Searcy, et al v. Black, III
Filing
21
MEMORANDUM OPINION AND ORDER - After reviewing the parties briefs, the record in this case, and the applicable law, the Court AFFIRMS the order of the Chief Bankruptcy Judge. The Bankruptcy Courts decision (Memorandum Opinion and Order, USBC Doc. No. 265) is AFFIRMED and the instant appeal is DENIED. Signed by Judge Michael H. Schneider on 3/7/2016. (baf, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
JASON R. SEARCY, Trustee, and
OFFICIAL UNSECURED CREDITORS
COMMITTEE,
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Appellants,
v.
ALBERT C. BLACK, III,
Appellee
Case No. 4:15-cv-369
USBC Case No. 13-42925
.
MEMORANDUM OPINION AND ORDER
Before the Court is Appellants’ appeal from the order of the United States Bankruptcy
Court for the Eastern District of Texas, Sherman Division, awarding payment to Appellee Albert
C. Black for pre-petition work as a state court receiver and compensation for his post-petition
expenses before the Bankruptcy Court as a superseded custodian. After reviewing the parties’
briefs, the record in this case, and the applicable law, the Court AFFIRMS the order of the Chief
Bankruptcy Judge.
I.
BACKGROUND
On December 9, 2013, Debtor Richland Resources Corporation, further described below,
filed its voluntary petition for bankruptcy pursuant to Chapter 11 in Cause No. 13-42925 in the
Sherman Division of the Bankruptcy Court. Pre-petition, Appellee Black had been appointed a
receiver in related state proceedings later removed to the Bankruptcy Court.
As a result,
Appellee eventually filed a Request for Allowance of Administrative Priority Claim Pursuant to
1
§ 543(c)(2) and § 503(b)(3)(B) of the Bankruptcy Code (USBC Doc. No. 216) 1, on August 28,
2014. The Chapter 11 Trustee, Jason R. Searcy, filed an Objection (USBC Doc. No. 218) to
Appellee’s request on September 10, 2014. Not long after, the Official Unsecured Creditors
Committee filed its own Objection (USBC Doc. No. 226) on September 18, 2014.
The
Bankruptcy Court conducted an evidentiary hearing on Mr. Black’s Request for Allowance.
(See USBC minute entry of October 23, 2014.)
The Bankruptcy Court’s March 31, 2015, Memorandum Opinion and Order Regarding
Albert C. Black III’s Request for Allowance of Administrative Claim (USBC Doc. No. 265) (the
“Memorandum Opinion and Order” or “Mem. Op.”) granted-in-part and denied-in-part
Appellee’s request for $247,313.39 and awarded him $171,255.20 for his time spent as a receiver
and services provided by a law firm and a logistics company, On-Target (by which Appellee was
also employed). It is this award Appellants seek to overturn.
Appellate jurisdiction is proper in this Court pursuant to 28 U.S.C. § 158(a) and Federal
Rules of Bankruptcy Procedure 8001, et seq. See Earwood v. Bodenheimer, Jones, Szwak &
Winchell, L.L.P., 2013 WL 5234116, at *1 (W.D. La. Sept. 16, 2013).
The Bankruptcy Court’s Memorandum Opinion and Order cogently recites the detailed
background and procedural posture of the case as it stood in the Bankruptcy action 2:
1.
Prior to bankruptcy, Richland Resources Corp. d/b/a RRCH Corp.
(“RRCH”) was engaged in the business of developing and exploring oil reserves
in Texas. Investors raised concerns regarding RRCH’s use of funds in and
around February 2013.
1
The Court will refer to docket entries in the Bankruptcy action as “USBC Doc. No. XX” and to
docket entries in the instant case as “Doc. No. XX.”
2
While the brief summary immediately above serves to identify the general nature of this action,
a thorough understanding is better achieved through the Bankruptcy Court’s detailed description.
2
2.
On June 12, 2013, Steadfast Resources, Inc. initiated a case in the 193rd
Judicial District Court for Dallas, County, Texas, styled and numbered Steadfast
Resources, LLC v. Kenneth A. Goggans, Richland Resources Corp. d/b/a RRCH
Corp., Richland Resources Corporation d/b/a Richland International Resources
Corporation, Manek Energy Pressure Pumping, LLC, Manek Energy, Inc., Manek
Exploration, Inc., Manek Energy Holdings, Inc., Manek Equipment, Inc., Oilman
Supply Co., LLC, Max Elghandour, Kristoffer R. Goggans and Kimberly
Goggans, Cause No. DC-13-06467. Steadfast alleged that investors had
entrusted funds to Kenneth Goggans to invest in RRCH and Richland Resources
Corporation d/b/a Richland International Resources Corporation (“RIRC”).
