Asset Protection Concepts and Strategies by Riser Adkisson LLP

Purchase of an annuity the day before bankruptcy filing does not create an exempt asset -- Matter of Sosa

United States Court of Appeals, Fifth Circuit.

In The Matter Of: Andres Alejandro SOZA; Mary Rachel C.
Buzo, Debtors.

Andres Alejandro Soza; Mary Rachel C. Buzo, Appellees,

v.

Joseph M. Hill, Appellant.

No. 06-21004.

Sept. 12, 2008.

Ira D. Joffe, Law Offices of David W. Barry, Houston, TX,
for Appellees.

Timothy L. Wentworth, Cage, Hill & Niehaus, Houston, TX,
for Appellant.

Appeal from the United States District Court for the
Southern District of Texas.

Before JONES, Chief Judge, and WIENER, and CLEMENT, Circuit
Judges.

EDITH H. JONES, Chief Judge:

*1 The question presented in this bankruptcy appeal is
whether an annuity purchased by a debtor couple the day before they sought
bankruptcy relief is, under the facts here presented, exempt under Texas law,
Tex. Ins. Code Ann. § 1108.051, or non-exempt because it was "a premium payment
made in fraud of a creditor ...." Tex. Ins. Code Ann. § 1108.053. According to
the debtors' repeated representations to the bankruptcy and district courts,
this annuity was purchased not simply "to maximize the debtors' exemption
claims" but to manipulate an inheritance that the debtor Andres Alejandro Soza
("Soza") may ultimately share with his siblings. Because the debtors' purpose in
purchasing this annuity had nothing to do with the rehabilitative goal of
Texas's exemption laws, they could not legitimately claim the exemption.
Accordingly, the judgment of the district court, reversing the bankruptcy
court's denial of exemption, must itself be reversed, and the case is remanded
for further proceedings.

On October 13, 2005, Soza and his wife, Mary Rachel C.
Buzo, transferred $30,000 into a Mutual of Omaha annuity. The next day they
filed a voluntary Chapter 7 bankruptcy petition.FN1 Joseph Hill was appointed
Trustee of their bankruptcy estate. The debtors' bankruptcy schedules listed
just under $30,000 in unsecured debt and $340 in non-exempt property. The
debtors identified the annuity as an asset valued at $30,000, and they claimed
an exemption pursuant to § 1108.051 of the Texas Insurance Code.

The trustee objected to the exemption because the statute
does not apply to "a premium payment made in fraud of a creditor." Tex. Ins.
Code Ann. § 1108.053. Relying on the debtors' petition and schedules, the
trustee argued that their conversion of non-exempt property into an exempt
annuity on the eve of bankruptcy amounted to "constructive fraud" detrimental to
the creditors. In response, the debtors contended that the law permits them to
maximize their exemptions, and there was no proof that they intended to defraud
the creditors.

At the hearing on the trustee's objection, the debtors
asserted for the first time that the money with which they purchased the annuity
had recently been inherited from Soza's father. Their attorney represented to
the court that the debtors used the inheritance to purchase the annuity for
safekeeping until they could decide how the inheritance was to be distributed
among Soza and his siblings. The attorney said his clients feared that unless
the inheritance was placed out of reach of the creditors by means of an annuity,
the trustee would attempt to litigate the debtors' share of ownership or would
pursue Soza's siblings for the transfer of their shares. Alternatively, counsel
feared he would have to delay the bankruptcy filing by one year to avoid the
fraudulent transfer provision of the Bankruptcy Code. 11 U.S.C. § 548(a)(1)
(2005), amended by Pub.L. No. 109-8, § 1402, 119 Stat. 23, 214 (effective Oct.
17, 2005).

The bankruptcy court and counsel for the trustee were taken
aback by these representations, which were contrary to the debtors' sworn
schedules identifying the annuity as their property. The court rejected the
debtors' untimely attempt to offer the will and Soza's testimony about it.
Nevertheless, all parties recognized a looming issue over the true ownership of
the inheritance. The court proceeded, however, to adjudicate the objection
without reference to the inheritance claim. The court held that § 1108.053 of
the Texas Insurance Code, although somewhat ambiguous, proscribes constructive
as well as actual fraud on creditors. It found, based on the pleadings and
undisputed facts, that the debtors' conversion of non-exempt property into an
exempt annuity on the eve of bankruptcy amounted to constructive fraud. The
court denied the exemption.

*2 The debtors appealed to the district court, reiterating
their claim about the inheritance in their brief:

The check was received in August 2005 and would have been
shared with [Soza's] eight siblings and the children of the deceased brother,
but with the uncertainty of the October changes to the bankruptcy law, [Soza]
did not want to delay the bankruptcy a year to avoid the possibility of the
trustee trying to undo payments to family members.

The district court upheld the bankruptcy court's refusal to
consider this as an untimely contention, but it reversed the bankruptcy court
and approved the exemption under Texas law. Like the bankruptcy court, the
district court found no explicit textual guide to whether the statute depends on
actual or intended fraud of a creditor or whether "something less than intent is
sufficient" to violate the provision. Soza v. Hill (In re Soza), 358 B.R. 903,
907 (S.D.Tex.2006). The court's reasoning proceeded in three steps. First, the
court noted that the timing of the annuity purchase, standing alone, was not
sufficient to prove actual intent to defraud creditors. Second, the court
analogized the "constructive fraud" interpretation of the statute with the Texas
Uniform Fraudulent Transfer Act ("TUFTA") provisions that invalidate a debtor's
transfers made for less than reasonably equivalent value. See Tex. Bus. & Com.
Code Ann. § 24.005(a)(2). Because the annuity here was purchased for full value,
constructive fraud as defined in TUFTA could not exist. Third, the court held
that in the absence of a fiduciary duty relationship arising from other
circumstances, the common law doctrine of constructive fraud does not apply to
debtor-creditor relations in Texas. Relying, finally, on the principle that
Texas interprets debtors' exemptions broadly, the court concluded that even if
constructive fraud is covered by § 1108.053, the trustee had not borne his
burden of proof.

