Filed: Oct. 29, 2002
Latest Update: Feb. 21, 2020
Summary: IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 02-10322 Summary Calendar _ In The Matter Of: TOPCOR INC. Debtor - PAUL C NORDBERG, Trustee of the Estate of Topcor Inc Appellant v. CONTINENTAL ILLINOIS NATIONAL BANK & TRUST COMPANY OF CHICAGO Appellee _ Appeal from the United States District Court for the Northern District of Texas No. Civ.A. 3:01-CV-510-M _ October 28, 2002 Before KING, Chief Judge, and SMITH and DENNIS, Circuit Judges. PER CURIAM:* This case is an appeal from
Summary: IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 02-10322 Summary Calendar _ In The Matter Of: TOPCOR INC. Debtor - PAUL C NORDBERG, Trustee of the Estate of Topcor Inc Appellant v. CONTINENTAL ILLINOIS NATIONAL BANK & TRUST COMPANY OF CHICAGO Appellee _ Appeal from the United States District Court for the Northern District of Texas No. Civ.A. 3:01-CV-510-M _ October 28, 2002 Before KING, Chief Judge, and SMITH and DENNIS, Circuit Judges. PER CURIAM:* This case is an appeal from ..
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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________
No. 02-10322
Summary Calendar
____________________
In The Matter Of: TOPCOR INC.
Debtor
--------------------------------
PAUL C NORDBERG, Trustee of the Estate of Topcor Inc
Appellant
v.
CONTINENTAL ILLINOIS NATIONAL BANK & TRUST COMPANY OF
CHICAGO
Appellee
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
No. Civ.A. 3:01-CV-510-M
_________________________________________________________________
October 28, 2002
Before KING, Chief Judge, and SMITH and DENNIS, Circuit Judges.
PER CURIAM:*
This case is an appeal from the district court’s Memorandum
Order and Opinion affirming both the Order Denying Plaintiff’s
*
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
Motion to Amend Complaint and the Final Judgment entered by the
bankruptcy court on November 8, 2000. For the reasons stated
below, we affirm the district court’s Memorandum Opinion and
Order.
I. FACTUAL AND PROCEDURAL BACKGROUND
Before setting out the facts, the complicated nature of the
dealings in this case suggests a roadmap of the involved parties
would be in order. At the time of the loans in question, Clint
Murchison owned several companies, in whole or in part,
including: Topcor, Inc. (“Topcor”), Topcor Financial
(“Financial”), Calfeed, Inc., (“Calfeed”), and NOE Corporation
(“NOE”). Topcor was the sole shareholder of Financial; it also
owned 90% of NOE and, through Corland (an additional subsidiary),
80% of Calfeed. NOE, in turn, owned 90% of New Orleans East,
Inc., a real estate holding company whose principal asset was a
large tract of undeveloped land within the City of New Orleans
(the “NOE Parcel”).
In 1981, Continental Bank, N.A., of Chicago (“Continental”)2
agreed to lend Financial $50 million, an obligation that Topcor
and Murchison both partially guaranteed. By 1983 Murchison was
having financial difficulties; on June 15, Murchison agreed to
have Topcor pledge 468 shares of NOE (out of a total of 900
shares of NOE’s common stock outstanding) to Continental to
2
The Appellee in this case, Bank of America, N.A., is the
successor-in-interest to Continental.
2
secure payments of $4 million in interest on various loans,
including the 1981 loan from Continental to Financial and a
separate $7.5 million note owed by Calfeed to Continental.
Unlike the Financial loan, Topcor was not a guarantor on the
Calfeed note.
On October 4, 1983, Topcor borrowed $10 million from Arab
Banking Corporation (“ABC”); the loan agreement specifically
stated that up to $6.5 million of the loan could be used to meet
the “working capital” requirements of other Murchison-controlled
entities. As collateral, Topcor gave ABC 900 shares of NOE,
including the 468 shares it had already given to Continental as
collateral on the interest payments. Continental released the
NOE shares to Topcor on the same date that ABC transferred the
loan proceeds to Topcor; an officer for Continental personally
delivered the certificates evidencing the shares to an officer
for ABC in New York. When Topcor received the proceeds, it sent
$4 million to Continental to satisfy its debt. Continental
applied $1,093,037.66 to pay past due interest owed on the
Calfeed note; it applied the balance of the $4 million to
interest (both overdue and prepaid) on the Financial loan.
