan made at the time of the sale of
the property was concealed to further hinder and delay
[Duenas’s] ability to collect the full amount of the agreed
judgment;
d. before the transaction in question, the debtor had been sued
by [Duenas] and such suit was imminently proceeding to
trial, at which it was highly likely a judgment for [Duenas]
would be entered;
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e. the transaction in question involved a transfer of
substantially all of [Leon’s] assets;
f. After the sale of the property in July 2012, [Leon]
absconded to Mexico and refused to provide information
relevant to [Duenas’s] suit against [Stein] as she agreed in
the settlement agreement . . . between her and [Duenas],
further hindering and delaying [Duenas’s] ability to collect
the full amount of the agreed judgment;
g. [Leon] concealed the fact that she obtained a $24,000
interest free loan from [Dennis], further hindering and
delaying [Duenas’s] ability to collect the full amount of the
agreed judgment;
h. the value of the consideration received by [Leon] via the
transaction in question was not reasonably equivalent to the
value of the asset transferred;
i. [Leon] was insolvent or became insolvent shortly after the
transaction in question;
j. the transaction in question occurred shortly before a
substantial debt was incurred (i.e. the settlement/agreed
judgment in the prior case) by [Leon], and during a period of
time when [Leon] knew that she would soon be subjected to
a substantial judgment to [Duenas] arising out of the prior
suit;
k. [Leon] transferred the essential assets of her business to
[Stein], who directed the proceeds of the loan to [Dennis]
and/or [SteinReal];
l. [Leon] and [Dennis] (individually and on behalf of
[SteinReal]) were not credible in denying their intent to
hinder or delay [Duenas’s] ability to collect the debt owed to
her by [Leon]; and,
m. [Duenas] was credible in describing the closeness of the
relationship between [Leon] and [Dennis], which the Court
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finds was a close friendship rather than an arms-length
business relationship.
With respect to its finding that the transfer was made to an insider, the court made
numerous additional findings explaining that Leon and the Steins were “insiders”
for the purposes of the statute. For example, the court found that Leon and Dennis
“were close friends who had done business together for approximately ten years
prior to the transaction in question.” The court found that, at the time of the
transaction, Leon and Dennis Stein were actively collaborating on a development
project and thus “had a relationship akin to business partners.” Furthermore, the
court found that Leon had absconded to Mexico and refused to provide Duenas
with information concerning this lawsuit against Kay Stein, which evidenced “the
insider relationship between [Stein] and [Leon.]”
Stein mainly argues that the court could not have found that the transfer was
made to an insider because she and her husband do not fall within one of the
statutory definitions of “insider” provided by the UFTA. 2 But insider status is not
2
The UFTA states that, if the debtor is an individual, an “insider” includes:
(i) a relative of the debtor or of a general partner of the debtor;
(ii) a partnership in which the debtor is a general partner;
(iii) a general partner in a partnership described in Subparagraph
(ii) of this paragraph; or
(iv) a corporation of which the debtor is a director, officer, or
person in control
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limited to the categories listed by the UFTA; the list is “provided ‘for purposes of
exemplification.’” Hahn v. Love, 321 S.W.3d 517, 525 n.8 (Tex. App.—Houston
[1st Dist.] 2009, pet. denied) (quoting J. Michael Putnam, M.D.P.A. Money
Purchase Pension Plan v. Stephenson, 805 S.W.2d 16, 20 (Tex. App.—Dallas
1991, no writ)).
“In general, an ‘insider’ is an entity whose close relationship with the debtor
subjects any transactions made between the debtor and the insider to heavy
scrutiny.” Tel. Equip. Network, Inc. v. TA/Westchase Place, Ltd., 80 S.W.3d 601,
609 (Tex. App.—Houston [1st Dist.] 2002, no pet.). When determining insider
status, courts have considered “(1) the closeness of the relationship between the
transferee and the debtor, and (2) whether the transactions were at arm’s length.”
Id.; accord In re Holloway, 955 F.2d 1008, 1010 (5th Cir. 1992)). Thus, a trial
court’s finding of insider status has been upheld when the transferee and the debtor
“engaged in social activities” and “entered into several business deals” together,
and the transferee knew of the debtor’s financial difficulties. See Putnam, 805
S.W.2d at 18–19.
Stein does not contend that the evidence does not support a finding of insider
status based on these considerations. Even so, the evidence in this case supported a
finding that Leon and the Steins shared a close relationship, given their apparent
TEX. BUS. & COM. CODE § 24.002(7).
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longstanding friendship, shared business endeavors, and Leon’s substantial debts to
SteinReal.
With respect to the trial court’s remaining findings concerning the badges of
fraud, Stein emphasizes alternate inferences to be drawn from the evidence or
contends that the evidence was either controverted or inconclusive. For example,
Stein argues that Leon’s disappearance to Mexico did not conclusively establish
that she had “absconded” without further evidence about her subjective state of
mind. She further argues that no direct evidence established that the $100,000 lien
was of greater value than substantially all of Leon’s assets. When considering the
legal sufficiency of the evidence to support the challenged findings, however, we
indulge the reasonable inferences to support the findings and disregard contrary
evidence unless a reasonable factfinder could not. See City of Keller, 168 S.W.3d
at 822, 827. We overrule Stein’s arguments that ask us to do otherwise.
Notwithstanding Stein’s various arguments, the evidence in this case, when
viewed in the light most favorable to the judgment, supports several of the court’s
findings concerning the badges of fraud. Leon testified that her liabilities were
greater than her assets at the time of the transfer, supporting the court’s finding that
she was insolvent. See TEX. BUS. & COM. CODE § 24.005(b)(9). She also testified
that the property on which she provided a lien was her only significant asset. See
id. §24.005(b)(5). As discussed above, the evidence supported the trial court’s
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finding that Leon and the Steins were insiders. See id. § 24.005(b)(1). It was
undisputed at trial that Leon had disappeared to Mexico and stopped
communication with Duenas after the transfer, as this lawsuit developed. See id. §
24.005(b)(6). Furthermore, the date of the transfer in question, April 2011, was
three months before Leon went to mediation with Duenas regarding the unpaid
debts. The established timeline in this case supports the court’s finding that the
transaction occurred shortly before a substantial debt—i.e., the settlement and
agreed judgment resulting from the mediation–was incurred. See
id. § 24.005(b)(10). Given this record, the evidence is legally sufficient to support
the trial court’s finding that Leon entered into the 2011 transaction with actual
intent to hinder or delay Duenas’s claim against Leon. See City of Keller, 168
S.W.3d at 810.
Because the trial court’s judgment is fully supported by the evidence and its
findings with respect to section 24.005(a)(1), we need not consider Stein’s
arguments about the court’s other findings supporting alternate legal theories
supporting the judgment. See TEX. R. APP. P. 47.1.
We overrule Stein’s sole issue.
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Conclusion
We affirm the trial court’s judgment.
Michael Massengale
Justice
Panel consists of Chief Justice Radack and Justices Higley and Massengale.
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