Opinion
No. 4:04-CV-868-A.
February 14, 2005
MEMORANDUM OPINION
I. Nature of Action and Procedural History
In this garnishment action, the garnishee, Charles Schwab Company, Inc., answered that it has custody and possession of property in which Tommy E. Ingram, the debtor-in-garnishment, ("Mr. Ingram") maintains an interest, in the form of a brokerage account in the names of Mr. Ingram and Brenda Lou Ingram ("Mrs. Ingram") containing as of December 15, 2004, securities valued at $68,529.56 and cash in the amount of $3,956.12, for a total value on December 15 of $72,485.68 ("Schwab account"). Mr. and Mrs. Ingram responded that the "source of the entire corpus of the Schwab account is money received by [Mrs.] Ingram from her parents [sic] estate and thus was and still is her separate property." Resp. at 1. The government alleged in the writ of garnishment that plaintiff, United States of America, holds a judgment against Mr. Ingram on which a balance of $12,082,472.88 remained due and owing when the garnishment action was filed. The Ingrams did not contest the existence or amount of the indebtedness alleged by plaintiff, nor do they contend that the assets in the Schwab account should not be received by the government in part payment of Mr. Ingram's debt if the assets are part of the community estate of Mr. and Mrs. Ingram.
On January 13, 2005, a hearing was held on the issue raised by the Ingrams' response, i.e., whether the corpus of the Schwab account is Mrs. Ingram's separate property. Mrs. Ingram testified, and thirteen exhibits offered by defendants were received as evidence. On January 20, 2005, the Ingrams moved to supplement the record with additional exhibits. The court granted leave to supplement the record, and the additional exhibits are considered to be part of the record of the hearing.
The court is denying a motion Mrs. Ingram filed February 1, 2005, to reopen proceedings, for additional hearing, and for second supplement to the record, and a motion the Ingrams filed February 10, 2005, to supplement the record.
II. Summary of Evidence
Mrs. Ingram is the wife of Mr. Ingram. Her father, Otto Copeland, died February 18, 1996, and her mother, Lottie Copeland, died February 19, 1996. Mrs. Ingram identified Defendant's Exhibit 1 as a copy of a cashier's check that was sent to her "in connection with the closure of [her] parents' estate." Tr. at 6. The check is dated November 15, 1996, is in the amount of $66,541.37, shows that the purchaser of the check from BankFirst of McAllister, Oklahoma, was Lottie Copeland Trust, and is payable to Mrs. Ingram ("Lottie Copeland Trust check"). The reverse side of the check shows that it was deposited to an account the Ingrams had at the Educational Employees Credit Union.The exhibits include copies of monthly statements of the credit union account for the months November 1996, January through December 1997, and January 1998. Each of the monthly statements shows beginning and ending balances of savings and checking accounts carried by the Ingrams with the credit union and itemizations of transactions occurring during the month on each of the accounts. The November 1 to November 30, 1996, statement shows a deposit of $65,041.37 to the credit union savings account on November 18, 1996. This deposit represents the $66,541.37 amount of the Lottie Copeland Trust check, less $1,500.00 that at the same time was deposited to the credit union checking account of the Ingrams.
No explanation has been given for the absence of a statement for the month of December 1996.
The forms of the December 1997 and January 1998 statements differ from the forms of all of the earlier statements; and, the latter statements are addressed to Mr. Ingram while all of the earlier statements were addressed to Mr. and Mrs. Ingram. Also, while the latter statements indicate that Mr. Ingram is the account holder, they have the name of Mrs. Ingram in the sub-headings over the listings of the balances and transactions for the checking and savings accounts. There was no explanation for the change in form of the statements.
