Upon consideration of the Plaintiff’s Application for Compensation and Reimbursement of Expenses Relating to Plaintiff’s Motion for Sanctions, the Court considered the amount of attorney’s fees and expenses Plaintiff’s Counsel was entitled to based on their work on the Motion for Sanctions. Applying the lodestar method, the Court determined that $117,760.60 in fees and $2,194.64 in expenses were allowed and $59,206.90 in fees and $141.67 in expenses were disallowed.
Upon consideration of an objection to Debtors’ Plan, the Court determined that Debtors’ interest in their father’s probate estate constitutes an equitable interest under the Code and is property of the bankruptcy estate. Accordingly, the Court overruled the objection in part as to the interests in the probate estate being part of Debtors’ bankruptcy estate and sustained the objection in part because Debtors have personal liability for some portion or all of the probate estate taxes.
Upon consideration of confirmation of Debtors’ chapter 13 plan, the Court considered whether Debtors may make a voluntary 401(k) contribution during their bankruptcy, despite failing to contribute to the 401(k) prior to filing bankruptcy. The Court found that post-petition voluntary 401(k) contributions are excluded from projected disposable income and therefore are allowed. However, the Court did not confirm Debtors’ chapter 13 plan due to various errors in the Means Test calculation of Disposable Income.
In re: Zamora-Quezada, M.D. - 2017 Bankr. LEXIS 2208
Monday, August 7, 2017
Debtor filed a Motion to Convert its Chapter 7 to a Chapter 11 over the protests of the chapter 7 trustee and a judgment creditor. Upon consideration of Debtor’s Motion, the Court found that Debtor transferred significant assets prior to filing for bankruptcy thereby removing the possibility of rehabilitation. Further, the Court found that the Debtor acted in bad faith conduct prior to and during the course of its bankruptcy and is therefore ineligible to be a chapter 11 debtor. Accordingly, the Motion to Convert was denied.
Upon consideration of Debtors' Motion to Deem Mortgage Fully Paid the Court, relying on Fifth Circuit precedent, found that an adversarial proceeding was not required because Debtors were not seeking to challenge the validity, priority or extent of the creditor's lien, but were enforcing the confirmed plan. The handwritten calculation of the loan creditor provided Debtor did not constitute an objection or amendment to the Secured Proof of Claim Debtors filed on creditor’s behalf. The Court found that Debtors’ plan did not attempt to void the lien because the plan provided a recovery for creditor and explicitly preserved his lien until the entry of Debtors’ discharge. Debtors’ Plan and Confirmation Order satisfy the four required elements to bar creditor from relitigating the amount of its claim under res judicata pursuant to Fifth Circuit precedent. In conclusion, Debtors’ Motion to Deem Mortgage Fully Paid was GRANTED by the Court. Debtors’ discharge was GRANTED, and creditor must execute a full and unequivocal release of its liens, encumbrances, and security interests secured by the Debtors’ Homestead Property.
On May 14, 2016, a bus traveling to the Kickapoo Lucky Eagle Casino was involved in a tragic accident that resulted in multiple passenger deaths and numerous injuries. The Debtor in this case operated the bus that was involved in the accident and maintained an insurance policy that provided coverage for liability and property damage. In this opinion, the Court resolves cross motions for summary judgment wherein the chapter 7 trustee and certain pre-petition creditors seek a ruling declaring whether proceeds of a liability policy owned by the Debtor are property of the bankruptcy estate. Further, the same pre-petition creditors filed two separate motions: a motion for abstention and a motion to dismiss under Fed. R. Civ. P. 12(b)(1). In determining the pending legal issue, the Court looks to Fifth Circuit case law and the provisions of 11 U.S.C. § 541. The leading case on debtor-owned insurance policies and the inclusion of their proceeds in the bankruptcy estate, In re Edgeworth, requires courts to consider whether the debtor can make a legally cognizable claim against the insurance policy. The Edgeworth court also notes that a “secondary impact,” or policy proceeds exhaustion, may affect the outcome of whether insurance policy proceeds can be included in the bankruptcy estate. The Court distills that the holding in Edgeworth, which survives subsequent decisions on this issue, provides for the inclusion of debtor-owned policy proceeds when there is a secondary impact or exhaustion of the proceeds. In the instant case, it is undisputed that the insurance policy owned by the Debtor is insufficient to cover all outstanding claims and, as such, triggers Edgeworth’s secondary impact exception. In determining the other issues, the Court found that it was not required to abstain nor should it exercise its discretion to do so under 28 U.S.C. § 1334 as it had subject matter jurisdiction. In conclusion, the Court granted the motion for summary judgment filed by the chapter 7 trustee and denied all motions filed by the pre-petition creditors.
Upon consideration of Debtors’ motion for entry of a Chapter 13 discharge and despite the fact that Debtors’ Plan was not complete when Trustee filed her Notice, the Court found that Debtors’ plan was complete upon the outstanding mortgage payment paid to CitiFinancial one month later. 11 U.S.C. §1328 (a) provides that a debtor should be discharged of debts provided for by the plan upon completion by the debtor of all payments under the plan. Here the Court determined that the post-petition mortgage payments to be paid directly to CitiFinancial fell under the plan. As such, the plan was not complete when the Trustee filed her Notice of Plan Completion in month 55 of the 60 month plan because the Debtors’ had not yet completed their mortgage payments. The Debtors’ paid the outstanding mortgage balance on month 56 of the plan and, thus, was complete and eligible to be discharged at that time as it was still within the 60 month plan.
