Jeff Bohm, United States Bankruptcy Judge.
The adversary proceeding pending before this Court was filed due to an unscrupulous attorney's theft of $2.4 million. This attorney has no moral compass whatsoever, and his perfidy has resulted in litigation among his former clients, friends, and various third parties who did not have the displeasure of knowing him. While he deservedly spends time behind bars — he has recently been sentenced to six years in prison for his illegal greed — the individuals and entities he deceived and cheated are left duking it out over who has a superior claim to the remaining proceeds that he stole but was prevented from spending.
This Court conducted a multi-day trial in this adversary proceeding, and then took the matter under advisement. The Court now issues this Memorandum Opinion explaining
Elbar Investments, Inc. ("
Oluyemisi Omokafe Okedokun is the debtor in the main Chapter 7 case (the "
Felix Amos ("
United Sentry Mortgage Investment # 1, LLC ("
Donald Anthony MacKenzie ("
Transworld Leasing Corporation ("
Industry Drive Partners, Ltd. ("
Todd A. Prins ("
Eva S. Engelhart is the Chapter 7 Trustee in the Debtor's main Chapter 7 case (the "
1. Transworld is a leasing company headquartered in San Antonio, Texas, that leases a myriad of items, including automobiles, medical equipment, airplanes, bulldozers, and even a brewery. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 28:23-29:8]. Lenny Cash ("
2. Prins, who was licensed to practice law in 1991,
3. In 2005 or 2006, a tax issue arose with certain of TransWorld's taxes due to the misdeeds of a TransWorld employee. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 31:8-32:16]. Eventually, a tax suit was commenced by the Bexar County Tax Assessor-Collector in Bexar County, Texas (the "
4. In 2011, Mr. Cash was diagnosed with cancer. [Id. at 17:9-13].
5. Sometime around the beginning of January 2014, Ms. Cash was reviewing TransWorld's 2014 tax statement regarding its 2013 taxes when she learned that TransWorld owed delinquent taxes in the amount of $496,198.52.
7. At or around this point in time (i.e., late 2015 to early 2016), Mr. Cash was suffering from terminal cancer. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 11:17-22, 17:9-13].
8. In January of 2016, Ms. Cash learned from a TransWorld customer that TransWorld was listed on a delinquent tax list for Bexar County, Texas, in a local newspaper article. [Id. at 17:23-18:2, 19:15-17, 38:7-17]. The Cashes contacted Prins about TransWorld's taxes being listed as delinquent, as the Cashes believed that TransWorld had paid all delinquencies and the matter had been settled back in 2008. [Id. at 19:18-20]. In response, Prins told the Cashes that the Tax Assessor had likely "misapplied" the $230,853.66 that TransWorld had paid to the IOLTA in 2008 (and that Prins was then to have paid to the Tax Assessor on TransWorld's behalf) and that the Tax Assessor needed to research the issue and straighten out its records. [Id. at 19:21-25, 37:14-25].
9. Even though Prins allegedly paid approximately $143,000.00 to the Tax Assessor in January 2016 (without the Cashes' knowledge or consent), in approximately April 2016, he told the Cashes that the Tax Assessor wanted TransWorld to deposit into his IOLTA a percentage of the taxes it owed as "good faith" money in the amount of $169,807.29 while he and the Tax Assessor worked out the disputed tax issues. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 19:21-20:1; TransWorld's Ex. HH, Prins Dep. 78:2-10, 78:19-25]. To convince TransWorld to place the $169,807.29 into his IOLTA, Prins created a false letter dated April 6, 2016, from Linebarger (using this law firm's letterhead), stating that TransWorld owed delinquent taxes in the amount of $169,807.29. [Pl.'s Ex. 46, Ex. A; TransWorld's Ex. A; TransWorld's Ex. HH, Prins Dep. 93:23-95:4, 114:3-13, 223:22-224:5]. Ms. Cash questioned Prins as to why she needed to put the disputed money into the IOLTA, as she did not believe that TransWorld owed any taxes. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 20:2-11]. Prins told Ms. Cash that it was "just a formality," and then Ms. Cash questioned whether she could obtain a bond, instead of placing the alleged disputed money into the IOLTA. [Id. at 20:3-6]. Prins told Ms. Cash that she could procure a bond, but that she would have to put down 125% of the money that was in dispute. [Id. at 20:7-8].
10. Based on the representations from Prins that TransWorld needed to deposit a percentage of the taxes in dispute as "good faith" money to be held in the IOLTA so
11. On June 16, 2015, Triple Gate, in order to obtain financing from United Sentry, executed that one certain promissory note in the original principal amount of $1,537,500.00 (the "
12. In addition to executing the Note, Triple Gate also executed a deed of trust on June 16, 2015, naming MacKenzie as the trustee on the Property (the "
[Pl.'s Ex. 14].
13. MacKenzie has known Prins since approximately 1998 or 1999, or for approximately 20 years. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 49:17-18; TransWorld's Ex. HH, Prins Dep. 204:19-22]. Prins has periodically done legal work for MacKenzie since 1999. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 49:22-24; TransWorld's Ex. HH, Prins Dep. 204:19-205:5].
14. United Sentry had to make several demands to Triple Gate for late payment of the Note. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 50:13-16]. MacKenzie made the decision on behalf of United Sentry for Prins to represent it for collection of the Note after Triple Gate fell into default. [Id. at 50:15-22]. Prins sent out several demand letters on behalf of United Sentry, demanding payment of the late payments. [Id. at 50:17-22]. Triple Gate failed to make payment.
15. On December 30, 2015 — unbeknownst to United Sentry (as the holder of the lien on the Property) — the Debtor, in her capacity as the Manager of Triple Gate, executed a general warranty deed conveying the Property to herself and Amos in their individual capacities. [Pl.'s Ex. 16].
16. Because Triple Gate had defaulted under the Note, United Sentry, through the Prins Law Firm, posted the Property for a foreclosure sale to be held on October 4, 2016. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 50:3-5, 56:5-6, 57:13-15]. MacKenzie hired the Prins Law Firm to handle the foreclosure sale on the Property. [Id. at 56:5-6].
17. On October 3, 2016, MacKenzie, as manager for United Sentry, appointed Prins or Victoria Shum ("
18. G5 Property Holdings, LLC ("
19. Inez Cindy Gabriel ("
20. Prins was Pfirrmann's personal attorney. [Id. at 115:14-15]. Neither Industry Drive nor G5 were clients of Prins, nor was there any business conducted between Industry Drive and Prins. [Id. at 115:10-18].
21. On October 7, 2015, Pfirrmann withdrew $200,000.00 from Industry Drive's bank account and tendered it to Prins to deposit into the IOLTA. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 114:13-115:3; Industry Drive's Ex. 4; Pl.'s Ex. 47 at Ex. A]. On October 16, 2015, Pfirrmann withdrew $100,000.00 from Industry Drive's bank account and again tendered it to Prins for deposit into the IOLTA. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 114:13-115:3; Pl.'s Ex. 47 at Ex. B; Industry Drive's Ex. 4]. Prins did, in fact, deposit into the IOLTA the entire $300,000.00 given to him by Pfirrmann. [Industry Drive's Ex. 4].
22. Once Gabriel became aware that Pfirrmann had withdrawn the above-referenced $300,000.00 from Industry Drive's account, she made demands on Pfirrmann and Eleanor that the funds be returned. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 123:23-124:3, 159:16-160:13; TransWorld's Ex. HH, Prins Dep. 29:18-23].
23. On December 16, 2015, the Gabriel Family and Industry Drive filed a lawsuit against Pfirrmann in Bexar County, Texas, seeking return, among other things, of the $300,000.00 Pfirrmann took from the Industry Drive account, and bringing claims for judicial dissolution of Industry Drive under the Texas Business Organization Code, breach of fiduciary duty, conversion, and breach of partnership agreement (the "
24. On or around October 4, 2016, the Gabriel Family, Eleanor, Pfirrmann, and Prins held a meeting in an effort to resolve the Pfirrmann Lawsuit. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 118:3-19, 119:9-11; TransWorld's Ex. HH, Prins Dep. 31:20-24]. There is conflicting testimony regarding whether the issue of Prins personally filing for bankruptcy arose at this meeting on October 4, 2016: Gabriel testified that Prins filing for personal bankruptcy was not raised at the meeting, while Prins testified that the issue did arise. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 119:16-22; TransWorld's Ex. HH, Prins Dep. 31:18-24]. Because — as discussed more in depth infra in the Credibility of Witnesses Section — the Court finds Gabriel to be a very credible witness and Prins not to be a credible witness, the Court finds that the issue of Prins' personal bankruptcy was
25. In addition to the IOLTA, the Prins Law Firm also had an operating account at BBVA (the "
26. On or around September 29, 2016, Prins and Ms. Prins personally filed a Chapter 7 petition in the United States Bankruptcy Court for the Western District of Texas, San Antonio Division (the "
27. On October 1, 2016, the balance of the IOLTA was $2,041.17. [Pl.'s Ex. 2].
28. On October 4, 2016 (the "
29. At approximately 8:59 a.m. on October 4, 2016, the Debtor's original bankruptcy counsel, Kyle Payne ("
30. At Prins' direction, Shum conducted the foreclosure sale, which resulted in a purchase price of $2.4 million. [Id. at 2 of 20, ¶ 5]. The purchasers of the Property were Elbar, Vincent Bustamante ("
31. Abdullatif is an individual who participates with Elbar in buying properties at foreclosure sales. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 165:13-16; TransWorld's Ex. II, Bustamante Dep. 105:23-106:1]. Abdullatif, however, has no formal role or title at Elbar. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 166:5-9, 168:13-19]. Likewise, Jabbour is an individual who participates with Elbar in buying properties at foreclosure sales, but he also has no formal role at Elbar. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 170:15-23; TransWorld's Ex. II, Bustamante Dep. 105:23-106:1, 137:17-21].
32. Jerel Twyman ("
33. Bustamante, Abdullatif, and Jabbour each put up $800,000.00 to purchase the Property, thus giving them each a one-third ownership interest in the Property. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 166:5-9, 170:20-171:1; TransWorld's Ex. II, Bustamante Dep. 110:3-10, 110:25-111:4]. Bustamante testified, however, that he has an agreement with Elbar in which he advances the purchase money and Elbar has a 25% percent cut of Bustamante's portion; Elbar then pays Bustamante back later. [Adv. Doc. No. 220, Feb. 6, 2018, Trial Tr. 82:13-23]. Here, Elbar paid Bustamante $200,000.00 for 25% of Bustamante's 1/3 portion of the Property, thus making Elbar's stake in the Property $200,000.00. [Adv. Doc. No. 220, Feb. 6, 2018, Trial Tr. 82:24-83:12, 93:24-94:3; TransWorld's Ex. II, Bustamante Dep. 143:8-12; TransWorld's Ex. JJ, Klaimy Dep. 9:12-19, 10:1-3, 10:21-22]. Bustmanate does not know on what date Elbar paid him the $200,000.00 for Elbar's 25% share of Bustamante's one-third interest in the Property.
34. Bustamante testified that he hoped for a 20% return on the investment on the Property after all costs were paid, or a $480,000.00 aggregate total return for all parties.
35. After the foreclosure sale, Shum returned from Houston (where the foreclosure sale was held) to San Antonio (where the Prins Law Firm was located) with the cashier's checks; however, Prins testified that his bank, BBVA, would not negotiate the cashier's checks. [Main Case Doc. No. 197 at 2 of 20, ¶ 5]. Shum therefore called Twyman to inform him that the cashier's checks would not suffice as payment. [See Pl.'s Ex. 21]. In response, at 5:43 p.m. on October 4, 2016, Twyman, on behalf of Elbar, emailed Shum, stating that he would be happy to pay the funds for the Property with either one check or by a wire transfer. [Id.]. On October 5, 2016, at 9:03 a.m., Shum replied to Twyman's email, providing wiring instructions for the IOLTA. [Pl.'s Ex. 22].
36. On October 5, 2016, at 10:15 a.m., Payne sent to Prins the following: (a) a copy of the recorded deed from December 30, 2015, evidencing the transfer of the Property from Triple Gate to the Debtor and Amos; and (b) records from the Harris County Appraisal District showing that the Debtor and Amos claimed the Property as their homestead. [Main Case Doc. No. 197 at 3 of 20, ¶ 6]. As of the morning of October 5, 2016, Prins admitted to having knowledge that the Property had been transferred to the Debtor. [Id. at 3 of 20, ¶ 6]. Thus, at the moment in time when Prins admittedly was aware that the Property was claimed as property of the bankruptcy estate, he had not received any good funds from Elbar.
38. At some point after learning that the Debtor was claiming that she owned the Property and thus the automatic stay was in effect, Bustamante, on behalf of Elbar and the Purchasers, decided to go forward with the purchase of the Property and to send a wire of $2.4 million to the substitute trustee — i.e., to the Prins Law Firm. [Adv. Doc. No. 220, Feb. 6, 2018, Trial Tr. 87:12-88:8; Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 165:8-9, 166:21-167:4, 167:8-15, 170:15-18, 173:19-22].
39. On October 6, 2016, at 11:53 a.m., Bustamante emailed Abdullatif, requesting that the wire of the $2.4 million (the "
40. Despite learning that the Property had been deeded to the Debtor personally and that the Debtor had filed for bankruptcy — and, thus, that the automatic stay was in effect — on October 6, 2016, at approximately 1:13 p.m., at Bustamante's direction,
41. According to Bustamante, Elbar has previously paid a purchase price at a foreclosure sale knowing of a bankruptcy approximately ten (10) times out of thousands of foreclosure sales — in other words, to pay the purchase price after learning about a bankruptcy is "unusual."
42. Upon receipt of the $2.4 million that Elbar wired to the IOLTA, Prins did
43. On October 11, 2016, Prins filed a motion for relief from stay on behalf of United Sentry in order to "allow movant to complete foreclosure of the Property" ("
44. On October 13, 2016, Prins, on behalf of United Sentry, filed an amended motion for relief from stay (the "
45. As of October 17, 2016, the closing balance of the Wells Fargo Operating Account was $13,414.57. [Pl.'s Ex. 7].
46. On October 18, 2016, Prins transferred $2.0 million from the IOLTA to the Wells Fargo Operating Account. [Main Case Doc. No. 197 at 4 of 20, ¶ 11; Pl.'s Exs. 2, 7; TransWorld's Ex. HH, Prins Dep. 18:10-15]. Prins was the only person who was authorized to make withdrawals from and charges to the Wells Fargo Operating Account. [Main Case Doc. No. 121, Jan. 9, 2017, Hrg. 28:11-29:5]. Prins did not advise United Sentry, or anyone else, of the $2.0 million transfer. [Main Case Doc. No. 197 at 4 of 20, ¶ 11; Main Case Doc. No. 121, Jan. 9, 2017, Hrg. 38:11-19].
47. Between October 19, 2016, and December 12, 2016,
48. On October 19, 2016, Prins made four wire transfers out of the IOLTA totaling $82,373.28 to the Internal Revenue Service to pay his own personal taxes. [Pl.'s Ex. 2; TransWorld's Ex. HH, Prins Dep. 17:3-5, 23:8-17].
49. Mr. Cash was keen to resolve all outstanding disputes regarding TransWorld — including the tax issue with the Tax Assessor — because of his extremely poor health. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 20:22-21:13; TransWorld's Ex. HH, Prins Dep. 238:24-239:1]. Mr. Cash did not want to leave Ms. Cash saddled with a major tax problem for TransWorld upon his death. Hence, between May 2016 and October 2016, Mr. Cash followed up with Prins regarding the tax issue. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 20:15-21:14].
50. On October 20, 2016 — due to increasing pressure from Mr. Cash and because of a sense of duty to "do right" by the Cashes
51. On or around October 24, 2016, MacKenzie, on behalf of United Sentry, requested proof of funds in the IOLTA and Prins therefore sent MacKenzie a screenshot of the IOLTA, showing a balance of $3,787,183.01. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 239:20-240:20; United Sentry's Ex. 9; TransWorld's Ex. HH, Prins Dep. 184:15-185:6]. The screenshot Prins sent to MackKenzie was not an accurate screenshot of the funds in the IOLTA on October 24, 2016; instead, Prins used editing software on his computer to create a screenshot that would appear to show that the IOLTA still held all of the Proceeds. [TransWorld's Ex. HH, Prins Dep. 184:15-185:6, 173:20-23].
52. On October 28, 2016, this Court held an emergency status conference in the Main Chapter 7 case at the request of the Chapter 7 Trustee regarding the Debtor's failure to timely file schedules and a statement of financial affairs. The Court entered its Order Requiring Debtor to Personally Appear and Show Cause Why She Should not be Sanctioned for Failing to Timely File Schedules of Assets and Liability and Statement of Financial Affairs ("
53. Also on October 28, 2016, the Estate of Jose Oleszcovski Wasserteil (the "
54. As of October 31, 2016, the balance of the IOLTA was $295,167.89. [Pl.'s Ex. 2]. Thus, from October 6, 2016, when the IOLTA's balance was $2,402,041.17, the balance had declined by $2,106,873.28. [See id.]. This decline was due entirely to Prins' transfer of the funds in the IOLTA — virtually all of which were comprised of the Proceeds — to the Wells Fargo Operating Account and to the Internal Revenue Service.
55. As of November 3, 2016, the closing balance of the BBVA Operating Account was $30.34. [Pl.'s Ex. 5]. Thus, as of this date, this particular account had virtually no funds on hand.
56. On or about November 4, 2016, William and Karen Ozer (the "
57. On November 4, 2016, Gabriel learned from one of the partners at the law firm utilized by the family's businesses
58. On November 8, 2016, at approximately 10:20 a.m., the Court held a hearing on the Motion for Relief and the Debtor Show Cause Order. Prins did not personally appear at the hearing. An associate attorney from the Prins Law Firm named Travis Parks ("
[Id.].
Parks had not spoken with Prins about the hearing and believed that Prins was out of the country at the time, likely in Germany. [Id. at 5-6 of 20, ¶ 20]. Parks further stated that Prins had left the country on October 22, 2016, and had told his associates that he would be retiring. [Id.]. Parks also alluded to the firm undergoing a "unique set of circumstances" and said that he was doing his "best to keep the wheels from falling off." [Id.]. However, at this time, Parks disclosed no specifics about Prins' recent frequent use of the
59. On November 8, 2016, when Prins told this Court that he was in San Antonio and too ill to appear at the hearing, the Wells Fargo Operating Account showed several charges that Prins was making on this same date in London, England. [Pl.'s Ex. 8; Main Case Doc. No. 197 at 6 of 20, ¶ 24]. Thus, Prins' response that he was too ill to appear at the hearing and was in San Antonio was another blatant lie — as he actually was in London freely spending some of the Proceeds that he had transferred from the IOLTA to the Wells Fargo Operating Account. Indeed, the balance in the Wells Fargo Operating Account on November 8, 2016, was $1,757,348.78. [Pl.'s Ex. 8; Main Case Doc. No. 197 at 6 of 20, ¶ 24].
60. On November 8, 2016, at 3:03 p.m., (i.e., after the hearing on the Motion for Relief and the Debtor Show Cause) Richard Battaglia ("
61. Also on November 8, 2016, an article was published in the San Antonio Express-News stating that Prins was being accused by former clients (the Ozers) of fabricating court documents. [Pl.'s Ex. 39].
62. At least by November 8, 2016, MacKenzie, on behalf of United Sentry, requested that Prins return the $2.4 million to Elbar. [Main Case Doc. No. 197 at 6 of 20, ¶ 25].
63. Sometime after the November 8, 2016, hearing, the Chapter 7 Trustee's counsel became aware that (i) Prins had filed a personal Chapter 7 bankruptcy case in the United States Bankruptcy Court for the Western District of Texas on September 29, 2016, and (ii) there was an adversary
64. On November 9, 2016, at 11:46 a.m., Prins emailed Battaglia, inquiring whether or not Elbar still wanted to buy the Note.
65. Also on November 9, 2016, MacKenzie emailed Prins at 3:44 p.m., asking that Prins move the Proceeds to another account and referenced the article that appeared in the San Antonio Express-News. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 233:1-8, 233:24-234:13, 235:19-236:1; United Sentry's Ex. 7].
66. On November 10, 2016, MacKenzie emailed Prins, requesting a screenshot of the funds in the IOLTA. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 233:9-11; United Sentry's Ex. 7]. MacKenzie wanted Prins to send him a screenshot showing the amount of the funds in the IOLTA "to see that the funds were available and that... they were available for everybody involved, security." [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 233:12-15]. In response, Prins sent a falsified screenshot of the IOLTA balance to MacKenzie, showing a balance of $3.3 million in the IOLTA. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 241:4-15; TransWorld's Ex. HH, Prins Dep. 186:25-187:18]. Subsequently, at his deposition (taken on November 15, 2017), Prins admitted that the IOLTA did not have $3.3 million in it at that time and that he had manufactured the screenshot. [TransWorld's Ex. HH, Prins Dep. 186:25-187:18].
67. On November 10, 2016, at 5:56 p.m., Battaglia emailed Seidler and stated that he "literally found out about Mr. Prin's BK within the last 30 minutes and am extremely concerned as to the safekeeping of those funds." [Industry Drive's Ex. 7].