On February 26, 1986, Topcor filed a Chapter 11 petition for
bankruptcy. No portion of the $10 million loan from ABC had been
repaid. On March 27, 1990, Topcor’s trustee3 in bankruptcy
3
In 1990, Topcor’s trustee in bankruptcy was A.M.
Mancuso. Nordberg was appointed successor trustee on December 7,
3
initiated a proceeding against Continental alleging that the
$1,093,037.66 transferred to Continental was a fraudulent
transfer under state law.4 As such, the trustee sought to avoid
the transfer under 11 U.S.C. § 544(b).5
The state law at issue is § 24.005(a) of the Texas version
of the Uniform Fraudulent Transfer Act. Section 24.005(a)
provides:
(a) A transfer made or obligation incurred by a debtor is
fraudulent as to a creditor, whether the creditor’s
claim arose before or within a reasonable time after
the transfer was made or the obligation was incurred,
if the debtor made the transfer or incurred the
obligation:
(1) with actual intent to hinder, delay, or defraud
any creditor of the debtor; or
(2) without receiving a reasonably equivalent value in
exchange for the transfer or obligation, and the
debtor:
(A) was engaged or was about to engage in a
business or a transaction for which the
remaining assets of the debtor were
unreasonably small in relations to the
business or transaction; or
(B) intended to incur, or believed or reasonably
should have believed that the debtor would
1998.
4
The trustee did not make any § 544(b) claim as to the
remaining $2,906,962.34 transferred to Continental. As Topcor
had guaranteed Financial’s debt to Continental, Topcor received
adequate consideration in the form of decreased liability as
guarantor.
5
Section 544(b) states in relevant part that “the trustee
may avoid any transfer of an interest of the debtor in property
or any obligation incurred by the debtor that is voidable” under
applicable state law. 11 U.S.C. § 544(b) (2000).
4
incur, debts beyond the debtor’s ability to
pay as they became due.
TEX. BUS. & COM. CODE ANN. § 24.005(a) (Vernon 2002).6
Section 24.005(a) provides two theories for a debtor seeking
to avoid a transfer: actual fraud (subsection 1) or constructive
fraud (subsection 2). While the original complaint alleged both
actual and constructive fraud as potential causes of action, in
the Pre-Trial Order Nordberg made only a constructive fraud claim
based on a lack of reasonably equivalent value. However, on May
12, 2000 - shortly before the trial - Nordberg filed a Motion for
Leave to Filed Amended Pretrial Brief and Amended Proposed
Findings of Fact and Conclusions of Law in order to reinstate his
actual fraud claim. The bankruptcy court denied the motion. On
July 28, 2000, Nordberg (having preserved the issue during the
four-day trial) filed a Motion to Amend Complaint to Conform to
the Evidence Admitted at Trial, once again seeking to reinstate
his actual fraud claim. The bankruptcy court denied that Motion
as well and, on November 2, 2000, the court found that Nordberg
had failed to prove a fraudulent transfer had occurred.
Nordberg appealed to the District Court for the Northern
District of Texas. In his appeal, Nordberg raised three issues:
(1) whether the bankruptcy court erred in holding that Nordberg
failed to prove that ABC received less than reasonably equivalent
6
While the trustee who filed the complaint was not the
original debtor in the case, the trustee was, in effect, stepping
into ABC’s shoes by seeking to avoid the transfer to Continental.
5
value; (2) whether the bankruptcy court erred in finding that, in
effect, ABC had consented to the transfer of funds by Topcor to
Continental; and (3) whether the bankruptcy court had erred in
refusing to grant either of the trustee’s motions to reinstate
the actual fraud claim against Continental.7 The district court
found for Continental on each of Nordberg’s three issues.8 In re
Topcor, Inc., No. Civ.A 3:01-CV-510-M, 2002 WL 226346 (N.D. Tex.
Feb. 13, 2002). Nordberg timely appealed to this court,
asserting the same three issues. Continental also reasserts its
limitations cross-appeal.
II. ANALYSIS
A. Constructive Fraud
The bankruptcy court found that Nordberg failed to prove
constructive fraud under § 24.005(a)(2). Findings of fact by the
bankruptcy court will not be overturned unless they are clearly
erroneous. In re Jack/Wade Drilling, Inc., 258 F.3d 385, 387
(5th Cir. 2001).9 The bankruptcy court’s finding that there was
7
Continental also cross-appealed, arguing that Nordberg’s
claims should be barred by the limitations period set forth in 11
U.S.C. § 546(a).
8
As a result, Judge Lynn did not reach Continental’s §
546(a) cross-appeal.
