REPORT AND RECOMMENDATION TO THE DISTRICT COURT THAT IT ADOPT THE ATTACHED, PROPOSED MEMORANDUM OPINION AND ORDER OF THE BANKRUPTCY COURT, THAT WOULD GRANT SUMMARY JUDGMENT ON COUNT 1 OF FIRST AMENDED COMPLAINT, AND DECLARE THAT DEFENDANT JAMES RUSSELL WILLIAMS HAS NO INTEREST IN DEBTOR'S REAL PROPERTY

STACEY G. JERNIGAN, Bankruptcy Judge.

This Report and Recommendation to the District Court is made pursuant to 28 U.S.C. § 157(c)(1). As further explained below, while bankruptcy subject matter exists with regard to the claims at issue in the above-referenced adversary proceeding (the "Adversary Proceeding"), the bankruptcy judge does not have statutory authority to issue a final order or judgment on certain of the non-core claims involved1 and the bankruptcy judge believes she does not have Constitutional authority to issue a final order or judgment on certain of the statutory "core" claims.2

By way of background, the Adversary Proceeding was filed on October 18, 2013—soon after the entity known as George West 59 Investment, Inc. ("George West" or "Plaintiff/Debtor") filed a voluntary Chapter 11 bankruptcy case (the "Bankruptcy Case") on September 19, 2013. The Adversary Proceeding seeks to resolve ownership disputes and controversies regarding certain real property operated as a truck stop and convenience store at 101 S. Nueces St, in the town of George West, Live Oak County Texas (the "Real Property"). It is undisputed that the Plaintiff/Debtor has, at all relevant times, had legal title to the Real Property and controlled it as its primary asset.3 The Defendant James Russell Williams ("Defendant/Williams") contends that he purchased the Real Property in an alleged prepetition, non-judicial foreclosure sale of the Real Property, although legal title, possession, and control of the Real Property were never delivered to him and no party ever received the consideration he was prepared to tender. Two additional defendants are named in this Adversary Proceeding: Ming Chu Chang ("Defendant/Chang") and American First National Bank ("Defendant/AFNB"). Defendant/AFNB was the former lender to the Plaintiff/Debtor and lienholder on the Real Property that noticed and posted the Real Property for the alleged non-judicial foreclosure sale that is the subject of this Adversary Proceeding. Defendant/Chang is an individual that acquired Defendant/AFNB's note and deed of trust, just a few days before the scheduled foreclosure sale. The Plaintiff/Debtor has requested in its First Amended Adversary Complaint to Determine Extent and Priority of Interests [DE # 14 in the Adversary Proceeding]4 (the "Amended Complaint") two alternative forms of relief from the court. First, Count 1 of the Amended Complaint seeks a declaratory judgment that Plaintiff/Debtor is the legal and rightful owner of the Real Property, that no valid foreclosure sale to Defendant/Williams occurred, that Defendant/Williams has no interest in the Real Property, and that Defendant/Chang, at this point, still holds a lien on the Real Property (there having never been a foreclosure). Second, Count 2, in the alternative, to the extent the court finds that a legally enforceable sale or transfer of an interest to Defendant/Williams did occur, seeks avoidance of the sale/transfer, under either section 548 of the Bankruptcy Code5 or section 24 of the Texas Business and Commerce Code (the "Texas Uniform Fraudulent Transfer Act" or "TUFTA").6

Now pending for consideration are three Motions for Summary Judgment filed by the Plaintiff/Debtor, by Defendant/Chang, and by Defendant/AFNB (collectively, the "Movants"). The three Motions for Summary Judgment7 seek summary judgment on only Count 1 of the Amended Complaint—specifically requesting that the court find, as a matter of law, that the Plaintiff/Debtor is the lawful owner of the Real Property, that no valid foreclosure sale ever occurred, that Defendant/Williams has no interest in the Real Property, and that the Real Property is still subject to Defendant/Chang's lien.8 To be clear, no party has moved for summary judgment on Count 2 of the Amended Complaint. In fact, Count 2 will be moot if these pending Motions for Summary Judgment are granted.

Based upon the summary judgment record and arguments presented, the bankruptcy court recommends that summary judgment is appropriate on Count 1 of the Amended Complaint. As alluded to above, the granting of summary judgment on Count 1 would make Count 2 moot— since Count 2 (a fraudulent transfer claim) has only been asserted, as an alternative form of relief, in the event the court finds a valid foreclosure sale or other valid transfer of the Real Property occurred.

I. REMINDER OF THE JURISDICTIONAL/AUTHORITY ISSUES PRESENTED IN THIS ADVERSARY PROCEEDING

Bankruptcy subject matter jurisdiction exists in this Adversary Proceeding, pursuant to 28 U.S.C. § 1334(b). The bankruptcy judges in this district are generally granted authority to exercise bankruptcy subject matter jurisdiction, pursuant to 28 U.S.C. § 157(a) and the Standing Order of Reference of Bankruptcy Cases and Proceedings (Misc. Rule No. 33), for the Northern District of Texas, dated August 3, 1984. Count 1 of the Adversary Proceeding (which is the subject of the pending Motions for Summary Judgment) implicates noncore, "related to" matters. Specifically, the issues in Count 1 involve state law (foreclosure law). However, the outcome of Count 1 of the Adversary Proceeding could conceivably have an impact upon the bankruptcy estate being administered,9 since the Plaintiff/Debtor's very existence and all of its income and reorganization prospects derive from the Real Property; thus, there is "related to" (noncore) bankruptcy subject matter jurisdiction.10 The Count 2 fraudulent transfer claim (which is not the subject of the Motions for Summary Judgment) involves statutory "core" matters.11 However, in light of the United States Supreme Court's Stern v. Marshall12 and Executive Benefits13 decisions, and since Defendant/Williams filed no proof of claim in the underlying bankruptcy case, the bankruptcy court believes that it does not have Constitutional authority to enter a final judgment on the Count 2 claim. To the extent it is relevant, Defendant/Williams does not consent to the entry of a final judgment or order by the Bankruptcy Court; all other parties (including the Plaintiff/Debtor, Defendant/Chang, and Defendant/AFNB) do consent.14 In any event, in light of (a) the noncore nature of the Count 1 claims, and (b) the Constitutional problem with the bankruptcy court entering a final order even on the Count 2 statutory "core" claims, the bankruptcy court sua sponte recommended to the District Court, on April 9, 2014, that it withdraw the reference from the bankruptcy court, upon certification by it that the parties are ready for trial.15 The bankruptcy court also recommended that the District Court allow pre-trial matters to be handled by the bankruptcy court (with the District Court having final, de novo review of any order of the bankruptcy court that might have the effect of finally disposing of claims), pursuant to the procedures section 28 U.S.C. § 157(c)(1). On April 15, 2014, the District Court entered an Order accepting the bankruptcy court's report and recommendation.16 Against this backdrop, this bankruptcy court concludes that it should not itself issue a final dispositive order on the Motions for Summary Judgment but, rather, that it should merely make a recommendation for a proposed ruling to the District Court. The bankruptcy court also believes this is what the District Court intended when it issued its Order of April 15, 2014, referring all pretrial matters to the bankruptcy court, but directing the bankruptcy court to submit dispositive matters to the district court with a recommended disposition.

