Jessey Chi Hua Lee AND JoAnderson Capital, LLC., Jim K. Lee, and Chen L. "Jenny" Lee v. Crystal Linh Hoang Lee ( 2019 )

In the
Court of Appeals
Second Appellate District of Texas
at Fort Worth
___________________________
No. 02-18-00006-CV
___________________________
JESSEY CHI HUA LEE; JOANDERSON CAPITAL, LLC.; JIM K. LEE; AND
CHEN L. “JENNY” LEE, Appellants
V.
CRYSTAL LINH HOANG LEE, Appellee
On Appeal from the 367th District Court
Denton County, Texas
Trial Court No. 15-04017-367
Before Sudderth, C.J.; Gabriel and Birdwell, JJ.
Memorandum Opinion by Justice Gabriel
MEMORANDUM OPINION
This is an appeal from the trial court’s property division incident to the divorce
of appellant Jessey Chi Hua Lee and appellee Crystal Linh Hoang Lee. We affirm in
part and reverse and remand in part.
I. BACKGROUND
Jessey and Crystal married on June 18, 2011. Nearly four years later, Jessey
filed a petition for divorce, and Crystal filed a counterpetition shortly thereafter. The
case proceeded to a bench trial that commenced on May 31, 2016. This appeal
concerns only the trial court’s division of the marital property, so we confine our
discussion of the facts accordingly.
One of the main disputes between Jessey and Crystal concerning the division
of marital property was whether an interest Jessey had obtained in a California limited
liability company called JoAnderson Capital, LLC was community property or Jessey’s
separate property. According to Jessey, he and someone named Richard Huang had
formed JoAnderson Capital on April 2, 2014, for the sole purpose of purchasing and
holding a single asset—a beach house in California—which would serve as a rental
property. Jessey stated that JoAnderson Capital acquired the California beach house
on April 23, 2014. Pertinent to this appeal, it is undisputed that during the marriage,
Crystal received $24,341 in rental income from the California beach house.
Jessey maintained that in forming JoAnderson Capital, he had obtained a forty
percent interest in the company by making a capital contribution of just under
2
$900,000 and that Huang owned the remaining sixty percent interest. Jessey said that
his parents, appellants Jim K. Lee and Chen L. “Jenny” Lee, eventually acquired
Huang’s sixty percent interest in JoAnderson Capital. Jessey further asserted that
99.5% of the funds he used to make his capital contribution came from money he had
inherited from his grandparents, while the remaining 0.5% had come from funds
belonging to the marital estate. Thus, Jessey claimed that 99.5% of a forty percent
interest in JoAnderson Capital was his separate property and that only 0.5% of the
forty percent interest was community property that was subject to division by the trial
court.
Crystal had a markedly different view. During their marriage, she and Jessey
had formed LF Enterprises, LLC, a company that supplied furniture to residential
furniture retailers around the world. She asserted that the money Jessey had used to
acquire the interest in JoAnderson Capital had actually come from revenue generated
from LF Enterprises and, thus, Jessey’s interest in JoAnderson Capital belonged to
the community estate. Crystal submitted an inventory in which she indicated that
Jessey owned 100% of JoAnderson Capital when it was formed and that the entire
company, which she valued at $2.25 million, belonged to the community estate.
On August 1, 2016, the trial court emailed Jessey’s and Crystal’s counsel a letter
ruling regarding the division of their marital property. In the letter ruling, the trial
court stated it had decided to characterize the $24,341 in rental payments Crystal had
received as community property. The trial court also indicated that it had determined
3
Jessey held a 50% interest in JoAnderson Capital and that it had found the interest
was community property.
On August 15, 2016, Jim, Jenny, and appellant JoAnderson Capital moved to
intervene. They alleged that Jim and Jenny owned a 60% interest in JoAnderson
Capital and that consequently, a decision by the trial court finding Jessey and Crystal’s
community estate held a 50% interest in JoAnderson Capital would improperly divest
Jim and Jenny of 10% of their collective interest in the company. The intervenors
also alleged that the $24,341 in rental payments Crystal received was actually rental
income that belonged to JoAnderson Capital and that consequently, the trial court’s
decision to find those funds belonged to Jessey and Crystal’s community estate would
improperly divest JoAnderson Capital of its business income.
The trial court signed a final decree of divorce on August 30, 2016, in which it
divided Jessey and Crystal’s marital estate in accordance with its letter ruling. Three
aspects of the trial court’s property division are noteworthy here. First, the trial court
found that the marital estate owned half of the overall value of JoAnderson Capital,
determined that half of JoAnderson Capital’s overall value was $1,101,578, and split
that amount equally between Jessey and Crystal. Second, the trial court awarded
Crystal the $24,341 she had received from renting out the California beach house.
And third, the trial court awarded Crystal a money judgment against Jessey in the
amount of $600,789 as “part of the division of community property between” them.
