     Case: 13-10171    Document: 00512658708     Page: 1   Date Filed: 06/10/2014




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT    United States Court of Appeals
                                                   Fifth Circuit

                                                                        FILED
                                                                     June 10, 2014
                                  No. 13-10171
                                                                     Lyle W. Cayce
                                                                          Clerk
GE CAPITAL COMMERCIAL, INCORPORATED; GENERAL ELECTRIC
CAPITAL CORPORATION; GE CAPITAL FINANCIAL, INCORPORATED,

                                            Plaintiffs - Appellees
v.

WORTHINGTON NATIONAL BANK,

                                            Defendant - Appellant




                 Appeal from the United States District Court
                      for the Northern District of Texas


Before JOLLY, GARZA, and HIGGINSON, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
      GE Capital Commercial, Inc., General Electric Capital Corporation, and
GE Capital Financial, Inc. (collectively “GE Plaintiffs”), sued Worthington
National Bank (“Worthington”) under the Texas Uniform Fraudulent Transfer
Act (“TUFTA”). The GE Plaintiffs sought to void transfers that Worthington
received from the GE Plaintiffs’ predecessor-in-interest, allegedly with notice
of the transfers’ fraudulent nature. The jury found in favor of the GE Plaintiffs,
and the district court entered judgment for the amount of the transfers. On
appeal, Worthington contends that either TUFTA or the common-law one-
satisfaction rule entitles it to a settlement credit for the GE Plaintiffs’ prior
settlement with a non-defendant, and that the district court erred in
     Case: 13-10171        Document: 00512658708          Page: 2     Date Filed: 06/10/2014



                                        No. 13-10171
construing TUFTA’s “good faith” defense as an objective, rather than
subjective, standard in its jury instructions and evidentiary rulings.                      We
affirm.
                                               I
       In 2006, David Ashley Wright (“Wright”) and Justin Prather (“Prather”)
applied for a line of credit from Worthington, on behalf of Wright’s company
Wright & Wright, Inc. (“Wright & Wright”).                  When applying, Wright and
Prather represented to Worthington that the company brokered heavy
equipment on a nationwide scale and enjoyed extraordinary revenue growth.
Worthington failed to verify Wright & Wright’s representations. 1 Nonetheless,
the following year, the bank extended a line of credit to Wright & Wright in
the amount of $2.5 million.
       Months later, Worthington employees noticed suspicious activity
involving Wright & Wright’s accounts, including numerous wire transfers into
Prather’s personal account and cash withdrawals by Wright. After initially
flagging Wright & Wright’s accounts for risks of money laundering,
Worthington employees later concluded that nothing was amiss after Wright
explained that the company’s investors preferred to be compensated in cash.
Although the frequency of transfers subsequently increased, Worthington took
minimal action.
       By three wire transfers in July 2008, CitiCapital Commercial
Corporation (“CitiCapital”), then a subsidiary of Citibank, N.A. (“Citibank”),
wired a total of $2,471,330 to Wright & Wright’s checking account at
Worthington to pay off the balance of the loan. A month after receiving those
transfers, Worthington closed Wright & Wright’s accounts.


       1 Because the jury found in favor of the GE Plaintiffs, and because Worthington does
not contest the jury’s factual findings, we present the facts in the light most favorable to that
verdict. See Brown v. Sudduth, 675 F.3d 472, 477 (5th Cir. 2012).
                                               2
    Case: 13-10171     Document: 00512658708      Page: 3   Date Filed: 06/10/2014



                                  No. 13-10171
      CitiCapital was then acquired from Citibank by various GE entities
under a Purchase and Sale Agreement.             The GE entities subsequently
investigated the three wire transfers and concluded that Prather, then an
employee of CitiCapital, had fraudulently appropriated funds from CitiCapital
to repay Wright & Wright’s loan. In total, Prather ultimately induced his
employers CitiCapital and, later, GE Capital to transfer $12.5 million to
various bank accounts, including the $2.5 million transferred to Worthington.
      In April 2009, the GE Plaintiffs sent a Notice of Claim and Demand to
Citibank. The Notice sought three remedies under the Purchase and Sale
Agreement—a purchase price adjustment, indemnification for breaches of the
Purchase and Sale Agreement, and indemnification from later claims by other
parties. In explaining the purchase price adjustment, the Notice contended
that “[b]ased on GE’s review to date, the damage and lost value caused by the
Fraud Scheme to the Business and Portfolio Assets was no less than
$12,500,000.” In summarizing the amount of the claim, the Notice explained:
“GE currently estimates that it has suffered and incurred losses in the amount
of at least $12,500,000 in respect of the Employee Fraud Scheme and the
Fraudulent Documents, as well as substantial costs and fees to investigate the
Employee Fraud Scheme, assess and modify business processes and systems,
mitigate damages and recover losses.”
      In June 2009, the GE Plaintiffs named Worthington as a defendant in a
lawsuit that they had initiated in the district court as successors-in-interest to
CitiCapital. The GE Plaintiffs alleged that the bank had accepted the wire
transfers “in bad faith or with willful ignorance as to the fraudulent nature of
the fraudulent conduct,” in violation of TUFTA, and sought to void the
transfers and recover the funds. Second Amended Complaint at ¶ 43. In
response, Worthington pleaded numerous affirmative defenses, including that


                                        3
    Case: 13-10171      Document: 00512658708        Page: 4    Date Filed: 06/10/2014



                                    No. 13-10171
it had accepted the transfers in good faith under TUFTA. Tex. Bus. & Comm.
Code § 24.009(a); Answer at ¶ 129.
      Months later, the GE Plaintiffs and Citibank settled their dispute.
Under the terms of the Settlement Agreement, the GE Plaintiffs and Citibank
aimed “to settle, compromise, resolve amicably and discontinue . . . their
dispute under [the Purchase and Sale Agreement] arising out of, relating to or
in connection with” the allegedly fraudulent transfers and ongoing lawsuit
involving Worthington.       Settlement Agreement at ¶ G (“Recitals”). They
further agreed to a mutual release from all liability under the Purchase and
Sale Agreement or relating to the fraudulent transfers at issue in the lawsuit.
Id. at ¶¶ 2, 3. Under the Settlement Agreement, Citi paid the GE Plaintiffs an
amount that exceeded $2.5 million, the total amount of the transfers to
Worthington.
      Meanwhile, the GE Plaintiffs’ suit against Worthington proceeded
toward trial. During a pretrial conference, the GE Plaintiffs and Worthington
agreed to stipulate to the dates and amounts of every settlement related to the
dispute. They further agreed that settlement-related issues would not go to
the jury and would be addressed post-verdict to determine the availability of a
settlement credit. Accordingly, in a pretrial order, the district court denied as
moot the GE Plaintiffs’ request to exclude all evidence, statements, or
arguments regarding the GE Plaintiffs’ settlements with third parties. In the
same order, the district court reiterated its prior determination that an
objective standard of the “good faith” defense applies and, over Worthington’s
objection, allowed the GE Plaintiffs to introduce evidence that Worthington
“should have known” of the fraudulent nature of the transfers. 2



