Morash v. Val Ridge Roofing

Case: 21-10212 Document: 00516453401 Page: 1 Date Filed: 08/30/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
August 30, 2022
No. 21-10212 Lyle W. Cayce
Clerk
In the Matter of: Silver State Holdings, Assignee 7901
Boulevard 26, L.L.C.
Debtor,
Richard N. Morash; Silver State Holdings, Assignee
7901 Boulevard 26, L.L.C.,
Appellants/Cross-Appellees,
versus
Valley Ridge Roofing and Construction, L.L.C.,
Appellee/Cross-Appellant.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 4:20-CV-1355
Before Jones, Haynes, and Costa, Circuit Judges.
Per Curiam:*
*
Pursuant to 5th Circuit Rule 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opinion should not be published and is not precedent except under the limited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 Circuit Rule 47.5.4.
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Richard Morash owned a property encumbered by liens. He erased
one of the liens by purchasing a senior lien and foreclosing on the property.
The question is whether the creditor whose lien was erased can avoid this
transfer in a bankruptcy proceeding. We agree with the bankruptcy court that
it can and therefore affirm.
I
A property in the Fort Worth suburbs is the focus of this appeal.
Morash bought that property, a former Home Depot, through his single-
member limited liability company called 7901. The purchase required a $3.4
million loan from a bank, which placed a lien on the property. The bank’s
lien was junior to a pre-existing $100,000 property tax lien issued by Tarrant
County.
7901 leased the property to a tenant that wanted to turn it into a
shooting range. The tenant borrowed $180,000 from the City of North
Richland Hills, which resulted in another lien on the property. This lien took
third priority behind the county and bank liens.
The lien-saddled property suffered setbacks. The first was a violent
storm that damaged the roof. 7901 employed a roofing company—Valley
Ridge—to fix the roof, but Valley Ridge’s costs for the repair exceeded what
7901’s insurance paid. 7901 and Valley Ridge thus went to arbitration, where
Valley Ridge was awarded over $500,000 plus post-judgment interest.
Valley Ridge recorded a judgment lien against the property. This was the
fourth lien on the property. In order of priority, the liens were: (1) the
$100,000 county lien; (2) the $3.4 million bank lien; (3) the $180,000 city
lien; and (4) the $500,000-plus judgment lien.
Meanwhile, the tenant defaulted on and then abandoned its lease.
7901 tried selling the property but the attempt fizzled. The property
remained vacant and produced no income. Consequently, 7901 ran out of
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cash. Morash continued to pay 7901’s bills with money from his other
companies. And because Valley Ridge’s judgment remained unsatisfied, it
filed a petition in state court to foreclose on the property.
Per the bankruptcy court’s findings, Morash’s chicanery began
sometime around then. He formed a new company called Silver State, which,
like 7901, was owned and controlled solely by him. Morash and his lawyer—
who also represented Silver State and 7901—convinced North Richland Hills
to sell its $180,000 lien to Silver State. Knowing that the city wanted an
owner who had the time and resources to maintain the property, Morash and
his lawyer lied to the city that they had a prospective buyer. They also told
the city that the sale to that buyer would occur only if they “clear[ed] [the]
title of certain historical liens impacting marketability.” In fact, no buyer
existed at the time. The city nevertheless sold the lien to Silver State for
$180,000.
Silver State then foreclosed on the property. A trustee appointed by
Silver State convened the sale. The trustee filed and posted all notices about
the foreclosure required by Texas law. But to speed up the foreclosure
process, Morash—on behalf of 7901—waived (1) Silver State’s requirement
to provide thirty days’ notice before the foreclosure and (2) 7901’s right to
cure its default. At the foreclosure sale, Silver State submitted a credit bid of
$200,000. The trustee accepted the bid, and the property was Silver State’s.
The foreclosure extinguished Valley Ridge’s junior judgment lien. And the
deed conveying the property was recorded five days later.
Valley Ridge did not find out about the foreclosure until more than a
month after it happened. While Morash and the lawyer were maneuvering
to acquire the city lien, they were also stalling Valley Ridge’s foreclosure.