Plaintiff filed a motion to remand stating that defendants improperly removed a state proceeding to federal court in violation of 28 U.S.C. § 1452(a)’s police and regulatory exception. Defendants removed the civil case under 28 U.S.C. §§ 1441, 1452(a), and under Article III of the Constitution § 1251. This court found that defendants could not remove pursuant to §1441 because the basis for removal under federal question and diversity jurisdiction was lacking. Since the plaintiff, being the State of Texas, is not a citizen for purposes of analysis under the federal statute, removal was barred under § 1441. The court also found that defendants had no basis for removal under 28 U.S.C. § 1251 of Article III because of misinterpretation. The statute states that the Supreme Court has original but not exclusive jurisdiction, thus, if the subject matter was not exclusive to federal courts, then it could very well be heard in state proceedings. The court found in that defendants had improperly removed the case in violation of the police and regulatory exception to § 1452(a) because plaintiff is trying to enforce matters of Texas law, under DTPA, as a matter of safeguarding the public interest. The court found that plaintiff was not acting to protect its own pecuniary interests, but rather the public’s, specifically, the individual consumers that put forth the complaints against the defendants. The court granted the plaintiff’s motion to remand to state court.
On October 17, 2016, the Court confirmed Debtor, Velasquez’s, payment plan. On January 27, 2017, Ditech, the servicer for the mortgage held by the U.S. Bank, filed a home mortgage proof of claim, which set forth a monthly mortgage payment of $912.84. That same day, Ditech also filed a Notice of Mortgage Payment Change, changing the monthly mortgage payment to $740.94. To account for the change in mortgage payments, the Trustee retroactively adjusted plan payments by $341.60 without the Court’s approval and filed a Chapter 13 Trustee’s Notice of Adjustment to Plan Payment” on February 7, 2017. The Court held that Notice of Adjustment to Plan Payment based on home mortgage proof of claim that was filed after confirmation cannot be applied retroactively and was thus impermissible. Trustee admitted she had no authority to retroactively adjust plan payments and that 26 other cases were impacted by similar action in Brownsville, McAllen, and Corpus Christi. The Court held that altering confirmed plan payments based on allowed home mortgage proof of claim filed after confirmation is impermissible. Further, the Court ordered the Trustee to file a notice of withdrawal of all notices of adjustment to plan payments filed to accommodate an allowed home mortgage proof of claim in the Impaired Cases; adjust her records and restore the plan payments in the Impaired Cases; amend any filed wage order, EFT orders, and/or ACH orders to coincide with original amounts stated in the confirmed plan.
In re: La Fuente Home Health Services, Inc. - 2017 Bankr. LEXIS 834 | 2017 WL 1173599
Tuesday, March 28, 2017
Plaintiff, La Fuente, filed for Chapter 11 bankruptcy in 2014. Upon doing so, plaintiff listed Palmetto in the creditor’s matrix and served Palmetto with an affidavit, which also provided notice. This court set a hearing for October 22, 2014 and between then and January 21, 2015, the bankruptcy schedules and plan were approved and confirmed. On July 2, 2015, this court entered a Final Decree that close plaintiff’s case. Plaintiff later requested its bankruptcy case to be reopened to include an Adversary Proceeding in which the U.S. Department of Health and Human Services were attempting to recoup debt owed directly from La Fuente. Palmetto and Sylvia Mathews Burwell, Secretary of HHS, filed a motion to dismiss the plaintiff’s Complaint and Application for Permanent Injunctive Relief and/or Alternatively Summary Judgment. This court, pursuant to Supreme Court precedent concluded that sufficient notice was provided to defendants and that it had subject matter jurisdiction to hear and settle the dispute, therefore, the motion was denied
The Court considered the Defendant’s assertion of his inability to pay sanctions. Defendant Grissom was hired by Debtor, post-discharge of a Chapter 7 bankruptcy, to pursue matters concerning Debtor’s ownership of a company. The Debtor filed a show cause motion and the court ultimately ordered Grissom to file a fee application. The court granted Grissom’s fee application for ninety-thousand dollars and ordered him to remit any additional amounts withdrawn to the Chapter 13 trustee. After failure to comply with certain orders, the Court found Grissom in civil contempt. The Court cited relevant Fifth Circuit case law allowing a contemnor to raise a defense alleging their inability to comply with or pay sanctions. The burden of proof falls on the contemnor to prove the defense by a preponderance of the evidence. Grissom provided significant testimony on his assets, cases, deals, and all manners of income generating opportunities. The Court found that much of his testimony and evidence was contradictory and speculative; thus, the Court found that Grissom failed to meet his burden. The Court determined that Grissom did in fact have the ability to pay and required him to pay back the full amount by the end of the Debtors’ 60 month plan. Additionally, the Court required him to submit financial reports to all panel hearings in Brownsville and McAllen.
Upon consideration of confirmation of Debtors’ Amended Chapter 13 Plan, the Court found that the several loans cross-collateralized with two personal motor vehicles are not subject to the hanging paragraph of 11 U.S.C. § 1325(a). The Court determined that the loans were not a purchase-money security interest and therefore were not subject to the hanging paragraph. Further, the Court found that a loan used to pay off a non-purchase money security interest loan is not subject to the hanging paragraph because it is not a purchase-money security interest. Accordingly, the Court CONFIRMED Debtors’ Amended Chapter 13 Plan and DENIED the chapter 13 Trustee’s Motion to Dismiss.
