SED Holdings v. TM Prop Solutions

Case: 19-20841 Document: 00515903518 Page: 1 Date Filed: 06/17/2021

United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit

FILED
June 17, 2021
No. 19-20841 Lyle W. Cayce
Clerk

In the Matter of: 3 Star Properties, L.L.C.

Debtor,

SED Holdings, L.L.C.,

Appellee Cross-Appellant,

versus

TM Property Solutions, L.L.C.; Biltmore Funding,
L.L.C.; TMPS, L.L.C.; Mark Hyland; Home Servicing,
L.L.C.,

Appellants Cross-Appellees,

Don St. John; Howard L. Nations, a Professional
Corporation,

Cross-Appellees.

Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:17-CV-1655
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No. 19-20841

Before Haynes, Duncan, and Engelhardt, Circuit Judges.
Stuart Kyle Duncan, Circuit Judge:
A federal jury found that 3 Star Properties fraudulently sold SED
Holdings millions in loans and awarded SED over $14 million in damages.
From that verdict, we must untangle a snarled skein of appeals and
cross-appeals. We affirm the liability judgment against 3 Star but, concluding
the damages award was excessive, we remand for remittitur of the award. We
vacate a separate judgment against Home Servicing for breaching a contract
to service the loans, and we remand for a new trial on that claim.
I. Background
A. Facts
In 2014, SED contracted with 3 Star to buy 1,235 non-performing
residential mortgage loans.1 3 Star made certain representations about the
loans—that it was their sole owner, that it had the right to sell them, and that
they would be sold “free and clear”—that were not true. In fact, at the time
the parties signed the loan sale agreement (“LSA”), 3 Star was a shell
company that did not own the loans, had no assets, and did not generate
revenue. Three other companies owned the loans: Biltmore Funding
(“Biltmore”); TM Property Solutions2 (“TM Property”); and Biltmore
Funding II (“Biltmore II”), all of which were partly owned and/or managed
by Mark Hyland. Hyland authorized those entities to sell the loans to 3 Star,
but only after 3 Star purportedly sold them to SED. Hyland had authorized 3
Star to market the loans to SED and represent it owned them, despite

1
SED is a North Carolina company. 3 Star is a Nevada company based in North
Carolina.
2
The parties also refer to an entity named “TMPS.” It is unclear whether TM
Property Solutions and TMPS are different entities. Hyland testified the two are
interchangeable, and no party distinguishes them. We also treat them as one and the same.

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knowing that was untrue. Hyland and James Johnson, 3 Star’s managing
member, crafted the 3 Star-SED LSA and agreed to split the profits. SED was
in the dark about all of this.
Under the LSA’s terms, SED bought the loans for nearly $14 million.
SED would pay $2 million in cash at closing, $2 million about a month later,
and the balance by year’s end. The loan proceeds were to be transferred to
Mark Dykes, an attorney with Nations Law Firm, who would act as escrow
agent until SED paid 3 Star in full. The LSA provided that “the parties will
use Home Servicing . . . to service the loans, as more fully outlined in the
Collateral Agreement.” The collateral agreement between 3 Star and SED
provided that SED would “not modify the servicing agreement presently in
place for the [loans] without written approval of [3 Star].” The referenced
servicing agreement was a residential special servicing agreement (“RSSA”)
between Home Servicing and TM Property.
After SED had fronted $4 million, things unraveled. SED discovered
most of the loans were defective. It tried, unsuccessfully, to “put back”
nearly all the loans under a provision in the LSA.3 Then it started suing.
B. Procedural History
SED first filed suit in a North Carolina state court against 3 Star,
Johnson, Hyland, TM Property, and Home Servicing, seeking to recover
damages from the LSA transaction (the “North Carolina suit”). About two
months later, 3 Star sued SED in a Harris County, Texas state court for
allegedly breaching the LSA (the “Harris County suit”). Biltmore, TM

3
The LSA outlined the “put back” procedure, providing that within forty-five days of
closing, SED could notify 3 Star of any loan that (a) was not secured by a valid first
mortgage, or (b) had an incurable documentary defect. 3 Star would then have forty-five
days to cure the defect. If SED put back a loan whose defect 3 Star did not cure during this
period, 3 Star would owe SED 19.5 percent of the loan’s unpaid balance.

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Property, and others intervened in the Harris County suit, moving to
substitute for 3 Star, asserting superior title to the loans at issue, and bringing
their own claims against SED. SED counterclaimed against 3 Star, Biltmore,
and TM Property. Biltmore and TM Property then filed an involuntary
bankruptcy petition against 3 Star. The North Carolina and Harris County
suits were removed to bankruptcy court and consolidated, but after the
bankruptcy court approved the sale of the Biltmore and TM Property pools
of loans, the suits proceeded in the Southern District of Texas.
Meanwhile, Biltmore II was in the midst of separate litigation against
3 Star. Shortly after the North Carolina and Harris County suits were filed,
Biltmore II sued 3 Star in a Tarrant County, Texas state court (the “Tarrant
County suit”), seeking a declaratory judgment that it (Biltmore II) held title
to the 473 loans it sold 3 Star because 3 Star never paid for them. SED
intervened as a defendant, arguing that it, not Biltmore II, held title to the 473
loans and seeking a declaration of “clear and negotiable title to [all] the 1,235
mortgage notes” in the 3 Star-SED LSA. SED and Biltmore II settled before
trial.4 Biltmore II’s claims against 3 Star, however, proceeded to a bench trial.
The Tarrant County court held that Biltmore II had clear and negotiable title
to the 473 loans. In reaching its judgment, the court examined the 3 Star-SED
LSA, finding that 3 Star made various misrepresentations about the 473
Biltmore II loans; that 3 Star committed fraud on SED by attempting to sell
473 loans in which it had no ownership interest; and that the 3 Star-SED LSA
was therefore void and unenforceable as to the 473 loans.

4
As part of the settlement, SED and Biltmore II agreed to “work together and
cooperate with each other . . . to achieve an outcome whereby” Biltmore II was declared
“the owner of the [loans] with clear and negotiable title . . . free and clear of any claims by
or through 3 Star.” The parties would then split the proceeds of the loans, once liquidated.