At the time of the $65,041.37 deposit to the savings account on November 18, 1996, the balance in the account was $16,006.06, creating a balance after deposit of $81,047.43. The lowest the balance, shown on the exhibits, of the credit union savings account reached from November 1, 1996, to December 15, 1997 (when there was a withdrawal of $50,000.00 from the savings account), was $64,828.89, which was the balance on February 26, 1997. The debits and credits, shown by the exhibits, to the savings account between the dates when the $65,041.37 deposit was made in November 1996 and a $50,000.00 withdrawal was made on December 15, 1997, are as follows:
Date of Transaction Amount Credited/Debited
11/22/96 $ 2,000.00 Debit 11/27/96 $ 7,500.00 Debit (No evidence supplied of December 1996 transactions.) 1/1/97 $ 342.93 Credit 1/17/97 $ 1,200.00 Debit 1/31/97 $ 846.10 Credit 2/7/97 $ 1,600.00 Debit 2/19/97 $ 64.93 Debit 2/20/97 $ 42.64 Debit 2/26/97 $ 4,000.00 Debit 3/10/97 $ 4,675.69 Credit 3/14/97 $ 1,500.00 Debit 3/14/97 $ 400.00 Debit 3/19/97 $ 13,000.00 Credit 3/24/97 $ 1,000.00 Debit 3/31/97 $ 521.92 Credit 4/8/97 $ 5,000.00 Debit 4/22/97 $ 1,582.89 Credit 5/8/97 $ 500.00 Debit 5/23/97 $ 5,633.95 Credit 6/30/97 $ 589.73 Credit 7/3/97 $ 4,000.00 Debit 7/23/97 $ 123.98 Debit 7/24/97 $ 0.03 Debit 9/24/97 $ 89.67 Debit 9/30/97 $ 592.98 Credit 11/30/97 $ 335.14 Credit ________ __________________ Total Credits: $ 28,121.33 Total Debits: $ 29,021.25
Mrs. Ingram identified Defendant's Exhibit 3 as a copy of a check in the amount of $50,000.00, dated December 11, 1997, made payable to Charles Schwab Investments, drawn on the checking account of the Ingrams at the credit union. The check is signed by Mr. Ingram. Mrs. Ingram said that she directed him to write the check. She said that she had decided that she wanted to invest a portion of the $65,000.00, and that "[d]uring that period of time," Tr. at 9, the $65,000.00 was in the savings account. The statement for December 1997 on the credit union account shows a $50,000.00 transfer from the savings account to the checking account on December 15. Mrs. Ingram said that she is the one who made the transfer.
She said that Defendant's Exhibit 4, which is dated December 15, 1997, shows "the start-up of [her Schwab] account with the infusion of $50,400.00 into that account." Tr. at 10. According to her, the $400.00 shown on the exhibit represents "John Hancock funds that [were] part of [her] inheritance, also, with some stock that [her] parents had left [her]." Id. She added that she is "claiming that that money that came to her by gift, whether it was 65,000 or $400, was [her] separate property." Id. at 10-11. The transfer of $50,000.00 from the savings account left a balance in that account of $29,207.51. The deposit of the $50,000.00 to the checking account caused it to have a balance of $53,635.78. Defendant's Exhibit 6 shows that the Defendant's Exhibit 3 $50,000.00 check was paid from the credit union checking account on December 17, 1997, leaving a balance of $1,049.19 in the checking account.
Defendant's Exhibit 4 indicates that Mrs. Ingram was in error when she said that the $400.00 shown on the exhibit was her money. The exhibit seems to show on its face that the $400.00 was a cash deposit being made to an account entirely separate from the account the Ingrams were opening with Schwab.
Defendant's Exhibit 2 was identified by Mrs. Ingram as the application of the Ingrams pursuant to which the Schwab account came into existence. It bears the signatures of Mr. and Mrs. Ingram as account holders, and shows that the application was signed on November 15, 1997. The body of the application shows Mrs. Ingram as the account holder and Mr. Ingram as the joint account holder.
Defendant's Exhibit 9 was identified by Mrs. Ingram as a record of a distribution made from the Schwab account in April 2004 of approximately $8,800.00 for use by Mr. and Mrs. Ingram in payment of their income tax. She said that no other distribution was made out of the Schwab account between the date "it was started up," Tr. at 14, and the date of the distribution reflected by Defendant's Exhibit 9. Mrs. Ingram said that she is not aware of dividends having been paid from time to time on the Schwab investments. She received additional contributions of separate property through inheritance from her parents, probably in the amount of $15,000.00; and, that money "would have probably gone into the savings, also." Tr. at 27.
