© 2016 The Texas Lawbook.
By Mark Curriden
(May 18) – Dallas entrepreneur and philanthropist Sam Wyly’s 256-page memoir, 1,000 Dollars and an Idea, touting the financial prowess of him and his brother, Charles, was published in 2008.
Last week, a second biographical tome about the Wyly brothers’ financial lives came out. It is 459-pages long, includes 181,504 words, 1,682 footnotes, and reveals long-held secrets and shenanigans the Wylys never wanted exposed.
This new legal opus authored by U.S. Bankruptcy Judge Barbara Houser concludes that the Wyly brothers committed federal tax fraud for more than a dozen years.
Photo by SMU Dedman School of Law
“The best thing about Judge Houser’s opinion is that it tells a story in a well-organized manner,” says Michael Sutherland, a partner at Carrington Coleman in Dallas. “Her personality can be seen throughout the opinion. She clearly spent a lot of time personally crafting this opinion.”
Judge Houser presides over the Chapter 11 restructuring and reorganization case of Sam Wyly and Charles Wyly’s widow, Dee.
The pair filed for bankruptcy in 2014 after the U.S. Securities and Exchange Commission and the Internal Revenue Service accused the Wylys, who made billions of dollars growing and then selling Michaels Stores and Bonanza steakhouses, of establishing offshore trusts in the Isle of Man in order to hide income from being taxed, while still using the money in the trusts to fund their lavish lifestyles.
The SEC won a $299 million judgment in 2014 and then the IRS announced its intent to seek $1.4 billion in back taxes, fees and penalties from Sam Wyly and $800 million from Dee Wyly. Charles Wyly died in a car crash in Colorado in 2011.
The high-profile case also put the spotlight on Judge Houser, who became the first woman bankruptcy judge in North Texas in 2000.
In reaching her conclusion, the judge said Sam Wyly was a horrible witness and his testimony should not be believed. She said the only reason anyone would create 16 offshore trusts in the Isle of Man and 38 offshore corporations owned by one of the 16 offshore trusts and 10 domestic corporations with names matching those of the offshore trusts was to make it too difficult for authorities to trace the money for tax purposes.
“Judge Houser does not beat around the bush on how she feels about a subject matter,” says Eli Columbus, a partner in the bankruptcy section at Winstead. “She is very direct and never leaves you guessing on where she stands.”
Legal experts say that Judge Houser’s written opinion issued last week is so well researched and so thoughtfully organized and explained that it will likely become a blueprint for judges in the future writing about highly technical and complex financial matters.
“I guarantee you that we will see this opinion discussed at legal and judicial conferences across the country,” says Sid Scheinberg, a bankruptcy partner at the Godwin firm. “This opinion shows that Judge Houser is a brilliant thinker and an excellent writer.”
“Barbara is as smart and thoughtful and sophisticated as any bankruptcy judge in any court in this country,” says Russ Munsch, a bankruptcy partner at Munsch, Hardt Kopf & Harr. “As this decision shows, she can handle even the most complex disputes.”
Houser was born 62 years ago in a small town on the Great Plains of Western Nebraska, where, in a harbinger of a career to come, she had an insatiable thirst for reading and excelled in high school debate.
After receiving her law degree in 1978 from the SMU Dedman School of Law, Houser joined Locke, Purnell, Boren – now Locke Lord – where she worked in the firm’s litigation section and made partner in 1985.
In a 2007 interview with Law360, Houser said she slowly migrated toward the bankruptcy practice because it offered more opportunities at getting to argue cases in court.
“You need to be a really terrific lawyer to be a really terrific bankruptcy lawyer,” she said in the interview.
In 1988, Houston-based bankruptcy boutique Sheinfeld, Maley & Kay hired Houser to run its new Dallas office.
During the dozen years that followed, Houser was involved in some of the nation’s largest bankruptcy cases. She represented creditors in the Hunt brothers’ $2.5 billion bankruptcy in the late 1980s and represented Dow Corning in its $4.5 billion decade-long restructuring in the 1990s.
When the Dow Corning bankruptcy settlement was announced in November 1999, Houser told the Wall Street Journal that the deal was fragile.
“There are some people who want special deals for their clients, but there aren’t special deals in bankruptcy,” she told the newspaper.
As the Dow Corning case winded down, Houser was presented with another career opportunity: a seat on the federal bankruptcy court in the Northern District of Texas.
“Barbara had a highly successful national law practice and we wondered if she would get bored or impatient as a judge with a docket of routine bankruptcy cases,” says Judge Patrick Higginbotham of the U.S. Court of Appeals for the Fifth Circuit, who chaired the panel that selected Houser.
“She has proven to us that she is as good as any bankruptcy judge in the entire country,” Judge Higginbotham says.
Houser joined a North Texas bankruptcy bench led by Judge Harold Abramson, who had a reputation for unpredictability. He once described himself as “a monkey with a machine gun.”
During the past decade, lawyers representing many of the largest North Texas businesses in distress – including American Airlines, Radio Shack and Energy Future Holdings – advised their clients to restructure in Delaware or the Southern District of New York, where the lawyers contend the judges are more experienced to handle large corporate bankruptcies.
“Because Judge Houser was such a perfectionist as a bankruptcy lawyer, she can be tough on the lawyers and she suffers no fools, especially if they are not fully prepared,” says Stephen McCartin, a partner in the bankruptcy section of Gardere. “But Judge Houser completely undermines the basic premise that the bankruptcy bench in New York or Delaware are more sophisticated or better able to handle large, complex business restructurings.”
Frances Smith, a bankruptcy partner at Shackelford, Bowen, McKinley & Norton who clerked for Judge Houser in 2002, says the jurist completely immerses herself in the cases in her courtroom.
“She really cares about getting the right result under the law, even in the smallest bankruptcy cases when only a car is involved,” Smith says. “One of her favorite sayings is, ‘Pigs get fat, but hogs get slaughtered.’”
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