Background: Creditor filed motion to extend time for it to file proof of claim, and to allow claim that it had filed after bar date expired.
Holdings: The Bankruptcy Court, Eduardo V. Rodriguez, J., held that:
1 creditor's motion for allowance of proof of claim that it filed after bar date had expired was superfluous and unnecessary filing, and
2 court did not have authority to extend time for creditor to file proof of claim, except on showing that one of the six conditions specified in Bankruptcy Rule for such an extension was satisfied.
In re: McPhilamy 566 B.R. 382
Tuesday, January 31, 2017
Upon consideration of confirmation of Debtors’ Amended Chapter 13 Plan, the Court found that the several loans cross-collateralized with two personal motor vehicles are not subject to the hanging paragraph of 11 U.S.C. § 1325(a). The Court determined that the loans were not a purchase-money security interest and therefore were not subject to the hanging paragraph. Further, the Court concluded that motor vehicles did not qualify as “any other thing of value” pursuant to the second exception of the hanging paragraph. As such, the Court CONFIRMED Debtors’ Amended Chapter 13 Plan and DENIED the chapter 13 Trustee’s Motion to Dismiss or Convert.
This Court considered five separate matters. The first matter pending before the Court was U.S. Bank Trust, N.A. and Caliber Home Loans, Inc.’s (collectively, the “Caliber Defendants”) joinder in Defendant HSBC’s (1) Expedited Motion for Stay of Debtors’ Motion to Compel Discovery Pending Ruling on HSBC’s Dispositive Motion; (2) Expedited Motion for Protective Order; and (3) Response to Debtors’ Motion to Compel HSBC to Produce Documents; and Response to Motion to Compel Production of Documents. The Court determined that joinder should be granted in part and denied in part. The Caliber Defendants’ joined in Defendant HSBC’s motion seeking a protective order covering the discovery produced during litigation. HSBC’s motion became moot as they were dismissed from the case. The Caliber Defendants’ motion survived as they had separately requested relief in the joinder. In Regards to the Caliber Defendants’ joinder requesting a protective order, Fed. R. Civ. P. 26 (c) (1) provides that the moving party has the burden of showing that disclosure of the discovery sought by the opposing party would cause “annoyance, embarrassment, oppression, or an undue burden or expense”. Additionally, the moving party must certify that they conferred, or attempted to confer in good faith, with the opposing party to resolve the issue before the involving the court. The Court determined that the parties had conferred and that the Caliber Defendants demonstrated good cause as the protecting trade secrets and confidential information within the discovery sought by the Plaintiffs. The Court held that joinder should be granted as to the protective order being issued to restrict the Plaintiffs’ use of such information produced by the Caliber Defendants’ which would constitute a trade secret or confidential information. The second matter before the Court was the Plaintiff’s Motion to Compel. The Court was guided by Fed. R. Civ. P. 26 (b) (1) which reads that the scope of discovery extends to unprivileged info that is “relevant to any party’s claim or defense and is proportional to the needs of the case”. The Court determined that Plaintiff’s motion to compel should be granted in part and denied in part. Plaintiffs’ request Nos. 1, 17, and 19 were denied as the court deemed them to be vague and outside the scope of Rule 26. The Court also denied requests Nos. 3-9 as Plaintiffs’ did not specify the form in which documents falling under Nos. 3-9 were to be delivered. Plaintiffs’ request Nos. 2 and 20 were determined to be necessary as the Caliber Defendants’ response to each was deficient; as such, the Court granted Plaintiffs’ Motion to Compel as to request Nos. 2 and 20 in their entirety. The Court next took up the Plaintiffs’ Motion for Leave. Plaintiffs’ sought to file a supplemental complaint based on a series of events that they allege transpired subsequent to the date of the pleading to be supplemented. The Court found that Plaintiffs’ Motion for Leave should be denied as the facts provided did not fit within Fed. R. Civ. P. 15 (d) to permit the filing of Plaintiffs’ supplemental complaint. The Court then considered Plaintiffs’ Expedited Motion for Sanctions Pursuant to Fed. R. Civ. P. 37 to exclude testimony of Clint Burton or anyone else not presented on July 27, 2016 for the Rule 30(B)(6) corporate representative deposition. The Court determined that the Motion for Sanctions was largely moot as the court had already granted Plaintiffs’ Motion to Strike testimony by Mr. Burton. However, the Court did grant Plaintiffs’ motion for sanction as to their right to seek attorney’s fees. Finally, the Court denied the Caliber Defendants’ Motion Reopen as the evidence sought to be admitted post-hearing did not comply with the provisions of Fed. R. Civ. P. 59.
Upon consideration of Debtor’s Application to Employ Special Litigation Counsel, the Court found that Debtor had a constitutional right—albeit not an absolute right—to choice of counsel. Further, the Court found that Debtor’s Application complied with the requirements of 11 U.S.C. § 327(e) and Fed. R. Bankr. P. 2014. As such, the Court GRANTED Debtor’s Application to Employ Special Litigation Counsel and OVERRULED the Objection.