No statements of the Schwab account were provided as exhibits. The record is silent as to activity in the account after the April 2004 withdrawal.
One of the exhibits added to the record by reason of the court's order allowing supplementation of the record is what appears to be a conformed copy of an order signed by the judge of the District Court of Pittsburg County, Oklahoma, in a proceeding involving the estates of Mrs. Ingram's parents. Mot. to Supplement, Ex. 2. The order is dated October 29, 1996, and gives notice of a hearing to be held on November 19, 1996, on a final accounting of the estates and a petition for determination of heirs, for distribution of the estates, and for final discharge of the personal representatives of the estates.
Mrs. Ingram identified Defendant's Exhibit 11 as pertaining to part of her inheritance from her parents. The exhibit appears to show a transfer in the registration of 461.7430 shares of the John Hancock Government Income Fund Class B ("John Hancock Fund") from "Otto Copeland Lottie V. Copeland JT TEN" to Mrs. Ingram on October 25 (no year specified). Mrs. Ingram said that the transfer of the John Hancock Fund to her was part of the inheritance from her parents. She said that Defendant's Exhibit 13 shows $4,237.08 that "came from John Hancock." Id. at 15. Mrs. Ingram said that Defendant's Exhibit 12 shows a deposit to the Schwab account of $4,237.08 that came from the "John Hancock funds," id., which she said were her separate funds received by inheritance. The date of deposit shown on Defendant's Exhibit 12 is January 15, 1998.
The record does not make clear the relationship between the shares of the John Hancock Fund shown on Defendant's Exhibit 11 and the $4,237.08 amount shown on Defendant's Exhibit 13.
According to Mrs. Ingram, at no time did she and her husband consider the money in the Schwab account to be anything other than her separate property. According to her, she never took any steps to have any document prepared converting the character of her separate property into community property. She said that Mr. Ingram never withdrew any money from the Schwab account, or told her that she needed to withdraw money from the account. Mrs. Ingram said that the growth in the Schwab account since it was opened is attributable to the increase in the value of the stocks contained in the account. She testified that there is nothing in the Schwab account other than stocks traded in the stock market.
III. Analysis
The Schwab account is presumed to be community property of Mr. and Mrs. Ingram, as were the credit union savings and checking accounts, and the Lottie Copeland Trust check. See Tex. Fam. Code Ann. § 3.003(a) (Vernon 1998) (providing that "[p]roperty possessed by either spouse during . . . marriage is presumed to be community property"). The burden imposed by the law on the Ingrams if they are to overcome that presumption is to establish by clear and convincing evidence that the property in question is separate property of Mrs. Ingram. Id. § 3.003(b) (saying that "[t]he degree of proof necessary to establish that property is separate property is clear and convincing evidence"). "`Clear and convincing evidence' means the measure or degree of proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established." Tex. Fam. Code Ann. § 101.007 (Vernon 2002). The clear and convincing evidence standard falls between the preponderance of the evidence standard of most civil proceedings and the reasonable doubt standard of criminal proceedings. In re G.M., 596 S.W.2d 846, 847 (Tex. 1980)."A spouse's separate property consists of . . . the property acquired by the spouse during marriage by gift, devise, or descent . . ." Tex. Fam. Code Ann. § 3.001(2) (Vernon 1998). The character of the property, community or separate, is determined at the time the right to own or claim to property arises. See Boyd v. Boyd, 131 S.W.3d 605, 612 (Tex.App.-Fort Worth 2004, no pet.). The Ingrams maintain that all or some part of the assets in the Schwab account are Mrs. Ingram's separate property because, they contend, the $50,000.00 payment by which the account was opened is traceable back to the $65,041.37 deposit to the savings account on November 15, 1996, by use of the Lottie Copeland Trust check, which, the Ingrams contend, was received by Mrs. Ingram as inheritance from her parents.
