ACCEPTED 01-14-00537-CV FIRST COURT OF APPEALS HOUSTON, TEXAS 4/30/2015 11:34:35 AM CHRISTOPHER PRINE CLERK
NO. 01-14-00537-CV
IN THE 1st COURT OF APPEALS FILED IN 1st COURT OF APPEALS HOUSTON, TEXAS HOUSTON, TEXAS 4/30/2015 11:34:35 AM __________________________________________________________________ CHRISTOPHER A. PRINE Clerk
FRANCIE WILLIS Appellant
vs.
BPMT, LLC Appellee
On appeal from the 164TH Judicial District, Harris County, Texas Trial Court Cause No. 2009-08290
BPMT, LLC’S RESPONSE TO APPELLANT’S MOTION UNDER TEXAS RULE OF APPELLATE PROCEDURE 24.4 CHALLENGING THE TRIAL COURT’S MARCH 30, 2015 ORDER CONCERNING THE APPELLANT’S NET WORTH AFFIDAVITS _________________________________________________________________
TANYA N. GARRISON State Bar No. 24027180 JONATHAN D. SAIKIN State Bar No. 24041847 WEYCER, KAPLAN, PULASKI & ZUBER, PC 11 Greenway Plaza, Suite 1400 Houston, Texas 77046-1104 Telephone: (713) 961-9045 Facsimile: (713) 961-5341
ATTORNEYS FOR APPELLEE TO THE HONORABLE FIRST COURT OF APPEALS:
Appellant Francie Willis’s 24.4 attempts to reduce the amount of
her supersedeas bond should be denied because:
1. A decision on net worth is in the discretion of the trial court; and
2. The trial court did not abuse its discretion in finding that Ms.
Willis’s net worth was $197,565.20.
I. Introduction
BPMT, LLC has a judgment against Ms. Willis for approximately
$65,000 including pre-judgment interest. This number is growing every
day by approximately $5.25 in post-judgment interest. See Tab 3 to
Appellant’s Motion. Ms. Willis, as is her right, appealed this judgment.
However, BPMT has the right to seek enforcement of its judgment
while this case is on appeal, unless Ms. Willis complies with Rule 24 of
the Texas Rules of Appellate Procedure. Ms. Willis attempted to do
that by filing a negative net-worth affidavit, claiming that her net
worth was less than $0, and as such she was not required to post a
bond.
Ms. Willis’s claims are nothing more than her ongoing efforts to
conceal assets and hinder her creditors. Ms. Willis lives in a condo in
2 River Oaks, Houston, Texas worth over $1,400,000. Ms. Willis enjoys a
vacation home in Santa Fe, New Mexico worth over $1,600,000. Ms.
Willis and her husband recently sold commercial property worth
approximately $1,000,000. The two of them own oil and gas
investments, promissory notes, and other business investments worth
approximately $4,500,000. Ms. Willis drives a Lexus, spends money at
high end retail establishments, and otherwise enjoys all the benefits of
a privileged lifestyle (charity fundraisers, art collections, jewelry, and
fur coats).
Her claim of a negative net-worth is the product of a Partition or
Exchange Agreement (the “Agreement”) she entered with her husband,
Michael Willis, in 2011 that put all of the assets of any value owned by
the community estate into Michael’s name, while moving the major
liabilities into Francie’s name. The Agreement was entered just after
Ms. Willis’s business – Urban Retreat – got into some financial trouble
with the IRS and other creditors, including BPMT. This was an obvious
attempt to move assets away from her creditors.
BPMT challenged Willis’s negative net-worth affidavit by making
two arguments: (1) that the trial court should disregard the Agreement
3 under the Uniform Fraudulent Transfer Act; and (2) in the alternative,
that Ms. Willis’s net worth affidavit was insufficient because it did not
reflect the value of her assets as identified in the Agreement.
The trial court was unwilling to set aside the Agreement under
UFTA through this proceeding. However, after hearing evidence on
both sides of this issue, determined that the value of Ms. Willis’s assets
was $1,160,454.24. Her liabilities totaled $962,889.04. As such, her
total net worth was $197,565.20. The trial court disagreed with Ms.
