Alberto Licea v. Curacao Drydock Company, I ( 2015 )


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  •       Case: 14-20619          Document: 00513281568              Page: 1      Date Filed: 11/23/2015
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT
    United States Court of Appeals
    Fifth Circuit
    FILED
    No. 14-20619                                November 23, 2015
    Lyle W. Cayce
    ALBERTO JUSTO RODRIGUEZ LICEA; FERNANDO ALONSO      Clerk
    HERNANDEZ; LUIS ALBERTO CASANOVA TOLEDO,
    Plaintiffs - Appellees
    v.
    CURACAO DRYDOCK COMPANY, INCORPORATED, also known as
    Curacaose Dokmaatschappij NV, also known as CDMNV,
    Defendant
    v.
    FORMOSA PLASTICS MARINE CORPORATION; FORMOSA BRICK
    MARINE CORPORATION,
    Garnishees - Appellants
    ------------------------------------------------------------------------------------------------------------
    consolidated with No. 14-20693
    ALBERTO JUSTO RODRIGUEZ LICEA; FERNANDO ALONSO
    HERNANDEZ; LUIS ALBERTO CASANOV TOLEDO
    Plaintiffs - Appellees
    v.
    CURACAO DRYDOCK COMPANY, INCORPORATED,
    also known as Curacaose Dokmaatschappij NV,
    also known as CDMNV
    Defendant
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    No. 14-20693
    v.
    FORMOSA PLASTICS CORPORATION AMERICA,
    Garnishee - Appellant
    Appeals from the United States District Court
    for the Southern District of Texas
    Before JONES, SMITH, and SOUTHWICK, Circuit Judges.
    EDITH H. JONES, Circuit Judge:
    These are appeals from a garnishment action. Appellees – Alberto Justo
    Rodriguez Licea, Fernando Alonso Hernandez, and Luis Alberto Casanova
    (together “Plaintiffs”) – were successful plaintiffs in an underlying action
    against the Curacao Drydock Company (“Curacao”). The garnishees’ appeals
    raise numerous questions. We hold that the court lacked personal jurisdiction
    over two garnishees, improperly exercised quasi in rem jurisdiction over a debt
    owed by one of them, and erroneously failed to follow Texas procedure as to the
    third garnishee.
    BACKGROUND
    The underlying action was filed in 2006 under the Alien Tort Statute and
    RICO in the Southern District of Florida. Licea v. Curacao Drydock Co.,
    
    584 F. Supp. 2d 1355
    (S.D. Fla. 2008). It alleged that Plaintiff-Appellees
    endured human trafficking, false imprisonment, and forced labor in a modern-
    day slavery conspiracy between Curacao and the Cuban government. 
    Id. at 1356-63.
       After initially appearing and filing several motions, Curacao
    “repeatedly flouted [the] Court’s authority and refused to defend the matter.”
    
    Id. at 1357.
    The court entered default judgment against Curacao on the issue
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    of liability and held a separate trial to set damages, at which Curacao did not
    appear.    
    Id. at 1357-58.
      The plaintiffs won an $80 million judgment:
    $50 million in compensatory damages and $30 million in punitive damages.
    