Acting on 7901’s behalf, they misled Valley Ridge into believing that they
were going to sell the property to a buyer and satisfy Valley Ridge’s judgment.
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For example, a few days after Silver State acquired the city lien and its notice
of foreclosure was filed, Valley Ridge asked the lawyer about the status of the
property. The lawyer responded that “the buyer has not agreed to final
terms.” Morash and the lawyer delayed recording the assignment of the city
lien until after the foreclosure sale. Even after the sale was complete, the
lawyer continued to lie to Valley Ridge about whether a buyer was interested
in the property.
When Valley Ridge eventually found out about the foreclosure, it
amended its state court petition against 7901 to add claims against Silver
State under the Texas Uniform Fraudulent Transfer Act (TUFTA). Silver
State, in turn, filed for Chapter 11 bankruptcy. By this point, Silver State had
found a legitimate third party to buy the property and wanted to use the
Bankruptcy Code’s “free and clear” sale provision to sell the property
without the looming cloud of Valley Ridge’s TUFTA claims. After filing the
bankruptcy petition, Silver State removed Valley Ridge’s state court
proceeding to the bankruptcy court.
In a separate proceeding, Valley Ridge initiated an involuntary
Chapter 7 bankruptcy against 7901. The trustee in that proceeding filed her
own complaint against Morash and Silver State alleging preferential transfer
and fraudulent transfer under the Bankruptcy Code, breach of fiduciary duty,
conspiracy, and other claims.
These disparate proceedings were eventually consolidated before the
bankruptcy court handling Silver State’s Chapter 11. In that proceeding, the
bankruptcy court allowed Silver State to sell the property to the third party
with the caveat that the disputed proceeds would be deposited in the court’s
registry until resolution of the claims against Silver State.
The property was thus sold. From the proceeds, Silver State paid the
county and bank liens. The bankruptcy court then approved a compromise
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whereby Valley Ridge would assume the trustee’s claims against Morash and
Silver State, and the trustee would receive $50,000 from the sale proceeds.
When the scores were settled, more than half a million dollars remained in
the court’s registry. All claims against Silver State and Morash—both Valley
Ridge’s and the trustee’s (assumed by Valley Ridge)—proceeded in Silver
State’s bankruptcy.
The bankruptcy court ruled in Valley Ridge’s favor on multiple, but
not all, grounds. It held that Valley Ridge could avoid Silver State’s
foreclosure as (1) an actual fraudulent transfer under section 548 of the
Bankruptcy Code, (2) a preferential transfer under section 547 of the
Bankruptcy Code, (3) an actual fraudulent transfer under section
24.005(a)(1) of TUFTA (through section 544 of the Bankruptcy Code), and
(4) a constructive fraudulent transfer under section 24.006(b) of TUFTA
(through section 544 of the Bankruptcy Code). It further held that Morash
breached his fiduciary duty to 7901 and that Silver State conspired with him
and aided and abetted the breach. It awarded Valley Ridge the funds
remaining in the registry—which at this point amounted to $587,750.96—
and $84,000 in attorney’s fees, plus conditional appellate attorney’s fees.
Morash appealed1 and Valley Ridge cross-appealed. The bankruptcy
court certified a direct appeal to this court under 28 U.S.C. § 158(d), which
we authorized.
II
Although the bankruptcy court addressed various claims in its 83-page
ruling, we affirm its judgment based on one: section 24.006(b) of TUFTA as
1
As did Silver State and 7901. But given that Morash controls those entities, we
refer to appellants collectively as “Morash” for the remainder of the opinion.
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incorporated through section 544 of the Bankruptcy Code.2 The TUFTA
claim fully supports the judgment awarding Valley Ridge the remaining
proceeds and attorney’s fees. Indeed, TUFTA was the source of the
bankruptcy court’s fee ruling. See Tex. Bus. & Com. Code § 24.013
(“[T]he court may award costs and reasonable attorney’s fees as are
equitable and just.”).