Willis that her life estates in the River Oaks Condo and the Santa Fe
Vacation Home 1 were worth $0. The trial court, using its discretion,
was of the opinion that these life estates had much more value, and
thus the $5 bond Ms. Willis posted was insufficient.
II. STANDARD OF REVIEW
In this Motion, Ms. Willis challenges the ruling of the trial court
that her net worth is $197,565.20, which was made after an evidentiary
hearing. The trial court has discretion to determine the debtor’s net
worth and order additional security to supersede a judgment. See TEX.
R. APP. P. 24.2(C)(3) and 24.4(a)(5). The standard of review of the trial
1 As a part of the Agreement, ownership of these two properties was transferred to Michael Willis, and Francie Willis was granted a life estate in both homes.
4 court’s rulings concerning the amount and type of bond required is an
abuse of discretion. EnviroPower, LLC v. Bear, Stearns & Co., 265
S.W.3d 1, 5-6 (Tex. App. – Houston [1st Dist.] 2008, pet. denied) . “The
test for abuse of discretion is whether the trial court acted without
reference to guiding rules and principles. We will reverse the trial court
only if its ruling is arbitrary or unreasonable.” McConnell v. McConnell,
2011 Tex. App. LEXIS 674 (Tex. App. – Houston [1st Dist.] 2011, no
pet.).
III. THE RULES AND THE LAW SURROUNDING NET WORTH INQUIRIES
In 2003, through the adoption of House Bill 4, the Texas Supreme
Court implemented changes to Texas Rule of Appellate Procedure 24.
The new rule incorporated a cap on supersedeas amounts; however, if
the cap did not apply, it allowed judgment debtors to base the amount of
the supersedeas on one of two things: (1) the amount of the judgment; or
(2) 50% of the debtor’s net worth, whichever was less. See TEX. R. APP.
P. 24; see also Reshuffling the Deck: Enforcing & Superseding Civil
Judgments on Appeal After HB4, ELAINE A. CARLSON, 46 S. TEX. L. REV.
1035 (Summer 2005).
5 The determination of net worth should be made using generally
accepted accounting principles ("GAAP"), and according to the Houston
14th Court of Appeals:
"Net worth" is a term used by laymen as well as professionals. Although it is a term of art in business and accounting, its meaning is the same in ordinary usage. Dictionaries define "net worth" as the amount by which resources exceed liabilities to creditors.
...
The plain meaning of "net worth," as used in section 52.006 of the Texas Civil Practice and Remedies Code and Rule 24, is the difference between total assets and total liabilities determined in accordance with GAAP.
Ramco Oil & Gas, Ltd. v. Anglo Dutch (Tenge) L.L.C., 171 S.W.3d 905
(Tex. App. – Houston 14th Dist. 2005, pet denied) (citations omitted).
This standard was adopted by this Court in EnviroPower, LLC v.
Bear, Stearns & Co., 265 S.W.3d 1, 5-6 (Tex. App. – Houston [1st Dist.]
2008, pet. denied). In EnviroPower, this Court specifically recognized
that a valuation of assets is not dependent on a “fair market valuation”
of the assets. This Court stated:
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ACCEPTED 01-14-00537-CV FIRST COURT OF APPEALS HOUSTON, TEXAS 4/30/2015 11:34:35 AM CHRISTOPHER PRINE CLERK
NO. 01-14-00537-CV
IN THE 1st COURT OF APPEALS FILED IN 1st COURT OF APPEALS HOUSTON, TEXAS HOUSTON, TEXAS 4/30/2015 11:34:35 AM __________________________________________________________________ CHRISTOPHER A. PRINE Clerk
FRANCIE WILLIS Appellant
vs.