      2   On the same basis that the “good faith” defense was an objective standard, the
district court had earlier denied Worthington’s motion for summary judgment that argued,
                                           4
     Case: 13-10171       Document: 00512658708         Page: 5     Date Filed: 06/10/2014



                                       No. 13-10171
       At trial, the parties disputed whether Worthington accepted the
transfers from Wright & Wright in “good faith” under TUFTA.                        The GE
Plaintiffs’ expert testified that Worthington’s loan review process deviated
from industry standards and that the bank knew of facts that put it on notice
that the transfers were likely fraudulent. The district court instructed the jury
as follows:
              To establish that it acted in good faith, Worthington
              must prove by a preponderance of the evidence that it
              lacked actual and constructive knowledge of the
              debtor’s fraud. Actual knowledge is what one actually
              knows, and constructive knowledge means facts or
              circumstances that excite the suspicions of a person of
              ordinary prudence under the same or similar
              circumstances and put him on inquiry of the
              fraudulent transfer. Stated another way, you may not
              find that Worthington acted in good faith if the
              evidence shows that it had actual or constructive
              knowledge of a fraudulent transfer.

The jury ultimately found that the GE Plaintiffs had proven by a
preponderance of the evidence that Wright & Wright transferred the $2.5
million to Worthington with the intent to hinder, delay, or defraud GE Capital,
and that Worthington failed to prove that it accepted the transfers in good
faith. 3
       Following the verdict, the district court ordered the GE Plaintiffs to
provide Worthington with copies of all relevant settlement agreements.
Subsequently, the GE Plaintiffs disclosed the Settlement Agreement.


among other things, that the GE Plaintiffs could not overcome Worthington’s evidence of its
subjective good faith.
       3 Additionally, the jury found that Worthington failed to prove that the GE Plaintiffs’

conduct in connection with the transfers was unconscientious, unjust, or inequitable; that
Worthington was seriously harmed by the GE Plaintiffs’ conduct; that it was entitled to the
defense of equitable estoppel; or that its own conduct was not unconscientious, unjust, or
inequitable.
                                              5
      Case: 13-10171        Document: 00512658708          Page: 6    Date Filed: 06/10/2014



                                         No. 13-10171
Worthington then moved for a mistrial and requested a settlement credit on
the grounds that the settlement proceeds received from Citibank exceeded the
amount of the judgment. The district court denied Worthington’s requests and
voided the three transfers. 4 This appeal followed.
                                               II
       We review a district court’s conclusions of law concerning the calculation
of a settlement credit de novo. See Davis v. Odeco, Inc., 18 F.3d 1237, 1245
(5th Cir. 1994). Likewise, when “a jury instruction hinges on a question of
statutory construction, this court’s review is de novo.” United States v. Garcia-
Gonzales, 714 F.3d 306, 312 (5th Cir. 2013) (citation omitted). We review a
district court’s evidentiary rulings for abuse of discretion. United States v.
Miller, 520 F.3d 504, 510 (5th Cir. 2008). However, “[a] trial court abuses its
discretion when its ruling is based on an erroneous view of the law,” Bocanegra
v. Vicmar Servs., Inc., 320 F.3d 581, 584 (5th Cir. 2003), and our review of legal
conclusions is plenary, Johnston & Johnston v. Conseco Life Ins. Co., 732 F.3d
555, 562 (5th Cir. 2013).
                                               III
       Worthington’s first claim is that the district court erred as a matter of
law in entering its post-verdict judgment by failing to apply a settlement credit
for   the     GE     Plaintiffs’   settlement        proceeds   received    from   Citibank.
Worthington contends that it is entitled to such credit for two reasons: First,
TUFTA limits recovery to “the amount necessary to satisfy the creditor’s
claim,” and second, Texas’s common-law one-satisfaction rule permits only one
recovery for a single injury. Below, we consider each in turn.




       4   Worthington does not appeal the denial of its motion for mistrial.
                                                6
    Case: 13-10171     Document: 00512658708      Page: 7   Date Filed: 06/10/2014



                                  No. 13-10171
                                        A
      Worthington first submits that the plain text of TUFTA mandates that
a settlement credit offset the judgment.
      The Texas Uniform Fraudulent Transfer Act (“TUFTA”) aims to prevent
debtors from fraudulently placing assets beyond the reach of creditors.
Challenger Gaming Solutions, Inc. v. Earp, 402 S.W.3d 290, 293 (Tex. App.—
Dallas 2013). TUFTA provides that a “transfer made or obligation incurred by
a debtor is fraudulent as to a creditor . . . if the debtor made the transfer or
incurred the obligation . . . with actual intent to hinder, delay, or defraud any
creditor of the debtor . . . .” Tex. Bus. & Comm. Code § 24.005(a)(1). “A
fraudulent transfer under [TUFTA] is a tort,” Challenger, 402 S.W.3d at 295,
and the defrauded creditor “may obtain . . . avoidance of the transfer or
obligation to the extent necessary to satisfy the creditor’s claim,” Tex. Bus. &
Comm. Code § 24.008(a)(1).
      Section 24.009(b) provides that to the extent a transfer is voidable under
§ 24.008(a)(1), the creditor may “recover judgment for the value of the asset
transferred . . . or the amount necessary to satisfy the creditor’s claim,
whichever is less.” Id. § 24.009(b) (emphasis added). The statute defines
“claim” as “a right to payment or property, whether or not the right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured.” Id. § 24.002(3).
Such judgment may be entered against “the first transferee of the asset . . . .”
Id. § 24.009(b)(1).
      Under Worthington’s reading of the § 24.009(b) recovery-limiting
provision, because the settlement proceeds that the GE Plaintiffs received from
Citibank exceeded the value of the fraudulent transfers at issue in the TUFTA
action, the settlement “satisf[ied] the creditor’s claim” in full. Id. § 24.009(b).


