AD II LLC v. Herc Rentals Inc. f/k/a Hertz Equipment Rental Corporation, Appellee (2026)

DISSENTING OPINION

Appellants Arturo Diaz and AD II Improvements, LLC (AD II) contend on appeal that the trial court committed reversible error in rendering a judgment against them on Herc Rentals, Inc.'s claims under the Texas Uniform Fraudulent Transfer Act (TUFTA). In challenging the judgment, they raise a single issue with several sub-issues. The majority, however, only reaches one issue, deciding that Herc Rental's claims were filed too late and were extinguished by TUFTA's four-year statute of repose. I disagree. In my view, the majority has veered off course by pivoting from Appellants' assigned error—wherein they raised a legal question about TUFTA's discovery rule—to consider instead a sufficiency question that was neither assigned nor briefed on appeal. Compounding the error, the majority wrongly shifts Appellants' burden of proof on its affirmative defense; and on review, the Court fails to defer to the unchallenged factual findings supported by the record. Unlike the majority, I would overrule the assigned error; and, after reviewing the record, I would affirm the trial court's judgment. I write separately on the limitations issue only.

I. FACTUAL AND PROCEDURAL BACKGROUND

For many years, AD Improvements, Inc. (ADI), rented construction equipment from Herc Rentals. Arturo Diaz signed the account agreements as ADI's owner. In August 2015, when invoices remained unpaid, Herc Rentals sued ADI and Diaz in trial cause number 2015DCV2770. While the suit remained pending, Diaz formed a new entity, AD II, in October 2016. Diaz was the entity's sole member. A month later, Herc Rentals obtained a money judgment against ADI in the principal sum of $75,593.34, plus attorney's fees, interest, and costs.

As a judgment creditor, Herc Rentals sent post-judgment discovery to Diaz and ADI. It obtained ADI's 2017 banking records, profit and loss statements, and tax records. On March 26, 2021, Diaz was deposed. He disclosed that he had been advised by a partner he joined on projects, who was an attorney, that he did not need to worry about paying a judgment; instead, he could start a company somewhere else. Diaz followed that advice, ceased operating ADI, and formed AD II with his same employees.

On August 5, 2021, or shortly after the deposition, Herc Rentals filed suit against Diaz and AD II (collectively, Appellants) alleging they violated TUFTA by their transfer of assets from ADI to AD II to avoid paying the 2016 judgment.¹ After a bench trial, the court rendered judgment in favor of Herc Rentals on its TUFTA claims. The trial court also issued findings of fact and conclusions of law. This appeal followed.

II. THE STATUTE OF REPOSE

A. Legal error–the assigned issue

In their second sub-issue, Appellants assert Herc Rentals did not file their TUFTA claim within the four-year limitations period of the statute, and because it did not exercise reasonable diligence to discover information contained in public records, it could not avail itself of the discovery rule extending limitations for a one-year period from when a creditor knew or reasonably should have known about a fraudulent transfer. Appellants rely on evidence showing that Diaz had filed AD II's articles of incorporation with the Secretary of State's Office in October 2016. They contend that, if Herc Rentals had exercised reasonable diligence, the publicly accessible evidence would have put it on notice of facts that would have led to the discovery of its TUFTA claims in 2016, during the four-year limitations period. Because Appellants misapply the law pertaining to the discovery rule, I disagree.

TUFTA was “designed to protect creditors from being defrauded or left without recourse due to the actions of unscrupulous debtors.” KCM Fin. LLC v. Bradshaw, 457 S.W. 3d 70, 89 (Tex. 2015). Under the statute, a creditor may set aside a debtor's fraudulent transfer of assets or obtain a judgment for money damages up to the value of the assets transferred. See Tex. Bus. & Com. Code Ann. §§ 24.008, 24.009(b)–(c); Chu v. Chong Hong, 249 S.W.3d 441, 446 (Tex. 2008). The Act defines a fraudulent transfer as one made “with actual intent to hinder, delay, or defraud any creditor of the debtor.” Cadle Co. v. Wilson, 136 S.W.3d 345, 350 (Tex. App.—Austin 2004, no pet.). “Thus, the element making a transfer ‘fraudulent’ is the state of mind of the transferor.” Id.

Section 24.010 provides: “a cause of action with respect to a fraudulent transfer or obligation under this chapter is extinguished unless action is brought ․ within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant[.]” Tex. Bus. & Com. Code Ann. § 24.010(a)(1). In context, the accrual of the cause of action is deferred until the discovery of a “fraudulent transfer” as provided by subsection (a) of the act. Cadle, 136 S.W.3d at 350 (citing Tex. Bus. & Com. Code Ann. § 24.010(a)(1)). The discovery rule is embodied in the statute, and thus, courts apply the rules developed under the common law. Zenner v. Lone Star Striping & Paving, LLC, 371 S.W.3d 311, 315 (Tex. App.—Houston [1st Dist.] 2012, pet. denied).