    Id. at 1366.
    There was no appeal from that action. The plaintiffs registered
    their judgment in the Southern District of Texas pursuant to 28 U.S.C. § 1963
    on May 7, 2013.
    Three garnishees are Appellants in these cases: Formosa Brick Marine
    Corporation (“FBMC”), Formosa Plastics Marine Corporation (“FPMC”), and
    Formosa Plastics Corporation, America (“FPCA”) (together “Garnishees”).
    Though it is not entirely clear from the record, FPCA may be the parent
    company of both FBMC and FPMC, FBMC and FPMC might be brother-sister
    corporations, and/or FPMC might own FBMC. In any case, the entities are
    related in a corporate family. FBMC and FPMC are Liberian corporations with
    their principal place of business in Taiwan but no apparent contacts with
    Texas. FPCA, however, is registered to do business in Texas, has a registered
    agent, and operates a large processing plant in the state.
    Pursuant to FED. R. CIV. P. 64, TEX. R. CIV. P. 657-79, and the TEX. CIV.
    PRAC. & REM. CODE Ch. 63, the plaintiffs sought writs of garnishment against
    FBMC, FPMC, and FPCA in partial satisfaction of their judgment against
    Curacao.   FPCA was served with process through its statutory agent for
    service.
    FPMC and FBMC were both “served” by United States Marshals
    through the masters of vessels. Putative service upon FPMC was made on the
    master of M/V FPMC 30 while it was docked in Corpus Christi, Texas and,
    again on the master of M/V FPMC 19 when that vessel was conducting cargo
    operations in Texas City, Texas. FBMC was also putatively served through
    the master of M/V FPMC 19 when it was conducting cargo operations in Texas
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    City. At the time of service, each vessel was owned by other entities, and
    FPMC operated the vessels under contract with the owners. Consequently,
    neither FBMC nor FPMC was directly served with process.               The record
    indicates no other connection between Texas and either FBMC or FPMC.
    FPMC and FBMC nevertheless answered the writs of garnishment and
    moved to dismiss. Both garnishees objected that the court lacked personal
    jurisdiction and that service was improper. FPMC denied that it was indebted
    to Curacao, while FBMC admitted it owed $2,639,000 to Curacao. The district
    court initially denied these motions without prejudice, and both parties later
    filed amended motions to dismiss raising the same issues.
    FPCA filed a verified answer that denied any indebtedness to Curacao
    or that it knew any person who was so indebted.              After receiving no
    controverting response or affidavit, FPCA moved for discharge from the
    proceedings, which was denied.
    Responding to plaintiffs’ motion to interplead funds, FBMC deposited
    $2,639,000 with the clerk for the Southern District of Texas, subject to its
    amended motion to dismiss. FBMC and FPMC again objected to personal
    jurisdiction and service of process in their objection to the district court’s
    proposed final judgment.
    The district court issued a final judgment on September 19, 2014,
    awarding the $2,639,000 to Plaintiffs and discharging Garnishees’ liability to
    Curacao for that amount.
    In its opinion, the district court found that “Plaintiffs provided the court
    with uncontroverted evidence showing that FPMC Brick Marine Corporation
    [the owner of the M/V FPMC 19] and FBMC are alter egos of FPMC and
    thereby each other.” The district court also found that FPCA, FBMC, and
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    FPMC were all alter egos of each other.                Serving the masters therefore
    effectuated service on all Garnishees. 1
    The district court noted that because Garnishees were served with writs
    while in Texas, the funds they owe Curacao are subject to garnishment under
    the court’s quasi in rem jurisdiction. It cited United States Rubber v. Poage,
    
    297 F.2d 670
    (5th Cir. 1962)). The court rejected Garnishees’ argument that
    Poage was overruled by subsequent Supreme Court decisions.
    The district court also found that it would be fair to exercise jurisdiction
    over the Garnishees because this proceeding imposes a slight burden on them
    compared to normal litigation and because of the alter egos’ extensive activities
    in Texas. Further, because FPCA did not object to personal jurisdiction and is
    the alter ego of FPMC and FBMC, its amenability can be imputed to the two
    other corporations.
    Following this judgment, this court granted FPMC’s and FBMC’s motion
    to stay enforcement of the judgment pending appeal and to accept the
    previously deposited amount as security in lieu of a supersedeas bond.
    STANDARDS OF REVIEW
    Questions of jurisdiction, service of process, and the denial of the motion
    to discharge are issues of law reviewed de novo. Herman v. Cataphora, Inc.,
    