4
Jessey and the intervenors filed motions for new trial, which the trial court
granted. In its order granting Jessey’s motion for new trial, the trial court set aside the
property division it had made in the August 30, 2016 decree and ordered that it would
“retry the characterization of JoAnderson Capital, LLC and redetermine the division
of the marital and separate estates if needed.” After conducting a new bench trial on
that issue, the trial court signed a final decree of divorce on October 5, 2017, but did
not change any part of the three above-noted areas of property division that it had
made in the August 30, 2016 decree.
Jessey and the intervenors requested findings of fact and conclusions of law,
and the trial court filed its findings and conclusions on November 6, 2017. Jessey and
the intervenors timely appealed, with Jessey raising five issues and the intervenors
raising two.
II. STANDARD OF REVIEW
All of the issues in this appeal challenge the trial court’s division of Jessey’s and
Crystal’s marital estate incident to their divorce. A trial court is charged with dividing
a marital estate in a “just and right” manner, considering the rights of both parties.
Tex. Fam. Code Ann. § 7.001; Boyd v. Boyd, 131 S.W.3d 605, 610 (Tex. App.—Fort
Worth 2004, no pet.). A trial court has wide discretion in dividing the marital estate
upon divorce, and thus we will not disturb the trial court’s division of the marital
estate on appeal unless the complaining party demonstrates from evidence in the
record that the division was so unjust and unfair as to constitute an abuse of
5
discretion. Neyland v. Raymond, 324 S.W.3d 646, 649 (Tex. App.—Fort Worth 2010,
no pet.). A trial court abuses its discretion if it acts without reference to any guiding
rules or principles; in other words, a trial court abuses its discretion if it acts arbitrarily
or unreasonably. See Boyd, 121 S.W.3d at 610.
In reviewing a marital property division, the abuse of discretion standard of
review overlaps with the traditional civil sufficiency standards of review; thus, legal
and factual sufficiency are not independent grounds of error, but they are relevant
factors in assessing whether the trial court abused its discretion. Neyland, 324 S.W.3d
at 649. To determine whether there has been an abuse of discretion because the
evidence is legally or factually insufficient to support the trial court’s decision, we
engage in a two-pronged inquiry: (1) did the trial court have sufficient evidence upon
which to exercise its discretion, and (2) did the trial court err in its application of that
discretion? Id. The applicable sufficiency review comes into play with regard to the
first question. Id. at 649–50. We then proceed to determine whether, based on the
elicited evidence, the trial court made a reasonable decision. Id. at 650.
A trial court’s findings of fact have the same force and dignity as a jury’s
answers to jury questions, and we review the legal and factual sufficiency of the
evidence supporting those findings using the same standards that we apply to jury
findings. Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994); Anderson v. City of Seven
Points, 806 S.W.2d 791, 794 (Tex. 1991); see also MBM Fin. Corp. v. Woodlands Operating
Co., 292 S.W.3d 660, 663 n.3 (Tex. 2009). When the appellate record contains a
6
reporter’s record, findings of fact on disputed issues are not conclusive and may be
challenged for evidentiary sufficiency. Super Ventures, Inc. v. Chaudhry, 501 S.W.3d 121,
126 (Tex. App.—Fort Worth 2016, no pet.). We defer to unchallenged fact findings
that are supported by some evidence. Tenaska Energy, Inc. v. Ponderosa Pine Energy,
LLC, 437 S.W.3d 518, 523 (Tex. 2014).
When the burden of proof at trial is by clear and convincing evidence, we apply
a higher standard of legal and factual sufficiency review. Boyd, 131 S.W.3d at 611.
When reviewing the evidence for legal sufficiency on such issues, we look at all the
evidence in the light most favorable to the judgment to determine if the trier of fact
could reasonably have formed a firm belief or conviction that the challenged finding
was true. Horizon Health Corp. v. Acadia Healthcare Co., 520 S.W.3d 848, 866 (Tex.
2017). And when reviewing for factual sufficiency, we determine whether, on the
entire record, a factfinder could reasonably form a firm conviction or belief that the
challenged finding is true. In re H.R.M., 209 S.W.3d 105, 108 (Tex. 2006).
III. CHARACTERIZATION OF INTEREST IN JOANDERSON CAPITAL
The trial court made the following findings of fact related to the
characterization of Jessey’s interest in JoAnderson Capital and the percentage of his
ownership:
8) The evidence presented to support Petitioners’ and Intervenors’
request to change the characterization of the JoAnderson property was
self-serving and not credible.
7
9) The evidence presented did not show by clear and convincing
evidence that JoAnderson Capital, LLC was a separate property entity,
nor that the funding for JoAnderson was funded by separate property
funds.
....
12) At the new trial[] hearing the Court found that the Petitioner’s
evidence was not credible and . . . fail[ed] to prove by clear and
convincing evidence that the JoAnderson’s asset was funded by separate
property or that it was owned with anyone other than Petitioner and a
person named Huang.
Additionally, the trial court found, “[b]ased on Jessey Chi Hua Lee’s declaration of
Richard Huang Yung Chang as his business partner, . . . [that] the community interest
in JoAnderson Capital, LLC [was] 50% of the overall value of the company.”