Steadfast further alleged that, over time, Mr. Goggans had diverted millions of
dollars to his family members and other companies.
3.
At a hearing on September 23, 2013, Steadfast requested that the state
court issue an injunction to prevent the diversion of additional assets. The state
court, acting sua sponte, went beyond Steadfast’s requested relief. The state
court issued an order on September 26, 2013 immediately appointing Mr. Black as
the receiver for eight corporate defendants, namely, RRCH, RIRC, Manek Energy
Pressure Pumping, Manek Energy, Manek Exploration, Inc., Manek Energy
Holdings, Manek Equipment, and Oilman Supply.
4.
Mr. Black had never heard of Steadfast or the corporate defendants prior to
his appointment. He is an employee of On-Target Supplies & Logistics, Inc.
(“On-Target”). He learned of his appointment from communications with the
state court. At the hearing in this Court on October 23, 2014, he testified that it is
common for court-appointed receivers to be drawn from a list or panel maintained
by the state court.
5.
In its receivership order, the state court found and concluded that it
appeared the receivership defendants had misappropriated at least $4.1 million
from Steadfast and diverted those funds among themselves. The state court
authorized the receiver “to do any and all acts necessary to the proper and lawful
conduct of the receivership…” These authorized activities expressly included the
following:
a.
Take charge of the property and assets of the Receivership
Defendants from all individual and entities in possession, insure same
against hazards and risks, and attend to their periodic maintenance;
b.
Operate and conduct the business of the Receivership Defendants;
3
c.
Take possession and control of any money, deposits, securities,
accounts, or other properties and assets of any Receivership Defendants,
legally and/or beneficially owned, from any banks, brokerage houses, or
other institutions in possession; and
d.
Remove and take possession of and receive from any bank or
similar institutions all property and assets kept in safety deposit boxes by,
for and/or on behalf of any Receivership Defendants.
6.
After his appointment, the receiver quickly identified RRCH as the only
corporate receivership defendant with any substantial value. He testified that the
other corporate receivership defendants appeared to be shell companies through
which Mr. Goggans moved assets. The receiver began trying to find and follow
the paper trail left [by] Mr. Goggans when he transferred assets from and through
RRCH.
7.
The receiver did not seek to use Steadfast’s attorney to assist him in
administering the receivership. Instead, in early October 2013, the receiver
retained the law firm of Crouch and Ramey, LLP, to represent him in his role as
receiver. In addition, on or about October 21, 2013, the receiver engaged the
services of On-Target to provide the receivership with business support,
consulting services, logistical support, and related asset protection services.
8.
Over a three-day period beginning on or about October 22, 2013, the
receiver removed all the property of the corporate receivership defendants from
their offices, including, without limitation, books and records, computers, office
furnishings, cabinets and televisions. On-Target provided the personnel and
logistical support necessary to remove, categorize, sort and store all of the
removed items. The property has been stored in a secure, climate-controlled
environment since its removal, and On-Target has charged the receiver the same
rental rate that it charges all of its customers.
9.
Crouch & Ramey, as counsel for the receiver, filed a motion to employ
their firm and On-Target in the state court. The receiver explained that it was
necessary to retain counsel to sue the individual receivership defendants in order
to recover any funds and property they had misappropriated.
10.
Crouch & Ramey, as counsel for the receiver, also filed a motion seeking
to compel Mr. Goggans to provide the receiver with full and unfettered access to
the financial records of the corporate receivership defendants. The receiver
sought to modify the receivership order to expressly compel Mr. Goggans to
cooperate with his investigation.
4
11.
Crouch & Ramey incurred the bulk of their fees in October and November
2013.
12.
The state court set the receiver’s motions for hearing on December 9,
2013.
13.
On December 9, 2013, Kenneth Goggans filed bankruptcy petitions in this
Court for all of the corporate receivership defendants. In particular, (i) RRCH
filed a chapter 11 case; (ii) RIRC filed a chapter 11 case, which was subsequently
converted to a chapter 7 case; (iii) Manek Energy Pressure Pumping, LLC filed a
chapter 7 case; (iv) Manek Energy, Inc. filed a chapter 7 case; (v) Manek
Exploration, Inc. filed a chapter 7 case; (vi) Manek Energy Holding, Inc. filed a
chapter 7 case; (vii) Manek Equipment, Inc. filed a chapter 7 case; and (viii)
Oilman Supply Co., LLC filed a chapter 7 case.
14.
Counsel for RRCH also served as bankruptcy counsel for all of the other
corporate receivership defendants. The corporate receivership defendants paid
their bankruptcy counsel $114,448.00 for purposes of satisfying pre-petition
invoices and filing fees. After satisfying the pre-petition invoices, counsel placed
the balance of $76,806.00 in his trust account as a pre-petition retainer for
continuing to represent RRCH in this chapter 11 case.
