Maiz v. Virani

REVISED NOVEMBER 18, 2002

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

______________________________

No. 01-10292
______________________________

JOSE MAIZ; ALFONSO ALDAPE LOPEZ, MARGARET GRIFFITHS DE ALDAPE,
ALFONSO ALDAPE GRIFFITHS; ALEJANDRA ALDAPE GRIFFITHS, et. al.,

Plaintiffs - Appellees

RICHARD M. HULL, RECEIVER,

Appellee

VERSUS

AMIR VIRANI, et al.,

Defendants

SANIG INVESTMENTS LIMITED AND TRES VIDAS INVESTMENTS LIMITED,

Appellants

___________________________________________________

Appeal from the United States District Court
for the Northern District of Texas
___________________________________________________

October 23, 2002

Before JONES, WIENER, and PARKER, Circuit Judges.

ROBERT M. PARKER, Circuit Judge:

1
 This case requires us to consider whether a federal district

court can utilize the Texas turnover statute to adjudicate the

property rights of a non-judgment debtor corporation not properly

before the court so long as the district court makes a factual

finding that the corporation is subject to the judgment debtor’s

control. We find that the Texas turnover statute cannot be

utilized to adjudicate the substantive property rights of the two

non-judgment debtor corporations in this case without a prior

judicial determination which pierces their corporate veils.

Therefore, we reverse and remand.

I. FACTS AND PROCEDURAL HISTORY

In 1997, the plaintiffs-appellees (“judgment creditors”) sued

several defendants including Ignacio Santos (“Santos”) in federal

district court in Atlanta, Georgia. They asserted claims for

fraud, breach of fiduciary duty, and RICO violations which all

related to various real estate investments they had made in the

Atlanta area. After a trial by jury, Plaintiffs received a

judgment against Santos and the other defendants for approximately

$19 million on December 22, 1999. However, the Atlanta district

court did not issue a judgment against the appellants, Sanig

Investments Limited (“Sanig”) and Tres Vidas Investments Limited

(“Tres Vidas”).1 Although Sanig was originally a defendant in the

1
Sanig and Tres Vidas are corporations. Sanig is a Bahamian
corporation formed in 1981. Tres Vidas is a British Virgin island
corporation formed in 1995. Although the record is less than clear

2
Atlanta action, it was released from the case at the summary

judgment stage. The judgment against the Atlanta defendants has

subsequently been affirmed by the Eleventh Circuit.

On January 5, 2000, the plaintiffs-appellees registered their

judgment in the Northern District of Texas, Dallas Division,

pursuant to 28 U.S.C. § 1963 and filed a “turnover action” pursuant

to the Texas Turnover Statute, Tex. Civ. Prac. & Rem. Code §

31.002, to aid in the enforcement of their judgment. The turnover

action was clearly instituted against the judgment debtors from the

Atlanta case which included Santos in his individual capacity.

On September 7, 2000, the Dallas district court judge issued

a turnover order against Santos, Sanig, and Tres Vidas. The

district court made a factual finding that Santos effectively owns

and controls assets that are titled to Sanig Investments and Tres

Vidas. The Sept. 7 turnover order and ensuing implementing orders

gave the Receiver the authority to take possession of and sell

assets titled to Sanig and Tres Vidas in addition to the assets

owned by Santos.2 On October 20, 2000, the district court held

on this point, we have been informed by appellants’ counsel that
Sanig and Tres Vidas stock was issued and is held by a trust,
(hereinafter referred to as “Citibank trust”). The trust documents
are not in the record. However, it is undisputed that the two
corporations are held in the Citibank trust and are at least
indirectly controlled by the Citibank trust. Subsequent parts of
the opinion will demonstrate why the fact that Sanig and Tres Vidas
are corporate entities is important to resolving the case.
2
The specific assets belonging to Sanig and Tres Vidas which
have been taken over by the Receiver include the following. With

3
Santos in contempt for failing to comply with the turnover order.

A bench warrant was issued for his arrest on October 30, 2000. As

of today, he is a fugitive from that warrant.

On February 14, 2001, Sanig and Tres Vidas petitioned for a

writ of mandamus. They requested a stay of all proceedings and

issuance of orders in the district court. On February 20, 2001,

a separate panel denied the writ and motion for stay pending

appeal. on February 22, 2001, the district court entered final

judgment.

At this point, two appeals ensued. First, Santos, in his

individual capacity, appealed the turnover order.3 Second, Sanig

and Tres Vidas separately appealed the turnover order to the extent

that it allowed the Receiver to take possession of and sell their

corporate assets. This is the appeal currently before us.

II. STANDARD OF REVIEW

respect to Sanig: (1) a condominium in Dallas, Texas; (2) a
condominium in South Padre Island, Texas; (3) Citibank Accounts in
New York and the Bahamas; and (4) Sanig’s interest in various
partnerships (many of which appear to be located outside of Texas).
The Receiver has already sold Sanig’s real property. With respect
to Tres Vidas: (1) 50% of the shares of Sanvir Development; (2) 50%
of the shares of Signa Development; (3) 50% of the shares of
Liberty Custom Homes; and (4) an interest in Highland Park Village,
an entity which owns and manages land development projects in the
Atlanta area. The combined value of the assets held by Sanig and
Tres Vidas is in the tens of millions of dollars.
3
On July 19, 2001, another panel comprised of Circuit Judges’
Smith, Benavides, and Dennis issued an unpublished, per curiam
opinion affirming the district court’s turnover order. The panel
rejected Santos’ argument that the district court improperly
adjudicated the substantive property rights of third parties.

