Filed: Aug. 23, 2001
Latest Update: Mar. 02, 2020
Summary: UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 00-10967 _ In the Matter of KAREN GILLUM, Debtor. _ RANDOLPH ROYAL GILLUM, Appellant, v. KAREN GILLUM, Appellee. _ Appeal from the United States District Court For the Northern District of Texas (3:00-CV-738-G) _ August 7, 2001 Before DAVIS, WIENER and STEWART, Circuit Judges. W. EUGENE DAVIS, Circuit Judge:* Karen Gillum sued her brother, Randolph Gillum, on various causes of action arising out of their complicated business relationship
Summary: UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 00-10967 _ In the Matter of KAREN GILLUM, Debtor. _ RANDOLPH ROYAL GILLUM, Appellant, v. KAREN GILLUM, Appellee. _ Appeal from the United States District Court For the Northern District of Texas (3:00-CV-738-G) _ August 7, 2001 Before DAVIS, WIENER and STEWART, Circuit Judges. W. EUGENE DAVIS, Circuit Judge:* Karen Gillum sued her brother, Randolph Gillum, on various causes of action arising out of their complicated business relationship...
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UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
________________________________
No. 00-10967
________________________________
In the Matter of KAREN GILLUM,
Debtor.
_______________________________
RANDOLPH ROYAL GILLUM,
Appellant,
v.
KAREN GILLUM,
Appellee.
_____________________________________________
Appeal from the United States District Court
For the Northern District of Texas
(3:00-CV-738-G)
_____________________________________________
August 7, 2001
Before DAVIS, WIENER and STEWART, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:*
Karen Gillum sued her brother, Randolph Gillum, on various
causes of action arising out of their complicated business
relationship. After a trial held in the bankruptcy court, a jury
found that Randolph had converted $375,000 in cash and $1.1 million
*
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this opinion should not be published and is not precedent except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.
in accounts receivable belonging to Pioneer Imaging and Diagnosis,
Ltd. (“Pioneer”), a partnership between the two siblings. The
district court subsequently affirmed these findings. Randolph now
appeals, principally contesting the sufficiency of the evidence
supporting the two conversion findings by the jury. Because the
evidence was sufficient to sustain only one of the conversion
findings by the jury, we vacate the judgment of the district court
and remand this case for further proceedings.
I.
Karen and Randolph are both doctors with practices in northern
Texas. Successful in practice, each was also involved in other
business ventures. In particular, Karen gave Randolph $20,000 for
a half interest in Texas Summitt Corporation (“TSC”). TSC was
involved in a number of businesses operated by Randolph, including
construction and real estate. Though Karen bought a half interest
in TSC, she owned no TSC stock of any kind. Rather, she relied on
her brother’s promise that she had a claim to half of TSC’s equity.
In 1991 the two siblings formed Pioneer as part of a plan to
transfer half of TSC’s stock to Karen. Pioneer, a partnership,
provided imaging and diagnostic services to plaintiffs in
connection with their personal injury lawsuits. Pioneer was
capitalized primarily with loans from TSC and leased the equipment
used in its business. Karen owned 99% of TSC and Randolph the
other 1%. The two siblings intended to expand Pioneer’s business
and then merge it with TSC. They thought that this plan would
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allow them to avoid the substantial gift taxes Randolph would incur
if he simply gave half of TSC’s stock to Karen.
In 1994 Randolph made a number of payments to Karen. The
nature and purpose of these payments was disputed by the two
siblings. The jury determined that Randolph lent Karen $600,000
and that he paid her $1.5 million for half of Pioneer’s accounts
receivable.1 At the time Randolph made these payments, Pioneer had
$2.4 million of accounts receivable on its balance sheet. At the
same time Randolph made these payments in 1994, he--with Karen’s
consent--also began controlling the operations of Pioneer.2 He did
so until he purchased all of Karen’s interest in Pioneer in 1996.
The total consideration Karen received in 1996 was a nominal amount
of money and release of guarantees of Pioneer’s indebtedness.
In 1997 Karen sued Randolph and several other parties in Texas
state court, asserting various causes of action. After Karen filed
for bankruptcy, she removed the case to the bankruptcy court. The
bankruptcy court ultimately tried three of Karen’s causes of action
against Randolph to a jury. On the first cause of action, for
breach of contract, the jury found that while Randolph had promised
to give half of the equity of TSC to Karen, he did not breach that
1
Randolph also made a payment to Karen of $110,000 at this
time. The jury found that this payment was not a loan to Karen by
Randolph. Otherwise, the nature of the payment is unclear.
2
The record is in fact unclear as to who controlled Pioneer’s
operations before 1994. Regardless, the parties do not dispute
that Randolph controlled Pioneer’s operations after his payments to
Karen in 1994.
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promise. On the second cause of action, for breach of fiduciary
duty, the jury found that while Randolph had breached the fiduciary
duty he owed Karen with respect to Pioneer, Karen was not damaged
by that breach. On the third cause of action, for conversion, the
jury found that Randolph had converted $375,000 in cash and $1.1
million in accounts receivable belonging to Pioneer. The jury
found that Karen incurred damages of $1.475 million as a result of
the conversions by Randolph. The jury also found that Karen sold
her interest in Pioneer on March 20, 1996, and that she knew or
should have known of the conversion of assets by Randolph on that
same date. After denying Randolph’s motions for judgment as a
matter of law and for a new trial, the bankruptcy court entered
judgment for Karen for $875,000 plus interest and costs. The
bankruptcy court determined this amount by subtracting the $600,000
Karen still owed Randolph from the jury’s damage finding of $1.475
million.