Now finding themselves the appellees, the debtors no longer
assert that the payment for the annuity sprang from an inheritance in which Soza
owns a potentially small share. Instead, they vigorously defend the district
court's opinion and criticize the trustee for having failed to present evidence
to support his attack on the exemption. The debtors do not, however, disavow
their counsel's representation to both lower courts that the annuity was
purchased not to provide them a future stream of income, but to remove its
corpus from the bankruptcy court in order to avoid the uncertainty of bankruptcy
litigation involving them or Soza family members. This clever strategy, taken
together with other facts, provides a more complex backdrop for application of
the Texas annuity exemption laws than the simple eve of bankruptcy transfer on
which the bankruptcy and district court opinions were predicated. Although these
circumstances might not sustain a finding of actual intent to defraud the
debtors' creditors, and the trustee did not so argue in the lower courts, they
highlight the importance of determining whether the exception to annuity
exemptions for a "premium payment made in fraud of a creditor" includes
intentional fraud as well as something less than intentional fraud.

[1] [2]  At
first glance, what the Legislature intended to describe as "fraud of a creditor"
seems unclear in the context of life insurance policies and annuities obtained
by debtors. There is no controlling Texas case law to provide guidance.FN2 Read
in context with other Texas fraudulent transfer statutes, there is little doubt
that § 1108.053 must include intentional fraud as well as conduct less than
intentional fraud. The Texas legislature added the "in fraud of a creditor"
exception to the Texas Insurance Code's exemption statute for life insurance and
annuity benefits in 1991. See Act of June 15, 1991, ch. 609, § 1, 1991 Tex.
Sess. Law Serv. 609 (recodified at Tex. Ins. Code. Ann. § 1108.053). This was
two years before the exemption was broadened to include annuity contracts
purchased by an individual. See Act of Sept. 1, 1993, ch. 685, § 20.20, 1993
Tex. Sess. Law Serv. 685 (recodified at Tex. Ins. Code. Ann. § 1108.051). As of
1991, at least three fraudulent conveyance provisions in state law required a
showing of actual intent to defraud. One of these appears in the Texas Property
Code, which prohibits a debtor from converting non-exempt personal property into
exempt property " with the intent to defraud, delay, or hinder" a creditor. Tex.
Prop. Code Ann. § 42.004(a) (emphasis added).FN3 Since at least 1987, the Texas
Family Code has provided that an agreement between spouses to partition marital
property "is void with respect to the rights of a pre-existing creditor whose
rights are intended to be defrauded by it." Tex. Family Code Ann. § 4.106(a)
(emphasis added). Significantly, Texas adopted the TUFTA in 1987, and it states
that a debtor's transfer "is fraudulent as to a creditor" if made with " actual
intent to hinder, delay, or defraud any creditor of the debtor" or if made for a
lack of "reasonably equivalent value" under certain additional conditions. Tex.
Bus. & Comm. Code Ann. § 24.005(a)(1)-(2) (emphasis added). Under TUFTA,
transfers made with either actual intent to defraud a creditor or something less
than actual intent ( i.e., transfers made "without receiving a reasonably
equivalent value") are included as "fraudulent" transfers.

*3 [3]  The
language of these sister statutes indicates that the Texas Legislature clearly
knew how to distinguish between provisions defining as fraudulent a transfer
made with intent to defraud a creditor and provisions defining a lesser standard
than intent to defraud. Because Tex. Ins. Code § 1108.053 uses the general
phrase "in fraud of a creditor" rather than specific language requiring intent
to defraud we conclude that it encompasses both intentional fraud and conduct
less than intentional fraud. The Texas Supreme Court has endorsed this approach
to interpretation in holding that "[i]t is a rule of statutory construction that
every word of a statute must be presumed to have been used for a purpose.
Likewise, we believe every word excluded from a statute must also be presumed to
have been excluded for a purpose." Laidlaw Waste Systems (Dallas), Inc. v. City
of Wilmer, 904 S.W.2d 656, 659 (Tex.1995) (internal quotations and citations
omitted).

[4]  Still,
exactly what conduct less than intentional fraud amounts to fraud on creditors
under § 1108.053 is unclear. The parties and the courts below repeatedly
describe this "something less than intention" standard as "constructive fraud."
This term is a practical shorthand, but, since it appears nowhere in the
statutes, it lacks substantive content and is not susceptible to precise
definition.FN4 The TUFTA describes one species of "constructive fraud" in
stating that transfers made "without receiving a reasonably equivalent value"
are deemed in fraud of creditors. See also Tex. Bus. & Comm. Code Ann. §
24.006(a). Section 1108.053 of the Texas Insurance Code contains no such
limitation, nor does § 1108.053 reference TUFTA's definition of "constructive
fraud." There is, therefore, no reason to conclude that the more general
language of § 1108.053 is limited by TUFTA's definition of "constructive fraud."
In fact, it would be improper to construe § 1108.053 by attributing a limitation
that appears only in another statutory provision. The Texas Supreme Court so
held in Laidlaw: "When the Legislature employs a term in one section of a
statute and excludes it in another section, the term should not be implied where
excluded." 904 S.W.2d at 659.

*4 [5] [6] [7] 
Ultimately, Texas courts will have to determine how much less than actual intent
to defraud suffices to deny exemptions for insurance policies and annuities
under § 1108.053. For present purposes, we glean some assistance from the
non-exclusive list of eleven factors, commonly known as "badges of fraud", that
courts may consider in determining whether a debtor actually intended to defraud
creditors under TUFTA.FN5 It may appear contradictory to consider facts used to
infer actual intent to defraud in order to determine "constructive" fraud. Any
contradiction, however, is illusory. Factors relevant to determining actual
intent to defraud, a higher culpability standard, should be equally probative
where something less than actual intent will suffice. When analyzing facts under
TUFTA, this court has noted that "[s]ince direct proof of fraud often is not
available, courts may rely on circumstantial evidence to establish the
fraudulent intent." Roland v. United States, 838 F.2d 1400, 1402-03 (5th
Cir.1988). Not all, or even a majority, of the "badges of fraud" must exist to
find actual fraud. Indeed, "[w]hen several of these indicia of fraud are found,
they can be a proper basis for an inference of fraud." Roland, 838 F.2d at 1403.

[8]  Like TUFTA,
the Bankruptcy Code also unwinds transfers made "with actual intent to hinder,
delay or defraud" creditors, 11 U.S.C. § 548(a)(1), and may deny discharge on
similar grounds. 11 U.S.C. § 727(a)(2). In this connection, courts have
identified various "badges of fraud" that tend to evidence a transfer made with
intent to defraud under § 548 and § 727:

(1) the lack or inadequacy of consideration; (2) the
family, friendship or close associate relationship between the parties; (3) the
retention of possession, benefit or use of the property in question; (4) the
financial condition of the party sought to be charged both before and after the
transaction in question; (5) the existence or cumulative effect of the pattern
or series of transactions or course of conduct after the incurring of debt,
onset of financial difficulties, or pendency or threat of suits by creditors;
and (6) the general chronology of events and transactions under inquiry.