68. On November 11, 2016, Twyman emailed Prins and requested that Prins wire the Proceeds from his account (i.e., the IOLTA) to Abdullatif's account. [United Sentry's Exs. 4, 6]. Prins responded, stating that he would try to wire the funds the next day.
70. Also on November 21, 2016, Twyman emailed Prins and stated that Elbar would not execute any release prior to receiving funds, as this was Elbar's standard procedure. [United Sentry's Ex. 4]. Twyman asked Prins whether he would be willing to wire the funds into this Court's registry in Houston. [Id.]. Prins replied to Twyman on November 22, 2016, stating that he would be willing to consider interpleading the funds.
71. On November 27, 2016, MacKenzie again asked Prins to send him a screenshot of the IOLTA. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 242:11-20; United Sentry's Ex. 12; TransWorld's Ex. HH, Prins Dep. 189:20-190:8]. In his email, MacKenzie wrote the following to Prins: "I must admit I am very Concerned about this matter another case you have against you With a estate matter of roughly 360,000 has popped up people Are losing there patience and trust Do not let me down Todd. I have Used your services since 1999 With out problems."
73. On December 2, 2016, MacKenzie and United Sentry's counsel
74. On December 3, 2016, MacKenzie again requested another screenshot of the IOLTA from Prins. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 244:4-24; United Sentry's Ex. 14]. Prins responded to MacKenzie's email on December 4, 2016, and once again attached a falsified screenshot showing a balance of $3,144,000.00 in the IOLTA. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 245:18-24; United Sentry's Ex. 14]. This was at least the sixth time since October 24, 2016, that MacKenzie had requested that Prins send him a screenshot of the IOLTA as proof of the amount of funds in the account. In Prins' own words: "Mr. MacKenzie expressed to me a great deal of concern about this money. Mr. MacKenzie was — for lack of a better term — like a dog on a bone on it and contacted me more than anybody, yes." [TransWorld's Ex. HH, Prins Dep. 190:16-20].
75. On December 5, 2016, pursuant to yet another request from MacKenzie for verification of the amount of funds in the IOLTA, Prins, with MacKenzie listening in on the call, impersonated a BBVA employee — one "Levon Martin" — in order to falsely confirm the balance in the IOLTA as $3,144,000.00. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 246:9-18, 247:10-14, 248:17-20; United Sentry's Ex. 16; TransWorld's Ex. HH, Prins Dep. 192:15-20, 201:20-204:13; Tape Recording, Feb. 7, 2018, Tr. at 5:11:00-5:13:32 P.M.]. MacKenzie tape recorded this phone call. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 246:14-15]. On the same day, Prins also created a false email from "Levon Martin," confirming the balance of the IOLTA as $3,144,000.00. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 248:3-16; United Sentry's Ex. 15; TransWorld's Ex. HH, Prins Dep. 191:18-192:8]. Prins then forwarded this email to MacKenzie to continue attempting to deceive MacKenzie into believing that all of the Proceeds were still in the IOLTA. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 248:11-16; United Sentry's Ex. 15; TransWorld's Ex. HH, Prins Dep. 191:18-192:8].
76. Around the beginning of December of 2016, because of MacKenzie's concerns about Prins based on news articles in San Antonio newspapers and the security of the Proceeds in the IOLTA, MacKenzie hired two ex-Texas Rangers to watch Prins and Ms. Prins 24 hours a day, so that MacKenzie would be alerted if Prins or Ms. Prins attempted to leave the country. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 252:22-253:24]. MacKenzie believed this "was the right thing to do for the whole situation." [Id. at 253:14-17].
77. On December 6, 2016, this Court held a status conference at the request of the Chapter 7 Trustee. At this hearing, the
78. On December 7, 2016, based upon the statements made by the attorneys who appeared at the status conference on December 6, 2016, this Court entered its Order (1) Requiring Todd Prins to Wire Transfer $2.4 million to the Chapter 7 Trustee by No Later than 5:00 P.M. on December 12, 2016; and (2) Requiring Todd Prins to Personally Appear in Court and Show Cause Why He Should Not be Sanctioned ("
[Id.].
79. On December 7, 2016, the Chapter 7 Trustee served Prins with a copy of the Prins Show Cause Order by email and facsimile. [Main Case Doc. No. 53]. The Chapter 7 Trustee also served a courtesy copy of the Prins Show Cause Order on Prins' bankruptcy counsel, Seidler. [Id.]. There is no question that Prins received notice of the Prins Show Cause Order.
80. Prins did not wire transfer $2.4 million to the Chapter 7 Trustee by 5:00
81. On December 9, 2016, Prins' license to practice law was placed on an interim suspension by the State Bar of Texas. [Main Case Doc. No. 197 at 8 of 20, ¶ 32].
82. On December 12, 2016, the United States (through the Department of Justice) seized the entirety of the funds in the Wells Fargo Operating Account, which amounted at that time to $1,601,542.14. [Pl.'s Ex. 9; TransWorld's Ex. HH, Prins Dep. 50:12-51:8].
83. On December 14, 2016, Prins filed his response to the Prins Show Cause Order (the "
84. On December 14, 2016, this Court held a hearing on the Prins Show Cause Order (the "
85. On December 15, 2016, Prins voluntarily appeared at the Bob Casey Federal Courthouse, 515 Rusk, Houston, Texas, 77002 and turned himself into the custody of the U.S. Marshals.
86. At the continued Show Cause Hearing on December 19, 2016, the parties made further oral arguments about the testimonial and documentary Fifth Amendment privilege issues raised at the Show Cause Hearing held on December 15, 2016. After listening to these oral arguments, the Court requested the parties to file written briefs on the privilege issues raised at the December 15 hearing. [See Main Case Doc. Nos. 74 (Prins' brief) and 75 (Trustee's brief)]. The Court therefore recessed the Show Cause Hearing for approximately six hours. After considering the parties' written submissions, the Court went back on the record and ruled that Prins did not have a Fifth Amendment privilege over his bank statements and, therefore, had to produce them to the Chapter 7 Trustee. [Main Case Doc. No. 197 at 12 of 20, ¶ 47; see also Main Case Doc. No. 77]. The Court further ruled that Prins had waived his Fifth Amendment privilege and was required to answer questions regarding the status of the $2.4 million wired by Elbar and into the IOLTA. [Main Case Doc. No. 197 at 12 of 20, ¶ 47]. Thus, counsel for the Trustee was allowed to resume examining Prins. Prins admitted that, even if the IOLTA had not been seized by the United States, he would not have been able to comply with the Show Cause Order because all $2.4 million had been transferred out of the IOLTA and several hundred thousand dollars of the $2.4 million was no longer in the Wells Fargo Operating Account — i.e., he had spent many of the Proceeds. [Id. at 12 of 20, ¶ 48]. Prins further admitted that he had no justification or basis for transferring the $2.4 million from the IOLTA to the Wells Fargo Operating Account. [Id.]. Prins also admitted to transferring substantial sums to two entities, TransWorld and Industry Drive.
87. On December 21, 2016, the Court entered an order requiring Prins to produce to the Chapter 7 Trustee bank statements for September to December 2016, for the IOLTA, the BBVA Operating Account, and the Wells Fargo Operating Account. [See Main Case Doc. No. 77]. The Court gave Prins until noon on January 6, 2017, to comply with the order. [Id.].
88. On January 2, 2017, Elbar filed the instant adversary proceeding against the Debtor, Amos, the Trustee, Prins, United Sentry, MacKenzie, TransWorld, and Industry Drive. [Adv. Doc. No. 1].
89. On January 3, 2017, Elbar filed a lis pendens on the Property. [Adv. Doc. No. 220, Feb. 6, 2018, Trial Tr. 126:8-23; Industry Drive's Ex. 10]. Elbar filed this lis pendens knowing that the Debtor claimed an interest in the Property and that therefore the Property was property of her Chapter 7 estate and protected by the automatic stay. [See Pl.'s Exs. 26-27; Adv. Doc. No. 220, Feb. 6, 2018, Trial Tr. 126:8-23; TransWorld Ex.'s HH, Prins Dep. 154:5-25]. Elbar did not seek relief from the automatic stay from this Court before filing the lis pendens. [Adv. Doc. No. 220, Feb. 6, 2018, Trial Tr. 126:11-13].
90. On January 9, 2017, this Court held the continued Show Cause Hearing. The Chapter 7 Trustee introduced the bank statements Prins had produced for the Wells Fargo Operating Account and the BBVA Operating Account discussed above.
91. On January 27, 2017, Mr. Cash died. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 11:17-22].
92. In late February of 2017, when she (as president of TransWorld) was served with a lawsuit, Ms. Cash learned for the first time that the check in the amount of $230,853.66 that TransWorld had made to the order of the IOLTA on February 4, 2008, for the purpose of Prins settling TransWorld's tax dispute with the Tax Assessor,
93. On March 7, 2017, Prins submitted a resignation of his law license in lieu of discipline.
94. On March 13, 2017, Elbar filed a proof claim in the Debtor's Chapter 7 case, setting forth that its claim totals $1,594,424.17 and that it believes the Property is worth $3,500,000.00. [Proof of Claim, Case No. 16-35021, Claim 11, at 2].
95. On March 27, 2017, this Court, having completed the Show Cause Hearing on the Prins Show Cause Order, entered Findings of Fact and Conclusions of Law Regarding Order (1) Requiring Todd Prins to Wire Transfer $2.4 Million to the Chapter 7 Trustee By No Later Than 5:00 P.M. on December 12, 2016; and (2) Requiring Todd Prins to Personally Appear in Court and Show Cause Why He Should Not Be Sanctioned. [Main Case Doc. No. 197]. The Court then entered an order imposing sanctions against Prins, which ordered the following:
[Main Case Doc. No. 198]. This Court ordered that Prins was immediately liable for all sanctions set forth in the order and that Prins was to immediately pay all sanctions. [Id.]. Prins has failed to comply with any portion of this order.
96. On March 29, 2017, the Trustee filed a motion requesting this Court to approve the sale of the Property, [Main Case Doc. No. 199], which this Court granted. [Main Case Doc. No. 200]. Pursuant to the Court's order granting approval of the sale of the Property, as amended, the amount of proceeds necessary to pay off United Sentry's mortgage on the Property was to be placed into the Court's registry. [Main Case Doc. Nos. 200, 209].
97. On April 5, 2017, the Debtor and Amos were indicted for conspiracy to commit health care fraud, health care fraud, and engaging in monetary transactions in property derived from specified unlawful activity, in the Southern District of Texas, Houston Division.
98. On April 27, 2017, in the adversary proceeding at bar, this Court granted the Trustee's motion to dismiss and dismissed all claims asserted by Elbar against the Trustee. [Adv. Doc. No. 45]. Elbar did not file any opposition to the Trustee's motion to dismiss all of the claims against the Trustee.
100. On May 30, 2017, pursuant to the Court's order approving the sale of the Property, $1,719,062.93, was placed into the Court's registry. [See docket entry in Main Case dated 05/30/2017]. This action was taken because prior to the sale, Elbar had filed the instant adversary proceeding and, among other relief requested, asserts that it should receive some or all of these sale proceeds in order to be made whole before United Sentry receives any portion of these proceeds. [Adv. Doc. No. 1 at 6-7 of 9, ¶¶ 27-28].
101. On June 7, 2017, Prins entered into a plea agreement with the U.S. Attorney for the Western District of Texas regarding the matter of United States of America v. Todd A. Prins ("
102. Because Triple Gate defaulted under the Note, the 13 investors who invested in United Sentry's loan to Triple Gate have not received any return on their investments in the form of interest payments by Triple Gate. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 77:6-24]. However, since July of 2017, MacKenzie himself has been making interest payments to the 11 investors (minus United Sentry and himself), in the amount of approximately $13,000.00 a month, as he believes that it is the "right thing to do." [Id. at 77:6-24, 94:7-14].
103. On July 6, 2017, Elbar filed a first amended complaint in this adversary proceeding, asserting the following claims: (1) equitable subrogation as to Prins, United Sentry, and MacKenzie; (2) fraud in real estate transactions as to Prins, United Sentry, and MacKenzie; (3) common law fraud as to Prins, United Sentry, and MacKenzie; (4) Texas Theft Liability Act as to Prins, United Sentry, and MacKenzie; (5) theft as to Prins; and (6) money had and received, unjust enrichment, theft, and conversion against TransWorld and Industry Drive. [Adv. Doc. No. 68].
104. On August 10, 2017, Elbar, Bustamante, Abdullatif, and Jabbour filed a petition in the Prins' Criminal Case, claiming that they are entitled to recover the entire $1,601,542.14 that the United States government seized from the IOLTA. [Adv. Doc. No. 220, Feb. 6, 2018, Trial Tr. 77:9-15; Pl.'s Ex. 49].
105. On August 11, 2017, Elbar filed a proposed order approving dismissal of Elbar's theft claim against Industry Drive. [Adv. Doc. No. 114]. The Court subsequently signed the proposed order later that same day, thereby dismissing Elbar's theft claim against Industry Drive. [Adv. Doc. No. 116].
106. On February 6, 2018, a three-day trial commenced in the instant adversary proceeding.
108. Ms. Cash estimated that she has paid approximately $20,000.00 for counsel to represent her in the instant adversary proceeding. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 40:24-41:1].
109. Industry Drive has paid $44,000.00 in legal fees for this suit, not including the trial itself. [Id. at 150:24-25].
110. On February 22, 2018, in the Prins' Bankruptcy, Bankruptcy Judge Gargotta entered an Order Granting Motion of the United States of America, Internal Revenue Service, to Approve Compromise Pursuant to Federal Rule of Bankruptcy Procedure 9019. [Todd A. Prins and Paula R. Prins, Case No. 16-52187-cag, Bankr. W.D. Tex., ECF. No. 135]. Judge Gargotta found that (1) the $82,373.28 paid to the IRS by Prins on October 19, 2016, from the IOLTA is the sole property of Elbar; and (2) the $82,373.28 is not part of the bankruptcy estate of Prins and Ms. Prins. [Id.]. On that same day, Judge Gargotta approved an Agreed Final Judgment in the adversary proceeding that the U.S. Internal Revenue Service had filed in the Prins' Bankruptcy. [United States of America, Internal Revenue Service v. Prins, Adv. Pro. No. 17-05063-cag, Bankr. W.D. Tex., ECF. No. 38]. The Agreed Final Judgment ordered, in relevant part, that (1) the $82,373.28 paid to the IRS on October 19, 2016, is the sole property of Elbar; and (2) the IRS is directed to turn over the $82,373.28 to Elbar within 30 days of the date of the order. [Id.].
111. On March 20, 2018, Elbar received a check from the United States Treasury in the amount of $82,373.28, in accordance with the Agreed Final Judgment signed by Judge Gargotta in the Prins' Bankruptcy. [Adv. Doc. No. 237].
112. On May 15, 2018, Prins was sentenced in the Prins' Criminal Case to 72 months imprisonment, three years of supervised release, and was ordered to pay $2,975,264.00 in restitution (of which, $2.4 million is restitution to Elbar). [United States v. Todd A. Prins, Crim. No. 5:17-cr-00482-DAE-1, W.D. Tex., ECF. Nos. 58, 59]. Also on May 15, 2018, the District Court in the Prins' Criminal Case granted
113. On June 7, 2018, the United States Attorney for the Western District of Texas filed a "Process Receipt and Return" in the Prins' Criminal Case, requesting that the Clerk of the Court in the Western District of Texas, San Antonio Division, transfer funds in the amount of $1,601,542.14 to Elbar for the purpose of payment as restitution. [United States v. Todd A. Prins, Crim. No. 5:17-cr-00482-DAE-1, W.D. Tex., ECF. No. 63]. On July 2, 2018, Elbar in fact received a check from the United States Treasury in the amount of $1,601,542.14. [Adv. Doc. No. 237].
114. Of the $2.4 million that it initially sought to recover by initiating the instant adversary proceeding, Elbar has now received a total of $1,683,915.42: $82,373.28 from the IRS in the Prins' Bankruptcy plus $1,601,542.14 from the Prins' Criminal Case. [Adv. Doc. No. 237]. Thus, in this adversary proceeding, Elbar now seeks the return of $716,084.58 in order to be made whole (i.e., $2,400,000.00 minus $1,683,915.42 equals $716,084.58). Additionally, Elbar seeks to recover attorneys' fees for the prosecution of this adversary proceeding.
115. For their part, United Sentry, TransWorld, and Industry Drive seek to recover from Elbar all of the attorneys' fees that they have incurred in defending themselves against the claims brought by Elbar.
Bustamante gave testimony both as a fact witness and as an expert witness. With respect to serving as a fact witness, the Court finds that Bustamante, for the most part, forthrightly answered the questions posed to him, and therefore the Court finds that he is a credible witness and gives some measure of weight to his testimony. The Court wants to emphasize, however, that this finding is not to be construed as this Court condoning Bustamante's apparent belief that it is acceptable to violate the automatic stay by: (1) wiring funds to Prins with the knowledge that the Property was protected by the automatic stay, [see Finding of Fact Nos. 38-41]; and (2) filing a lis pendens against the Property with the knowledge that the Property was protected by the automatic stay, [see Finding of Fact No. 89].
With respect to serving as an expert witness, the Court does not find Bustamante to be credible when he suggests that it is acceptable to consummate any foreclosure sale knowing that the automatic stay is in place.
The Court finds that Prins is a dishonest individual whose credibility is sorely lacking. After all, Prins, among other despicable acts, did the following: (1) he improperly transferred the Proceeds from the IOLTA to the IRS, to the Wells Fargo Operating Account, and to the BBVA Operating Account, and used many of these funds for his own personal benefit, [Finding of Fact Nos. 46-50, 57, 59]; (2) he lied at the hearing held on November 8, 2016, when he stated — in response to a question by Elbar's counsel — that the $2.4 million was still in the IOLTA when in fact he had already transferred these funds out of the IOLTA and had begun using them, [Finding of Fact No. 58]; (3) he lied at the hearing held on November 8, 2016, when he stated — in response to a question by this Court — that he was ill at home in San Antonio when in fact he was in London, England with his wife and two children on a trip that was made possible through his use of a portion of the Proceeds that he had stolen, [Finding of Fact Nos. 58-59]; (4) on April 6, 2016, he fabricated a letter on the letterhead of Linebarger (outside counsel for the Tax Assessor) setting forth that TransWorld owed taxes of $169,807.29 in order to trick Ms. Cash into delivering a check for this amount to Prins, which he deposited into the IOLTA, and thereafter spent for his own purposes, [Finding of Fact Nos. 9-10]; and (5) on December 5, 2016, he impersonated an employee of BBVA Compass Bank on a conference call with MacKenzie in an effort to convince MacKenzie that Prins had not spent the Proceeds and that these funds were still in the IOLTA, [Finding of Fact No. 75]. These five examples by no means represent the universe of Prins' skullduggery — there are many more. However, for purposes
Indeed, given his outrageous behavior this Court would ordinarily give no weight whatsoever to any of his testimony. However, there is one reason to give at least some weight to portions of his testimony, much of which was given by deposition in this adversary proceeding on November 15, 2017.
The Court finds that Ms. Cash testified forthrightly and the Court finds her testimony to be very credible. The Court therefore gives her testimony substantial weight.
The Court finds that MacKenzie testified forthrightly and the Court finds his testimony to be very credible. The Court therefore gives his testimony substantial weight.
The Court finds that Gabriel testified forthrightly and the Court finds her testimony to be very credible. The Court therefore gives her testimony substantial weight.
The Court has reviewed Abdullatiff's deposition testimony and finds it be credible; thus, the Court gives Abdullatif's testimony substantial weight.
The Court has reviewed Jabbour's deposition testimony and finds it be credible; thus, the Court gives Jabbour's testimony substantial weight.
The Court has reviewed Klaimy's deposition testimony and finds it be credible; thus, the Court gives Klaimy's testimony substantial weight.
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b). Section 1334(b) provides that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 [(the Bankruptcy Code)], or arising in or related
This adversary proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), because its resolution concerns the administration of the Debtor's Chapter 7 estate. Specifically, both Elbar and United Sentry have filed claims against this estate, and there is $1,719,062.93 in the registry of the Court that will be distributed, one way or the other, to these two entities as a result of this lawsuit.
Venue is proper pursuant to 28 U.S.C. § 1409(a) because Elbar commenced this adversary proceeding in this Court, which is where the Main Case was pending at the time this adversary proceeding was initiated.
Having concluded that this Court has jurisdiction over this dispute, the Court nevertheless notes that Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), sets forth certain limitations on the constitutional authority of bankruptcy courts to enter final orders and judgments. Therefore, this Court has a duty to inquire into its constitutional authority to enter a final order or judgment for any matter brought before this Court.