                                        7
    Case: 13-10171     Document: 00512658708       Page: 8   Date Filed: 06/10/2014



                                   No. 13-10171
That is, as the “amount necessary to satisfy the creditor’s claim” is zero, the
GE Plaintiffs cannot recover anything from Worthington. Id.
      To support its reading of § 24.009(b), Worthington contends that the GE
Plaintiffs’ two claims—their contractual claim against Citibank and their
TUFTA claim against Worthington—are actually one single “claim.”
Worthington points first to factual commonalities; both claims implicate the
same three fraudulent transfers. Second, Worthington submits that TUFTA
defines “claim” broadly as “a right to payment or property . . . .” Tex. Bus. &
Comm. Code § 24.002(3). Accordingly, by Worthington’s logic, the fact that one
claim sounds in contract and the other in tort does not give rise to two separate
“claims” for the purposes of § 24.009(b). Rather, both actions asserted an
identical “right” to the same “payment or property”—i.e., the fraudulently
transferred $2.5 million—and, therefore, the settlement proceeds from
Citibank satisfy the GE Plaintiffs’ avoidance “claim” against Worthington.
      The Texas Supreme Court has not considered whether “claim” in
§ 24.009(b) encompasses a separate legal right arising not from TUFTA, but
from the same underlying factual injury. Thus, because the law is not fully
clear, we must decide how the Texas Supreme Court would resolve the issue.
      “In making an Erie guess, we defer to intermediate state appellate court
decisions, unless convinced by other persuasive data that the highest court of
the state would decide otherwise.” See Mem’l Hermann Healthcare Sys. Inc. v.
Eurocopter Deutschland, GMBH, 524 F.3d 676, 678 (5th Cir. 2008) (citation
and internal quotations marks omitted). We are mindful that “our task is to
attempt to predict state law, not to create or modify it.” Id. (citation, alteration,
and internal quotation marks omitted).             “While the decisions of the
intermediate Texas courts of appeals provide guidance, they do not necessarily
bind us.” RSR Corp. v. Int’l Ins. Co., 612 F.3d 851, 857–58 (5th Cir. 2010). “If
the Supreme Court of Texas has not ruled on an issue before us, we must
                                         8
    Case: 13-10171    Document: 00512658708     Page: 9   Date Filed: 06/10/2014



                                 No. 13-10171
determine, to the best of our ability, what it would decide under the same
circumstances.” Id. at 858.
      We predict that the Texas Supreme Court would conclude that the term
“claim” cannot withstand such an expansive interpretation. We look first to
the statute’s text. While TUFTA defines a “claim” to include any “right to
payment or property,” Tex. Bus. & Comm. Code § 24.002(3), nowhere does the
statute reduce multiple rights arising from distinct legal theories to a single
“claim,” even where such rights arise from the same facts.          Furthermore,
“claim” must be read in the context of the specific “action” mentioned earlier in
the same provision—an action to void a transfer under § 24.008(a)(1). Tex.
Bus. & Comm. Code § 24.009(b). That is, “the amount necessary to satisfy the
creditor’s claim,” id., means strictly the amount necessary to satisfy the
creditor’s avoidance claim. Under Worthington’s reading, notwithstanding the
specific avoidance “action” referenced earlier in the provision, the word “claim”
at the end of the very same provision would take on a much broader meaning
and encompass other types of actions remedying the same factual loss—such
as the GE Plaintiffs’ contractual claim against Citibank. See Lamar Homes,
Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 19 (Tex. 2007) (“In determining
[a statute’s] meaning, we must . . . consider the statute as a whole and construe
it in a manner which harmonizes all of its various provisions.”).
      Additionally, at least one Texas court of appeals has interpreted “claim”
under § 24.009(b) to exclude claims for damages beyond the value of the
fraudulently transferred asset. In Citizens National Bank of Texas v. NXS
Construction, Inc., 387 S.W.3d 74 (Tex. Ct. App.—Houston [14th Dist.] 2012),
after NXS sued Westex Communications on a defaulted promissory note,
Westex’s president transferred company assets without informing NXS. NXS
then sued the asset transferees under TUFTA. Id. at 78–79. After the trial
court entered judgment for NXS on its TUFTA claim, the parties disputed on
                                       9
   Case: 13-10171    Document: 00512658708     Page: 10   Date Filed: 06/10/2014



                                No. 13-10171
appeal whether attorneys’ fees, court costs, and post-judgment interest were
encompassed within the amount of NXS’s “claim” under § 24.009(b). The court
of appeals held that recovery of attorneys’ fees, in addition to the amount of
the note, was permitted under § 24.009 because the fees were bargained-for
contractual damages under the terms of note itself, whose payment the
fraudulent transfers aimed to avoid. Id. at 89–91. By contrast, the court
determined that “claim” as defined in § 24.002(3) could not encompass court
costs and post-judgment interest on attorneys’ fees, which were merely
“incidental expense[s] associated with the creditor’s underlying ‘right to
payment.’” Id. at 91. NXS thus teaches that the “creditor’s underlying ‘right
to payment’” in the avoidance action circumscribes the term “claim” in
§ 24.009(b). Id.
      Here, the GE Plaintiffs’ “right to payment” against Worthington under
TUFTA does not encompass its contractual rights against Citibank under the
Purchase and Sale Agreement. Unlike the attorneys’ fees in NXS, which were
provided under the promissory note for which the debtor and creditor had
specifically bargained, here, the debtor Wright & Wright had no obligations to
the creditor CitiCapital (now GE Capital) under the Purchase and Sale
Agreement. Thus, any right that the GE Plaintiffs had under the Agreement
are “incidental” to the GE Plaintiffs’ right against Worthington under TUFTA.
Id. Put differently, Worthington’s liability for receiving fraudulent transfers
cannot, as a matter of law, include Citibank’s liability under the Purchase and
Sale Agreement.     Accordingly, the funds the GE Plaintiffs received from
Citibank in satisfaction of their contractual claim cannot count toward the
satisfaction of their TUFTA claim under § 24.009(b).
      The text of TUFTA, standing alone, does not support Worthington’s
position that the GE Plaintiffs’ “claim” has already been satisfied by the
settlement, because the “claim” at issue here is an avoidance action arising
                                      10
    Case: 13-10171        Document: 00512658708          Page: 11      Date Filed: 06/10/2014



                                        No. 13-10171
under TUFTA, distinct from the contractual claim that precipitated the
settlement.
                                               B
       Worthington also claims that, alternatively, the one-satisfaction rule
entitles it to a settlement credit for the proceeds the GE Plaintiffs received
from Citibank, because the settlement ended a contractual dispute arising in
part from the fraudulent transfers at issue in the TUFTA action.
       Texas’s one-satisfaction rule provides that “a plaintiff is entitled to only
one recovery for any damages suffered.” Crown Life Ins. Co. v. Casteel, 22
S.W.3d 378, 390 (Tex. 2000). The rule applies when “multiple defendants
commit the same act as well as when defendants commit technically different
acts that result in a single injury.” Id. Under the rule, “the nonsettling
defendant may only claim a credit based on the damages for which all
tortfeasors are jointly liable.” Id. at 391. This common-law doctrine evolved
from Texas courts’ application of the state’s original contribution statute,
which “address[ed] liability between tortfeasors” but not “the implications of a
partial settlement on contribution.” Stewart Title Guar. Co. v. Sterling, 822
S.W.2d 1, 5 (Tex. 1992); see also Tex. Civ. Prac. & Rem. Code § 32.001 et seq.
(1986) (contribution statute). 5 The policy behind the one-satisfaction rule is to