BPMT, LLC Appellee
On appeal from the 164TH Judicial District, Harris County, Texas Trial Court Cause No. 2009-08290
BPMT, LLC’S RESPONSE TO APPELLANT’S MOTION UNDER TEXAS RULE OF APPELLATE PROCEDURE 24.4 CHALLENGING THE TRIAL COURT’S MARCH 30, 2015 ORDER CONCERNING THE APPELLANT’S NET WORTH AFFIDAVITS _________________________________________________________________
TANYA N. GARRISON State Bar No. 24027180 JONATHAN D. SAIKIN State Bar No. 24041847 WEYCER, KAPLAN, PULASKI & ZUBER, PC 11 Greenway Plaza, Suite 1400 Houston, Texas 77046-1104 Telephone: (713) 961-9045 Facsimile: (713) 961-5341
ATTORNEYS FOR APPELLEE TO THE HONORABLE FIRST COURT OF APPEALS:
Appellant Francie Willis’s 24.4 attempts to reduce the amount of
her supersedeas bond should be denied because:
1. A decision on net worth is in the discretion of the trial court; and
2. The trial court did not abuse its discretion in finding that Ms.
Willis’s net worth was $197,565.20.
I. Introduction
BPMT, LLC has a judgment against Ms. Willis for approximately
$65,000 including pre-judgment interest. This number is growing every
day by approximately $5.25 in post-judgment interest. See Tab 3 to
Appellant’s Motion. Ms. Willis, as is her right, appealed this judgment.
However, BPMT has the right to seek enforcement of its judgment
while this case is on appeal, unless Ms. Willis complies with Rule 24 of
the Texas Rules of Appellate Procedure. Ms. Willis attempted to do
that by filing a negative net-worth affidavit, claiming that her net
worth was less than $0, and as such she was not required to post a
bond.
Ms. Willis’s claims are nothing more than her ongoing efforts to
conceal assets and hinder her creditors. Ms. Willis lives in a condo in
2 River Oaks, Houston, Texas worth over $1,400,000. Ms. Willis enjoys a
vacation home in Santa Fe, New Mexico worth over $1,600,000. Ms.
Willis and her husband recently sold commercial property worth
approximately $1,000,000. The two of them own oil and gas
investments, promissory notes, and other business investments worth
approximately $4,500,000. Ms. Willis drives a Lexus, spends money at
high end retail establishments, and otherwise enjoys all the benefits of
a privileged lifestyle (charity fundraisers, art collections, jewelry, and
fur coats).
Her claim of a negative net-worth is the product of a Partition or
Exchange Agreement (the “Agreement”) she entered with her husband,
Michael Willis, in 2011 that put all of the assets of any value owned by
the community estate into Michael’s name, while moving the major
liabilities into Francie’s name. The Agreement was entered just after
Ms. Willis’s business – Urban Retreat – got into some financial trouble
with the IRS and other creditors, including BPMT. This was an obvious
attempt to move assets away from her creditors.
BPMT challenged Willis’s negative net-worth affidavit by making
two arguments: (1) that the trial court should disregard the Agreement
3 under the Uniform Fraudulent Transfer Act; and (2) in the alternative,
that Ms. Willis’s net worth affidavit was insufficient because it did not
reflect the value of her assets as identified in the Agreement.
The trial court was unwilling to set aside the Agreement under
UFTA through this proceeding. However, after hearing evidence on
both sides of this issue, determined that the value of Ms. Willis’s assets
was $1,160,454.24. Her liabilities totaled $962,889.04. As such, her
total net worth was $197,565.20. The trial court disagreed with Ms.
Willis that her life estates in the River Oaks Condo and the Santa Fe
Vacation Home 1 were worth $0. The trial court, using its discretion,
was of the opinion that these life estates had much more value, and
thus the $5 bond Ms. Willis posted was insufficient.
II. STANDARD OF REVIEW
In this Motion, Ms. Willis challenges the ruling of the trial court
that her net worth is $197,565.20, which was made after an evidentiary
hearing. The trial court has discretion to determine the debtor’s net
worth and order additional security to supersede a judgment. See TEX.