Consistent with the presumption that all property possessed by either spouse during marriage is community property, the party asserting that property possessed by one of the spouses is that spouse's separate property must, in addition to establishing a separate property origin, "clearly trace the original separate property into the particular assets on hand during the marriage."Cockerham v. Cockerham, 527 S.W.2d 162, 167 (Tex. 1975). "[A]s a general rule, mere testimony that property was purchased with separate funds, without any tracing of the funds, is insufficient to rebut the community presumption." Boyd, 131 S.W.3d at 612. "Any doubt as to the character of property should be resolved in favor of the community estate," id., particularly when the parties who are seeking to overcome the presumption have superior access to the documentation that would eliminate at each stage of the tracing process any uncertainty as to the character of the property as it exists at that stage.
The starting point in an evaluation of the merits of the tracing claim of the Ingrams is a determination of whether the Ingrams have established by clear and convincing evidence that the funds represented by the Lottie Copeland Trust check were Mrs. Ingram's separate property, i.e., whether the check represented funds she acquired by gift, devise, or descent. No documentation has been provided that would explain in a clear and convincing manner the source of the funds represented by the check. Rather, the only document pertaining to distribution of assets from the estates of the parents of Mrs. Ingram would suggest that Mrs. Ingram is incorrect when she says that the Lottie Copeland Trust check was sent to her in connection with the closure of her parents' estates. The probate court order pertaining to closure of her parents' estates shows that the hearing for determination of the heirs of the estates and leading to distribution of the estates was scheduled to be conducted November 19, 1996. Mot. to Supplement R., Ex. 2. As previously noted, the Lottie Copeland Trust check shows on its face that it was purchased before that date, on November 15, 1996, and that the funds for its purchase came from a trust rather than an estate. Thus, the documentation leads the court into the realm of speculation on the first issue raised by the tracing contention of the Ingrams.
While the court is inclined to think that the funds represented by the Lottie Copeland Trust check probably had something to do with Mrs. Ingram's inheritance from her parents, the source of the funds represented by the check has not been established by clear and convincing evidence. The court is unwilling to accept the mere testimony of Mrs. Ingram as establishing that the funds were her separate property. The Ingrams, as the parties seeking to overcome the presumption that the funds were the community property of the Ingrams, presumably had superior access to the documentation that would eliminate any doubt as to the character of the funds. Their failure to produce clear documentation on that subject, or to offer an explanation why they did not, does not serve them well in their argument that the funds were the separate property of Mrs. Ingram.
The court does not need to treat separately in this opinion the statement by Mrs. Ingram that she received additional distributions of separate property through inheritance from her parents, the amount of which she could not recall, but which probably were in excess of $15,000.00 and "would have probably gone into the savings, also." Tr. at 27. Mrs. Ingram's testimony on that subject is so indefinite that it has no probative effect on the issues before the court.
Even if the court were to assume, arguendo, that the funds represented by the Lottie Copeland Trust check constituted separate property of Mrs. Ingram, the Ingrams have not carried their burden to trace those funds to the Schwab account as it existed at the time of garnishment. The court is satisfied from the evidence that the $65,041.37 deposit made to the credit union savings account on November 18, 1996, came from the Lottie Copeland Trust check. Beyond that point, the tracing becomes clouded.
The government argues that when the $65,041.37 was deposited to the savings account carried in the name of both spouses, Texas law presumes that Mrs. Ingram intended a gift of one-half of the deposit to Mr. Ingram as his separate property. Gov't's Resp. to Def.'s Mem. at 11-12; see also In re Marriage of Royal, 107 S.W.3d 846, 851 (Tex.App.-Amarillo 3003, no pet.) (citingCockerham v. Cockerham, 527 S.W.2d 162, 168 (Tex. 1975)). Texas law is uncertain on that subject as applied to bank accounts.Compare In re Marriage of Case, 28 S.W.3d 154, 158-59 (Tex.App.-Texarkana 2000, no pet.) (suggesting that the gift presumption would apply to a deposit into a joint certificate of deposit were it not for provisions of the Texas Probate Code, but holding that application of the presumption was barred by the Texas Probate Code) with Celso v. Celso, 864 S.W.2d 652, 655 (Tex.App.-Tyler 1993, no writ) (holding that a spouse who makes a deposit to a joint banking account does not make a gift to the other spouse).