4
 The issues raised concerning standing, whether appellants were

properly before the district court, and the timeliness of the

notice of appeal filing are issues of law and will be reviewed de

novo. Texas Office of Public Utility, 183 F.3d 393, 419 n.34 (5th

Cir. 1999)(standing defense, like all constitutional questions, is

reviewed de novo). We review the turnover order for abuse of

discretion (i.e., whether the trial court acted unreasonably,

arbitrarily, or without reference to guiding rules or principles

under the turnover statute). Beaumont Bank, N.A. v. Buller, 806

S.W.2d 223, 226 (Tex. 1991). In doing so, we note that a trial

court’s failure to properly analyze the law or apply it to the

facts is an abuse of discretion. Walker v. Packer, 827 S.W.2d 833,

840 (Tex. 1992). However, a trial court’s issuance of a turnover

order, even if predicated on an erroneous conclusion of law, will

not be reversed for abuse of discretion if the judgment is

sustainable for any reason. Beaumont Bank, 806 S.W.2d at 226.

III. ANALYSIS

The crux of the case is whether the Texas turnover statute can

be used to strip a non-judgment debtor corporation of its assets,

based upon a factual finding that a judgment debtor controls the

corporation, without a prior separate proceeding which pierces the

non-judgment debtor’s corporate veil. However, due to the

procedural complexity of the case, several other issues need to be

addressed. First, do Sanig and Tres Vidas have standing to appeal

5
the district court’s turnover order? Second, did Tres Vidas file

a timely notice of appeal? Third, were Sanig and Tres Vidas

properly before the district court?

A. Standing

Appellants posited in their writ of mandamus that they would

be unable to directly appeal the turnover orders because they were

not parties to the case. Now, they argue that they do have

standing to appeal these orders. The judgment creditors contend

that appellants should be judicially estopped from taking a

position contrary to the one they took in their mandamus petition.

See Ergo Science, Inc. v. Martin, 73 F.3d 595, 598 (5th Cir. 1996)

(judicial estoppel doctrine prevents a party from asserting a

position in a legal proceeding that is contrary to a position

previously taken in the same or some earlier proceeding).

Furthermore, they argue that appellants do not have standing to

pursue this appeal should we conclude appellants were not parties

to the turnover proceedings at the district court level. See EEOC

v. Louisiana Office of Community Services, 47 F.3d 1438, 1442 (5th

Cir. 1995) (“A person who is not a party to the proceedings below

generally cannot appeal the court’s judgment”). We reject the

judgment creditors’ contentions.

1. Non-Party Appeal

Although Sanig and Tres Vidas argued in their mandamus

petition that they could not directly appeal these orders, the fact

6
is they were wrong. It is true that a non-party generally cannot

appeal the district court’s judgment below. However, we have also

noted that exceptions to this rule may be warranted in certain

situations. See Louisiana Office of Community Services, 47 F.3d at

1442 (citing EEOC v. West La. Health Services, Inc., 959 F.2d 1277

(5th Cir. 1992) (non-party appeal allowed where EEOC had not

pursued appeal in its representative capacity)).

The instant case presents such an exception. Although Sanig

and Tres Vidas were not parties to the case, they contend that the

district court’s turnover order has divested them of property which

they own that is worth tens of millions of dollars. Clearly, they

allege an actual injury and thus have a personal stake in this

appeal. This is sufficient to provide them with standing under

Article III. Lewis v. Al Knutson, 699 F.2d 230, 236 (5th Cir.

1983). Moreover, it is sufficient to grant them an exception to

the general rule that a non-party should not be allowed to appeal

the district court’s judgment.

2. Judicial Estoppel

Although we have applied the doctrine of judicial estoppel in

this Circuit in order to protect the integrity of the judicial

process, equity requires that we exercise our discretion to apply

this doctrine only when it is necessary to protect the integrity of

the judicial process. Ergo Science, 73 F.3d at 598.

Appellants’ arguments are somewhat contradictory. However,

7
due to the factual complexities of the case and the ambiguities in

the law on this point, we do not view these contradictions as

striking a blow at the integrity of the judicial process. As we

see it, the equities weigh in favor of hearing this appeal.

Therefore, we will not use the judicial estoppel doctrine to

prevent the appeal from going forward. Sanig and Tres Vidas have

standing to appeal.

B. Tres Vidas’ Notice of Appeal

The district court entered final judgment in this case on

February 22, 2001. Sanig and Tres Vidas appealed the judgment to

the Fifth Circuit on the same day. Appellees’ counsel contended at

oral argument that Tres Vidas’ appeal was untimely as the final

order concerning Tres Vidas was issued in October 2000. We agree

that the October 2000 implementing order was the last order

addressing Tres Vidas’ interest. However, we reject appellees’

“timeliness” argument for three reasons.

First, in October 2000, Tres Vidas was not a party to the

case. We have, however, determined that Tres Vidas has standing to

appeal. On that basis, we place Tres Vidas in the same position as

a party-appellant with regard to its appeal. Second, even holding

Tres Vidas to the same timeliness standard as a typical party

appellant, appellees’ timeliness argument is unpersuasive in this

instance because Tres Vidas could not have known that the October

20, 2000 implementing order was to be the last order affecting its

8
interest given the many implementing orders the district court

issued to supplement the original turnover order. Third, because

there is no dispute that Sanig’s appeal was timely filed and Tres

Vidas’ appeal was filed within 14 days of Sanig’s, Tres Vidas’

appeal qualifies as timely filed under the “multiple appeal” rule

set forth in FED. R. APP. P. 4(a)(3).4 Cyrak v. Lemon, 919 F.2d 320,

323-24 (5th Cir. 1990).

