In Re Chu vs. Hong - Fraud on Community Divorce Estate

A spouse who gives away community property to friends or relatives when divorce is imminent has defrauded the community estate. Such was the case of Chu vs. Hong, a case which came out of Tarrant County; 2nd district (02-04-00279 CV, 185 S.W.3d 507, 10-20-05).

Factual Background

While visiting her relatives in Korea in 1996, Chong Hui Hong (“Hong”) met and then married Gyu Chul Kim (“Gyu”). She then returned to Texas, Gyu soon followed, and in 1997 they bought a donut shop in Mansfield, Texas. Marital problems arose the next year, and Hong filed criminal assault charges against Gyu and withdrew an application for his green card. At about the same time, they both signed a contract to sell the donut shop for $180,000 to another couple, Myong Nam Kim and Kyon S. Kim (“the Kims”).When the contract’s closing date came and went with no action, the Kims stopped payment on their $20,000 downpayment check. Hong and Gyu then sent a letter (drafted by Hong but signed only by Gyu as “Seller”) demanding payment of the $20,000 and threatening criminal charges. In response, the Kims retained attorney William Chu, who demanded performance of the sales contract within four days and threatened civil litigation.A few days later, Gyu appeared alone at Chu’s office and agreed to close the sale. In the bill of sale (which Chu drafted), Gyu represented he was the “lawful owner in every respect” of the shop and had full authority to sell it. The Kims paid him $180,000: $90,000 in cash and checks, $46,668.29 by promissory note, and the rest by assuming a note Gyu and Hong still owed on their purchase of the shop. The Kims subsequently paid off both notes.Sometime after the closing, Gyu wired the money he received from the sale to his parents in Korea. He then filed for divorce from Hong. Hong responded with a counterclaim for defrauding the community of the proceeds from the shop sale, and added a suit against the Kims and their attorney Chu for conversion and conspiracy. When his criminal assault case came to trial, Gyu was convicted and deported from the United States.The divorce and fraud cases were tried five years later. Chu represented both himself and the Kims; Gyu appeared only by attorney and his deposition. A jury answered all questions favorable to Hong. In its final judgment, the trial court granted a divorce, declared the shop sale void and ordered the Kims to turn the premises and equipment over to Hong, allowed Hong and Gyu to each keep the marital property currently in their possession, and assessed no damages against Gyu other than attorney’s fees of $65,000. The trial court assessed the same attorney’s fees jointly against the other defendants, along with $247,000 for lost profits and interest, and punitive damages against the Kims for $20,000 and against their attorney Chu for $1,500,000. The Kims filed for bankruptcy, so only Chu appealed. In a divided opinion, the court of appeals affirmed.

The Supreme Court disagreed. In such cases, a trial court can order the spouse to return the property or take the fraud into account in making a just-and-right division.