9
Nordberg argues that a de novo standard, rather than the
clearly erroneous standard, is appropriate because, in its
findings of fact, the Bankruptcy court stated that Nordberg had
presented “no evidence” as to the value of the NOE stock at the
time of the transfer. This court disagrees; regardless of what
the Bankruptcy court stated, the totality of its Memorandum
Opinion and Order demonstrates that it reached its conclusion
6
no fraudulent transfer was based on its conclusion that Nordberg
failed to prove that the value of the NOE stock was not
“reasonably equivalent” to the $1,093,037.66 that Continental
received in exchange for the stock.
Section 24.005(a)(2) permits a creditor to avoid a transfer
where it appears that the debtor “made the transfer or incurred
the obligation without receiving a reasonably equivalent value in
exchange for the transfer or obligation.” TEX. BUS. & COM. CODE
ANN. § 24.005(a)(2) (Vernon 2002). A transfer has been made for
a reasonably equivalent value so long as the value is “within the
range of values for which the transferor would have sold the
assets in an arm’s length transaction.” TEX. BUS. & COM. CODE ANN.
§ 24.004(d) (Vernon 2002). The determination of what constitutes
a “reasonably equivalent value” must be made as of the time of
the transfer, without the benefit of hindsight as to what
actually transpired after the transfer that might have affected
the value. In re Fairchild Aircraft Corp., 6 F.3d 1119, 1125-26
(5th Cir. 1993).
At the time of the transfer, NOE’s main asset was the nearly
30,000 acre tract of land comprising the NOE Parcel. At trial,
Nordberg argued that the NOE Parcel was worthless because certain
regulatory decisions concerning flood insurance and drainage for
the parcel had left it largely as unusable wetlands. As a
based upon a careful weighing of the evidence presented. The
clearly erroneous standard of review therefore applies.
7
result, the stock ABC received in exchange for the loan - which
represented about 90% of the ownership of NOE - was worthless.
Nordberg presented as a witness Ronda Collum, a CPA, who
confirmed that the value of the stock as of October 4, 1983 (the
date of the transfer) must have been zero. Her reasoning for
this finding was that Topcor itself valued the stock at zero in a
February 1984 financial statement; because nothing had happened
to the land or to NOE between October 4, 1983 and February 1984
that would have affected its value, she concluded that the value
of the stock on October 4, 1983 must have been zero.
Continental countered this argument by presenting three
separate appraisals of the NOE Parcel, each done close in time to
October 4, 1983. Two of these appraisals had been conducted at
the behest of ABC when it was deciding whether or not to take the
NOE stock as collateral for its loan to Topcor. Each of the
three appraisals put the approximate value of the NOE Parcel at
more than $100 million (though the appraisals do assume that the
flood insurance and drainage permits, which were ultimately
denied, would be approved).
The bankruptcy court, while noting that the parties had
presented conflicting evidence on the value of the NOE stock at
the time of the transfer, ultimately found for Continental.
Nordberg, as plaintiff, had the burden of proof on this issue.
While Nordberg does present some evidence that the NOE stock was
of little value at the time of the transfer, he does little to
8
explain away the three appraisals which tend to show otherwise.
The argument that the appraisals are invalid because they assume
the drainage and flood insurance permits will be granted is
insufficient; at the time the transfer was made, there was no
evidence that the permits would not (as expected) be granted.
In fact, the two appraisers hired specifically by ABC to
value the land in connection with the Topcor loan placed the
value of the NOE Parcel at approximately $100 million; if it had
been expected at that time that the necessary permits would not
be forthcoming, the appraised value of the NOE Parcel would have
been far less. Because the three appraisals presented at trial
tend to show that, as of October 4, 1983, the value of the NOE
stock was approximately $100 million, the bankruptcy court found
that Nordberg failed to meet his burden of proving that
reasonably equivalent value did not pass in exchange for the NOE
stock. That decision was not clearly erroneous.
B. Consent to the Transfer
Nordberg also argues that the bankruptcy court erred in
finding that the transfer was not fraudulent because ABC
consented to the use of the money to pay interest owed to
Continental. This is also a question we review under a clearly
erroneous standard.
We agree with the reasoning employed by the district court
in disposing of this issue on appeal. The bankruptcy court, in
ruling in favor of Continental, rested its judgment on two
9
separate and distinct bases: Nordberg failed to prove
constructive fraud, and ABC consented to the use of the money by
expressly stating in the loan agreement that up to $6.5 million
of the loan could be used as “working capital” for any of the
Murchison-owned enterprises. Because either ground would be
sufficient to uphold the final judgment in favor of Continental,
a holding that the bankruptcy court was clearly erroneous in
finding that ABC consented to transfer of funds to Continental
would be no more than a harmless error.
