Gillum v. Gillum

• Court: Court of Appeals for the Fifth Circuit
• Decided: August 23, 2001
• Docket: 00-10967
• Status: Unpublished

Opinion

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

________________________________

No. 00-10967 ________________________________

In the Matter of KAREN GILLUM,

Debtor.

_______________________________

RANDOLPH ROYAL GILLUM,

Appellant,

v.

KAREN GILLUM,

Appellee.

_____________________________________________

Appeal from the United States District Court For the Northern District of Texas (3:00-CV-738-G) _____________________________________________ August 7, 2001

Before DAVIS, WIENER and STEWART, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:*

Karen Gillum sued her brother, Randolph Gillum, on various

causes of action arising out of their complicated business

relationship. After a trial held in the bankruptcy court, a jury

found that Randolph had converted $375,000 in cash and $1.1 million

* Pursuant to 5th Cir. R. 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5th Cir. R. 47.5.4. in accounts receivable belonging to Pioneer Imaging and Diagnosis,

Ltd. (“Pioneer”), a partnership between the two siblings. The

district court subsequently affirmed these findings. Randolph now

appeals, principally contesting the sufficiency of the evidence

supporting the two conversion findings by the jury. Because the

evidence was sufficient to sustain only one of the conversion

findings by the jury, we vacate the judgment of the district court

and remand this case for further proceedings.

I.

Karen and Randolph are both doctors with practices in northern

Texas. Successful in practice, each was also involved in other

business ventures. In particular, Karen gave Randolph $20,000 for

a half interest in Texas Summitt Corporation (“TSC”). TSC was

involved in a number of businesses operated by Randolph, including

construction and real estate. Though Karen bought a half interest

in TSC, she owned no TSC stock of any kind. Rather, she relied on

her brother’s promise that she had a claim to half of TSC’s equity.

In 1991 the two siblings formed Pioneer as part of a plan to

transfer half of TSC’s stock to Karen. Pioneer, a partnership,

provided imaging and diagnostic services to plaintiffs in

connection with their personal injury lawsuits. Pioneer was

capitalized primarily with loans from TSC and leased the equipment

used in its business. Karen owned 99% of TSC and Randolph the

other 1%. The two siblings intended to expand Pioneer’s business

and then merge it with TSC. They thought that this plan would

-2- allow them to avoid the substantial gift taxes Randolph would incur

if he simply gave half of TSC’s stock to Karen.

In 1994 Randolph made a number of payments to Karen. The

nature and purpose of these payments was disputed by the two

siblings. The jury determined that Randolph lent Karen $600,000

and that he paid her $1.5 million for half of Pioneer’s accounts

receivable.1 At the time Randolph made these payments, Pioneer had

$2.4 million of accounts receivable on its balance sheet. At the

same time Randolph made these payments in 1994, he--with Karen’s

consent--also began controlling the operations of Pioneer.2 He did

so until he purchased all of Karen’s interest in Pioneer in 1996.

The total consideration Karen received in 1996 was a nominal amount

of money and release of guarantees of Pioneer’s indebtedness.

In 1997 Karen sued Randolph and several other parties in Texas

state court, asserting various causes of action. After Karen filed

for bankruptcy, she removed the case to the bankruptcy court. The

bankruptcy court ultimately tried three of Karen’s causes of action

against Randolph to a jury. On the first cause of action, for

breach of contract, the jury found that while Randolph had promised

to give half of the equity of TSC to Karen, he did not breach that

1 Randolph also made a payment to Karen of $110,000 at this time. The jury found that this payment was not a loan to Karen by Randolph. Otherwise, the nature of the payment is unclear. 2 The record is in fact unclear as to who controlled Pioneer’s operations before 1994. Regardless, the parties do not dispute that Randolph controlled Pioneer’s operations after his payments to Karen in 1994.

-3- promise. On the second cause of action, for breach of fiduciary

duty, the jury found that while Randolph had breached the fiduciary

duty he owed Karen with respect to Pioneer, Karen was not damaged

by that breach. On the third cause of action, for conversion, the

jury found that Randolph had converted $375,000 in cash and $1.1

million in accounts receivable belonging to Pioneer. The jury

found that Karen incurred damages of $1.475 million as a result of

the conversions by Randolph. The jury also found that Karen sold

her interest in Pioneer on March 20, 1996, and that she knew or

should have known of the conversion of assets by Randolph on that

same date. After denying Randolph’s motions for judgment as a

matter of law and for a new trial, the bankruptcy court entered

judgment for Karen for $875,000 plus interest and costs. The

bankruptcy court determined this amount by subtracting the $600,000

Karen still owed Randolph from the jury’s damage finding of $1.475

million.

Randolph appealed the judgment of the bankruptcy court to the

district court. The district court affirmed the judgment of the

bankruptcy court in all respects, finding in particular that there

was sufficient evidence to support the jury’s findings that

Randolph converted both cash and accounts receivable belonging to

Pioneer.