R. APP. P. 24.2(C)(3) and 24.4(a)(5). The standard of review of the trial
1 As a part of the Agreement, ownership of these two properties was transferred to Michael Willis, and Francie Willis was granted a life estate in both homes.
4 court’s rulings concerning the amount and type of bond required is an
abuse of discretion. EnviroPower, LLC v. Bear, Stearns & Co., 265
S.W.3d 1, 5-6 (Tex. App. – Houston [1st Dist.] 2008, pet. denied) . “The
test for abuse of discretion is whether the trial court acted without
reference to guiding rules and principles. We will reverse the trial court
only if its ruling is arbitrary or unreasonable.” McConnell v. McConnell,
2011 Tex. App. LEXIS 674 (Tex. App. – Houston [1st Dist.] 2011, no
pet.).
III. THE RULES AND THE LAW SURROUNDING NET WORTH INQUIRIES
In 2003, through the adoption of House Bill 4, the Texas Supreme
Court implemented changes to Texas Rule of Appellate Procedure 24.
The new rule incorporated a cap on supersedeas amounts; however, if
the cap did not apply, it allowed judgment debtors to base the amount of
the supersedeas on one of two things: (1) the amount of the judgment; or
(2) 50% of the debtor’s net worth, whichever was less. See TEX. R. APP.
P. 24; see also Reshuffling the Deck: Enforcing & Superseding Civil
Judgments on Appeal After HB4, ELAINE A. CARLSON, 46 S. TEX. L. REV.
1035 (Summer 2005).
5 The determination of net worth should be made using generally
accepted accounting principles ("GAAP"), and according to the Houston
14th Court of Appeals:
"Net worth" is a term used by laymen as well as professionals. Although it is a term of art in business and accounting, its meaning is the same in ordinary usage. Dictionaries define "net worth" as the amount by which resources exceed liabilities to creditors.
...
The plain meaning of "net worth," as used in section 52.006 of the Texas Civil Practice and Remedies Code and Rule 24, is the difference between total assets and total liabilities determined in accordance with GAAP.
Ramco Oil & Gas, Ltd. v. Anglo Dutch (Tenge) L.L.C., 171 S.W.3d 905
(Tex. App. – Houston 14th Dist. 2005, pet denied) (citations omitted).
This standard was adopted by this Court in EnviroPower, LLC v.
Bear, Stearns & Co., 265 S.W.3d 1, 5-6 (Tex. App. – Houston [1st Dist.]
2008, pet. denied). In EnviroPower, this Court specifically recognized
that a valuation of assets is not dependent on a “fair market valuation”
of the assets. This Court stated:
The dissenting opinion on en banc order falls into the trap that the Legislature intended to preclude by amending section 52.006, as discussed in Ramco. In short, it would require the trial court to hold a hearing to determine the value of the judgment debtor’s
6 assets upon their sale and to use the “fair market value” of those assets, thus determined, to set the supersedeas bond, thereby thwarting the purpose of the Legislature in amending section 52.006.
Id.
In order to establish net worth, the judgment debtor must file an
affidavit of net worth that states in detail the assets and liabilities of
the debtor. The judgment debtor's affidavit is prima facie evidence of
the debtor's net worth, although it may be contested by the judgment
creditor. See LMC Complete Automotive, Inc. v. Burke, 229 S.W.3d 469
(Tex. App. – Houston [1st Dist] 2007, pet. denied); see also TEX. R. APP.
P. 24.2(c). Upon the filing of a motion to contest net worth, it is the
judgment debtor’s burden of proving net worth. See TEX. R. APP. P.
24.2(c)(3).
There is nothing in Rule 24 that requires the use of fair market
value of the assets owned by a judgment debtor. And this Court’s
precedence in EnviroPower, indicates that it is misguided to require
such a standard.
IV. EVIDENCE ESTABLISHED A POSITIVE NET WORTH OF FRANCIE WILLIS
7 In connection with its Motion, BPMT took the depositions of
Francie Willis and her husband Michael Willis. In addition to
discovering the existence of the Agreement, certain admissions were
telling. Most importantly was the discovery of the Willis Agreement, in
which Mrs. Willis represented that her assets totaled $2,168,335.
