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Van Dyke v. Littlemill Ltd.

Court of Appeals of Texas, Fourteenth District

May 23, 2019

SCOTT VAN DYKE AND ANGLO-DUTCH ENERGY, LLC, Appellants
v.
LITTLEMILL LIMITED, PROSPERITY SETTLEMENT FUNDING, INC., ROBERT M. PRESS, AND ANZAR SETTLEMENT FUNDING CORP., Appellees

          On Appeal from the 61st District Court Harris County, Texas Trial Court Cause No. 2004-20712

          Panel consists of Justices Wise, Zimmerer, and Spain.

          OPINION

          KEN WISE, JUSTICE

         This is an appeal of a release and turnover order. Appellants contend that the trial court erred in releasing and turning over to appellees all funds remaining in the court registry after the judgment in the underlying case was satisfied. Appellants argue that they are third-party secured creditors whose rights to the funds are superior to those of appellees, who are judgment creditors. Because we hold that the trial court erred by adjudicating appellants' substantive property rights in a turnover proceeding, we reverse the trial court's order and remand for further proceedings.

         I. Factual and Procedural Background

         The history of the litigation among the parties is lengthy and complex. We recount only the facts relevant to the current dispute over the funds remaining in the court registry after the underlying judgment was satisfied.

         A. The Parties' Disputes Leading to the Underlying Judgment

         Appellant Scott Van Dyke is an owner and president of appellant Anglo-Dutch Energy, LLC. Van Dyke is also the majority owner of Anglo-Dutch Petroleum International, Inc. (ADPI) and Anglo-Dutch (Tenge), LLC (ADT), the entities involved in the underlying lawsuit.

         In 2000, ADPI and ADT sued Halliburton Energy Services, Inc. and another company. To finance the litigation and stay in business, ADPI and ADT entered into contracts with others to invest in the Halliburton lawsuit, including appellees Littlemill Limited, Prosperity Settlement Funding, Inc., Robert M. Press, and Anzar Settlement Funding Corp. (collectively, the Investors). ADPI and ADT later settled with Halliburton for $51 million but failed to comply with the payment obligations of their contracts with the Investors. The Investors sued ADPI and ADT and eventually obtained judgments against them.[1]

         In the interim, ADPI and ADT sued Greenberg Peden, P.C. and Gerald Swonke, their legal counsel in the Halliburton lawsuit, in the 61st District Court. Swonke countersued. In 2007, the court rendered a judgment awarding Swonke roughly $1.7 million.

         ADPI and ADT attempted to supersede the judgment in favor of Swonke without posting a supersedeas bond by claiming that they had a negative net worth. In response, Swonke filed a motion contesting the affidavits supporting ADPI and ADT's negative net worth claims. In 2007, the 61st District Court rendered an order granting Swonke's motion (the 2007 Order). The 2007 Order contained numerous fact findings, including findings that the affidavits were not credible; that ADPI, ADT, Van Dyke, and ADE were alter egos of each other; and that ADPI made almost $20 million in fraudulent transfers to Van Dyke and ADE "with the actual intent to hinder, delay, or defraud" Swonke. ADPI and ADT did not appeal the 2007 Order or its findings.

         ADPI and ADT eventually were able to deposit cash in lieu of a bond into the court registry after Van Dyke loaned ADPI $1, 086, 239.73 specifically for the purpose of posting a bond in the case against Swonke. The loan agreement between ADPI and Van Dyke was titled "Promissory Note, Security Agreement & Collateral Chattel Mortgage." The money was deposited in the court registry into account no. 63901. Later, in a nearly identical loan agreement, ADE loaned ADPI $763, 346.56 for the purpose of increasing the amount of the cash bond. That money was deposited in the court registry into a separate account no. 64056.

         The judgment in favor of Swonke was affirmed on appeal, but the Supreme Court of Texas reversed and remanded the case to the trial court for further proceedings. See Anglo-Dutch Petroleum International, Inc. v. Greenberg Peden, 352 S.W.3d 445, 453 (Tex. 2011).