In the suit at bar, this Court concludes that it does indeed have the authority to enter a final judgment. All of the parties have consented, either expressly or impliedly, to adjudication of this dispute by this Court. Wellness Int'l Network, Ltd. v. Sharif, ___ U.S. ___, 135 S.Ct. 1932, 1947, 191 L.Ed.2d 911 (2015) ("Sharif contends that to the extent litigants may validly consent to adjudication by a bankruptcy court, such consent must be expressed. We disagree. Nothing in the Constitution requires that consent to adjudication by a bankruptcy court be expressed. Nor does the relevant statute, 28 U.S.C. § 157, mandate express consent ...."). Indeed, the parties filed a Joint Pretrial Order in this Court, [Adv. Doc. No. 189], and also attended and participated at a multiday trial,
Although none of the defendants, in any of their respective answers or in the pretrial statement, pleaded that Elbar lacked standing to prosecute this lawsuit, the defendants began raising this issue at trial. TransWorld, Industry Drive, and United Sentry argue that if this Court is to find in Elbar's favor on any of Elbar's claims, the most Elbar can recover is $200,000.00, as that is the amount of money Elbar itself contributed to the purchase price of the Property, [see Adv. Doc. No. 216 at 15 of 43; Adv. Doc. No. 227 at 8-9 of 13; Adv. Doc. No. 219 at 1-2 of 16; Adv. Doc. No. 222, Feb. 8, 2018, Trial Tr. 170:11-12]; Elbar, on the other hand, argues that Federal Rule of Civil Procedure ("
The Court first considers whether Elbar has standing to bring this adversary proceeding. Article III of the Constitution limits the jurisdiction of federal courts to "cases" and "controversies." U.S. Const. art. III, § 2. One element of the case-or-controversy requirement is the doctrine of standing. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). Notably:
In re Cypresswood Land Partners, I, 409 B.R. 396, 416-17 (Bankr. S.D. Tex. 2009) (quoting In re A.P.I. Inc., 331 B.R. 828, 857-58 (Bankr. D. Minn. 2005)).
In the suit at bar, Elbar meets the requirements for constitutional standing: (1) Elbar has suffered an injury-in-fact in the form of monetary damage: namely, at a minimum, Prins stole $200,000.00 of its money, [Finding of Fact Nos. 33, 46-50, 57]; (2) there is a "fairly traceable" connection between Elbar's asserted injury and the alleged actions of the defendant(s): Prins (one of the defendants) himself stole all of the Proceeds (including Elbar's $200,000.00 pro rata share), and the $300,000.00 Prins distributed to Industry Drive (one of the defendants) and the $164,807.29 Prins distributed to TransWorld (one of the defendants) can be traced to these Proceeds, [Finding of Fact Nos. 33, 46-50, 57]; and (3) there is a non-speculative likelihood that Elbar's injury can be remedied by Elbar's requested relief. There is no doubt that if this Court grants the relief requested by Elbar, Elbar will recover all of the $200,000.00 from the Proceeds presently in the registry of this Court. Thus, there is no question that Elbar has constitutional standing to bring this suit and to recover a judgment for up to its $200,000.00 share of the Proceeds.
The question therefore is whether Elbar may prosecute this adversary proceeding in order to recover a judgment for not only its own $200,000.00, but also for the $2.2 million contributed by the other Purchasers.
Elbar easily meets two of the prudential standing grounds. First, the injury Elbar is alleging is a particular injury, as opposed to a general grievance that is shared in equal measure by all or a large class of citizens. See In re A.P.I. Inc., 331 B.R. 828, 859 (Bankr. D. Minn. 2005). Specifically, Elbar alleges that it, and the other Purchasers, have suffered a particular injury — namely, loss of their funds — due to Prins' theft of the Proceeds. Second, the interest sought to be protected by Elbar is within the "zone of interests" to be protected by the statutes at issue in this adversary proceeding. See id. Here, Elbar is prosecuting several claims that are expressly based upon statutes promulgated under Texas law — namely, the Texas Theft Liability Act and fraud in real estate transactions. Moreover, Elbar's injuries involve the type of interests that have traditionally been protected by the common law of Texas. See Servicios Azucareros de Venez.,
As to the third prudential standing ground, generally, a complainant's assertion of a third party's rights will defeat a complainant's bid for prudential standing. See In re Cypresswood Land Partners, I, 409 B.R. at 416-17. However, there are exceptions to this general rule. Federal Rule of Civil Procedure 17(a)(1)(F) expressly sets forth the following:
Thus, the question is whether Elbar, in seeking to recover a judgment for the $2.2 million contributed by the other Purchasers, can establish that a contract was made for their benefit.
Elbar essentially argues that it is a real party in interest and that it can prosecute the instant adversary proceeding on behalf of all Purchasers because Elbar made a contract in its name to purchase the Property for the benefit of those who provided the funds (i.e., the Purchasers). As stated above, FRCP 17(a)(1)(F) specifically addresses third-party beneficiary contracts by providing that "a party with whom or in whose name a contract has been made for another's benefit" "may sue in [its] own name[] without joining the person for whose benefit the action is brought." See also Drew Hardware, L.L.C. v. Hartford Fire Ins., Co., No. Civ-14-845-R, 2015 WL 13573970, at *2 (W.D. Okla. Jan. 12, 2015) ("Fed. R. Civ. P. 17(a)(1)(F) states that `a party with whom or in whose name a contract has been made for another's benefit' may sue in its own name without joining the T[hird] P[arty] B[eneficiary]. The Advisory Committee Notes to Rule 17 further state that the rule `does not say, because it is obvious, that the third-party beneficiary may sue (when the applicable law gives him that right).'"); 6A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1543 (3d ed. 1998, 2018 update) ("Under Rule 17(a)(1)(F), a party to a contract for the benefit of another person may sue in his own name."). As noted above, Elbar argues that it can sue in its own name without
Whether a third party beneficiary contract exists is governed by Texas law. See Farrell Const. Co. v. Jefferson Parish, La., 896 F.2d 136, 140 (5th Cir. 1990); New Orleans Pub. Serv., Inc. v. United Gas Pipe Line Co., 732 F.2d 452, 466 (5th Cir. 1984). In order for the Purchasers to be third party beneficiaries to a contract, a contract must first exist. Elbar, however, does not specifically point to any contract, let alone a contract that indicates that the Purchasers are third party beneficiaries.
In Key, the homeowners defaulted on their mortgage obligation and the mortgage company requested that the substitute trustee, Kevin Key ("
Pierce filed suit against Key and the mortgage company seeking a declaratory
The judgment was then appealed. On appeal, the defendants argued that there was no writing for the purchase of the property sufficient to satisfy the statute of frauds, while Pierce asserted that the posted notice of sale and the deed of trust were "sufficient memoranda" to satisfy the statute of frauds. Id. at 708. The appeals court first noted that "[a] contract for the sale of real estate is not enforceable unless it is (1) in writing; and (2) signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him." Id. at 707-08 (citing Tex. Bus. & Com. Code Ann. § 26.01(a)(1)-(2)). Discussing whether a contract comes within the statute of frauds, the appeals court stated that:
8 S.W.3d at 708 (emphasis added) (internal footnotes omitted).
Applying the above law to the facts of the case, the court of appeals affirmed the trial court and found that: (1) the notice of sale was signed by Key; (2) the notice of sale described the property; (3) the notice of sale stated that the property would be sold to the highest bidder for cash; (4) the deed of trust dictated when, where, and upon what terms the property must be sold; (5) the deed of trust required that Key deliver a trustee's deed to the highest bidder; and (6) Pierce's tender of the purchase price, all together, "provide[d] all essential terms of the contract and satisfie[d] the statute of frauds." Id.
This Court extrapolates Key's holding to the facts at bar and finds that even though there is no express written contract for the sale of the Property, the following documents provide all of the essential terms of a contract: (1) the notice of sale being signed by the substitute trustee (i.e., Prins), [Pl.'s Ex. 18]; (2) the notice of sale describing the Property, [Pl.'s Ex. 18]; (3) the notice of sale stating the Property will be sold to the highest bidder or bidders for cash, [Pl.'s Ex. 18]; (4) the Deed of Trust dictating under what terms the Property must be sold, and the notice of sale, under the terms of the Deed of Trust, setting forth the date, location, and upon what terms the Property must be sold, [Pl.'s Exs. 14, 18]; (5) the Deed of Trust requiring that the Trustee deliver a trustee's deed to the highest bidder,
The question now is whether it is possible to have a third party beneficiary to this contract under Texas law. The answer is yes. Indeed, under Texas law, one can be a third party beneficiary even if the contract is an oral contract. See Cunningham v. Healthco, Inc., 824 F.2d 1448, 1455 (5th Cir. 1987) (finding sufficient evidence to support jury's findings that "Dental Leasing was an intended beneficiary of the oral contracts in the testimony of Dr. Cunningham, Dr. Bonola, and Mr. Green"); Steves & Sons, Inc. v. Trinity Glass Int'l Inc., No. SA-06-CA-0357-XR, 2008 WL 11334576, at *3 (W.D. Tex. June 24, 2008) ("It is possible to be a third-party beneficiary of an oral contract.") (citing Cunningham, 824 F.2d at 1458). As Texas law allows for one to be a third party beneficiary to an oral contract, the Court must now examine whether the Property was purchased for the benefit of the Purchasers — i.e., whether the Purchasers are third party beneficiaries to the contract between Elbar and United Sentry.
To qualify as a third party beneficiary under Texas law, an alleged third party beneficiary must prove:
Talman Home Fed. Sav. & Loan Ass'n of Ill. v. Am. Bankers Ins., 924 F.2d 1347, 1350-51 (5th Cir. 1991); see also Wallace v. Perry (In re Perry), 423 B.R. 215, 255 (Bankr. S.D. Tex. Feb. 3, 2010) ("To qualify as a third party beneficiary under Texas law: (1) [the alleged third party beneficiary] must not have been in privity of contract; (2) the contract ... must have been made — at least in part — for [the alleged third party beneficiary]'s benefit; and (3) the contracting parties must have intended in the written agreement to benefit [the alleged third party beneficiary].").
Here, the first element is met. "Privity of contract is established by proving that [one] [is] a party to an enforceable
The second and third elements are met as well. In determining whether one is a third party beneficiary to a contract, "the intention of the contracting parties is controlling." MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex. 1999). "[A] presumption exists that parties contracted for themselves unless it `clearly appears' that they intended a third party to benefit from the contract." Id.; see also Cunningham, 824 F.2d at 1455 ("Parties are presumed to contract for themselves and it follows that a contract will not be construed as having been made for the benefit of a third person unless it clearly appears that such was the intention of the contracting parties.") (quoting Briercroft Sav. & Loan Ass'n v. Foster Fin. Corp., 533 S.W.2d 898, 901 (Tex. Civ. App. — Eastland 1976, writ ref'd n.r.e.)). Further, "the `provisions of the contract' upon which the claim of `third party beneficiary succeeds or fails' are the oral promises and understandings between the parties as reflected in the trial testimony and established by the findings of the jury." Cunningham, 824 F.2d at 1455 (quoting Greenville Indep. School Dist. v. B & J Excavating, Inc., 694 S.W.2d 410, 412 (Tex. App. — Dallas 1985, writ ref'd n.r.e.)).
The evidence clearly shows that (1) the purchase of the Property was made for the Purchasers' benefit and (2) the contracting parties (i.e., Elbar and United Sentry) intended for the agreement to benefit the Purchasers. Even though the eleven cashier's checks, and later the wire-transfer of the Proceeds, came from Abdullatif, Jabbour, and Bustamante themselves, it is clear that Elbar was the contemplated purchaser of the Property at the foreclosure sale. First, Twyman — who is a vice president of Elbar — was the individual who attended the foreclosure sale (and was the successful highest bidder) as a representative of Elbar. [Finding of Fact No. 32]. Second, even though the money came from Bustamante himself, the four cashier's checks (that were not from Abdullatif and Jabbour) given to Shum at the foreclosure sale on October 4, 2016, were made payable to the order of Elbar. [Finding of Fact No. 32; see Pl.'s Ex. 20]. Third, the receipt tendered by Shum — that is signed by both Shum as substitute trustee and Twyman as Elbar's vice president — sets forth that payment was received from Elbar. [See Pl.'s Ex. 20]. Fourth, Bustamante testified that when purchasing real property, the individuals (and Elbar itself) provide the funds to purchase properties as their beneficial owners, and that Elbar then acquires the legal title to the properties.
Fifth, before the wire transfer of the $2.4 million was sent to the IOLTA, Bustamante requested that the wire show Elbar as the sending party. [Pl.'s Ex. 31]. Sixth, all of the correspondence after the occurrence of the foreclosure sale on October 4, 2016, concerning the return of the cashier's checks and payment by wire was between Shum/Prins and Twyman, as the attorney and vice president representing Elbar. [See Pl.'s Exs. 21-31]. Thus, the evidence shows that Elbar, although not fronting all of the money for the purchase of the Property, was the intended legal purchaser of the Property. All of the above described circumstances show that the Purchasers were the intended third-party beneficiaries of the agreement that Elbar entered into with United Sentry's substitute trustees to purchase the Property.
For all these reasons, Elbar has the right to prosecute this suit on behalf of itself and all other Purchasers seeking a judgment to recover all amounts still owed to all of the Purchasers.
In determining whether Elbar should recover on its claims for equitable subrogation, money had and received, and unjust enrichment, this Court is required to weigh the equities based upon the totality of the circumstances. See Murray v. Cadle Co., 257 S.W.3d 291, 300 (Tex. App. — Dallas 2008, pet. denied) (equitable subrogation) First Am. Title, Ins. Co. v. Brett C. Moody Invs., LLC, No. H-14-0473, 2015 WL 1220733, at *5 (S.D. Tex. Mar. 17, 2015) (money had and received); Bank of Saipan v. CNG Fin. Corp., 380 F.3d 836, 841 (5th Cir. 2004) (money had and received); Helm v. Landry Serv. Co., Inc., No. 01-94-00348-CV, 1995 WL 319014, at *6 (Tex. App. — Houston [1st Dist.] May 25, 1995, writ denied) (unjust enrichment). In weighing the equities, a key issue is whether Elbar violated the automatic stay.
An analysis of whether Elbar violated the stay begins with a review of the Code provision that imposes the stay: 11 U.S.C. § 362(a). The legislative history of 11 U.S.C. § 362 "reveals that the automatic stay is one of the fundamental protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts and permits the debtor to attempt repayment or reorganization ...." In re Lile, 103 B.R. 830, 836 (Bankr. S.D. Tex. 1989) (internal citations and quotations omitted). Additionally, "[t]he automatic stay is designed to protect creditors as well as debtors." Brown v. Chesnut (In re Chesnut), 422 F.3d 298, 301 (5th Cir. 2005). The automatic stay is effective upon the filing of the bankruptcy petition, and it does not require actual notice to be effective. In re Lile, 103 B.R. at 836. Further, a willful violation of the stay does not require a specific intent to violate the stay. Thornburg v. Lynch (In re Thornburg), 277 B.R. 719, 725 (Bankr. E.D. Tex. 2002). Section § 362(a), in pertinent part, reads as follows: "a petition filed under section 301,
Elbar's participation in the foreclosure sale on the Property held at approximately noon on October 4, 2016, [Main Case Doc. No. 118, Dec. 15, 2016, Hrg. 10:12-17], coming away as the highest bidder, and its attempt to pay the bid price by tender of the eleven cashier's checks — even without the knowledge that the Debtor had filed her bankruptcy petition at approximately 8:20 a.m. on October 4, 2016, [Finding of Fact No. 28], three and a half hours prior to the foreclosure sale taking place — amounts to a violation of the automatic stay. See, e.g., Jackson v. Priority Trs. Servs. of Miss., L.L.C. (In re Jackson), 392 B.R. 666, 671 (Bankr. S.D. Miss. 2008) (holding that "the foreclosure sale, conducted the day after the filing of the Bankruptcy Petition, constituted an act `to obtain possession of property of the estate' in violation of § 362") (quoting 11 U.S.C. § 362(a)(3)); Smith v. London (In re Smith), 224 B.R. 44, 46 (Bankr. E.D. Mich. 1998) (finding that foreclosure sale was void because it violated the automatic stay and the fact that the mortgage company who conducted the foreclosure sale was not given notice of the debtor's bankruptcy filing was irrelevant in determining whether the stay was violated). Thus, Elbar violated the automatic stay on October 4, 2016, merely by tendering the eleven cashier's checks to Shum in the aggregate amount of $2.4 million, [see Finding of Fact No. 32; Main Case Doc. No. 118, Dec. 15, 2016, Hrg. 10:12-17], as this act occurred three and a half hours after the Debtor's filing of her Chapter 7 petition, [Finding of Fact. Nos. 28-29].
The next question is whether Elbar's act of wiring the $2.4 million to Prins was an act to obtain possession of property of the estate. Case law says that it was.
The undersigned judge agrees with this conclusion. An act to obtain title to estate property violates the stay pursuant to the very language of § 362(a)(3). The sole objective of any purchaser at a foreclosure sale in giving money to the trustee is to have the trustee execute and deliver to the money-giver a deed to the property. Yet, if this property is "property of the estate," then the money-giver's act — and objective — necessarily seeks to deprive the estate of title to the subject property. Thus, here, Elbar violated the stay by wire transferring the $2.4 million to the IOLTA. [See Finding of Fact No. 40].
To the extent that Elbar suggests that its wire transferring the Proceeds in violation of the automatic stay is essentially "no harm, no foul" because Elbar (or another party, such as Prins) could have moved to have the automatic stay retroactively annulled, such argument holds no weight with this Court.
Id. at 303.
Application of In re Chesnut to the suit at bar lends strength to this Court's finding that Elbar willfully violated the stay on October 6, 2016, when it wired the Proceeds to the IOLTA. [See Finding of Fact
If Elbar had chosen this course, it would have fulfilled the public policy objectives of the Bankruptcy Code and due process as articulated in In re Chesnut: namely, to afford all parties in interest, including the Debtor and all of her creditors, the opportunity to be heard; and to allow this Court to consider the evidence, reflect upon the parties' arguments, and then render a decision as to whether the Property was property of the Debtor's estate subject to the automatic stay and, if so, whether the stay should be annulled. In re Chesnut, 422 F.3d at 303-04; see also In re Lile, 103 B.R. at 836 (citation omitted) ("All parties benefit from the fair and orderly process contemplated by the automatic stay and judicial relief procedure. Judicial toleration of an alternate procedure of self-help and post hoc justification would defeat the purpose of the automatic stay."). Elbar's willingness to violate the stay in the hope of preserving its claim to the Property through the subsequent annulment of the stay
Elbar not only willfully violated the automatic stay on October 6, 2016, when it wire transferred the Proceeds to the IOLTA; Elbar also willfully violated the automatic stay for a second time when it filed a lis pendens against the Property in January 2017. [Finding of Fact No. 89]. Filing a lis pendens postpetition with knowledge of the debtor's Chapter 7 case is a blatant violation of the automatic stay. See, e.g., In re Thornburg, 277 B.R. at 729-30 (holding postpetition filing of a notice of lis pendens violated automatic stay and noting that "[t]he effect of filing a Notice of Lis Pendens in the State of Texas is the `functional equivalent of an involuntary lien as it acts as a cloud on title under Texas law.'") (quoting F.D.I.C. v. Walker, 815 F.Supp. 987, 990 (N.D. Tex. 1993)); Byrd v. Hoffman, 417 B.R. 320, 329 (D. Md. 2008) (holding postpetition filing of a notice of lis pendens violated automatic stay); Elrod v. Elrod (In re Elrod), 91 B.R. 187, 189 (Bankr. M.D. Ga. 1988) (same); Crumrine v. Blum (In re Crumrine), 261 B.R. 669, 671 n.1 (Bankr. N.D. Cal. 2001) (emphasis in original) ("In this circuit, the postpetition recording of a lis pendens violates the automatic stay.") (citing Barnett v. Edwards (In re Edwards), 214 B.R. 613, 619 (9th Cir. BAP 1997)). Elbar's second willful violation of the automatic stay further underscores Elbar's cavalier attitude towards the automatic stay and abiding by the Bankruptcy Code.
Elbar's business model and prior litigation history regarding foreclosure sales make its willful violations of the stay on October 6, 2016, and January 3, 2017, particularly egregious — which in turn makes this Court's finding of Elbar's bad faith and lack of equitable and righteous dealing even more pronounced. Elbar's entire business is based upon conducting research about real properties that have been posted for foreclosure, deciding on which properties to bid, and then attending and participating at these sales. [See Adv. Doc. No. 220, Feb. 6, 2018, Trial Tr. 53:9-11, 111:24-112:15, 112:25-113:2, 113:16-22, 114:4-7; TransWorld's Ex. JJ, Klaimy Dep. 7:10-18, 8:14-18, 13:5-7, 13:17-14:7]. Elbar has been pursuing this business model for approximately 34 years, and has frequently participated in sales where the owner of the property has filed for bankruptcy. [TransWorld's Ex. II, Bustamante Dep. 67:15-20, 182:6-10; TransWorld's Ex. JJ, Klaimy Dep. 13:13-15; Adv. Doc. No. 220, Feb. 6, 2018, Trial Tr. 134:11-14]. So, there is no question that Elbar is an
The circumstances here are similar to In re Burke, 147 B.R. 955 (Bankr. W.D. Mo. 1992). In In re Burke, the court found that a "local investor who purchases foreclosure properties on the courthouse steps" acted in willful violation of the automatic stay when two public records (i.e., a lis pendens filed against the property and a judgment lien against the property) existed prior to the foreclosure sale that connected the property to the debtor's bankruptcy, even though there was no evidence presented that the investor had actual knowledge of the bankruptcy estate's interest in the property. 147 B.R. at 957-59. Despite there being no evidence that the investor had actual knowledge of the estate's interest in the property, the court found that:
Id. at 959 (emphasis added). Here, too, the Purchasers are very experienced and established investors in distressed properties and are regular purchasers of properties sold at foreclosure sales. [Finding of Fact Nos. 30-34]. As such, as in In re Burke, the Purchasers are held to a higher standard, i.e., they are required to do greater due diligence in determining whether the property to be sold at a foreclosure sale is owned by someone who is in bankruptcy. For example, here, once Twyman learned on October 5, 2016, from the Prins Law Firm that the Debtor took the position that she had an interest in the Property pursuant to a deed, Twyman could have asked Prins, or Shum, or Payne (the Debtor's bankruptcy attorney), for a copy of this deed in order to determine the strength of the Debtor's assertion that she did own an interest in the Property on the date of the filing of her bankruptcy petition. [See Finding of Fact No. 37]. Had Twyman taken this action, he would have — or at least should have — informed Bustamante that the Property was arguably property of the estate and that therefore the automatic stay was in effect, and that Bustamante would therefore be violating the stay by wire transferring funds to the IOLTA.