    730 F.3d 460
    , 465 (5th Cir. 2013); Af-Cap, Inc. v. Republic of Congo, 
    462 F.3d 417
    , 423 (5th Cir. 2006); Bullion v. Gillespie, 895 F2d 213, 216 (5th Cir. 1990).
    The district court’s finding of alter ego is a fact that is reviewed for clear error.
    United States v. Jon-T Chems., Inc., 
    768 F.2d 686
    , 694 (5th Cir. 1985).
    1The district court cited Witham v. The James E. McAlpine, 
    96 F. Supp. 723
    (E.D.
    Mich. 1951) for the proposition that “[s]ervice on a captain of a ship . . . has long been the
    equivalent of service on the corporation.”
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    DISCUSSION
    As a preliminary matter, FED. R. CIV. P. 64 and 69 provide that the law,
    both substantive and procedural, of the state where the federal court sits
    governs writs of garnishment unless a federal statute provides otherwise. The
    parties have briefed Texas law and have not called attention to any applicable
    federal statute. Texas law also governs the alter ego determinations, which
    bear on the exercise of jurisdiction over and proper service on FPMC and
    FBMC. See Jackson v. Tanfoglio Giuseppe, S.R.L., 
    615 F.3d 579
    , 586-88 (5th
    Cir. 2010) (applying state alter ego law to find lack of personal jurisdiction over
    a non-resident); Hargrave v. Fibreboard Corp., 
    710 F.2d 1154
    , 1159 (5th Cir.
    1983) (noting that state law of the forum controls whether a defendant is
    amendable to service through its alter egos under a long-arm statute). The
    principal error by the district court in addressing the issues was its failure to
    apply Texas law.
    Separate appeals were filed by FPCA, on one hand, and FBMC and
    FPMC on the other. The common issue raised by the Garnishees is whether
    the district court erred in finding that they are all alter egos of each other.
    Jurisdiction and service of process on FPMC and FBMC depend on the alter
    ego findings.     Other issues concern the district court’s failure to apply
    substantive Texas law to the garnishment and its failure to dismiss FPCA as
    required by Texas law when a garnishee files an uncontroverted affidavit
    denying possession of any account subject to garnishment. We address these
    points in turn.
    I.     Corporate Alter Ego
    The district court found that “FPMC Brick Marine Corporation [the
    owner of the M/V FPMC 19] and FBMC are alter egos of FPMC and thereby
    of each other.” It also found that FPMC, FBMC, and FPCA are all alter egos
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    of each other. As a result, the court held that service on the vessel masters
    was sufficient to serve all of the entities, and that FPCA’s failure to challenge
    personal jurisdiction could be imputed to FPMC and FBMC. These findings of
    alter ego, which did not cite a single supporting case, were erroneous.
    Texas law recognizes that the corporate form can be disregarded in
    certain circumstances. See Castleberry v. Branscum, 
    721 S.W.2d 270
    , 272-73
    (Tex. 1986). One of the bases for doing so is the alter ego doctrine, whereby “a
    corporation is organized and operated as a mere tool or business conduit of
    another corporation.” 
    Id. at 272.
    Proof of imputed contacts or an alter ego
    relationship may be the basis for exercising jurisdiction over a non-resident
    defendant. See BMC Software Belg., N.V. v. Marchand, 
    83 S.W.3d 789
    , 798
    (Tex. 2002); see also Hargrave v. Fibreboard Corp., 
    710 F.2d 1154
    , 1160 (5th
    Cir. 1983).
    The Texas Supreme Court has “acknowledged that jurisdictional veil-
    piercing and substantive veil-piercing involve different elements of proof”
    given that jurisdiction implicates due process considerations that cannot be
    overridden by statutes or common law. PHC-Minden, L.P. v. Kimberly-Clark
    Corp., 
    235 S.W.3d 163
    , 174-75 (Tex. 2007). 2 The court outlined the following
    factors relevant for jurisdictional veil-piercing: 3
    2  For this reason, some alter ego cases cited by the parties are inapposite because they
    recite factors to consider in substantive veil piercing rather than jurisdictional veil piercing.
    E.g. United States v. Jon-T Chems., Inc., 
    768 F.2d 686
    , 691-92 (5th Cir. 1985) (the “laundry
    list” factors).
    3 The law in this area addresses parent-subsidiary corporations, but it is applicable to
    other intracorporate relationships as well. The parties discuss the relationships among the
    entities in this case as if FPCA is the parent of both FBMC and FPMC, and the district court
    found that FPMC is the parent of FBMC and FPMC Brick Marine Corporation. It is unclear
    from the record what the actual relationships are.
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    To “fuse” the parent company and its subsidiary for jurisdictional
    purposes, the plaintiffs must prove the parent controls the internal
    business operations and affairs of the subsidiary. But the degree
    of control the parent exercises must be greater than that normally
    associated with common ownership and directorship; the evidence
    must show that the two entities cease to be separate so that the
    corporate fiction should be disregarded to prevent fraud or
    injustice.
    