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Back in the Southern District of Texas, the court made a number of
pre-trial rulings to narrow the scope of SED’s wide-ranging suit. The
remaining claims were: (1) SED’s fraudulent transfer claims against
Biltmore, TM Property, Hyland, and 3 Star; (2) SED’s breach of contract
claim against Home Servicing; (3) SED’s breach of contract and negligence
claims against Brown & Associates; (4) SED’s conspiracy claims against
Hyland, TM Property, Biltmore, Brown & Associates, Dykes, 3 Star, and
Johnson; and (5) Home Servicing’s breach of contract counterclaim against
SED. Those claims went to a jury, except SED’s claims against 3 Star and
Johnson, on which the court entered a default judgment for SED.
The jury found for SED on every claim. The final judgment held 3 Star
and Johnson liable for fraud and Hyland, Dykes, Johnson, 3 Star, TM
Property, and Biltmore jointly and severally liable for conspiracy to commit
fraud. It awarded SED a $9,430,000 judgment against Dykes,5 Johnson, 3
Star, TM Property, and Biltmore. The court also held Biltmore, TM
Property, Hyland, and 3 Star liable for fraudulent transfer of SED’s payments
to 3 Star totaling $4,372,739; SED was entitled to avoidance of those funds
and equitable subordination of TM Property’s and Biltmore’s claims.
Finally, Home Servicing was held liable for breach of the Servicing
Agreement, for which SED was awarded $300,000. The court subsequently
denied Home Servicing’s motion for new trial, Dykes and Hyland’s motion
to alter the judgment, and TM Property’s motion to alter the judgment, as
well as their joint renewed motion for judgment as a matter of law
(“JMOL”). That brings us to this appeal.

5
Dykes subsequently filed a notice of partial settlement, pursuant to which Dykes
agreed to pay SED $425,000.

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Hyland, TM Property, and Biltmore (“Hyland Defendants”) appeal
the district court’s partial denial of their motion to dismiss, various
evidentiary rulings, the verdict, the final judgment, the equitable
subordination order, and the district court’s denial of their motions for new
trial, JMOL, and to alter or amend the judgment. Home Servicing appeals the
verdict and final judgment against it, as well as the order denying its motion
for a new trial. SED cross-appeals. It contends primarily that the district
court should not have dismissed certain claims against the Hyland
Defendants, Home Servicing, Dykes, and Home Servicing’s chief operating
officer Don St. John.
II. Discussion
A. Hyland Defendants’ Claims
1. Res Judicata
As a threshold issue, the Hyland Defendants argue res judicata should
have barred SED’s claims against them because SED was involved in the
Tarrant County suit, which already resolved the merits of this case. The
district court rejected their motion to dismiss based on res judicata, a ruling
we review de novo. Basic Cap. Mgmt., Inc. v. Dynex Cap., Inc., 976 F.3d 585,
588 (5th Cir. 2020). “Dismissal under Rule 12(b)(6) may be appropriate
based on a successful affirmative defense, provided that the affirmative
defense appears on the face of the complaint.” Ibid. (cleaned up). A court
may dismiss claims as barred by res judicata if the “bar is apparent from the
pleadings and judicially noticed facts.” Kahn v. Ripley, 772 F. App’x 141, 142
(5th Cir. 2019) (per curiam).
The Tarrant County suit involved an entity not party to this appeal,
Biltmore II. Biltmore II sued 3 Star, seeking a judgment that Biltmore II held
title to the loans it sold to 3 Star. Understandably, SED intervened to assert
that it had “clear and negotiable title” to all the loans in the LSA, including

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those to which Biltmore II laid claim. The court ultimately ruled in favor of
Biltmore II, along the way holding that 3 Star never owned Biltmore II’s pool
of loans and thus committed fraud by “selling” them to SED. It also held the
3 Star-SED LSA void and unenforceable as to the Biltmore II loans. The
wrinkle is that SED settled with Biltmore II before the court issued its
decision; the parties agreed that Biltmore II held title to the contested loans
but that they would divvy up the proceeds of the loans, once liquidated.
The Hyland Defendants urge that the Tarrant County suit precludes
SED from bringing its claims against them here because SED previously
“sought affirmative relief for each and every loan that is at issue in this case
[and] SED’s claims in Tarrant County were resolved by a final judgment—a
judgment that SED agreed to.” Applying the federal standard for res judicata,
the district court concluded the defense “clearly does not apply.” Under that
test, a claim is barred by res judicata when: (1) the parties are identical in the
two actions; (2) the first judgment was rendered by a court of competent
jurisdiction; (3) there was a final judgment on the merits; and (4) the same
claim or cause of action was involved in both cases. Retractable Techs., Inc. v.
Becton Dickinson & Co., 842 F.3d 883, 898 (5th Cir. 2016). The district court
determined neither the first nor the fourth element was met.
The court used the wrong res judicata standard. Texas law, not federal
law, applies when a federal court determines the preclusive effect of a Texas
judgment. Basic Cap., 976 F.3d at 591.6 And the Texas standard is articulated
in a slightly different way, requiring: “(1) a prior final judgment on the merits
by a court of competent jurisdiction; (2) identity of the parties or those in
privity with them; and (3) a second action based on the same claims as were

6
See also Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 381–83 (1985);
Matter of Miller, 156 F.3d 598, 601 (5th Cir. 1998) (citing 28 U.S.C. § 1738).

