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Pbl Multi-Strategy Fund, L.P. v. First Tennessee Bank

Court of Appeals of Texas, Fifth District, Dallas

April 26, 2018

PBL MULTI-STRATEGY FUND, L.P., CAMPBELL HARRISON & DAGLEY L.L.P., and CALLOWAY NORRIS BURDETTE & WEBER, PLLC, Appellants
v.
FIRST TENNESSEE BANK, AS TRUSTEE OF THE ALBERT G. HILL III 2010 GIFT TRUST F/B/O ALBERT G. HILL, IV THE ALBERT G. HILL III 2010 GIFT TRUST F/B/O NANCE H. HILL, AND THE ALBERT G. HILL III 2010 GIFT TRUST F/B/O CAROLINE M. HILL, Appellee

          On Appeal from the 101st Judicial District Court Dallas County, Texas Trial Court Cause No. DC-16-09627

          Before Justices Lang, Fillmore, and Schenck

          MEMORANDUM OPINION

          DAVID J. SCHENCK JUSTICE

         PBL Multi-Strategy Fund, L.P. ("PBL"), Campbell Harrison & Dagley L.L.P. ("CHD"), and Calloway Norris Burdette & Weber, PLLC ("CNBW"), appeal the trial court's order granting summary judgment in favor of Bessemer Trust Company of Florida, [1] as Trustee of various trusts Albert G. Hill III created for the benefit of his children. PBL sued the Trustee in state court after the clerk of the United States District Court for the Northern District of Texas transferred funds from the registry of that court to the Trustee, pursuant to Federal Judge Sam Lindsay's disbursement order in a case involving Hill. CHD and CNBW (collectively the "Law Firms") intervened in PBL's state court suit. PBL and the Law Firms claimed the Trustee fraudulently received the funds. The Trustee responded claiming PBL and the Law Firms' claims are barred by res judicata and collateral estoppel due to the prior federal court case. The Trustee filed a motion for summary judgment on these grounds, and the trial court granted the Trustee's motion. In two issues, with sub-parts, PBL asserts the trial court erred in granting the Trustee summary judgment because (1) it was not a party to the prior federal court case, (2) the fraudulent transfer issue did not comprise a convenient trial unit conforming to the parties' expectations, precluding a finding its claims are barred by res judicata, (3) it did not have a full and fair opportunity to litigate the fraudulent transfer issue in the prior federal court case, precluding a finding its claims are barred by collateral estoppel, and (4) it was not named in the federal court's Final Judgment. In three issues, the Law Firms assert the trial court erred in granting the Trustee summary judgment because (1) their claims were not adjudicated in the federal court's Final Judgment, thus precluding a finding their claims are barred by collateral estoppel, (2) their fraudulent transfer claim did not exist before the funds were disbursed from the registry of the court, thus precluding a finding their claims are barred by res judicata, and (3) there are fact issues as to whether the transfer of funds was fraudulent. We affirm the trial court's judgment. Because all issues are settled in law, we issue this memorandum opinion. Tex.R.App.P. 47.4.

         Factual and Procedural Background

         The Law Firms represented Albert G. Hill III and his wife, individually and in representative capacities, in several lawsuits they brought against other family members and the trustees and advisory board members of family trusts for alleged wrongdoing in the management and administration of the trusts. One of those suits was removed from state court to federal court on federal question jurisdiction (the "Federal Case"). Hill secured financing for the Federal Case from PBL.[2]

         Hill terminated the Law Firms' representation on November 16, 2009, and, thereafter, in May 2010, settled the Federal Case and all of the related state court cases by way of a Global Settlement Agreement (the "Agreement"). One of the Agreement's provisions required Hill's father, Albert G. Hill, Jr., to pay into the registry of the federal court, for the benefit of Hill, roughly $30 million in four annual installments of $7.5 million each. In another provision, Hill irrevocably assigned his right to these installment payments to separate trusts that he would create for his children, the grandchildren of Albert G. Hill, Jr. (the "Grandchildren's Trusts").

         The Law Firms intervened in the Federal Case on August 20, 2010, in an attempt to secure unpaid attorneys' fees. The Law Firms' claims and the claims of all other creditors of Hill were later severed into another federal case.[3] In March 2011, PBL filed a claim-in-intervention in the Federal Case asserting a claim for payment on the note and the guaranty that were executed to secure financing for the Federal Case. PBL was granted leave to intervene in the severed case. In January 2012, PBL and Hill entered into a settlement agreement resolving Hill's payment obligation and stipulated that the federal court would authorize payment of the agreed sum to PBL from the funds remaining in the registry of the court. Because there were not enough funds in the registry of the court to pay the agreed sum, the settlement fell apart and subsequently PBL obtained a summary judgment on its claim.