       5 The original contribution statute was one of four contribution schemes addressed by
the Supreme Court of Texas in Sterling; the others are former Tex. Civ. Prac. & Rem. Code
§ 33.001 et seq. (1986) (the comparative negligence statute), Tex. Civ. Prac. & Rem. Code
§ 33.001 et seq. (2013) (the comparative responsibility statute), and common-law contribution
by comparative causation under Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 429 (Tex.
1984). See also Ray C. Brooks, Addendum: Applicability of the Four Schemes, in A Proposed
Change to Texas Contribution and Partial Settlements Laws, 24 Tex. Tech. L. Rev. 891, 917–
920 (1993). When the comparative responsibility statute took effect on September 2, 1987, it
displaced the comparative negligence statute and the Duncan doctrine for cases involving
pure negligence, strict liability, and breach of warranty, but those prior rules applied to cases
filed before the statute’s effective date. See Sterling, 822 S.W.2d at 5; First Title Co. of Waco
v. Garrett, 860 S.W.2d 74, 78 & n.5 (Tex. 1993). Thus, for claims filed after 1987, the two
remaining operative contribution schemes are the original contribution statute, Tex. Civ.
                                              11
    Case: 13-10171        Document: 00512658708          Page: 12     Date Filed: 06/10/2014



                                       No. 13-10171
prevent a plaintiff from “receiv[ing] a windfall” where “a settling defendant has
already partially contributed” to his recovery.               First Title Co. of Waco v.
Garrett, 860 S.W.2d 74, 78 (Tex. 1993).
                                               1
       The Texas Supreme Court has not considered the applicability of the one-
satisfaction rule where a tortfeasor seeks a settlement credit based on the
settlement of a contractual dispute with a non-defendant third party involving
the same underlying factual injury. Again, we are faced with an Erie guess. 6
       The Texas Supreme Court’s one-satisfaction rule jurisprudence
illuminates two contours of the doctrine relevant to this case. First, the one-
satisfaction rule derives from tort law principles of contribution. The Court
first articulated the one-satisfaction rule in Bradshaw v. Baylor University, 84
S.W.2d 703 (Tex. 1935), a tort case arising from a collision between a train and
Baylor University’s bus. 7 At trial, the bus-passenger plaintiff sued Baylor,



Prac. & Rem. Code § 32.001 et seq. (1986), as developed by common law doctrines such as the
one-satisfaction rule, and the comparative responsibility statute, id. § 33.001 et seq (2013),
for actions in pure negligence, strict liability, and breach of warranty, Garrett, 860 S.W.2d at
78 & n.5.
        6 In RSR, we declined to decide a related, but distinct, question of whether Texas’s

one-satisfaction rule precludes multiple recoveries for the same injury under different
insurance contracts. See RSR Corp., 612 F.3d at 857. In that case, the insured party RSR
had settled with other insurers after initially suing them for payment under various
insurance contracts. Later, it sought to recover from the non-settling insurer International
additional amounts allegedly remaining to be paid under their contract. Id. at 855–57. We
declined to consider whether RSR’s recovery from International was barred by the one-
satisfaction rule and instead affirmed the district court on the alternate grounds that the
“other insurance” provision in the International insurance contract precluded additional
recovery. Id. Like this case, the issue we reserved in RSR involves the applicability of the
one-satisfaction rule beyond the domain of tort law. Id. But in contrast, in RSR, the allegedly
overlapping recoveries all sounded in contract, and the settling and non-settling parties
shared the alleged same contractual liability. Here, one claim sounds in contract and the
other in tort, and the settling party (Citibank) and non-settling party (Worthington) do not
share a common theory of legal liability.
        7 Because the Texas Supreme Court subsequently adopted this decision of the

Commission of Appeals of Texas, we will discuss Bradshaw as a decision of the Supreme
Court.
                                              12
   Case: 13-10171     Document: 00512658708      Page: 13   Date Filed: 06/10/2014



                                  No. 13-10171
which then impleaded the train operator, alleging among other claims that it
was due contribution from the operator. The plaintiff prevailed and recovered
from Baylor $6,500, but he had settled with the train operator for the same
amount prior to suing Baylor. Id. at 703–705. The Bradshaw Court affirmed
a take-nothing judgment for the plaintiff, explaining that the one-satisfaction
rule applies where “more than one wrongdoer contributed” to an injury. Id. at
705.
       Second, the Court has applied the one-satisfaction rule to limit recovery
only where the settling and non-settling parties share common liability. In
Sterling, the Court emphasized that the damages all arose from the “alleged
misrepresentations of all of the defendants” and that the plaintiff “himself
alleged [that the defendants] were joint tortfeasors . . . .” Sterling, 822 S.W.2d
at 8. Most recently, the Court again explained that under the one-satisfaction
rule, “the nonsettling defendant may only claim a credit based on the damages
for which all tortfeasors are jointly liable.” Casteel, 22 S.W.3d at 391 (emphasis
added). “[S]eparate or punitive damages paid by the settling defendant” on his
own behalf cannot offset a judgment against a non-settling defendant, since
such amounts would not constitute “common damages.” Id. at 391–92.
       We also find guidance in CTTI Priesmeyer, Inc. v. K & O Ltd. P’ship, 164
S.W.3d 675 (Tex. Ct. App.—Austin 2005), a decision of the Austin Court of
Appeals. In that case, K & O contracted with the general contractor CTTI for
the construction of an office and warehouse, and separately contracted with
Garwood Architects for design services. After K & O concluded that faulty
design and construction had caused cracks in the completed structure’s
concrete foundation, it sued CTTI and Garwood, but settled its negligence
claims against Garwood before the case was submitted to the jury. The jury
found that CTTI had breached the construction contract and that Garwood was
negligent, and awarded damages against both defendants. The trial court
                                       13
    Case: 13-10171         Document: 00512658708           Page: 14     Date Filed: 06/10/2014