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raised or could have been raised in the first action.” Cox v. Nueces Cnty., 839
F.3d 418, 421 (5th Cir. 2016) (quoting Amstadt v. U.S. Brass Corp., 919
S.W.2d 644, 652 (Tex. 1996)). The Hyland Defendants assert that the
district court erred by requiring them to show the parties were “identical”
and the claims were the “same.”7 Under either the state or federal standard,
a privity relationship may satisfy the identity requirement. Ibid.; see also
Bradley v. Armstrong Rubber Co., 130 F.3d 168, 179 (5th Cir. 1997) (“Parties
in privity count as identical parties for federal res judicata purposes.”). Under
Texas law, the claims need not be the same so long as those brought in the
second action are “based on” those in the first or “could have been raised”
then. Cox, 839 F.3d at 421. Nevertheless, the district court did not err by
rejecting the Hyland Defendants’ preclusion argument. The Hyland
Defendants cannot show that (1) they were in privity with 3 Star and (2) the
claims here are based on the “same claims” as those that were or could have
been raised in Tarrant County.
As to privity, the Hyland Defendants first contend SED should be
bound by its multiple concessions that the Hyland Defendants were in privity
with 3 Star. In the Harris County suit, SED asserted res judicata to preclude
Biltmore and TM Property from relitigating the issues already decided in
Tarrant County—that 3 Star had attempted to sell assets it did not own, and
that the 3 Star-SED LSA was invalid. Thus, the Hyland Defendants say, SED
already admitted that the Hyland Defendants were in privity with 3 Star and
should be judicially estopped from changing its position. Judicial estoppel
“protect[s] the integrity of the judicial process by prohibiting parties from
deliberately changing positions according to the exigencies of the moment.”
New Hampshire v. Maine, 532 U.S. 742, 749–50 (2001) (cleaned up) (citations

7
The parties do not dispute the first element.

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omitted). The doctrine is guided by several factors, including whether “a
party’s later position [is] ‘clearly inconsistent’ with its earlier position,”
“whether the party has succeeded in persuading a court to accept that party’s
earlier position,” and whether absent estoppel “the party seeking to assert
an inconsistent position would derive an unfair advantage or impose an unfair
detriment on the opposing party.” Id. at 750–51 (citations omitted).
We conclude judicial estoppel does not apply. To begin with, the
Harris County court never accepted SED’s argument that Biltmore and TM
Property were in privity with 3 Star. And the parties did not rely upon the
premise that a privy relationship existed, nor did the Harris County court bar
Biltmore and TM Property from proceeding as intervenors in that litigation.8
Moreover, SED’s position in the Tarrant County suit is not “clearly
inconsistent” with its position here. See Transclean Corp. v. Jiffy Lube Int’l,
Inc., 474 F.3d 1298, 1307 (Fed. Cir. 2007) (judicial estoppel precludes a party
from “revers[ing] course . . . late in the proceedings simply because it now
realizes its litigation strategy was unsuccessful”). The two lawsuits involved
different parts of the 3 Star-SED transaction. The Tarrant County judgment
centered on the Biltmore II loans, while the district court here focused on the
Biltmore and TM Property loans—that is, the loans not at issue in the Tarrant
County judgment. SED’s “admissions” therefore do not prevent it from
contesting privity here.

8
This case is therefore distinguishable from Transclean Corp. v. Jiffy Lube Int’l, Inc.,
474 F.3d 1298 (Fed. Cir. 2007), on which the Hyland Defendants rely. There, the Federal
Circuit invoked judicial estoppel to hold Transclean to its concession before the district
court that its opponent was in privity with a nonparty against whom Transclean had
obtained a judgment in an earlier lawsuit. The court decided to hold Transclean to its
concession because to hold otherwise would have been “clearly inconsistent with the
position [Transclean] advocated before the trial court,” which “[t]he trial court accepted
. . . and the defendants relied on . . . during both the trial and appellate phases of this
litigation.” Id. at 1307.

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Nor have the Hyland Defendants shown that privity exists. “Texas
courts have been clear that there is no categorical rule for privity; instead the
courts look to ‘the circumstances of each case.’” EEOC v. Jefferson Dental
Clinics, PA, 478 F.3d 690, 694 (5th Cir. 2007) (quoting Getty Oil Co. v. Ins.
Co. of N. Am., 845 S.W.2d 794, 800 (Tex. 1992)). “There are at least three
ways in which parties can be in privity under Texas law: (1) ‘they can control
an action even if they are not parties to it; (2) their interests can be
represented by a party to the action; or (3) they can be successors in interest,
deriving their claims through a party to the prior action.’” Id. (quoting
Amstadt, 919 S.W.2d at 653). The Hyland Defendants essentially contend
that, throughout, SED and the court treated them and 3 Star as
“functionally” the same because Mark Hyland controlled all of the Hyland
Defendants and had some influence over 3 Star. But the principal Fifth
Circuit case on which they rely, Lubrizol Corp. v. Exxon Corp., 871 F.2d 1279,
1288 (5th Cir. 1989), involved parties who were related by vicarious liability
to the party with whom they sought to establish privity. This relationship, we
said, “form[ed] the only asserted basis” for privity, and “we ma[d]e no broad
pronouncements about the doctrines of mutuality or privity in this circuit.”
Id. at 1289. So, we see no basis to conclude that Hyland’s involvement in 3
Star’s fraudulent dealings somehow created privity between 3 Star and the
other entities involved in the fraud.9 Because they have not shown privity, res
judicata does not apply. Amstadt, 919 S.W.2d at 652.

9
Similarly, the Hyland Defendants argue their alleged status as co-conspirators
establishes privity for res judicata purposes, but they point to no binding precedent to
support this proposition. In the lone circuit-court case they cite, Gambocz v. Yelencsics, 468
F.2d 837, 840–42 (3d Cir. 1972), privity existed when defendants in the second suit were
alleged coconspirators of those named in the first, “some of whom had been named in the
original complaint as participating in the conspiracy but had not been named as parties
defendant at that time.” Even were we inclined to follow it, Gambocz is distinguishable.
There, “the essential allegations of the second complaint parallel[led] those of the first”