Various provisions in the Bankruptcy Code allow creditors to “avoid
transactions which unfairly or improperly deplete a debtor’s assets or that
unfairly or improperly dilute the claims against those assets.” 5 Collier
on Bankruptcy ¶ 548.01. Section 544 is one of them. That gateway
provision allows trustees to avoid transfers that, under applicable state law,
are voidable by creditors. 15 U.S.C. § 544(b)(1).
One such applicable state law is TUFTA. “TUFTA’s purpose is to
prevent debtors from prejudicing creditors by improperly moving assets
beyond their reach.” Janvey v. Golf Channel, Inc., 487 S.W.3d 560, 566 (Tex.
2016). Under TUFTA, creditors can set aside transfers of property afflicted
by actual or constructive fraud. See, e.g., Tex. Bus. & Com. Code
§ 24.005. Section 24.006(b)—one of the constructive-fraud provisions—
provides that a “transfer made by a debtor is fraudulent as to a creditor whose
claim arose before the transfer was made if the transfer was made to an insider
for an antecedent debt, the debtor was insolvent at that time, and the insider
had reasonable cause to believe that the debtor was insolvent.” Id.
§ 24.006(b).
The issue is whether this constructive-fraud provision encompasses
Silver State’s foreclosure. Morash does not contest most elements of the
2
We thus do not address the other issues on which the bankruptcy court ruled, like
preferential transfer and breach of fiduciary duty.
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statute. Given that both Silver State and the debtor, 7901, were owned and
controlled by the same person, Morash wisely acknowledges that Silver State
was an insider of 7901. See In re Holloway, 955 F.2d 1008, 1011 (5th Cir. 1992)
(explaining that an important factor for insider status is “the closeness of the
relationship between the transferee and the debtor”). Morash also concedes
that 7901 was insolvent and that Silver State knew of the insolvency.
The main dispute is whether Silver State’s foreclosure was a “transfer
made by a debtor.” Tex. Bus. & Com. Code § 24.006(b). The plain
meaning of the phrase indicates that it was. 7901 parted with its property
through a foreclosure and thus transferred it to Silver State. See Transfer,
Black’s Law Dictionary 1727 (10th ed. 2014) (“The term [transfer]
embraces every method—direct or indirect, absolute or conditional,
voluntary or involuntary—of disposing of or parting with property or with an
interest in property, including retention of title as a security interest and
foreclosure of the debtor's equity of redemption.”). Morash nonetheless
contends that it was not.
First, Morash argues that the transfer of the property to Silver State
was not “made by a debtor” because the foreclosure trustee, not 7901, signed
the deed effectuating the transfer. His view is that foreclosures are not
transfers “made by a debtor” as TUFTA requires but are instead transfers
made by third parties. But cases hold otherwise. See, e.g., Abramson v.
Lakewood Bank & Trust Co., 647 F.2d 547, 548–9 (5th Cir. 1981) (construing
“transfer suffered by such debtor” to encompass foreclosures); In re Cowin,
492 B.R. 858, 901–03 (S.D. Tex. 2013) (holding that a foreclosure was an
actual fraudulent transfer under TUFTA); PDVSA Petroleo S.A. v. Trigeant,
Ltd., 2012 WL 3249531, at *10 (S.D. Tex. Aug. 7, 2012) (“[T]he foreclosure
sale constituted a transfer of an asset [under TUFTA].”). This view is also
inconsistent with Morash’s concession that collusive foreclosures can
constitute actual fraudulent transfers, given that such transfers also must be
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made by a debtor. See Tex. Bus. & Com. Code § 24.005(a)(1); 11 U.S.C.
§ 548(a)(1)(A). Indeed, the case on which Morash principally relies—BFP
v. Resol. Trust Corp.—explains that “foreclosure sales fall within the general
definition of ‘transfers’” in the Bankruptcy Code and that “a transfer may
be avoided as fraudulent even if it was against the debtor’s will.” 511 U.S.
531, 543 n.7 (1994); see also Janvey, 487 S.W.3d at 572 (noting that TUFTA
and the Bankruptcy Code are often construed similarly because TUFTA is
drawn from analogous bankruptcy authority).
