Steve W. Sterquell v. Neal B. Scott, Ind.; Neal B. Scott, Trustee of the Andrea Lynn Scott Trust; and Nusara Kaentong--Appeal from 251st District Court of Potter County
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NO. 07-01-0191-CV
IN THE COURT OF APPEALS
FOR THE SEVENTH DISTRICT OF TEXAS
AT AMARILLO
PANEL E
JULY 23, 2004
______________________________
STEVE W. STERQUELL, APPELLANT
V.
NEAL B. SCOTT, INDIVIDUALLY; NEAL B. SCOTT,
TRUSTEE OF THE ANDREA LYNN SCOTT TRUST; AND,
NUSARA KAENTONG, APPELLEES
_________________________________
FROM THE 251ST DISTRICT COURT OF POTTER COUNTY;
NO. 83,731-C; HONORABLE PATRICK PIRTLE, JUDGE
_______________________________
Before JOHNSON, C.J., REAVIS, J., and BOYD, S.J.1
OPINION
In this appeal, appellant Steve W. Sterquell (Sterquell) seeks reversal of a takenothing judgment, rendered after a bench trial, in favor of appellee Neal B. Scott (Scott),
individually and as trustee of the Andrea Lynn Scott Trust (the Trust). In two points of
1
John T. Boyd, Chief Justice (Ret.), Seventh Court of Appeals, sitting by assignment.
Tex. Gov’t Code Ann. §75.002(a)(1) (Vernon Supp. 2004).
asserted error, Sterquell argues the trial court erred: 1) by failing to find as a matter of law
that the lien created by an abstract of judgment was effective against any subsequent
transfer of properties located in Potter County and/or any finding that Scott did not own the
properties that are the subject of this appeal is against the great weight and preponderance
of the evidence; and 2) by not finding the transfers from Scott to entities either directly or
through sham foreclosures were fraudulent and made for the specific purpose of hindering
creditors and/or any factual findings to the contrary are against the great weight and
preponderance of the evidence. For reasons hereinafter stated, we affirm the judgment of
the trial court.
On November 16, 1989, Sterquell filed suit against Scott seeking to recover the
balance due on a note secured by lien on certain real estate not relevant to this appeal. On
January 16, 1991, he recovered a judgment in the amount of $10,951.84. On January 29,
1991, he filed an abstract of that judgment in the Potter County Clerk’s office. On June 24,
1997, Sterquell filed the suit giving rise to this appeal against Scott, individually and as
trustee of the Trust, and Nusara Kaentong (Kaentong). In his first amended original
petition, his action pleading, Sterquell alleged the abstract of judgment had created a lien
on all property owned by Scott in Potter County at the time. He further alleged that Scott,
in an attempt “to hide, transfer and conceal assets” had transferred many properties to the
Trust and other entities, persons and insiders, “including without limitation” the properties
identified as Exhibit C, which was a listing of deeds and transfers of various Potter County
properties. Because of the number of the properties listed in Exhibit C, their actual legal
description will be referred to only should it become necessary to a proper discussion of the
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issues in this appeal. At this point, suffice it to say, the conveyances referred to in the
pleading and included as exhibits, each reciting a formal consideration, were made by Scott
to the Trust on October 1, 1990, March 5, 1991, April 17, 1991, May 6, 1991, September
11, 1992, and January 21, 1993. In his suit, Sterquell further alleged that the Trust and
Kaentong purchased properties from Scott “with notice of defendant transferor’s [Scott’s]
intent to delay, hinder, and defraud” him and that the property was transferred for less than
fair consideration. In response to Sterquell’s suit, Kaentong filed a general denial.
In Scott’s response to the suit, in addition to a general denial, he asserted that prior
to the date of the abstract of judgment, on August 7, 1990, a purchase money lien existed
securing a note in the original principal amount of $99,000 in favor of First American Title
Insurance Company. He further asserted that the note and the liens securing it were
transferred to the Trust and, on September 2, 1997, the Trust purchased the property at
a non-judicial foreclosure sale, thereby cutting off any judgment lien. However, the copies
attached to the pleading show that the lien only covered the four tracts of property conveyed
by Scott to the Trust on March 5, 1991.
The suit proceeded to a bench trial at which both Scott and Sterquell testified. The
only other witness was Mitch D. Carthel, whose testimony was limited to attorney fees. The
trial resulted in the judgment from which Sterquell brings this appeal. As a result of
Sterquell’s request and a remand by this court for the purpose of obtaining these findings,
the trial court entered its findings of fact and conclusions of law. The findings of fact are:
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1. On January 16, 1991, the Plaintiff, Steve W. Sterquell (“Sterquell”),
obtained a judgment against the Defendant, Neal B. Scott (“Scott”) in the
amount of $10,951.84.