But, there is more. Not only are Elbar and Bustamante experienced in participating at foreclosure sales, they are also experienced in appeals involving foreclosure sale disputes. Indeed, Elbar and Bustamante have been on the losing end of two disputes that have resulted in published opinions from the Fifth Circuit: Elbar Investments Inc. v. Pierce (In re Pierce), 91 F. App'x 927 (5th Cir. 2004) and Bustamante v. Cueva (In re Cueva), 371 F.3d 232 (5th Cir. 2004). These two opinions merit inclusion in this Court's weighing of the equities based upon the totality of the
In In re Pierce, Elbar purchased property at a judicial tax sale without knowledge of the bankruptcy petition and automatic stay. 91 F. App'x at 928. After the constable refused to issue a deed, Elbar filed a motion for relief from the automatic stay to validate the judicial tax sale retroactively. Id. Elbar also filed an adversary proceeding arguing that, even if the bankruptcy court did not annul the automatic stay, the automatic stay did not prevent Elbar from acquiring the mortgagee's interest in the property. Id. The Fifth Circuit affirmed the district court's affirmance of the bankruptcy court's denial of Elbar's requested relief, stating that: "[c]ritically, 11 U.S.C. § 362(a) automatically stayed the tax sale proceedings; thus, the bankruptcy court correctly held that the tax sale ... was null and without legal effect." Id. at 929.
In In re Cueva, Bustamante — who, it must be remembered, is a vice president of Elbar — purchased a one-half interest in property sold at a foreclosure sale without knowledge of the bankruptcy petition and automatic stay. 371 F.3d at 234. Bustamante filed pleadings requesting relief from the automatic stay and a declaration that his post-bankruptcy purchase of the property at the foreclosure sale was a valid purchase and not voided by the automatic stay. Id. The Fifth Circuit affirmed the district court's decision and held that "the foreclosure sale was in violation of the automatic bankruptcy stay and therefore invalid ...." Id. at 238.
The holdings issued in these opinions lead this Court to find that Elbar is an extremely knowledgeable and sophisticated litigant that understands perfectly that it is a direct violation of the Bankruptcy Code to (1) attempt to acquire fee simple to real property when the foreclosure sale occurs after the filing of the property owner's bankruptcy; and (2) file a lis pendens against a property in bankruptcy.
And, there is even more. To the extent that Elbar suggests that it has clean hands because § 362(d) allows it — or, United Sentry — to seek to annul the stay in order to overcome any violation of the stay, this Court disagrees. The problem with this position is that there is ample case law holding that only innocent parties-in-interest who had no knowledge of the bankruptcy — and therefore no notice that the automatic stay was in effect — are able to obtain annulment of the stay. See, e.g., Jones v. Garcia (In re Jones), 63 F.3d 411, 412-13 (5th Cir. 1995) (affirming lower courts' decision declining to void a postpetition foreclosure sale when purchasers were not sophisticated parties and they received neither actual nor presumed constructive notice of the bankruptcy filing until after title had been transferred to them); Soares v. Brockton Credit Union (In re Soares), 107 F.3d 969, 977 (1st Cir. 1997) ("When a creditor inadvertently violates the automatic stay in ignorance of a pending bankruptcy, courts sometimes have afforded retroactive relief.").
In In re Soares, the creditor, with knowledge of the debtor's bankruptcy, sought an order of default and a judgment authorizing foreclosure in state court but failed to notify the state court of the debtor's
If Elbar's seasoned and veteran counsel (i.e., Twyman and Bustamante) had only done research on the law, they would have found this case and other case law on point. See, e.g., IMC Mortg. Co., Inc. v. Brown (In re Brown), 251 B.R. 916, 919 (Bankr. M.D. Ga. 2000) ("[B]ecause it would be inappropriate for the Court to approve a wilful violation of the automatic stay, it should be clear that the Court will grant an annulment only if the Creditor justifiably believed its action did not violate the automatic stay."); Stancil v. Bradley Invs., LLC (In re Stancil), 487 B.R. 331, 340 (Bankr. D.C. 2013) ("[K]nowledge of the bankruptcy filing precludes annulment of the automatic stay."); In re Schumann, 546 B.R. 223, 229 (Bankr. D.N.M. 2016) ("[A]nnulment of the automatic stay `thereby reinstating previous claims retroactively... is rare and probably available only to claimants who were honestly ignorant of the bankruptcy stay.'") (quoting Franklin Sav. Ass'n v. Office of Thrift Supervision, 31 F.3d 1020, 1023 (10th Cir. 1994)).
In fact, Elbar and Bustamante should be well aware of the specific set of circumstances in which it is proper for the Court to grant a motion to annul the stay. In In re Jefferson, Elbar filed a motion to annul the automatic stay. No. 13-33515-H3-13, 2013 WL 4505591, at *1 (Bankr. S.D. Tex. 2013). The record made at the hearing on the motion to annul the stay reflected the following: (1) on the date of the filing of the Debtor's bankruptcy petition, Elbar purchased certain real property at a foreclosure sale; (2) on the date of this foreclosure sale, the debtor had no interest in this property, but rather the debtor's sister owned the property; (3) ten days later, the debtor's sister conveyed the property to her; (4) the debtor then took the position that she owned the property and she had the right to reside in it, and that the stay prevented Elbar from taking title to and possession of this property; and (5) the debtor had not taken the required pre-petition credit counseling course. Id. The court granted Elbar's motion by emphasizing that the debtor did not own the property on the date of the filing of her petition and also had failed to take the requisite credit counseling course. Id. at *1-2. Stated differently, the court found cause under 11 U.S.C. § 362(d)(1) to annul the stay because the debtor had played fast and loose with the property and the Bankruptcy Code, whereas Elbar had conducted a legitimate foreclosure that did not violate the automatic stay.
Here, unlike In re Jefferson, Elbar did violate the stay — willfully — because it knew of the Debtor's bankruptcy prior to wire-transferring the Proceeds and filing
In sum, Elbar violated the automatic stay three times, and in two of these instances, Elbar did so willfully. The Court will take this conduct into account when analyzing Elbar's claims for equitable subrogation, money had and received, and unjust enrichment.
Elbar argues that because Prins, as the substitute trustee under the Deed of Trust expressly appointed by United Sentry, [Finding of Fact No. 19], had actual or apparent authority to act as United Sentry's agent, United Sentry is liable for Prins' fraud and theft. [Adv. Doc. No. 217 at 11-12 of 35, ¶¶ 28-29]. Elbar concedes that if this Court finds that Prins was not acting with actual or apparent authority, then Elbar's claims against United Sentry for fraud in real estate transactions, common law fraud, and the Texas Theft Liability Act fail as a matter of law. [Adv. Doc. No. 222, Feb. 8, 2017, Trial Tr. 23:6-15]. Thus, the threshold question is whether Prins was acting with actual or apparent authority from United Sentry.
"Under Texas law, an agent is someone authorized by a person or entity to transact business or manage some affair for that person or entity." Tex. Soil Recycling, Inc. v. Intercargo Ins. Co., 273 F.3d 644, 650 (5th Cir. 2001). The party asserting the agency relationship has the burden of proof. McGowan & Co., Inc. v. Bogan, No. H-12-1716, 2015 WL 3422366, at *8 n.13 (S.D. Tex. May 27, 2015) (citing Reliant Energy Servs. Inc. v. Cotton Valley Compression, L.L.C., 336 S.W.3d 764, 783 (Tex. App. — Houston [1st Dist.] 2011, no pet.)).
"An agency relationship may be demonstrated by `written or spoken words or conduct, by the principal, communicated either to the agent (actual authority) or to the third party (apparent authority)." Bridas S.A.P.I.C. v. Gov't of Turkm., 345 F.3d 347, 357 (5th Cir. 2003) (quoting Hester Int'l Corp. v. Fed. Republic of Nigeria, 879 F.2d 170, 181 (5th Cir. 1989)); see also Utils. Optimization Grp., L.L.C. v. TIN, Inc., 440 F. App'x 249, 252 (5th Cir. 2011) ("Absent actual or apparent authority, an agent cannot bind a principal.") (quoting Tex. Cityview Care Ctr., L.P. v. Fryer, 227 S.W.3d 345, 352 (Tex. App. — Fort Worth 2007, pet. dism'd [mand. dism'd])); McGowan & Co., 2015 WL 3422366, at *8 n.13 ("A principal is liable for the acts of another acting as its agent only when the
"Actual authority includes both express and implied authority and usually denotes the authority a principal (1) intentionally confers upon an agent, (2) intentionally allows the agent to believe he possesses, or (3) by want of due care allows the agent to believe he possesses." Utils. Optimization Grp., L.L.C., 440 F. App'x at 252 (quoting Tex. Cityview Care Ctr., L.P. v. Fryer, 227 S.W.3d 345, 352 (Tex. App. — Fort Worth 2007, pet. dism'd [mand. dism'd])).
Apparent authority, on the other hand, "is based on estoppel arising either from a principal knowingly permitting an agent to hold [himself] out as having authority" or "by a principal's actions which lack such ordinary care as to clothe an agent with the indicia of authority, thus leading a reasonably prudent person to believe that the agent has the authority [he] purports to exercise." Utils. Optimization Grp., L.L.C., 440 F. App'x at 252 (internal quotation marks and citations omitted). Apparent authority arises either (1) "from a principal knowingly permitting an agent to hold herself out as having authority" or (2) "by a principal's actions which lack such ordinary care as to clothe an agent with the indicia of authority, thus leading a reasonably prudent person to believe that the agent has the authority she purports to exercise." Hitachi Capital Am. Corp. v. Andress, No. H-06-1959, 2007 WL 2752696, at *3 (S.D. Tex. Sept. 20, 2007) (quoting Ames v. Great S. Bank, 672 S.W.2d 447, 450 (Tex. 1984)). "Because apparent authority is an estoppel principle, a party seeking to recover under such legal theory must show justifiable reliance on the principal's words or conduct resulting in harm to the party." Reliant Energy Servs. Inc. v. Cotton Valley Compression, L.L.C., 336 S.W.3d 764, 784 (Tex. App. — Houston [1st Dist.] 2011, no pet.). "To determine an agent's apparent authority, the court examines the conduct of the principal and the reasonableness of the third party's assumptions regarding the agency's authority." Kirkindoll v. Nat'l Credit Union Admin. Bd., No. 3:11-CV-1921-D, 2015 WL 1636534, at *9 (N.D. Tex. Apr. 13, 2015).
"Key to the tests for both actual and apparent authority is the need for some action or omission by the principal, not merely the agent." Utils. Optimization Grp., L.L.C., 440 F. App'x at 253. "An agent's authority ... depends on some communication by the principal either to the agent ([to establish] actual ... authority) or to the third party ([to establish] apparent ... authority)." Id. (quoting Gaines v. Kelly, 235 S.W.3d 179, 182 (Tex. 2007)).
A principal is liable for the torts of his agent "committed in the course and scope of their employment." Ross v. Marshall, 426 F.3d 745, 763 (5th Cir. 2005). To determine whether an agent acted within the scope of his employment the plaintiff must show that the act was: (1) within the general authority given to the agent; (2) in furtherance of the principal's business; and (3) for the accomplishment of the object for which the employee was employed. Id. at 763-64; see also Schrum v. Land, 12 F.Supp.2d 576, 582 (S.D. Tex. 1997) (emphasis in original) ("In determining the principal's vicarious liability, the proper question is not whether the principal authorized the specific wrongful act, but whether the agent was acting within the scope of the agency at the time of committing the act.").
Generally, "a principal is deemed to know facts that are known to its agent." Secs. Inv'r Prot. Corp. v. Cheshier & Fuller, L.L.P. (In re Sunpoint Secs., Inc.), 377 B.R. 513, 562 (Bankr. E.D. Tex. 2007) (citation omitted). However, "[i]f the agent is acting adversely to the corporation, the corporation may not be bound by the agent's activity or knowledge." Id. at 564; see also Ernst & Young and Ernst & Young, LLP v. Bankr. Servs., Inc. (In re CBI Holding Co., Inc.), 311 B.R. 350, 369 (Bankr. S.D.N.Y. 2004) ("The `adverse interest' exception ... provides that when an agent is committing a fraud for his own benefit, and has totally abandoned his principal's interest, the acts of the agent will not be imputed to the principal ....") (citation and quotations omitted). For the adverse interest exception to apply "the agent must have totally abandoned his principal's interests and be acting entirely for his own or another's purposes." In re Sunpoint Secs., Inc., 377 B.R. at 564 (citation omitted); see also F.D.I.C. v. Shrader & York, 991 F.2d 216, 223 (5th Cir. 1993) ("A principal is not affected by the knowledge of an agent in a transaction in which the agent secretly is acting adversely to the principal and entirely for his own or another's purposes ....") (quoting Restatement (Second) of Agency § 282(1) (1957)).
The Court now applies these agency principles to the suit at bar. Whether United Sentry is liable for the acts committed by Prins hinges on whether Prins committed these acts in the course and scope of his employment. Ross, 426 F.3d at 763. The Court first considers the scope of actual authority United Sentry gave to Prins. The Deed of Trust expressly gives the substitute trustee (i.e., Prins)
[Pl.'s Ex. 14].
A principal is liable only for the torts of his agent committed in the course and scope of the agent's employment. Ross, 426 F.3d at 763. Did Prins, as United Sentry's agent, in fact stay within the authority conferred upon him by the Deed of Trust?
He most certainly did not. The Deed of Trust did
The Court next considers the scope of any apparent authority Prins may have had. "An agent's authority ... depends on some communication by the principal ... to the third party ([to establish] apparent... authority)." Utils. Optimization Grp., L.L.C., 440 F. App'x at 253 (quoting Gaines v. Kelly, 235 S.W.3d 179, 182 (Tex. 2007)); see also Kirkindoll., 2015 WL 1636534, at *9 ("To determine an agent's
Even if it was within the scope of Prins' employment as trustee under the Deed of Trust to accept the $2.4 million wire transfer from Elbar after notice of the bankruptcy and imposition of the automatic stay, it is wholly unforeseeable that Prins, as trustee, would engage in such serious criminal activity after receiving the $2.4 million by absconding with all of the funds for his own personal benefit. [See Finding of Fact Nos. 46-50, 57]. It is so unforeseeable for a trustee under a deed of trust to misappropriate and steal such funds that even Elbar's own expert witness, Bustamante, testified that in his over 40 years of experience, he has never seen anything like Prins' misconduct. [Adv. Doc. No. 220, Feb. 6, 2018, Trial Tr. 81:21-82:2]. Under Texas law, United Sentry simply cannot be held liable for Prins' unforeseeable serious and egregious criminal activity. See Ross, 426 F.3d at 764; Zarzana, 218 S.W.3d at 160; Adami, 440 S.W.2d at 334. For all of these reasons, Prins was not acting as United Sentry's agent; therefore, United Sentry is not liable to Elbar for fraud in real estate transactions, common law fraud, or theft.
Finally, Prins, in first accepting and thereafter absconding with the $2.4 million, was acting adversely to the interest of United Sentry.
In sum, this Court finds that Prins had neither actual nor apparent authority from United Sentry to take the actions that he did: i.e., hold the foreclosure sale after learning that the Debtor was in bankruptcy, accept the $2.4 million wire transfer in violation of the automatic stay, and then abscond with all of these funds for his own personal benefit. [See Finding of Fact Nos. 29, 36, 39-40, 46-50, 57]. And, because Prins had no authority from United Sentry to take these illegal actions, the claims brought by Elbar against United Sentry for fraud in real estate transactions, common law fraud, and the Texas Theft Liability Act must necessarily fail — indeed, Elbar has admitted that if this Court finds that Prins had no authority, then these claims must be denied. [Adv. Doc. No. 222, Feb. 8, 2017, Trial Tr. 23:6-15].
Thus, Elbar's only remaining claim against United Sentry is its claim for equitable subrogation, discussed infra in Section IV.D.5. Now, however, the Court addresses Elbar's claims against Prins for fraud in real estate transactions, common law fraud, and the Texas Theft Liability Act.
"Section 27.01 of the Texas Business and Commerce Code establishes a statutory cause of action for fraud in real-estate transactions." United States v. Lacy, 234 F.R.D. 140, 149 (S.D. Tex. 2005). Section 27.01 provides for two types of statutory fraud in a real estate transaction:
Ponce v. Conseco Fin. Servicing Corp., 1:13-CV-762 LY, 2014 WL 12589592, at *7 (W.D. Tex. Jan. 17, 2014) (citing Tex. Bus. & Comm. Code Ann. § 27.01(a)) (West 2018). Section 27.01 only applies, however, when a valid, enforceable contract exists, and when a misrepresentation of material fact is made to induce another to enter into a contract for the sale of land or stock. Cao v. BSI Fin. Servs., Inc., No. H-17-321, 2017 WL 5157625, at *8 (S.D. Tex. Oct. 19, 2017) (internal citation omitted); Braley v. BAC Homes Loans Servicing, LP, No. 3:10-CV-2105-O, 2011 WL 13233558, at *8 (N.D. Tex. July 8, 2011).
"Statutory fraud differs from common law fraud only in that [statutory fraud] does not require proof of knowledge or recklessness as a prerequisite to the recovery of actual damages." Lacy, 234 F.R.D. at 149; see also Jericho Graphics Corp. v. Haynes, No. 01-03-00987-CV, 2004 WL 2538677, at *3 (Tex. App. — Houston [1st Dist.] Nov. 10, 2004, no pet.) ("A claim for statutory fraud under section 27.01 is
"Intent to defraud is a fact question uniquely within the realm of the trier of fact and depends upon the credibility of the witnesses and the weight to be given to their testimony." Tsai v. Chang, No. 05-00-00177-CV, 2001 WL 717807, at *7 (Tex. App. — Dallas June 27, 2001, pet. denied); see also Walker v. F.D.I.C., 970 F.2d 114, 122 (5th Cir. 1992); LHC Nashua P'ship, Ltd. v. PDNED Sagamore Nashua, LLC, No. H-07-126, 2009 WL 10681043, at *13 (S.D. Tex. Apr. 9, 2009). Although a party's intent is determined at the time the party made the representation, intent may be inferred from the party's subsequent acts after the representation is made. Thedford Crossing, L.P. v. Tyler Rose Nursery, Inc., 306 S.W.3d 860, 872 (Tex. App. — Tyler 2010, pet. denied); see also Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986). "Failure to perform, standing alone, is no evidence of the promissor's intent not to perform when the promise was made. However, that fact is a circumstance to be considered with other facts to establish intent." Thedford Crossing, L.P., 306 S.W.3d at 872; see also Spoljaric, 708 S.W.2d at 435. "Since intent to defraud is not susceptible to direct proof, it invariably must be proven by circumstantial evidence." Thedford Crossing, L.P., 306 S.W.3d at 872; see also Walker, 970 F.2d at 122.