TUFTA defines “transfer” broadly; a “transfer” is “every mode,
direct or indirect, absolute or conditional, voluntary or involuntary, of
disposing of or parting with an asset or an interest in an asset.” Tex. Bus.
& Com. Code § 24.002(12). This expansive definition suggests no
distinction between voluntary transfers made personally by the debtor and
involuntary transfers effectuated by third parties. The mode of the transfer
does not matter; what matters is whether property changes hands from
debtors to creditors. TUFTA’s broad language—not to mention its implicit
recognition that foreclosures are transfers made by debtors, see id.
§ 24.004(b)—defeats Morash’s first argument.
Second, Morash contends that the foreclosure was not a transfer
because the property that Silver State foreclosed on was not an “asset.”
Recall that under TUFTA, the transfer must be of “an asset or an interest in
an asset.” Id. § 24.002(12). An asset, in turn, is the “property of a debtor,”
but, as relevant here, only to the extent that the property is not “encumbered
by a valid lien.” Id. § 24.002(2). Morash argues that the property was not
an “asset” when it was transferred because the liens on it exceeded its value.
We disagree. To determine whether the property was an “asset,” the
bankruptcy court had to determine its value when it was transferred. It found
that the value was $4.2 million. Ample evidence supports this factual
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finding—which we can disturb only if clearly erroneous. See In re Renaissance
Hosp. Grand Prairie Inc., 713 F.3d 285, 293 (5th Cir. 2013). The court looked
to testimony valuing the property at $4.9 million as well as conflicting
testimony about the effect foreclosures have on property value. It also
considered that, less than two months after the foreclosure, the property sold
for over $4.2 million despite being encumbered by the county and bank liens
and despite no changes in market conditions. Indeed, Silver State itself
valued the property at $4.2 million in its bankruptcy schedules and in an
interrogatory. See In re Rollings, 451 F. App’x 340, 348 (5th Cir. 2011) (noting
that statements in bankruptcy schedules could be treated as judicial
admissions).
BFP does not dictate a different result. See 511 U.S. 531. That case
was about a bankruptcy statute that sets aside transfers in which debtors
receive less than “reasonably equivalent value” for their property. Id. at 535(addressing 11 U.S.C. § 548(a)(2)(A)). The Supreme Court held that the
sales price at a regularly conducted and noncollusive foreclosure constitutes
“reasonably equivalent value” and that courts should not second-guess
foreclosure prices by searching for “fair market value.” Id. at 537. The Court
rejected the use of an alternative measure of reasonably equivalent value
because doing so would have cast a “federally created cloud” over
foreclosure sales conducted under state law. Id. at 544. But BFP’s concern
that bankruptcy law might “displace traditional state regulation” is absent
when the underlying claim is under state law. Id. In other words, the meaning
of “reasonably equivalent value” in the Bankruptcy Code does not control
what value courts should assign a property in calculating whether it is an asset
under TUFTA. BFP does not constrain the more generalized factual inquiry
required to determine a property’s value. See In re 1701 Commerce, LLC, 511
B.R. 812, 831 (N.D. Tex. 2014) (using fair market value as the relevant
benchmark); PDVSA, 2012 WL 3249531, at *7 (not using foreclosure price
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as property’s value). To be sure, the $200,000 that the property sold for in
foreclosure is relevant in determining its market value. See 1701 Commerce,
511 B.R. at 831 (noting that foreclosure “still affects fair market value
negatively”). And here the bankruptcy court did consider the foreclosure
price, as part of “all relevant evidence,” before arriving at its conclusion on
the property’s worth. Given the considerable evidence that the property was
worth more than what it was sold for, the bankruptcy court did not clearly err
in finding that the property was worth $4.2 million at the time of transfer.