                                         No. 13-10171
denied CTTI’s request for a settlement credit on the basis of the Garwood
settlement. Id. at 678–80.
       The Austin Court of Appeals affirmed, reasoning that the one-
satisfaction rule had no application outside of tort claims under the Texas
Supreme Court decisions in Sterling, Garrett, and Casteel. The court first
emphasized that under these precedents, the one-satisfaction rule “applies
only to tort claims, not to breach of contract claims.” See id. at 684. The court
further explained that the Casteel Court’s use of the terms “joint and several
damages” would preclude application of the rule to a case involving contractual
claims against a non-settling defendant and tort claims against a settling
defendant, given that requirements for establishing joint liability are distinct
in contract and in tort. 8 Applying these principles, the court reasoned that
CTTI’s promises to deliver a defect-free building were unique to its contract
with K & O. Because Garwood did not make such promises and was liable
“only for its own negligence,” CTTI could not enjoy a settlement credit based
on the settlement proceeds that K & O received from Garwood. Id. at 685. 9


       8  Joint liability in tort requires shared causation, though percentages of responsibility
can vary, while joint liability in contract requires “what amounts to joint promises.” CTTI,
164 S.W.3d at 684. The CTTI court further explained that applying the one-satisfaction rule
in that case would be akin to “hold[ing] a person not a party to a contract liable for the breach
of that contract.” Id. at 685.
        9 We do not find persuasive the Austin court of appeals decisions cited by Worthington

for the proposition that the one-satisfaction rule applies beyond tort claims. In those cases,
the court explained in passing that the one-satisfaction rule’s applicability is “not limited to
tort claims.” Galle, Inc. v. Pool, 262 S.W.3d 564, 573 (Tex. App.—Austin 2008); Osborne v.
Jauregui, Inc., 252 S.W.3d 70, 75 (Tex. App.—Austin 2008). But neither case involved
defendants that lacked common alleged tort liability, as we confront here. See RSR Corp. v.
Int’l Ins. Co., 2009 WL 927527, at *12–13 (N.D. Tex. 2009) (unpublished) (reviewing Galle
and Osborne), aff’d on other grounds 612 F.3d 851 (5th Cir. 2010).
        Moreover, we doubt that the Texas Supreme Court would adopt the sweeping
principle that the one-satisfaction rule is “not limited to tort claims” and apply it in this case.
In Galle and Osborne, the Austin court of appeals derived this observation from a Texas
Supreme Court case involving alter ego liability for usury. In El Paso Natural Gas Co. v.
Berryman, 858 S.W.2d 362, 364 (Tex. 1993), the Supreme Court held that in the context of a
usury action, the one-satisfaction rule barred a plaintiff’s additional recovery from a non-
                                               14
    Case: 13-10171       Document: 00512658708          Page: 15     Date Filed: 06/10/2014



                                       No. 13-10171
       Worthington claims that the Texas Supreme Court’s opinion in Garrett
expanded the one-satisfaction rule beyond the domain of tort, but it
misunderstands this case.
       In Garrett, the plaintiffs contracted to buy a plot of land, with plans to
convert it into an automobile salvage yard. The sellers had acquired the land
subject to a restrictive covenant prohibiting such usage, but never informed
the plaintiffs. Subsequently, a title company failed to discover the covenant
during its title search, and a second title company issued a title commitment
representing that no restrictive covenants existed.                 Later, having begun
converting the land into a salvage yard, the plaintiffs were told of the
restriction. They sued the sellers alleging misrepresentations and settled for
$69,000, and then separately sued the title companies for negligence and
breach of the Texas Deceptive Trade Practices Act (“DTPA”), Tex. Bus. &
Comm. Code §§ 17.41–.63.                 The trial court awarded the plaintiffs
approximately $115,000, plus attorneys’ fees. Garrett, 860 S.W.2d at 75–76.
On motion for rehearing, the court of appeals held that the title companies
were not entitled to a settlement credit because they had not “met their burden
of establishing that [the sellers] were joint tortfeasors.” Id. at 76.
       The Texas Supreme Court reversed and remanded to the trial court. The
Court provided an overview of the one-satisfaction rule, emphasizing that the


settling defendant, after the plaintiff had already settled with that defendant’s alleged alter
ego. The Court explained that the non-settling defendant’s liability was purely “derivative,”
and that the two defendants were “jointly and severally liable” for damages assessed against
the settling defendant.
        Thus, while El Paso suggests that the one-satisfaction rule might apply beyond tort
(though the Court did not consider whether a usury suit sounds in tort), the Court applied
the one-satisfaction rule because it had concluded that the two defendants were jointly liable.
That is, consistent with the Austin court of appeals’ reasoning in CTTI, we understand El
Paso to permit, at most, application of the one-satisfaction rule where defendants are jointly
liable, even when their common liability is not based in tort. Here, however, Worthington
and Citibank shared no common liability; thus, even under El Paso, the one-satisfaction rule
is unavailable.
                                             15
   Case: 13-10171     Document: 00512658708      Page: 16   Date Filed: 06/10/2014



                                  No. 13-10171
doctrine determines “the effects of a partial settlement on the contribution
rights between joint tortfeasors” and applies where “a plaintiff files suit
alleging that multiple tortfeasors are responsible for the plaintiff’s injury” and
receives a settlement therein. Id. at 78. The Court then concluded that here,
the settlement agreement between the plaintiffs and the sellers arose from
“claims based on ‘alleged misrepresentations made by [the sellers].’” Id. at 79.
“Although not adjudicated to be joint tortfeasors,” the Court reasoned, “the title
companies and the sellers cannot reasonably be said to have caused separate
injuries.” Id. Because both suits “compensate an indivisible injury,” the Court
concluded that the title companies should receive a settlement credit. Id.
      While the Court’s observation that the title companies and sellers were
“not adjudicated to be joint tortfeasors” might suggest that the one-satisfaction
rule extends to settlements received in connection with non-tort actions, we
reject such an interpretation. Rather, Garrett must be read together with
Bradshaw and Sterling, whose formulation of the one-satisfaction rule the
Garrett Court expressly “reaffirm[ed].” Id.
      A principle common to Bradshaw, Sterling, and Garrett is that for
purposes of applying the one-satisfaction rule, a settling party’s status as joint
tortfeasor need not be proven by evidence, so long as there is an allegation to
this effect. In Bradshaw, the Court deemed the train operator as a joint
tortfeasor where Baylor alleged this in its cross-claim, Bradshaw, 84 S.W.2d
at 704, and in Sterling, the plaintiff had “alleged [that the defendants] were
joint tortfeasors,” Sterling, 822 S.W.2d at 8. Likewise, in Garrett, the Court
explained that the one-satisfaction rule applies only when “a plaintiff files suit
alleging that multiple tortfeasors are responsible for the plaintiff’s injury” and