The appellants challenge these findings. In his first and second issues, Jessey
maintains the trial court’s finding that he failed to meet his burden to establish the
interest in JoAnderson Capital as his separate property is not supported by legally
sufficient evidence, arguing that no evidence supports that finding and that the
evidence conclusively established the contrary. In their first issue, JoAnderson
Capital, Jim, and Jenny contend that the evidence is legally insufficient to support the
trial court’s finding that Jessey’s interest in JoAnderson Capital was 50%, arguing that
no evidence supports that finding and that the evidence conclusively proved Jessey
held only a 40% interest in the company. They alternatively argue that the trial court’s
finding is not supported by factually sufficient evidence. Because all of these issues
overlap, we consider them together.
8
A. APPLICABLE LAW
Under Texas law, property possessed by either spouse during or on dissolution
of the marriage is presumed to be community property, absent clear and convincing
evidence to the contrary. Tex. Fam. Code Ann. § 3.003. Clear and convincing
evidence means the measure or degree of proof that will produce in the mind of the
trier of fact a firm belief or conviction as to the truth of the allegations sought to be
established. Id. § 101.007. This intermediate standard of proof falls between the
preponderance standard of proof that applies to most civil proceedings and the
reasonable-doubt standard that applies to most criminal proceedings. In re G.M.,
596 S.W.2d 846, 847 (Tex. 1980); State v. Addington, 588 S.W.2d 569, 570 (Tex. 1979).
Clear and convincing evidence must outweigh evidence that would satisfy the
preponderance standard, but it need not be unequivocal or undisputed. Addington,
588 S.W.2d at 570.
The characterization of property as either community or separate is determined
by the inception of title to the property. Boyd, 131 S.W.3d at 612. Inception of title
occurs when a party first has a right of claim to the property by virtue of which title is
finally vested. Id. Separate property includes “property acquired by the spouse during
marriage by gift, devise, or descent.” Tex. Fam. Code Ann. § 3.001(2).
In order to overcome the community presumption, the burden is on the spouse
claiming certain property as separate to trace and clearly identify the property claimed
to be separate. Boyd, 131 S.W.3d at 612. The burden of tracing is a difficult, but not
9
impossible, burden to sustain. Id. Tracing involves establishing the separate origin of
the property through evidence showing the time and means by which the spouse
originally obtained possession of the property. Id. Separate property will retain its
character through a series of exchanges so long as the party asserting separate
ownership can overcome the presumption of community property by tracing the
assets on hand during the marriage back to property that, because of its time and
manner of acquisition, is separate in character. Id. However, if the evidence shows
that separate and community property have been so commingled as to defy
resegregation and identification, the community presumption prevails. Id.
When tracing separate property, it is not enough to show that separate funds
could have been the source of a subsequent deposit of funds. Id. Moreover, as a
general rule, mere testimony that property was purchased with separate funds, without
any tracing of the funds, is insufficient to rebut the community presumption. Id. Any
doubt as to the character of property should be resolved in favor of the community
estate. Id.
B. EVIDENCE
We begin our sufficiency review with a summary of the evidence relevant to the
characterization of, and ownership interests in, JoAnderson Capital.
1. Jessey’s Testimony and Financial Transaction Documentation
At the new trial, Jessey testified both from the witness stand and through a
sworn declaration the trial court admitted into evidence. The trial court also admitted
10
various exhibits related to Jessey’s testimony. We discuss Jessey’s live testimony,
declaration, and relevant exhibits together.
Jessey testified that the funds he had used to make his capital contribution to
JoAnderson Capital came from a bequest from his paternal grandparents, who had
lived in Taiwan. Jessey said that his paternal grandfather had died sometime in 1980,
that his paternal grandmother had died in 2002, and that although he had not been
able to procure a will or other related probate documentation related to the death of
his grandparents, he had obtained both a sworn declaration and the deposition on
written questions of Mei Tao, who was the conservator of his grandparents’ estate.
According to Jessey, Tao administered his grandparents’ estate through a Taiwanese
company called Bonanza, Inc.
Jessey averred that he and Huang formed JoAnderson Capital to hold a single
piece of California real estate (the beach house). The amount of his capital
contribution to JoAnderson Capital was $883,996, which represented a 40% interest
in the company, while Huang contributed $1,325,994, which represented the
remaining 60% interest. Jessey testified the he had never owned a 50% interest in
JoAnderson Capital, that he only owned a 40% interest, and that he had never owned
more than a 40% interest.
Jessey explained that the funds for his and Huang’s contributions were
delivered to JoAnderson Capital through a series of transactions, which he detailed as
follows.
11
04/01/14 A company called Everstar Capital LP wired $63,750 to
Guaranty Escrow, Inc. Jessey testified that Everstar advanced
these funds for a deposit on the beach house.
To his declaration, Jessey attached Exhibit 3, which was a receipt
memorializing this wire transaction.
04/10/14 Jessey wrote a $10,000 personal check to JoAnderson Capital,
which it deposited into its account at American First National
Bank (AFNB). Jessey testified that this was an advance on his
contribution to JoAnderson Capital.