*5 Chastant v. Chastant (In re Chastant), 873 F.2d 89, 91
(5th Cir.1989) (quoting Schmit v. Schmit (In re Schmit), 71 B.R. 587, 590
(Bankr.D.Minn.1987)). See also, e.g., Max Sugarman Funeral Home, Inc. v. A.D.B.
Investors, 926 F.2d 1248, 1254-55 (1st Cir.1991); Salomon v. Kaiser (In re
Kaiser), 722 F.2d 1574, 1582 (2d Cir.1983); FDIC v. Sullivan (In re Sullivan),
204 B.R. 919, 940 (Bankr.N.D.Tex.1997); In re Moore, 177 B.R. 437, 442
(Bankr.N.D.N.Y.1994); Beckman v. Staats (In re Beckman), 104 B.R. 866, 870
(Bankr.S.D.Ohio 1989).

[9]  Taking all
the surrounding circumstances in this case into consideration, several of the
"badges of fraud" are evident here. We conclude that, even if actual intent to
defraud was lacking, the debtors' annuity purchase constituted a premium payment
made "in fraud of a creditor." Tex. Ins. Code § 1108.053. They purchased the
annuity on the eve of bankruptcy. Assuming the payment came from their
non-exempt property, the annuity was in an amount that would have covered all of
the debtors' listed debts, and the purchase deprived the creditors of all but
$340 in non-exempt assets.

Significantly, the debtors retained full control of the
property-an annuity can always be cashed out. And while this feature is true of
all annuities, and thus would not ordinarily be proof of any fraud, here, the
temporary and contingent nature of the purchase was conceded. The debtors
claimed the annuity as their property on the bankruptcy schedules, yet their
counsel assured both lower courts, to the contrary, that the payment was funded
by an inheritance to which Soza's entitlement was uncertain. Their counsel also
represented to both lower courts that the annuity was purchased in order to
place litigation over Soza's and his siblings' property interests in the
inheritance beyond the reach of the bankruptcy court.FN6

In 1993, Texas law was modified for the first time to
permit personal annuities to be shielded from the claims of creditors. Texas
cases have to date upheld annuities sharing the characteristics that they were
not self-settled and they were intended to provide payments for the debtors and
their families in the future. See In re Foster, 360 B.R. 210, 215
(Bankr.E.D.Tex.2006) (exempting annuity created to disburse state lottery
winnings); In re Alexander, 227 B.R. 658, 661 (Bankr.N.D.Tex.1998) (exempting
annuity created to pay out structured tort settlement). Not so here. The purpose
of these debtors' purchase was to remove a disputed inheritance from an inquiry,
necessary to bankruptcy administration, that would have determined the debtors'
property rights in that inheritance. The annuity was a sham to stave off
litigation, not a shield authorized by Texas law to enable the debtor to gain a
fresh start.FN7

[10] [11]  No
doubt Texas law encourages the broad construction of its exemption laws,
especially those provisions that lack limitations based on fraud of creditors.
See, e.g., NCNB Tex. Nat'l Bank (In re Volpe), 943 F.2d 1451, 1453 (5th
Cir.1991) ("Texas courts apply a liberal rule of construction to state exemption
statutes.") (citing cases); Hickman v. Hickman, 149 Tex. 439, 234 S.W.2d 410,
414 (1950) ("[O]ur exemption statutes should be liberally construed in favor of
express exemptions, and should never be restricted in their meaning and effect
so as to minimize their operation upon the beneficent objects of the statutes.
Without doubt the exemption would generally be resolved in favor of the
claimant."). No doubt courts must recognize that some pre-bankruptcy planning is
permissible, and that the mere conversion of assets from exempt to non-exempt
property on the eve of bankruptcy does not by itself suffice to prove an intent
to defraud creditors. First Tex. Sav. Assoc., Inc. v. Reed (In re Reed), 700
F.2d 986, 990-91 (5th Cir.1983).FN8 The exemption provided by the instant Texas
statute, however, contains its own limitation designed to prevent fraud on
creditors, and its standard is set at something less than intent to defraud.
Here, there is considerably more than mere timing to condemn the expedient use
of an annuity to thwart the bankruptcy court from determining the extent of the
debtors' interest in property.

CONCLUSION

*6 Under Texas Insurance Code § 1108.053, the annuity
purchased by these debtors represented a payment made in fraud of a creditor,
and the debtors could not claim an exemption for the annuity. On remand,
however, the bankruptcy court will have to explore the extent to which Soza has
an ownership interest in the alleged inheritance.

REVERSED and REMANDED.

WIENER, Circuit Judge, specially concurring:

I concur in the result reached by the panel majority, but I
write separately because, with respect, I disagree with part of its methodology
for getting there. Both the panel majority and I agree that applicability of
section 1108.053 of the Texas Insurance Code is not limited to instances of
actual fraud, i.e., intentional fraud, principally because the words used in the
Texas FamilyFN1 and PropertyFN2 Codes to limit their coverages to intentional
fraud are absent from the Insurance Code.FN3 It is at this point, however, that
the method of statutory construction I would employ, and the substantive content
I would give to the Insurance Code's "in fraud of a creditor" provision,
diverges from the panel majority's method and content.

The panel majority relies on three state statutes-the Texas
Uniform Fraudulent Transfers Act ("TUFTA"),FN4 the Texas Family Code, and the
Texas Property Code-to determine how the non-intentional "fraud of a creditor"
(which we agree is embraced by the Insurance Code) should be defined. But it is
obvious to me that neither the Texas Property Code nor the Texas Family Code
offers any guidance here because they address only actual, i.e., intentional,
fraud and can therefore tell us nothing about the definitional elements of
non-intentional fraud for purposes of the Insurance Code-the core issue in this
case.