                                       16
    Case: 13-10171        Document: 00512658708          Page: 17      Date Filed: 06/10/2014



                                        No. 13-10171
subsequently receives a settlement.             Garrett, 860 S.W.2d at 78 (emphasis
added). 10
       In sum, the one-satisfaction rule emerges in Texas Supreme Court
jurisprudence as a tort law contribution doctrine, and its application has
generally been limited to cases in which a plaintiff settles with an alleged joint
tortfeasor.
                                               2
       Applying the above principles, we predict that the Texas Supreme Court
would conclude that the one-satisfaction rule is inapplicable here and would
not entitle Worthington to a settlement credit.
       Here, the GE Plaintiffs have never alleged that Citibank was a joint
tortfeasor alongside Worthington. 11 Garrett, 860 S.W.2d at 78; Sterling, 822
S.W.2d at 8. Nor did Worthington ever file a cross-claim against Citibank
seeking contribution under a theory that Citibank was a joint tortfeasor. See
Bradshaw, 84 S.W.2d at 704. 12 In the absence of any such allegation, we must
conclude that Worthington and Citibank did not “commit the same act” or
“commit technically different acts that result in a single injury.” Casteel, 22



       10 Indeed, if allegations alone could not establish joint tortfeasor status, then the one-
satisfaction rule would be dramatically narrowed; only settlements received from parties
actually adjudicated to be tortfeasors could offset judgments against non-settling parties.
       11 For instance, a negligence action would require a finding that Citibank, as the

parent company of CitiCapital at the relevant time, caused the fraudulent transfers. Even
less conceivable is Citibank’s liability for an intentional tort. In short, Worthington has not
alleged, nor does the record show, that Citibank would be liable in tort.
       12 In its reply brief, Worthington suggests that the GE Plaintiffs’ action is actually a

claim for “contribution” on behalf of Citibank. There is no authority cited for the proposition
that a defendant in tort and non-party to a contract could be liable under that contract under
a “contribution” theory. Cf. CTTI, 164 S.W.3d at 684 (distinguishing between tort and
contractual theories of joint liability). This theory aside, if Worthington and Citibank were
indeed “potentially liable for the same injury,” as Worthington asserts, and if Worthington
seeks “contribution” from Citibank, claiming that the latter is a joint tortfeasor, then there
should have been allegations to this effect in the district court. We reject Worthington’s tardy
attempt on appeal to deem Citibank a joint tortfeasor, in the absence of any allegations below.
                                              17
    Case: 13-10171       Document: 00512658708          Page: 18     Date Filed: 06/10/2014



                                       No. 13-10171
S.W.3d at 390. By the same logic, Worthington cannot be joined to Citibank’s
alleged violations of the Purchase and Sale Agreement, as it was not a party to
that contract and no such contractual claim was ever advanced. CTTI, 164
S.W.3d at 685.
       Thus, as a matter of law, there is no “indivisible injury” to which the one-
satisfaction rule would apply. Garrett, 860 S.W.2d at 79.
                                             C
       Citibank’s alleged contractual breach and the TUFTA action against
Worthington may share common underlying facts—the three fraudulent
transfers from CitiCapital to Worthington totaling $2.5 million, induced by
Wright & Wright. But such factual commonality does not suffice to count the
contractual dispute’s settlement against TUFTA’s limit on recovery for a single
avoidance “claim,” Tex. Bus. & Comm. Code § 24.009(b), or to render Citibank
a joint tortfeasor for one-satisfaction rule purposes, 13 Casteel, 22 S.W.3d at 390;
Garrett, 860 S.W.2d at 78. Accordingly, the district court did not err in denying
Worthington a settlement credit for the settlement proceeds that the GE
Plaintiffs received from Citibank. 14



       13 The fact that the outcomes under both TUFTA’s recovery-limiting provision and the
one-satisfaction rule are identical is supported by Worthington’s own contention that the two
are “entirely consistent.”
        14 Because we have concluded that neither TUFTA’s § 24.009(b) nor the one-

satisfaction rule entitles Worthington to a settlement credit, we need not address the GE
Plaintiffs’ submission that a credit is barred by the collateral source rule, which “precludes
any reduction in a tortfeasor’s liability because of benefits received by the plaintiff from
someone else—a collateral source.” Haygood v. De Escabedo, 356 S.W.3d 390, 394–95 (Tex.
2011). Likewise, we do not consider Worthington’s contention that the district misapplied
the settlement credit burden-shifting framework, because, as a non-settling defendant not
privy to settlement negotiations, it failed to meet its initial burden of showing that “the
plaintiff settled with another party the claim on which the nonsettling defendant is liable.”
McFarland v. Leyh (In re Tex. Gen. Petroleum Corp.), 52 F.3d 1330, 1340 (5th Cir. 1995)
(internal quotations omitted). As discussed above, the GE Plaintiffs never alleged that
Citibank was liable in tort or under TUFTA, and thus there is no “claim on which
[Worthington] is liable” that is also common to Worthington and Citibank. Id.
                                             18
   Case: 13-10171     Document: 00512658708      Page: 19   Date Filed: 06/10/2014



                                  No. 13-10171
                                       IV
      Worthington next submits that the district court erred as a matter of law
in interpreting TUFTA’s good faith defense as an objective standard. This
error, Worthington claims, infected both the district court’s evidentiary ruling
allowing testimony that Worthington should have detected the fraud, and its
jury instructions explaining that Worthington’s constructive knowledge of
fraud would defeat a good faith defense.
      Under TUFTA, “[a] transfer or obligation is not voidable under Section
24.005(a)(1) . . . against a person who took in good faith and for a reasonably
equivalent value . . . .” Tex. Bus. & Comm. Code § 24.009(a). 15 Worthington
contends that to avail itself of TUFTA’s “good faith” defense, it had to prove
only that it lacked subjective knowledge of the transferor’s “secret agreement”
to defraud another creditor under Hawes v. Cent. Tex. Prod. Credit Ass’n, 503
S.W.2d 234, 235–36 (Tex. 1973). In response, the GE Plaintiffs maintain that
Hawes was superseded by TUFTA and that this case should be controlled by
the objective “good faith” test articulated in Hahn v. Love, 321 S.W.3d 517 (Tex.
App.—Houston [1st Dist.] 2009).
                                        A
      As a preliminary matter, we need not decide today whether Hawes
survived TUFTA’s enactment.        Even if it did, the district court correctly
recognized that that case deals only with preferential transfers, which are not
implicated here.
      In Hawes, the Supreme Court of Texas articulated a “good faith”
exception to TUFTA’s predecessor statute in the case of “preferences,” where a
debtor conveys property to one creditor, with preference over another. In that