15.
On February 7, 2014, the chapter 7 trustee filed reports of no distribution
in four of the bankruptcy cases filed by the corporate receivership defendants – in
particular, the chapter 7 trustee filed no distribution reports in the bankruptcy
cases of Manek Exploration, Manek Energy Holdings, Manek Equipment, and
Oilman Supply. In the bankruptcy case of RIRC, the chapter 7 trustee filed a
report of no distribution on April 7, 2014. The trustees stated in their reports that
none of these debtors had any assets to distribute to creditors.
16.
In two other cases, the chapter 7 debtors appear to possess potential assets
that may be liquidated and distributed to creditors. In particular, Manek Energy
lists a $14,000 tax refund from the Internal Revenue Service in its bankruptcy
schedules, and Manek Energy Pressure Pumping lists a possible refund from a
pre-petition insurance policy.
17.
Thus, of the eight corporate receivership defendants who filed for
bankruptcy on December 9th, the only debtor with significant assets was RRCH.
18.
RRCH’s case has not been substantively consolidated with the cases filed
by the other receivership defendants. However, on the same day RRCH filed for
bankruptcy, RRCH removed the entirety of the receivership litigation to this
Court. RRCH also demanded that the receiver immediately turnover all the
5
property in his possession. RRCH represented that the property held by the
receiver was critical to its operations as well as its ability to comply with the
reporting requirements of the Bankruptcy Code.
19.
The receiver challenged the authority of Mr. Goggans to file bankruptcy
petitions for the corporate defendants and, thereby, evade the receivership order.
The receiver filed motions to dismiss the chapter 11 cases of RIRC and RRHC on
December 20, 2013. He also entered into an agreed order that required him to
continue to safeguard the property in his possession pending the resolution of his
motion to dismiss.
20.
The Court conducted a hearing on the receiver’s motions on January 21,
2014. At the conclusion of the hearing, the Court denied the motions on the
record. The Court entered an amended order denying the receiver’s motions on
January 23, 2014.
21.
After the hearing, Mr. Goggans retrieved significant documents from the
receiver. However, RRCH did not take any action to recover its property from
the receiver.
22.
On January 23, 2014, the U.S. Trustee appointed an official unsecured
creditors’ committee. On January 28, 2014, the committee filed a motion seeking
an appointment of a chapter 11 trustee. RRCH did not oppose the motion for a
chapter 11 trustee.
23.
On February 4, 2014, the Court entered an order appointing a chapter 11
trustee to oversee RRHC’s reorganization pursuant to § 1104(a) of the Bankruptcy
Code. RRHC was not doing business at the time of the trustee’s appointment.
24.
Counsel for the receiver contacted the chapter 11 trustee about turning
over the items in the receiver’s possession. In a letter dated March 31, 2014,
counsel stated that the receiver remained in possession of numerous boxes, file
cabinets and computer equipment, among other things, belonging to RRCH.
Counsel explained that time was of the essence as the receiver was incurring
$4,750 each month in storage and security costs.
25.
The chapter 11 trustee did not take any immediate action to recover
RRCH’s property from the receiver.
26.
On July 18, 2014, bankruptcy counsel for RRCH filed an application
seeking an award of his post-petition fees in the total amount of $95,846.
6
27.
In July 2014, the chapter 11 trustee, Steadfast, and others reached a
settlement regarding the dispute over Mr. Goggans’ use of the funds provided by
investors to RRCH. The settlement contemplated payments of more than $2
million to the bankruptcy estate of RRCH.
28.
The chapter 11 trustee still had not responded or taken possession of
RRCH’s property when the receiver filed his application for a priority
administrative claim against RRCH’s bankruptcy estate on August 28, 2014. In
the application, the receiver requests an administrative priority claim in the total
amount of $247,313.39.
29.
The chapter 11 trustee finally contacted On-Target about removing the
property approximately a week before the hearing on the receiver’s request for an
administrative expense.
30.
The receiver, who goes by the first name “Tre,” has formed a business
called TreCo, Ltd. (“TreCo”). The receiver is the only employee of the business.
His application for an administrative expense attaches monthly statements from
TreCo for the time he personally spent acting as a receiver. His entries begin on
September 26, 2013, end on December 20, 2013, for a total amount of $58,369.
His application also attaches invoices from On-Target totaling $134,204 as well as
invoices for attorneys’ fees and expenses from his legal counsel totaling
$54,740.92. The receiver states in his application that he is not requesting
reimbursement for legal fees relating to his opposition to the bankruptcy filing or
the motion to dismiss.