The only Texas statute among the three relied on by the
panel majority that addresses anything other than actual (intentional) fraud is
TUFTA. Therefore, of the statutes cited by the panel majority, only TUFTA is
even potentially informative of the meaning of constructive or non-intentional
"fraud of a creditor." Yet TUFTA's definition of "fraudulent as to a creditor"
expressly recognizes only (1) intentional fraud (not applicable here) and (2) a
transfer lacking "reasonably equivalent value" (plus other factors).FN5 The
panel majority nevertheless purports to use TUFTA's indicia of intent to cobble
together a version of non-intentional fraud,FN6 while ignoring the definition of
non-intentional fraud expressly provided in TUFTA-a transfer without reasonably
equivalent value. Either TUFTA should be used to inform the analysis, in which
case we should accept its definition of non-intentional fraud for purposes of
the Insurance Code, or it should not be so used, in which case we would have no
alternative but to resort to the common law. We cannot do both because,
logically, TUFTA cannot simultaneously be both (1) the panel majority's starting
point and (2) the point at which the panel majority departs from TUFTA. Yet the
panel majority's opinion schizophrenically uses TUFTA both ways at once.

*7 The panel majority's opinion tries to finesse this
inconsistency by stating: "Section 1108.53 of the Texas Insurance Code contains
no such limitation, nor does § 1108.53 reference TUFTA's definition of
‘constructive fraud.’ "FN7 But this defeats the purpose of turning to TUFTA for
guidance in the first place. The panel majority uses TUFTA's "fraudulent as to a
creditor" to define "in fraud of a creditor" in the Insurance Code; but the
exclusive definition of a non-intentional fraudulent transaction in TUFTA, is
"[a] transfer made ... without receiving reasonably equivalent value." So,
unless the panel majority is willing simply to force-feed TUFTA's
receiving-reasonably-equivalent-value genre into the Insurance Code, there is no
constructive-fraud nexus to be found between the two statutes.

In response to this objection, the panel majority
pronounces the Insurance Code's provision to be more "general" than TUFTA's. To
me, it borders on circularity to say simply that the Insurance Code's provision
is more "general" than TUFTA's, so TUFTA does not restrict the Insurance Code.
For the panel majority to use TUFTA to inform its analysis of the Insurance
Code, there must be a substantial degree of similarity-if not identity-between
the two provisions. To baldly declare that such exists, and then inexplicably
dismiss any differences that actually exist, begs the question totally.

As I understand the panel majority's method of statutory
interpretation, it proceeds thusly: "(1) We don't know what X means, so to
assist our understanding we turn to Y, which we assume is close to X; (2) Y
requires that either A or B be present; (3) we conclude, though, that X requires
neither A nor B because X is not sufficiently close to Y." Can it really be
maintained that Y has been used to meaningfully define X in this way? With X
being the Insurance Code's "in fraud of a creditor," Y being TUFTA, A being
intentional fraud, and B being a transfer made without receipt of reasonably
equivalent value, the panel majority is exposed as saying that "we don't know
what ‘in fraud of a creditor’ is, so we turn to TUFTA; TUFTA requires either
actual intent to defraud or engaging in a transfer without receipt of equivalent
value; ergo, absent actual intent, whatever else ‘in fraud of a creditor’ might
mean, it does not require a transfer without equivalent value." Go figure!

Again, I agree with the conclusion that Soza's premium was
a payment made "in fraud of a creditor." But I can only justify providing
content to the Insurance Code's fraud provision by giving "fraud" its common law
meaning, not by torturing other incompatible statutes. Sutherland says:

*8 All legislation must be interpreted in the light of the
common law and the scheme of jurisprudence existing at the time of its
enactment. Where there is a limitation by statute which is capable of more than
one construction the statute must be given that construction which is consistent
with common law. And where an operative word is not defined in a statute the
common law meaning controls.FN8

As there is reasonable doubt about what the Texas
legislature meant to include when it provided an exception for "fraud of a
creditor" in the Insurance Code-something the panel majority's opinion already
acknowledges-I see the Texas common law as the only defensible starting place
for interpreting the statute at issue.

Further, I do not believe that the phrase "of a creditor"
creates a new term of art, but simply cabins the universe of frauds to which
this exception to the Insurance Code's exemption applies. I conclude, therefore,
that the interpretation of the "well-defined words and phrases in the common
law" should comport with the presumption that "[c]ommon-law meanings are assumed
to apply even in statutes dealing with new and different subject matter ... in
the absence of evidence to indicate a contrary meaning."FN9

For openers, Texas common law recognizes that there are two
types of fraud-"actual" and "constructive."FN10 Actual fraud, which is not at
issue in this case, requires " intentional breaches of duty that are designed to
injure another or to obtain an undue and unconcientious [sic] advantage."FN11
Constructive fraud (being all non-intentional varieties of actionable fraud and
therefore clearly at issue here) involves "breaches that the law condemns as
‘fraudulent’ merely because they tend to deceive others, violate confidences, or
cause injury to public interest."FN12

Texas courts have recognized in a general sense that
"[c]onstructive fraud, as a concept, has fuzzier edges and is less susceptible
of easy definition" than actual fraud.FN13 Even though the contours of actual
fraud have been neatly staked out,

no such case has done the same for constructive fraud. Nor
is such a case possible, because the whole need for a doctrine of constructive
fraud rests on the lack of a well-defined common law tort to cover the conduct
at hand. The best the [Texas] [S]upreme [C]ourt has been able to do is remark
that "constructive fraud is the breach of some legal or equitable duty."FN14

Consistent with this definitional ambiguity, some Texas
case law appears to have read this formulation of constructive fraud to require
a confidential or fiduciary relationship.FN15 A review of the cases reveals
that, consistent with the flexible nature of equity, Texas has not construed
constructive fraud so narrowly.FN16 For example, although an intermediate Texas
appellate court in Hubbard v. Shankle noted in its constructive fraud inquiry
that no fiduciary relationship existed, it also explicitly referenced the
absence of an additional "legal or equitable duty."FN17 The state appellate
court in Jean v. Tyson-Jean noted that a reasonable trier of fact could have
concluded that there was no "breach ... [of] fiduciary duty ... or conduct ...
that was unfair to the community estate."FN18

Among the Texas cases that I have examined,FN19 Shwiff v.
Priest comes closest to requiring a confidential or fiduciary relationship to
support a finding of constructive fraud.FN20 The Shwiff opinion, however,
contains no reasoning beyond a mere citation to a case dealing with the duties
owed by the spouses to community property as support for its contention that a
fiduciary duty is required; and even this holding was not essential to the state
court's conclusion that there was no constructive fraud,FN21 as the court also
found that there had been no harm.FN22

*9 Although "a decision by an intermediate appellate state
court is a datum for ascertaining state law which is not to be disregarded by a
federal court," we are empowered to reach the conclusion that we believe the
state's highest court would reach if we are "convinced by other persuasive data
that the highest court of the state would decide otherwise."FN23 And, the
clearest pronouncement on constructive fraud by the Texas Supreme Court is not
limited by the necessity of a fiduciary or confidential relationship.FN24 As
noted above, its other cases hint at the expansive nature of the concept. A
survey of Texas case law reveals that a fiduciary or confidential relationship
is not a prerequisite for a finding of constructive fraud; there need only be a
violation of a legal or equitable duty, determined according to a flexible and
fact-specific approach.