Jessey attached to his declaration as Exhibit 4 a copy of the
cancelled check reflecting this transaction.
04/15/14 Huang wired $285,000 into JoAnderson Capital’s account at
AFNB as an advance on a bequest from Jessey’s grandparents
for Jessey’s contribution to JoAnderson Capital.
The trial court admitted Petitioner’s Exhibit 3, which is a receipt
reflecting this wire transfer.
04/16/14 Huang wired $700,000 to Guaranty Escrow as part of his
contribution for JoAnderson Capital.
The trial court admitted Petitioner’s Exhibit 7, which is a receipt
reflecting this wire transfer.
12
04/17/14 Bonanza wired $600,000 to Huang’s bank account. These funds
were wired to Huang on Jessey’s behalf, and the funds came
from a bequest from Jessey’s grandparents.
The total amount of the transfer should have been $610,000, but
Bonanza only wired $600,000. The $610,000 was intended to
reimburse Huang for the $285,000 he had wired into JoAnderson
Capital’s account on Jessey’s behalf as an advance on the bequest
from his grandparents as well as to distribute to Jessey an
additional $325,000 of the bequest from his grandparents.
The trial court admitted Petitioner’s Exhibit 4, which is a receipt
reflecting this wire transfer.
04/17/14 Huang wired $325,000 into JoAnderson Capital’s account at
AFNB on Jessey’s behalf.
The trial court admitted Petitioner’s Exhibit 5, which is a receipt
reflecting this wire transfer.
04/18/14 Bonanza wired $299,990 to JoAnderson Capital’s account at
AFNB. Jessey testified that $273,996 of this amount was on his
behalf as another portion of the bequest from his grandparents.
He further stated that $10,000 of the remaining $25,994 was to
correct the $10,000 shortfall that had occurred in Bonanza’s
April 17, 2014 transfer to Huang. Jessey averred that the
remaining $15,994 was wired on Huang’s behalf as part of his
contribution to JoAnderson Capital.
The trial court admitted Petitioner’s Exhibit 6, which is a receipt
reflecting this wire transfer.
04/21/14 JoAnderson Capital wired $804,341.59 to Guaranty Escrow out
of its account at AFNB.
The trial court admitted Petitioner’s Exhibit 8, which is a receipt
reflecting this wire transfer.
13
04/22/14 Huang wired $600,000 to Guaranty Escrow as an additional part
of his contribution.
The trial court admitted Petitioner’s Exhibit 9, which is a receipt
reflecting this wire transfer.
05/06/14 JoAnderson Capital wrote a check to Everstar in the amount of
$63,750 to reimburse it for the funds it had advanced to
Guaranty Escrow on April 1, 2014.
The trial court admitted Petitioner’s Exhibit 21, which is a copy
of the cancelled check reflecting this transaction.
11/02/15 JoAnderson Capital wrote a check to Jessey in the amount of
$10,000. This was to reimburse the amount Jessey advanced by
personal check on April 10, 2014.
The trial court admitted Petitioner’s Exhibit 22, which is a copy
of the cancelled check for this transaction.
Jessey testified that the net effect of these transactions confirmed that his total capital
contribution to JoAnderson Capital was $883,996 and that the source of those funds
came from a bequest from his grandparents.
2. David Fuller
By agreement of the parties, David Fuller, CFA, ASA, testified by deposition at
the new trial. He testified that he was president of a financial valuation consulting
firm focused on the valuation of businesses and that his experience and training
included providing expert opinions regarding the characterization and valuation of
marital property. Fuller indicated that Jessey and Crystal had jointly hired him to
provide several opinions concerning their marital property, which included providing
14
an opinion as to the characterization of the interest Jessey had obtained in
JoAnderson Capital. Fuller testified that he had concluded that the entire interest
Jessey had acquired in JoAnderson Capital was his separate property. In his report,
which was attached as an exhibit to his deposition, Fuller opined that Jessey held a
40% ownership interest in JoAnderson Capital and that his parents collectively owned
the remaining 60% ownership interest.
Fuller testified that he began his original analysis by interviewing Jessey and
Crystal, and obtaining documents, about the marital property issues they had hired
him to analyze, which included the characterization of the interest in JoAnderson
Capital. He then compared the amount of capital contributions reflected in
JoAnderson Capital’s business records with documents tracing the source of those
funds and calculated that JoAnderson Capital’s records showed Jessey’s total capital
contribution was $4,000 more than the total funds that could be traced back to the
bequest from his grandparents. This led Fuller to originally conclude that all but
$4,000 of Jessey’s contribution to JoAnderson Capital was his separate property. But
Fuller further testified that after he drafted his original report and testified at the
original trial, Jessey provided him with supplemental documentation that explained
the apparent $4,000 discrepancy between JoAnderson Capital’s records and the
tracing documentation. Fuller stated that the supplemental documentation revealed
there actually was not a discrepancy between JoAnderson Capital’s records and the
15
tracing documentation, and thus he concluded the entire interest Jessey acquired in
JoAnderson Capital was his separate property.