      15 The parties stipulated that Worthington took the transfers for reasonably
equivalent value. See Tex. Bus. & Comm. Code § 24.009(a).
                                       19
    Case: 13-10171       Document: 00512658708          Page: 20     Date Filed: 06/10/2014



                                       No. 13-10171
case, Parker owed his son-in-law Hawes $1,900 and the Central Texas
Production Credit Association $100,000. Parker conveyed land to Hawes in
exchange for cancellation of his $1,900 debt, and the Association sued to set
aside the conveyance, alleging fraud upon its rights as creditor. Hawes, in
response, contended that he, too, was a creditor entitled to payment. Hawes,
503 S.W.2d at 234–35. The trial court voided Parker’s conveyance to Hawes,
and the court of appeals affirmed.
       The Supreme Court of Texas affirmed the appeals court. The Court
considered the predecessor statute to the TUFTA, which provided that “[t]he
title of a purchaser for value is not void [as fraudulent] . . . unless he purchased
with notice of . . . the intent of his transferor to delay, hinder, or defraud.” Id.
at 235 (citing former Tex. Bus. & Comm. Code § 24.02). The Court then
explained a long-standing common-law exception to the statute in the case of
“preferences”—“conveyances of property by an insolvent debtor to one of his
unsecured creditors in payment of a debt.” Id. The Court explained that such
conveyance is “valid notwithstanding the statute, if the value of the property
does not exceed the amount of the debt and the grantee creditor receives the
conveyance in good faith, meaning without a secret agreement to benefit the
grantor in some way other than by discharge of his debt.” Id. at 235–36. So
long as these two requirements are met, the conveyance is valid even if the
“grantee had notice of [the grantor’s] intent [to favor one of his creditors].” Id.
at 236.     But despite this good-faith exception in the case of a debtor’s
“preference,” the Court concluded that the conveyance was properly voided
because the evidence supported a finding that Hawes did not act in good faith. 16



       16 Under Rule 279 of the Texas Rules of Civil Procedure, in the absence of written
findings on a necessary element of a claim or defense, an appeals court can deem the element
to have been established by the trial court if there is evidence to support the finding. Hawes,
503 S.W.2d at 236.
                                              20
    Case: 13-10171       Document: 00512658708         Page: 21     Date Filed: 06/10/2014



                                      No. 13-10171
       Worthington contends that even if Hawes governs only preferential
transfers, Wright & Wright’s transfers to Worthington constitute “preferences”
because Worthington and GE Capital were both Wright & Wright’s creditors.
But Worthington and GE Capital were not creditors concurrently; GE Capital
became a creditor only after Wright & Wright allegedly appropriated its funds
to execute the fraudulent transfers to Worthington. Thus, Wright & Wright
did not give preferential treatment to debt owed to Worthington, over debt
owed to GE Capital. 17 Rather, it fraudulently used GE Capital’s (previously
CitiCapital’s) funds to repay its debt to Worthington, whereupon GE Capital
became a new creditor.
       In sum, because this action does not concern a preferential transfer, even
if Hawes is still good law, it is inapplicable here. 18
                                             B
       Because Hawes is inapposite, and because no opinions of the Texas
Supreme Court have applied TUFTA’s “good faith” defense, we must look to
the lower state courts and other persuasive authorities to predict how the
Supreme Court would define TUFTA’s “good faith” standard. See Temple, 720
F.3d at 307; SMI Owen Steel Co. v. Marsh USA, Inc., 520 F.3d 432, 437 (5th


       17 Worthington also suggests that Wright & Wright preferred Worthington over
PlainsCapital Bank, another creditor at the time of the transfers to Worthington. But even
if these facts might support a preferential transfer action, PlainsCapital did not actually
bring such an action (as the creditor who was not preferred). Rather, the claim at issue is
the GE Plaintiffs’ avoidance action, not a preferential transfer action.
       18 We observe that TUFTA’s preferential transfer provision seems rather difficult to

reconcile with Hawes. See Tex. Bus. & Comm. Code § 24.006(b) (“A transfer made by a debtor
is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer
was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the
insider had reasonable cause to believe that the debtor was insolvent.” (emphasis added)).
This statutory language, coupled with the legislative history cited by the GE Plaintiffs,
suggests that Hawes might have been superseded by TUFTA. See House Research
Organization Bill Analysis, HB 2193 (May 13, 1987) (“CSHB 2193 would replace current
fraudulent-transfer law with the Uniform Fraudulent Transfer Act (UFTA).”). But we
decline to decide this question today.
                                             21
      Case: 13-10171     Document: 00512658708          Page: 22     Date Filed: 06/10/2014



                                       No. 13-10171
Cir. 2008) (“In making the Erie guess, we may consider, among other sources,
treatises, decisions from other jurisdictions, and the ‘majority rule.’”).
        Worthington cites two decisions of Texas courts of appeals that applied
Hawes’s subjective test outside of a “preference” context—Yokogawa Corp. of
Am. v. Skye Int’l Holdings, Inc., 159 S.W.3d 266 (Tex. App.—Dallas 2005, no
pet.), and Senior Commodity Co. v. Econo-Rail Corp., 2000 WL 350508 (Tex.
App.—Houston [14th Dist.] 2000) (unpublished). However, both Yokogawa
and Senior Commodity apply Hawes in rather conclusory fashion. Yokogawa,
159 S.W.3d at 270–71; Senior Commodity, 2000 WL 350508, at *8. And since
we have already determined that Hawes does not govern this case, we predict
that the Texas Supreme Court would likewise not be persuaded by Yokogawa
and Senior Commodity in deciding this case. 19
        The GE Plaintiffs, in response, contend that this case is controlled by the
objective “good faith” standard of Hahn. In that case, a judgment debtor sold
a property to an entity allegedly owned and operated by the debtor’s family,
and the entity subsequently sold it to Love. Hahn, the judgment creditor,
sought an execution sale of the property to satisfy the judgment. The entity
sued Hahn, seeking an injunction prohibiting the execution sale.                        Love
intervened and sought an injunction prohibiting the sale and removal of the
cloud from his title, and Hahn filed counter-claims against Love. The trial
court granted Love’s motion for summary judgment on grounds that he was a
good-faith purchaser of the property under § 24.009(a) of TUFTA. Id. at 520–
23.