2. Sterquell filed an Abstract of Judgment on January 16, 1991, in Potter
County, Texas.
3. Scott attempted to transfer various tracts of real property situated in Potter
County, Texas to the Defendant, Neal B. Scott, Trustee of the Andrea Lynn
Scott Trust (“Trust”).
4. The Trust is not the alter ego of Scott, and does not constitute a sham
entity.
5. Scott did not transfer property to the Trust with the intent to delay, hinder,
and defraud Sterquell.
6. Scott did not transfer property to the Shapiro Family Limited Partnership
with the intent to delay, hinder, and defraud Sterquell.
7. The properties transferred to the Trust were not transferred for less than
fair and adequate consideration.
The trial court’s conclusions of law were:
1. The Abstract of Judgment filed by Sterquell on January 16, 1991, created
a judgment lien on any non-homestead real property located in Potter County,
Texas, owned by Scott on or after that date.
2. Sterquell failed to meet his burden of proof of establishing that Scott
owned any of the property in question on or after January 16, 1991.
3. Sterquell failed to meet his burden of proof regarding the establishment of
a judgment lien.
4. Sterquell failed to meet his burden of proof regarding the allegation that
Scott was insolvent at the time of any transfer in question.
5. Sterquell failed to meet his burden of proof regarding the claims made in
this suit.
6. Sterquell is not entitled to foreclosure of his Judgment Lien.
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7. Sterquell is not entitled to the recovery of monetary damages in this cause.
8. Sterquell is not entitled to the recovery of exemplary damages in this
cause.
9. Sterquell is not entitled to the recovery of attorney’s fees in this cause.
10. Sterquell is not entitled to the recovery of costs in this cause.
11. All costs of court should be assessed against Sterquell.
Because of the questions presented in the appeal, it is necessary to discuss in some
detail the somewhat labyrinthine evidence produced at the trial of this matter. At the
hearing, Sterquell initially presented deposition testimony of Scott. He presented the portion
of the deposition in which Scott testified that at the time he lived in Amarillo, he was a
speculator dealing in real estate. In the deposition, he averred that the Shapiro Family
Limited Partnership (the Partnership) consisted of the Shapiro Family Limited Partnership
and the Neal B. Scott Trust. The Dorothy Shapiro Estate,2 he said, was a limited partner
in the Partnership, as was the Neal B. Scott Trust. He also said that both of these entities
were general partners in the Partnership. Scott said he did not know who the executor of
Dorothy Shapiro’s will was, but the Trust was the beneficiary of the will. He estimated that
his mother had put “probably 98 percent” of her property prior to her death in the
Partnership. He also said that while she was living, his mother was the general partner as
well as a limited partner and, as trustee of the Trust, he also acted as both a general and
limited partner. His present occupation, he said, was to oversee the Limited Partnership
and “whatever interests.”
2
Dorothy Shapiro was his mother.
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At the time the trust was created, Scott said he put $100 into it as well as his interest
in the Limited Partnership, he did not know the time sequence, and “the attorneys handled
it.” He admitted that he had had some financial difficulties for some time and his mother as
well as the attorneys who handled “this” were aware of those difficulties. He did not know
of any additional assets that had been placed in the Trust since its inception. He did know
that he was the principal beneficiary of the Trust. He was not employed at the time of the
deposition and his only income was “reimbursements” for out of pocket expenses. He had
no checking or savings accounts or credit cards. His reimbursement was paid by whichever
entity he was “watching.” He denied that he had any cash other than “for reimbursements
or advances that I have to show receipts for.” He admitted that as trustee he was the one
who decides if advances would be made. He was the only one who was involved in the
creation of the Trust. He denied that he knew all the assets that the Trust possessed, but
“the accountants have a list.”
Scott averred that Andrea Lynn Scott was the only one who receives cash
distributions from the Trust “when there’s –it’s available.” He admitted that he, as trustee,
was the one responsible for making the determination of, and actually making the
distribution from, the Trust. He said he owed the Partnership $800,000 as the result of a
judgment against him that it bought. In making that purchase, he testified, his attorney,
“[t]he Chicago attorneys, probably, and the bank in Chicago” participated. The decision to
purchase, he said, was a “consensus” among the participants, which included his mother.