Accordingly, set forth in the attached Proposed Memorandum Opinion and Order are the reasons17 that the bankruptcy court is recommending summary judgment be issued on Count 1 of the Amended Complaint (the Declaratory Judgment Action). The District Court is requested to treat the bankruptcy court's ruling as a proposal, for the District Court to either adopt or reject (after de novo review), pursuant to the process described in 28 U.S.C. § 157(c)(1).18

II. RECOMMENDATION

Accordingly, the bankruptcy court respectfully submits the attached Proposed Memorandum Opinion and Order. In summary, the bankruptcy court is recommending that summary judgment be granted by the District Court to the Plaintiff/Debtor, Defendant/Chang, and Defendant/AFNB as to Count 1 of the Amended Complaint, thus declaring that the Debtor/Plaintiff is the owner of the Real Property (subject to Defendant/Chang's lien) and that Defendant/Williams has no claim to the Real Property. Granting of the Motions for Summary Judgment would ultimately result in the disposition of the entire Adversary Proceeding.

END OF REPORT AND RECOMMENDATION

[PROPOSED] MEMORANDUM OPINION AND ORDER GRANTING MOTIONS FOR SUMMARY JUDGMENT [DE ## 41, 44 & 47] ON COUNT 1 OF FIRST AMENDED COMPLAINT, AND DECLARING THAT DEFENDANT JAMES RUSSELL WILLIAMS HAS NO INTEREST IN DEBTOR'S REAL PROPERTY

The above-referenced adversary proceeding (the "Adversary Proceeding") was filed on October 18, 2013—soon after the entity known as George West 59 Investment, Inc. ("George West" or "Plaintiff/Debtor") filed a voluntary Chapter 11 bankruptcy case (the "Bankruptcy Case") on September 19, 2013. The Adversary Proceeding seeks to resolve ownership disputes and controversies regarding certain real property operated as a truck stop and convenience store at 101 S. Nueces St, in the town of George West, Live Oak County Texas (the "Real Property"). It is undisputed that the Plaintiff/Debtor has, at all relevant times, had legal title to the Real Property and controlled it as its primary asset.1 The Defendant James Russell Williams ("Defendant/Williams") contends that he purchased the Real Property in an alleged prepetition, non-judicial foreclosure sale of the Real Property, although legal title, possession, and control of the Real Property were never delivered to him and no party ever received the consideration he was prepared to tender. Two additional defendants are named in this Adversary Proceeding: Ming Chu Chang ("Defendant/Chang") and American First National Bank ("Defendant/AFNB"). Defendant/AFNB was the former lender to the Plaintiff/Debtor and lienholder on the Real Property that noticed and posted the Real Property for the alleged non-judicial foreclosure sale that is the subject of this Adversary Proceeding. Defendant/Chang is an individual that acquired Defendant/AFNB's note and deed of trust, just a few days before the scheduled foreclosure sale. The Plaintiff/Debtor has requested in its First Amended Adversary Complaint to Determine Extent and Priority of Interests [DE # 14 in the Adversary Proceeding]2 (the "Amended Complaint") two alternative forms of relief from the court. First, Count 1 of the Amended Complaint seeks a declaratory judgment that Plaintiff/Debtor is the legal and rightful owner of the Real Property, that no valid foreclosure sale to Defendant/Williams occurred, that Defendant/Williams has no interest in the Real Property, and that Defendant/Chang, at this point, still holds a lien on the Real Property (there having never been a foreclosure). Second, Count 2, in the alternative, to the extent the court finds that a legally enforceable sale or transfer of an interest to Defendant/Williams did occur, seeks avoidance of the sale/transfer, under either section 548 of the Bankruptcy Code3 or section 24 of the Texas Business and Commerce Code (the "Texas Uniform Fraudulent Transfer Act" or "TUFTA").4

Now pending before the court are three Motions for Summary Judgment filed by the Plaintiff/Debtor, by Defendant/Chang, and by Defendant/AFNB (collectively, the "Movants"). The three Motions for Summary Judgment5 seek summary judgment on only Count 1 of the Amended Complaint—specifically requesting that the court find, as a matter of law, that the Plaintiff/Debtor is the lawful owner of the Real Property, that no valid foreclosure sale ever occurred, that Defendant/Williams has no interest in the Real Property, and that the Real Property is still subject to Defendant/Chang's lien.6 To be clear, no party has moved for summary judgment on Count 2 of the Amended Complaint. In fact, Count 2 will be moot if these pending Motions for Summary Judgment are granted.