Here, Elbar has not met its burden in proving that Prins committed statutory fraud in real estate transactions. First, Elbar has not shown that Prins made a "material misrepresentation" that caused Elbar to enter into a contract for the purchase of the Property, as required by the first type of statutory fraud set forth in Texas Business & Commerce Code § 27.01. The evidence does not show that at the relevant time period (i.e., at the foreclosure sale of the Property), Prins made any material misrepresentations to induce Elbar to purchase the Property. Second, Elbar has also failed to meet its burden to show that Prins engaged in the second type of statutory fraud set forth in Texas Business & Commerce Code § 27.01: the evidence simply does not show that Prins made a false promise to do an act with the intention of not fulfilling it. There is nothing in the record evidencing that Prins did not intend to deliver the deed to the Property at the time the foreclosure sale took place on October 4, 2016. Further, he learned about the Debtor's bankruptcy and her claim that she had an interest in the Property it made sense for him not to deliver a deed to Elbar: to do so would have violated the automatic stay. See, e.g., In re Wheeler, 5 B.R. 600, 604 (Bankr. N.D. Ga. 1980) (holding that delivery of the deed to buyer at foreclosure sale was "an act to obtain property of the estate" in violation of the automatic stay because, under state law, the debtor retained a property right — called the "equity of redemption" — in the property); Smith v. Mooney (In re Smith), 155 B.R. 145, 148 (Bankr. W. Va. 1993) (holding that postpetition delivery of a deed violated the automatic stay because, pursuant to state law, the debtor continued to maintain an equitable interest in the foreclosed property); United States v. Bishop, 262 B.R. 401, 405 (W.D. Tex. 2000) (finding that because debtor filed her bankruptcy petition approximately two hours before the foreclosure sale took place, under Texas law, the debtor still retained her legal and equitable
Under Texas law, to bring a successful claim for common law fraud, a plaintiff must prove the following: (1) that a material representation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury. Law v. Ocwen Loan Servicing, LLC, No. CV H-16-2675, 2017 WL 1169679, at *2 (S.D. Tex. Mar. 28, 2017) (citing In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001)). Each element of fraud must be proven by a preponderance of evidence. Seven Seas Petroleum, Inc. v. CIBC World Mkts. Corp., No. H-08-3048, 2013 WL 3803966, at *21 (S.D. Tex. July 19, 2013); Griggs v. Webber (In re Webber), 350 B.R. 344, 371 (Bankr. S.D. Tex. 2006).
Like its claim for statutory fraud in real estate, Elbar has also failed to meet its burden in proving that Prins made a "material misrepresentation" that caused Elbar to purchase the Property. Thus, Elbar also cannot recover in its common law fraud claim against Prins.
Under the Texas Theft Liability Act ("
The Texas Penal Code defines "deprive" as (1) to withhold property from the owner permanently or for so extended a period of time that a major portion of the value or enjoyment of the property is lost to the owner; or (2) to dispose of property in a manner that makes recovery of the property by the owner unlikely. Tex. Pen. Code § 31.01(2). Intent to deprive under Texas Penal Code § 31.03(a) must exist at the time of the taking. In re Powers, 261 F. App'x at 722. "Texas courts have held that the element of intent, for the crime of theft, can be inferred from the surrounding circumstances." Id.
Although the TTLA is silent as to what burden of proof should be applied, "under Texas law, [legislative] silence mitigates in favor of applying the same burden of proof as any other civil action — the preponderance
An individual who sustains damages under the TTLA resulting from the theft may recover "from a person who commits theft, the amount of actual damages found by the trier of fact and, in addition to actual damages, damages awarded by the trier of fact in a sum not to exceed $1,000[.]" Tex. Civ. Prac. & Rem. Code § 134.005(a). Additionally, "Texas courts have consistently held that a party who successfully defends a claim under the Theft Liability Act is a prevailing party, even if he loses on all other claims." Merritt Hawkins & Assocs., L.L.C. v. Gresham, 861 F.3d 143, 157 (5th Cir. 2017); see also BHL Boresight, Inc. v. Geo-Steering Sols., Inc., No. 4:15-cv-00627, 2017 WL 2730739, at *16 (S.D. Tex. June 26, 2017) (same). Further, under the statute, "[e]ach person who prevails in a suit under this chapter shall be awarded court costs and reasonable and necessary attorney's fees." Tex. Civ. Prac. & Rem. Code § 134.005(b); see also Moak v. Huff, No. 04-11-00184-CV, 2012 WL 566140, at *11 (Tex. App. — San Antonio Feb. 15, 2012, no pet.) ("We hold that a person who prevails in a TTLA cause of action is entitled to recover the reasonable fees necessarily incurred prosecuting or defending that cause of action, even if the party is unsuccessful on other claims and counterclaims litigated in the same suit."). Thus, a prevailing plaintiff or a prevailing defendant has the right to recover attorneys' fees; this award of attorneys' fees to a prevailing party is mandatory. Merritt Hawkins & Assocs., L.L.C., 861 F.3d at 157; Moak, 2012 WL 566140, at *10; Tex. Civ. Prac. & Rem. Code § 134.005(b).
Although the TTLA does not define what it means to "prevail" in a suit, Texas courts have held that the phrase applies to defendants who successfully defend against a TTLA claim. See, e.g., Peoples v. Genco Fed. Credit Union, No. 10-09-00032-CV, 2010 WL 1797266, at *1, *6-7 (Tex. App. — Waco May 5, 2010, no pet.) (awarding attorneys' fees pursuant to TTLA to defendant who disposed of plaintiff's TTLA claim through a motion for summary judgment); Arrow Marble, LLC v. Estate of Killion, 441 S.W.3d 702, 706-07 (Tex. App. — Houston [1st Dist.] 2014, no pet.) (holding that dismissal of TTLA claim against the defendant with prejudice for plaintiff's want of prosecution entitles defendant to attorneys' fees as a prevailing party under the TTLA). "A successful defense is one that materially alters the plaintiff's legal relationship with the defendant such as a dismissal with prejudice." BHL Boresight, Inc., 2017 WL 2730739, at *17.
Here, Elbar has met its burden of proof in showing that Prins has violated the TTLA. Under the Texas Penal Code, "[a] person commits an offense if [1] he unlawfully appropriates property [2] with intent to deprive the owner of property." Tex. Pen. Code § 31.03(a). Prins appropriated the Proceeds when he exercised control over the Proceeds by transferring $2.0 million to the Wells Fargo Operating Account on October 18, 2016, and $300,000.00 to the BBVA Operating Account on November 4, 2016, without Elbar's consent. [Finding of Fact Nos. 46, 57]. See Bailey, 885 S.W.2d at 199 (finding that appropriate element of Texas Penal Code § 31.01 was met when defendant orchestrated a transfer of funds between two bank accounts).
Prins' intent to deprive can be inferred from all of the surrounding circumstances. Countrywide Home Loans, Inc. v. Cowin (In re Cowin), 492 B.R. 858, 896 (Bankr. S.D. Tex. 2013), aff'd, 538 B.R. 721 (S.D. Tex. 2015), aff'd sub nom. Matter of Cowin, 864 F.3d 344 (5th Cir. 2017) (citing McGee v. State, 774 S.W.2d 229, 234 (Tex. Crim. App. 1989)). Because Prins wire transferred $2.0 million on October 18, 2016, from the IOLTA (the funds of which, at that point in time, were almost entirely comprised of the Proceeds) to the Wells Fargo Operating Account without informing anyone and the very next day began using the Proceeds for his own personal expenditures, [see Finding of Fact Nos. 46-47], the Court finds that Prins had the intent to deprive Elbar of the $2.0 million at the time of the "taking" — i.e., when he transferred the $2.0 million from the IOLTA to the Wells Fargo Operating Account on October 18, 2016. See Bailey, 885 S.W.2d at 198 (fiduciary acted with the intent to permanently deprive corporation of funds when he transferred the corporation's funds without first notifying the corporation and when he used the funds for his own benefit). Similarly, the Court finds that when Prins — without informing Elbar or anyone else for that matter — transferred the $300,000.00 from the IOLTA on November 4, 2016, to the BBVA Operating Account and then cut a check from the BBVA Operating Account to Industry Drive for $300,000.00 that same day in order to return to Industry Drive money that Pfirrmann had taken from Industry Drive and given to Prins to hold, [see Finding of Fact No. 57], Prins' intent to deprive Elbar of the $300,000.00 existed at the time of his taking of the $300,000.00. Bailey, 885 S.W.2d at 198 (fiduciary acted with the intent to permanently deprive corporation of funds when he transferred the corporation's funds without first notifying the corporation and when he used the funds for his own benefit).
Here, because Elbar has met its burden of proof in showing that Prins has violated the TTLA, Elbar is a "prevailing party" and is entitled not only to damages but also to its reasonable attorneys' fees and costs. When Elbar filed suit, it was seeking a judgment for $2.4 million; since the filing of the suit, Elbar has recovered $1,683,915.42, [Finding of Fact No. 114], leaving the amount now owed to be $716,084.58, [id.]. Thus, Elbar is entitled to a judgment against Prins for $716,084.58, plus its reasonable attorneys' fees and costs.
At the close of trial, Elbar's counsel (Battaglia) represented in open court that Elbar had decided to dismiss all claims against MacKenzie.
441 S.W.3d at 706-07 (internal citations and quotations omitted). Thus, MacKenzie's counsel will need to submit documentation to Elbar's counsel evidencing what MacKenzie believes are its reasonable fees and costs for successfully defending against Elbar's TTLA claim.
Just as the Court has determined that Elbar has to pay MacKenzie's court costs and reasonable and necessary attorneys'
Equitable subrogation is "a legal fiction whereby an obligation, extinguished by a payment made by a third person, is treated as still subsisting for the benefit of this third person, so that by means of it one creditor is substituted to the rights, remedies, and securities of another." Cont'l Cas. Co. v. N.A. Capacity Ins. Co., 683 F.3d 79, 88 (5th Cir. 2012) (emphasis in original) (internal citation omitted); see also Premium Plastics v. Seattle Specialty Ins. Servs., Inc., No. H-10-3960, 2012 WL 1029528, at *4 (S.D. Tex. Mar. 26, 2012); Dickey v. Healthcare Recoveries, Inc., No. 03-97-00351-CV, 1998 WL 20728, at *3 (Tex. App. — Austin Jan. 23, 1998, no pet.) ("[U]nder the laws of [Texas], subrogation places one party in the place of another so that the new party gains the rights of the former party regarding a claim."). "The general purpose of equitable subrogation is `to prevent the unjust enrichment of the debtor who owed the debt that is paid.'" Bank of Am. v. Babu, 340 S.W.3d 917, 926 (Tex. App. — Dallas 2011, no pet.) (emphasis in original) (quoting First Nat'l Bank of Kerrville v. O'Dell, 856 S.W.2d 410, 415 (Tex. 1993)); see also Doctors Hosp. 1997 LP v. Beazley Ins., No. H-08-3340, 2009 WL 3719482, at *7 (S.D. Tex. Nov. 3, 2009). Equitable subrogation "does not depend on a contract but arises in every instance in which one person, not acting voluntarily, has paid a debt for which another was primarily liable and which in equity should have been paid by the latter." Doctors Hosp. 1997 LP, 2009 WL 3719482, at *7 (citing Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236 S.W.3d 765, 774 (Tex. 2007)). Further, "[a]s a general rule, a person is not entitled to subrogate to the rights of a creditor until the creditor's claim against the debtor has been satisfied or paid in full." Dietrich Indus., Inc. v. United States, 988 F.2d 568, 572 (5th Cir. 1993); see also Providence Inst. for Sav. v. Sims, 441 S.W.2d 516, 519 (Tex. 1969) ("We recognize the general rule that a person who is subrogated to the rights or securities of another may not enforce the same until the claim of the latter against the debtor has been paid in full. This rule is for the protection of the prior creditor, who cannot equitably be compelled, without his consent, to place another on equal footing with respect to security held for the satisfaction of the entire indebtedness."); SEC v. Kaleta, No. 4:09-3674, 2011 WL 6016827, at *2 (S.D. Tex. Dec. 2, 2011) ("Texas law provides for... equitable subrogation, and requires that the party seeking subrogation establish that its funds paid off the debt of another."). Texas courts interpret the equitable subrogation doctrine liberally. Frymire Eng'g Co. v. Jomar Int'l, Ltd., 259 S.W.3d 140,
"There are two key elements to equitable subrogation: (1) the person whose debt was paid was primarily liable on the debt, and (2) the claimant paid the debt involuntarily." Cho v. Wells Fargo Bank, N.A., No. 4:16-CV-256, 2017 WL 3301529, at *6 (E.D. Tex. Aug. 3, 2017) (citing Murray, 257 S.W.3d at 299). "A payment is voluntary when the payor acts without any assignment or agreement for subrogation, without being under any legal obligation to make payment, and without being compelled to do so for the preservation of any rights or property." Frymire Eng'g Co., 259 S.W.3d at 145 (citation omitted). Stated differently, equitable subrogation is "not applied for the mere stranger or volunteer who has paid the debt of another, without any assignment or agreement for subrogation, without being under any legal obligation to make payment, and without being compelled to do so for the preservation of any rights or property of his own." TXI Transp. Co. v. Empire Fire & Marine Ins. Co., No. 3:06-cv-0968-N, 2007 WL 9711697, at *2 (N.D. Tex. Dec. 7, 2007) (quoting Matagorda Cty. v. Tex. Ass'n of Ctys. Cty. Gov't Risk Mgmt., 975 S.W.2d 782, 786 (Tex. App. — Corpus Christi-Edinburg, 1998), aff'd 52 S.W.3d 128 (Tex. 2000)). "Texas courts are liberal in their determinations that payments were made involuntarily." Frymire Eng'g Co., 259 S.W.3d at 145 (citation omitted). The burden is on the party who is claiming equitable subrogation to establish that he is entitled to it. Zepeda v. Fed. Home Loan Mortg. Ass'n, No. 4:16-cv-3121, 2018 WL 781666, at *7 (S.D. Tex. Feb. 8, 2018).
When the issue is purely equitable subrogation, each case is controlled by its own facts. Murray, 257 S.W.3d at 300. The court must weigh the equities based on the totality of the circumstances to determine whether the plaintiff is entitled to equitable subrogation. Id.; see also Conversion Props., L.L.C. v. Kessler, 994 S.W.2d 810, 814 (Tex. App. — Dallas 1999, pet. denied) ("[Equitable subrogation] is predicated upon principles of equity, and absent the requisite balancing of those equities, a party may not prevail on this theory."); Yonack v. Interstate Secs. Co. of Tex., 217 F.2d 649, 651 (5th Cir. 1954) ("Subrogation is perhaps the purest of equities.... Subrogation is typically allowed when not to allow it will result in an unjust enrichment."). "What the parties knew and intended are all relevant factors in balancing the equities ...." Prosper Bank v. Comerica Bank, N.A. (In re Hwang), 452 B.R. 187, 194 (Bankr. N.D. Tex. 2011) (citing Murray, 257 S.W.3d at 300).
"Factors a court may consider in conducting this balancing test are the negligence of the party claiming subrogation, whether that party had notice of the intervening lien, and whether the intervening lienholder will be prejudiced if equitable subrogation is allowed." Murray, 257 S.W.3d at 300; see also Kaleta, 2011 WL 6016827, at *9 ("In conducting this balancing test, courts generally consider factors such as (1) whether there was negligence on the part of the party claiming subrogation, (2) whether that party had notice of other interests, and (3) whether the superior or equal equities of other interests will be prejudiced if equitable subrogation is allowed.").
Elbar argues that it should be equitably subrogated to the Note and Deed of Trust held by United Sentry because the non-judicial foreclosure sale on October 4, 2016, was invalid. [Adv. Doc. No. 217 at 13 of 35, ¶ 31; Adv. Doc. No. 229 at 2-3 of 10, ¶¶ 3-10]. Elbar does not explain why it believes that that the foreclosure sale on October 4, 2016, was invalid; it merely states that it was so.
Faires v. Cockrill, 88 Tex. 428, 31 S.W. 190, 194 (1895). Although Elbar cited this case law, [see Adv. Doc. No. 217 at 13 of 35, ¶ 21; Adv. Doc. No. 229 at 2-3 of 10, ¶ 4], Elbar does not explain why or how the foreclosure sale held on October 4, 2016, was invalid or irregular. If Elbar wishes to challenge the validity of the October 4, 2016, foreclosure sale, it needed to point out exactly what facts made the foreclosure sale invalid. Cameron v. U.S. Bank, No. H-15-1116, 2016 WL 6909333, at *2 (S.D. Tex. Mar. 23, 2016) ("The plaintiff challenging a foreclosure sale must plead and ultimately prove any irregularities that rendered the sale invalid.") (quoting Motten v. Chase Home Fin., 831 F.Supp.2d 988, 994 (S.D. Tex. 2011)). If Elbar means to argue that it should be subrogated to United Sentry's lien because the Property was subject to a non-judicial sale which, due to irregularities in the process (i.e., Prins stealing the Proceeds), failed to convey title, the Court still believes this argument fails, as discussed in more detail below, because "the vendor's lien upon lands" was never discharged.
United Sentry argues that Elbar is not entitled to equitable subrogation of United Sentry's interest on the Property because Elbar was negligent when it willfully violated the automatic stay, Elbar was aware of United Sentry's lien on the Property, and United Sentry will be extremely prejudiced if equitable subrogation is allowed. [Adv. Doc. No. 218 at 12-14 of 24]. United Sentry also argues that Elbar is not entitled to equitable subrogation because there is no evidence that Elbar discharged a lien on the Property. [Id. at 15 of 24].
The Court finds that Elbar has failed to satisfy all the elements to prevail under its equitable subrogation claim. Here, because
The first factor a court may consider in conducting this balancing test is the negligence of the party claiming subrogation — in this instance, Elbar.
Elbar did none of these things. Instead of investigating whether a wire transfer of the $2.4 million purchase price would violate the automatic stay if in fact the Property had pre-petition been deeded to the Debtor, Elbar did nothing. Further, once it was confirmed the next day (prior to the Proceeds being wire transferred) that the Property had in fact been deeded to the Debtor pre-petition, Bustamante did not change his mind about wire-transferring the $2.4 million to Prins; stated differently, he did not worry that wiring the Proceeds would violate the automatic stay. [Finding of Fact Nos. 27-41]. In Bustamante's own words, "We paid the money knowing about the bankruptcy. It doesn't get more complicated than that." [Finding of Fact No. 41]. Bustamante testified that he "didn't know of any" downside to tendering the $2.4 million when he already knew about the Debtor's bankruptcy filing. [TransWorld's Ex. II, Bustamante Dep. 83:5-10]. In Bustamante's mind, one of two scenarios would happen if the Purchasers wire-transferred the money after learning about the bankruptcy filing and the automatic stay: the stay would either be annulled and the Purchasers would receive a deed to the Property or the stay would not be annulled and the Purchasers would receive their money back. [Adv. Doc. No. 220, Feb. 6, 2018, Trial. Tr. 96:25-97:4, 133:13-25, 135:2-6; TransWorld's Ex. II, Bustamante Dep. 190:6-17, 194:13-19].
Essentially, the Purchasers — and it must be kept in mind that Elbar is one of the Purchasers — were willing to roll the dice and see what happened when they violated the automatic stay by wire transferring the Proceeds; according to Bustamante, wiring the money (i.e., violating the automatic stay) was just something the Purchasers had to do to preserve their right to the Property. [Adv. Doc. No. 220, Feb. 6, 2018, Trial. Tr. 89:19-21, 133:13-134:10, 135:19-25; TransWorld's Ex. II, Bustamante Dep. 82:10-83:3]. Stated differently, it did not matter to the Purchasers that the Debtor held title to the Property and that the automatic stay was in effect; the Purchasers really wanted the Property and they were willing to violate the automatic stay to make sure its bid on the Property was secure. Elbar's failure to conduct due diligence regarding whether the Debtor held title to the Property — and, frankly, Elbar's bald apathy regarding violating the automatic stay as expressed by Bustamante's testimony
The second factor a court may consider is whether the party claiming subrogation had "notice of other interests."
The third factor a court may consider is whether "the superior or equal equities of other interests will be prejudiced if equitable subrogation is allowed." Kaleta, 2011 WL 6016827, at *9. As stated above, the only other interest related to the Property is United Sentry's Deed of Trust lien on the Property. United Sentry has filed a claim in the Main Case in the amount of $1,568,782.76. [Proof of Claim, Case No. 16-35021, Claim No. 12, at 2]. United Sentry has not received any funds from the Debtor's bankruptcy estate related to its claim. There is $1,719,062.93 in the registry of this Court as a result of the sale of the Property. [Finding of Fact No. 100]. Elbar has also filed a claim in the Main Case in the amount of $1,594,424.17, [Proof of Claim, Case No. 16-35021, Claim No. 11, at 2], and asserts in its pleadings that it is seeking the entire $2.4 million it wire transferred to the IOLTA. At trial, Battaglia correctly stated that any recovery Elbar receives as a result of the other actions it is pursuing will offset the amount of recovery Elbar seeks from this Court. Since the conclusion of the trial in this adversary proceeding Elbar has received $1,683,915.42 of the $2.4 million it seeks: specifically, Elbar received $1,601,542.14 from the Prins' Criminal Case and $82,373.28 from the Prins' Bankruptcy. [Finding of Fact Nos. 111, 113-114]. In order to be made whole, Elbar still seeks the amount of $716,084.58. Thus, United Sentry's interest in the Property will be prejudiced if its interests are subrogated to the $716,084.58 Elbar still seeks to recover. United Sentry's claim in the amount of $1,568,782.76 will be reduced to $565,804.41 — but not paid in full — if Elbar is subrogated to United Sentry's interest.
