United States District Court, N.D. Texas, Dallas Division
MILO H. SEGNER, JR, as Liquidating Trustee of the PR Liquidating Trust, Plaintiff,
RUTHVEN OIL & GAS, LLC, ET AL., Defendants.
MEMORANDUM OPINION AND ORDER
J. BOYLE, UNITED STATES DISTRICT JUDGE.
bankruptcy dispute, trustee Milo Segner (Segner) seeks to
recover about $21.7 million of fraudulently transferred money
from Cianna Resources, Inc (Cianna). The only issue at trial
was whether Cianna could avoid liability by showing that it
received the money in exchange for value, in good faith, and
without knowledge that the transfer was avoidable. A jury
returned a verdict for Cianna. And Segner responded by moving
for judgment as a matter of law and for a new trial. The
Court DENIES both motions.
A. Factual History
Royalties, LLC (Provident) engaged Ruthven Oil & Gas, LLC
(Ruthven) to help it find and acquire mineral interests. Doc.
299-10, Pl. Mot. New Trial App., Ex. J. Ruthven approached
Cianna to help it help Provident by acquiring mineral
interests in certain Oklahoma counties Provident specified.
Trial Tr. Vol. I, 87-88. In a series of 197 transactions,
Cianna acquired the mineral interests and transferred them to
Ruthven, Doc. 299-7, Pl. Mot. New Trial App., Ex. G.
Corresponding sums of money flowed from Provident to Ruthven
to Cianna to the mineral owners. Id. Cianna received
$500 per acre acquired in compensation. Trial Tr. Vol. I, 88.
Overall, Provident transferred $48, 812, 882.24 to Ruthven,
Doc. 100, Adopted Findings of Fact and Conclusions of Law, 2,
and Ruthven sent $21, 117, 572.79 to Cianna. Bankr. Doc.
423-1, Am. Ruling, 25.
filed for bankruptcy in June 2009, Bankr. Doc. 1, Compl.,
¶ 24, and, in June 2011, Milo Segner filed this
adversary proceeding in the bankruptcy court against Ruthven,
Cianna, and others. Id. ¶ 1. The defendants
moved in April 2012 to withdraw the reference from the
bankruptcy court. Doc. 1, Mot. for Withdrawal of Reference.
The case was reassigned to this Court in May 2013, Doc. 34,
but the Court referred the case back to the bankruptcy court
for pretrial matters to be resolved, Doc. 73, Order of
Reference. After de novo review of a report and
recommendation of the bankruptcy judge in September 2015,
this Court determined that Provident's transfer of the
$48, 812, 882.24 to Ruthven and subsequent transfers of that
money by Ruthven, including the transfers to Cianna now at
issue, are avoidable under 11 U.S.C. § 548(a)(1)(A).
Doc. 100, Mem. Op. & Order, 2. And in November 2015, the
Court dismissed Segner's claims against all of the
defendants except for Cianna pursuant to a settlement
agreement. Electronic Order Granting Doc. 105 Motion for
Voluntary Dismissal of Claims.
the settlement and a summary-judgment ruling establishing
that Cianna was a transferee as to the $21, 117, 572.79 it
received from Provident via Ruthven, Doc. 242, Mem. Op. &
Order, the only remaining issue was whether Cianna could
establish the affirmative defense that required it to show
that it received the money in exchange for value, in good
faith, and without knowledge that the transfers were
avoidable. See 11 U.S.C. §
550(b). On that issue, a jury returned a verdict
for Cianna. Doc. 296, Jury Verdict. Now, dissatisfied with
the verdict and many of the Court's trial-related
rulings, Segner has moved for judgment as a matter of law and
a new trial. Doc. 297, Mot. J. as Matter of Law; Doc. 300,
Mot. New Trial. The motions are ripe for review.
Rule 50(b): Motion for Judgement as a Matter of Law
should grant a motion for judgment as a matter of law under
Federal Rule of Civil Procedure 50(b) only if “there is
no legally sufficient evidentiary basis for a reasonable jury
to find for that party on that issue.” Cano v.
Bexar Co., 280 F.Appx. 404, 406 (5th Cir. 2008)
(internal citations omitted). The Court “should
consider all of the evidence-not just that evidence which
supports the non-mover's case-but in the light and with
all reasonable inferences most favorable to the party opposed
to the motion.” Mosley v. Excel Corp., 109
F.3d 1006, 1008-09 (5th Cir. 1997). The court must not make
credibility decisions or weigh the evidence in making its
determination. Reeves v. Sanderson Plumbing Prods.,
Inc., 530 U.S. 133, 150 (2000).
Rule 59: Motion for New Trial
can “grant a new trial . . . after a jury trial, for
any reason for which a new trial has heretofore been granted
in an action at law in federal court.” Fed.R.Civ.P.
59(a)(1)(A). In this Circuit, a district court can grant a
new trial if “the verdict is against the great weight
of the evidence . . . the trial was unfair, or prejudicial
error was committed. Smith v. Transworld Drilling
Co., 773 F.2d 610, 613 (5th Cir. 1985). Courts are to
decide whether to grant a new trial based on their assessment
of the fairness of the trial and the reliability of the
jury's verdict. Seidman v. Am. Airlines, Inc.,
923 F.2d 1134, 1140 (5th Cir. 1991). And the decision whether
to grant a new trial is “within the sound discretion of
the trial court.” Shows v. Jamison Bedding,
Inc., 671 F.2d 927, 930 (5th Cir. 1982)).
transfer is avoidable under the Bankruptcy Code, as the
transfers to Cianna are, “the trustee may recover, for
the benefit of the estate, the property transferred . . .
from (1) the initial transferee of such transfer or . . . (2)
any immediate or mediate transferee of such initial
transferee.” 11 U.S.C. § 550(a). But “[t]he
trustee may not recover under section (a)(2) of this section
from (1) a transferee that takes for value, including
satisfaction or securing of a present or antecedent debt, in
good faith, and without knowledge of the voidability of the
transfer avoided.” § 550(b)(1). Cianna bore the
burden at trial of establishing the elements of §
Rule 50(b): Motion for Judgment as a Matter of Law
argues that the Court should award it judgment as a matter of
law on Cianna's § 550(b) defense for
Oklahoma Documentary Stamp Act and Cianna's Good
argues that its evidence that Cianna violated the Oklahoma
Documentary Stamp Tax Act (ODSTA) establishes as a matter of
law that Cianna did not receive the money from Ruthven in
good faith. Doc. 298, Pl. Mot. J. as Matter of Law Br., 1.