The documentation Fuller reviewed as the basis of his analysis included a
portion of Jessey’s 2014 federal tax return; sworn declarations from Huang, Tao, and
Jessey, including relevant wire-transfer receipts and copies of cancelled checks that
were attached as exhibits; and the deposition upon written questions of Huang and
Tao. Fuller testified that these were the sort of documents he routinely reviewed in
rendering opinions as an expert.
Fuller also testified that he was familiar with Crystal’s allegations that the funds
Jessey used to acquire the interest in JoAnderson Capital did not come from a bequest
from his grandparents but rather came from
money that had been accumulated overseas from the transactions that
[Jessey] was involved in through LF Enterprises and that he was bringing
back, in effect, earnings that related to LF Enterprises and calling it a
bequest because that would allow him to argue that it was his separate
and not their community property.
He further testified that Crystal had not provided any documentation to substantiate
those allegations.
Fuller stated that there were no inconsistencies among the tracing documents
he had reviewed and that the documents were “substantial in terms of addressing the
sources of the funds.” He stated that he had no reason to believe there was a
problem with the accuracy or reliability of the documents and that the documents
indicated that the interest Jessey acquired in JoAnderson Capital was his separate
16
property. He stated this conclusion was “firm in [his] mind” based on the evidence
he had been provided and the lack of contrary evidence.
3. Richard Huang
Huang testified at trial through the same sworn declaration and deposition
upon written questions Fuller had reviewed. Like Jessey, Huang testified that he and
Jessey had formed JoAnderson Capital in 2014 to hold the California beach house and
that he had contributed $1,325,994 for a 60% ownership interest in JoAnderson
Capital, while Jessey had contributed $883,996 for a 40% interest. Huang also traced
the funds that had been used for the capital contributions to JoAnderson Capital, and
he provided wire-transfer receipts and cancelled checks to support his testimony. The
substance of Huang’s testimony and the exhibits he provided matched the testimony
and exhibits Jessey had provided. Huang further stated that he sold his 60% interest
to Jessey’s parents on November 6, 2014.
4. Mei Ni Tao
Tao also testified at trial through the same sworn declaration and deposition
upon written questions Fuller had reviewed. She testified that she lived in Taiwan and
was the conservator of Jessey’s paternal grandparents’ estate. She further said that in
Taiwan, a conservator is the person in charge of carrying out the terms of a deceased
person’s estate. Tao averred that she had a Taiwanese company called Bonanza, Inc.
and that she used that company to manage the estate of Jessey’s paternal
grandparents. Tao additionally testified about two wire transfers Bonanza made on
17
April 17, 2014, and April 18, 2014, which both Jessey and Huang had testified to. The
substance of Tao’s testimony matched Jessey’s and Huang’s. And like Jessey and
Huang, Tao provided wire-transfer receipts for the two wire transfers she testified
about. Tao testified that the funds she had transferred on Jessey’s behalf came from a
bequest from his deceased grandparents.
5. Tax Form
The trial court also admitted the portion of Jessey’s 2014 federal tax return that
Fuller had reviewed. This was a Form 3520 entitled “Annual Return To Report
Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.” Jessey
checked the box next to the statement that he was “a U.S. person who, during the
current tax year, received certain gifts or bequests from a foreign person.” Jessey
further indicated that during the current tax year, he had received more than $100,000
that he “treated as gifts or bequests from a nonresident alien or a foreign estate.” On
the form, he noted that he had received a bequest from his grandparents on April 15,
2014, April 17, 2014, and April 18, 2014, in the amounts of $285,000, $325,000, and
$273,996, respectively. The form indicated that it had been prepared by a CPA, and it
was signed by Jessey underneath a declaration that stated: “Under penalties of
perjury, I declare that I have examined this return, including any accompanying
reports, schedules, or statements, and to the best of my knowledge and belief, it is
true, correct, and complete.”
18
6. Crystal’s Testimony
Crystal briefly testified at the new trial. She testified that she was a member of
LF Enterprises and had knowledge of its revenue for 2013, 2014, and 2015. She
further stated that she believed the source of the funds Jessey used to contribute to
JoAnderson Capital actually came from money LF Enterprises had made. She
acknowledged that she did not have any documentation to support her belief.
Instead, her entire testimony regarding her allegation that Jessey had acquired the
interest in JoAnderson Capital with community funds was as follows:
Furniture has the second highest markup, next to jewelry. And Jessey
has proven that you can afford a really lavish lifestyle in this business,
with the Rolls Royce and the Ferraris and our lifestyle. And so we had
the money to be able to buy this beach house, and the way we did it was
to avoid paying taxes in California. That’s why we bought it through
JoAnderson Capital.
We are 183 days domiciled in the state of Texas, one party or the
other. And so this is our beach house. The girls just were at the beach
house. Jessey’s still at the beach house. Both of his cars are still parked
at the beach house. Not a dime was generated in income from
JoAnderson Capital since the Judge awarded him possession of it. It is
not a rental property. It’s our home. It’s a home that we -- we met in
Los Angeles. We’ve lived in Los Angeles. We have rental agreements.