Besides considering the three factors identified above when deciding whether equitable subrogation should apply in a particular suit, a court may also consider whether the party who is requesting equitable subrogation has come to the court with unclean hands. Cho, 2017 WL 3301529, at *6 ("[E]quitable subrogation — like all equitable remedies — is sometimes denied to litigants who come to court with unclean hands."). As one court within the Fifth Circuit has described it:
Healthpoint, Ltd. v. Ethex Corp., 273 F.Supp.2d 817, 847-48 (W.D. Tex. 2001) (internal citations, quotations, and footnotes omitted); see also Mitchell Bros. Film Grp. v. Cinema Adult Theater, 604 F.2d 852, 863 (5th Cir. 1979) ("The maxim of unclean hands is not applied where plaintiff's misconduct is not directly related to the merits of the controversy between the parties, but only where the wrongful acts `in some measure affect the equitable relations between the parties in respect of something brought before the court for adjudication.' The alleged wrongdoing of the plaintiff does not bar relief unless the defendant can show that he has personally been injured by the plaintiff's conduct.") (quoting Keystone Driller Co. v. Gen. Excavator Co., 290 U.S. 240, 245, 54 S.Ct. 146, 78 S.Ct. 293 (1933)); SA Bay LLC v. Hall, 849 F.Supp.2d 761, 773 (S.D. Tex. 2012) ("In the Fifth Circuit, the defense of unclean hands further requires a
In the Fifth Circuit, the application of the unclean hands doctrine requires a defendant to show that he has personally been injured by the plaintiff's conduct.
Another factor to consider when weighing the equities based on the totality of the circumstances is that United Sentry is the party who selected Prins to serve as the substitute trustee. MacKenzie has known Prins for approximately 20 years and during that time, Prins occasionally performed legal work for MacKenzie. [Finding of Fact No. 13]. Prior to Prins stealing the Proceeds, during the time that MacKenzie knew Prins and Prins performed legal work for MacKenzie, MacKenzie did not have any indication that Prins might be engaged — to use MacKenzie's own words — in "questionable activities." [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 92:21-93:4]. MacKenzie, for his part, did everything he could to protect and return the Proceeds to Elbar. After Twyman directly contacted MacKenzie around the beginning of November 2016 and asked him to instruct Prins to return the Proceeds to Elbar, MacKenzie, at Prins' suggestion, had Prins draft a release — which MacKenzie immediately signed and returned to both Prins and Twyman — so that the Proceeds could quickly be returned to the Purchasers. [Finding of Fact No. 68 and Footnote 39]. After MacKenzie began to suspect that something suspicious was going on with Prins, it was MacKenzie who contacted the FBI and provided assistance to the FBI regarding the recovery of approximately $1.6 million of the Proceeds. [Finding of Fact No. 73]. It was MacKenzie's actions that led to the FBI becoming involved and ultimately seizing the funds in the Wells Fargo Operating Account. [Finding of Fact No. 82]. The $1,601,542.14, that was seized by the FBI in the Wells Fargo Operating Account
Finally, the Court emphasizes that the "general purpose of equitable subrogation is `to prevent the unjust enrichment of the debtor who owed the debt that is paid.'" Babu, 340 S.W.3d at 926 (emphasis in original) (citing First Nat'l Bank of Kerrville v. O'Dell, 856 S.W.2d 410, 415 (Tex. 1993)). Here, whether Elbar is equitably subrogated to United Sentry's claim in no way affects whether the Debtor is unjustly enriched; the Debtor would not be unjustly enriched regardless of whether Elbar is equitably subrogated. Under no scenario will the Debtor receive any of the funds from the sale of the Property; therefore, there is no scenario allowing the Debtor to be unjustly enriched.
Considering all of the above factors, Elbar, as the party claiming equitable subrogation, has failed to meet its burden that it is entitled to be equitably subrogated to United Sentry's Deed of Trust on the Property.
"Money had and received is an equitable doctrine designed to prevent unjust enrichment." Merry Homes, Inc. v. Dao, 359 S.W.3d 881, 883 (Tex. App. — Houston [1st Dist.] 2012, no pet.); see also Ellis v. Wells Fargo Bank, N.A., No. G-13-249, 2014 WL 12596473, at *6 (S.D. Tex. Feb. 10, 2014) ("A claim for money had and received arises from equity."). A claim for money had and received is not based on wrongdoing, "but looks only to the justice of the case and inquires whether the defendant has received money which rightfully belongs to another." BP Exploration & Prod. Inc. v. Cashman Equip. Corp., 132 F.Supp.3d 876, 889 (S.D. Tex. 2015) (quotation omitted); see also Tornado Bus Co. v. Bus & Coach Am. Corp., No. 3:14-CV-3231-M, 2015 WL 5164731, at *6 (N.D. Tex. Sept. 2, 2015) (noting that a claim for
Under Texas law, "[t]o establish a cause of action for money had and received, a plaintiff must show that a defendant holds money which in equity and good conscience belongs to him." Brown v. Wells Fargo Bank, N.A., No. H-13-3228, 2015 WL 926573, at *5 (S.D. Tex. Mar. 4, 2015); see also Plains Expl. & Prod. Co. v. Torch Energy Advisors Inc., 473 S.W.3d 296, 302 n.4 (Tex. 2015) (citation omitted). In general, "[o]ne who acquires stolen property does not acquire its title. Title remains with the original owner, who can recover the property or its value from whomever has received it." Matter of Approximately $80,600.00, 537 S.W.3d 207, 211 (Tex. App. — Houston [1st Dist.] 2017, pet. filed) (internal citations omitted). Money, however, is the exception to this general rule. Id. at 211-12; see also Sinclair Houston Fed. Credit Union v. Hendricks, 268 S.W.2d 290, 295 (Tex. Civ. App. — Galveston 1954, writ ref'd n.r.e.) (noting that money is an exception to the general rule "because of the necessity that money pass freely in commercial transactions"). That is why "[i]n examining the `good conscience' element, courts have concluded that, `one who receives money which has been illegally obtained by a third party in due course of business, in good faith, and for valuable consideration, can keep it without liability to him from whom it was stolen.'" GE Capital Commercial, Inc. v. Wright & Wright, Inc., No. 3:09-CV-572-L, 2011 WL 124237, at *6 (N.D. Tex. Jan. 13, 2011) (quoting Sinclair Houston Fed. Credit Union, 268 S.W.2d at 295); see also Compass Bank v. Villarreal, No. L-10-08, 2012 WL 13046324, at *9 (S.D. Tex. Feb. 28, 2012) (noting that the cases of Bank of Saipan and Casstevens stand for the proposition that "one who in good faith gives valuable consideration in exchange for a benefit can keep the benefit without liability to the victim"); Thabico Co. v. Kiewit Offshore Servs., Ltd., No. 2:16-CV-427, 2017 WL 175815, at *4 (S.D. Tex. Jan. 17, 2017) (dismissing claim for money had and received because defendant's receipt of funds had been supported by consideration and was in the due course of business).
In defending against a money had and received claim, "a defendant may present any facts and raise any defenses that would deny the claimant's right or show that the claimant should not recover." First Am. Title, Ins. Co., 2015 WL 1220733, at *5 (quoting Hunter v. PriceKubecka, PLLC, 339 S.W.3d 795, 807 (Tex. App. — Dallas 2011, no pet.)); see also Best Buy Co. v. Barrera, 248 S.W.3d 160, 162 (Tex. 2007). In a claim for money had and received, the court must base its decision "upon a balancing of the equities in each unique case." First Am. Title, Ins. Co., 2015 WL 1220733, at *5; see also Bank of Saipan, 380 F.3d at 841 ("Texas courts have long spoken in terms of weighing the equities, even when foreclosing recovery completely; the inquiry must thus go beyond an analysis of the plaintiff's errors of omission or commission, to balance these against the defendant's unjust acts."). Any detrimental reliance suffered by the defendant may be considered in weighing the equities. First Am. Title, Ins. Co., 2015 WL 1220733, at *12; Chesapeake Operating, Inc. v. Whitehead, No. C-10-301, 2011
The affirmative defense of "unclean hands" can also apply to an action for money had and received. See Bank of Saipan, 380 F.3d at 840 n.1 ("[R]ecovery for money had and received, though legal in nature, is controlled by equitable principles, and ... it is axiomatic that the `clean hands' doctrine functions in equitable actions.") (quoting Tex. Bank & Trust Co. of Dallas v. Custom Leasing, Inc., 498 S.W.2d 243 (Tex. Civ. App. — Tyler 1973), rev'd on other grounds sum. nom. Custom Leasing, Inc. v. Tex. Bank & Trust Co., 516 S.W.2d 138 (Tex. 1974)); Sirius Computer Sols., Inc. v. Sparks, 138 F.Supp.3d 821, 838 (W.D. Tex. 2015) ("Unclean hands is an affirmative defense that may bar a party with unclean hands from obtaining equitable relief").
Finally, "[w]hat the parties knew and intended are all relevant factors in balancing the equities...." In re Hwang, 452 B.R. at 194 (citing Murray, 257 S.W.3d at 300).
Elbar argues that it should prevail on its claim for money had and received because (1) the $164,807.29 Prins gave to TransWord was not received in the due course of TransWorld's business; (2) the $164,807.29 Prins gave to TransWorld was not received in good faith; and (3) TransWorld did not pay valuable consideration for the $164,807.29 it received from Prins. [Adv. Doc. No. 217 at 24 of 35, ¶ 53]. Elbar further argues that TransWorld had notice of Prins' poor financial condition. [Adv. Doc. No. 217 at 21-23 of 35, ¶¶ 47-50]. Essentially, Elbar argues that TransWorld does not meet the requirements, as articulated by Sinclair and other cases, to qualify as an exception to the general rule that one who acquires stolen property does not acquire its title.
TransWorld argues that Elbar's claim for money had and received fails for lack of tracing because Elbar gave its $200,000.00 share directly to Bustamante and there was no testimony that Bustamante used this exact $200,000.00 to fund (in part) the purchase of the Property. [Adv. Doc. No. 216 at 15-25 of 43]. Unlike conversion, "tracing" is not an element of the claim of money had and received,
To be successful on its claim for money had and received, Elbar must show that the $164,807.29 Prins gave to TransWorld, in equity and good conscience, belongs to Elbar. Plains Expl. & Prod. Co., 473 S.W.3d at 302 n.4. The Court first considers the "good conscience" element. When considering this element, "courts have concluded that, `one who receives money which has been illegally obtained by a third party in due course of business, in good faith, and for valuable consideration, can keep it without liability to him from whom it was stolen.'" GE Capital Commercial, Inc., 2011 WL 124237, at *6 (quoting Sinclair Houston Fed. Credit Union, 268 S.W.2d at 295). When determining whether Elbar has shown that TransWorld holds money which in "good conscience" belongs to Elbar, this Court will examine in turn each of the three considerations identified by the court in GE Capital Commercial, Inc. — "due course of business," "in good faith," and "for valuable consideration."
Elbar argues that there was no evidence that the $164,807.29 that Prins paid to TransWorld on October 21, 2016, was received in the due course of TransWorld's business of leasing property. [See Adv. Doc. No. 217 at 24 of 35, ¶ 53; Adv. Doc. No. 230 at 6 of 19, ¶ 18]. TransWorld argues that a business paying its taxes and/or settling its tax disputes — as TransWorld believed it was doing when Prins gave TransWorld the $164,807.29 on October 21, 2016, and told it that TransWorld had settled its outstanding issues with the Tax Assessor for $5,000.00 — falls within the due course of a business. [Adv. Doc. No. 225 at 13-14, ¶¶ 33-34].
The Court finds that settling a tax dispute is not in the due or ordinary course of TransWorld's business. TransWorld is a leasing company. [Finding of Fact No. 1]. If, for example, Prins had wanted to lease a truck and gave TransWorld $164,807.29 in order to lease that truck, then the $164,807.29 TransWorld received from Prins would have been received in the "due course" of TransWorld's business — i.e., leasing personalty. Here, however, at least from TransWorld's point of view, the $164,807.29 Prins gave TransWorld represented a settlement with the Tax Assessor over outstanding tax issues. [See Finding of Fact No. 50]. Transactions not directly related to a business's purpose are not conducted in "due course of business." Compare Shelby Eng'g Co., Inc. v. Action Steel Supply, Inc., 707 N.E.2d 1026, 1028 (Ind. Ct. App. 1999) (finding that defendant Shelby Engineering was not selling a crane in the due course of business, but rather was "attempting to find a buyer for an item of equipment it no longer desired"), with Ohio Cas. Ins. Co. v. Smith, 297 F.2d 265, 266-67 (7th Cir. 1962) (finding that defendant who sold home goods merchandise door to door and who received payment from plaintiff for such certain home goods received the money from plaintiff in "the due course of her business dealings"). As TransWorld did not receive the $164,807.29 from Prins as a result of TransWorld's core business dealing — leasing property — the $164,807.29 was not received in the "due course of business."
Elbar asserts that TransWorld did not offer any evidence that TransWorld was acting in good faith when it received the $164,807.29 from Prins. [Adv. Doc. No. 217 at 24 of 35, ¶ 53]. Moreover, Elbar argues that TransWorld had notice about Prins' poor financial condition because (1) Ms. Cash testified that she was curious as to why TransWorld's check to the Tax Assessor in 2008 for taxes due was made out to the IOLTA instead of directly to the Tax Assessor; (2) Ms. Cash testified that in January of 2016 she discovered that TransWorld was listed in the local newspaper as one of the largest delinquent taxpayers in San Antonio; and (3) TransWorld was listed as a creditor in the Prins' Bankruptcy and, thus, had notice of all proceedings in the Prins' Bankruptcy. [Adv. Doc. No. 217 at 21-23 of 35, ¶¶ 47-50]. Citing no case law, Elbar further argues that after experiencing continued issues with TransWorld's taxes after Prins claimed they had been paid, TransWorld had a "duty of inquiry that could not be satisfied by simply continuing to rely solely on information obtained from Prins" and that TransWorld's continued reliance on Prins from 2008 to 2016 was not reasonable. [Adv. Doc. No. 230 at 15-16 of 19, ¶¶ 39-40]. Elbar further argues that after TransWorld learned about the Prins' Bankruptcy, TransWorld should have continually monitored the Prins' Bankruptcy and doing so would have led to notice of the contents of the Wasserteil Motion to Lift Stay and the Ozer Adversary, both of which made allegations regarding Prins' wrongful conduct towards the Wasserteils and the Ozers.
The Court finds that TransWorld received the $164,807.29 in good faith. TransWorld had been working, through Prins, from sometime in 2008 through October 2016 to sort out the tax issues TransWorld believed it had with the Tax Assessor. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 19:7-21:14]. Because of his poor health, it was very important to Mr. Cash to resolve all outstanding issues with the business that he founded, TransWorld, as soon as possible. [Finding of Fact Nos. 7, 49]. Ms. Cash testified that she believed that the $164,807.29 TransWorld received from Prins on October 21, 2016 — which represented the amount it had paid to the IOLTA on May 17, 2016, in order to resolve the tax issues with the Tax Assessor, minus $5,000.00 — represented a settlement with the Tax Assessor regarding TransWorld's outstanding tax issues, and that the money it was receiving from Prins was TransWorld's own money, less $5,000.00 paid for the settlement. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 22:5-15]. As noted in the Credibility of Witnesses Section, the Court has found Ms. Cash to be a very credible witness. Further, Prins himself testified that he told TransWorld that the matter with the Tax Assessor was settled for $5,000.00, [TransWorld's Ex. HH, Prins Dep. 96:19-97:3], and that is why TransWorld would be receiving back from Prins the amount of $164,807.29, [Finding of Fact No. 50]. Having known Prins as a personal friend for several years, and also having trusted him as TransWorld's attorney for this same period of time, [Finding of Fact No. 2], this Court finds that Ms. Cash was reasonable to believe that Prins' representation was truthful.
Additionally, Ms. Cash has testified that she did not know about the Prins' Bankruptcy until after TransWorld received the $164,807.29. [Adv. Doc. No. 220, Feb. 6, 2018, Trial Tr. 163:3-21]. Even if Ms. Cash and/or TransWorld had learned about the Prins' Bankruptcy prior to receiving the $164,807.29 from Prins, the mere fact that Prins had personally filed for bankruptcy would not automatically put the Cashes and/or TransWorld on notice that any business dealings with Prins should be suspect. As TransWorld pointed out in its briefing, the vast majority of people who file for bankruptcy every year do so in good faith. [See Adv. Doc. No. 216, at 36 of 43]. Prins had worked as TransWorld's attorney for almost two decades, and Prins had a personal relationship with the Cashes, and they trusted him. [Finding of Fact No. 2]. Prins also had no history of professional misconduct that could put a client on notice — at least the Cashes — that Prins was not the upright attorney he presented
The Court is not persuaded by Elbar's argument that TransWorld lacked good faith because it continued to rely upon Prins as its attorney once the tax issues were brought to its attention in January 2014 and January 2016. [See Finding of Fact Nos. 5, 9-10]. While it may be true that a reasonable business would have conducted a more thorough investigation once tax issues that it believed were settled in 2008 were twice again brought up in 2014 and 2016, TransWorld's reliance on Prins — which perhaps could be characterized as naïve — was honest. Only when the receiver of the money has actual knowledge that the money was stolen will the receiver of the money be found to be not in "good faith": "[M]ere ground of suspicion of defect of title, or knowledge of circumstances which would excite such suspicion in the mind of a prudent man, or gross negligence on the part of the taker, will not defeat title.
TransWorld contends that the $5,000.00 settlement the Cashes accepted with the Tax Assessor qualifies as valuable consideration.
Here, this Court finds that TransWorld did not provide valuable consideration for the $164,807.29 Prins gave TransWorld on October 21, 2016, which amount allegedly represented a $5,000.00 settlement with the Tax Assessor regarding TransWorld's tax issues. Even if TransWorld is correct regarding the general proposition that satisfaction of an antecedent debt constitutes valuable consideration in Texas, in the dispute at bar, there was no antecedent debt that was satisfied when Prins gave TransWorld the $164,807.29 because there was no actual settlement between TransWorld and the Tax Assessor. As such, no consideration passed between those two parties. "Consideration is a present exchange bargained for in return for a promise. It consists of either a benefit to the promisor or a detriment to the promisee. The detriment must induce the making of the promise, and the promise must induce the incurring of the detriment." Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 496 (Tex. 1991) (internal citations omitted). In order for the exchange of "valuable consideration" to occur, there must be two parties to the promise. Here, the Tax Assessor was not a party to any alleged settlement with TransWorld in October of 2016. [Finding of Fact No. 50]. Indeed, Prins testified that he lied to TransWorld about the settlement and that none actually existed. [Finding of Fact No. 50]. There can be no consideration exchanged when only one of the parties to the alleged promise is aware of the promise.
TransWorld's argument that forbearance constitutes valuable consideration — i.e., TransWorld not pursuing any claims against Prins — also fails. Again, this argument fails because there was no present bargained-for exchange between Prins and TransWorld specifically setting out that TransWorld would not pursue any potential claims against Prins as long as Prins paid back TransWorld all the money he owed to TransWorld. In order for the exchange of consideration to occur, there must be two parties to the promise. There is absolutely no evidence indicating that Prins and TransWorld exchanged consideration on this subject. For example, there is no evidence that TransWorld signed a release of all claims it had — or might have — against Prins when he gave the $164,807.29 to TransWorld.
Thus, in determining whether Elbar has shown that TransWorld holds money which "in good conscience" belongs to Elbar, of the three considerations identified by the court in GE Capital Commercial, Inc., one weighs in favor of TransWorld and the other two weigh in favor of Elbar. Specifically, TransWorld received the
The second element the Court must consider is whether the equities of the case "in view of the totality of the circumstances," Murray, 257 S.W.3d at 300, show that TransWorld holds money that belongs to Elbar. When balancing these equities, a court may consider, but is not limited to, the following: (1) any detrimental reliance suffered by the defendant;
TransWorld argues that it materially changed its position in reliance on the payment, which it claims is a full defense to a claim for money had and received. [Adv. Doc. No. 216 at 38 of 43]. TransWorld further argues that it "clearly" materially changed its position once it received the $164,807.29 from Prins by no longer pursuing Prins or the possible legal remedies that were available at the time (including filing a claim in the Prins' Bankruptcy or objecting to his discharge). [Id. at 39 of 43].
Here, TransWorld did not meet its burden in demonstrating that it materially changed its position in reliance on the $164,807.29 it received. See First Am. Title, Ins. Co., 2015 WL 1220733, at *9, *12 (discussing what kind of showing a defendant must make in order to show detrimental reliance). Ms. Cash did not testify that TransWorld changed positions or assumed liabilities or obligations that TransWorld would not otherwise have done if it had not received the $164,807.29. See Pickett v. Republic Nat'l Bank of Dallas, 619 S.W.2d 399, 400 (Tex. 1981). While TransWorld argues in its briefs that it materially changed its position once it received the $164,807.29 by no longer pursuing Prins or other possible legal remedies against Prins that were available at the time, there was
Further, Ms. Cash testified that she did not discover until late February of 2017 when she was served with a lawsuit that Prins had not, in fact, resolved TransWorld's tax issues, [see Finding of Fact No. 92]. Thus, any impetus for TransWorld to pursue legal action against Prins related to the $164,807.29 (or other amounts related to taxes Prins supposedly paid on TransWorld's behalf but did not) arose in late February 2017 — when Ms. Cash found out for the first time that the check in the amount of $230,853.66 that TransWorld made to the order of the IOLTA on February 4, 2008, (for the purpose of Prins settling TransWorld's tax dispute with the Tax Assessor) may not have in fact been paid to the Tax Assessor, [Finding of Fact No. 92]. Since Prins gave TransWorld the $164,807.29 on October 21, 2016, and the earliest possible date that TransWorld states that it learned that Prins was not being honest in its dealings with TransWorld was late February of 2017, then TransWorld could not possibly have materially changed its position on reliance of the payment of $164,807.29 when the first indication that TransWorld received that Prins was not being honest with TransWorld regarding the tax issues occurred
As discussed supra in Section IV.D.5 regarding equitable subrogation, in the Fifth Circuit, "[t]he alleged wrongdoing of the plaintiff does not bar relief unless the defendant can show that he has personally been injured by the plaintiff's conduct." Mitchell Bros. Film Grp., 604 F.2d at 863; see also SA Bay LLC, 849 F.Supp.2d at 773. Here, TransWorld is unable to show that it has been personally injured by Elbar's conduct. Any injury suffered by TransWorld is due solely to Prins' conduct relating to his representation of TransWorld in its tax issues with the Tax Assessor. Further, even though Elbar broke the law when it violated the automatic stay, TransWorld was not personally injured by this act.