For the reasons articulated below, the court concludes, based on the undisputed summary judgment evidence, that a lawful foreclosure sale never, in fact, occurred—due to the fact that the name and address of the individual who is alleged by Defendant/Williams to have conducted said foreclosure sale (i.e., an individual named Jorge Gonzalez, III—who was an alleged substitute trustee that was appointed the day before the sale) did not appear on the face of any notice of sale that was served, posted and filed in accordance with sections 51.002 and 51.0075(e) of the Texas Property Code.7 This rendered the alleged foreclosure sale void. Strict compliance (with the law and deed of trust) is necessary to invoke the power of a sale under a deed of trust.8 Thus, based on the undisputed summary judgment evidence, the Plaintiff/Debtor should be deemed to be the current and lawful owner of the Real Property (subject to a lien of Defendant/Chang). Accordingly, the court recommends that summary judgment be granted by the District Court to the Plaintiff/Debtor, Defendant/Chang, and Defendant/AFNB as to Count 1 of the Amended Complaint. As alluded to above, the granting of summary judgment on Count 1 would make Count 2 moot—since Count 2 (a fraudulent transfer claim) has only been asserted, as an alternative form of relief, in the event the court finds a valid foreclosure sale or other valid transfer of the Real Property occurred.

I. JURISDICTION

Bankruptcy subject matter jurisdiction exists in this Adversary Proceeding, pursuant to 28 U.S.C. § 1334(b). The bankruptcy judges in this district are generally granted authority to exercise bankruptcy subject matter jurisdiction, pursuant to 28 U.S.C. § 157(a) and the Standing Order of Reference of Bankruptcy Cases and Proceedings (Misc. Rule No. 33), for the Northern District of Texas, dated August 3, 1984. Count 1 of the Adversary Proceeding (which is the subject of the pending Motions for Summary Judgment) implicates noncore, "related to" matters. Specifically, the issues in Count 1 involve state law (foreclosure law). However, the outcome of Count 1 of the Adversary Proceeding could conceivably have an impact upon the bankruptcy estate being administered,9 since the Plaintiff/Debtor's very existence and all of its income and reorganization prospects derive from the Real Property; thus, there is "related to" (noncore) bankruptcy subject matter jurisdiction.10 The Count 2 fraudulent transfer claim (which is not the subject of the Motions for Summary Judgment) involves statutory "core" matters.11 However, in light of the United States Supreme Court's Stern v. Marshall12 and Executive Benefits13 decisions, and since Defendant/Williams filed no proof of claim in the underlying bankruptcy case, the bankruptcy court believes that it does not have Constitutional authority to enter a final judgment on the Count 2 claim. To the extent it is relevant, Defendant/Williams does not consent to the entry of a final judgment or order by the Bankruptcy Court; all other parties (including the Plaintiff/Debtor, Defendant/Chang, and Defendant/AFNB) do consent.14 In any event, in light of (a) the noncore nature of the Count 1 claims, and (b) the Constitutional problem with the bankruptcy court entering a final order even on the Count 2 statutory "core" claims, the bankruptcy court sua sponte recommended to the District Court, on April 9, 2014, that it withdraw the reference from the bankruptcy court, upon certification by it that the parties are ready for trial.15 The bankruptcy court also recommended that the District Court allow pre-trial matters to be handled by the bankruptcy court (with the District Court having final, de novo review of any order of the bankruptcy court that might have the effect of finally disposing of claims), pursuant to the procedures section 28 U.S.C. § 157(c)(1). On April 15, 2014, the District Court entered an Order accepting the bankruptcy court's report and recommendation.16 Against this backdrop, this bankruptcy court concludes that it should not itself issue a final dispositive order on the Motions for Summary Judgment but, rather, that it should merely make a recommendation for a proposed ruling to the District Court. The bankruptcy court also believes this is what the District Court intended when it issued its Order of April 15, 2014, referring all pretrial matters to the bankruptcy court, but directing the bankruptcy court to submit dispositive matters to the district court with a recommended disposition.

Accordingly, set forth below are the reasons17 that the bankruptcy court is recommending summary judgment be issued on Count 1 of the Amended Complaint (the Declaratory Judgment Action). The District Court is requested to treat this court's ruling as a proposal, for the district court to either adopt or reject (after de novo review), pursuant to the process described in 28 U.S.C. § 157(c)(1).18

II. THE UNDISPUTED SUMMARY JUDGMENT EVIDENCE19

1. The Plaintiff/Debtor presently holds (and at all relevant times has held) legal title to 2.024 acres of land and the improvements thereon located in George West, Live Oak County, Texas (the "Real Property").20

2. The Plaintiff/Debtor is the obligor on a promissory note (the "Note") dated January 3, 2007, which was secured by a Deed of Trust (the "Deed of Trust") on the Real Property, of the same date.21 The Note and Deed of Trust were previously owned and held by Defendant/AFNB, but they were subsequently purchased by Defendant/Chang.22

3. Prior to Defendant/Chang acquiring the Note and Deed of Trust from Defendant/AFNB, the Plaintiff/Debtor defaulted on its obligations to pay the Note, and Defendant/AFNB began collections efforts and ultimately sought to foreclose on the Real Property.23

4. On March 8, 2012, a Notice of Substitute Trustee's Sale was mailed to the Plaintiff/Debtor by an individual named Walter A. Schroeder, attorney for Defendant/AFNB,24 and on March 9, 2012, the same Notice of Substitute Trustee's Sale was recorded and posted at the Live Oak County, Texas Courthouse by Live Oak Title Company, which happens to be owned by Defendant/Williams (hereinafter, the "March 9, 2012 Notice of Sale").25 The March 9, 2012 Notice of Sale provided that there would be a public sale by auction of the Real Property on April 3, 2012, between 1:00 p.m. and 4:00 p.m., and further provided that Walter A. Schroeder and/or Tony Y. Kuo (with addresses for both shown) were both substitute trustees with authority to conduct the sale.26 The March 9, 2012 Notice of Sale was signed by Walter A. Schroeder, at the address of "9999 Bellaire Blvd., Suite 350, Houston, Texas 77036," and by Tony Y. Kuo, also at the address of "9999 Bellaire Blvd., Suite 350, Houston, Texas 77036."27