C. Were Sanig and Tres Vidas properly before the district court?

Sanig and Tres Vidas argue that they were never properly

before the district court. They contend that they were never

served with process and did not enter a general appearance. Thus,

they reason that the district court failed to acquire in personam

jurisdiction over them. Because the district court had no

jurisdiction over them, they argue that we should void the turnover

orders which allow the Receiver to seize their corporate assets.

As a corollary to this argument, they suggest that their Fourteenth

Amendment due process rights were violated because their assets

were taken over by the Receiver and sold without proper notice and

4
Although it is uncontested, we raise sua sponte whether we
can exercise jurisdiction over these appeals in the first place.
See United States v. West, 240 F.3d 456, 458 (5th Cir. 2001). The
appellants and the appellees have not specifically addressed
whether the orders appealed from can constitute “final decisions”
for purposes of 28 U.S.C. § 1291. However, to the extent that
these orders are properly characterized as interlocutory in nature,
we assert jurisdiction over the appeals under the collateral order
doctrine. See SEC v. Forex Asset Management LLC, 242 F.3d 325, 330
(5th Cir. 2001).

9
a hearing.

Before diving into Sanig’s arguments on these points, we note

the overall failure of the judgment creditors to utilize the

traditional “service of process” procedure to properly bring Sanig

and Tres Vidas before the district court. It is a fundamental rule

of civil procedure that “[b]efore a federal court may exercise

jurisdiction over a defendant, the procedural requirement of

service of summons must be satisfied.” Omni Capital International,

Ltd., et. al., v. Rudolf Wolf & Co., Ltd. , et. al., 484 U.S. 97,

104 (1987). However, our review of the record indicates that

process was not served on either Sanig or Tres Vidas pursuant to

Rule 4 of the Federal Rules of Civil Procedure.

The judgment creditors contend that service was made on the

Sanig’s attorney of record by facsimile. This argument is

unavailing. Putting to one side the issue of whether the attorney

allegedly served by fax was appellants’ attorney of record, there

is no evidence that the alleged attorney had the actual authority

to accept service of process. Therefore, the alleged service was

not valid. U.S. v. $184,505.01, 72 F.3d 1160, 1164, n. 10 (3rd

Cir. 1995, cert. denied by McGlory v. U.S., 519 U.S. 807 (1996))

(validity of service of process upon the attorney depends upon the

actual authority of the attorney to receive process on behalf of

the individual).

Despite their failure to serve process, the judgment creditors

10
argue that Sanig and Tres Vidas made a general appearance and

therefore the district court had jurisdiction over them. A party

makes a general appearance whenever it invokes the judgment of the

court on any question other than jurisdiction. We have previously

stated that, “[i]n determining whether conduct is sufficient to be

considered a general appearance, the focus is on affirmative action

that impliedly recognizes the court’s jurisdiction over the

parties.” Jones v. Sheehan, Young, & Culp, P.C., 82 F.3d 1334,

1340-41 (5th Cir. 1996). Consequently, our task is to identify

the conduct alleged to have constituted a general appearance and

determine whether it demonstrates the requisite “affirmative

action.”

In the instant case, attorney J. Allen Smith signed three

court documents relating to the Receivership estate which list

Sanig below the signature line. Attorney Smith signed one document

in which Tres Vidas is listed below the signature line. The

documents are entitled: (1) Order Approving Agreed Receivership

Business Plan and Expanded Authority of Receiver, filed July 5,

2000 (Sanig and Tres Vidas listed below attorney signature line);

(2) Motion for Agreed Restatement of the Receivership Order (Sanig

listed below attorney signature line); and (3) Agreed Order for

Restatement of the Receivership Order, filed July 31, 2000 (Sanig

listed below attorney signature line).

The judgment creditors contend that attorney Smith signed

11
these court documents on behalf of Sanig and Tres Vidas. By

signing these documents, they reason that Sanig and Tres Vidas

impliedly recognized the district court’s jurisdiction over them.

We disagree for several reasons.5

First, the documents in question were actually prepared by the

Receiver, not Sanig and Tres Vidas. Although this point may not be

persuasive standing alone, it certainly indicates that neither

Sanig nor Tres Vidas initiated any movement to spell out the scope

of the Receiver’s authority. Second, we note that Sanig and Tres

Vidas did not appear by themselves underneath the attorney

signature line. Several other entities appeared as well underneath

the attorney signature line. This fact makes it less likely that

Sanig and Tres Vidas truly intended to submit themselves to the

jurisdiction of the court and makes it more likely that the signing

5
Texas law presumes that an attorney has the authority to
sign pleadings on behalf of the client. Grey v. First National
Bank in Dallas, 393 F.2d 371, 384 n.17 (5th Cir. 1968). However,
an attorney does not have the authority to act on behalf of the
purported client if the purported client did not hire the attorney
to represent him. See Developmental Disabilities Advocacy Center,
Inc. v. Melton, 521 F. Supp. 365, 372 (D. N.H. 1981)(citing Pueblo
of Santa Rosa v. Fall, 273 U.S. 315 (1927) (“it is hornbook law
that no person has the right to appear as attorney for another
without first receiving authority from the purported client”). In
our view, it is questionable whether the general presumption should
be applied in this case because of the dearth of evidence
concerning whether appellants hired attorney Smith to act as their
representative counsel. Nevertheless, based on our determination
that the signing of the three documents does not constitute a
general appearance, we need not decide this issue. Consequently,
we assume arguendo that Smith represented appellants and had the
authority to sign documents on their behalf.