In re Brothers Materials, LTD. - 2016 Bankr. LEXIS 4077
Monday, November 28, 2016
Upon consideration of Debtor’s Motion to Enforce the Plan, the Court found that all parties, including the Internal Revenue Service, were bound by the terms of the confirmed plan. Therefore, Debtor’s Counsel was entitled to payment of awarded administrative expenses from the proceeds of the sale of non-debtor property contributed to the estate by Debtor’s principals pursuant to the terms of the plan. As such, the Court GRANTED Debtor’s Motion to Enforce the Plan and OVERRULED the IRS’s Objection.
The Court considered confirmation of Debtors’ Sixth Amended Plan, which sought to pay a home mortgage in full during the term of the plan at a lower interest rate than the original contract interest rate. Although the mortgage could be prepaid due to bargained for rights in the mortgage contract, lowering the contract interest rate under the plan is an impermissible modification pursuant to 11 U.S.C. § 1322(b)(2). As such, the Court DENIED confirmation of Debtors’ Sixth Amended Plan.
Plaintiff, Montalvo, filed for Chapter 13 bankruptcy in 2016, and pursuant to 28 U.S.C. §§ 1334, 1452(a), and Fed. R. Bankr. P. § 9027(a)(1), removed civil case C-7344-13 from the 93rd District Court to this court as Adversary Proceeding. Defendant in the civil case, Vela, then filed a motion for remand the day after removal of C-7344-15, stating that this court had no jurisdiction to hear the matters of the case, and that the case was merely a collateral attack on the previously settled case against Montalvo and in favor of Vela. The settled civil case, C-095-09, was filed in the 275th District Court in 2009, and the current Adversary Proceeding was filed in 2013. Because Vela did not specifically state their motion under which statute this court had to remand, the court analyzed the case under three possible avenues: equitable remand under 28 U.S.C. § 1452(b), permissive abstention under § 1334(c)(1), and mandatory abstention under § 1334(c)(2). This court denied remand and abstention under all three statutes pursuant to the analysis of various sets of factors.
In re: Montalvo 559 B.R. 825
Friday, October 14, 2016
Upon consideration of Defendant’s Motion for Remand, the Court found that the Defendant failed to establish the requirements for mandatory abstention, pursuant to 28 U.S.C. § 1334(c)(2), and declined to exercise discretionary abstention under § 1334(c)(1), or equitable remand under § 1452. As such, the Court DENIED Defendant’s Motion for Remand.
Pending before the Court was the Object to the Notice of Post-Petition Mortgage Fees, Expenses, and Charges of PlainsCapital Bank, (the “Objection”), filed by Julio Raygoza, (the “Debtor”). Debtor objected to $505.80 in attorney’s fees for services performed in November 2015 as untimely under Fed. R. Bankr. P. 3002.1(c). PlainsCapital Bank argued that the fees were incurred when PlainsCapital Bank’s Counsel invoiced the fees one month later, not when the legal services were initially rendered, and thus were not untimely. Further, Debtor objected to $825.00 in attorney’s fees because Debtor alleged that preparing and filing a proof of claim is a ministerial act that does not requires the assistance of counsel. First, the Court considered when fees, expenses, and charges are “incurred” for purposes of Bankruptcy Rule 3002.1(c). In considering the statutory context, dictionary definition, and case law, the Court found that an expense is “incurred” when there is a legal obligation to pay the debt, which in this case is when the legal services were rendered. As such, the Court SUSTAINED the Objection as to the $505.80 in attorney’s fees from November 2015 as untimely under Rule 3002.1(c). Second, the Court considered whether in this particular case PlainsCapital Bank could recover attorney’s fees for preparing and filing a proof of claim. The Court found that preparing a proof of claim does require a degree of legal analysis, which can be the subject of attorney’s fees, while certain aspects of filing a proof of claim are ministerial. However, in this case, no evidence was presented to establish that PlainsCapital Bank’s Counsel engaged in legal analysis and reasoning beyond the minimally necessary legal services required to prepare a proof of claim. In applying the factors to determine a reasonable award of attorney’s fees, the Court found that PlainsCapital Bank was entitled to $250.00 in attorney’s fees, but not entitled to the remaining $575.00 requested. As such, the Court SUSTAINED the Objection, in part, and DENIED the Objection, in part.
The Court considered five show cause orders, which spawned from fifteen motions filed by Raymond Minardi (“Minardi”). (collectively, the “Motions”). In each of the Debtors’ cases, Minardi filed the same set of three motions, which minimally varied, and sought to reopen the cases, defer the fee to reopen the cases, and the execution of asset recovery agreements. In analyzing whether Minardi was entitled to file his motions on behalf of Trader Sam, LLC, the Court considered standing and the unauthorized practice of law. First, the Court found that Minardi failed to demonstrate the requisite standing required to file the Motions and therefore was not a party in interest in the Debtors’ cases. Second, the Court determined that Minardi engaged in the unauthorized practice of law in violation of Fed. R. Bankr. P. 9010. As such, the Court ORDERED that Minardi be enjoined from filing or causing to be filed any further pleadings, aside from matters relating to his own personal legal affairs, in the United States Bankruptcy Court, Southern District of Texas McAllen, Laredo, and Brownsville Divisions unless Minard seeks leave of the court prior to filing and demonstrates that he has retained counsel admitted to practice in the state of Texas and before the United States District Court for the Southern District of Texas. Further, the Court referred Minardi, to the extent that Minardi engaged in the unauthorized practice of law, to the Unauthorized Practice of Law Committee of the State Bar of Texas.