Finally, even if this Court were to find that TransWorld was liable for at least some percentage of Elbar's claim for money had and received, the source of TransWorld's injury (i.e., having to pay Elbar all or some portion of the $164,807.29) is due to Prins' misconduct of stealing the $2.4 million, not any misconduct of Elbar. Thus, the unclean hands doctrine does not come into play as the Court weighs the equities in regards to Elbar's claim of money had and received against TransWorld.
"What the parties knew and intended are all relevant factors in balancing the equities...." In re Hwang, 452 B.R. at 194 (citing Murray, 257 S.W.3d at 300). This factor weighs heavily in favor of TransWorld.
What Elbar "knew and intended" demonstrates that Elbar has little respect for the Bankruptcy Code and has acted solely in its perceived best interests. Elbar violated the automatic stay on October 4, 2016, when it was the highest bidder at the foreclosure sale. See In re Jackson, 392 B.R. at 671 (holding that "the foreclosure sale, conducted the day after the filing of
If this had been the only violation of the automatic stay, the Court would perhaps have more sympathy for Elbar. However, two days later, on October 6, 2016, Elbar
There is even more. Elbar willfully violated the automatic stay for a
Another fact that Elbar knew was that its chosen line of work — purchasing foreclosed properties in nonjudicial foreclosure sales, [Finding of Fact No. 30] — is a risky business. The amount of risk Elbar is willing to undertake is measured against the profit it expects to make on any given foreclosed property. Here, Elbar hoped to make a substantial profit in its purchase of the Property. [Finding of Fact No. 34]. This Court can consider the type of work Elbar engages in when weighing the equities, and the fact that Elbar is engaged in a line of business that has inherent monetary risks that Elbar has freely chosen to take on and build into its business model works against Elbar when weighing the equities. See Edwards v. Mid-Continent Office Distributs., L.P., 252 S.W.3d 833, 840 n.10 (Tex. App. — Dallas 2008, pet. denied) (affirming trial court's judgment that plaintiff take nothing in a claim for money had and received when, in balancing the equities, the trial court found that "[t]he transaction between [the parties] was a high-risk transaction through which [the plaintiff] hoped to make a significant profit").
In regards to what TransWorld "knew and intended" when Prins transferred the $164,807.29 to TransWorld on October 21, 2016, TransWorld (i.e., the Cashes) honestly believed that it was getting back its own money — the original $169,807.29 TransWorld gave to Prins, minus $5,000.00, allegedly representing a settlement with the Tax Assessor. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 22:2-12; Pl.'s Ex. No. 46]. TransWorld did not have any knowledge or any reason to believe that the $164,807.29 Prins gave to TransWorld was related to Elbar, or anyone else for that matter. [Pl.'s Ex. No. 46]. Further, at this point in time, October of 2016, in addition to trying to work out the issues related to TransWorld's tax delinquencies, Ms. Cash was also heavily focused on Mr. Cash's health, as his cancer had recently taken a turn for the worst:
[Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 11:17-22]. Given that Ms. Cash was devoting most, if not all, of her time to caring for and trying to comfort her dying husband, it is not surprising that she was not focused on Prins and his representation about TransWorld's tax issues.
Elbar argues that TransWorld had notice about Prins' poor financial condition and that this notice should have put TransWorld on alert to further investigate its own tax issues with the Tax Assessor because (1) Ms. Cash testified that she was curious as to why TransWorld's check to the Tax Assessor in 2008 for taxes due was made out to the IOLTA instead of directly to the Tax Assessor; (2) Ms. Cash testified that in January of 2016 she found out that TransWorld was listed in the local newspaper as one of the largest delinquent taxpayers in San Antonio; and (3) TransWorld was listed as a creditor in the Prins' Bankruptcy and, thus, had notice of all proceedings in the Prins' Bankruptcy. [Adv. Doc. No. 217 at 21-23 of 35, ¶¶ 47-50]. Citing no case law, Elbar further argues that after experiencing continued issues with TransWorld's taxes after Prins claimed they had been paid, TransWorld had a "duty of inquiry that could not be satisfied by simply
The Court agrees that TransWorld should have done more on its own to investigate its tax issues once it received notice in January 2014, [Finding of Fact No. 5] and January 2016, [Finding of Fact Nos. 5, 8], that it was delinquent in its tax payments, especially since TransWorld was under the impression that its tax issues had been resolved in February 2008, [see Finding of Fact No. 3]. Although it is true that not only was TransWorld relying on Prins — its attorney of more than 15 years — to remedy its tax issues but also that Prins was actively telling TransWorld that he was working on the tax issues and that there was some kind of internal mistake with the Tax Assessor regarding the taxes due, a more prudent business would have investigated the matter itself, especially after receiving notice on two occasions that the tax issues were not resolved. Even though a more shrewd business might have acted differently under these circumstances, this Court has already found Ms. Cash to be a very credible witness and believes that TransWorld was not acting in bad faith or duplicitously in regard to its tax issues. On the contrary, this Court believes that TransWorld was doing what it believed was best in order to resolve the tax issues, even though a more sophisticated business might have taken different steps.
Additionally, the fact that Ms. Cash testified that she twice called into question — once in 2008 and again in 2016 — why TransWorld's check for tax payments needed to be made out to the IOLTA instead of directly to the Tax Assessor but did not further question Prins on the matter is also troubling to the Court. [See Finding of Fact Nos. 3, 8]. When writing a check in 2008 to cover TransWorld's tax issues, Prins told Ms. Cash that she needed to make the check payable to the IOLTA, and that he (i.e., Prins) would then write a check to Linebarger and Linebarger would then apply the money to TransWorld's accounts for the county. [Finding of Fact No. 3; Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 35:22-24]. Ms. Cash initially questioned why she could not make the check directly payable to Romo (the actual Tax Assessor for Bexar County at that time) or to Linebarger, instead of to the IOLTA, as it was "kind of, you know, a long chain of everybody," [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 35:20-36:6], and Prins replied that this was the way things were done in order to avoid a tax payer writing a bad check, [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 36:6-8]. Ms. Cash then wrote the check to the order of the IOLTA instead of to the Tax Assessor directly because she believed that "that's the way things are done." [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 36:11-13].
In 2016, Ms. Cash again questioned why she needed to provide money directly to the IOLTA for TransWorld's tax issues. In approximately April 2016, Prins told the Cashes that the Tax Assessor wanted TransWorld to deposit into his IOLTA a percentage of the monies it owed as "good faith" money in the amount of $169,807.29 while he and the Tax Assessor worked out the issues. [Adv. Doc. No. 221, Feb. 7,
Although in hindsight it is easy to question why TransWorld (i.e., the Cashes) did not more fully question Prins' suspicious activity of requiring that the money for TransWorld's tax issues be directly deposited into the IOLTA, Prins was, by all accounts, a crafty liar who was very skilled at hiding his thieving and skullduggery from his clients.
The Court rejects Elbar's argument that by merely being listed as a creditor in the Prins' Bankruptcy, TransWorld had an affirmative
In sum, when weighing the equities, detrimental reliance and unclean hands do not factor into the Court's analysis of Elbar's claim for money had and received; however, what the parties knew and intended weigh in TransWorld's favor. When weighing the equities, the Court is given much leeway and is permitted to give certain factors more weight than other factors. See Mid-Continent Office Distributs., L.P., 252 S.W.3d at 836 (stating that "a trial court exercises broad discretion in balancing the equities involved in a case seeking equitable relief"); Dominguez v. Safety Nat'l Cas. Corp., No. H-09-1681, 2009 WL 10692958, at *6 n.5 (S.D. Tex. Oct. 8, 2009) (citing Mid-Continent Office Distributs., L.P. for the proposition that a trial court has broad discretion in balancing the equities). Here, this Court gives most weight to the factor of what the parties knew and intended. The Purchasers
TransWorld, on the other hand, while its management (i.e., the Cashes) was perhaps naïve or unsophisticated in some of its business dealings, justifiably trusted its attorney and personal friend (Prins) and worked in good faith with Prins to resolve its tax issues. As some courts have noted when considering claims for money had and received: "[O]ther courts have held that as between two innocent parties, the party that must suffer the loss is the one that mistakenly created the situation and was in the best position to have avoided it." First Am. Title, Ins. Co., 2015 WL 1220733, at *4. Here, in the Court's view, Elbar and TransWorld are not equally innocent parties. Both are innocent in the sense that both are victims of Prins' bad acts, but Elbar is less innocent than TransWorld because Elbar twice willfully violated the automatic stay — that is, Elbar blatantly violated the law.
Elbar argues that it should prevail on its claim for money had and received against Industry Drive because (1) the $300,000.00 Prins gave to Industry Drive was not received in due course of Industry Drive's business; (2) the $300,000.00 Prins gave to Industry Drive was not received in good
Industry Drive argues that Elbar cannot show that Industry Drive lacked good faith in the acceptance of the $300,000.00 sent by Prins. [Adv. Doc. No. 219 at 7-8 of 16]. Industry Drive also argues that, if the Court chooses to weigh the equities, there was no evidence adduced at trial that Industry Drive did anything wrong, whereas Elbar engaged in several questionable activities, including wiring the Proceeds when Elbar was aware that the automatic stay was in effect, filing a lis pendens against the Property with knowledge of the existence of the automatic stay, and only suing certain recipients of the funds traceable to the Proceeds. [Adv. Doc. No. 219 at 8-11 of 16].
There is no question that the $300,000.00 Prins gave to Industry Drive on November 4, 2016, from the BBVA Operating Account is directly traceable to the Proceeds. [See Finding of Fact Nos. 40, 57]. To be successful on its claim for money had and received, Elbar must show that the $300,000.00 Prins gave to Industry Drive, in equity and good conscience, belongs to Elbar. Plains Expl. & Prod. Co., 473 S.W.3d at 302 n.4. The Court first considers the "good conscience" element. When considering this element, "courts have concluded that, `one who receives money which has been illegally obtained by a third party in due course of business, in good faith, and for valuable consideration, can keep it without liability to him from whom it was stolen.'" GE Capital Commercial, Inc., 2011 WL 124237, at *6 (quoting Sinclair Houston Fed. Credit Union, 268 S.W.2d at 295). When determining whether Elbar has shown that Industry Drive holds money that in "good conscience" belongs to Elbar, this Court will examine (just as it has done with the claim against TransWorld) each of the three considerations identified by the court in GE Capital Commercial, Inc. — "due course of business," "in good faith," and "for valuable consideration."
Elbar argues that there was no evidence that the $300,000.00 Prins gave to Industry Drive on November 4, 2016, was received in the due course of Industry Drive's business of managing real estate. [See Adv. Doc. No. 217 at 17-19 of 35, ¶ 41; Adv. Doc. No. 228 at 11 of 19, ¶ 28]. Industry Drive argues that it is "any business's `due course of business' to receive a refund of wrongfully-taken funds."
The Court finds that receiving a refund of wrongfully-taken funds is not in the due or ordinary course of Industry Drive's business. Industry Drive is a privately-held entity that owns G5's corporate office. [Finding of Fact No. 18]. Industry Drive collects money from the G5 property and maintains the property. [Finding of Fact No. 18]. Transactions not directly related to a business's purpose are not conducted
Elbar asserts that TransWorld offered no evidence that TransWorld was acting in good faith when it received the $300,000.00 from Prins. [Adv. Doc. No. 217 at 17-19 of 35, ¶ 41]. Moreover, Elbar argues that Industry Drive had notice about Prins' poor financial condition because Industry Drive had been made aware (1) that Prins had filed for Chapter 7 bankruptcy; and (2) of the Ozer Adversary that accused Prins of wrongdoing. [Adv. Doc. No. 217 at 19 of 35, ¶ 42].
For its part, Industry Drive argues that it received the $300,000.00 in good faith, and that there was no evidence at trial that Industry Drive knew of Elbar's existence or knew that the $300,000.00 it received was traceable to misappropriated funds. [Adv. Doc. No. 219 at 12 of 16; Adv. Doc. No. 226 at 5 of 12].
The Court finds that Industry Drive received the $300,000.00 in good faith. Industry Drive did not know anything about Elbar or even about Elbar's existence when Prins transferred the $300,000.00 to Industry Drive on November 4, 2016. [Finding of Fact No. 57; Adv. Doc. No. 221, Feb. 7, 2018, Trial. Tr. 149:7-11, 149:21-23]. Thus, Industry Drive had no reason to believe that the $300,000.00 that Prins transferred into the Industry Drive account was not the "original" $300,000.00 that was withdrawn by Pfirrmann and placed into Prins' IOLTA. From the moment Gabriel learned that Pfirrmann had taken $300,000.00 out of the Industry Drive account and given it to Prins to place in his IOLTA, she, as well as other members of the Gabriel Family, were singular in their efforts to have the money returned, including imploring Pfirrmann to return the money, [Finding of Fact No. 22; Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 123:23-124:7]; indeed, they even went so far as to file a lawsuit against Pfirrmann for return of the money, [Finding of Fact No. 23; Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 115:19-25]. In the year long period the $300,000.00 was missing from the Industry Drive account, Prins never indicated to Gabriel or to Pfirrmann that the money was no longer in his IOLTA. [Finding of Fact No. 24; TransWorld's Ex. HH, Prins Dep. 33:7-12]. In fact, Pfirrmann assured Gabriel that Prins was holding the money and that it was safe. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 117:19-20]. When Prins eventually returned the $300,000.00 to Industry Drive in November of 2016, the Court finds that Industry Drive genuinely believed that it was getting back the $300,000.00 Pfirrmann had taken in October 2015 and placed into Prins' IOLTA. [See Adv. Doc. No. 221, Feb. 7, 2018, Hrg. 146:16-20, 149:7-11, 149:21-23; see Finding of Fact No. 57].
Elbar asserts that prior to the $300,000.00 being returned to Industry Drive on November 4, 2017, Industry Drive had notice about the Prins' Bankruptcy and about the adversary proceeding filed by the Ozers in the Prins' Bankruptcy,
Citing Texas Business and Commerce Code §§ 24.004 and 3.303, Industry Drive argues that the return of the $300,000.00 satisfied an antecedent debt, which constitutes valuable consideration.
Even if Industry Drive is correct regarding the general proposition that satisfaction of an antecedent debt constitutes valuable consideration under Texas law, here, there was no antecedent debt that was satisfied when Prins gave Industry Drive the $300,000.00 because (1) Pfirrmann did not owe a debt to Industry Drive; nor (2) did Prins owe a debt to Industry Drive.
First, Industry Drive has not identified any debt that Pfirrmann owed to Industry Drive. At least one Texas court has defined "debt" as "a contract by which one party agrees to let another party have the use of a specific sum of money for a definite period with the stipulation that the borrower repay it with or without interest." Trevino v. Trevino, 555 S.W.2d 792, 802 (Tex. Civ. App. — Corpus Christi 1977, no writ); see also Debt, Black's Law Dictionary (10th ed. 2014) (defining "debt" as "[l]iability on a claim").
[Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 122:11-24].
Second, there is absolutely nothing in the record indicating that Prins himself owed any kind of debt to Industry Drive. The Court therefore rejects Industry Drive's argument that the return of the $300,000.00 was valuable consideration because it satisfied an antecedent debt.
Thus, in determining whether Elbar has shown that Industry Drive holds money which "in good conscience" belongs to Elbar, of the three considerations identified by the court in GE Capital Commercial, Inc., one weighs in favor of Industry Drive and the other two weigh in favor of Elbar. Specifically, Industry Drive received the $300,000.00 from Prins in good faith. However, Industry Drive did not receive the $300,000.00 from Prins in "due course of business," nor did Industry Drive give valuable consideration for the $300,000.00.
The second element the Court must consider is whether the equities of the case "in view of the totality of the circumstances," Murray, 257 S.W.3d at 300, show that Industry Drive holds money that belongs to Elbar. As already discussed in this Court's evaluation of Elbar's money had and received claim against TransWorld, when balancing these equities, a court may consider, but is not limited to, the following: (1) any detrimental reliance suffered by the defendant;
Industry Drive asserts that it has "materially changed" its position in reliance on the $300,000.00 payment it received from Mr. Prins. [Adv. Doc. No. 219 at 4-5 of 16]. At trial, in response to the question of whether it would be a hardship to Industry Drive if it had to return the $300,000.00, Gabriel simply replied: "Yes, because then it'll be $300,000 plus whatever the litigation costs have been, so we will be more in the negative than how we even started out." [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 151:3-7]. Gabriel also testified that Industry Drive does not have much cash on hand. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 151:8-10]. Gabriel further testified that after receiving the $300,000.00 from Prins in November 2016, the $300,000.00 went back into Industry Drive's account and that Industry Drive paid its bills and other normal course of business expenses out of that account. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 133:24-134:5]. Industry Drive continued to do that until the other members of the Gabriel Family associated with Industry Drive bought out Pfirrmann and Eleanor's interests in the business in approximately September 2017. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 132:25-133:6, 136:6-8]. According to Gabriel, after Industry Drive "closed on the repurchase of Jim [Pfirrmann] and Eleanor's interests ... their portion of everything was distributed out to them including their portion of the $300,000." [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 132:25-133:6]. Gabriel also testified that attorneys' fees were being paid out of the account that held the $300,000.
Here, Industry Drive did not meet its burden in demonstrating that it materially changed its position in reliance on the $300,000.00 it received. See First Am. Title, Ins. Co., 2015 WL 1220733, at *9, *12. Gabriel did not testify that Industry Drive
As discussed supra in Section IV.D.5 regarding equitable subrogation, in the Fifth Circuit, "[t]he alleged wrongdoing of the plaintiff does not bar relief unless the defendant can show that he has personally been injured by the plaintiff's conduct." Mitchell Bros. Film Grp., 604 F.2d at 863; see also SA Bay LLC, 849 F.Supp.2d at 773. Here, Industry Drive, like TransWorld, is unable to show that it has been personally injured by Elbar's conduct. At this point in time, Industry Drive has suffered no injury; after receiving the $300,000.00 from Prins on November 4, 2016, Industry Drive used these funds in the ordinary course of its business to pay expenses and make distributions to partners. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 133:24-134:5]. Further, even if this Court were to find that Industry Drive was liable for at least some percentage of Elbar's claim for money had and received, the source of Industry Drive's injury (i.e., having to pay Elbar all or some portion of the $300,000.00) is due to Prins' misconduct of stealing the $2.4 million, not any misconduct of Elbar. Thus, the unclean hands doctrine does not come into play as the Court weighs the equities in regards to Elbar's claim of money had and received against Industry Drive.
"What the parties knew and intended are all relevant factors in balancing the equities...." In re Hwang, 452 B.R. at 194 (citing Murray, 257 S.W.3d at 300). This factor weighs heavily in favor of Industry Drive.
What Elbar "knew and intended" demonstrates that Elbar has little respect for the Bankruptcy Code and has acted solely in its perceived best interests. Elbar violated the automatic stay on October 4, 2016, when it was the highest bidder at the foreclosure sale. [Finding of Fact No. 29-35];
If this had been the only violation of the automatic stay, the Court would perhaps have sympathy for Elbar. However, two days later, on October 6, 2016, Elbar
There is even more. Elbar knowingly violated the automatic stay for a
Another fact that Elbar knew was that its chosen line of work — purchasing foreclosed properties in nonjudicial foreclosure sales, [Finding of Fact No. 30] — is a risky business. The amount of risk Elbar is willing to undertake is measured against the profit it expects to make on any given foreclosed property. Here, Elbar hoped to make a substantial profit in its purchase of the Property. [Finding of Fact No. 34]. This Court can consider the type of work Elbar engages in when weighing the equities, and the fact that Elbar is engaged in a line of business that has inherent monetary risks that Elbar has freely chosen to take on and build into its business model works against Elbar when weighing the equities. See Mid-Continent Office Distributs., L.P., 252 S.W.3d at 840 n.10 (affirming trial court's judgment that plaintiff take nothing in a claim for money had and received when, in balancing the equities, the trial court found that "[t]he transaction between [the parties] was a high-risk transaction through which [the plaintiff] hoped to make a significant profit").