12
was an oversight. Finally, and of most importance, there is simply

no indication that appellants requested relief from the district

court or intended to have any direct involvement in the

Receivership proceedings. For example, Exhibit 1 to the “Agreed

Order for Restatement of the Receivership Order” describes the

assets which the Receiver would take under his control. Neither

Sanig nor Tres Vidas is listed as a receivership entity. Moreover,

none of their assets are listed as receivership assets. Because

acquiescence to the terms of the receivership orders had no bearing

on Sanig and Tres Vidas, we fail to see how their conduct rises to

the “affirmative action” level required by our case law.

In Jones, 82 F.3d at 1340-41, we determined that the filing

of a motion to strike an intervention was an affirmative act

recognizing the court’s jurisdiction. We also cited approvingly to

a Texas appellate case which determined that the filing of a motion

to compel arbitration and stay litigation was an affirmative act.

Id. at 341; see Fridl v. Cook, 908 S.W.2d 507, 515 (Tex. App. - El

Paso 1995, writ dismissed w.o.j).

Jones and Fridl, however, are distinguishable from the

instant case. In those cases, the parties in question filed their

own motions which specifically requested a ruling from the trial

court. The motion, if granted, provided them with a benefit.

Here, neither Sanig nor Tres Vidas requested a ruling which would

provide them with any benefit, or relief. Therefore, there was no

13
“affirmative act” which impliedly recognized the court’s

jurisdiction.6

D. Turnover Statute

Sanig and Tres Vidas argue that we should void the turnover

orders as applied to them because of the lack of jurisdiction.

However, the judgment creditors and the Receiver contend that the

turnover orders can still be upheld even if Sanig and Tres Vidas

were not properly before the district court. They argue that while

appellants held title to the corporate assets, the district court

made a factual finding that Santos actually controlled the trust

which held the corporation and, therefore, Santos had control over

corporate assets. Consequently, they claim that the district court

had the authority to issue the turnover orders pursuant to the

terms of the turnover statute.

It is undisputed that the district court had jurisdiction over

Santos in his individual capacity. Therefore, we must address

whether the district court’s factual determination that Santos

actually controlled the corporations’ assets is sufficient to

justify the enforcement of the turnover orders against Sanig and

Tres Vidas. In order to answer this question, we look to the

6
Our precedent which holds that waiver of personal
jurisdiction occurs upon the defendant’s filing of an answer is
congruent with our decision in this case. It is congruent because
a defendant’s denial in their answer can properly be viewed as an
affirmative request for relief, i.e, dismissal of the plaintiff’s
claims at some later date, which explicitly invokes the judgment of
the court.

14
turnover statute language, Texas case law, and our precedent.

1. Statute

Tex. Civ. Prac. & Rem. Code Ann. Sec. 31.002 (Vernon Supp.

2002) is commonly referred to as the Texas turnover statute. The

turnover statute is a procedural mechanism by which judgment

creditors can reach assets of a judgment debtor that are otherwise

difficult to attach or levy on by ordinary legal process. Beaumont

Bank v. Buller, 806 S.W.2d 223, 224 (Tex. 1991). In pertinent

part, Section 31.002 states:

(a) A judgment creditor is entitled to aid
from a court of appropriate jurisdiction
through injunction or other means in order to
reach property to obtain satisfaction on the
judgment if the judgment debtor owns property,
including present or future rights to
property, that:

(1) cannot readily be attached or levied on by
ordinary legal process; and
(2) is not exempt from attachment, execution,
or seizure for the satisfaction of
liabilities.

(b) The court may:

(1) order the judgment debtor to turn over
nonexempt property that is in the debtor’s
possession or subject to the debtor’s control,
. . .

The judgment creditors argue that, under § 31.002(b)(1), the

turnover order as applied to appellants is permissible because the

district court specifically found that the Sanig assets were under

15
the control of Santos.7 In essence, they contend that turnover

orders can be properly enforced against corporations which are non-

judgment debtors even though the assets to be taken over by the

Receiver are indisputably assets to which title is held by the

corporation. We disagree.

The judgment creditors’ argument misses the mark because it

overlooks the threshold requirement set forth in § 31.002(a) that

the judgment debtor actually own the property at issue. As we see

it, subsection (b)(1)’s requirement that turnover property be in

the debtor’s possession or control must be read in para materia

with subsection (a) to mean that a court may order turnover of non-

exempt property that is in the debtor’s possession or subject to

the debtor’s control only when the judgment debtor owns (has title

to) the property in the first place. Because Santos does not own

7
The district court determined that the Sanig assets were
subject to the control of Santos for several reasons. First,
Santos testified by deposition that he is the settlor of the
Citibank trust which controls Sanig, he controls the trust, he can
change the rules of the trust, and can change the beneficiaries of
the trust. Second, Santos also testified by deposition that
Sanig’s business is “Nothing, it’s just a trust. It’s a – they
call it shell company just to have assets, but it has no operation,
no day-to-day transaction. It’s really to protect estates or money
for families. I mean, that’s really what it is.” Third, Santos’
filing of his inventory of assets stated that he has a beneficial
interest in the Citibank trust, which indirectly owns Sanig
Investments, Ltd. through a nominee shareholder. Fourth, Sanig’s
1998 income tax return lists Santos as the 25% foreign shareholder.
(Presumably this indicates that he is the nominee shareholder).
Fifth, Santos signed a promissory note as a Sanig representative,
and requested the payee on the note to wire transfer the funds from
the note to Citibank in New York.