He averred that she was “fully cognizant” of the deal and “was looking at it as a business
deal.” The judgment was purchased for $235,000. His mother thought she would make
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money by “foreclosing on me and getting the shopping center” because “[t]hey purchased
the security interest.” The shopping center was foreclosed upon and ended up being owned
by the Partnership. It was still owned by the partnership at the time of the deposition. He
did not know if the partnership would purchase any other judgments, but if a decision to
purchase other judgments was made, it would be made by his attorney and his accountants.
At the time the deposition was first “noticed,” Scott was in Paraguay looking at
import/export deals in leather goods and real estate. His expenses while there were paid
by the Trust and the Limited Partnership. He did not remember whether he had transferred
any assets to the Trust, the Neal B. Scott Trust, or the Limited Partnership since 1991, but
“[i]t would all be in the bookkeeping.”
When queried about the property located at 1601 South Jackson Street in Amarillo,
he said Kaentong was a friend of his and he sold the property to her in “[p]robably ‘96, ‘97.”
The property was owned by the Trust at the time and she had offered “hundred, twenty-five,
hundred thousand, somewhere in that area,” which he thought was fair. He had bought the
property and it was transferred to the Trust encumbered with a lien in favor of First
American Title Insurance Company. The note was bought by the Trust and the lien securing
the property was foreclosed. As trustee of the Trust, he decided to quit making payments
on the note and to foreclose on the note, and the Trust “got it back” at the foreclosure sale.
He admitted that he was in charge of overseeing all the entities and he had discretion with
regard to “investments and use of funds.”
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Subsequent to the receipt of the deposition testimony, Sterquell tendered into
evidence a certified copy of his original petition for the announced purpose of showing that
“the suit was filed for purposes of [the] Fraudulent Transfer Act.” He also tendered into
evidence certified copies of the abstract of his judgment against Scott, the transfer of lien
from First American Title Insurance Company to Neal B. Scott, as trustee of the Andrea
Lynn Scott Trust, and plaintiff’s exhibit 7, which consisted of certified copies of the seven
deeds from Scott to the Trust we have referred to above. He also tendered his exhibit 9,
which was a certified copy of a Substitute Trustees’ Deed from Russel L. Robinson, as
substitute trustee, to Neal B. Scott, as trustee of the Trust, which recited that it was the
result of the foreclosure of a note in the original principal amount of $480,000 in favor of City
Savings and Loan Association executed by Neal B. Scott (individually), and others dated
January 11, 1989, covering a 5.191 tract of land out of sections 159 and 166, Block 2, A.
B. & M. Survey in Potter County, as well as his exhibit 10, which was a correction substitute
trustee’s deed covering the same property described in his exhibit 10.
Sterquell’s next witness was attorney Mitch D. Carthel, who testified that attorney’s
fees in the amount of $11,387.75 had been incurred by Sterquell up to the date of the
testimony and that such fees were reasonable and necessary. He also averred that the
amount due and owing on Sterquell’s judgment as of the date of the testimony was
$21,346.84.
Plaintiff Sterquell was called by Scott and was the next witness who testified. He
said that he was a Certified Public Accountant and that a “collectible” abstract of judgment
would be considered an asset. When asked, he acknowledged that he had served on the
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board of First Federal Savings and Loan Association, which had failed. He acknowledged
that he had filed a petition seeking Chapter 11 bankruptcy on August 6, 1991, in which he
failed to separately list the judgment in question here as an asset, although it was included
in a total figure of assets, but averred that he had settled with all his creditors and the
proceeding was dismissed. He was also examined about his understanding of the effect
of spendthrift trusts and limited partnerships and acknowledged that in a limited partnership,
the limited partner’s exposure to liability was limited to the partner’s share in the limited
partnership.
Scott then testified. He said that the Shapiro Family Limited Partnership was set up
by his mother with the aid of her attorneys and that neither he nor his attorney had
participated in its creation. He averred that the Neal Scott Trust’s interest in the Limited
Partnership was only “point 57650" and he personally had no interest in it. He then
identified the Neal Scott Trust Agreement and it was received into evidence. He said that
the trust was set up by his mother with the aid of her attorneys and an officer of Northern
Trust Company, who held all his mother’s assets in trust and “they managed the trust.” He
denied that he had ever conveyed any real property into the Limited Partnership and the
assets of the Neal Scott Trust were limited to the amount of its interest in the Limited
Partnership. He admitted that he was the lifetime beneficiary of that trust and funds
belonging to the trust would be distributed to him “[i]f it’s available.” He testified that both
the Neal Scott Trust and the Limited Partnership have filed tax returns with the Internal
Revenue Service and their separate identities have never been challenged.