5. On March 30, 2012—some 21 days later and just four days prior to the scheduled foreclosure sale—the Note and the Deed of Trust were purchased by Defendant/Chang from Defendant/AFNB and an Assignment of Note and Liens was duly executed, with Defendant/Chang paying Defendant/AFNB more than $288,000 in funds.28 After the purchase and assignment of the Note and Deed of Trust, Defendant/Chang executed a Memorandum of Designation of Substitute Trustee on April 2, 2014.29 Defendant/Chang's signature on the Memorandum of Designation of Substitute Trustee was notarized by an individual named Ken Mok and the document designated an individual named Jorge Gonzalez III ("Mr. Gonzalez") as the new Substitute Trustee, effective April 2, 2012, with all powers to act under the Deed of Trust and the March 9, 2012 Notice of Sale, and specifically adding the words that the "Trustee substituted out: Walter A. Schroeder and/or Tony Y. Kuo."30 No address for Mr. Gonzalez was shown on the document. And, to be clear, this Memorandum of Designation of Substitute Trustee (hereinafter, the "Gonzalez Appointment") was executed just one day before the scheduled foreclosure sale. Moreover, there was no summary judgment evidence that the Gonzalez Appointment was ever served on the Plaintiff/Debtor or recorded and posted at the Live Oak County, Texas Courthouse.31 In any event, the Gonzalez Appointment certainly was not served, posted and filed 21 days before the scheduled foreclosure sale.

6. About 1 o'clock on April 3, 2012, Defendant/Williams arrived at the Live Oak County Courthouse, in George West, Texas (which was right across the street from his title company) in order to bid on the Real Property.32

7. Defendant/Williams met Mr. Gonzalez (apparently by happenstance, while waiting around on a sitting bench) and discovered that they were both there concerning the same Real Property; in fact, Mr. Gonzalez showed Defendant/Williams the Gonzalez Appointment purportedly naming Mr. Gonzalez as a new substitute trustee on the Real Property.33 Defendant/Williams ultimately made an oral bid to the alleged, newly appointed substitute trustee, Mr. Gonzalez, of $300,000.00 cash for the Real Property.34 Defendant/Williams contends (and it is not disputed by Movants, for purposes of the Motions for Summary Judgment) that his $300,000.00 oral bid was accepted by Mr. Gonzalez.35 However, according to Defendant/Williams (again, which is not disputed by Movants, for purposes of the Motions for Summary Judgment), Mr. Gonzalez set two conditions on the sale: (1) that Defendant/Williams return to the Live Oak County Clerk's Office by 4 p.m.; and (2) with a cashier's check for $300,000.00.36 Defendant/Williams returned by 4 p.m. with a $300,000 cashier's check made payable, interestingly, to "Walter Schroeder, Trustee" (whom, recall, was Defendant/AFNB's lawyer and was one of the original substitute trustees named in the March 9, 2012 Notice of Sale). Defendant/Williams represents that he was ready, willing and able to purchase the Real Property at that time. However, Mr. Gonzalez did not return that afternoon—or any time thereafter—to collect the cashier's check.37 Nor was Walter Schroeder around, for that matter. The $300,000 check has since remained in the possession of Defendant/Williams' lawyer.38

8. On September 27, 2012, Defendant/Williams filed a state court suit to enforce the alleged oral contract he asserts he made with Mr. Gonzalez to purchase the Real Property and a notice of lis pendens.39 On July 11, 2013, Defendant/Williams amended his petition and sued the Plaintiff/Debtor to enforce his alleged oral contract to purchase the Real Property.40

9. On September 19, 2013, the Plaintiff/Debtor filed a voluntary petition for bankruptcy relief with this court, pursuant to Chapter 11 of the Bankruptcy Code.

10. On November 15, 2013, the Plaintiff/Debtor filed the Adversary Proceeding.

11. All parties in this Adversary Proceeding except Defendant/Williams take the position that no valid foreclosure sale took place.

III. SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate whenever a movant establishes that the pleadings, affidavits, and other evidence available to the court demonstrate that no genuine issue of material fact exists, and the movant is, thus, entitled to judgment as a matter of law.41 A genuine issue of material fact is present when the evidence is such that a reasonable fact finder could return a verdict for the non-movant.42 Material issues are those that could affect the outcome of the action.43 The court must view all evidence in a light most favorable to the non-moving party.44 Factual controversies must be resolved in favor of the non-movant, "but only when there is an actual controversy, that is, when both parties have submitted evidence of contradictory facts."45 If the movant satisfies its burden, the non-movant must then come forward with specific evidence to show that there is a genuine issue of fact.46 The non-movant may not merely rely on conclusory allegations or the pleadings.47 Rather, it must demonstrate specific facts identifying a genuine issue to be tried in order to avoid summary judgment.48 Thus, summary judgment is proper if the non-movant "fails to make a showing sufficient to establish the existence of an element essential to that party's case."49

IV. ANALYSIS

As stated above, the Movants have sought summary judgment on Count 1 of the Amended Complaint, and ask that the court declare, as a matter of law, that no valid non-judicial foreclosure sale actually occurred on April 3, 2012, with respect to the Real Property, and that Defendant/Williams has no interest in the Real Property. The primary legal basis asserted is that the alleged substitute trustee (Mr. Gonzalez), with whom Defendant/Williams dealt, lacked authority to sell the Real Property, thereby rendering the purported foreclosure sale void as a matter of law, since Mr. Gonzalez's name and address were not included in the March 9, 2012 Notice of Sale (as noted earlier, Mr. Gonzalez's address was not included on the Gonzalez Appointment either). Resolution of this issue ultimately hinges upon this court's interpretation of two Texas statutes which govern non-judicial foreclosure sales, specifically sections 51.002 and 51.0075(e) of the Texas Property Code.50 Movants have additionally argued that, even if the court were to find as a matter of law that Mr. Gonzalez had authority to conduct the foreclosure sale, that: (1) no consideration was paid or tendered to the substitute trustee, to Defendant/AFNB, to Defendant/Chang or to the Plaintiff/Debtor for the Real Property; and (2) the Statute of Frauds bars any of Defendant/Williams' equitable claims against the Real Property.51 However, to the extent that any of the Movants' arguments prevail, Defendant/Williams has argued that the Movants are barred from declaring that the foreclosure sale is invalid under the affirmative defense of equitable estoppel.

a. Did Mr. Gonzalez Have Authority to Conduct the Foreclosure Sale, Pursuant to the Deed of Trust and Sections 51.002 and 51.0075(e) of the Texas Property Code? Answer: No, as a Matter of Law.