Generally, application of the discovery rule has been permitted in those cases where the nature of the injury incurred is inherently undiscoverable and the evidence of injury is objectively verifiable. Computer Associates Intern., Inc. v. Altai, Inc., 918 S.W.2d 453, 456 (Tex. 1996). As Altai explained, the requirement of inherent undiscoverability recognizes that the discovery rule exception should be permitted only in circumstances where “it is difficult for the injured party to learn of the negligent act or omission.” Id. (citing Willis v. Maverick, 760 S.W.2d 642, 645 (Tex. 1988)) (collecting cases).

“Although ‘the date a cause of action accrues is normally a question of law,’ reasonable diligence is an issue of fact.” Hooks v. Samson Lone star, Limited Partnership, 457 S.W.3d 52, 57–58 (Tex. 2015) (internal citations omitted). In some circumstances, however, courts still determine, as a matter of law, that reasonable diligence would have uncovered the wrong sooner. Id. On appeal, Appellants argue the trial court erred in not determining the accrual date of Herc Rentals' TUFTA claims as a matter of law based on Diaz's filing of AD II's articles of incorporation in 2016. They maintain, “as a general category information contained in public records can be ascertained through reasonable diligence[,] and thus[,] it [is] not inherently undiscoverable.” For this proposition, they cite to Sherman v. Sipper, 152 S.W.2d 319, 321 (Tex. 1941). But Sherman is factually distinguishable.

In Sherman, a husband and wife who owned land swapped their property with another couple who represented they owned their parcel “free of encumbrances and reservations.” Id. at 320. The exchange of lands resulted in the parties' execution of warranty deeds that were dated November 1931. As it turns out, however, one of the previous owners of defendants' property had reserved all their mineral rights in the land. Id. In 1936, plaintiffs filed a fraud cause of action, alleging defendants had misrepresented their ownership of their land without reservations. Id. The Supreme Court held the four-year statute of limitation applied to the fraud cause of action as a matter of law. Id. at 322. Based on the undisputed facts of the case, the Court noted that the long established discovery rule did not apply because the land records were open to plaintiffs for their inspection, and there was nothing to prevent them or their attorney from discovering defendants' misrepresentations within the four-year limitations; and by the exercise of reasonable diligence plaintiffs could have discovered that the minerals had been reserved in the land in controversy.” Id. at 321. Sherman thus held the plaintiffs were “charged in law with constructive notice of the actual knowledge they would have acquired if they had examined the records.” Id.

But the Texas Supreme Court has also explained that a party's opportunity to examine a public record does not always result in its constructive notice of fraud. It noted in Hooks that not all cases fall into the categories where it can be determined, as a matter of law, that reasonable diligence would have timely uncovered an alleged fraud. Hooks, 457 S.W.3d at 59. Public filings may exist that “one is not charged with discovering.” Id. at 60. “Fraudulent concealment is an equitable doctrine that is fact-specific.” Id. (cleaned up). The Court has often said that “a person cannot be permitted to avoid liability for his actions by deceitfully concealing wrongdoing until limitations has run.” Id. (citing S.V. v. R.V., 933 S.W.2d 1, 6 (Tex. 1996)). Thus, when the fraudulent concealment extends to the record itself, the filing cannot be used to establish, as a matter of law, that reasonable diligence was not exercised. Id. at 61. Under that circumstance, reasonable diligence remains a fact question. Id.

The trial court issued findings of fact and conclusions of law where it found that Herc Rentals “reasonably discovered” the alleged fraudulent transfer of assets at a post-judgment deposition held in March 2021. The trial court concluded “[t]he discovery of the fraudulent transfer at Arturo Diaz'[s] deposition on March 26, 2021 was reasonable.” Other than point out that Herc Rentals could have conducted a search of the Secretary of State's website, Appellants present no argument or authorities to show how Herc Rentals could “reasonably” have discovered the existence of any transfers or that any such transfers were fraudulent in nature, in the absence of the post-discovery deposition of Diaz. The case thus does not fall within any of the categories of cases mentioned in Hooks and the public record itself provides no actual notice or constructive notice of a fraudulent transfer. Id. at 58–59. For these reasons, I would conclude the trial court did not err when it implicitly concluded that Appellants did not prove, as a matter of law, that Herc Rentals should be charged with constructive notice of their fraudulent transfer.