Before we even bought the beach house, that was our -- that was our
dream. That was our life.
7. Jessey’s Declaration in California Litigation
The record shows that just prior to Jessey’s filing his original petition for
divorce, Crystal had filed a petition for divorce in California. Although the California
court ultimately determined that jurisdiction was properly in Texas, Jessey did file
19
pleadings in the California proceeding. Jessey attached a declaration to one of those
pleadings in which he averred as follows:
15. The purchase agreement for the purchase of the [California beach
house] was not in Petitioner’s name; it was purchased as an investment
only by me and my business partner “Richard” Huang Yung Chang.
16. Title to the property was taken in the name of our business
partnership, “JoAnderson Capital, LLC.[”]
17. The last page of the purchase agreement confirms that $600,000
towards the purchase price came from my partner, Richard Huang Yung
Chang. No money for the purchase of this property came from any
account in the name of Petitioner and she has no interest in the
property.
The trial court admitted this declaration at trial.
8. Intervenors’ Exhibits
The trial court admitted Intervenors’ Exhibit 2, which was a written consent of
JoAnderson Capital’s members dated to be effective on November 6, 2014. That
document, signed by both Jessey and Huang, reflected that Huang had withdrawn as a
member of JoAnderson Capital and that Jim and Jenny were accepted as new
members of the company, each holding a 30% interest.
The trial court also admitted Intervenors’ Exhibits 4-7, which were copies of
JoAnderson Capital’s California and federal tax returns for the 2014 and 2015 tax
years. Intervenor’s Exhibits 4 and 6 were copies of the California returns, which
contained a California Schedule K-1, entitled “Member’s Share of Income,
Deductions, Credits, etc.” That form contained a line for the company’s members to
20
enter their percentage of profit sharing, loss sharing, and ownership of capital. For
each of those categories, the forms show Jim’s percentage to be 30%, Jenny’s
percentage to be 30%, and Jessey’s percentage to be 40%.
Intervenor’s Exhibits 5 and 7 were copies of the federal tax returns. Those
returns contained Form 1065. The form contained a section for providing
information about the members of the company. That section had a line entitled
“Partner’s share of profit, loss, and capital.” For each of those categories, the forms
show Jim’s percentage to be 30%, Jenny’s percentage to be 30%, and Jessey’s
percentage to be 40%.
C. ANALYSIS
All appellants raise issues challenging the trial court’s findings concerning both
the characterization of the ownership interest Jessey acquired in JoAnderson Capital
and the percentage of that ownership interest. We address each of those areas in turn.
1. Characterization of Ownership Interest
First, we consider the trial court’s characterization findings. Jessey testified that
he contributed $883,996 for the ownership interest in JoAnderson Capital, and he
meticulously traced the source of those funds back to a bequest from his
grandparents. But he did not rely on his testimony alone to establish the source of
those funds. He supported his testimony with extensive documentation that included
copies of wire-transfer receipts, cancelled checks, and federal tax forms prepared by a
CPA, which Jessey signed under penalties of perjury. Jessey further supported his
21
own testimony with that of Huang and Tao, both of whom likewise supported their
own testimony with wire-transfer receipts and cancelled checks. He also presented
the testimony of the parties’ agreed upon expert, who opined that it was firm in his
mind that the $883,996 Jessey used to make the capital contribution in JoAnderson
Capital was traceable back to a bequest from his grandparents. And to top it off, all
of this evidence was uncontradicted. As we have noted, the burden of tracing is
difficult, but it is not impossible. Boyd, 131 S.W.3d 612. We have no trouble
concluding from this evidence that Jessey met his burden to show that the entire
ownership interest he obtained in JoAnderson Capital was his separate property.
So on what basis, then, did the trial court find otherwise? The answer lies in
the trial court’s finding that all of the evidence Jessey had presented concerning the
tracing of the funds he had used to acquire that interest was not credible, and based
upon this credibility determination, the trial court disregarded all of that evidence.
Crystal relies on the trial court’s credibility determination in her pro se appellee’s brief
as the sole basis for upholding the trial court’s finding that Jessey failed to establish
the interest in JoAnderson Capital was his separate property. Jessey, however,
contends that the trial court’s credibility finding has no support in the record.
The factfinder is the sole judge of the credibility of the witnesses and the
weight to give their testimony. City of Keller v. Wilson, 168 S.W.3d 802, 819 (Tex. 2005)
(legal sufficiency); Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 761 (Tex. 2003)
(factual sufficiency). Thus, appellate courts generally afford great deference to a
22
factfinder’s credibility determinations. See In re A.B., 437 S.W.3d 498, 503 (Tex. 2014);
City of Keller, 168 S.W.3d at 819. But an appellate court need not defer to credibility
determinations that are unreasonable. See In re J.P.B., 180 S.W.3d 570, 573 (Tex.