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Moreover, the Hyland Defendants fail to show the second action was
based on the “same claims as were raised or could have been raised in the
first action.” Cox, 839 F.3d at 421 (quotation omitted). Under Texas courts’
transactional approach, “a judgment in an earlier suit ‘precludes a second
action by the parties and their privies not only on matters actually litigated,
but also on causes of action . . . which arise out of the same subject matter and
which might have been litigated in the first suit.’” Harmon v. Dallas Cnty.,
927 F.3d 884, 890 (5th Cir. 2019) (quoting Getty Oil Co., 845 S.W.2d at 798).
The Hyland Defendants contend that as an intervenor, SED could have
raised its claims in the first suit. Yet res judicata does not bar a defendant in
one action from later bringing a claim it was not required to bring previously.
Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203, 207 (Tex. 1999),
disagreed with on other grounds by In re J.B. Hunt Transp., Inc., 492 S.W.3d
287, 292 & n. 5 (Tex. 2016). This makes sense. Res judicata “ensure[s] that a
defendant is not twice vexed for the same acts” and “achieve[s] judicial
economy by precluding those who have had a fair trial from relitigating
claims.” Amstadt, 919 S.W.2d at 653. Those purposes are not served by
penalizing a party for not bringing claims it was not required to bring.
Texas law does not require a defendant to assert a cross-claim against
a co-defendant “simply because it arises from the same subject matter as
[the] plaintiff’s claim.” Getty Oil Co., 845 S.W.2d at 800 (emphasis added).

and “the relationship of the additional parties to the second complaint was so close to
parties to the first that the second complaint was merely a repetition of the first.” Id. at
842. But SED’s suit against the Hyland Defendants is not “merely a repetition” of
Biltmore II’s suit against 3 Star, in which SED intervened, such that the second suit is a
slight variation on the first. The Hyland Defendants have not shown that they “share [with
3 Star] an identity of interests in the basic legal right that is the subject of litigation,” as is
required to establish privity. Amstadt, 919 S.W.2d at 653. At most, 3 Star’s interest in
asserting ownership over the Biltmore II loans and the Hyland Defendants’ interest in
asserting they were not involved in any fraud are related but distinct.

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“Where two parties are aligned in the first action and no issues are drawn
between them, the judgment in that action does not preclude later claims
between those parties.” Ibid. SED, which intervened as a defendant aligned
with 3 Star, is not barred from later bringing a claim against 3 Star (or its
privies), “unless the claim was compulsory in the earlier action.” Ingersoll-
Rand Co., 997 S.W.2d at 207. And cross-claims against co-parties are
permissive under Texas law, not compulsory. TEX. R. CIV. P. 97(e). Because
SED intervened as a defendant and did not assert a claim against its co-
defendant, it was not required to assert its fraud claims as cross-claims, even
if they arose from the same subject matter. See Getty Oil Co., 845 S.W.2d at
800. In sum, res judicata does not bar SED’s claims and the district court did
not err by denying the Hyland Defendants’ motion for JMOL on that basis.10
2. Merits
Turning to the merits, we examine the Hyland Defendants’
challenges to the denial of their JMOL and new trial motions. They argue the
district court erred in denying their motions as to SED’s conspiracy and
fraudulent transfer claims. We review de novo denial of a JMOL motion,
reversing only if the jury’s factual findings are unsupported by substantial
evidence or “the legal conclusions implied from the jury’s verdict cannot in
law be supported by those findings.” Williams v. Manitowoc Cranes, L.L.C.,
898 F.3d 607, 614 (5th Cir. 2018) (citation omitted). We review denial of a

10
Given our ruling on the res judicata issue, we reject the Hyland Defendants’ related
challenge to the court’s excluding various exhibits, including the Biltmore II-SED
settlement agreement. The Hyland Defendants contend the court erred because the
exhibits were relevant to “a controlling issue in the case,” that is, “whether res judicata
bars SED’s claims.” Because the court correctly rejected the res judicata defense, however,
the excluded exhibits could not have been relevant evidence and the court did not abuse its
discretion in excluding them. Tex. R. Evid. 401, 402; see Taylor-Travis v. Jackson State
Univ., 984 F.3d 1107, 1114 (5th Cir. 2021), cert. docketed, 20-1715 (U.S. June 11, 2021).

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new trial motion for abuse of discretion, Jordan v. Maxfield & Oberton
Holdings, L.L.C., 977 F.3d 412, 417 (5th Cir. 2020), which we will not find
unless “there [was] an absolute absence of evidence to support the jury’s
verdict.” Williams, 898 F.3d at 614 (citation omitted).
a. Insufficiency of the Evidence: Fraudulent Transfer Claim
The Hyland Defendants maintain there was insufficient evidence to
show they were responsible for fraudulent transfer under the Texas Uniform
Fraudulent Transfer Act (TUFTA). See Tex. Bus. & Com. Code
§ 24.001 et seq. The verdict form asked the jury whether each Hyland
Defendant “transfer[red] any of the assets listed below with actual intent to
hinder, delay, or defraud SED.” The “asset[] listed below” was “SED’s
payments to 3 Star, totaling $4,372,739.” The jury marked “yes” as to each
Hyland Defendant. On appeal, the Hyland Defendants argue the jury’s
conclusion was unfounded because SED failed to show the transferred
money was not subject to a valid lien, which would preclude its recovery
under TUFTA. We disagree.
Under TUFTA, a creditor may reclaim assets transferred “with
actual intent to hinder, delay, or defraud any creditor of the debtor.” Tex.
Bus. & Com. Code § 24.005(a)(1). TUFTA “prevent[s] debtors from
defrauding creditors by placing assets beyond their reach.” Challenger
Gaming Sols., Inc. v. Earp, 402 S.W.3d 290, 293 (Tex. App.—Dallas 2013, no
pet.). SED claimed the Hyland Defendants fraudulently transferred roughly
$4 million from 3 Star, rendering it insolvent, in exchange for worthless loans.
The jury agreed with SED. Now, the Hyland Defendants argue that TUFTA
does not apply because the money did not constitute an “asset” within the
meaning of the statute. An “asset” is “property of a debtor” excluding
“property . . . encumbered by a valid lien,” Tex. Bus. & Com. Code §
24.002(2)(A), and a “valid lien” is “a lien that is effective against the holder