    PHC-Minden, 235 S.W.3d at 175
    (quoting BMC 
    Software, 83 S.W.3d at 799
    ).
    Other factors to consider are “the amount of the subsidiary's stock owned by
    the parent corporation, the existence of separate headquarters, the observance
    of corporate formalities, and the degree of the parent's control over the general
    policy and administration of the subsidiary.” 
    Id. (citing 4A
    WRIGHT & MILLER,
    FEDERAL PRACTICE & PROCEDURE § 1069.4).                       However, “[a] subsidiary
    corporation will not be regarded as the alter ego of its parent merely because
    of stock ownership, a duplication of some or all of the directors or officers, or
    an exercise of the control that stock ownership gives to stockholders.” 
    Id. (quoting Gentry
    v. Credit Plan Corp. of Houston, 
    528 S.W.2d 571
    , 573 (Tex.
    1975)). There must be a “plus factor, something beyond the subsidiary’s mere
    presence within the bosom of the corporate family.” 
    Id. at 176
    (quoting Dickson
    Marine, Inc. v. Panalpina, Inc., 
    179 F.3d 331
    , 338 (5th Cir. 1999)).                      Not
    pertinent to jurisdictional veil piercing analysis, however, are allegations of
    fraud 4 and a common name among the entities. 
    Id. at 175.
    4 Garnishees are thus incorrect to stress that fraud is necessary in order to find alter
    ego for jurisdictional purposes.
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    In this case, the district court found an alter ego 5 relationship among
    FPMC Brick Marine Corporation (the owner of the M/V FPMC 19), FBMC,
    and FPMC because: (1) FPMC operated the MV FPMC 19; (2) FPMC Brick
    Marine Corporation and FBMC are both owned by FPMC; 6 (3) ship operations
    are performed out of FPMC’s office; (4) FPMC lists the vessels on its website
    even       though    “nominally      owned”      by    other    entities;    and    (5) FPMC’s
    organizational chart indicates that the master of each vessel reports to FPMC.
    It also found that FPCA, FBMC, and FPMC (all of the Garnishees) are alter
    egos of each other because: (1) all of the entities report to and are run by the
    same founder; (2) they share a group administrative office that combines
    several functions together; and (3) management of the entities is controlled at
    the “Formosa Plastics Group level.” 7 Plaintiffs repeat these conclusions on
    appeal and cite portions of the record that consist of their own statements as
    to these “facts.”
    The court relied almost exclusively on two “organizational charts”
    submitted by Plaintiffs (taken from Garnishees’ website) in finding alter ego.
    5 The district court actually seemed to apply the single business entity theory for
    piercing the jurisdictional veil, not the alter ego theory. See 
    Castleberry, 721 S.W.2d at 272
    (“Many Texas cases have blurred the distinction between alter ego and the other bases for
    disregarding the corporate fiction and treated alter ego as a synonym for the entire doctrine
    of disregarding the corporate fiction.”); see also Goodyear Dunlop Tires Ops., S.A. v. Brown,
    
    131 S. Ct. 2846
    , 2857 (2011) (declining to address single business entity argument). The
    single business entity theory would pierce the veil “when two or more corporations associate
    together and, rather than operate as separate entities, integrate their resources to achieve a
    common business purpose.” S. Union Co. v. City of Edinburg, 
    129 S.W.3d 74
    , 86 (Tex. 2003)
    (internal quotation and citation omitted). The Texas Supreme Court has never endorsed this
    theory in any context. 
    PHC-Minden, 235 S.W.3d at 173
    .
    6 It is unclear how the district court found this, as the page in the record it cites to for
    this proposition does not so indicate.
    7   It is unclear what this level is as there is no entity called “Formosa Plastics Group.”
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    The first chart apparently shows the internal reporting structure of FPMC and
    the second purports to show the various levels of ownership of the entities. The
    charts are not probative.
    First, the charts do not actually depict corporate structure. There is no
    indication of ownership; they do not indicate which entity owns what, which
    entities are parents, or subsidiaries, or brother/sister. Nor is it even clear that
    the “entities” on the chart are formal entities, because they have no corporate
    form designations. Normal organizational charts make distinctions for, e.g.,
    corporations, LLC’s, disregarded entities, or foreign entities.           Further,
    Garnishees FPCA and FBMC are not even represented on the charts.
    Second, the charts do not show the functional relationship among the
    entities. “In determining whether an alter ego relationship exists, the court
    should focus on the relationship between the corporation and the entity or
    individual that allegedly abused corporate formalities.” Zahra Spiritual Trust
    v. United States, 
    910 F.2d 240
    , 245 (5th Cir. 1990) (citing 
    Castleberry, 721 S.W.2d at 272
    ). As Garnishees correctly put it, the organizational charts
    are “irrelevant because they are not probative of the issue of alter ego. They
    show only the structure, but not the relationships between the Formosa
    entities.” They do not indicate any “plus factor” that entails “something beyond
    the subsidiary’s mere presence within the bosom of the corporate family.”
    