Pending before the Court was PlainsCapital Bank’s Objection to Confirmation (the “Objection”). PlainsCapital Bank objected to confirmation of the Plan on the basis that implementation of the Plan would not provide PlainsCapital Bank with the treatment it is entitled to as a secured creditor. Specifically, PlainsCapital Bank alleged that it is entitled to interest on its claim from the petition date, but the Plan only provided for interest beginning with the date of confirmation. At the Hearing, the chapter 13 trustee announced that the trustee would modify her procedures to accrue interest on over-secured claims for the pre-confirmation period. PlainsCapital Bank’s Counsel elected to have the Court issue a memorandum opinion as opposed to withdrawing the Objection. The Court found that pursuant to 11 U.S.C. § 506 the implementation of the Plan should be accruing pre and post-confirmation interest. As such, the Court SUSTAINED the Objection to the extent that PlainsCapital Bank objected to the implementation of the Plan, but not as to the substance of the Plan.
The Court entertained two matters in the main bankruptcy case and the associated adversary proceeding: Petitioning Creditors’ Verified Emergency Motion to Enjoin, Pursuant to 11 U.S.C. § 105, and Rule 7065, BRP, the Dissipation of Assets by the Debtor and its Insurers Made Outside the Ordinary Course of its Operations (the “Motion”) and Petitioning Creditors’ “Motion for Temporary Restraining Order and for Preliminary Declaratory and/or Injunctive Relief and Memorandum of Law in Support (the “Adversary Motion”). The Motion sought to temporarily enjoin OGA Charters, LLC’s (“OGA”) liability insurance carrier, New York Marine and General Insurance Company (the “Insurance Company”), from finalizing any settlements on OGA’s liability stemming from an accident that occurred on May 14, 2016, until the Court could determine whether the Petitioning Creditors satisfy the requirements of 11 U.S.C. § 303. The Adversary Motion sought substantially similar relief to the Motion, but also requested declaratory relief. The Court, in evaluating the requirements of standing, found that the Petitioning Creditors had standing because the Petitioning Creditors provisionally demonstrated that they satisfied the requirements of § 303(b)(1). The Court analyzed the four required elements to issue a preliminary injunction and found that Petitioning Creditors satisfied the elements, because the preliminary injunction is essentially an extension of the 11 U.S.C. §362 stay on the Insurance Company’s liability policy. Therefore, the Court GRANTED the Motion. Further, as the relief requested in the Adversary Motion was substantially the same as the Motion, with the exception of the declaratory relief, the Court GRANTED the preliminary injunction sought in the Adversary Motion and DENIED the declaratory relief sought because it is not ripe.
Pending before the Court were two motions: Frescos Tomver’s (“Frescos Tomver”), an unsecured creditor, Objection to Disclosure Statement (the “Objection”) and Debtor’s Motion to Appoint Saul Zuniga as Designated Representative of Divine Ripe, L.L.C. Pursuant to Federal Bankruptcy Rule 9001(5)(A) (the “Motion to Appoint”). The Objection alleged that Debtor’s Disclosure Statement does not contain adequate information on Debtor’s Plan of Reorganization, specifically information on Marco Jimenez’s (“Jimenez”) financial capabilities and information about Debtor. Further, the Objection alleges that Debtor’s plan violates federal law. Debtor’s Motion to Appoint sought approval to appoint Saul Zuniga, Debtor’s employee, as the Designated Representative. The Court, in applying the standards for adequate information in a disclosure statement, held that Debtor failed to disclose adequate information regarding Debtor’s and Jimenez’s financial resources necessary for Debtor’s successful reorganization. As such, the Court SUSTAINED the Objection and found Debtor’s Disclosure Statement is NOT APPROVED. In consideration of the Motion to Appoint, the Court found that Saul Zuniga (“Zuniga”) does not qualify as an “other person in control” because Zuniga is not knowledgeable about Debtor’s affairs and has not been formally given authority to act on behalf of Debtor by Debtor’s sole member, Jimenez, pursuant to Fed. R. Bankr. P. 9001(5) and Tex. Bus. Orgs. Code § 101.251-254. Further, the Court found that the Motion to Appoint should be DENIED.
In re: Treyson Dev., Inc. - 2016 WL 1604347 | 2016 Bankr. LEXIS 1768
Tuesday, April 19, 2016
Pending before the Court in the main bankruptcy case and related adversary proceeding were two motions: Creditor’s Motion for Relief from Order (“Motion to Vacate”) and Plaintiff’s Motion to Remand, Abstention and 9027(e)(3) Statement (“Motion for Remand”). Creditor, in its’ Motion to Vacate sought to have the Court’s Order Confirming the Debtor’s Plan vacated because of a provision that was impermissible. Plaintiff, which is the creditor from the bankruptcy case, in its Motion for Remand sought remand or abstention of the adversary proceeding. The two motions were interrelated because the provision in the Debtor’s Plan released and discharged the Debtor’s sole member from liability for the Plaintiff’s claims. The Court reviewed the standard for the binding effect of a confirmed plan upon noticed parties before determining that, upon applying such standard to the instant matter, a confirmed plan is binding upon the Creditor because the Creditor received notice of the proceedings and failed to object or timely appeal. As such, this Court DENIED the Motion to Vacate The Court, in applying the standards for remand and abstention to the instant matter, held that, having contemporaneously interpreted the provisions of the Debtor’s Plan, this Court should ABSTAIN from hearing the instant matter and the matter should be returned to state court for further proceedings. Thus, this Court GRANTED the Motion for Remand.