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of a judicial lien subsequently obtained . . . ,” id. § 24.002(13). The Hyland
Defendants argue TM Property’s and Biltmore’s sales of their loans to 3 Star
created a security interest in the $4 million SED paid 3 Star. This “lien,”
they claim, meant that the money was not an “asset” and therefore that there
was no fraudulent transfer. See Retamco Operating, Inc. v. Republic Drilling
Co., 278 S.W.3d 333, 341 (Tex. 2009) (“Without an asset, no fraudulent
transfer can occur under the [T]UFTA.”).
We disagree. A security interest that is “part of [a] fraudulent transfer
of assets” is “voidable,” that is, not a “valid lien” because it is not “effective
against the holder of a judicial lien.” Tel. Equip. Network, Inc. v. TA/Westchase
Place, Ltd., 80 S.W.3d 601, 609 (Tex. App.—Houston [1st Dist.] 2002, no
pet.). TUFTA’s definition of “transfer” includes the “creation of a lien,”
which means the creation of a lien may be a “fraudulent transfer.”
§ 24.002(12). That is what happened here. Though the agreements made by
TM Property and the Biltmore entities in combination with the LSA created
a “lien” for those three entities in 3 Star’s assets (the $4 million paid to it by
SED), 3 Star was never entitled to that money because it was transferred in
payment for loans 3 Star never owned. The security interests were therefore
not valid liens but rather instruments of the fraudulent transfer. Accordingly,
the district court correctly denied the Hyland Defendants’ renewed JMOL
as to the fraudulent transfer claim.
b. Insufficiency of the Evidence: Conspiracy Claim
The Hyland Defendants next dispute the sufficiency of the evidence
to support the conspiracy judgment. Under Texas law, civil conspiracy is not
an independent tort but rather a “‘derivative’” one that “depends on some
underlying tort or other illegal act.” Agar Corp. v. Electro Circuits Int’l, LLC,
580 S.W.3d 136, 141–42 (Tex. 2019) (citations omitted). Civil conspiracy
requires “(1) two or more persons; (2) an object to be accomplished; (3) a

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meeting of minds on the object or course of action; (4) one or more unlawful,
overt acts; and (5) damages as the proximate result.” Id. at 141 (citation
omitted). The damages “come from the underlying act, not the conspiracy
itself.” Id. at 142. The Hyland Defendants rely on the principle that because
conspiracy is a “derivative” tort, it “survives or fails alongside” the
underlying tort. Id. at 141; see also Grant Thornton LLP v. Prospect High Income
Fund, 314 S.W.3d 913, 931 (Tex. 2020). They contend there was insufficient
evidence to support the underlying torts and, by extension, the conspiracy.
The court instructed the jury that it had already found 3 Star and
Johnson liable for fraud and fraud by nondisclosure. Directly below this
instruction on the verdict form was the question whether any of the
defendants were “part of a conspiracy that caused the damages to SED
Holdings.” Accordingly, the Hyland Defendants reason that the tort
underlying the conspiracy claim must have been either fraud or fraud by
nondisclosure and that a judgment premised on either tort cannot stand
because neither is supported by the evidence. We disagree.
As noted, the standard for reviewing the denial of a new trial is
demanding: reversal requires “an absolute absence of evidence to support the
jury’s verdict.” Williams, 898 F.3d at 614 (citation omitted). We review
verdict forms “‘in the context of the instructions as a whole and the trial
record,’” “evaluat[ing] the combined effect on the jury.” United States v.
Fairley, 880 F.3d 198, 208 (5th Cir. 2018) (citation omitted). In light of the
entire charge, a jury could have understood the referenced “conspiracy” as
encompassing any of the conduct related to the “fraud perpetrated against
[SED] by 3 Star . . . and . . . Johnson.” That includes SED’s fraudulent
transfer claim, which can serve as the underlying tort for conspiracy. See Chu
v. Hong, 249 S.W.3d 441, 444 (Tex. 2008). The Hyland Defendants cannot
show the “absolute absence of evidence” to support SED’s conspiracy
claim, see Williams, 898 F.3d at 614, when there is a valid verdict against them

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No. 19-20841

for fraudulent transfer, see supra Section 2(a). The district court properly
denied their new trial motion as to the conspiracy claim.
c. Jury Instructions
The Hyland Defendants’ challenge to the jury instructions is twofold.
They contend the district court abused its discretion, first, by rejecting their
proposed instruction and verdict form language on the fraudulent transfer
claim, and, second, by asking the jury to consider whether each defendant
transferred the total amount ($4,372,739) rather than asking the jury to
consider specific transfers. Neither argument is persuasive.
We “review challenges to jury instructions for abuse of discretion and
afford the trial court great latitude in the framing and structure of jury
instructions.” Young v. Bd. of Supervisors, 927 F.3d 898, 904 (5th Cir. 2019)
(citation omitted). “Verdict forms are considered part of the jury
instruction,” Fairley, 880 F.3d at 208, and we consider them “in light of the
entire jury instruction,” Jones v. United States, 527 U.S. 373, 393 (1999)
(citation omitted). We ask not whether the court gave “every correct
instruction offered by the parties,” but rather whether it “correctly and
adequately instruct[ed] the jury as to the law to be followed in deciding the
issues.” Alexander v. Conveyors & Dumpers, Inc., 731 F.2d 1221, 1227 (5th Cir.
1984) (per curiam). “[T]he party challenging the instruction must
demonstrate that the charge as a whole creates substantial and ineradicable
doubt whether the jury has been properly guided in its deliberations.” Young,
927 F.3d at 904 (cleaned up) (citation omitted).
The district court did not commit reversible error in instructing the
jury on the fraudulent transfer claim. Under TUFTA, a creditor may reclaim
assets that the debtor transferred with fraudulent intent. Tex. Bus. &
Com. Code §§ 24.005(a)(1), 24.008(a)(1). TUFTA defines an “asset” as
“property of a debtor” that is not “encumbered by a valid lien.”