         B. The Competing Claims for the Supersedeas Funds

         While the lawsuit was on remand, Van Dyke, ADE, and the Investors intervened, each seeking to obtain some or all of the funds remaining in the court registry. The Investors alleged that they were entitled to collect on the unsatisfied judgments they had obtained in their lawsuits against ADPI and ADT. Van Dyke and ADE alleged that they held security interests in the funds based on their loan agreements with ADPI.

         In June 2012, the Investors obtained turnover orders against the supersedeas funds deposited in the court registry in ADPI and ADT's lawsuit against Swonke.[2]Two years later, in May 2014, Van Dyke and ADE each filed Uniform Commercial Code (UCC) Financing Statements to perfect the claimed security interests reflected in their loan agreements with ADPI. Both sides filed motions requesting disbursement of the supersedeas funds, but the court declined to entertain any requests until after the underlying case was fully concluded.

         On remand, a new final judgment was rendered in favor of Swonke but for a lesser amount. The lawsuit was fully concluded after the judgment was affirmed on appeal and the Supreme Court of Texas denied further review. See Anglo-Dutch Petroleum Int'l, Inc. v. Greenberg Peden, P.C., 522 S.W.3d 471 (Tex. App.- Houston [14th Dist.] 2016, pet. denied). In February 2018, the trial court released $832, 616.78 plus accrued interest to satisfy the judgment in favor of Swonke. As of that date, the funds remaining in the court registry totaled $1, 268, 584.03.

         Van Dyke, ADE, and the Investors entered into a Rule 11 agreement to submit their competing claims for the remaining funds to the court on motions to be filed and served by specific dates, followed by a hearing before the court. Both sides filed substantive motions, responses, and replies supported by numerous exhibits.

         The Investors sought the release of the funds on common law and statutory grounds, arguing that the trial court had discretion to release the funds in the court registry based on the Investors' unsatisfied judgments, their turnover orders, the appellate rules, and the fraud findings against ADPI and ADT in the 2007 Order. The Investors also argued that the trial court had the power to help the Investors satisfy their judgments by signing its own turnover order. The Investors maintained that ADPI and ADT, as the depositors of the funds into the court registry, owned "an unadjudicated claim of an equitable interest in the return of those funds" that was subject to turnover.

         Van Dyke and ADE also sought release of the funds and turnover relief. Van Dyke moved to disburse and turn over to him the $403, 252.55 then remaining in account no. 63901 after Swonke's judgment was satisfied. Van Dyke argued that he was not a judgment debtor; he had prior and superior rights to the funds than the judgment debtors because he loaned ADPI the funds for the discrete purpose of posting the funds in lieu of a supersedeas bond; and his interest in the funds was secured by a promissory note, security agreement, and assignment and pledge of the funds. Van Dyke also argued that the Investors' motions must be denied because it was improper to use a turnover order to determine the parties' substantive rights. ADE made similar arguments in its motion to disburse and turn over the $865, 331.48 then remaining in account no. 64056 based on its loan agreement with ADPI.

         After hearing the parties' arguments, the trial court rendered an "Order Releasing Supersedeas Deposits from the Court's Registry and Turnover Order" (the Release and Turnover Order). The court found that the Investors' motion "is meritorious on the common-law and statutory grounds set forth therein and therefore should be granted in its entirety." In the Release and Turnover Order, the court made additional findings, including:

• As of March 1, 2018, $403, 252.55 remains in Harris County District Clerk CRS Account No. 63901, and $865, 331.48 remains in Harris County District Clerk CRS Account No. 64056. These funds no longer constitute supersedeas funds because the judgments for which they were deposited to supersede have been paid in full;
• ADPI and ADT own "present or future rights to property" comprised of an unadjudicated claim of an equitable interest in the above-referenced funds still on deposit in the registry of the court as a matter of law;
• Intervenors [Van Dyke and ADE] did not deposit any funds into this Court's registry at any time as a matter of fact and law;
• Intervenors [Van Dyke and ADE] do not own any rights, title or interests in or to any funds deposited into this Court's ...

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