    PHC-Minden, 235 S.W.3d at 176
    . At best, they demonstrate mere affiliation,
    which is insufficient to pierce the veil, or common names, which are irrelevant
    to jurisdictional veil piercing. They do not even appear to show that the
    entities share common functions; the “Group Administration” boxes report to
    the Execupive [sic] Board, but there is no indication that these functions are
    performed for the entities listed on the chart. In no way do these descriptions
    suggest control “greater than that normally associated with common
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    ownership and directorship” or that the “entities cease to be separate so that
    the corporate fiction should be disregarded to prevent fraud or injustice.” PHC-
    
    Minden, 235 S.W.3d at 175
    .
    In sum, the charts are not evidence that satisfies the tests endorsed by
    the Texas Supreme Court for jurisdictional veil piercing. The district court’s
    findings of alter ego were clearly erroneous. Because this means that neither
    FBMC nor FPMC was effectually served with process, nor can personal
    jurisdiction be asserted over these entities based on an alter ego relationship
    with FPCA, we must remand with instructions to dismiss the garnishment
    proceeding against FBMC and FPMC.
    II.      District Court’s Exercise of Quasi in Rem Jurisdiction
    "Quasi in rem actions are based on a claim for money begun by
    attachment or other seizure of property when the district court has no
    jurisdiction over the person of the [judgment] defendant, but has jurisdiction
    over either property that the court can apply to the satisfaction of the
    defendant's debt or persons who themselves owe an obligation to the defendant
    that the court can apply to the satisfaction of the debt." Stena Rederei AB v.
    Comision de Contratos del Comite Ejecutivo General del Sindicato
    Revolucionario de Trabajadores Petroleros de la Republica Mexicana, S.C.,
    
    923 F.2d 380
    , 391 (5th Cir. 1991) (citation omitted). The district court here
    relied several times on its finding that "[t]he Formosa Entities were served
    with writs of garnishment while in the state" to support its exercise of quasi in
    rem jurisdiction over the debt owed to Curacao. It is unclear on which basis
    the court predicated quasi in rem jurisdiction: whether it emanated from
    service of process or personal jurisdiction based on alleged alter ego status of
    FBMC or FPMC, or on the debt itself being "found" in Texas. For good reason,
    the Garnishees challenge any quasi in rem jurisdiction.
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    To the extent that the court believed it could exercise jurisdiction over
    the debt via the persons of the Garnishees, it was misguided. Our previous
    discussion eliminates quasi in rem jurisdiction on this basis.
    Alternatively, the "presence" of the debt in Texas might provide a basis
    for the exercise of jurisdiction over it for the Plaintiffs' benefit. See Shaffer v.
    Heitner, 
    433 U.S. 186
    , 207, 
    97 S. Ct. 2569
    , 2581 (1977) ("[P]resence of property
    in a State may bear on the existence of jurisdiction by providing contacts
    among the forum State, the defendant, and the litigation."). Setting aside due
    process minimum contacts concerns, the prerequisite to this theory is a
    determination under state law that the debt (or other property) is actually
    found in the state. Rush v. Savchuk, 
    444 U.S. 320
    , 328 n.14, 
    100 S. Ct. 571
    ,
    577 n.14 (1980); see also United States Rubber v. Poage, 
    297 F.2d 670
    , 674 (5th
    Cir. 1962). Texas allows attachment or garnishment only of a debt whose situs
    is within the jurisdiction of the court. T.&H. Smith & Co. v. Taber, 
    40 S.W. 156
    , 157 (Tex. Civ. App. 1897); see also Wirt Franklin Petrol. Co. v. Gruen,
    