16
the property at issue, his alleged possession or control of the

property would not be enough to allow turnover of the Sanig and

Tres Vidas assets unless there had been a prior legal adjudication

which pierced the two corporations’ corporate veils.

2. Texas Cases

The Texas Supreme Court has stated that “Texas courts do not

apply the turnover statute to non-judgment debtors.” Beaumont

Bank, 806 S.W.2d at 227. Applying this rule, the Beaumont Bank

court held that the turnover statute could not be used to reach a

judgment debtor in her individual capacity when the judgment only

imposed liability on that individual in her capacity as

representative of an estate. Id. The Beaumont Bank court cited to

three Texas appellate court cases to support its holding.8 Id. In

Schultz v. Fifth Judicial District Court of Appeals, 810 S.W.2d

738, 740 (Tex. 1991), however, the Texas Supreme Court also noted

that in limited circumstances a court may use the turnover statute

to reach assets owned and subject to the control of a judgment

debtor even if those assets are held by a third party. (“Such an

order [turnover order] acts as a mandatory injunction against the

judgment debtor and, if there are such parties, against the

8
See Cravens, Dargan & Co. v. Peyton L. Travers Co., 770
S.W.2d 573, 576-77 (Tex. App. - Houston [1st Dist.] 1989, writ
denied); Detox Industries, Inc., v. Gullett, 770 S.W.2d 954, 956
(Tex. App. - Houston [1st Dist.] 1989, no writ); United Bank Metro
v. Plains Overseas Group, Inc., 670 S.W.2d 281, 284 (Tex. App. -
Houston [1st Dist.] 1983, no writ).

17
receiver and any third parties interested in the property rights

being adjudicated”).

The uncertainty as to how aggressive trial courts can be in

enforcing turnover orders which affect the rights of non-judgment

debtors is reflected in the conflicting decisions of the lower

Texas appellate courts.9 Because the Texas Supreme Court has not

9
Compare Dale v. Finance America Corp., 929 S.W.2d 495 (Tex.
App. - Fort Worth 1996, writ denied) (turnover order properly
ordered as to community property held in trust that bore non-
judgment debtor spouse’s name because trust was subject to judgment
debtor’s control); Plaza Court, Ltd. v. West, 879 S.W.2d 271, 277
(Tex. App. - Houston [14th Dist.] 1994, no writ) (turnover statute
would support a proceeding against an entity who is not a judgment
debtor if the trial court makes a factual finding that the property
on which execution is sought is subject to the possession or
control of the judgment debtor, even if retained by a third party);
International Paper v. Garza, 872 S.W.2d 18, 19 (Tex. App. - Corpus
Christi 1994, no writ) (“under certain circumstances an action
under the turnover statute may be brought against parties other
than the judgment debtor in order to assist the judgment creditor
in subjecting the judgment debtor’s non-exempt property to
satisfaction of the underlying judgment”); Norsul Oil and Mining
Limited v. Commercial Equipment Leasing Co., 703 S.W.2d 345, 349
(Tex. App. - San Antonio 1985, no writ) (oil and mining company
ordered to turnover 220,000 shares of company stock because trial
court found that the shares were actually owned by the judgment
debtor); with Cross, Kieschnick & Co. v. Johnston, 892 S.W.2d 435,
439 (Tex. App. - San Antonio 1994, no writ) (reversing judgment
rendered against partners when underlying judgment involved
corporation, holding that it was improper as matter of law to issue
order against non-judgment debtor); Republic Ins. Co. v. Millard,
825 S.W.2d 780, 783 (Tex. App. - Houston [14th Dist.] 1992, orig.
proceeding) (issuing mandamus on grounds that trial court abused
its discretion by including debtor's insurance company in turnover
order when creditors sought title to debtor's cause of action
against insured); Cravens, Dargan & Co. v. Peyton L. Travers Co.,
770 S.W.2d 573, 576-77 (Tex. App. - Houston [1st Dist.] 1989, writ
denied) (finding that turnover statute could not be used as
procedural tool against State Board of Insurance to reach debtor's
financial-responsibility deposit with that agency); United Bank
Metro v. Plains Overseas Group, Inc., 670 S.W.2d 281, 284 (Tex.

18
definitively resolved this uncertainty, our prior interpretation of

Texas law on this point is especially important.

3. Fifth Circuit Case Law

Resolution Trust Corp. v. Smith, 53 F.3d 72 (5th Cir. 1995) is

the primary Fifth Circuit case which interprets the turnover

statute as it relates to third parties. In RTC, the judgment

creditor’s conservator asked the district court to void a stock

pledge from the judgment debtor, the Smiths, to the Smiths’ non-

judgment debtor attorney, Fuqua, and order turnover of the stock to

the court. Id. at 74. The district court did both things. Id. at

76. We upheld the portion of the turnover order which ordered the

Smiths to turn over their interest in the stock to the district

court. However, we reversed the portion of the turnover order

voiding the pledge to Fuqua. Id. at 80.