Were applicability of the Texas Probate Code to the credit union savings account to be a decisive issue in this case, the court probably would require further briefing on that subject. The court's tentative conclusion is that the record would not support a determination that the credit union savings account was a "joint account" within the meaning of section 436(4) of the Texas Probate Code.
Moreover, even if all or some part of the $65,041.37 deposit made to the credit union savings account on November 18, 1996, was separate property of Mrs. Ingram, the court would be faced with the proposition that there was a commingling of that property with community property. Generally speaking, when there is a commingling of community and separate funds, the separate property loses its character as such. Goodridge v. Goodridge, 591 S.W.2d 571, 573 (Tex.Civ.App.-Dallas 1979, writ dism'd). The Ingrams seek to overcome the commingling problem by reliance on Texas case authority that, where there has been a commingling in an account, there is a presumption in a divorce proceeding that withdrawals from the account are of community funds so long as there are sufficient community funds to cover the withdrawals ("community-out-first"). The leading court decision applying this presumption is Sibley v. Sibley in which a Texas intermediate appellate court explained the reasons for such a presumption as follows:
The presumption is that where funds are commingled so as to prevent their proper identity as separate or community funds, they must be held to be community funds. However, there are exceptions to the rule or presumption. In divorce proceedings our courts have found no difficulty in following separate funds through bank accounts. Equity impresses a resulting trust on such funds in favor of the wife and where a trustee draws checks on a fund in which trust funds are mingled with those of the trustee, the trustee is presumed to have checked out his own money first, and is therefore an exception to the general rule.286 S.W.2d 657, 659 (Tex.Civ.App.-Dallas 1955, writ dism'd) (citations omitted).
The government counters the reliance by the Ingrams on Sibley and its progeny with an argument that the rule announced in Sibley does not apply in a case such as this where the litigation is between the spouses, on the one hand, and a third party, on the other. The government would reason that there is no basis for application of the Sibley rule here because the person making the separate property claim is the person responsible for the withdrawal from the account. A recent opinion of an intermediate appellate court of Texas noted that "a blind application of the community-out-first presumption does not uphold the policy reason for the presumption's original application." Smith v. Smith, 22 S.W.3d 140, 147 n. 5 (Tex.App.-Houston [14th Dist.] 2000, no pet.). Nevertheless, the Texas court applied the presumption "because it seems to be established law." Id.
Other Texas intermediate court opinions that have applied the Sibley rule include Zagorski v. Zagorski, 116 S.W.3d 309, 319-20 (Tex.App.-Houston [14th Dist.] 2003, pet. denied);Smith v. Smith, 22 S.W.3d 140, 146-47 (Tex.App.-Houston [14th Dist.] 2000, no pet.); Welder v. Welder, 794 S.W.2d 420, 433 (Tex.App.-Corpus Christi 1990, no writ); Harris v. Ventura, 582 S.W.2d 853, 855-56 (Tex.Civ.App.-Beaumont 1979, no writ).
Commentators have criticized the blind application of the community-out-first presumption by Texas courts of appeals.See, e.g., Stewart W. Gagnon Christina H. Patierno,Reimbursement and Tracing: The Bread and Butter to a Gourmet Family Law Property Case, 49 Baylor L.Rev. 323, 383-88 (1997); Oliver S. Heard, Jr., Richard A. Strieber, Richard R. Orsinger,Characterization of Marital Property, 39 Baylor L.Rev. 909, 924-25 (1987). A strong argument can be made, based on McKinley v. McKinley, 496 S.W.2d 540 (Tex. 1973), that the presumption would be rejected by the Texas Supreme Court. Gagnon, supra, at 386. In McKinley, the court held that all of a commingled amount of funds were community property, because "[t]he only evidence with regard to those monies is the account sheet from the bank and it is wholly inconclusive as to the nature of funds deposited or withdrawn." Id. at 387 (quoting McKinley, 496 S.W.2d at 543-44). Despite the fact that McKinley was decided well after Sibley and other cases had applied the community-out-first presumption, the Texas Supreme Court did not apply such a presumption to find that some amount must have been separate property. Id. The court is not going to devote more attention to the community-out-first presumption because, in the final analysis, an application of the presumption would not change the outcome. However, the court does note a concern whether the presumption should be applied in a case such as this.