The power of a trustee to sell property for a party is derived solely from the deed of trust and can only be exercised in strict compliance with the deed of trust and Texas law.52 Here, the Deed of Trust authorized a trustee to conduct a non-judicial foreclosure sale as follows:

Looking at this language from the Deed of Trust, it appears that Defendant/Chang did, indeed, have the right to appoint a substitute trustee at any time once she became the assignee of the Note and Deed of Trust; thus, the appointment of Mr. Gonzalez, pursuant to Gonzalez Appointment, was wholly permissible and did not violate any of the provisions in Deed of Trust itself. However, Defendant/Chang and Mr. Gonzalez would also still need to comply with the applicable notice requirements under Texas law, in order to lawfully conduct a non-judicial foreclosure sale of the Real Property. Accordingly, the court must look to the Texas Property Code and determine what it prescribes, in terms of the type of notice and procedures that a trustee or substitute trustee is required to follow in connection with a foreclosure sale in Texas.

First, section 51.002 of the Texas Property Code provides:

Moreover, subsection (e) of section 51.0075 of the Texas Property Code, which was enacted in 2005, provides that:

Here, the unrefuted summary judgment evidence demonstrates that the March 9, 2012 Notice of Sale only listed the name and address of Walter A. Schroeder and/or Tony Y. Kuo as substitute trustee(s). There is no mention of Mr. Gonzalez anywhere in the March 9, 2012 Notice of Sale. In fact, Mr. Gonzalez was not "in the picture" on that date. The only written documentation evidencing the existence of Mr. Gonzalez as a substitute trustee was in the Gonzalez Appointment, dated April 2, 2012, which was just one day before the scheduled foreclosure sale. Moreover, it is undisputed that the Gonzalez Appointment was never served on the Plaintiff/Debtor or recorded and posted at the Live Oak County, Texas Courthouse. And, again, Mr. Gonzalez's address was not shown on the Gonzalez Appointment.

Despite the fact that the March 9, 2012 Notice of Sale did not list Mr. Gonzalez as a substitute trustee, Defendant/Williams has argued that there has, nevertheless, been compliance with the strict notice requirements of the Texas Property Code, because a lien holder is permitted to appoint a substitute trustee at any time prior to a foreclosure sale, without filing and serving a new notice of sale. In other words, Defendant/Williams has argued that, as long as the March 9, 2012 Notice of Sale was in compliance with the notice provisions of the Texas Property Code— by listing the name and address of a substitute trustee, and by having been served on the Plaintiff/Debtor, and recorded and posted at the Live Oak County, Texas courthouse— Defendant/Chang could have appointed a new substitute trustee, at any point in time prior to the scheduled foreclosure sale, without having to re-notice the sale for a later date. In support of this position, Defendant/Williams has cited to several cases that pre-date the enactment of sections 51.002 and 51.0075 of the Texas Property Code, which stand for the proposition that a substitute trustee may be appointed at any time prior to the foreclosure sale, without the necessity to re-notice the sale.56 While the court acknowledges that these earlier cases certainly stand for such a proposition, the court believes that such cases are no longer dispositive, as the enactment of sections 51.002 and 51.0075 of the Texas Property Code by the Texas Legislature (which were each enacted long after the cases cited by Defendant/Williams) clearly altered the way foreclosures were to be conducted in Texas and prescribed stricter requirements for noticing foreclosure sales.57 Moreover, these stricter requirements have been duly recognized by various courts in Texas, despite the existence of the earlier cases cited to by Defendant/Williams.58

First, Bankruptcy Judge Tony Davis, in In re AMRCO, Inc., held that the failure to include a substitute trustee's address on the face of a notice of a non-judicial foreclosure sale, as required by section 51.0075(e) of the Texas Property Code, rendered a foreclosure sale invalid.59 In AMRCO, a creditor, Shoal Creek ("Shoal"), had loaned AMRCO, Inc. ("AMRCO") the sum of $175,000 in April 2012. In return, Shoal accepted a note from AMRCO, secured by a deed of trust on an undeveloped lot located in Austin, Texas (the "AMRCO Property").60 AMRCO failed to make timely payments under the note, and Shoal declared a default and instituted foreclosure proceedings on the AMRCO Property.61 A foreclosure sale was conducted just moments before AMRCO filed a Chapter 11 bankruptcy case, and such foreclosure sale was later challenged by AMRCO as being void, since the strict procedures in section 51.0075(e) had not been followed. Specifically, in the Deed of Trust at issue, the law firm of "Jeremy Adam Kruger, PC" (with address) had been named as the trustee with authority to conduct a foreclosure sale for Shoal. Later, the individual lawyer, Jeremy Adam Kruger at "Jeremy Adam Kruger, PC" started a different law firm called Kruger Carson PLLC ("Kruger Carson").62 Subsequently, an Appointment of Substitute Trustee was duly recorded that named the new law firm of Kruger Carson as a substitute trustee under the Shoal Deed of Trust, and Kruger Carson's address was properly set forth on the Appointment of Substitute Trustee. However, ultimately, the Notice of Foreclosure Sale that was mailed, posted and filed, naming Kruger Carson as the substitute trustee, did not list Kruger Carson's address.63 The foreclosure sale was ultimately conducted by the individual attorney, Jeremy Adam Kruger, acting for Kruger Carson.64 Shoal ultimately purchased the AMRCO Property at the noticed foreclosure sale, and AMRCO filed bankruptcy minutes later, claiming the AMRCO Property as part of the bankruptcy estate.65