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His testimony was then directed to the Andrea Lynn Scott Trust. He said that he was
responsible for the creation of that trust and that it was created on October 1, 1990, which
was before the date of Sterquell’s judgment against him. His mother and his aunt had
sizeable estates and at the time of the creation of the Limited Partnership and the Andrea
Lynn Scott Trust, he and his mother were attempting to avoid estate and inheritance tax
problems and his mother transferred the assets to the Trust. The Andrea Lynn Scott Trust
had a tax ID number and had filed tax returns every year without being audited.
With reference to the property on which First American Title Insurance Company had
a lien, he said he had purchased the property from that company and had signed a note
and deed of trust in connection with the purchase. Although the Andrea Lynn Scott Trust
purchased the note and lien from the company, he said the money for that purchase came
directly from his mother with instructions that they be transferred to the Trust. Because the
note was in default at the time and the company had threatened legal action, his mother
decided to purchase the note and lien.
When queried whether he continued to actively manage and participate in
management decisions for the Andrea Lynn Scott Trust, his response was “[o]n a day-today basis, not really.” Other than being the lifetime income beneficiary, he denied he had
any ownership interest in that trust. He also averred that neither the Neal Scott Trust nor
the Limited Partnership in any way participated in “any transaction about which Mr. Sterquell
is complaining.” He also testified that the properties transferred into the Trust were not
made to avoid payment to a judgment creditor, but “in order to take care of some rather
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substantial estate and inheritance tax problems” and denied that it was created to evade
any liabilities he might have owed.
Under cross-examination, he admitted that the Andrea Lynn Scott Trust was created
after he had been sued by Sterquell but before the judgment was rendered. He also
admitted that at the time the trust was created, he was in serious financial trouble. Even
though he was in that condition, he insisted that the Trust was created for estate planning
purposes because “[i]n 1990, we didn’t know,” and if his mother had died in December
1990, he “would have had real estate planning problems.” He admitted that he was the
trustee under the Trust, had control over what was paid out and, although he was just the
life beneficiary, he had the right to manage it. He also admitted that he was the trustee of
the Neal B. Scott Trust and a general partner in the Limited Partnership. He admitted that
every one of the pieces of property listed in plaintiff’s exhibit 7 was transferred to the Trust
subsequent to the abstract of Sterquell’s judgment except the last one, which was conveyed
in October of 1990. When queried about the October 1990 conveyance being made before
the date the Andrea Lynn Scott Trust was created in November 1990, his response was that
the date was probably in error because the notary’s acknowledgment was dated November
20, 1990.
The cross-examination then turned to the foreclosure of the lien purchased from First
American Title Insurance Company. He said that the note and liens were bought by the
Trust with money that his mother gave the Trust. He admitted that the property was owned
by the Trust at the time of the foreclosure and in effect, it foreclosed the lien against itself
and he was the trustee who made the decision to implement the foreclosure. He also
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admitted that the record showed that the Trust purchased the First American Title Insurance
Company lien for $63,000, but $150,000 was paid at the foreclosure sale. He did not know
where the excess money went. The cross-examination then went to the deed of trust
executed by Scott to secure the note in the original principal amount of $480,000 in favor
of City Savings & Loan. The Trust owned that property at the time it was foreclosed upon
by the Limited Partnership. He was examined and admitted that all his living expenses were
paid for by the various entities for which he was trustee and he was the one who made the
decisions on those reimbursements.
On re-direct, Scott was shown and identified a correction substitute trustee’s deed
which showed the property securing the lien purchased from City Savings & Loan was
actually purchased at the foreclosure sale by the Limited Partnership for $200,000 and the
purchase took place during the period of time when Scott’s mother was controlling the
Limited Partnership. The money, he averred, came directly from his mother’s account while
she was alive. He also said that none of his money went into the purchase of the First
American Title Insurance Company lien by the Trust. He additionally averred that he lived
a “rather meager lifestyle.”
At the conclusion of the evidence, the trial judge noted the confusing state of the
record concerning the various properties and conveyances.
He directed that he be
furnished with “an abbreviated title run” on the properties involved because of the
complexity of the testimony relating to the various properties and the lack of clarity in the
testimony. However, no such instrument is shown in the record.