Klein v. Sporting Goods, Inc., is an excellent example of
this flexible approach.FN25 There, the owner of a gun store, the Gun Exchange,
had pledged his inventory as security for a bank loan. He was also indebted to
unsecured trade creditors. After the bank gave notice of its intention to
foreclose on the inventory, the store owner (1) incorporated a second company,
the Gun Store, (2) secured a line of credit from a different bank, and (3) had
the new corporation purchase the inventory of his former business, the Gun
Exchange. He had the new corporation pay more than market value for the
inventory to avoid personal liability to the first bank, which held his personal
guarantee in addition to a security interest in the inventory. The unsecured
trade creditors were paid nothing after the owner transferred all assets of the
Gun Exchange to his new corporate alter ego, the Gun Store. The trade creditors
commenced suit against the now judgment-proof Gun Exchange.

Relying on a theory of constructive fraud, the trade
creditors, with whom no fiduciary relationship is evident from the opinion or
from the typical trade creditor-debtor relationship, sought to have the
corporate fiction of the Gun Exchange disregarded and to make the owner
personally liable for its debts. On appeal, the court had little difficulty
affirming the jury's finding of constructive fraud. It noted that although the
corporate fiction will typically insulate shareholders, officers, and directors
from liability, "when the corporate form has been used as part of a basically
unfair device to achieve an inequitable result," such insulation disappears.FN26
The court further noted that the Texas Business and Commerce Code imposes a duty
of good faith on all covered dealings and that the complex machinations of the
Gun Store owner failed that test. As the duty of good faith was violated, and
"[c]onstructive fraud is the breach of some legal or equitable duty which,
irrespective of moral guilt, the law declares fraudulent," the court affirmed
the finding of constructive fraud.FN27 Using corporate forms "as a method to
avoid creditors .... was legally and factually sufficient to support the jury's
finding of constructive fraud."FN28

As no special relationship between the debtors and their
creditors in the instant case appears from the record, such legal duties as, for
example, good faith and fair dealing, do not provide a basis for a finding of
constructive fraud.FN29 Taking all the surrounding circumstances in this case
into consideration, however, I am convinced that, under Texas common law, the
debtors' annuity purchase violated an equitable duty. The factors recounted in
the panel majority opinion are worth repeating here. The debtors purchased the
annuity on the eve of bankruptcy, an equitable proceeding.FN30 Although the
nature of the federal proceeding does not alter our Erie inquiry, it does inform
the circumstances in which a Texas court would determine whether an equitable
duty exists. Assuming the annuity was acquired with the debtors' non-exempt
property, it was in an amount that would have covered all of the debtors' listed
debts, leaving the creditors with only $340 in non-exempt assets. The debtors
also retained control of the property because it appears this annuity, like
almost all, could be cashed out. And even though this feature is common to
annuities, and thus cannot be proof of fraud in the ordinary case, here, the
debtors conceded the temporary and contingent nature of the purchase.FN31

*10 Klein provides support for the proposition that the
debtors violated an equitable duty, yet because of the duty of good faith in
that case, it is not on all fours with the present situation. At least one Texas
court of appeals has, however, decided a case similar to Klein without reference
to a legal or equitable duty of good faith. In Speed v. Eluma International,
Inc., the owner of a corporation claimed that the corporation was in arrears on
rent owed to him, giving him a lessor's lien on which he immediately foreclosed,
permitting him to transfer the entirety of the corporation's assets to a third
party for a prearranged sum.FN32 This deal structure was used to circumvent a
temporary restraining order that the creditors of the company had obtained to
enjoin the very sale that the owner carried out through a different mechanism.
The court concluded that this violated an equitable duty and refused to reverse
the jury's finding of constructive fraud.FN33

As in Klein and Speed, the annuity in the instant case has
been used to achieve an inequitable result through machinations that have
deprived the creditors of satisfaction for their claims and the bankruptcy court
of the ability to adjudicate ownership of assets that might belong to the
estate. Under the foregoing common law interpretation of the Insurance Code's
constructive fraud provision, the bankruptcy court was justified in looking
through the sham of the annuity to the real source of the money, just as the
courts in Klein and Speed used constructive fraud to prevent inequity. But this
justification, I emphasize, is found in Texas common law, not in some tortured
construction of dissimilar Texas statutes. It is for these reasons that, with
respect, I specially concur in the panel majority's judgment.

FN1. The debtors filed for bankruptcy just before the
Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") came into
effect. Pub.L. No. 109-8, 119 Stat. 23 (2005) (codified as amended in scattered
sections of 11 U.S.C.). BAPCPA governs cases filed on or after October 17, 2005.
Since the debtors filed their bankruptcy petition before October 17, 2005,
pre-BAPCPA law governs this case.

FN2. The district court discussed three non-bankruptcy
cases involving the predecessor to § 1108.051: Marineau v. Gen. Am. Life Ins.
Co., 898 S.W.2d 397 (Tex.Ct.App.1995), Sun Life Assurance Co. of Canada v. Dunn,
134 F.Supp.2d 827 (S.D.Tex.2001), and Leibman v. Grand, 981 S.W.2d 426
(Tex.Ct.App.1998). They are all clearly distinguishable from this case and none
of them assists us with interpreting the phrase "in fraud of a creditor."
Marineau addressed whether the proceeds of an insurance policy that was
purchased with embezzled funds could be placed in a constructive trust for the
owner of the embezzled funds. The Texas exemption statute then applicable did
not even contain an "in fraud of a creditor" exception. See Marineau, 898 S.W.2d
at 401 (citing Act of Mar. 12, 1987, ch. 5, § 1, 1987 Tex. Sess. Law Serv. 5).

Similarly, Sun Life addressed whether the proceeds of an
insurance policy could be placed in a constructive trust for a beneficiary of
the policy whose share of proceeds was wrongfully reduced in violation of a
divorce decree. Sun Life never mentions, let alone interprets, the "in fraud of
a creditor" exception at issue here.