To be clear, AMRCO argued that the foreclosure sale was invalid because the substitute trustee's address (i.e., Kruger Carson's address) was not included on the face of the Notice of Foreclosure Sale, as required by sections 51.0075(e) of the Texas Property Code.66 Shoal argued that the address-disclosure requirement was substantially complied with because: (a) the original trustee in the Deed of Trust was the law firm of "Jeremy Adam Kruger, PC" (which had the very same address as Kruger Carson) and such Deed of Trust was attached to the publicly posted Notice of Foreclosure Sale,67 (b) the Appointment of Substitute Trustee (naming "Kruger Carson" in place of "Jeremy Adam Kruger, PC") contained the address for Kruger Carson and it was dated and duly recorded the very same date as the Notice of Foreclosure Sale and was easily retrievable; and (c) the Notice of Foreclosure Sale was mailed to AMRCO in an envelope with Kruger Carson's address printed thereon.68 Citing to a Texas Court of Appeals decision called G4 Trust v. Consolidated Gasoline, Inc.,69 Judge Davis noted that "strict compliance with the notice requirements in a deed of trust is necessary for a trustee to invoke the power of sale in a foreclosure," and that Shoal's failure to list the substitute trustee's address on the face of the Notice of Foreclosure Sale (as opposed to on an attachment) pursuant to section 51.0075(e) of the Texas Property Code rendered the foreclosure sale invalid.70 Finding that "substantial compliance" with the Texas Property Code was not enough, Judge Davis dismissed Shoal's equitable arguments that the omitted address of the substitute trustee was readily available outside the actual Notice of Foreclosure Sale.71

Another recent case which has explored the stricter notice requirements prescribed by sections 51.002(b) and 51.0075(e) of the Texas Property Code is Pelayo v. Wells Fargo Bank, N.A.72 In Pelayo, the plaintiffs Miguel and Isabel Pelayo (collectively, the "Pelayos") had obtained a loan from the defendant Wells Fargo Bank, N.A. ("Wells") in early 2007, secured by a mortgage on property located in San Antonio, Texas (the "San Antonio Property").73 The Pelayos executed a note and deed of trust in conjunction with the loan.74 The Pelayos eventually fell behind on their mortgage payments in May of 2013 and, on August 9, 2013, Wells sent the Pelayos a "notice of acceleration of sale," which notified the Pelayos that a foreclosure sale of the San Antonio Property would be conducted on September 3, 2013.75 This would have been 25 days' notice of the foreclosure sale. Wells recorded the notice on August 12, 2013.76 This would have been 22 days before the scheduled foreclosure sale. The next day, on August 13, 2013, Wells sent the Pelayos a letter informing them that it had appointed a substitute trustee.77 This would have been 21 days before the scheduled foreclosure sale. Then a notice of the appointment of the substitute trustee was recorded 19 days before the foreclosure sale, on August 15, 2013. On September 3, 2013, the San Antonio Property was sold at a foreclosure auction.78 The Pelayos ultimately filed a complaint asserting causes of action for wrongful and defective foreclosure, as well as promissory estoppel,79 which Wells subsequently moved to dismiss.80 The Pelayos had asserted that the foreclosure sale was defective because the substitute trustee who ultimately conducted the foreclosure sale was without proper authority to act on behalf of the mortgagee at the time of foreclosure, because such substitute trustee had not yet technically been granted its authority by Wells, at the time the notice of sale was sent to Pelayos, or at the time such notice was recorded with Bexar County.81 It is somewhat hard to decipher the facts in the Pelayo opinion, but it appears to this court that the name and address of the substitute trustee who actually conducted the foreclosure sale was identified in the actual notice of sale (which was served and recorded more than 21 days before the foreclosure sale), but such substitute trustee had not yet been appointed by a formal document (i.e., by a formal notice of appointment of substitute trustee) until a few days after the notice of sale was served and recorded (as noted earlier, the actual document appointing the substitute trustee was served on the Peyalos exactly 21 days before the substitute trustee sale and was recorded 19 days before the foreclosure sale).82 The district court ultimately disagreed with the Pelayos and held that Wells did comply with sections 51.002 and 51.0075 of the Texas Property Code.83 In doing so, the district court noted that the notice of sale did identify the name and address of the substitute trustee that ultimately conducted the foreclosure sale of the San Antonio Property, and, thus, Wells had strictly complied with the notice provisions proscribed by the Texas Property Code.84 Again, while the exact facts of Pelayo are somewhat difficult to decipher, it appears to the court that the most important factor in the court's upholding of the validity of the foreclosure sale was that the substitute trustee who ultimately conducted the foreclosure sale had been identified with name and address at least 21 days before the foreclosure sale—even though the substitute trustee was not formally identified in a recorded notice of appointment of substitute trustee until a few days later (19 days before the foreclosure sale).

In summary, both AMRCO and Pelayo recognized the necessity of a lien holder to strictly comply with the notice requirements prescribed under the Texas Property Code. Like those courts, this court believes that it is mandatory, under sections 51.002 and 51.0075(e) of the Texas Property Code, that a notice of foreclosure sale, identifying the name and address of the trustees/substitute trustee, be served by mail on all debtors, and posted and recorded at least 21 days before the foreclosure sale.85 While appointments of substitute trustees are always possible, new foreclosure sale notices with the name and address of the newly appointed trustee should be mailed and re-posted so as to give the borrower and the public at least 21 days' notice of the newly appointed trustee. Any case law to the contrary either pre-dates the enactment of sections 51.002 and 51.0075(e) of the Texas Property Code or continues to follow the older case law without considering the impact of these statutes. Here, it is undisputed that the March 9, 2012 Notice of Sale did not include the name and address of Mr. Gonzalez—who was only appointed substitute trustee under the Deed of Trust the day before the scheduled foreclosure sale (and the Gonzalez Appointment was not only created on the eve of foreclosure, but it did not contain Mr. Gonzalez's address). Accordingly, the court finds that, as a matter of law, Mr. Gonzalez did not have authority to conduct a foreclosure sale of the Real Property on April 3, 2012, and that any alleged foreclosure sale that may have taken place is void as a matter of law.