Randolph now appeals the judgment of the district court,

raising four issues. Randolph argues, 1) that Karen may not sue

for conversion of Pioneer’s assets when she knew or should have

-4- known of that conversion on the same day she sold her interest in

Pioneer to Randolph, 2) that the claim for conversion of Pioneer’s

assets must be asserted by Pioneer and Karen may not assert this

claim on behalf of Pioneer against Randolph, 3) that there is

insufficient evidence in the record to show that Randolph converted

Pioneer’s cash, and 4) that there is insufficient evidence in the

record to show that Randolph converted Pioneer’s accounts

receivable.

II.

A.

We begin with the first two issues advanced by Randolph. The

record reflects that Randolph did not raise either issue in the

bankruptcy court. “It is well established that we do not consider

arguments or claims not presented to the bankruptcy court.” In Re

Gilchrist, 891 F.2d 559, 561 (5th Cir. 1990); see also In Re

Fairchild Aircraft Corp., 6 F.3d 1119, 1128 (5th Cir. 1993). As

such, we will not pass on the merits of either of the first two

issues raised by Randolph.

B.

We turn next to Randolph’s argument that Karen presented

insufficient evidence to support the jury’s finding that he

converted cash belonging to Pioneer. We review the sufficiency of

evidence de novo, reviewing all the evidence in the record without

making determinations about credibility or the weight of the

evidence. Serna v. City of San Antonio, 244 F.3d 479, 481 (5th

-5- Cir. 2001).

Texas law recognizes an action for conversion of cash, so long

as the cash is identifiable as a distinct chattel and the

conversion action is not simply an action for payment of a debt.

Estate of Townes v. Townes, 867 S.W.2d 414, 419 (Tex. App. -

Houston [14th Dist.] 1993, writ denied). Otherwise the elements of

the action are the same as they would be with other personal

property - namely, wrongful exercise of dominion or control over

another’s property in denial or inconsistent with the rights of

others in that property. Id.

In this case, Karen established that Randolph controlled the

affairs of Pioneer. She also produced four checks with a total

value of $375,000 that Randolph had Pioneer issue to him. When

Randolph had these checks issued, Karen still owned 99% of Pioneer.

Though there was conflicting evidence on this point, the jury could

have concluded that Randolph was not entitled to any distributions

of cash from Pioneer. As such, the evidence was sufficient to

support the jury’s findings that Randolph converted $375,000 in

cash belonging to Pioneer.

C.

We turn finally to the sufficiency of the evidence supporting

the jury’s finding that Randolph converted $1.1 million in accounts

receivable belonging to Pioneer. To establish her case, Karen

relied on three facts: 1) that Pioneer had $2.4 million in accounts

-6- receivable when Randolph assumed management of Pioneer in 1994, 2)

Pioneer collected about $2.1 million between 1994, when Randolph

assumed control of the business, and 1996, when Karen sold her

interest to him, and 3) Karen never received any proceeds from the

accounts and the business was worthless when she sold her interest

in 1996. Karen argues that these facts are sufficient to support

the jury’s finding concerning Randolph’s conversion of accounts

receivable. We disagree.

Randolph is correct that these facts are insufficient to

support a finding that he converted Pioneer’s accounts receivable.

Texas law places the burden on Karen to show that Randolph

wrongfully exercised dominion or control over Pioneer’s accounts

receivable. Villarreal v. Moreno, 650 S.W.2d 191, 192 (Tex. App.

- San Antonio 1983, no writ). Karen was required to prove more

than that Randolph, who controlled Pioneer’s business operations

with Karen’s consent, collected its accounts receivable. She was

required to prove that Randolph wrongfully exercised control over

those accounts--that is contrary to the rights of Pioneer and

Karen.

Pioneer was an operating business with substantial

liabilities. The record reflects that Pioneer had no paid in

capital and had trouble making its lease payments on several

occasions. There is no evidence in the record to suggest that

collections on Pioneer’s accounts were not paid over to its

creditors in the normal course of business. Karen presented no

-7- evidence that Randolph took the proceeds of the accounts for his

own use or for any other wrongful use. That Karen received a

nominal amount for her interest in Pioneer in 1996 and that she

never received proceeds from any of Pioneer’s accounts is

irrelevant.3 Karen had no claim on Pioneer’s accounts. As an

owner of Pioneer, she was only entitled to proceeds from Pioneer’s

accounts and other assets to the extent they exceeded Pioneer’s

liabilities. Karen produced no evidence that Pioneer’s assets,

including the collection from its accounts receivable, exceeded its

liabilities.

In sum, except for the cash payments Pioneer made to Randolph

discussed above, Karen produced no evidence that Randolph used any

of the proceeds from Pioneer’s business (including collection from

accounts receivable) for any purpose other than to pay Pioneer’s

legitimate expenses. Accordingly, Karen produced insufficient

evidence to support the jury’s finding that Randolph converted

Pioneer’s accounts receivable.

III.

The evidence produced at trial was sufficient to show only

that Randolph converted cash, and not accounts receivable,

belonging to Pioneer. We therefore vacate that part of the

judgment that represents Karen’s recovery on the accounts

receivable. Because we are uncertain how this modification of the

3 Karen received considerable value in the form of releases of her guarantees of Pioneer’s indebtedness.

-8- judgment will affect Karen’s bankruptcy proceeding, we VACATE the

judgment of the bankruptcy court and REMAND this case to the

bankruptcy court for further proceedings consistent with this

opinion.

VACATED AND REMANDED.

-9-