This Court examined the chapter 13 trustee’s Notice of Final Cure, which was objected to by Mesquite Bean Asset, the secured creditor, as improper. Instead, Mesquite Bean sought full payment of a second claim composed of post-petition expenses it had paid. The basis for Mesquite Bean’s objection was that the claim was not subject to 11 U.S.C. § 1322(b)(5) and thus a notice pursuant to Fed. R. Bankr. P. 3002.1(f) is improper. The Debtor’s plan had been confirmed, without objection, and all plan payments had been made. However, upon review of the original note, this Court confirmed that § 1322(b)(5) was indeed inapplicable because the note’s original term would not have extended beyond the final payment of the Debtor’s chapter 13 plan where the rule requires that the payments extend beyond the final plan payment. The Court thus found a 3002.1(f) notice improper. The Debtor objected to Mesquite Bean’s Claim 7, its second claim in the bankruptcy. Mesquite Bean had filed Claim 7 in lieu of filing an application for administrative expenses, pursuant to Fed. R. Bankr. P. 2016, that were composed of post-petition ad valorem taxes it had paid. Moreover, Mesquite Bean had failed to notice the Debtor of any of the expenses that it had paid, which this Court found was a violation of the Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2607-2617. In addition to Mesquite Bean’s failure to notice the Debtor, Mesquite Bean’s accounting demonstrated conclusively that it had been processing the chapter 13 trustee’s payments in a manner contrary to the confirmed plan, thus constituting a violation of the confirmed plan. Therefore, this Court ordered that the Notice of Final Cure be STRICKEN, that the Objection to Claim be SUSTAINED, that Mesquite Bean’s Claim 7 be DENIED, and that Mesquite Bean disgorge any payments received on Claim 7.
Chapter 7 Trustee filed the instant adversary seeking turnover of proceeds from a post-petition sale of the Debtor’s homestead, which is a matter of first impression for this Court. This Court considered the Trustee’s Motion for Summary Judgment and heard arguments by the parties at a hearing conducted December 16, 2015. The facts of the case are that the Debtor filed for chapter 7 bankruptcy and claimed his homestead, at the time of filing, as exempt under Tex. Prop. Code § 41.001. There were no objections to the debtor’s claimed homestead exemption by any party in interest. After filing his petition, Debtor sought and received permission to sell the homestead and received the proceeds net of his former spouse’s share. The Debtor partially reinvested the proceeds into new property on which he intended to build a homestead, but did not completely reinvest his proceeds into a new Texas homestead. The Texas Property Code provides a six-month timeframe for the owner of a homestead to reinvest the proceeds from the sale of a homestead and violating that provision results in the loss of exemption on the proceeds. Trustee sought turnover of the remaining proceeds based on the argument that the remaining proceeds lost their exemption due to the Debtor’s failure to reinvest them into a new Texas homestead within the statutory timeframe. The Fifth Circuit and several bankruptcy courts throughout Texas have addressed this issue in both chapter 7 and chapter 13 bankruptcy cases. The foremost decisions by the Fifth Circuit on this issue are In re Frost and In re Zibman. There is a quartet of decisions by Texas Bankruptcy Courts addressing this issue: In re Smith, In re Reed, In re D’Avila, and In re DeBerry. This Court, in addressing the matter at bar, analyzed those cases before determining that the core holding of In re Frost is factually distinguishable from the instant chapter 7 case and thus does not apply. This Court reached that decision by analyzing the fact that the debtor’s homestead in Frost, while properly exempted, remained property of the estate by operation of the chapter 13 plan and 11 U.S.C. § 1327 and thus the outcome of In re Frost was reasoned to be by virtue of 11 U.S.C. §§ 541(a)(6), (a)(7), or 11 U.S.C. § 1306. This fact is distinguishable in a chapter 7 bankruptcy where no such provision has the same operational effect. Furthermore, the Fifth Circuit decisions on this issue in a chapter 7 bankruptcy were also factually distinguishable, as they did not involve the post-petition sale of a homestead properly exempted, without objection, under Texas law. In concluding that In re Frost did not apply in the instant case, this Court was compelled to determine that the Trustee did not meet his burden under the summary judgment standard. This Court then took up summary judgment, sua sponte, for the Debtor, as permitted by Fed. R. Civ. P. 56(f) and Fed. R. Bankr. P. 7065, and concluded that the Debtor had met his burden and was entitled to judgment as a matter of law. Accordingly, the Trustee’s Motion for Summary Judgment was DENIED and summary judgment was GRANTED for the Debtor.
Two creditors contemporaneously filed motions requesting an order confirming the termination of the automatic stay, pursuant to 11 U.S.C. § 362. Two hearings were conducted on the matter and the debtor’s attorney failed to attend either hearing. At both hearings, Counsel for both creditors presented his argument for termination of the automatic stay based on the Debtor having had a prior case pending within a year and that the debtor had not filed a motion to extend or impose the automatic stay under § 362(c)(3). Section 362(c)(3) provides 30-days for a debtor to file a request to extend the automatic stay and for a court to conduct a hearing on that request. The Debtor provided what argument he could without the assistance of counsel, but the failure to file a motion to extend the automatic stay within the statutory time limit of 30 days was definitive. Accordingly, this Court GRANTED the creditors’ motions to confirm the termination of the automatic stay.