Having found that the April 3, 2012 alleged foreclosure sale was void, the court need not address the additional alternative arguments made by the Movants, which they contend would also render any alleged sale of the Real Property to Defendants/Williams invalid, including Defendant/Williams' failure to properly tender payment for the Real Property, and whether the statute of frauds barred Defendants/Williams' claim for equitable title in the Real Property. Such arguments would only be relevant if Mr. Gonzalez had authority to conduct the foreclosure sale in the first instance, and the court has found as a matter of law that he did not.

b. Are Movants Equitably Estopped From Asserting Defects in the Purported Foreclosure Sale? Answer: No, as a Matter of Law.

Finally, Defendant/Williams has asserted that any attempt by the Movants to assert that the foreclosure sale was invalid, because it did not "strictly comply" with the relevant foreclosure statutes, is barred under the affirmative defense of equitable estoppel.

Defendant/Williams' equitable estoppel defense can be summarized as follows. Ken Mok, the individual who prepared and notarized the Gonzalez Appointment (which, recall, was prepared one day before the scheduled foreclosure sale and named Mr. Gonzalez as a new substitute trustee under the Deed of Trust)86 appears to have been acting as the agent for both the Plaintiff/Debtor and the Defendant/Chang. Thus, according to Defendant/Williams, the Plaintiff/Debtor should be equitably estopped from complaining that there was a defect in the foreclosure process that caused the transaction with Defendant/Williams to be unenforceable, when such defect can be attributed back to its agent, Ken Mok.87 The summary judgment evidence that allegedly creates a disputed fact issue on this point is that Ken Mok's bookkeeping company, Mok Chang & Co., LLC, provided bookkeeping services to the Plaintiff/Debtor for many years and, in fact, shared the same business address as shown to be the Plaintiff/Debtor's in its Voluntary Petition.88 Also, Ken Mok's sister (Yik Lin Lu) is the 100% owner of the Plaintiff/Debtor89 and, apparently, he helped her out with the business affairs of the Plaintiff/Debtor from time to time.90 Meanwhile, Ken Mok's wife's sister is Defendant/Chang.91 The court will also take judicial notice of two things not mentioned by the parties. First, the Voluntary Petition initiating the Bankruptcy Case is signed by an individual named David Mok, "Restructuring Officer."92 Is this a relative of Ken Mok? The court has no evidence on this point. Also, an individual named Jerry Kam-Kiong Mok is shown as the non-equity owning secretary and vice president for the Plaintiff/Debtor.93 Is this a relative of Ken Mok? The court has no evidence on this point.

What the court does know is that the undisputed facts indicate that there was definitely some friendliness—some coziness—between the Plaintiff/Debtor and Defendant/Chang. Some familial ties. And Ken Mok was right in the middle; the common nexus. A common sense inference from all of the undisputed facts is that Ken Mok orchestrated a situation where a friendly party to the Plaintiff/Debtor would buy the Note and Deed of Trust from Defendant/AFNB in late March 2012, and there would next be a friendly foreclosure by the new Note holder (i.e., Defendant/Chang) in April 2012. Undoubtedly, Plaintiff/Debtor and Defendant/Chang thought the Real Property was worth more than the underlying debt and it was worth saving.94 Perhaps Mr. Gonzalez did not quite know what to do when a third-party bidder, Defendant/Williams, showed up and bid at the scheduled foreclosure sale. Perhaps Mr. Gonzalez got conflicting instructions (or misinterpreted the instructions that he did get) when he made phone calls to representatives of Defendant/Chang reporting on the $300,000 bid of Defendant/Williams (which would be just enough to cover the secured debt). Is all of this enough to create a material fact issue for an equitable estoppel defense, so that there should be a trial? Should the court probe into the question of whether Ken Mok was legally acting as the agent for one or both the Plaintiff/Debtor and Defendant/Chang? The court concludes no.

The four traditional elements of equitable estoppel are: (1) the party to be estopped was aware of the facts; (2) the party to be estopped intended his act or omission to be acted upon; (3) the party asserting estoppel did not have knowledge of the facts; and (4) party asserting estoppel reasonably relied on the conduct of the other to his substantial injury.95 In this court's view, what Defendant/Williams is urging, in essence, is that there was "no harm/no foul" with regard to the foreclosure notice problem (i.e., there was no problem with the failure to give a full 21 days' notice of a sale to be conducted by substitute trustee Mr. Gonzalez, in accordance with sections 51.002 and 51.0075(e) of the Texas Property Code). Why? Because the party whom Defendant/Williams is seeking to estop was aware of the fact that a new substitute trustee was designated (i.e., the Plaintiff/Debtor had actual knowledge of the new substitute trustee because Ken Mok, who prepared and notarized the document for the new lender, Defendant/Chang, was Plaintiff/Debtor's agent). Thus, Defendant/Williams argues that the court, in equity, ought not to take a "strict enforcement" approach with regard to the foreclosure sale notice defect. Defendant/Williams argues Plaintiff/Debtor and Defendant/Chang both ought to be equitably estopped from relying on a defect that their agent created.