2005); Gonzales v. Maggio, 500 S.W.3d 656, 662 (Tex. App.—Austin 2016, no pet.).
Here, all of the evidence Jessey presented at the new trial concerning the tracing of
the funds he used to contribute to JoAnderson Capital was “undisputed . . .[,] clear,
positive, direct, otherwise credible, free from contradictions and inconsistencies, and
could have been readily controverted.” See City of Keller, 168 S.W.3d at 820. Thus, the
trial court was not free to disregard it. See id.; One Ford Mustang v. State, 231 S.W.3d
445, 454 (Tex. App.—Waco 2007, no pet.) (holding the trial court in civil forfeiture
was not free to disbelieve “undisputed . . . clear, positive, [and] direct” testimony
regarding whether the owner of a vehicle knew or reasonably should have known the
operator of the vehicle was involved in narcotics trafficking (citation omitted)).
In sum, viewing all the evidence in the light most favorable to the trial court’s
findings, we conclude that no evidence supports the trial court’s finding that Jessey
failed to meet his burden to establish the interest he obtained in JoAnderson Capital
was his separate property. See Horizon Health, 520 S.W.3d at 866. We further
conclude that no reasonable factfinder could find that Jessey failed to prove the
interest was his separate property; thus, the evidence conclusively shows the interest
to be Jessey’s separate property. See City of Keller, 168 S.W.3d at 816 (“Evidence is
conclusive only if reasonable people could not differ in their conclusions.”).
23
2. Percentage of Ownership Interest
We turn now to the trial court’s finding that Jessey’s ownership interest in
JoAnderson Capital was 50%. The trial court expressly based that finding on Jessey’s
declaration in the California proceeding that Huang was his business partner.
JoAnderson Capital, Jim, and Jenny contend that Jessey’s reference to Huang as his
business partner is no evidence that they each owned a 50% interest in JoAnderson
Capital.
By relying on Jessey’s reference to Huang as his business partner as its sole
basis for finding that Jessey held a 50% interest in JoAnderson Capital, the trial court
necessarily assumed Jessey’s use of the term “business partner” meant partner in the
traditional, formal legal sense. See Johnston v. Ballard, 18 S.W. 686, 686 (Tex. 1892)
(noting the rule at common law that in the absence of evidence to the contrary,
partners in a partnership share equally in the partnership’s profits, losses, and capital
stock). There are at least two problems with that assumption. First, it is undisputed
that JoAnderson Capital is a California limited liability company, not a partnership.
See Cal. Corp. Code § 16202(b) (providing that “[a]n association formed under a
statute other than [the California Uniform Partnership Act of 1994], a predecessor
statute, or a comparable statute of another jurisdiction is not a partnership”). Second,
one’s statement that another is his business partner in a limited liability company says
nothing about their respective ownership interests, if any, in that company. Thus, in
this context, Jessey’s use of the term “business partner” to describe his relationship
24
with Huang, standing by itself, does nothing more than create a mere surmise or
suspicion that he and Huang each owned 50% of the ownership interest in
JoAnderson Capital. See Ingram v. Deere, 288 S.W.3d 886, 900 (Tex. 2009) (holding
“‘partner’ is regularly used in common vernacular and may be used in a variety of
ways” but using the term in “a colloquial sense is not legally sufficient evidence of
expression of intent to form a business partnership”). We therefore conclude that no
evidence supports the trial court’s finding that Jessey owned 50% of JoAnderson
Capital. See Super Starr Int’l, LLC v. Fresh Tex. Produce, LLC, 531 S.W.3d 829, 839–40
(Tex. App.—Corpus Christi–Edinburgh 2017, no pet.) (concluding no evidence
supported trial court’s partnership finding); see also Bell Helicopter Textron, Inc. v. Burnett,
552 S.W.3d 901, 913 (Tex. App.—Fort Worth 2018, pet. filed) (“[W]hen the evidence
offered to prove a vital fact is so weak as to do no more than create a mere surmise or
suspicion of its existence, the evidence is no more than a scintilla and, in legal effect,
is no evidence.”).
JoAnderson Capital, Jim, and Jenny also contend that the evidence conclusively
proved Jessey held only a 40% interest in JoAnderson Capital. As we set out above,
Jessey testified at trial that his capital contribution to JoAnderson Capital was for a
40% interest in the company. Huang testified to the same. Further, in his report, the
parties’ agreed expert opined that Jessey owned a 40% interest in JoAnderson Capital.
The trial court also admitted copies of JoAnderson Capital’s state and federal tax
returns for 2014 and 2015, which also showed that Jessey’s share of JoAnderson
25
Capital was 40%. And all of this evidence was uncontradicted. No reasonable
factfinder could disregard this uncontradicted, clear, positive, consistent evidence and
find that Jessey’s interest in JoAnderson Capital was anything other than 40%.
Accordingly, JoAnderson Capital, Jim, and Jenny conclusively established Jessey’s
interest in JoAnderson Capital is 40%. See City of Keller, 168 S.W.3d at 816.