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The essence of Sterquell’s action is that Scott created sham entities and fraudulently
transferred the properties described in his first amended original petition to them to avoid
the effect of Sterquell’s abstract of judgment. The pertinent legislation concerning transfers
of that nature is that contained in the Uniform Fraudulent Transfer Act (UFTA). That
legislation is contained in Chapter 24 of the Business and Commerce Code (Tex. Bus. &
Com. Code Ann. §§24.01 et seq. (Vernon 2002)). That statute provides that a transfer
made, or an obligation incurred by a debtor is fraudulent as to a present or future creditor
if the debtor made the transfer or incurred the obligation with actual intent to hinder, delay,
or defraud any creditor. See id. §24.005(a)(1). It also provides that, among others, certain
factors may be considered in determining whether a debtor acted with actual intent to
hinder, delay, or defraud, namely:
1. if the transfer was to an insider;
2. if the debtor retained possession or control of the property transferred after
the transfer;
3. if the transfer was concealed;
4. if before the transfer was made or the obligation incurred, the debtor had
been sued or threatened with suit;
5. if the transfer was of substantially all the debtor’s assets;
6. whether the debtor absconded;
7. whether the debtor removed or concealed assets;
8. whether the value of the consideration received by the debtor was
reasonably equivalent to the value of the asset transferred or the amount of
the obligation incurred;
9. whether the debtor was insolvent or became insolvent shortly after the
transfer was made or the obligation was incurred;
10. whether the transfer occurred shortly before or shortly after a substantial
debt was incurred; and
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11. whether the debtor transferred the essential assets of the business to a
lienor who transferred the assets to an insider of the debtor.
Id. §24.005(b). A fraudulent intent must be affirmatively shown and will not be presumed.
Englert v. Englert, 881 S.W.2d 517, 518 (Tex. App.–Amarillo 1994, no writ).
We find that Sterquell’s asserted points of error are sufficient to challenge both the
legal and the factual sufficiency of the evidence to support the trial court judgment. In
considering Sterquell’s legal insufficiency or no evidence point, we must view the evidence
in a light that tends to support the disputed findings and disregard evidence and inferences
to the contrary. If more than a scintilla of evidence supports the challenged findings, the no
evidence challenge must fail. Wal-Mart Stores, Inc. v. Canchola, 121 S.W.3d 735, 739
(Tex. 2003).
In considering factual insufficiency challenges, we must review all the
evidence, both favorable and unfavorable, and may only reverse if the finding is so against
the great weight and preponderance of the evidence as to be manifestly erroneous or
unjust. In re King’s Estate, 150 Tex. 662, 664-65, 244 S.W.2d 660, 661 (1951).
In conducting our review of those factual insufficiency challenges, we do not reweigh
the evidence and set the finding aside merely because we feel that a different result is more
reasonable. Pool v. Ford Motor Co., 715 S.W.2d 629, 634 (Tex. 1986), overruled on other
grounds by Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378 (Tex. 2000). The factfinder,
whether jury or trial court in a bench trial, is the sole judge of the credibility of the witnesses
and the weight to be given their testimony. Leyva v. Pacheco, 163 Tex. 638, 358 S.W.2d
547, 549 (1962). The factfinder may believe one witness and disbelieve another and it may
resolve inconsistencies in testimony. McGalliard v. Kuhlmann, 722 S.W.2d 694, 697 (Tex.
14
1986). When there is enough evidence before the factfinder that reasonable minds could
differ on the meaning of the evidence or the inferences or conclusions to be drawn from the
evidence, we may not substitute our judgment for that of the factfinder nor may we reverse
merely because we conclude the evidence preponderates toward answers different from
those found by the factfinder. Herbert v. Herbert, 754 S.W.2d 141, 144 (Tex. 1988).
After reviewing the evidence in the light by which we must view it, while the evidence
might have been sufficient to raise fact issues, we cannot say that the trial court’s resolution
of those factual issues was against the great weight and preponderance of the evidence.
Without again detailing the evidence we have set out above, this is particularly true in view
of the lack of any evidence that Scott had any part in the creation of the Limited Partnership
or that he transferred any property to that entity, coupled with the testimony that the
Partnership purchased and foreclosed on the City Savings and Loan Association lien.
Additionally, the evidence in regard to the creation of the Andrea Lynn Scott Trust and its
foreclosure of the First American Title Insurance Company lien supports the trial court’s
resolution of the evidence. The trial court could well have also placed emphasis on the
paucity of evidence bearing on the question as to whether the properties transferred
constituted all or a substantial part of the property owned or that might have been owned
by Scott. The trial court could also have accepted the testimony that the various entities
were created for legitimate estate planning purposes and, in most instances, were not
created by Scott. Moreover, it could have placed some credence in the fact that the
transfers were matters of public record and apparently without any attempt to hide them.
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In sum, under the record before us, reasonable minds could differ on the meaning
of the evidence and the inferences or conclusions to be drawn from that evidence. That
being so, we must, and do, overrule Sterquell’s points and affirm the judgment of the trial
court.
John T. Boyd
Senior Justice
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