Finally, Leibman addressed whether sufficient evidence was
presented at trial to establish that a debtor had made annuity premium payments
in fraud of a creditor. The court determined that there was sufficient evidence
to uphold the trial court's finding that the debtor had made payments with
intent to defraud his ex-wife. The court provided no analysis of the phrase "in
fraud of creditor."

FN3. The "intent to defraud" language has been in §
42.004(a) since at least 1984. See Act of Jan. 1, 1984, ch. 576, § 1, 1983 Tex.
Sess. Law Serv. 3524.

FN4. Because "constructive fraud" appears neither in §
1108.053 nor in Texas's other statutes regarding fraud on creditors, it seems
highly unlikely that the Texas Legislature intended to refer to common law
"constructive fraud" cases as an interpretive standard for "in fraud of a
creditor."

FN5. Section 24.005(b) of the Texas Business & Commerce
Code states:In determining actual intent under [§ 24.005(a)(1)], consideration
may be given, among other factors, to whether:

(1) the transfer or obligation was to an insider;(2) the
debtor retained possession or control of the property transferred after the
transfer;(3) the transfer or obligation was concealed;(4) before the transfer
was made or obligation was incurred, the debtor had been sued or threatened with
suit;(5) the transfer was of substantially all the debtor's assets;(6) the
debtor absconded;(7) the debtor removed or concealed assets;(8) the value of the
consideration received by the debtor was reasonably equivalent to the value of
the asset transferred or the amount of the obligation incurred;(9) the debtor
was insolvent or became insolvent shortly after the transfer was made or the
obligation was incurred;(10) the transfer occurred shortly before or shortly
after a substantial debt was incurred; and(11) the debtor transferred the
essential assets of the business to a lienor who transferred the assets to an
insider of the debtor.

FN6. In ruling based on the "untimely" assertion by the
debtors of their dubious ownership of the inheritance with which they purchased
the annuity, we are not deciding the question of ownership. That remains to be
decided on remand. Rather, we deem the admissions to the lower courts as binding
on what the debtors intended as the purpose of this annuity.

FN7. We do not here imply or hold that other types of
annuities would fail the "in fraud of a creditor" test. This case is limited to
its particular, above-described facts.

FN8. Note that in In re Reed actually dealt with the denial
of discharge under the Bankruptcy Code, for which actual intent to defraud
creditors is the standard. 11 U.S.C. § 727(a)(2). In re Reed expressly declined
to consider whether under Texas property law, an exemption would be denied for
the acquisition of personal property acquired with the intention of defrauding
creditors. In re Reed, 700 F.2d at 990 n. 2 (citing predecessor to Tex.
Prop.Code Ann. § 42.004(a)).

FN1. TEX. FAM. CODE ANN. § 4.106(a) (Vernon 2007).

FN2. TEX. PROP. CODE ANN. § 42.004(a) (Vernon 2007).

FN3. TEX. INS. CODE. ANN. § 1108.053 (Vernon 2007).

FN4. TEX. BUS. & COM. CODE ANN. § 24.005(a) (Vernon 2007).

FN5. See id. § 24.005(a).

FN6. As the panel majority seems to acknowledge by saying
"exactly what conduct less than intentional fraud amounts to fraud on creditors
under section 1108.053 is unclear .... Ultimately Texas courts will have to
determine how much less than actual intent to defraud suffices to deny
exemptions," this case was ripe for certification to the Texas Supreme Court.
TEX. CONST. art. V, § 3-c; TEX.R.APP. P. 58. It is quizzical to me that it was
not certified, given its clear fit into the certification jurisprudence. See
Arizonans for Official English v. Arizona, 520 U.S. 43, 76, 117 S.Ct. 1055, 137
L.Ed.2d 170 (1997) ("Certification procedure ... allows a federal court faced
with a novel state-law question to put the question directly to the State's
highest court, reducing the delay, cutting the cost, and increasing the
assurance of gaining an authoritative response."). Because I agree with the
result reached by the panel majority, and believe the Texas Supreme Court would
as well, I do not insist that certification is required here, even though that
would be my preference.

FN7. The panel majority also attempts to draw a distinction
between "constructive fraud," a well-defined common law term, and a new,
nebulous concept that it labels "less-than-intentional" fraud, which is neither
fish nor fowl, i.e., neither common law constructive fraud nor TUFTA's statutory
version of constructive fraud. It does this, in part, to claim that the common
law definition of constructive fraud is inapposite, because the Insurance Code's
statutory regime has created a new creature of non-intentional fraud. As a
result, Texas law, at least in this circuit, now has four flavors of fraud-(1)
actual, (2) common law constructive, (3) TUFTA's
lack-of-reasonably-equivalent-value-plus-other-factors, and (4) the Insurance
Code's innominate fourth variety. As I explain below, I believe, as do
commentators on statutory construction, see, e.g., 2B SUTHERLAND STATUTES AND
STATUTORY CONSTRUCTION § 50:3 (7th ed.2008), that when a statute does not define
a word, and that word has a well-accepted common law meaning, the legislature is
presumed to have had that common law meaning in mind. Even if this were not so,
I would find it questionable for the panel majority's opinion to manufacture an
entirely new species of Texas fraud and then make no effort to situate it among
the other three varieties, except to say that it is none of the other types, and
that Texas will just have to work it out. If we decide that every Texas statute
that uses the term "fraud," unqualified by the requirement that it be
intentional, spawns a new species of fraud, Texas law is in for a multi-faceted
treatment in this circuit.

FN8. 2B SUTHERLAND STATUTORY CONSTRUCTION § 50:1 (7th
ed.2008) (footnotes omitted); see id. § 50:3 ("Although a statute may define the
way in which a particular word is used, the common-law background and origin of
the word may be useful to a proper understanding of the statute in cases of
reasonable doubt."). If common law meanings of words can inform a statute's
interpretation even when a definition of a term is provided by the legislature,
they can, a fortiori, be used to define an undefined term. Texas appears to
follow this approach. See TEX. GOV'T CODE ANN. § 312.002(b) (Vernon 2007) ("If a
word is ... used as a word of art, the word shall have the meaning given by
experts in the particular trade, subject matter, or art."); TEX. GOV'T CODE ANN.
§ 311.011(b) (Vernon 2007) ("Words and phrases that have acquired a technical or
particular meaning, whether by legislative definition or otherwise, shall be
construed accordingly."). This last point is important, of course, because Texas
law governs how we interpret the Insurance Code. In re Trautman, 496 F.3d 366,
368 (5th Cir.2007) ("This court [in interpreting a Texas bankruptcy exemption in
the Insurance Code] must interpret the statute as a Texas court would.").
Formally, it appears Texas Government Code section 311.011 applies because
section 1108.053 of the Texas Insurance Code was acted on by the 60th or
subsequent Texas legislature. See Font v. Carr, 867 S.W.2d 873, 881 n. 4
(Tex.App.-Houston 1993, writ dism'd w.o.j.).