        19 Worthington cites other cases that undermine its reading of Hawes. Worthington
cites the dissenting opinion in Tigrett v. Pointer, 580 S.W.2d 375 (Tex. App.—Dallas 1978, no
pet.), but even the dissent recognized that Hawes applied to preferences. Id. at 396–97 (Akin,
J., dissenting). Worthington also invokes Bossier Bank & Trust Co. v. Phelan, 615 S.W.2d
872 (Tex. App.—Houston [1st Dist.] 1981, no pet.). But Worthington omits from its discussion
of that case the court’s recognition that Hawes governs only “preference” cases. Id. at 874.
                                             22
    Case: 13-10171       Document: 00512658708          Page: 23     Date Filed: 06/10/2014



                                       No. 13-10171
       The court of appeals reversed, concluding that there were fact questions
“both as to whether the transfer of the property to Love was fraudulent and as
to Love’s actual or constructive notice of facts and circumstances indicating the
intent to defraud . . . .” Id. at 531. In reaching this conclusion, the court
articulated an objective definition of “good faith,” explaining that “[a]
transferee who takes property with knowledge of such facts as would excite the
suspicions of a person of ordinary prudence and put him on inquiry of the
fraudulent nature of an alleged transfer does not take the property in good
faith and is not a bona fide purchaser.” Id. at 527. Hahn thus stands for the
proposition that TUFTA’s “good faith” defense requires an objective
assessment of what the transferee “should have known,” rather than a
subjective inquiry into what he actually knew.
       Hahn’s objective “good faith” standard finds support in the federal courts
and in other states with similar statutes, to which we may look for persuasive
authority in making our Erie guess. See Temple, 720 F.3d at 307; SMI Owen
Steel, 520 F.3d at 437. We have previously understood TUFTA’s “good faith”
defense to represent an objective standard, though we have not yet considered
the question squarely in a published opinion. 20 At least one bankruptcy court
has interpreted the “good faith” defense similarly. See Smith v. Suarez (In re
IFS Fin. Corp.), 417 B.R. 419, 442 (Bankr. S.D. Tex. 2009). Lastly, we as well
as the Ninth Circuit have interpreted other states’ uniform fraudulent transfer
acts to follow the same objective “good faith” approach. See, e.g., Warfield v.



       20 See Spring Street Partners-IV, L.P. v. Lam, 730 F.3d 427, 439 (5th Cir. 2013)
(applying objective “good faith” standard under § 24.009(b)(2) in affirming district court’s
grant of summary judgment to TUFTA plaintiff and reasoning that the defendant-transferees
were “closely related to [the debtor-transferor] and they are familiar business partners;
therefore, [the transferees] would have been aware of [the transferor’s] financial predicament
and maneuvering tactics” (emphasis added)); Wren Alexander Invs. LLC v. I.R.S., 530 F.
App’x 302, 306–307 (5th Cir. 2013) (unpublished) (citing Hahn).
                                             23
    Case: 13-10171       Document: 00512658708          Page: 24     Date Filed: 06/10/2014



                                       No. 13-10171
Byron, 436 F.3d 551, 558–60 (5th Cir. 2006) (interpreting Washington’s
UFTA); Hayes v. Palm Seedlings Partners-A (In re Agric. Research & Tech.
Grp., Inc.), 916 F.2d 528, 535–36 (9th Cir. 1990) (interpreting Hawaii’s UFTA).
       Moreover, we conclude that the Texas Supreme Court would not welcome
the practical consequences of adopting the subjective “secret agreement”
standard of Hawes.          Such a lenient standard would protect even those
transferees who “look the other way” in questionable transactions; other
jurisdictions allowing a subjective “good faith” defense still do not sanction
such willful blindness. See, e.g., Gowan v. Westford Asset Mgmt. LLC (In re
Dreier LLP), 462 B.R. 474, 487–93 (Bankr. S.D.N.Y. 2011) (“[T]he appropriate
test for determining constructive knowledge, and hence ‘good faith,’ under DCL
§ 272 is the subjective ‘conscious turning away’ standard under which the
defendant . . . is charged with the knowledge of what was obvious but ignored,
or doubtful but not explored,” id. at 491). 21 Worthington has identified no other
jurisdiction that uses the “secret agreement” standard in an analogous
statutory context, and we decline to guess that the Texas Supreme Court would
wish its state to become the first. 22


       21  We do not base our Erie guess on bankruptcy jurisprudence under Section 548 of
the Bankruptcy Code, which establishes a transferee’s good faith defense to the trustee’s
power to avoid a debtor’s fraudulent transfers. 11 U.S.C. § 548(c). Certain authorities
indicate that § 548 is not necessarily substantively congruent with state-law counterparts,
despite a common ancestry. See In re Dreier LLP, 462 B.R. at 487–93 (distinguishing
objective “good faith” test under § 548 from New York’s Debtor & Creditor Law § 272);
FRAUDULENT TRANSFERS, PREBANKRUPTCY PLANNING AND EXEMPTIONS § 4.14 n.11 (2014)
(reviewing various “good faith” standards); COLLIER ON BANKRUPTCY § 5-548.01 (“Given the
elemental nature of fraudulent transfer law, . . . there was no preemption intended [by
codification of state fraudulent transfer laws in the Bankruptcy Code], and states (as well as
the federal government) continued to adapt parts of fraudulent transfer law for their own
purposes.”).
        22 For the good faith defense to alleged preferential transfers, New York law has a

“secret agreement” standard, but one that lacks the fraudulent import of Hawes. As the
Second Circuit explained in Sharp Int’l Corp. v. State Street Bank & Trust Co. (In re Sharp
Int’l Corp.), 403 F.3d 43 (2d Cir. 2005), in New York, preferential transfers are “neither
fraudulent nor otherwise improper,” notwithstanding “knowledge on the part of the
                                             24
    Case: 13-10171        Document: 00512658708          Page: 25      Date Filed: 06/10/2014



                                        No. 13-10171
       Because Hahn is the most thorough and well-reasoned Texas case
applying TUFTA’s “good faith” defense, and because its objective definition of
“good faith” accords with numerous other persuasive authorities, we predict
that the Supreme Court of Texas would adopt Hahn’s approach if presented
with the question.        Accordingly, the district court’s jury instructions and
evidentiary ruling, premised on this objective standard, were not erroneous.
                                               V
       For the foregoing reasons, we AFFIRM the judgment of the district court.




transferee that the transferor is preferring him to other creditors, even by virtue of a secret
agreement to that effect.” Id. at 54–55 (emphasis added) (citation omitted). Thus, the “secret
agreement” of Sharp is only an agreement to give preferential treatment, not to defraud the
other creditor. By contrast, under Hawes, a “secret agreement to benefit the grantor in some
way other than by discharge of his debt” implies that the agreement implicates some
improper benefit (e.g. the shielding of assets from the other creditor). This difference is borne
out by the Sharp court’s subsequent conclusion that the “secret agreement” standard is
consistent with the rule that “the statutory requirement of ‘good faith’ is satisfied if the
transferee acted without either actual or constructive knowledge of any fraudulent scheme.”
Id. at 55 (emphasis added) (citation omitted).
                                              25