Defendant/Williams has cited to two very old Texas cases in support of his equitable estoppel defense: Rogers v. Boykin, 298 S.W.2d 199 (Tex. Civ. App.—Eastland 1956, writ ref'd n.r.e.) and Busbice v. Hunt, 430 S.W.2d 291 (Tex. Civ. App.—Tyler 1968, writ ref'd n.r.e.). However, this court does not find this authority compelling and does not believe it should allow an equitable estoppel defense to potentially override the Texas Property Code. As noted above, it has been stated by numerous courts that the notice requirements for a non-judicial foreclosure sale in sections 51.002 and 51.0075(e) of the Texas Property Code are to be strictly enforced "for the method of enforcing the collection through such deeds is a harsh one."96 Admittedly, the Texas Property Code's strict procedures with regard to foreclosure sales are mostly, if not entirely, about protecting debtors; thus, allowing the Plaintiff/Debtor to complain about the authority of Mr. Gonzalez to conduct a foreclosure sale—when Plaintiff/Debtor may have had actual knowledge of his identity and appointment as a substitute trustee since he was handpicked by insider Ken Mok—may seem illogical or inequitable. However, recall that the Texas Property Code requires that a notice of a foreclosure sale not only be served by mail on obligors, but also notice must be given publicly (by posting) and as a matter of legal record (by filing). The Texas Supreme Court has stated that the "statutory notice provisions of section 51.002 seek to not only protect the debtor by affording him a lengthy notice period in which he may cure, but also adequately inform the third party public in order to maximize the likelihood of a profitable public sale at market value in which the debtor may recover his equity in his property."97 In the case at bar, the Plaintiff/Debtor may have, indeed, had actual knowledge of the new substitute trustee. But the public—i.e., the universe of potential bidders—would have no reason to have such knowledge as contemplated by sections 51.002 and 51.0075(e). The public had no reason to know about Mr. Gonzalez. Creating an equitable exception in a situation such as this could lead to the following unpalatable result: Assume there was another third-party bidder besides Defendant/Williams willing to pay more at the foreclosure sale than Defendant/Williams and such bidder walked around the courthouse steps asking "is Walter Shroeder here?" and "is Tony Kuo here?" Walter Schroeder and Tony Kuo, recall, were the substitute trustees shown on the March 9, 2012 Notice of Sale. When no one answered, assume that the potential bidder went home. The potential bidder would not have, in that scenario, had statutory notice of the new substitute trustee (Mr. Gonzalez) and did not know to look or ask for him. The end result, in that scenario, is that the Plaintiff/Debtor would not have had the more profitable, public sale to recover his equity in the Real Property. To reiterate, the strict notice requirements of section 51.002 operated so as to both: (a) give a debtor reasonable time (21 days) to perhaps cure defaults, and (b) maximize notice to the public to enhance the possibility of optimal recovery to the stakeholders. While strict adherence to sections 51.002 and 51.0075(e) of the Texas Property Code may seem rigid, it not only can avoid the unpalatable result of the scenario above, but can also guard against mischief. What if a foreclosing lender, who was wanting to credit-bid its debt, were to substitute a trustee on the eve of a scheduled foreclosure sale, for the very purpose of perhaps thwarting unaware potential third-party bidders? Strict adherence protects a debtor's equity and perhaps other stakeholders/parties-in-interest from such a scenario.98

In any event, the court believes that the Rogers and Busbice cases cited by Defendant/Williams in support of his equitable estoppel defense are distinguishable and should be read narrowly, in that the issue in Rogers and Busbice was whether a party who had appointed a substitute trustee and attended a foreclosure sale, without making any objection, waived any irregularity in the sale and was, therefore, estopped from asserting that all of the parties who held an interest in the deed of trust did not join in the appointment of the substitute trustee. In the case at bar, the Movants have not raised an issue regarding whether or not all parties who held an interest in the Note and Deed of Trust joined in the appointment of the substitute trustee, but, rather, whether or not the March 9, 2012 Notice of Sale complied with the strict notice requirements under the Texas Property Code. The court does not believe that such errors can be overcome by the estoppel arguments made by Defendant/Williams, even assuming as true the fact that the same individual controlling both the Plaintiff/Debtor and Defendant/Chang (i.e., Ken Mok) may have been responsible for such errors. In other words, the court finds that the error made in the case at bar (i.e., failure to give the debtor and the public a full 21 days' notice of the name and address of a newly appointed substitute trustee) cannot be negated by what appears to be a very narrowly applied equitable estoppel defense. Restated, because Mr. Gonzalez did not have authority to conduct a foreclosure sale of the Real Property on April 3, 2012, the alleged foreclosure sale to Defendant/Williams was void as a matter of law, and the doctrine of equitable estoppel cannot be used to revive an otherwise void foreclosure sale.99

V. CONCLUSION

Matthew Bacon, an influential eighteenth century legal commentator, stated the following: "A thing is void which was done against Law at the very Time of the doing it, and no Person is bound by such an Act."100 Strict compliance (with the law and contract) is required to invoke the power of a sale under a deed of trust. In the case at bar, the name and address of the new, alleged substitute trustee, Mr. Gonzales, did not appear on the face of a notice of sale that was served, posted and filed at least 21 days in advance of the purported foreclosure sale. Thus, Mr. Gonzales had no power to conduct a valid and enforceable foreclosure sale. Period. There may be (and, in fact, is) evidence that Defendant/Chang, after stepping into the shoes of the lender and beneficiary under the Deed of Trust, intended to make Mr. Gonzales the new substitute trustee. There may be evidence that Plaintiff/Debtor had actual knowledge of Mr. Gonzalez's eve-of-foreclosure appointment. But this does not matter. Mr. Gonzales had no statutory authority to conduct a valid foreclosure sale. The Plaintiff/Debtor and public were not give the required statutory notice of Mr. Gonzalez's identity and address. The alleged sale to Defendant/Williams was void as a matter of law. The Real Property remained a part of the bankruptcy estate upon the Bankruptcy Case's filing.

In summary, the bankruptcy court is recommending that summary judgment be granted by the District Court to the Plaintiff/Debtor, Defendant/Chang, and Defendant/AFNB as to Count 1 of the Amended Complaint, thus declaring that the Debtor/Plaintiff is the owner of the Real Property (subject to Defendant/Chang's lien) and that Defendant/Williams has no claim to the Real Property.

As alluded to above, the granting of summary judgment on Count 1 will make Count 2 moot—since Count 2 (a fraudulent transfer claim) has only been asserted, as an alternative form of relief, in the event the court finds a valid foreclosure sale or other valid transfer of the Real Property occurred.

Accordingly, it is proposed and recommended that the District Court GRANT Summary Judgment on Count 1 of the Amended Complaint.

END OF PROPOSED MEMORANDUM OPINION AND ORDER