FN9. 2B SUTHERLAND STATUTORY CONSTRUCTION, supra note 8, §
50:3.

FN10. See In re Estate of Kuykendall, 206 S.W.3d 766, 770
(Tex.App.-Texarkana 2006, no pet.); Cotten v. Weatherford Bancshares, Inc., 187
S.W.3d 687, 702 (Tex.App.-Fort Worth 2006, pet. denied); Flanary v. Mills, 150
S.W.3d 785, 795 (Tex.App.-Austin 2004, pet. denied); Chien v. Chen, 759 S.W.2d
484, 494-95 (Tex.App.-Austin 1988, no writ). It would be farcical to maintain
that the absence of the phrase "constructive fraud" from the statute itself
precludes a conclusion that the Texas legislature intended for it to be
included. Things called constructive are almost always unmentioned or
incomplete; otherwise they would be actual, rather than constructive.

FN11. Chien, 759 S.W.2d at 495 (emphasis in original).

FN12. Id. (emphasis in original). I have left unaddressed
the panel majority's problematic use of indicia of intent, the central inquiry
of actual fraud, to determine whether constructive fraud is present. The panel
majority says "Factors relevant to determining actual intent to defraud, a
higher culpability panel standard, should be equally probative where something
less than actual intent will suffice." This need not be the case. Although
proscriptions of intentional fraud tend to police bad motives, proscriptions of
constructive fraud police a set of non-intentional activities that nevertheless
violate public policy. Not all constructive frauds are actual frauds, and it may
be that not all actual frauds are constructive frauds (as under TUFTA's
conceptualization of non-intentional fraud).But even if all actual frauds are
constructive frauds because proof of an intent to deceive is always violative of
public policy, it does not follow logically that all half-actual frauds are
constructive frauds. Indeed, the question why half-proof of intent (under some
lesser combination of the "badges of fraud" than would be necessary for an
inference of intent) suffices to prove constructive fraud is left wholly
unexamined in the panel majority's opinion.I have also left unaddressed the
panel majority's use of the United States Bankruptcy Code to inform its
elaboration of Texas state law without any demonstration of the persuasiveness
of this authority. The flaw of this approach should be obvious to the reader.
(Texas is not an "opt-out" state, so the debtors in question had the option of
electing federal or state exemptions. In re Perry, 345 F.3d 303, 308 n. 5 (5th
Cir.2003). As the debtors have relied on state exemptions under 11 U.S.C. §
522(b)(3) (Supp. V 2005), state law governs and we wear our Erie hats. In re
Trautman, 496 F.3d 366, 369 (5th Cir.2007)).

FN13. Rosen v. Matthews Const. Co., Inc., 777 S.W.2d 434,
437 (Tex.App.-Houston 1989), rev'd on other grounds, 796 S.W.2d 692 (Tex.1990).

FN14. Id. at 437-38 (quoting Archer v. Griffith, 390 S.W.2d
735, 740 (Tex.1965)).

FN15. See, e.g., Hubbard v. Shankle, 138 S.W.3d 474, 483
(Tex.App.-Fort Worth 2004, pet. denied) ("Constructive fraud is the breach of a
legal or equitable duty that the law declares fraudulent because it violates a
fiduciary relationship."); Jean v. Tyson-Jean, 118 S.W.3d 1, 9 (Tex.App.-Houston
2003, pet. denied) (same); In re Estate of Herring, 970 S.W.2d 583, 586 n. 3
(Tex.App.-Corpus Christi 1998, no pet.) (same); Shwiff v. Priest, 650 S.W.2d
894, 902 (Tex.App.-San Antonio 1983, writ ref'd n.r.e.) (same); Thames v.
Johnson, 614 S.W.2d 612, 614 (Tex.Civ.App.-Texarkana 1981, no writ) (same);
Carnes v. Meador, 533 S.W.2d 365, 370 (Tex.Civ.App.-Dallas 1975, writ ref'd
n.r.e.) (same).

FN16. See, e.g., Vickery v. Vickery, 999 S.W.2d 342, 377
(Tex.1999) ("Constructive fraud is most frequently found in a breach of a
fiduciary or confidential relationship." (emphasis added)); Johnson v. Brewer &
Pritchard, P.C., 73 S.W.3d 193, 204 (Tex.2002) (noting that a constructive fraud
claim "is derivative, at least in part, of the breach of fiduciary duty claim."
(emphasis added)); Seaside Indus., Inc. v. Cooper, 766 S.W.2d 566, 568
(Tex.App.-Dallas 1989, no writ) ("We need not decide if the [defendants]
violated a legal duty. Constructive fraud also arises when an equitable duty is
violated .... By taking a ‘flexible fact-specific approach focusing on equity,’
[a] court upheld the finding of a sham to perpetrate a fraud." (emphasis in
original)) (citation omitted) (quoting Castleberry v. Branscum, 721 S.W.2d 270,
273 (Tex.1986), superceded by statute on other grounds, TEX. BUS. CORP. ACT art.
2.21(A)(2) (Vernon 2007)); Hudspeth v. Stoker, 644 S.W.2d 92, 94 (Tex.App.-San
Antonio 1982, writ ref'd.) ("[C]onstructive fraud usually involves a breach of
trust or confidential relationship ...." (emphasis added)); see also 32 C.J.S.
Fraud § 7 (2008) ("[A]lthough there is authority to the contrary, it has been
held that constructive fraud does not require the existence of a fiduciary or
confidential relationship." (footnote omitted)).

FN17. 138 S.W.3d at 483.

FN18. 118 S.W.3d at 9 (emphasis added).