In regards to what Industry Drive "knew and intended," Industry Drive did not know anything about Elbar or even about Elbar's existence when Prins transferred the $300,000.00 back to Industry Drive on November 4, 2016, [Adv. Doc. No. 221, Feb. 7, 2018, Trial. Tr. 149:7-11, 149:21-23], and thus Industry Drive had no reason to believe that the $300,000.00 that Prins transferred into the Industry Drive account was not the "original" $300,000.00 that was withdrawn by Pfirrmann and placed into Prins' IOLTA. From the moment Gabriel learned that Pfirrmann had taken $300,000.00 out of the Industry Drive account and given it to Prins to place in his IOLTA, she, as well as other members of the Gabriel Family, were singular in their efforts to have the money returned, including imploring Pfirrmann to return the money, [Finding of Fact No. 22; Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 123:23-124:7]; indeed, they even went so far as to file a lawsuit against Pfirrmann for return of the money, [Finding of Fact No. 23; Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 115:19-25; Pl.'s Ex. 47; Industry Drive's Ex. 1]. In the year long period the $300,000.00 was missing from the Industry Drive account, Prins never indicated to Gabriel or to Pfirrmann that the money was no longer in his IOLTA. [Finding of Fact No. 24; TransWorld's Ex. HH, Prins Dep. 33:7-12]. In fact, Pfirrmann assured Gabriel that Prins was holding the money and that it was safe. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 117:19-20]. When Prins eventually returned the $300,000.00 to Industry Drive in November of 2016, Industry Drive believed that it was simply getting back the $300,000.00 that Pfirrmann had taken in October 2015 and placed into Prins' IOLTA. [See Adv. Doc. No. 221, Feb. 7, 2018, Hrg. 146:16-20, 149:7-11, 149:21-23].
Additionally, Industry Drive did not have any business dealings, or any relationship at all, with Prins. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 115:10-18]. The only "connection" Industry Drive had to Prins was that a co-managing partner of Industry Drive (i.e., Pfirrmann) used Prins as his personal attorney. [Finding of Fact Nos. 19-20]. Further, as soon as Gabriel learned that there was an "issue" with Prins,
[Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 155:17-23].
Elbar argues that prior to the $300,000.00 being returned to Industry Drive on November 4, 2017, Industry Drive had notice about the Prins' Bankruptcy and about the adversary proceeding filed by the Ozers in the Prins' Bankruptcy, which alleged that Prins committed fraud. As discussed above, this Court has already found that the Prins' Bankruptcy was not discussed at the mediation among Gabriel, the Gabriel Family, and Pfirrmann on October 4, 2016. [Finding of Fact No. 24]. Further, there was no evidence adduced at trial indicating that Gabriel, the Gabriel Family, or Industry Drive was aware of the Ozer adversary proceeding in the Prins' Bankruptcy.
Another factor the Court considers is that if Industry Drive is ordered to return the $300,000.00 to Elbar, Industry Drive will have no recourse to try and recover its $300,000.00 from Prins. Industry Drive was not listed as a creditor in the Prins' Bankruptcy or as a victim in the Prins' Criminal Case because Industry Drive had suffered no loss at that point. [Adv. Doc. No. 221, Feb. 7, 2018, Trial Tr. 147:25-148:8, 149:24-150:12]. Elbar, on the other hand, in addition to requesting relief from this Court, has had two other sources to look to for collecting its $2.4 million: the Prins' Criminal Case and the Prins' Bankruptcy. And, in fact, Elbar has so far been very successful in obtaining money from these two sources. In the Prins' Bankruptcy, Elbar has received $82,373.28, and in the Prins' Crinimal Case it has received $1,601,542.14. [Finding of Fact Nos. 110, 113-114].
In sum, when weighing the equities, detrimental reliance and unclean hands do not factor into the Court's analysis of Elbar's claim for money had and received; however, what the parties knew and intended weigh in Industry Drive's favor. When weighing the equities, the Court is given much leeway and is permitted to give certain factors more weight than other factors. See Mid-Continent Office Distributs., L.P., 252 S.W.3d at 836 (stating that "a trial court exercises broad discretion in balancing the equities involved in a case seeking equitable relief"); Dominguez, 2009 WL 10692958, at *6 n.5 (citing Mid-Continent Office Distributs., L.P. for the
This Court gives most weight to the factor of what the parties knew and intended. The Purchasers are sophisticated businessmen — two of them trained and seasoned attorneys with experience in bankruptcy law — who went into the foreclosure sale of the Debtor's Property hoping to make a large return on their investment. [Finding of Fact Nos. 30-34, 41]. It is Elbar's entire business model to purchase distressed properties at foreclosure sales in order to make a profit. [Finding of Fact No. 30]. Yet, the Purchasers — including Elbar —
Here, in the Court's view, Elbar and Industry Drive are not equally innocent parties. Both are innocent in the sense that both are victims of Prins' bad acts, but Elbar is less innocent than Industry Drive because Elbar twice willfully violated the automatic stay. Because of this stark fact, Elbar must suffer the loss on its claim for money had and received because it purposefully created the situation — by wire transferring the Proceeds in violation of the stay — and it was in the best position to have avoided it. Thus, when balancing all the equities, the Court holds that Elbar does not prevail on its claim for money had and received against Industry Drive.
Texas law is not completely clear on whether unjust enrichment is recognized as an independent cause of action or is merely recognized as a quasi-contractual theory of recovery. See Perales v. Bank of Am., N.A., No. H-14-1791, 2014 WL 3907793, at *3 (S.D. Tex. Aug. 11, 2014) (noting uncertainty in Texas law). Even within the Southern District of Texas, which this Court believes it is bound to follow,
Other courts in the Southern District of Texas recognize that:
Yosemite Auto (Shanghai) Co., Ltd. v. JRS Metals, Inc., No. 4:15-CV-1641, 2016 WL 4441543, at *7 n.7 (S.D. Tex. Aug. 23, 2016) (J. Harmon) (quoting BP Expl. & Prod. v. Cashman Equip. Corp., 132 F.Supp.3d 876, 889-90 (S.D. Tex. 2015)); see also Galvotec Alloys, Inc. v. Gaus Anodes Int'l, LLC, No. 7:13-CV-664, 2014 WL 6805458, at *10 (S.D. Tex. Dec. 2, 2014) (J. Crane) (same); First Am. Title, Ins. Co., 2015 WL 1220733, at *3 (J. Rosenthal) (same); Maxwell v. Neri N. Am., No. 4:13-CV-269, 2014 WL 2441200, at *5 n.3 (S.D. Tex. May 30, 2014) (J. Ellison) ("There is considerable confusion as to whether unjust enrichment can stand as an independent cause of action under Texas law. Despite the confusion, Texas courts seem willing to award recovery based on unjust enrichment, even if it is nothing more than a theory.") (citations and quotations omitted).
This Court agrees with those district courts in the Southern District of Texas that have found that whether characterized as an independent cause of action or as a theory of recovery, a plaintiff can nonetheless recover when "one person has obtained a benefit from another by fraud, duress, or the taking of an undue advantage." Heldenfels Bros. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992).
Cty. of El Paso, Tex. v. Jones, No. EP-09-00119-KC, 2009 WL 4730343, at *12 (W.D. Tex. Dec. 4, 2009); see also Streamline Prod. Sys., Inc. v. Streamline Mfg., Inc., 851 F.3d 440, 462 (5th Cir. 2017) ("Unjust enrichment occurs when a person has wrongfully secured a benefit or has passively received one which it would be unconscionable to retain. A party may recover under the unjust enrichment theory when one person has obtained a benefit from another by fraud, duress, or the taking of an undue advantage.") (quotations omitted); Allstate Ins. Co. v. Benhamou, 190 F.Supp.3d 631, 667 (S.D. Tex. 2016) ("Unjust enrichment occurs when the `person sought to be charged [has] wrongfully secured a benefit or [has] passively received one which it would [be] unconscionable to retain.'") (quoting City of Corpus Christi v. S.S. Smith & Sons Masonry, Inc., 736 S.W.2d 247, 250 (Tex. App. — Corpus Christi 1987, writ denied)).
Further, "[t]o recover under an unjust enrichment theory, the benefits to the other party must be actually unjust under the principles of equity." Smith v. Jimenez (In re IFS Fin. Corp.), No. 02-39553, 2007 WL 4244115, at *7 (Bankr. S.D. Tex. Nov. 30, 2007) (quoting Argyle Indep. Sch. Dist. v. Wolf, 234 S.W.3d 229, 247 (Tex. App. — Fort Worth 2007, no pet.)). "The decision whether to grant relief for unjust enrichment depends on the particular facts and equities of the case, and on what constitutes good public policy." Helm, 1995 WL 319014, at *6 (citing San Benito Bank & Trust Co. v. Rio Grande Music Co., 686 S.W.2d 635, 639 (Tex. App. — Corpus Christi 1984, writ ref'd n.r.e.)).
Elbar argues that both TransWorld and Industry Drive were unjustly enriched because they obtained a benefit by the taking of an undue advantage.
Elbar argues that TransWorld has obtained a benefit by the taking of an undue advantage by obtaining possession of, and continuing to retain possession of, the $164,807.20. [Adv. Doc. No. 230 at 3-4 of 19, ¶ 6]. TransWorld argues that (1) unjust enrichment is not a separate cause of action and therefore Elbar's claim should be dismissed;
To succeed on a claim for "active" unjust enrichment, there must be a "nexus of exchange between the parties":
Davis v. Wells Fargo Bank, N.A., No. 6:11-CV-00047, 2014 WL 585403, at *3 (S.D. Tex. Feb. 14, 2014) (quoting Lionel Smith, Restitution: The Heart of Corrective Justice, 79 Tex. L. Rev. 2115, 2141 (2001)); see also Banion, 2016 WL 7242536, at *3 ("Unjust enrichment includes a transfer to the defendant by the plaintiff, resulting in a material gain to the defendant and material loss by the plaintiff."); Mitsuba Tex., Inc. v. Brownsville Indep. Sch. Dist., No. 05-97-01271-CV, 2000 WL 122348, at *4 (Tex. App. — Dallas Feb. 2, 2000, no pet.) ("To sustain an action for unjust enrichment, there must be some basis for the court to infer a promise on the part of the defendant to the plaintiff to pay for the benefit...."); Cty. of El Paso, Tex., 2009 WL 4730343, at *12 ("One of the elements of an unjust enrichment claim is some underlying contact or nexus between the plaintiff seeking the recovery and the defendant from whom the recovery is sought.").
Here, there is no nexus between Elbar and TransWorld sufficient enough to sustain a claim for "active" unjust enrichment. Elbar's loss (the Proceeds being stolen by Prins) and TransWorld's gain (Prins giving TransWorld $164,807.29 after TransWorld gave Prins $169,807.29 to hold as good
Elbar has also failed to show that "passive" unjust enrichment occurred. To be successful on a theory of "passive" unjust enrichment, Elbar would need to show that it would be unconscionable for TransWorld to retain the money ($164,807.29) given to it by Prins when the $164,807.29 can be traced to the Proceeds that Prins pilfered. Elbar has not met this standard.
Further, this Court keeps in mind that "[t]he decision whether to grant relief for unjust enrichment depends on the particular facts and equities of the case, and on what constitutes good public policy." Helm, 1995 WL 319014, at *6 (citing San Benito Bank & Trust Co. v. Rio Grande Music Co., 686 S.W.2d 635, 639 (Tex. App. — Corpus Christi 1984, writ ref'd n.r.e.)). The particular facts and equities of this adversary proceeding have been discussed at length, see supra Section IV. E.1.b.i discussing balancing the equities, and this Court finds that equity favors, in this particular instance, TransWorld keeping the $164,807.29. The Court's consideration of what constitutes good public policy also favors Elbar being unable to recover on its claim for unjust enrichment against TransWorld. Public policy is best served when individuals and entities abide by the law; individuals and entities — such as Elbar — who willfully violate the law should not be able to recover from innocent parties. Elbar and the Purchasers are sophisticated and Elbar's continued snubbing of the automatic stay must stop. [See Finding of Fact Nos. 30-34, 41]. Indeed, the Fifth Circuit has already ruled against them not once, but twice, where they were involved in purchasing properties at foreclosure sales held in violation of the stay. See In re Pierce, 91 F. App'x at 929-30; In re Cueva, 371 F.3d at 239. Here, the facts are even worse than in In re Pierce and In re Cueva because there is no question that Elbar was aware of the existence of the Debtor's bankruptcy and her claim to the Property when it wired the Proceeds to Prins and filed the lis pendens. Thus, this Court finds that Elbar cannot prevail on a claim of unjust enrichment against TransWorld.
Elbar asserts that Industry Drive "obtaining and retaining possession" of the $300,000.00 when Industry Drive had notice that there were "problems with Prins" before obtaining possession of the $300,000.00 amounts to the taking of an undue advantage. [Adv. Doc. No. 228 at 6-9 of 19, ¶¶ 13-23]. Industry Drive argues that Elbar presented no evidence that Industry Drive obtained a benefit from Elbar by fraud, duress, or by the taking of an undue advantage. [Adv. Doc. No. 219 at 6 of 16].
Just like its unsuccessful claim for unjust enrichment against TransWorld, there is also no nexus between Elbar and Industry Drive sufficient enough to sustain a claim for "active" unjust enrichment against Industry Drive. Elbar's loss (the
Elbar has also failed to show that "passive" unjust enrichment occurred. To be successful on a theory of "passive" unjust enrichment, Elbar would need to show that it would be unconscionable for Industry Drive to retain the money ($300,000.00) given to it by Prins when the $300,000.00 can be traced to the Proceeds that Prins pilfered. Elbar has not met this standard. There is no question that Elbar has been harmed by Prins' actions due to his theft of the Proceeds; whereas, Industry Drive (unlike Elbar and TransWorld) has not been harmed by Prins' actions in that it has recovered all of the $300,000.00 that Pfirrmann initially withdrew from Industry Drive's account and gave to Prins. All that can be said of Industry Drive is that it has had to pay $44,000.00 in attorneys' fees to defend itself in this suit, [Finding of Fact No. 109], although such expenditures do not constitute harm as a matter of law. See News Am. Mktg. In-Store, LLC, 2009 WL 10675288, at *9 ("The costs of litigation are not sufficient to constitute the damages necessary to support a promissory estoppel claim; if that were the law, detrimental reliance would be proven in every promissory estoppel case."), vacated in part and remanded in part on other grounds, 429 F. App'x 851 (11th Cir. 2011).
However, as discussed at length previously, Elbar is the ultimate source of its own misfortune: Elbar broke the law when it willfully violated the automatic stay and wire transferred $2.4 million to the IOLTA. [Finding of Fact Nos. 37-41]. That the $300,000.00 Prins gave to Industry Drive (which, again, Industry Drive believed was Prins returning Industry Drive's own money, which had previously been taken from Industry Drive's bank account without permission by Pfirrmann) is traceable to the Proceeds does not in any way equate to Industry Drive breaking the law — at worst, it amounts to a windfall to Industry Drive. See Cty. of El Paso, Tex., 2009 WL 4730343, at *12 ("[Unjust enrichment] [i]s not available merely because ... the benefits to the person sought to be charged amount to a windfall.") (citation omitted). Moreover, it is difficult to understand how a party receives a windfall which would be unconscionable to retain when that party genuinely believed it was receiving back its own funds, as Industry Drive believed it was. See, e.g., Walker, 181 S.W.3d at 900-01 (affirming trial court's findings that defendants were not unjustly enriched when they believed the money they received from a third-party fraudster was a return on legitimate businesses investments and plaintiff and defendants both lost money due to business dealings with third-party fraudster); Cote, 271 S.W.3d at 453-54 (affirming trial court's findings that defendants were not unjustly enriched when they believed the money they received from a third-party fraudster — which in reality was traceable to plaintiffs' money — was a return on legitimate businesses investments and both defendants and plaintiffs were monetarily damaged due to business deals with fraudster).
Further, this Court keeps in mind that "[t]he decision whether to grant relief for unjust enrichment depends on the particular
"Under Texas law, conversion is the wrongful exercise of dominion and control over another's property in violation of the property owner's rights." ITT Commercial Fin. Corp. v. Bank of the W., 166 F.3d 295, 305 (5th Cir. 1999); see also Green Int'l, Inc. v. Solis, 951 S.W.2d 384, 391 (Tex. 1997) ("Conversion is defined as the wrongful exercise of dominion and control over another's property in denial of or inconsistent with his rights.").
When the plaintiff alleges that the specific chattel converted was money, as is the case here, then the plaintiff must show "the money (1) was delivered
Ellis, 2014 WL 12596473, at *5 (internal citations and quotations omitted) (footnote added); see also United States v. Boardwalk Motor Sports, Ltd., 692 F.3d 378, 381 (5th Cir. 2012) ("An action will lie for conversion of money when its identification is possible and there is an obligation to deliver the specific money in question or otherwise particularly treat specific money." (quoting Hous. Nat'l Bank v. Biber, 613 S.W.2d 771, 774 (Tex. App. — Houston [14th Dist.] 1981, writ ref'd n.r.e.)).
Here, Elbar fails to prove its conversion of money claim as to both TransWorld and Industry Drive. Elbar has failed to show the first element in a claim for conversion of money — that is, Elbar had to prove that money was delivered to the defendant for safekeeping. Here, Elbar did
Elbar has brought numerous claims against Prins, United Sentry, TransWorld, and Industry Drive. For the reasons set forth herein, the Court finds that all of Elbar's claims must fail with one exception: Elbar has proven the elements of its TTLA claim against Prins. Accordingly, Elbar is entitled to judgment against Prins for $716,084.58, representing the difference between the $2.4 million that Prins stole and the $1,683,915.42 that Elbar has recovered through the Prins' Criminal Case and the Prins' Bankruptcy Case. [See Finding of Fact Nos. 110, 113-114]. Additionally, because Elbar has prevailed under its TTLA claim, Elbar is entitled to recover the reasonable attorneys' fees and costs it has expended in prosecuting this particular claim.
Conversely, because Elbar is not the prevailing party in its TTLA claims against MacKenzie and United Sentry, Elbar is liable to these two defendants for their respective reasonable attorneys' fees
Counsel for MacKenzie and United Sentry has seven (7) days to provide to counsel for Elbar all invoices that his two clients believe represent the reasonable fees and costs incurred in defending themselves against Elbar's TTLA claim. If counsel for MacKenzie and United Sentry fails to deliver these invoices within the seven (7) day deadline, then the fees and costs will be deemed waived. If they are timely delivered, then counsel for Elbar has seven (7) days to file a certificate setting forth that Elbar either does object or does not object to the reasonableness of the requested fees and expenses.
If Elbar's counsel certifies that Elbar does object to the reasonableness of the requested fees and costs of MacKenzie and United Sentry, then this Court will hold a hearing on solely this issue, and thereafter will render a ruling on reasonableness and then enter a judgment consistent with these findings of fact and conclusions of law.
Finally, with respect to Elbar's fees and costs for prosecuting its TTLA claim against Prins, Elbar's counsel has seven (7) days to submit to this Court all invoices that Elbar believes represent its reasonable fees and expenses. The Court will review these invoices in camera and then issue a ruling on the amount it finds to be reasonable. As with the fees and costs of MacKenzie and United Sentry, Elbar's fees and costs will be incorporated into the judgment.
[Adv. Doc. No. 220, Feb. 6, 2018, Trial Tr. 135:19-24].
[TransWorld's Ex. II, Bustamante Dep. 83:5-84:13].
Salim v. Nisselson (In re Big Apple Volkswagen, LLC), No. 11-11388 (JLG), 2016 WL 3034744, at *7 (Bankr. S.D.N.Y. May 19, 2016) (internal citations omitted).
[TransWorld's Ex. II, Bustamante Dep. 173:3-17].
[Pl.'s Ex. 14] (emphasis added).
William and Karen Ozer, former clients of Prins and the Prins Law Firm, filed a complaint initiating an adversary proceeding in the Prins' Bankruptcy on or around November 4, 2016. [Pl.'s Ex. 38]. In their complaint, the Ozers allege that during the seven years that Prins represented them in a civil lawsuit in San Antonio, Texas, Prins repeatedly lied to them about the status of their lawsuit. [Id.]. In furtherance of his lies, the Ozers allege that Prins: (1) forged court documents, including judicial opinions and final judgments, from state and federal judges; (2) forged numerous communications from various elected and appointed officials, including state court judges, federal court judges, a former San Antonio mayor, and the United States Attorney General; (3) claimed to have received over $1.6 million in settlement funds for the Ozers but never disbursed the settlement money; (4) failed to disclose to the Ozers that he had filed for personal bankruptcy; (5) after filing for bankruptcy, executed a $1.6 million promissory note in favor of the Ozers; and (6) failed to disclose the promissory note in his bankruptcy schedules. [Id.]. The Ozers allege that Prins began forging court documents as early as April of 2011. [Id.]. In their adversary proceeding, the Ozers bring claims for common law fraud, breach of fiduciary duty, the Texas Theft Liability Act, conversion, Online Impersonation, and an objection and an exception to discharge under the Bankruptcy Code. [Id.].
David O. Kemp, P.C. v. Nationwide Agribusiness Ins. Co., No. 3:11-cv-1745-N, 2012 WL 13019688, at *2 (N.D. Tex. June 12, 2012) (internal citations omitted).
No. 13-12-00782-CV, 2013 WL 5522673, at *4 (Tex. App. — Corpus Christi-Edinburg Oct. 3, 2013, no pet.).