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§ 24.002(2)(A). The jury was instructed that an “asset” means “property of
a party.” The Hyland Defendants objected to this definition as incomplete.
Consistent with their argument that the transferred $4 million was not an
“asset” under TUFTA because the funds were subject to Biltmore’s and
TM Property’s security interests (which, they argue, were “valid liens”),
they requested the court instruct the jury that “‘asset’ means property of the
debtor, but the term does not include property that is encumbered by a valid
lien.” The court rejected the proposed instruction on the ground that a
security interest is not a “valid lien” under TUFTA because it is not a
“perfected judicial lien.”11
TUFTA defines a “lien” not only as “a judicial lien obtained by legal
or equitable process or proceedings,” but also as “a security interest created
by agreement.” Tex. Bus. & Com. Code § 24.002(8). The district court
therefore erred by concluding that a “valid lien” under the statute must be a
judicial lien, and its rejection of the Hyland Defendants’ proposed
instruction rested on this error and was therefore an abuse of discretion.
Heinsohn v. Carabin & Shaw, P.C., 832 F.3d 224, 233 (5th Cir. 2016).
Nevertheless, the error was harmless. As discussed, the evidence showed the
security interests in the transferred funds were not “valid liens” as that term
is statutorily defined. See Tel. Equip. Network, Inc., 80 S.W.3d at 608–09
(security interest that is “part of [a] fraudulent transfer of assets” is not a

11
The relevant portion of the hearing transcript reads:
[DEFENSE COUNSEL]: The term [“asset”] does not include
“property that is encumbered by a valid lien.”
THE COURT: . . . [T]he security agreement . . . is not synonymous
with a valid lien under the Texas Business and Commerce Code. They’re
not synonymous. Just because you have a security interest doesn’t mean
you have a perfected judicial lien. It’s two completely different things. And
I did not see any evidence of a perfected judicial lien.

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No. 19-20841

“valid lien” because it is voidable and thus not “effective against the holder
of a judicial lien”). No reasonable jury could have found the funds were
subject to a “valid lien” and therefore not “assets” under TUFTA.
Accordingly, the failure to give the requested instruction, although an abuse
of discretion, was harmless. Eastman Chem. Co. v. Plastipure, Inc., 775 F.3d
230, 240 (5th Cir. 2014).
The Hyland Defendants’ next challenge also fails. They contend the
jury was improperly asked whether each of the Hyland Defendants
transferred the $4,372,739 with fraudulent intent, a question tying each
defendant to the entire amount rather than asking the jury to evaluate specific
transfers. In their view, insufficient evidence supported a finding that “each
Hyland Defendant fraudulently transferred or received $4,372,739” because
such a finding would require SED to prove that each “had legal dominion
and control over every single dollar of those transfers.” See Newsome v.
Charter Bank Colonial, 940 S.W.2d 157, 165–66 (Tex. App.—Houston [14th
Dist.] 1996, writ denied) (defining transferee under TUFTA as “a party who
has legal dominion or control over the funds”).
The Hyland Defendants’ proposed instructions tracked their theory
of the case—that each transferred or received (at most) certain transfers from
the escrow account. But SED’s theory was different: it was not that these
defendants were responsible only for the transfers each received from the
escrow account, but instead that “the transfer of SED’s $4,000,000 by
Dykes . . . [from the escrow fund] to [Mark] Hyland’s affiliates” was
fraudulent. In other words, SED claimed the Hyland Defendants not only
received the funds but also exercised “dominion and control” over the
escrow account. This was the claim submitted to the jury, and the evidence
supported its finding. It showed that 3 Star was a shell company and that
Hyland controlled the details of the LSA and subsequent transactions,
purported to represent Biltmore and TM Property, and directed the

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No. 19-20841

distribution of money from the escrow account. In light of this evidence, the
district court did not abuse its discretion by declining to ask the jury whether
subsequent transfers out of the escrow account were fraudulent, when those
transfers were not at issue. It was appropriate to ask the jury to determine
whether the transfer of $4,372,739 into the account was fraudulent, since that
was the basis of SED’s claims. See Alexander, 731 F.2d at 1226–27 (“Given
the evidence presented at trial, the jury instruction was proper.”). 12
d. Excessiveness of the Verdict
The Hyland Defendants next challenge the jury award of $10.68
million in compensatory damages and, correspondingly, the court’s denial of
their motions for JMOL and new trial on that basis. They assert that amount
is excessive, disproportionate to SED’s injuries, and motivated by “passion
or prejudice.” We review the denial of new trial or remittitur for abuse of
discretion. Thomas v. Tex. Dep’t of Crim. Just., 297 F.3d 361, 368 (5th Cir.
2002). Although only “the strongest of showings” will justify overturning or
reducing a jury’s damages award for excessiveness, GlobeRanger Corp. v.
Software AG United States of America, Inc., 836 F.3d 477, 500 (5th Cir. 2016)
(citation omitted), the Hyland Defendants have made that showing here.
Responding to the question of what sum would compensate SED for
the actual damages it incurred, the jury answered: “$10,650,000.” In its

12
The Hyland Defendants also submit that the court’s equitable subordination
judgment and its judgments against 3 Star and Johnson should be reversed. We need not
address those arguments because they depend on our reversing some part of the judgment
against the Hyland Defendants, which we decline to do. To the extent the Hyland
Defendants challenge the equitable subordination judgment independent of their other
challenges to the judgment, that argument is waived for inadequate briefing. Roy v. City of
Monroe, 950 F.3d 245, 251 (5th Cir. 2020) (“Failure adequately to brief an issue on appeal
constitutes waiver of that argument.” (citation omitted)).