See Exhibit D.
She admitted that this valuation was done by an appraiser she
hired.
8 See Exhibit C, p. 51.
At the hearing on the sufficiency of Ms. Willis’s bond, Michael
Jayson, Ms. Willis’s CPA, admitted that he was the one who put this
valuation together, and that it was based on the value of the saved
rental discounted by Ms. Willis’s life expectancy. See Tab 9, p. 23-24.
On December 19, 2014, the trial court conducted an initial
hearing on this matter and held that Ms. Willis’s first affidavit of net
worth was insufficient because it did not identify the life estates at all.
Ms. Willis then filed a new declaration of net worth. In that declaration,
she stated that her life estates have $0 in value. Attached to her
declaration of negative net worth, Ms. Willis includes the affidavit of
Mr. Jayson. He opined that the fair market value of the life estates is
$0 because they are non-transferrable. As a result, he continues, there
is no fair market value.
However, lack of fair market value does not mean lack of value.
And, Mr. Jayson’s suggestion to the contrary is false. Mr. Jayson’s
9 exact testimony was:
See Tab 8, Exhibit F.
But, under GAAP, lack of marketability does not mean lack of
value. In fact, life estates definitely have value because they are an
interest that gives Ms. Willis the right to use, occupy, and even rent out
the property and receive profit. More specifically, these life estates save
Ms. Willis from the obligation of paying rent for the rest of her life. For
the remainder of her life, she will never pay one penny for housing or
vacation home use in New Mexico. Under GAAP, every property
interest has value. Mr. Jayson agreed that Ms. Willis’s life estates have
“huge value.” See Tab 9, p. 22.
Q: She got significant value from these life estates, correct?
A: Huge value.
What Mr. Jayson attempted to argue was that GAAP requires a
fair market valuation. However, he was unable to cite to any provision
or rule that made such a requirement. See Tab 9, p. 28 and 36-37. The
best he could do was cite to a provision of GAAP on how to determine
10 fair market value, but nothing that said that fair market value is the
only methodology of determining value. Id. In fact he testified:
Q: And F-A-S-B, FASB, has not put forward any standards on how to evaluate - - value a life estate, have they?
A: No.
See Tab 9, p. 30.2
In addition to hearing from Mr. Jayson, the trial court heard
evidence from Vahid Shariatzadeh. Mr. Shariatzadeh is also a CPA and
certified financial planner. His testimony was presented without
objection from Ms. Willis. Mr. Shariatzadeh went on to explain that the
rules of GAAP are promulgated by FASB – Financial Accounting
Standards Board. Mr. Jayson agreed with this statement. See Tab 9, p.
29.
Sometimes, the GAAP are silent on how to address specific
situations. In such a case, a CPA can call FASB for guidance. And that
is what Mr. Shariatzadeh did in this case. In this case, because GAAP
is silent on the issue of the valuation of life estates, Mr. Shariatzadeh
sent a formal request to FASB, and contacted AICAPA (American
2 As explained herein, FASB is the organization that promulgates the GAAP.
11 Institute of Certified Public Accountants) 3, and was told there are two
methods of determining value of a life estate under GAAP: (1) use of
Section 7520 of the Internal Revenue Code; or (2) to take the regular
value of the rental and discount it for the life expectancy of the
individual. See Tab 9 to Appellant’s Motion, p. 43. The testimony was:
Q: Okay. So just to summarize, there’s two methods that were recommended to you from the folks up at FASB. The first was to use IRS schedule - - what - - what did you call - -
A: 7520.
Q: Okay. And the second was to consider the value of the rental - - the - - the save rental, discounted by the life of the individual?
A: That is correct.
Q: Okay. Now, did you do those valuations?
A: I did - - I did do those two valuations.
See Tab 9 to Appellant’s Motion, p. 43-44.
