General Electric Capital Corporation v. A. John Knapp, Jr., Also Known as A. John Knapp

Citation: Not availableDocket: 01-07-00010-CV

Court: Court of Appeals of Texas; February 20, 2008; Texas; State Appellate Court

Original Court Document: View Document

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General Electric Capital Corporation (GE) appealed a no-evidence summary judgment decision in favor of A. John Knapp, Jr. regarding a lawsuit under the Texas Uniform Fraudulent Transfer Act (UFTA). GE sought to recover shares of stock allegedly fraudulently transferred from its debtor, Timothy J. Gollin, to Knapp. The case stemmed from an agreement made on October 25, 2000, where Knapp invested funds on Gollin's behalf in Travis Street Partners, L.L.C. (TSP), entitling him to distributions until his investment was fully returned, after which he would receive a percentage of future distributions.

GE became a judgment creditor of Gollin in 2001, following a court ruling on a prior debt. In a related case from 2003, Hoard Gainer Industry Co. Ltd. (HGI) sued Gollin for fraud, ultimately winning a judgment against him. During HGI's proceedings, it was revealed that Gollin had a stock interest in TSP. In 2004, Gollin instructed TSP to distribute his interest to Knapp as per their agreement. HGI subsequently sued both Gollin and Knapp under UFTA to recover the transferred shares.

The trial court ruled in favor of Knapp, stating that HGI was entitled to an assignment of Gollin's interests but that it was subordinate to the earlier agreement between Knapp and Gollin. Consequently, HGI's claims against Knapp under UFTA were dismissed. The appellate court affirmed the trial court's decision.

In January 2005, the court ruled in favor of Gollin, reversing a prior judgment against him by HGI due to HGI's failure to provide evidence that Gollin personally benefited from an unpaid debt. Subsequently, in September 2005, the Fourteenth Court of Appeals determined that HGI could not enforce a fraudulent transfer claim against Knapp regarding Gollin's assets, as the underlying judgment against Gollin had been reversed and rendered as a take-nothing judgment. On September 14, 2005, GE filed a lawsuit against Knapp, alleging that Gollin transferred stock to Knapp with the intent to hinder HGI and that Knapp did not provide equivalent value for the stock. GE sought to reverse the transfer to satisfy a prior judgment against Gollin. Knapp responded with a no-evidence summary judgment motion, which the trial court granted. 

GE contended this was erroneous, arguing that it had presented sufficient evidence for each claim element. The rules for a no-evidence summary judgment dictate that once the moving party identifies an element lacking evidence, the burden shifts to the non-moving party to produce more than a scintilla of evidence to raise a factual dispute. The court assesses the evidence in the light most favorable to the non-movant, determining that more than a scintilla exists if reasonable individuals could differ in their conclusions. If the trial court does not specify its reasoning in the summary judgment order, the order is upheld if any of the presented theories is valid.

Chapter 24 of the Texas Business and Commerce Code, known as the Texas Uniform Fraudulent Transfer Act (UFTA), allows creditors to seek relief when debtors fraudulently transfer assets to evade creditors. A creditor can obtain avoidance of such transfers to satisfy their claims, regardless of whether the transferee knew of the fraudulent intent. A transfer is deemed fraudulent if it was made with the actual intent to hinder, delay, or defraud creditors or if the transfer was made without receiving a reasonably equivalent value.

In this case, GE aims to recover TSP stock transferred by Gollin to Knapp, arguing the transfer was fraudulent under UFTA. To succeed, GE needed to show that its claim arose before or shortly after the transfer and that Gollin either intended to defraud creditors or did not receive equivalent value for the stock. Knapp moved for summary judgment, arguing GE failed to provide evidence for these claims. GE focused solely on the intent to defraud, asserting it could be inferred from the timing of the transfer during HGI's pending lawsuit, but did not discuss the UFTA's 11 "badges of fraud" used to assess intent.

The court noted that a prior ruling found Gollin not individually liable to HGI, impacting GE's claims against Knapp based on Gollin's actions. The court concluded that GE did not produce sufficient evidence regarding Gollin's intent to defraud, which is critical for their claim under UFTA.

The court determined that HGI's fraudulent transfer claim against Knapp, based solely on HGI's judgment against Gollin from a prior case, is unenforceable due to the reversal of that judgment to a take-nothing outcome. Consequently, any transfer of Gollin's assets cannot be deemed fraudulent concerning that claim. Similarly, GE’s fraudulent transfer claim against Knapp, which also relied on HGI’s prior claim against Gollin, is invalid for the same reasons. GE failed to provide evidence supporting the lack of equivalent value in exchange, thus not satisfying its burden for summary judgment. While intent to defraud is typically a jury question, the court can rule on fraudulent intent as a matter of law if the evidence clearly indicates no fraudulent intent. As such, the trial court's judgment was affirmed with the appellant's issue overruled.