FN19. I would be remiss if I did not note that only the
trustee saw fit to discuss some of the cases examined here; the debtors' brief
contains no analysis of the case law on constructive fraud in Texas. Further,
the precedents in this circuit interpreting the requirements for constructive
fraud under Texas law, In re Monnig's Department Stores, Inc., 929 F.2d 197, 201
(5th Cir.1991), Permian Petroleum Co. v. Petroleos Mexicanos, 934 F.2d 635, 644
(5th Cir.1991), and Brooks, Tarlton, Gilbert, Douglas & Kressler v. U.S. Fire
Insurance Co., 832 F.2d 1358, 1369 (5th Cir.1987), were completely ignored by
both parties. In In re Monnig's, while discussing the requirements for a
constructive trust, this court said that constructive fraud " usually involves a
breach of trust or confidential relationship." 929 F.2d at 201 (emphasis added).
Permian quoted the Archer formulation. 934 F.2d at 644. In Brooks, we noted that
"[t]he benchmark of constructive fraud, as defined by Archer, is the existence
of a fiduciary relationship," but this was not essential to our holding, which
concerned interpretation of the word "fraud" in an insurance contract. 832 F.2d
at 1369.We have also apparently drawn a distinction between constructive fraud
and breach of fiduciary duty. Cf. Bombardier Aerospace Employee Welfare Benefits
Plan v. Ferrer, Poirot and Wansbrough, 354 F.3d 348, 358 n. 45 (5th Cir.2003)
("[O]ur precedent interpreting Texas law as it relates to constructive trusts
has not been altogether consistent. In some cases, we have interpreted Texas law
as requiring a showing of actual fraud or breach of fiduciary duty .... More
recently, we held that it was sufficient under Texas law for a plaintiff to show
merely constructive fraud ...."). Some of the confusion over the concept of
constructive fraud appears to result from our confusion over its cousin, the
constructive trust. The imposition of a constructive trust is not at issue in
this case because the Texas Insurance Code provides its own remedy for "fraud of
a creditor," namely, denial of the exemption. TEX. INS. CODE ANN. § 1108.053.We
did say, in an unpublished opinion, that Texas "appellate courts frequently
intimate that [constructive fraud] occurs only where there is a fiduciary
relationship between the parties." Joslin v. Personal Investments, Inc., No.
M03-40200, 2004 WL 436001, at *5 (5th Cir. Mar.8, 2004) (unpublished). In
another unpublished opinion, we also upheld a district court's dismissal of
constructive fraud claims because no fiduciary or "special" relationship existed
between the parties. Independence Hill, Ltd. v. Puller Mortgage Assocs., Inc.,
33 F.3d 1378 (5th Cir. Aug.10, 1994) (table). Consistent with Fifth Circuit Rule
47.5.4, we are not bound by these determinations, which are equivocal in any
event. Furthermore, both should be rejected on the facts of this case and as a
correct interpretation of Texas law.

FN20. 650 S.W.2d at 902-03. Connell v. Connell, 889 S.W.2d
534, 542 (Tex.App.-San Antonio 1994, writ denied), also appears to equate
constructive fraud with breach of fiduciary duty, but whether this was essential
to the holding of the case, rather than simple dicta, is difficult to discern
from the opinion.

FN21. Shwiff, 650 S.W.2d at 902.

FN22. Id. at 903.

FN23. First Nat'l Bank of Durant v. Trans Terra Corp.
Int'l, 142 F.3d 802, 809 (5th Cir.1998) (internal quotation marks omitted).

FN24. See Archer v. Griffith, 390 S.W.2d 735, 740
(Tex.1965). Cases like Vickery v. Vickery, 999 S.W.2d 342 (Tex.1999), also
demonstrate how flexible the concept of constructive fraud can be in Texas when
they use words like "most frequently" and "ordinarily."

FN25. 772 S.W.2d 173, 175 (Tex.App.-Houston 1989, writ
denied).

FN26. Id. at 175. The Texas legislature has abolished
shareholder liability as the remedy for constructive fraud. See Willis v.
Donnelly, 199 S.W.3d 262, 271-72 (Tex.2006). Although the Texas legislature has
decided that constructive fraud should no longer result in the same remedy, the
elaboration of what constitutes constructive fraud by Texas courts should not
have been disturbed by this legislative action. This is also why constructive
fraud cases from other areas of the law, like domestic relations, are useful
elaborations of the concept. Constructive fraud as a concept, like many of the
broad remedies of equity, can be found in diverse substantive fields of law.

FN27. Klein, 772 S.W.2d at 175.

FN28. Id. at 176.

FN29. See El Paso Natural Gas Co. v. Minco Oil & Gas, Inc.,
8 S.W.3d 309, 312-13 (Tex.1999).

FN30. See In re Grimland, Inc., 243 F.3d 228, 234 (5th
Cir.2001) ( "[T]he bankruptcy court is a court of equity and it must undertake
an analysis of equitable considerations."); In re AWECO, Inc., 725 F.2d 293, 300
(5th Cir.1984) ("Equitable considerations should be preeminent in the exercise
of bankruptcy jurisdiction.").

FN31. In a related context, we recently said: Exempting all
money traceable to a [whole-life insurance policy, exempt under section 1108.51
of the Texas Insurance Code] would allow people to use such policies merely to
avoid creditors. People could place their money in a whole-life policy ....
Sometime later-presumably even after only a few days-they could withdraw some of
the money, or even all of it, forever shielding the money from creditors. That
can't be the law. Less insidiously, someone desiring to have a whole-life policy
actually for insurance reasons nonetheless could put her extra money into the
policy simply to shield it from creditors. That also can't be the law. In re
Trautman, 496 F.3d 366, 370 (5th Cir.2007). Similarly, it surely cannot be the
law here that whether in an effort to "maximize the debtors' exemptions" or to
prevent litigation of their share of a possibly disputed inheritance that the
debtors are permitted to shield all but $340 from their creditors. "We certainly
have no quarrel with [the] contention that the federal courts should bend every
effort to prevent the bankruptcy statutes from being used as a cloak for fraud."
Piedmont Ice & Coal Co. v. Am. Serv. Co., 130 F.2d 78, 80 (4th Cir.1942).

FN32. 757 S.W.2d 794, 797-98 (Tex.App.-Dallas 1988, writ
denied), disapproved of on other grounds by Donwerth v. Preston II
Chrysler-Dodge, Inc., 775 S.W.2d 634 (Tex.1989).

FN33. Id. at 798; see id. at 797 . ("[T]he [Texas] [S]upreme
[C]ourt upheld a finding of constructive fraud when a contract debtor
manipulated corporate assets so that a contract creditor's claim could be not be
satisfied out of corporate assets." (citing Castleberry v. Branscum, 721 S.W.2d
270 (Tex.1986), superceded by statute on other grounds, TEX. BUS. CORP. ACT art.
2.21(A)(2) (Vernon 2007))).