          The Law Firms moved to compel arbitration pursuant to their fee agreements and proceeded to present their claims to an arbitrator. On November 13, 2012, the arbitrator awarded the Law Firms their fees, and the Law Firms obtained a final judgment confirming the award on June 3, 2015, after the United States Court of Appeals for the Fifth Circuit issued a mandate. On June 16, 2015, the Law Firms filed a Motion for Payment in the Federal Case seeking to satisfy the judgment using funds held in the registry of the court. The Law Firms urged the federal court to use all of the funds in the registry of the court, including the installment payments that were earmarked for the Grandchildren's Trusts, to satisfy Hill's obligations to them. Specifically, the Law Firms moved for payment "out of the registry funds held by the Court, " asserting that their rights were "superior to all subsequent interests in the settlement" and that their lien "extends to the entire settlement fund received, including the entire amount in the registry." Numerous parties opposed the Law Firms' motion, including Hill, Albert G. Hill, Jr., and Hill's judgment creditors. PBL was among the creditors responding to the Law Firms' motion. PBL's response asserted it has a security interest in the funds that was perfected prior to the inception of the potentially competing claims, and postulated that its claim to the funds is superior to all other claims save those of CHD, to which PBL admitted it had subordinated its right to payment. PBL also stated:

There are a number of competing claims to the funds (including both those in custodia legis and any funds held in trust outside custodia legis), including the claims of movants CHD and CNBW and the claim of PBL. The total amount of funds available to satisfy those claims is unknown. Before ordering the distribution of any funds the Court must determine the priorities among the competing claims to the funds. Once that is done, then the Court should order distribution of the funds in the order of priority.

PBL requested an order establishing PBL's place in line immediately behind CHD when the custodia legis funds are distributed, so that upon satisfaction of the CHD claim, PBL's claim would be paid next. PBL further joined in the request for distribution upon the resolution of all of the competing claims.

          On January 15, 2016, the federal court entered a Memorandum Opinion and Order disposing of the Law Firms' Motion for Payment and disbursing the funds held in its registry (the "Federal Disbursement Order"). In the Federal Disbursement Order, the federal court ordered payment of a portion of the Law Firms' arbitral award and ordered payments to other creditors of Hill. After those distributions were made, there were no funds available for distribution to PBL. In reaching its disbursement decisions, the federal court rejected the Law Firms' arguments insofar as they asserted a claim to the funds earmarked for the Grandchildren's Trusts. In the Federal Distribution Order, Judge Lindsay indicated, "the court agrees with [Albert G. Hill, ] Jr. and [Hill], and concludes that [Albert G. Hill, ] Jr.'s Installment Payments held in the court's registry for the Grandchildren's Trusts . . . are not subject to CHD and CNBW's claims, or the claims of any other of [Hill's] creditors. The court rejects CHD and CNBW's arguments to the contrary. . . ." Thus, Judge Lindsay specifically considered and ruled on the payment issue and denied PBL and the Law Firms the payment they now seek by way of fraudulent transfer.[4]

         In accordance with the Federal Disbursement Order, the clerk of the federal court transferred the trust funds from the court's registry to the "trustee(s) of the Grandchildren's Trusts." On August 10, 2016, PBL filed this suit in state court alleging that the Trustee fraudulently received the funds when it accepted the transfer from the registry of the United States District Court. More specifically, PBL alleges that the funds earmarked for the Grandchildren's Trusts are "collateral" for the note issued to Hill, and "because [PBL] was a creditor of Hill at the time of the transfer, the transfer is fraudulent and void."

         The Law Firms filed a Petition in Intervention, also alleging that the transfer of funds out of the federal court's registry was fraudulent as to them because they had "a right to payment" out of the Grandchildren's Trusts as "a creditor [of Hill] whose claims arose before the transfer was made."

         On October 12, 2016, the Trustee filed a motion for summary judgment on PBL and the Law Firms' claims, asserting the affirmative defenses of res judicata and collateral estoppel as grounds therefor because PBL and the Law Firms sought to re-litigate their right to payment from the funds earmarked for the Grandchildren's Trusts as creditors of Hill. The trial ...


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