Article

Note: To appeal a judgment against it in the U.S. Federal courts in Texas, Access Healthsource, Inc. (Applicant) posted an LC issued by Chase Bank (Issuer) in the amount of US$1,200,000 in favor of Tamarack Capital LLC and Tamarack Insurance LLC (Beneficiaries). The sole owner of Beneficiaries was Richard Ross (Owner).

In a separate action, Owner was sued by shareholders of Applicant (Shareholders) in the Texas state courts for common law and statutory fraud. When Owner failed to respond, Shareholders obtained a default judgment against Owner, which they sought to enforce in the Arizona state courts. The Arizona court ruled that the Texas judgment was void for improper service of process. Shareholders refiled their claims in an action currently pending in the Texas state courts. Eight of Shareholders assigned their claims to Applicant.

To obtain control of the LC held by Beneficiaries, Applicant filed a motion requesting the Texas state courts to enforce the earlier Texas judgment. Applicant requested that Owner be compelled to surrender his stock in Beneficiaries, and the Texas court so ordered. Owner appealed, citing the Arizona court's reasoning with regard to the first Texas case in which Owner was defendant. Owner also argued that the Arizona court order vacating the original Texas judgment was entitled to full faith and credit in the Texas courts under the U.S. Constitution. The Texas Court of Appeals rejected this defense, ruling that the trial court order could not be attacked collaterally in this fashion. The court also rejected Owner's claim that the Arizona ruling voided the Texas court judgment for the purpose of enforcement in Texas.

Despite this order, Owner failed to surrender his stock in Beneficiaries. Applicant subsequently filed a new motion against Owner for turnover relief, claiming that, as sole owner of Beneficiaries, Owner controlled the LC issued for Beneficiaries. Applicant requested an order that Owner and Beneficiaries turn over the LC and that Issuer turn over any proceeds of the LC.

The County Court at Law No. 7 of El Paso County, Texas, Baca, J., found that Owner's actions "indicated an intent to avoid payment" of the previous judgment against him. The court ordered Owner to turn over the LC and ordered Issuer to turn over the proceeds from the LC if payment was demanded. On appeal by Owner, the court affirmed this order. Issuer complied with the order, and Applicant assigned its interest in this judgment to the National Center for Employment of the Disabled (Appellee).

On appeal, the Court of Appeals for the Eighth District of Texas, Barajas, CJ., McClure and Chew, JJ., affirmed. The appellate court stated:

Efforts to obtain the stock certificates [in Beneficiaries] through a turnover order had previously failed. Efforts to depose [Owner] had failed. Efforts to enforce the judgment in Arizona had failed. Contempt orders and sanctions proved equally unsuccessful. We find no abuse of discretion in the trial court's conclusion that the [LC] could not be secured by ordinary legal process.

[JEB/dgd]

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