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post-trial response to the Hyland Defendants’ motion for new trial, SED
argued the amount was supported by:

$4,372,739 Amount SED paid in for the loans
$4,000,000 Amount SED expected in return on its investment
$307,000 Amount SED expended in other costs associated with LSA
$2,000,000 SED’s tranche payment
$10,679,739 Total
These numbers correspond to the amount SED’s counsel requested from the
jury in closing arguments: $10,679,739.
Three errors render the award excessive. First, the approximately
$10.68 million total appears to be the result of double-counting. SED sought
to recover the approximately $4 million it paid into the escrow accounts as
an initial payment for the loans. The second $2 million tranche was part of
that $4 million. SED does not offer an alternate source for the $2 million
included in the total award, and indeed acknowledges that if the reward is
reduced, it is appropriate to subtract “the $2 million that the Hyland Group
contends is counted twice.” Remittitur is warranted “only if some portion is
so factually insufficient or so against the great weight and preponderance of
the evidence as to be manifestly unjust,” Pope v. Moore, 711 S.W.3d 622, 624
(Tex. 1986). However, “[a] party is not entitled to a double recovery,” Waite
Hill Servs., Inc. v. World Class Metal Works, Inc., 959 S.W.2d 182, 184 (Tex.
1998), and SED has offered no other explanation for the amount. The award
therefore “exceeds the bounds of any reasonable recovery” with respect to
that $2 million. GlobeRanger, 836 F.3d at 500 (citation omitted).
Second, the award unreasonably included $4 million in lost profits. In
Texas, “[r]ecovery for lost profits does not require that the loss be
susceptible of exact calculation,” but the injured party must show “the
amount of the loss . . . by competent evidence with reasonable certainty.”
Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992). The only

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evidence SED identifies to show an anticipated $4 million profit is the
testimony of its president, Chris Edens. But “[a] party’s bare assertion” of a
loss “does not establish lost profits with reasonable certainty.” Horizon
Health Corp. v. Acadia Healthcare Co., Inc., 520 S.W.3d 848, 860 (Tex. 2017).
Rather, “[a]s a minimum, opinions or estimates of lost profits must be based
on objective facts, figures, or data from which the amount of lost profits can
be ascertained.” Heine, 835 S.W.2d at 84. SED points to no objective
evidence to support the figure. Edens’s “testimony is legally insufficient
because it does not provide any indication of how [Edens] determined what
the[] lost profits were.” Id. Therefore the award of $4 million for lost profits
also “exceeds the bounds of any reasonable recovery.” See GlobeRanger, 836
F.3d at 500; Pope, 711 S.W.2d at 624.
Third, the award compensated SED for its losses related to all three
pools of loans it purportedly purchased from 3 Star. But SED had already
recovered part of its losses when it settled with Biltmore II in Tarrant County
and received $551,578.17 from the sale of those loans. The Biltmore II-SED
settlement was not admitted into evidence and thus could not have factored
into the jury’s decision. However, during trial, the court assured the parties
it would not permit SED to “double dip” on that amount. Nonetheless, the
court did not offset the jury award accordingly. The Hyland Defendants
raised the issue of double recovery in their renewed motions for JMOL and
new trial, thereby preserving it for review. See Jang Won Cho v. Kun Sik Kim,
572 S.W.3d 783, 805 (Tex. App.—Houston [14th Dist.] 2019, no pet.).
Remittitur in the amount of the Biltmore II-SED settlement is
appropriate. The district court’s exercise of discretion in denying a motion
for new trial or remittitur “can be set aside only upon a clear showing of
abuse.” Eiland v. Westinghouse Elec. Corp., 58 F.3d 176, 183 (5th Cir. 1995).
“However, when this court is left with the perception that the verdict is
clearly excessive, deference must be abandoned.” Id. The court’s denial of

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No. 19-20841

remittitur allowed SED to recover twice for the damages related to the
Biltmore II pool of loans, and again, SED concedes as much. It is undisputed
that SED received $551,578.17 from settling with Biltmore II and that the $4
million SED paid to 3 Star was an initial payment for all of the loans 3 Star
purported to sell—including the Biltmore II loans. The award was therefore
“contrary to right reason” because it included a double recovery. See Consol.
Cos., Inc. v. Lexington Ins. Co., 616 F.3d 422, 435 (5th Cir. 2020) (citation
omitted).
Because the “defects in the award are readily identifiable and
measurable,” remittitur ordinarily would be appropriate. Brunnemann v.
Terra Int’l, Inc., 975 F.2d 175, 179 (5th Cir. 1992). However, it is unclear
whether other settlements may need to be taken into account. For instance,
SED reached a $425,000 settlement agreement with Dykes and concedes the
Hyland Defendants are entitled to a credit in that amount. Remand is
therefore appropriate so that the judgment may be calculated with precision.
We instruct the district court, however, to subtract at least the following
three identifiable amounts from the jury award: (1) the double-counted $2
million; (2) the $4 million in lost profits; and (3) the $551,578.17 already
recovered from the Biltmore II settlement (in total, $6,551,578.17).
B. Home Servicing’s Claims
1. Appeal of the Denial of New Trial
Home Servicing also moved for a new trial and now appeals the
district court’s denial of that motion. We review for abuse of discretion,
Jordan, 977 F.3d at 417, and will reverse “only when there is an absolute
absence of evidence to support the jury’s verdict.” Williams, 898 F.3d at 614
(citation omitted). When reviewing a jury’s conclusions, “we are bound to
view the evidence and all reasonable inferences in the light most favorable to
the jury’s determination.” Rideau v. Parkem Indus. Servs., Inc., 917 F.2d 892,

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No. 19-20841

897 (5th Cir. 1990). “We are especially deferential to jury verdicts,” Shell
Offshore, Inc. v. Tesla Offshore, L.L.C., 905 F3d 915, 923 (5th Cir. 2018)
(cleaned up), and interpret them “most favorabl[y] to upholding the jury’s
decision by a finding of consistency.” Merritt Hawkins & Assocs., L.L.C. v.
Gresham, 861 F.3d 143, 154 (5th Cir. 2017) (cleaned up).
The jury found for SED on its claim that Home Servicing breached
“the Servicing Agreement.” But that cannot be, says Home Servicing,
because the agreement to service the loans—the RSSA—was between Home
Servicing and TM Property Solutions, not SED. So, Home Servicing urges,
SED cannot recover for breach of a contract it was not party to. This
argument is couched in terms of estoppel; Home Servicing asserts that SED
has always maintained it was never party to the RSSA and cannot now change
its tune. We agree with Home Servicing.
SED had good reason to argue it was not party to the RSSA: that
written agreement contained a jury waiver. SED contends it is not bound by
the waiver, however, because it sued Home Servicing for breaching a
separate agreement between SED and Home Servicing that Home Servicing
would service the loans. Some testimony suggested that such an agreement
existed. Witnesses for both sides stated the two parties had a “verbal
agreement” that Home Servicing would service the loans. But the jury was
not asked whether Home Servicing breached some nebulous oral agreement.
It was asked whether “Home Servicing breach[ed] the Servicing Agreement
with SED Holdings.” And the jury charge identified the “Servicing
Agreement” to which it referred: “the existing agreement to service SED
Holding’s (sic) loans under the contract between Home Servicing and TM
Property Solutions.” Even if that instruction can plausibly be read another
way—namely, to refer to an “existing agreement” between Home Servicing
and SED requiring Home Servicing to service the loans as it had done under