Before this Court was a set of competing chapter 7 and chapter 13 cases involving the same debtor. The trustee to the chapter 7 case owned a percentage of stock in a business and a set of potential claims related to that property. Meanwhile, the debtor accrued causes of action post-petition for personal injury, related to that same business, which entered into the chapter 13 estate. The chapter 7 trustee, the debtor, and parties related to the business all agreed to settle under one unified agreement, where the trustee would release the stock and his claims, debtor would release her claims, and the business would disburse $650,000, $100,000 of which was provisioned for the chapter 7 trustee. The chapter 7 trustee and the debtor (in the chapter 13 case) then each filed a motion to compromise, but the debtor’s motion sought to disallow and intercept the chapter 7 portion. This Court concluded that the settlement was partially property of both the chapter 7 and 13 estates, with each entity having brought its own independent consideration to the agreement. This Court therefore concluded that the fairest compromise, the chapter 7’s, should be GRANTED, because it allowed the chapter 7 estate to reap the benefit of its consideration. Accordingly, this Court also DENIED the chapter 13 motion to compromise. This Court additionally concluded that the mixed chapter 7 and 13 property nature of the settlement would affect the debtor’s attorney’s ability to collect contingency fees over the entirety of the $650,000 in gross proceeds.
Chapter 7 Trustee filed a Motion for Approval of Compromise and Settlement Agreement (“Compromise”) on October 5, 2015. The Compromise sought approval for a settlement that the Joint Debtor had accepted in a multi-district litigation class action lawsuit, which included the payment of attorney’s fees and expenses to an unemployed professional. This Court heard arguments on December 16, 2015 and conditionally approved the Compromise with leave for the unemployed professional to file an application for employment on a nunc pro tunc basis that was compliant with the local rules. The unemployed professional filed such an application (“Application to Employ”) on January 8, 2016, [ECF No. 57], and an Application for Allowance of Trustee’s Special Counsel’s Fees And Expenses (“Fee Application”), [ECF No. 58], the same day. In reviewing the Application to Employ, this Court found significant deficiencies and non-compliance with not only the Local Rules for the Southern District of Texas, but also this Court’s own procedures. The standard for nunc pro tunc employment requires explanations on multiple facets of the employment and its impact to the estate, and should be approved only “under rare or exceptional circumstances.” This Court held that the Application to Employ was procedurally deficient and must be DENIED. As such, the Fee Application was mooted and STRICKEN.
In determining a motion to convert or dismiss two jointly administered chapter 11 cases, this Court was required to determine the applicability of 11 U.S.C. § 1121(e)’s plan filing deadlines for small business cases. This Court determined that the one small-business debtor, who had elapsed the deadline for filing a plan, essentially precluded the other debtor from filing a plan. However, this court concluded that § 1121(e)’s deadline did not apply to creditors, who were willing to file a competing plan in the jointly administered cases. This Court therefore found no cause for dismissal or conversion, as a feasible plan could still be proposed, and as such the motion was DENIED.
Before this Court was a Motion for Sanctions in relation to a case in which Plaintiff alleged that Defendant engaged in improper phone calls to Plaintiff post-petition. This Court ruled on Plaintiff’s Motion, deciding to impose some of Plaintiff’s requested sanctions. Specifically, this Court found that Defendant’s withholding of material evidence in the form of phone call recordings merited sanctions in the form of fact deeming and evidence preclusion related to Defendant’s telephonic communications with Plaintiff. This Court also found that Defendant’s “no-showing” of a fact witness merited sanctions in the form of preventing Defendant from presenting a fact witness at trial to testify with respect to any personal knowledge of Defendant’s communication with Plaintiff. This Court found that the timely production of unredacted corporate policies when so ordered rendered any sanctions with respect to corporate policies inappropriate. This Court also found that the presentation of two corporate representatives who were not fatally incompetent rendered any related sanctions unnecessary. This Court finally found that default judgment would be inappropriate.
Creditor Plaintiff filed an adversary against Debtor Defendant, asking this Court to deny the discharge of debts in the main bankruptcy case under either §§ 523 or 727, for Debtors’s alleged intentional disposition of secured purchase money property. Thereafter, Creditor filed a Motion to Dismiss. This Court determined that the Motion had the character of a settlement agreement, by virtue of being tied to a stipulation and reaffirmation agreements purporting to reaffirm the debt in the allegedly disposed furniture, and should therefore be analyzed under the approval standards for settlements and compromises. In disapproving the Motion to Dismiss, this Court found that it was not fair, equitable, and in the best interests of the estate, because: (1) It was questionable whether Plaintiff would have succeeded in its claim; (2) the contemplated trial was not likely to be complex or burdensome to the estate, and; (3) the compromise served the interest of only one creditor and also appeared to be coercive.
Debtor filed a so-called “chapter 22,” which consisted of two simultaneously open chapter 11 cases filed in serial sequence, where the plan from the first chapter 11 had been substantially consummated. Before this Court were three motions: Debtor’s Motion for Final Decree to close the first chapter 11 case; Creditor’s Motion for Relief from Stay in the second case; and Creditor’s Motion to Dismiss the second case. This Court found that the plan from the first case had been substantially consummated, thus rendering the estate fully administered and justifying a Final Decree. This Court also concluded that the secured creditor was entitled to relief from stay on the basis of 11 U.S.C. §§ 362(d)(1), (d)(2), & (d)(4). Moreover, this Court concluded that, while there isn’t a per se prohibition against filing a serial chapter 11 where the plan had been substantially consummated, Debtor’s lack of good faith in filing its second chapter 11 merited dismissal.