But Segner's argument ignores that Cianna's good
faith hinged on what it knew or should have known about
Provident. See In re Am. Hous. Found., 785 F.3d 143,
164 (5th Cir. 2015) (noting in fraudulent-transfer case that
good-faith inquiry looks “to whether the [transferee]
was on notice of the debtor's insolvency or the
fraudulent nature of the transaction”). That Cianna
overstated on ODSTA documents the value of the interests it
transferred does not establish as a matter of law that Cianna
knew or should have known that Provident was defrauding its
investors. Of course, Segner characterized Cianna's
stamp-tax misrepresentations as evidence that Cianna was part
of, knew of, or should have known of Provident's scheme,
but the jury disagreed. The Court will not disturb the
now says the UCC's definition of good faith governs this
case rather than the good-faith standard in the jury charge.
Doc. 298, Pl. Mot. J. as Matter of Law Br., 2. But Segner
waived this argument by not asking for the UCC definition to
be included in the jury charge. See Doc. 228, Pl.
Proposed Jury Instructions, 12.
Segner did not waive this argument, the UCC's definition
does not govern this case. Untethered from a transferee's
knowledge of the bankrupt's relationship with its
creditors, the UCC definition of good faith requires only
honesty in fact and observance of reasonable commercial
standards. Doc. 298, Pl. Mot. J. as Matter of Law Br., 2. The
bankruptcy code does not include the UCC's definition,
and Courts in this circuit have applied a definition of good
faith tied to a transferee's knowledge or constructive
knowledge of the bankrupt's financial situation, Am.
Hous., 785 F.3d at 164. The Court thus declines to apply
the UCC's definition of good faith. Doc. 298, Pl. Mot. J.
as Matter of Law Br., 2.
argument fails even under the UCC standard. Segner seems to
propose a rule under which, if a party violates a law in the
process of entering into a transaction, a court must find as
a matter of law that the party did not enter into that
transaction in good faith. Doc. 298, Pl. Mot. J. as Matter of
Law Br., 4. Segner's rule is untenable. Surely a
contracting party who violated the speed limit while driving
to a contract closing would not transact bad faith by driving
the cases Segner cites support its conclusion that Cianna
acted in bad faith. In Rudiger Charolais Ranches v. Van
de Graaf Ranches, a rancher sold cattle to a merchant,
who sold the cattle to a buyer. 994 F.2d 670, 671 (9th Cir.
1993). The buyer paid for and received the cattle but did not
verify that the merchant owned the cattle. Id. After
the merchant never paid the Rancher for the cattle, the
rancher sought to recover from the buyer. Id. For
the buyer to have held good title under Washington law, he
had to have received the cattle in good faith. Id.
at 672. And to have received the cattle in good faith, the
buyer must have observed reasonable commercial standards when
he purchased it. Id. The court found as a matter of
law that the buyer did not observe reasonable commercial
standards because he violated a Washington
cattle-rustling-prevention statute by taking possession of
the cattle without verifying that the merchant owned the
cattle. Id. at 673. Segner says Cianna cannot have
acted in good faith because, like the buyer, it violated the
law-by lying on the ODSTA. Doc. 298, Pl. Mot. J. as Matter of
Law Br., 6.
case is different from Rudiger. In Rudiger,
the statute the rancher sought to enforce allowed buyers to
keep stolen property if they observed reasonable commercial
standards when they purchased the property. Rudiger,
994 F.2d at 672. Another statute required cattle buyers to
take title papers with the purchased cattle to prevent cattle
rustling. Id. Here, like in Rudiger, §
550(b) allows Cianna to keep what it received from Ruthven if
it received the property in good faith. But unlike the
cattle-rustling statute in Rudiger, the ODSTA is
irrelevant to the question of whether a purchaser is
receiving something to which another person might actually be
entitled; it merely imposes a tax on transactions. This case
would be like Rudiger had Cianna violated a statute
requiring it to determine whether the funds it received might
be claimed by anyone else, such as Provident's creditors.
Because the ODSTA imposed no such obligation on Cianna,
Segner's reliance on Rudiger is misguided.
Segner's reliance on Philadelphia Gear Corp. v.
Central Bank, 717 F.2d 230 (5th Cir. 2001). There, a
bank issued a letter of credit to a company. Id. at
232. To use the credit, the company had to submit drafts to
the bank, and the drafts had to conform to the letter of
credit's requirements. Id. The company submitted
a number of drafts to the bank that did not follow the
letter's requirements, and the company knew the drafts
did not comply with the letter. Id. at 233. When the
bank refused to honor the drafts, the company sued.
Id. State law incorporated a duty of good faith into
every contract and provided that, by presenting a draft, a
beneficiary of a letter of credit warranted that the draft
complied with the letter of credit. Id. at 238. The
Fifth Circuit held that the company breached both duties by
knowingly submitting nonconforming drafts and therefore could
not recover. Id. Segner contends ...