B. Evidentiary Sufficiency–unassigned error

The majority determines that the trial court erred based on a challenge Appellants did not raise, concluding the lower court's fact finding “is not supported by the evidence.” In briefing, Appellants assign no sufficiency error to the trial court's factual finding that Herc Rentals first discovered the transfer during the March 2021 deposition. See Tex. R. App. P. 38.1(f) (requiring an appellate brief to present issues or points for review). Diaz acknowledged at trial that he had admitted, during his deposition, that he created AD II so he would not have to pay on any judgment rendered against ADI for unpaid rental invoices.

“When findings of fact are filed and are unchallenged, as here, they occupy the same position and are entitled to the same weight as the verdict of a jury.” See McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex. 1986); Vernon v. Perrien, 390 S.W.3d 47, 57 (Tex. App.—El Paso 2012, pet. denied). “They are binding on an appellate court unless the contrary is established as a matter of law, or if there is no evidence to support the finding.” McGalliard, 722 S.W.2d at 696. We view the evidence in the light favorable to the verdict, crediting favorable evidence if a reasonable factfinder could, and disregarding contrary evidence unless a reasonable factfinder could not. City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex. 2005). We also remain mindful that the factfinder is the sole judge of the credibility of the witnesses and the weight to give their testimony. Id. at 819. So long as the evidence falls within this zone of reasonable disagreement, we may not substitute our judgment for that of the factfinder. Id. at 822. The ultimate test in a legal sufficiency review is whether the evidence would enable reasonable and fair-minded people to reach the verdict under review. Id. “Any evidence of probative force supporting a finding requires us to uphold” the trial court's ruling. ACS Invs., Inc. v. McLaughlin, 943 S.W.2d 426, 430 (Tex. 1997).

A statute of repose operates as an affirmative defense that must be pleaded and proven by a defendant. See Tex. R. Civ. P. 94; Fed. Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602, 609 (Tex. 2012); Ryland Grp., Inc. v. Hood, 924 S.W.2d 120, 121 (Tex. 1996) (per curiam). The defendant asserting this affirmative defense bears the burden to prove all elements, including proving when the transfer was or reasonably could have been discovered to establish that the one-year discovery extension does not save the claim. Jones v. Dyna Drill Techs., LLC, No. 01-16-01008-CV, 2018 WL 4016413, at *10 (Tex. App.—Houston [1st Dist.] Aug. 23, 2018, no pet.) (mem. op.) (“The statute of repose is an affirmative defense on which the defendant has the burden of proof on all elements.”).

Here, Herc Rentals had no need to argue on appeal that sufficient evidence supported the date the deposition took place (or March 26, 2021), because the date was not contested either in the trial court or on appeal. The trial court was made aware of it, and Appellants even included it in their motion for judgment. See Dutton v. Dutton, 18 S.W.3d 849, 856 (Tex. App.—Eastland 2000, pet. denied) (holding the trial court need not announce it is taking judicial notice); see also Tex. R. Evid. 201(c) (the trial court can take judicial notice of the contents of its file). Therefore, the trial court's factual finding of when the deposition took place is supported by some evidence, and it is binding on this court's review. See McGalliard, 722 S.W.2d at 696; Vernon, 390 S.W.3d at 57. Because this finding supports the conclusion that Herc Rentals filed suit within the one-year period it discovered the fraudulent transfer from ADI to AD II, I would conclude the trial court did not err in concluding that Diaz failed to prove the extinguishment of the claim based on the statute of repose. Tex. Bus. & Com. Code Ann. § 24.010(a)(1).

It has repeatedly been held that the courts of appeals may not reverse the judgment of a trial court for a reason not raised in a point of error. Walling v. Metcalf, 863 S.W.2d 56, 58 (Tex. 1993) (per curiam); San Jacinto River Auth. v. Duke, 783 S.W.2d 209, 210 (Tex. 1990) (per curiam). Because Appellants have never complained about the sufficiency of the evidence supporting the deposition date, I would conclude the Court errs to address it sua sponte. Metcalf, 863 S.W.2d at 58. Unlike the majority, I would hold the evidence supports the trial court's factual finding of reasonable diligence.

For all these reasons, I would affirm the trial court's judgment. Because the majority concludes otherwise, I dissent.

FOOTNOTES

1.   Herc Rentals also sued Mark Rhey Grissom, an attorney who worked with Diaz on certain projects, and included other claims in its suit. Herc Rentals later non-suited and dismissed all claims against Grissom and he is not a party to this appeal.

GINA M. PALAFOX, Justice