We upheld the turnover order as it concerned the Smiths’

interest in the stock because, under the terms of the stock pledge

agreement which gave Fuqua his security interest, the Smiths

App. - Houston [1st Dist.] 1983, no writ) (determining that
creditor who obtained judgment against individual was not entitled
to turnover order against corporation until creditor successfully
pierced corporate veil in separate proceeding); Steenland v. Texas
Commerce Bank Nat'l Ass'n, 648 S.W.2d 387, 390-91 (Tex. App. -
Tyler 1983, writ ref'd n.r.e.) (concluding that turnover statute
does not authorize appointment of receiver to sell homestead to
obtain its non-exempt excess value until substantive issues are
established in separate proceeding brought for that purpose).

19
continued to own the stock. Id. at 78. The only limitation on the

Smiths’ ownership was that they had to get Fuqua’s consent to sell

the stock. Id. Because the Smiths continued to own the stock, we

determined that “the district court did not err in using the

turnover statute to order the Smiths to turn over whatever interest

they had in the stock to the district court.” Id.

The district court’s voiding of the stock pledge to Fuqua was

a different story. Relying upon Beaumont Bank, Republic Insurance,

Cravens, and United Bank Metro, we reasoned that the voiding of the

stock pledge itself on fraudulent transfer grounds went beyond

determining whether certain assets were under the control of the

judgment debtor and, instead, effectively adjudicated the

substantive property rights of a third party. Id. at 79-80.

Although we recognized the highly suspect nature of the stock

pledge, we concluded that the turnover proceeding was not the

proper judicial mechanism for determining that the stock pledge was

a fraudulent transfer and therefore void. Id. at 80. We also

noted that it was particularly inappropriate to use the turnover

proceeding to adjudicate the substantive property rights of a third

party not even before the court. In pertinent part, we stated:

A proceeding to determine whether a
transaction is fraudulent or otherwise to
determine property rights of the parties is
improper under the turnover statute, for the
statute "does not allow for a determination of
the substantive rights of involved parties."
Republic Ins., 825 S.W.2d at 783; see also

20
 United Bank Metro, 670 S.W.2d at 284. It is
even more clear that a party not even before
the court cannot have its rights determined
via the turnover proceeding. Thus, in this
case, the district court erred in using the
turnover proceeding to determine that the
stock pledge was a fraudulent transfer and was
therefore void. The validity of the pledge
agreement must be challenged in a further
proceeding. And the sale of the Park Club
stock must await a determination satisfactory
to the district court of the validity of
Fuqua's interest. Id. at 80.

4. Application

We are persuaded that the Resolution Trust Corporation

rationale controls the resolution of the instant case. Here, the

judgment creditors presented evidence that Sanig is a sham

corporation which does not operate any real business, but operates

strictly to shield assets from potential creditors. In essence,

they contend that Sanig and Tres Vidas’ corporate forms are being

used by Santos to perpetrate a fraud upon potential creditors.

Therefore, the district court appropriately determined that Santos

had control over appellants’ assets and ordered the receiver to

take possession of those assets.

As we were in the Resolution Trust Corporation stock pledge

situation, we are sympathetic to this type of argument. However,

we cannot escape the fact that Sanig is an actual corporation.

Sanig and Tres Vidas are distinct legal entities that have

substantive property rights in the assets in which they hold title.

Thus, the district court does not have the authority to adjudicate

21
these substantive rights under the turnover statute. Resolution

Trust Corp., 53 F.3d at 77 (“the turnover statute is purely

procedural in nature; the statute does not provide for the

determination of the substantive rights of the parties”) (quoting

Cross, Kieschnick & Co., 892 S.W.2d at 439).

In the case at bar, the district court did not pierce the

corporate veils of Sanig and Tres Vidas. Instead, the district

court predicated the turnover order as it applied to Sanig and Tres

Vidas upon a factual finding that Santos owns and controls the

Citibank trust, and therefore owns and controls the two

corporations’ assets. In our view, this was error. Under Texas

law, appellants’ property should not have been subjected to

turnover because appellants had never been found to be the alter

egos of Santos through a “piercing the veil” judicial process. See

United Bank Metro, 670 S.W.2d at 283 (non-judgment debtor

corporations should not be treated as judgment debtors based upon

evidence that they are alter egos of judgment debtors without a

prior trial on the merits which adjudicates the alter ego issue).10

10
We also note that Sanig and Tres Vidas not being properly
before the district court raises troubling due process concerns.
See e.g., Ex Parte Swate, 922 S.W.2d 122, 125 (Gonzalez, J.,
concurring) (“Whether a turnover order is enforceable by a contempt
order directed to a stranger to the lawsuit is a serious matter
that goes to the very heart of due process.”); Resolution Trust
Corp., 53 F.3d at 80 (“It is even more clear that a party not even
before the court cannot have its rights determined via the turnover
proceeding”). These concerns further bolster our decision in this
case.

22
 The judgment creditors rely on three Texas appellate court

cases to support their contention that the district court’s

turnover order was valid: (1) Norsul Oil and Mining Limited v.

Commercial Equipment Leasing Co., 703 S.W.2d 345 (Tex. App. - San

Antonio 1985, no writ); (2) Dale v. Finance America Corp., 929

S.W.2d 495 (Tex. App. - Fort Worth 1996, writ denied); and (3)

Plaza Court, Ltd. v. West, 879 S.W.2d 271 (Tex. App. - Houston

[14th Dist.] 1994, no writ). We address each case in turn.