Nor did the liens on the property exceed its $4.2 million value when it
was transferred. The transfer occurred when the deed was recorded days
after the foreclosure. See Tex. Bus. & Com. Code § 24.007(1)(A) (“[A]
transfer is made . . . with respect to an asset that is real property . . . when the
transfer is so far perfected that a good faith purchaser of the asset from the
debtor . . . cannot acquire an interest in the asset that is superior to the
interest of the transferee.”); Corpus v. Arriaga, 294 S.W.3d 629, 635 (Tex.
App.—Houston [1st Dist.] 2009, no pet.) (holding that a transfer is perfected
when the deed is recorded). At that point, the remaining liens on the
property were the county lien of $99,508.99 and bank lien of $3,236,995.55.
Under TUFTA, “the value of property in excess of a valid lien encumbering
the property is an ‘asset.’” Citizens Nat’l Bank of Tex. v. NXS Constr., Inc.,
387 S.W.3d 74, 82 (Tex. App.—Houston [14th Dist.] 2012, no pet.). The
property was therefore an asset to the extent of the difference between its
value and the sum of the liens—$863,495.46.
Morash’s next argument is that a transfer is fraudulent under section
24.006(b) only if it was made in exchange for insider debt. But the text of
section 24.006(b) has no insider-debt requirement. The debt only needs to
be antecedent. See Tex. Bus. & Com. Code § 24.006(b); Osadon v.
C&N Renovation, Inc., 2018 WL 2126821, at *6 (Tex. App.—Dallas May 9,
2018, pet. denied). In other words, the debt must exist “before a debtor’s
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transfer of an interest in a property.” Antecedent Debt, Black’s Law
Dictionary 488 (10th ed. 2014). The debt that 7901 owed Silver State
(after Silver State assumed it from the city) was plainly antecedent because it
existed before the foreclosure took place.
The last question is whether Morash is entitled to the value of the lien
on which he foreclosed. TUFTA has a safe-harbor provision under which
good faith transferees are entitled to a reduction in liability equal to the
amount they paid. See Tex. Bus. & Com. Code § 24.009(d)(1).3 But
Morash cannot benefit from this provision. He was not a good faith
transferee. As the district court found, Morash and his lawyer lied to and
misled Valley Ridge about the foreclosure. Morash thus receives no liability
reduction under the safe harbor.4
***
Valley Ridge can avoid Silver State’s foreclosure under section
24.006(b) of TUFTA and section 544 of the Bankruptcy Code.
AFFIRMED.
3
This safe harbor tempers Morash’s concerns that allowing Valley Ridge to avoid
the Silver State foreclosure will throw all foreclosure markets into a tailspin.
4
Accordingly, we need not address the equitable-subordination issue that Valley
Ridge cross-appealed. In any event, that issue—which would not have expanded Valley
Ridge’s full victory at the bankruptcy court—should have been raised in Valley Ridge’s
appellee brief as an alternative ground for affirmance rather than in a cross-appeal. See
Domain Protection, L.L.C. v. Sea Wasp, L.L.C., 23 F.4th 529, 539–40 (5th Cir. 2022).
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EDITH H. JONES, Circuit Judge, Dissenting
Thank goodness this opinion is unpublished and therefore non-
precedential. I respectfully but ardently dissent. The upshot of the majority
opinion is essentially to revivify the discredited Durrett
1
rule under the guise of interpreting TUFTA. In one sense, this decision
applies only to TUFTA as enacted in Texas, and our court’s interpretation
of Texas law doesn’t even bind state courts. More broadly, if taken seriously,
this decision could affect the finality of foreclosures in other states that have
adopted materially similar versions of TUFTA.
The Durrett decision wrought havoc in the market for nonjudicial
foreclosure sales by holding that regularly conducted non-collusive
nonjudicial foreclosure sales for less than the “reasonably equivalent value”
of the property could be avoided in bankruptcy as constructive fraudulent
transfers. See 11 U.S.C. § 548(a)(1)(B).2 Durrett determined that
“reasonably equivalent value” could be based on a standard real estate
appraisal technique rather than the sale price determined at the forced sale.