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No. 19-20841

the RSSA—SED has not explained why it should be permitted to hold Home
Servicing to the terms of the RSSA without itself being bound.
Because no evidence supports the jury’s conclusion that Home
Servicing breached “the Servicing Agreement with SED Holdings,” a new
trial is warranted. We therefore vacate the judgment as to SED’s breach of
contract claim against Home Servicing and remand for a new trial.13
C. SED’s Cross Appeal Against Nations Law Firm
Finally, we review de novo SED’s cross-appeal challenging the district
court’s grant of summary judgment in favor of Nations. Renfroe v. Parker, 974
F.3d 594, 599 (5th Cir. 2020).14 Summary judgment is proper if “there is no
genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). A genuine dispute exists when,
construing “all facts and reasonable inferences . . . in favor of the
nonmovant,” “the evidence is such that a reasonable jury could return a
verdict for the non-moving party.” Renfroe, 974 F.3d at 599 (citation
omitted).
SED asserted claims against Nations based on various alleged
misdeeds perpetrated by Dykes, the escrow agent for the funds SED paid to
3 Star pursuant to the LSA. The district court granted summary judgment
for Nations, reasoning that SED failed to establish Nations’ vicarious liability

13
We therefore need not reach Home Servicing’s additional arguments challenging
various evidentiary rulings by the district court.
14
SED also argues on cross-appeal that the district court improperly dismissed its
conspiracy claims against Home Servicing and St. John. However, we need not address
those claims because they are contingent on our reversing the judgment against Home
Servicing, which we decline to do.

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No. 19-20841

for Dykes’s actions. On appeal, SED presses its argument that Nations is
liable under an apparent liability theory.
A principal may be liable under the doctrine of apparent authority if it
“knowingly permit[s] an agent to hold himself out as having authority or . . .
[takes] actions which lack such ordinary care as to clothe an agent with the
indicia of authority, thus leading a reasonably prudent person to believe that
the agent has the authority he purports to exercise.” Gaines v. Kelly, 235
S.W.3d 179, 182 (Tex. 2007) (citation omitted) (cleaned up). To show
Nations was liable under an apparent authority theory, SED must establish:
(1) “a reasonable belief in the agent’s authority”; (2) “generated by some
holding out or neglect of the principal”; and (3) “justifiable reliance on the
authority.” 2616 S. Loop L.L.C. v. Health Source Home Care, Inc., 201 S.W.3d
349, 356 (Tex. App.—Houston [14th Dist.] 2006, no pet.)). Here, the second
element is dispositive: “The principal must have affirmatively held out the
agent as possessing the authority or must have knowingly and voluntarily
permitted the agent to act in an unauthorized manner.” NationsBank, N.A.
v. Dilling, 922 S.W.2d 950, 953 (Tex. 1996). Even assuming SED reasonably
believed and justifiably relied on the perception that Dykes acted under the
law firm’s auspices, it has not shown a material factual dispute that Nations,
through some act or omission, led SED to believe Dykes acted as its agent.
SED contends that Nations “knowingly permitted Dykes to hold
himself out as Nations’ agent or employee” because Nations held out Dykes
as a lawyer working for the firm and allowed him to engage in his own escrow
practice while working out of its offices and using its equipment, email, and
letterhead. Despite its knowledge of Dykes’s outside practice, SED asserts,
Nations never forbade him from “indiscriminately hold[ing] himself out as a
Nations lawyer.” Yet “apparent authority is limited to the scope of
responsibility that is apparently authorized.” First Valley Bank of Los Fresnos
v. Martin, 144 S.W.3d 466, 471 (Tex. 2004). That Nations knew Dykes held

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No. 19-20841

himself out as a Nations lawyer generally does not “clothe [Dykes] with the
indicia of authority” as to any work he performed. See Gaines, 235 S.W.3d at
182. “The relevant issue is not merely the existence of an agency
relationship, but rather the scope of that agency.” Amerigroup Texas, Inc. v.
True View Surgery Ctr., L.P., 490 S.W.3d 562, 566 (Tex. Ct. of App.—
Houston [14th Dist.] 2016, no pet.). “The principal’s full knowledge of all
material facts is essential to establish a claim of apparent authority.” Id.
Though SED maintains that Nations had “complete knowledge of Dykes’
escrow practice,” it has established only that Nations knew Dykes was
engaged in some outside work from his Nations office, not that it knew he
was engaged in escrow work or that he held himself out as Nations’ agent in
his relationship with SED and 3 Star. Thus, SED has not shown a fact dispute
as to Nations’ “full knowledge of all material facts”15 and the district court
did not err by granting summary judgment to Nations.
III. Conclusion
We AFFIRM the district court’s liability judgment as to the Hyland
Defendants in all respects except the damages award. We REMAND for
REMITTITUR of that award consistent with this opinion. We VACATE
the judgment against Home Servicing and REMAND for a new trial on the
breach of contract claim.

15
See Neubaum v. Buck Glove Co., 302 S.W.3d 912, 919 (Tex. App.—Beaumont 2009,
pet. denied) (principal’s knowledge that purported agent held himself out as such in one
matter did not prove principal knew of unrelated instance of similar conduct).

26