    139 F.2d 659
    , 660 (5th Cir. 1944) ("Garnishment is in the nature of a
    proceeding in rem, as to which the situs of the res is generally determinative
    for purposes of jurisdiction."). The situs of the debt under Texas law is either
    the domicile of the creditor, Gerlach Merc. Co. v. Hughes-Bozarth-Anderson
    Co., 
    189 S.W. 784
    , 788 (Tex. Civ. App. Amarillo 1916), or wherever the debtor
    may be found. 
    T&H.Smith, 40 S.W. at 157
    . The first condition is inapplicable
    here, and the second is a reprise of the failed attempts to serve or find personal
    jurisdiction over FBMC or FPMC in Texas. Consequently, the debt to Curacao
    was not "found" in Texas.
    III.   Discharge of FPCA as Garnishee
    At the outset, we noted that federal courts must follow state procedural
    and substantive law relating to garnishments. In Texas, a putative garnishee
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    may file an answer to the writ of garnishment served on him. See TEX. R. CIV.
    P. 665. The garnishee’s answer “shall be under oath, in writing and signed by
    him, and shall make true answers to the several matters inquired of in the writ
    of garnishment.” 
    Id. If either
    the plaintiff or the defendant is not satisfied
    with the garnishee’s answer, “he may controvert the same by his affidavit
    stating that he has good reason to believe, and does believe, that the answer of
    the garnishee is incorrect.”    TEX R. CIV. P. 673.        In the absence of a
    controverting affidavit, it is presumed that the garnishee’s answer is true.
    Snyder Nat. Bank v. Pinkston, 
    219 S.W.2d 606
    , 607 (Tex. Civ. App. Dallas
    1949).
    If the garnishee’s answer goes uncontroverted, the court must enter
    judgment discharging the garnishee when it appears from the answer that:
    (1) the garnishee is not indebted to the defendant and was not so indebted
    when served with the writ of garnishment; (2) the garnishee does not possess
    any effects of the defendant and had not possessed any when the writ was
    served; and (3) the garnishee has either denied knowledge of any other persons
    indebted to the defendant or possessing effects belonging to the defendant or
    else has named such persons. TEX R. CIV. P. 666. This rule is jurisdictional;
    the trial court has no authority to proceed against the garnishee other than to
    discharge him on his answer. Goodson v. Carr, 
    428 S.W.2d 875
    , 879 (Tex. Civ.
    App. Houston 1968). Thus, if the garnishee’s answer denies indebtedness and
    is uncontroverted, the garnishee must be dismissed from the action. Gray v.
    Armour & Co., 
    104 S.W.2d 486
    , 487 (Tex. Comm’n App. 1937, opinion adopted);
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    J.C. Hadsell & Co., Inc. v. Allstate Ins. Co., 
    516 S.W.2d 211
    , 213-14 (Tex. Civ.
    App. Texarkana 1974); 
    Snyder, 219 S.W.2d at 607
    . 8
    In this case, FPCA filed a verified answer to the writ of garnishment that
    was under oath, in writing, and (1) denied indebtedness to Curacao, (2) denied
    possession of Curacao’s effects, and (3) denied knowledge of other persons so
    indebted.    FPCA subsequently moved for discharge after its answer went
    uncontroverted.       Plaintiffs’ unsworn response to this motion cannot be
    construed as controverting the answer as required by Texas law; the response
    merely restated plaintiffs’ contentions that the Garnishees are alter egos of
    each other without controverting that FPCA was not indebted to Curacao.
    FPCA should have been discharged.
    CONCLUSION
    For the foregoing reasons, the final judgment of garnishment against
    FBMC, FPMC, and FPCA is REVERSED and the case is REMANDED with
    instructions to DISMISS. The funds in the registry of court, together with
    interest thereon, must be DISBURSED to FBMC.
    8  Further, “[w]here the garnishee is discharged upon his answer, the costs of the
    proceeding, including a reasonable compensation to the garnishee, shall be taxed against the
    plaintiff.” TEX. R. CIV. P. 677. Costs include attorney fees, J.C. 
    Hadsell, 104 S.W.2d at 213
    -
    14, but FPCA waived any such claim by failing to assert it.
    14