The Supreme Court reversed. Among other things, the Court carefully
explained that such a mode of valuation simply does not represent the real-
world effect of a valid non-collusive forced sale on the value of real property.3
1
Durrett v. Washington Nat. Ins. Co., 621 F.2d 201 (5th Cir. 1980), abrogated by
BFP v. Resol. Tr. Corp., 511 U.S. 531, 114 S. Ct. 1757 (1994).
2
For instance, in BFP v Resolution Trust, which overruled Durrett more than a
decade after Durrett was decided, the Supreme Court observed that title insurers had
“reacted to the Durrett rule by including specially crafted exceptions from coverage in
many policies issued for properties purchased at foreclosure sales.” BFP, 511 U.S. at 544,
114 S. Ct. at 1765 (citation omitted).
3
The Court explained that “[a]n appraiser’s reconstruction of ‘fair market’ value
could show what similar property would be worth if it did not have to be sold within the
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In this case, the majority finds a “constructive fraudulent transfer,”
Tex. Bus. Comm. Code § 24.006(b), because the debtor’s involuntary
“transfer” was of “an asset or an interest in an asset,” § 24.002(12), and an
“asset” must be the “property of a debtor” to the extent that the property is
not “encumbered by a valid lien.” § 24.002(2). The majority then holds,
just as this court erroneously did in Durrett, that the combined TUFTA
definitions allowed the court to “value” the foreclosed property not at the
date of foreclosure and based on the foreclosure auction, but at the amount for
which it was sold in a non-foreclosure sale months later.4
Essentially, the majority moves the Durrett valuation error into the
definitional framework of TUFTA in all its applications. The BFP decision,
to be sure, interpreted the Bankruptcy Code’s fraudulent conveyance
provision and does not control our interpretation of Texas law. But BFP
described the parallel history of fraudulent transfer law and foreclosure law
and found that they “enjoyed over 400 years of peaceful coexistence in
Anglo-American jurisprudence until the Fifth Circuit’s unprecedented 1980
decision in Durrett.” BFP, 511 U.S. at 542, 114 S. Ct. at 1764. Likewise in
time and manner strictures of state prescribed foreclosure. But property that must be sold
within those strictures is simply worth less. No one would pay as much to own such
property as he would pay to own real estate that could be sold at leisure and pursuant to
normal marketing techniques.” BFP, 511 U.S. at 539-40.
4
The majority opinion neglects to mention that the bankruptcy court found no
legal fault in the way in which Silver State’s foreclosure on the City lien was handled and
conducted by Morash (using his name synonymously with his wholly owned entities). The
majority also neglects to mention that for all the “misleading” conduct on behalf of
Morash, he owed no duty in Texas law to inform Valley Ridge about the upcoming
foreclosure, for which valid public notice was provided. See Tex. Prop. Code § 51.002(b);
see also Am. Sav. & Loan Ass’n v. Musick, 531 S.W.2d 581, 588 (Tex. 1975) (a junior lienor
is not entitled to particularized notice of the foreclosure).
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this case, we have found no Texas court case that has ever construed TUFTA
to impugn a regularly conducted noncollusive nonjudicial foreclosure.
The indications from Texas law, instead, are contrary to the majority
opinion. As noted before, the trustee points to not a single Texas case that
has ever avoided under TUFTA a regularly conducted noncollusive
nonjudicial foreclosure sale; indeed, the trustee sniffs at the idea such a
citation is even necessary.5 Yet as with the distinct novelty of the Durrett
opinion’s alleged plain reading of the Bankruptcy Code, one would think that
some venerable case law might have construed TUFTA or its predecessor
statutes to undo a creditor’s foreclosure sale. The silence of precedent is
deafening. Further, in Yokogawa Corp. v. Skye Intern Holdings, the court
upheld summary judgment in favor of two secured creditors who foreclosed
on the borrower’s assets and sold them to a third defendant. Yokogawa Corp.
of Am. v. Skye Int'l Holdings, Inc., 159 S.W.3d 266 (Tex. App. 2005). The
court stated:
“We agree that the foreclosure and subsequent transfer of
assets to Skye Delaware are not covered by TUFTA. A
secured party is entitled to foreclose on its security interest in
the event of default . . . . Nor is the subsequent transfer of the
assets from the foreclosure sale actionable under TUFTA.