Norsul Oil is identical to our Resolution Trust Corporation

decision which affirmed the turnover of the Smiths’ interest in the

pledged stock. In Norsul Oil, 703 S.W.2d at 346, the trial court

ordered the non-judgment debtor corporation to turn over stock

shares in its possession to the court. The San Antonio Court of

Appeals affirmed the turnover order because the trial court

properly found, based on evidence that the shares of stock listed

the judgment debtor as the record owner, that the stock was indeed

owned by the judgment debtor. Id. at 347, 349.

Here, the district court could properly have ordered any stock

shares owned by Santos in Sanig or Tres Vidas to be turned over to

the Receiver. However, the district court did not do this.

Instead, it ordered the Receiver to take possession of and sell the

two corporations’ assets. Norsul Oil and the aforementioned

portion of Resolution Trust Court are thus distinguishable from the

case before us.

23
 In Dale v. Finance America Corp., 929 S.W.2d at 498, the Fort

Worth Court of Appeals interpreted Texas law as allowing a turnover

order to be issued against a non-judgment debtor if the property is

owned by a judgment debtor and subject to the debtor’s possession

or control. The Dale trial court ordered the judgment debtor,

(“husband Dale”) to turn over stock he owned in various

corporations, money that he owned, and an animal sabre collection

he owned. The trial court also ordered a trustee to turn over

community property assets held in a trust bearing the name of

husband Dale’s wife. Id. at 497-98.

The appellate court upheld the turnover order. It reasoned

that the community property contained in the trust bearing the

wife’s name was subject to husband Dale’s control because the wife

testified that husband Dale helped her file the petitions to the

trustees for distribution and the trust funneled money to husband

Dale’s various companies. Id. at 499.

Upon close observation, Dale is distinguishable from the

instant case. Under Texas law, the trustee, not the trust itself,

holds legal title to trust property. See Ridgell v. Ridgell, 960

S.W.2d 144, 147 (Tex. App. - Corpus Christi 1997, no writ)(noting

that the trustee is vested with legal title to trust property).

Consequently, the Dale court was perhaps justified in looking to

whether the judgment debtor actually controlled the trust property.

In Dale, however, no corporation existed between the trustee and

24
the community property. Here, two corporations which are separate

juridical persons under Texas law own the assets in question and,

thus, stand between the trustee and the property. Consequently, we

cannot disregard the important fiction created by the appellants’

corporate forms without a formal piercing of the corporate veil.11

In Plaza Court, 879 S.W.2d at 276-77, the Houston appellate

court held that the turnover statute can be used to seize the

corporate assets of a non-judgment debtor if either the trial court

makes a factual determination that the judgment debtors own at

least a controlling majority of the stock or the judgment creditors

have previously succeeded in piercing the corporate veil. We see

several flaws in the holding.

First, the Houston appellate court based its determination

that the turnover statute can be used to strip a non-judgment

debtor corporation of its assets as long as the trial court makes

a factual finding that the judgment debtor owned a controlling

interest in the corporation on the Norsul Oil case. However,

11
We consistently use the term “piercing the corporate veil”
throughout this opinion. In the typical corporate veil piercing
scenario, the corporate veil is pierced so that individual
shareholders may be held liable for corporate acts. See Menetti v.
Chavers, 974 S.W.2d 168, 173 (Tex. App. - San Antonio 1998, no
writ). Here, the purpose of piercing appellants’ corporate veils
would be to hold the corporations liable for the acts of the
individual shareholders. Therefore, this case presents a “reverse
corporate veil piercing” situation. This slight variation is of no
consequence, however, because the end result under both views is
the same - two separate entities merge into one for liability
purposes.

25
Norsul Oil does not support such a broad rule. As we have pointed

out, Norsul Oil merely stated that the turnover court could order

a third party non-judgment debtor to turn over stock owned by the

judgment debtor, it did not state that the turnover court could

seize corporate assets owned by the non-judgment debtor corporation

based upon a factual finding that the judgment debtor is a majority

stockholder. Second, the legal principle running through Texas law

which allows non-judgment debtor corporate assets to be taken

though turnover order only if the corporate veil is pierced will be

useless if the turnover statute can be used in this way.

Therefore, we do not consider the case to be persuasive authority

and decline to follow it.12

IV. CONCLUSION

Sanig and Tres Vidas, both non-judgment debtors, were never

properly before the district court. Nevertheless, the district

court proceeded to use the turnover statute to adjudicate their

substantive property rights even though their corporate veils had

not been pierced in a separate judicial proceeding. This was an

abuse of discretion because it violates Texas law. Therefore, we

overturn the turnover orders to the extent they allowed the

12
Even assuming arguendo that the Plaza Court holding is
someday accepted by the Texas Supreme Court, the only evidence in
the instant case concerning ownership of corporate stock is that
Santos is a 25% foreign shareholder in Sanig. Therefore, we have
doubts as to whether the evidence supports the district court’s
finding under the Plaza Court view as well.

26
Receiver to take possession of and sell Sanig and Tres Vidas

assets. We reverse and remand for proceedings consistent with this

opinion.13

13
On remand, the district court can properly order both Sanig
and Tres Vidas to turnover share certificates owned by Santos.

27
EDITH H. JONES, Dissenting:

I agree completely with Judge Parker’s careful exposition

of the Texas turnover statute and his conclusion that it does not

apply in this case. Unfortunately, I do not agree with the

majority’s judgment, because I believe that a proper reading of the

record demonstrates that Sanig and Tres Vidas subjected themselves

to the jurisdiction of the district court and therefore to its

ultimate orders. On this narrow but critical basis, I respectfully

dissent.