Mr. Shariatzadeh then went on to explain how he performed those
calculations, again without objection. In making the rental value
calculation, he used a 13.2 year life expectancy for Ms. Willis and
determined that the rental value of the life estates in both homes comes
to $1,100,000. Mr. Shariatzadeh concluded that this was a fair,
3 As explained AICAPA is an organization that also reviews and promulgates GAAP. In the hierarchy of GAAP, AICPA falls just below FASB. See Tab 9, p. 30.
12 reasonable, and accurate way to value Ms. Willis’s life estates. Id.
The challenges presented in this Motion by Ms. Willis all relate to
a failure to discount valuations due to lack of marketability. But, this
argument only relates to the Section 7520 valuation of the assets. In
making a valuation based on saved rental value, no discount for lack of
marketability was required because this is not a transferable interest.
After lengthy cross-examination regarding the application of a lack of
marketability discount, Mr. Shariatzadeh testified:
Q: (By Ms. Garrison): Sir, the - - everything we’ve just been talking about with IRS regulations has nothing to do with the other calculation that you made regarding savings of rental stream, correct?
A: That’s correct.
See Tab 9, p. 65.
In fact, counsel for Ms. Willis never even asked a question or
challenged Mr. Shariatzadeh on this methodology for determining
value. A discount for lack of marketability is only necessary for a fair
market value analysis. There is nothing in Rule 24, law, or from FASB
that requires only the use of fair market value in determining value.
The rental value calculation is supported by GAAP, and there was no
testimony to the contrary on this point. The trial court was well within
13 its discretion to rely on this evidence in making its determination of net
worth.
V. CONCLUSION
Ms. Willis has a positive net worth of approximately $200,000. It
was her burden to prove net worth, and the trial court did not find Mr.
Jayson’s testimony to be credible. There is ample evidence to support
the trial court’s decision in this case, and the Order should be affirmed.
Ms. Willis attempts to appeal to the Court’s sympathy by
indicating that she had to borrow the money to post the bond.4 But this
begs the question, if she truly has no assets, what is she seeking to
protect from execution?
Ms. Willis may, or may not, win her appeal. But if she wants to
stay execution while the appeal is pending, she must post a bond in an
amount sufficient to protect the judgment creditor. She should not be
allowed to hide behind creative documentation, admittedly done for the
purpose of putting assets outside the reach of her creditors. As Mr.
Willis testified:
4 As an interesting side note, Ms. Willis does not indicate where she got this loan. Surely, any arm’s length lender would want security for such a loan, indicating that she has assets sufficient to secure the loan.
14 A: Because I was - - I was extremely worried when I looked at Francie’s assets or her liabilities. I was extremely worried about the liabilities, and I didn’t want to be a part of it. So part of the agreement for reconciliation is that I took these assets. That was part of the agreement. That’s why we did it.
See Tab 8, p. 11. This is a classic transfer with an intent to hinder,
delay or defraud a creditor (including BPMT).
The trial court saw through these attempts, as should this Court.
The purpose behind this statute is to create a situation where a
judgment debtor can supersede a judgment while on appeal that won’t
result in financial ruin. But the purpose is not to allow a judgment
debtor to avoid posting a bond through creative accounting and the
transfer of assets. The judgment debtor should be required to post the
bond it can, even if that results in hardship, not merely the bond it
wants. In this case, Ms. Willis was absolutely able to post the bond
required by the trial court, and thus this decision should not be altered.
15 Respectfully Submitted:
WEYCER, KAPLAN, PULASKI & ZUBER, P.C.
By:____/s/ Tanya N. Garrison_______________ TANYA N. GARRISON State Bar No. 24027180 11 Greenway Plaza, Suite 1400 Houston, Texas 77046-1104 Telephone: (713) 961-9045 Facsimile: (713) 961-5341
ATTORNEYS FOR APPELLEE BPMT, LLC
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing pleading has been forwarded on Thursday, April 30, 2015 by certified mail-return receipt requested, to the following counsel of record for Appellants:
/s/ Tanya N. Garrison Tanya N. Garrison