Debtors filed a Motion to Impose the Automatic Stay, pursuant to 11 U.S.C. § 362(c)(4), but the motion was converted to a Motion to Extend the Automatic Stay, pursuant to § 362(c)(3), as the Debtors had only one pending case in the year prior to the instant case. The Charles factors were used to evaluate the threshold issues for whether the instant case was filed in good faith. The testimony by one of the Debtors revealed that there were omissions on the schedules and the proposed plan failed to adequately address a potential post-petition sale of a residence, also not scheduled. As the Debtors failed to demonstrate that the filing of the instant case was done in good faith, their Motion to Extend the Automatic Stay must be DENIED.
Debtor filed a Motion to Extend the Automatic Stay pursuant to 11 U.S.C. § 362(c)(3). Debtor had a prior pending bankruptcy case in the year prior to the filing of the instant case. As such, the Debtor must demonstrate good faith, by clear and convincing evidence, as to the filing of the instant case in order for this Court to grant the extension of the Automatic Stay. The interpretation of the Debtor’s petition, schedules and proposed plan revealed that the Debtor had not proposed a feasible plan and that this Court had significant reservations about the veracity of the Debtor’s Schedule J. As such, the Charles factors required that since the Debtor was unlikely to receive a discharge that there should be a finding that the instant case was filed not in good faith. Therefore, as the instant case was concluded to have been filed not in good faith, the Debtor’s Motion to Extend the Automatic Stay should be DENIED.
Debtor’s Motion to Impose the Automatic Stay pursuant to 11 U.S.C. § 362(c)(4). The Debtor had two cases pending in the year preceding the instant case, which under 11 U.S.C. § 362(c)(4) requires that the Debtor must seek to have the Automatic Stay imposed. § 362(c)(4) requires a demonstration that the instant case was filed in good faith. Debtor had significant omissions and inaccuracies in his petition, schedules, and proposed plan. This Court relied upon the Charles factors to analyze whether the Debtor met the good faith requirement by clear and convincing evidence. In addition, this Court used three additional factors to assist in determining good faith, or lack thereof, by the Debtor. In total, the Debtor failed to demonstrate good faith in the filing of the instant case. Thus, the Debtor’s Motion to Impose the Automatic Stay cannot be granted.
Debtor filed a Motion to Extend Stay to Non-Debtor Marco Jimenez pursuant to 11 U.S.C. § 362, which was DENIED. The Debtor sought to have the Automatic Stay extended to the sole member of the Debtor, Marco Jimenez. The basis for the Debtor’s motion was that the non-debtor needed the protections of the Automatic Stay to aid in his ability to make contributions to the Debtor to facilitate a successful reorganization. However, at the hearing, the Debtor failed to demonstrate that the extension of the Automatic Stay to Marco Jimenez would have any effect on the Debtor’s likelihood to have a successful reorganization and there was not such an identity of interest between the Debtor and the non-debtor that the potential of a judgment in the matter pending before the District Court would, in essence, be a judgment against the Debtor. As such, this Court denied the Debtor’s Motion.
In support of his Motion for Sanctions against Defendant, Plaintiff offered as evidence a state court judgment in which Defendant had been harshly sanctioned for behavior similar to the alleged behavior in this case. Plaintiff also offered several documents relating to the state court judgment, including most of the pleadings on the record in that case, the jury award of damages, and a news article covering the case. Defendant contested on the grounds that it would effectively be punished for behavior conducted elsewhere and for which it had been punished. This Court admitted the evidence, in part, finding that the state court judgment would be instructive as to Defendant’s state of mind and the least level of sanctions that would be appropriate to compel Defendant into compliance. Finding the court case admissible, this Court also admitted most items from the state court docket, concluding that such documents would assist in understanding the relevant facts and timeline in the case. This Court chose not to admit any documents relating to the jury award, which were relevant only to the underlying merits of the case. This Court also chose not to admit a news article covering the state court judgment, it having little relevance.
Debtors filed a Motion for the Court to reconsider its dismissal with prejudice, which was DENIED. Debtors had voluntarily dismissed their case subsequent to a creditor having filed a motion for relief from stay, thus raising the issue of the applicability of 11 U.S.C. § 109(g)(2), which prohibits an individual from being a debtor for 180 days where said debtor voluntarily dismisses a case “following” the request for relief from stay. Debtors argued that § 109(g)(2) requires that there be causation between the request for relief from stay and the voluntary dismissal. At the hearing on the Motion, Debtors offered no evidence or testimony as to whether causation was lacking in its case. This Court concluded that § 109(g)(2)’s most reasonable construction was that of a chronological application, rather than a causal one. This Court thus DENIED the Motion to Reconsider.
Debtor sought confirmation of their proposed plan in their Chapter 11 Small Business Case. The Plan suffered from multiple deficiencies and was not confirmable pursuant to 11 U.S.C. §§ 1121 and 1129. Furthermore, the proposed plan had not been confirmed within the 45-days required by § 1121(e) nor had the Debtor moved for an extension of time. As such, the Debtor’s proposed plan was not confirmed by this Court.