Under TUFTA, ‘transfer’ means disposing or parting with an
asset. Tex. Bus. & Com. Code Ann. § 24.002(12) (Vernon
2002). Because the property Moore and Trojan purchased at
the foreclosure sale was encumbered by a valid lien, TUFTA is
inapplicable.” Yokogawa, 159 S.W.3d at 269.
5
Only one case is on point, PDVSA Petroleo S.A. v. Trigeant, Ltd., WL 3249531
(S.D. Tex. Aug. 7, 2012). But that case issued from a bankruptcy court, is not binding on
our interpretation of Texas law, and during appeal to the Fifth Circuit the parties settled,
preventing any more definitive ruling.
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Moreover, the majority’s application of two definitions in TUFTA
effectively overrides a specific provision, which defines “value” accruing
from foreclosure sales to override Durrett. Section 24.004(b) provides that:
For the purposes of Sections 24.005(a) and 24.006 of this code,
a person gives reasonably equivalent value if the person
acquires an interest of the debtor in an asset pursuant to a
regularly conducted, noncollusive foreclosure sale…for the
acquisition or disposition of the interest of the debtor upon
default under a mortgage, deed of trust, or security agreement.
According to the relevant comment to section 3 of the Uniform Act,
from which this provision is derived, subsection (b) “rejects the rule of such
cases as Durrett and Abramson . . . [and] adopts the view taken in . . . In re
Madrid . . ., that the price bid at a regularly conducted and noncollusive
foreclosure sale determines the fair value of the property sold.” Unif.
Fraudulent Transfer Act § 3 cmt. 5. By its terms, Section 24.004(b)
encompasses Sec. 24.006(b), on which the majority here relies. I contend
that this specific withdrawal of liability for regularly conducted noncollusive
foreclosure sales controls, under standard principles of statutory
construction, over the general statutory definitions. A. Scalia & B. Garner,
Reading Law: The Interpretation of Legal Texts 183-88 (2012) (Scalia &
Garner). If it were otherwise, the definitions could render Sec. 24.004(b)
practically meaningless.
A final note about the majority’s pejorative description of the facts.
The bankruptcy court found Morash’s attorney less than candid about
maneuverings that preceded Silver State’s foreclosure on 7901’s real
property, although the bankruptcy court almost exclusively uses the term
“misled” rather than “lied.” But the majority omits to note that for nearly
two years, Morash personally kept 7901’s bank loan current and paid upkeep
on 7901’s vacant parcel, all at a cost of thousands per month, and sought to
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market the property unsuccessfully. Ultimately, Valley Ridge secured a
fourth lien on the parcel. When Silver State purchased the City’s third lien
for nearly full value, as it was entitled to do, and noticed foreclosure, Valley
Ridge or any outside party could have bid in at the foreclosure sale, subject
to whatever prior liens were not cut off. Morash properly notes that had the
parcel been sold through a bankruptcy trustee’s sale pursuant to 11 U.S.C.
§ 363 (sale free and clear of liens), Morash or Silver State could have
accomplished exactly the same result that obtained here outside of
bankruptcy. Valley Ridge was not fully paid for roofing the building at 7901,
but Morash’s losses from this venture surely exceed those of Valley Ridge.6
If this were a precedential opinion, I fear it would subject regularly
conducted, nonjudicial foreclosure sales in Texas to the same post hoc
challenges and market uncertainty that followed in the wake of Durrett. I
respectfully dissent.
6
The majority declines to review the bankruptcy court’s additional findings that
Morash’s transactions actually intended to hinder, defraud, or delay creditors, Tex. Bus. &
Comm. Code Sec. 24.005(a), constituted a preferential transfer pursuant to 11 U.S.C. Sec.
547, and somehow violated some fiduciary duty of some kind owed by Morash. I would
reverse the bankruptcy court on those grounds for liability and reverse the judgment in toto.
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