Nevertheless, we agree that, on the record, it was not
clearly erroneous for the bankruptcy court to find that ABC
consented to use of the funds to satisfy interest payments owed
to Continental on the Financial loan. At trial, Continental
presented testimony that one valid use of working capital is the
payment of past-due interest (so long as the interest is not more
than one year overdue). Nordberg countered that definition of
“working capital” with one of his own, but the bankruptcy court
found that the weight of the evidence supported a finding that
ABC consented to the transfer when it permitted Topcor to use the
10
funds as “working capital.”10 The bankruptcy court’s ruling was
not clearly erroneous.
C. Motions to Amend
Nordberg’s final argument is that the bankruptcy court erred
in refusing to permit him to amend the pre-trial order to include
both the actual fraud claim and an additional claim that the
balance of the $4 million loan should also be treated as a
fraudulent transfer.11 This court reviews denials of such
motions under an abuse of discretion standard. In re Matter of
Southmark Corp., 88 F.3d 311, 314 (5th Cir. 1996).
The trial court has “broad discretion” in deciding whether
to permit a party to amend the pre-trial order. Thomas v. Tex.
Dept. of Criminal Justice, 220 F.3d 389, 394 (5th Cir. 2000).
“The order following a final pretrial conference shall be
10
Judge Abramson discounted much of Nordberg’s testimony
for two grounds: (1) Nordberg called himself as a fact witness
even though he had not personally taken part in any of the
transactions at issue; and (2) Nordberg stood to receive 50% of
any damage award as a contingency fee. The contingency in
particular, while not improper as Nordberg was both the trustee
in bankruptcy (who deserves some compensation for his services)
and a fact witness rather than an expert witness, does tend to
color Nordberg’s testimony with questions of bias. Even if he
were an objectively neutral witness, though, the contents of the
trial record would not be sufficient to warrant reversal of the
bankruptcy court under a clearly erroneous standard of review.
11
Unlike the claim for actual fraud, the claim that the
approximately $2.9 million that went to the Financial loan was a
fraudulent transfer was not a part of the original complaint.
11
modified only to prevent manifest injustice.” FED. R. CIV. P.
16(e). Factors to be weighed when deciding whether to permit
amendment of a pre-trial order include: “(1) the prejudice or
surprise in fact to the opposing party; (2) the ability of the
party to cure the prejudice; (3) the extent of disruption of the
orderly and efficient trial of the case; and (4) the bad faith or
willfulness of the non-compliant party.” Rapco, Inc. v. C.I.R.,
85 F.3d 950, 953 (2d Cir. 1996) (citation omitted).
Nordberg’s first argument - that the Pre-Trial Order in this
case was invalid because it was not docketed until after the
beginning of the trial - is without merit. Nordberg’s counsel
signed the order (as did counsel for Continental); the bankruptcy
judge also signed it before the trial began on May 23, 2000.
This court agrees with the District court, which said that
Nordberg’s “attempt to invalidate what he himself took part in
creating is not only illogical, but duplicitous.” In re Topcor,
Inc., at *5.
While the original complaint in this case included an actual
fraud claim, Nordberg omitted that claim from the final Pre-Trial
Order. The bankruptcy court found that this omission constituted
a waiver of the actual fraud claim, a decision that this court
does not find to be an abuse of discretion. In addition,
permitting Nordberg to amend the pre-trial order to include a new
(though related) cause of action less than ten days before the
12
trial was to begin would have unduly prejudiced Continental.
Similarly, the bankruptcy court did not abuse its discretion by
denying Nordberg’s Motion to Amend Complaint to Conform to the
Evidence Submitted at Trial. Permitting amendment after trial
would have been even more prejudicial than permitting amendment
before trial, since Continental would then have lost its
opportunity to rebut the actual fraud argument at trial.
Even more prejudicial would be leave to amend the Pre-Trial
Order to include a claim against the $2.9 million that went
toward interest on the Financial loan. This claim, unlike the
actual fraud claim, was not even a part of the original
complaint. If Continental would be prejudiced by permitting
Nordberg to add a claim about which he had at least provided some
prior notice, the prejudice would be much more severe where no
notice at all had been previously served on Continental.
Therefore, the bankruptcy court did not abuse its discretion in
denying Nordberg’s motions.
III. CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s
Memorandum Order and Opinion.
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