Randolph appealed the judgment of the bankruptcy court to the
district court. The district court affirmed the judgment of the
bankruptcy court in all respects, finding in particular that there
was sufficient evidence to support the jury’s findings that
Randolph converted both cash and accounts receivable belonging to
Pioneer.
Randolph now appeals the judgment of the district court,
raising four issues. Randolph argues, 1) that Karen may not sue
for conversion of Pioneer’s assets when she knew or should have
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known of that conversion on the same day she sold her interest in
Pioneer to Randolph, 2) that the claim for conversion of Pioneer’s
assets must be asserted by Pioneer and Karen may not assert this
claim on behalf of Pioneer against Randolph, 3) that there is
insufficient evidence in the record to show that Randolph converted
Pioneer’s cash, and 4) that there is insufficient evidence in the
record to show that Randolph converted Pioneer’s accounts
receivable.
II.
A.
We begin with the first two issues advanced by Randolph. The
record reflects that Randolph did not raise either issue in the
bankruptcy court. “It is well established that we do not consider
arguments or claims not presented to the bankruptcy court.” In Re
Gilchrist, 891 F.2d 559, 561 (5th Cir. 1990); see also In Re
Fairchild Aircraft Corp.,
6 F.3d 1119, 1128 (5th Cir. 1993). As
such, we will not pass on the merits of either of the first two
issues raised by Randolph.
B.
We turn next to Randolph’s argument that Karen presented
insufficient evidence to support the jury’s finding that he
converted cash belonging to Pioneer. We review the sufficiency of
evidence de novo, reviewing all the evidence in the record without
making determinations about credibility or the weight of the
evidence. Serna v. City of San Antonio, 244 F.3d 479, 481 (5th
-5-
Cir. 2001).
Texas law recognizes an action for conversion of cash, so long
as the cash is identifiable as a distinct chattel and the
conversion action is not simply an action for payment of a debt.
Estate of Townes v. Townes, 867 S.W.2d 414, 419 (Tex. App. -
Houston [14th Dist.] 1993, writ denied). Otherwise the elements of
the action are the same as they would be with other personal
property - namely, wrongful exercise of dominion or control over
another’s property in denial or inconsistent with the rights of
others in that property.
Id.
In this case, Karen established that Randolph controlled the
affairs of Pioneer. She also produced four checks with a total
value of $375,000 that Randolph had Pioneer issue to him. When
Randolph had these checks issued, Karen still owned 99% of Pioneer.
Though there was conflicting evidence on this point, the jury could
have concluded that Randolph was not entitled to any distributions
of cash from Pioneer. As such, the evidence was sufficient to
support the jury’s findings that Randolph converted $375,000 in
cash belonging to Pioneer.
C.
We turn finally to the sufficiency of the evidence supporting
the jury’s finding that Randolph converted $1.1 million in accounts
receivable belonging to Pioneer. To establish her case, Karen
relied on three facts: 1) that Pioneer had $2.4 million in accounts
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receivable when Randolph assumed management of Pioneer in 1994, 2)
Pioneer collected about $2.1 million between 1994, when Randolph
assumed control of the business, and 1996, when Karen sold her
interest to him, and 3) Karen never received any proceeds from the
accounts and the business was worthless when she sold her interest
in 1996. Karen argues that these facts are sufficient to support
the jury’s finding concerning Randolph’s conversion of accounts
receivable. We disagree.
Randolph is correct that these facts are insufficient to
support a finding that he converted Pioneer’s accounts receivable.
Texas law places the burden on Karen to show that Randolph
wrongfully exercised dominion or control over Pioneer’s accounts
receivable. Villarreal v. Moreno, 650 S.W.2d 191, 192 (Tex. App.
- San Antonio 1983, no writ). Karen was required to prove more
than that Randolph, who controlled Pioneer’s business operations
with Karen’s consent, collected its accounts receivable. She was
required to prove that Randolph wrongfully exercised control over
those accounts--that is contrary to the rights of Pioneer and
Karen.
Pioneer was an operating business with substantial
liabilities. The record reflects that Pioneer had no paid in
capital and had trouble making its lease payments on several
occasions. There is no evidence in the record to suggest that
collections on Pioneer’s accounts were not paid over to its
creditors in the normal course of business. Karen presented no
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evidence that Randolph took the proceeds of the accounts for his
own use or for any other wrongful use. That Karen received a
nominal amount for her interest in Pioneer in 1996 and that she
never received proceeds from any of Pioneer’s accounts is
irrelevant.3 Karen had no claim on Pioneer’s accounts. As an
owner of Pioneer, she was only entitled to proceeds from Pioneer’s
accounts and other assets to the extent they exceeded Pioneer’s
liabilities. Karen produced no evidence that Pioneer’s assets,
including the collection from its accounts receivable, exceeded its
liabilities.
In sum, except for the cash payments Pioneer made to Randolph
discussed above, Karen produced no evidence that Randolph used any
of the proceeds from Pioneer’s business (including collection from
accounts receivable) for any purpose other than to pay Pioneer’s
legitimate expenses. Accordingly, Karen produced insufficient
evidence to support the jury’s finding that Randolph converted
Pioneer’s accounts receivable.
III.
The evidence produced at trial was sufficient to show only
that Randolph converted cash, and not accounts receivable,
belonging to Pioneer. We therefore vacate that part of the
judgment that represents Karen’s recovery on the accounts
receivable. Because we are uncertain how this modification of the
3
Karen received considerable value in the form of releases of
her guarantees of Pioneer’s indebtedness.
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judgment will affect Karen’s bankruptcy proceeding, we VACATE the
judgment of the bankruptcy court and REMAND this case to the
bankruptcy court for further proceedings consistent with this
opinion.
VACATED AND REMANDED.
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