For the sake of further analysis, the court now is making two assumptions, arguendo. First, the court assumes that the funds represented by the Lottie Copeland Trust check constituted separate property of Mrs. Ingram; and, second, the court assumes that the Ingrams have traced all or some part of the $50,000.00 withdrawn from the credit union savings account on December 15, 1997, back to the funds that were deposited to the savings account by use of the Lottie Copeland Trust check in November 1996. The court is satisfied from the evidence that the $50,000.00 taken from the savings account on December 15, 1997, is the same $50,000.00 that was transferred from the savings account on that date. And, the court is satisfied that the same $50,000.00 is traceable as the investment made by the Ingrams into the Schwab account on December 15, 1997. However, the Ingrams do not significantly advance their tracing theory by those facts.
The Ingrams are again faced with the presumption that the investment by a spouse of her of separate property funds into an asset carried in the names of both spouses creates a gift to the other spouse of one-half of the separate funds thus invested.See In re Marriage of Royal, 107 S.W.3d at 851. The court is not willing to accept the testimony of Mrs. Ingram as sufficient to overcome that presumption as it applies to the $50,000.00 investment into the Schwab account. When the existence of Mr. Ingram's separate property in the Schwab account is added to the mix, the possibility of tracing becomes more remote.
Perhaps of greater significance, the court notes that the Ingrams have not provided documentary evidence of the status of the Schwab account (such as statements showing activity on the Schwab account or the balance of the account from time to time). Rather, the court has been asked to rely exclusively on the verbal statements of Mrs. Ingram. The court cannot accept that testimony as clear and convincing evidence overcoming the community presumption. The Ingrams simply have failed to meet their burden, for, as explained by an intermediate appellate court of Texas in Zagorski v. Zagorski, "the party attempting to overcome the community presumption must produce clear evidence of the transactions affecting the commingled account." 116 S.W.3d 309, 320 (Tex.App.-Houston [14th Dist.] 2003, pet. denied);see also Boyd, 131 S.W.3d at 614 (noting that a spouse's uncorroborated testimony is sufficient to fill in minor gaps in the record, but holding that such testimony was insufficient to provide clear and convincing evidence absent supporting documents). There is no question that, even applying the community-out-first presumption, the Schwab account consists of commingled funds, as at least some portion of the $50,000 transferred to the Schwab account was community property, Def.'s Mem. at 3-4. Further commingling would have occurred if any of the increase of the account resulted from income rather than capital gains. The Ingrams have failed to provide clear evidence of the transactions affecting the Schwab account.
The only documentary evidence provided concerning status of investments, and transactions, in the Schwab account during its six-year existence were the December 15, 1997, item showing the opening of the account, the item showing a withdrawal of the principal amount of $8,827.00 from the account in April 2004, the item dated January 15, 1998, showing a deposit of $4,237.08 to the account, and an item dated January 16, 1998, that apparently shows basically the same transaction that is shown by the January 15, 1998, item.
There is no need for the court separately to discuss the testimony, and exhibits, pertaining to the investment of $4,237.08 into the Schwab account on January 15, 1998.
For the reasons given above, the court cannot find that the presumption that the contents of the Schwab account is community property of the Ingrams has been overcome as to any part of the account by clear and convincing evidence that all or a part of the assets in the account constitute the separate property of Mrs. Ingram. Therefore, the assets in the account are deemed to be the community property of Mr. and Mrs. Ingram, subject to being applied in payment of the judgment indebtedness owed by Mr. Ingram to the United States. Accordingly, judgment is being rendered directing the garnishee, Charles Schwab Company, Inc., also known as Charles Schwab Investments, to liquidate the Schwab account and to pay to United States of America the entire amount of the account for application by the United States on the amount owed to her by Mr. Ingram on the judgment against Mr. Ingram in the amount of $12,500,200.00 in No. 4:04-CR-046-A on the docket of this court.