The majority correctly note that if the receiver had

formally served Sanig or Tres Vidas with process, there would be no

doubt of their submission to the district court’s jurisdiction.

Further, a party may make a general appearance whenever it invokes

the judgment of the court on questions other than jurisdiction and

in such instances, “the focus is on affirmative action that

impliedly recognizes the court’s jurisdiction over the parties.”

Jones v. Sheehan, Young & Culp, P.C., 82 F.3d 1334, 1340-41 (5th

Cir. 1996); see also Cactus Pipe & Supply v. M/V Montmartre, 756

F.2d 1103, 1108 (5th Cir. 1985) (“[a]n appearance may also arise by

implication ‘from a defendant’s seeking, taking or agreeing to some

step or proceeding in the cause beneficial to himself’ . . .”

(citation omitted)).

We differ in our interpretation of counsel’s actions in

representing Sanig and Tres Vidas before the district court. The
majority, in my view, misunderstand the significance of the

attorney’s signature on the three essential court documents that

constituted the receivership: the Order Approving Receivership

Business Plan and Expanded Authority of Receiver, entered July 5,

2000; the Motion for Agreed Restatement of the Receivership Order;

and the Agreed Order for Restatement of the Receivership Order,

entered July 31, 2000. Sanig is a party to each of these

documents, as it was included among several entities represented on

those documents by the law firm of Settle & Pou, P.C., through

attorneys J. Allen Smith and Michael Byrd. Tres Vidas is included

within this signature block only on the July 6th agreed order.

These typed signature blocks, one of which was specifically

interlineated before signature, were signed deliberately and

knowledgeably by counsel representing Sanig and Tres Vidas.

Moreover, in the July 5 order, the court found “that

parties-in-interest received adequate notice of the Application [by

the receiver for approval of the business plan and expansion of his

authority], and that the agreements of such parties to the orders

herein are evidenced by their execution of the Receiver’s Business

Plan.” The business plan itself says that the agreements outlined

therein were approved by “all requisite principals.” Appellants’

counsel knew what they were doing.

That the inclusion of Sanig and Tres Vidas was no fluke,

as the majority imply, is emphasized by their organizational ties

29
with Santos, the principal malefactor. Sanig seems to be a “front”

for Santos, suggesting at a minimum that Sanig had an interest in

negotiating with the receiver over the extent of its assets’

commitment to the receivership. Tres Vidas had the same type of

interest, as it was a co-owner with Santos of three of Santos’s

fellow judgment debtors, Sanvir, Signa & Atlanta Associates (the

last through its 50% ownership of Signa). Even if Sanig and Tres

Vidas were wholly independent of Santos, a conclusion made doubtful

by the surrounding circumstances, their assets were deeply involved

in the receivership from its inception.

The majority also appear to have overlooked that in these

agreed orders, the receiver took control of assets owned by Sanig

and Tres Vidas and gained broad authority to manage and dispose of

those assets for the benefit of the receivership. I must

respectfully disagree with the majority’s statement that none of

Sanig’s or Tres Vidas’s assets are listed as receivership assets.

In fact, Tres Vidas is a 50% owner of two of the

receivership entities, Sanvir and Signa, and a part owner of

Highland Park Village partnership. These are designated as

“receivership assets” in the restated receivership order. Among

other things, the order gives the receiver the right to “deal with

these assets as if he were the owner thereof.” In addition, Signa

(50% owned by Tres Vidas) owned all the stock of Atlanta

Associates, another receivership asset, which in turn co-owned

30
various real estate partnership interests with Sanig and other

related interests. Replacing Sanvir, the receiver also became the

managing partner of six partnerships, three of which were owned in

part by Sanig (Newnan Crossing Partnership; Twin Lakes Partnership;

Forest Chase Partnership), and he became the receiver for Highland

Park Village partnership and The Lakes Partnership, in which Sanig

and/or Tres Vidas held interests.

This is not even an exhaustive list of the assets’

interrelated ownership and control among Santos, Sanig and Tres

Vidas. As part owners of all these entities, Sanig and Tres Vidas

were committing substantial discretion to the authority of the

receiver. Expressly or by implication, they authorized the

receiver to resolve title disputes concerning the assets and to

litigate over the extent of Santos’s ownership rights.

Unlike the majority, I believe that when Sanig and Tres

Vidas allowed their attorney’s signature to be affixed to the

receivership documents, they went in for a penny, in for a pound,

subjecting themselves to the broad authority of the receiver under

the ultimate supervision of the district court. That is to say, by

voluntarily surrendering nearly all of their assets to the

receivership, they agreed to the court’s jurisdiction to determine

ownership of those assets. It is hard to see what more could be

done to constitute “affirmative action” by these entities in

recognition of the court’s jurisdiction.

31
 For these reasons, I disagree with the majority’s

conclusion that “acquiescence to the terms of the receivership

orders had no bearing on Sanig and Tres Vidas.” To the contrary,

for all that can be told from the briefs and receivership orders,

there is very little of the interests of Sanig and Tres Vidas that

did not come under the purview of the receiver. When they thus

became parties to the receivership, they had actual notice of and

opportunity to participate in the receivership proceedings that

would determine ownership of their assets. They chose not to

defend themselves. I would hold that the trial court correctly

entered judgment against them. I therefore respectfully dissent.

32