IV. $24,341 IN RENTAL PROCEEDS
We turn to JoAnderson Capital, Jim, and Jenny’s second issue. In the divorce
decree, the trial court awarded Crystal “[t]he twenty-four thousand, three hundred
forty-one and 00/100 dollars ($24,341) received from the rental of the [California
beach house] owned by JoAnderson Capital, LLC.” In their second issue,
JoAnderson Capital, Jim, and Jessey contend that by awarding those rental proceeds
to Crystal, the trial court erred as a matter of law.
In awarding the rental proceeds to Crystal, the trial court found those proceeds
were community property. But it is undisputed that those rental proceeds came from
persons who had rented the California beach house and had paid the rental fees
directly to Crystal. And as recognized in the trial court’s October 5, 2017 decree, it is
also undisputed that JoAnderson Capital owned the California beach house from
which the rental proceeds derived. As a general rule, the owner of real property at the
time rent becomes due is entitled to the rent. See Hearne v. Lewis, 14 S.W. 572, 572
(Tex. [Comm’n Op.] 1890); cf. S. Plains Switching, Ltd. v. BNSF Ry. Co., 255 S.W.3d 690,
707 (Tex. App.—Amarillo 2008, pet. denied) (holding that because an easement does
26
not convey title to real property, an easement holder is not entitled to share in rental
proceeds stemming from the real property). Thus, the record conclusively establishes
that the rental proceeds belonged to JoAnderson Capital and, consequently, that the
trial court mischaracterized those funds as Jessey and Crystal’s community property.
V. HARM
We briefly address harm. A trial court’s mischaracterization of property does
not always constitute reversible error. See Tate v. Tate, 55 S.W.3d 1, 6–7 (Tex. App.—
El Paso 2000, no pet.). In most circumstances, a party that establishes the trial court
mischaracterized property must, in order to prevail on appeal, additionally show that
because of the mischaracterization, the overall division of property constitutes an
abuse of discretion. See id. Here, however, the trial court’s mischaracterization
resulted in Jessey being divested of his separate property, in Jim and Jenny being
divested of a portion of their ownership in JoAnderson Capital, and in JoAnderson
Capital being divested of its rental proceeds. These errors are reversible as a matter of
law. See Gibson v. Gibson, 190 S.W.3d 821, 823 (Tex. App.—Fort Worth 2006, no pet.)
(“Divesting a partnership that is not a party to a divorce proceeding of partnership
property and awarding that property to a nonpartner spouse is reversible error.”);
Siefkas v. Siefkas, 902 S.W.2d 72, 79–80 (Tex. App.—El Paso 1995, no writ) (holding
the trial court reversibly erred by dividing property that may have been owned by the
appellant’s professional corporation, which was a separate legal entity and not a party
to the proceedings); Eggemeyer v. Eggemeyer, 554 S.W.2d 137, 142 (Tex. 1977) (holding
27
that divesting a spouse of separate property is reversible error). Accordingly, we
sustain Jessey’s first and second issues, and we sustain JoAnderson Capital, Jim, and
Jenny’s first and second issues. Because those issues are dispositive, we do not reach
Jessey’s remaining issues.1 See Tex. R. App. P. 47.1.
VI. CONCLUSION
Having sustained Jessey’s first and second issues, and having sustained
JoAnderson Capital, Jim, and Jenney’s first and second issues, we reverse the trial
court’s judgment as to the property division and remand the case to the trial court for
a redivision of Jessey and Crystal’s community estate that excludes the erroneously
1
In Jessey’s third issue, he argues the evidence is factually insufficient to
support trial court’s characterization of his interest in JoAnderson Capital as
community property. Because we have sustained his first and second issues and those
issues are dispositive of Jessey’s characterization complaint, we need not address his
third issue. See Tex. R. App. P. 47.1.
In his fourth issue, Jessey argues the trial court abused its discretion by
awarding Crystal a $600,789 money judgment. The trial court awarded this judgment
“[f]or the purpose of a just and right division of property made in [its] decree,” and it
further ordered that the money judgment was “part of the division of community
property between the parties and shall not constitute or be interpreted to be any form
of spousal support, alimony, or child support.” In his fifth issue, Jessey argues
various other aspects of the trial court’s division of property resulted in a manifestly
unjust division.
Because we have already found reversible error in the division—overvaluing
the community estate by more than $1.125 million—we need not address these issues
and decline to do so. See Moore v. Moore, No. 01-13-00182-CV, 2014 WL 2538555, at
*7 (Tex. App.—Houston [1st Dist.] June 5, 2014, no pet.) (mem. op.). The trial court
may consider those issues on remand. See Siefkas, 902 S.W.2d at 80 (recognizing
“erroneous division of non-community property may affect whether the trial court
deems the remaining awards [to be] just and right”).
28
characterized property. Gibson, 190 S.W.3d at 822. We affirm the portion of the
judgment granting the parties a divorce. See id.
/s/ Lee Gabriel
Lee Gabriel
Justice
Delivered: July 11, 2019
29