Mem. Op. (USBC Doc. No. 265) at 1-7. Following a detailed analysis, the Bankruptcy Court
granted the Receiver’s request in part and denied it in part, culminating the Memorandum
Opinion and Order with:
It is further ORDERED that Mr. Black is hereby allowed an administrative claim
in the total amount of $171,255.20, which consists of $58,369 for the time spent
by Mr. Black as receiver, $65,334.70 for the services provided by On-Target,
$44,179 for the services provided by Crouch & Ramey, and $3,372.50 for the
services provided by Wright Ginsburg.
7
Id. at 18. Appellants jointly filed a Notice of Appeal this decision. See USBC Doc. No. 274
(specifying appeal of Bankruptcy Court’s Memorandum Opinion and Order at USBC Doc. No.
265). Appellants summarize the issues they raise on appeal 3 as:
1.
Whether the bankruptcy court’s determination that the state court receiver
provided any quantifiable benefit to the bankruptcy estate was error. The
bankruptcy court recognized that the heart of the objections raised to the
allowance of Mr. Black’s administrative claim was “that the receiver’s
fees did not benefit RRCH’s estate and were not reasonable or necessary.”
[ ] Yet, the court allowed the majority of these claims when there was no
evidence of any quantifiable benefit to the estate. [ ]
2.
The state court receiver was appointed as the receiver of numerous
entities, yet asserted all of his claims in Richland Resources Corporation’s
Chapter 11 Bankruptcy without allocating any of the claims to the other
entities. And despite objection, the bankruptcy court concluded that the
receiver did not have to allocate any of the claims between the various
entities covered by the receivership order. Was this error? [ ]
3.
It is undisputed that the state court receiver was a custodian and as such,
obligated to comply with 11 U.S.C. § 543(b). Black did not comply, and
did not request to be excused from compliance with this requirement.
Yet despite this, the bankruptcy court granted his application for
compensation. Was this error? [ ]
Appellants’ Brief at 1-3 (internal citations and argument as to standards of review omitted).
Appellee states the issues somewhat differently, including splitting Appellants’ issue number 3
into two separate issues. However, both the Appellants’ and the Appellee’s versions of the
issues are substantively similar, except for differing positions on the specific standard of review
for certain issues. The Court will address the arguments in turn.
II.
3
STANDARD OF BANKRUPTCY APPELLATE REVIEW
In Appellants’ Brief, Appellants cross-reference the “Statement of Issues on Appeal” contained
in their Joint Designation by Appellants for Inclusion in Record on Appeal and Statement of
Issues on Appeal, see USBC Doc. No. 278 at 3-4, with an explanation of how the issues raised in
the two documents relate. The Court will consider the issues as raised in Appellants’ Brief.
8
This Court reviews the Bankruptcy Judge’s findings of fact for clear error. In re IFS
Financial Corp., 803 F.3d 195, 203 (5th Cir. 2015); Robertson v. Dennis (In re Dennis), 330
F.3d 696, 701 (5th Cir. 2003). A finding of fact is clearly erroneous only if “on the entire
evidence, the court is left with the definite and firm conviction that a mistake has been
committed.” In re Dennis, 330 F.3d at 701 (quoting Hibernia Nat’l Bank v. Perez (In re Perez),
954 F.2d 1026, 1027 (5th Cir. 1992). The Court conducts a de novo review of the Bankruptcy
Judge’s conclusions of law. Id. Mixed questions of law and fact are reviewed de novo. In re
Foster Mortgage Corp., 68 F.3d 914, 917 (5th Cir. 1995). 4
III.
DISCUSSION AND ANALYSIS
As outlined above, the Bankruptcy Court granted-in-part and denied-in-part Appellee’s
request for an administrative priority claim against the bankruptcy estate, and trimmed the
amount requested of $247,313.39 to an award of $171,255.20. The Chief Bankruptcy Judge
explained her methodology in doing so in her Memorandum Opinion and Order. Nonetheless,
following denial of their motion for reconsideration and now on appeal, Appellants contend error
in granting even the reduced award.
A.
Benefit To The Bankruptcy Estate
In their first issue, Appellants contend that the Bankruptcy Court erred when it granted an
allowance of $171,255.20 to Appellee Receiver Black despite an alleged lack of evidence of the
benefit of Mr. Black’s performance to the bankruptcy estate. After restating at length their
earlier arguments as to the appellate standard of review, the applicable Bankruptcy Code, and the
4
The parties disagree whether “benefit to the bankruptcy estate” should be reviewed for clear
error or de novo. Regardless, this Court has reviewed the arguments raised and, in particular,
the record de novo.
9
contentions of the Appellant Chapter 11 Trustee and the Appellant Official Creditors’
Committee, see Appellants’ Brief at 8-12, Appellants identify their specific points of alleged
error.
Appellants contend that although Appellee Black seized the Debtor’s “office furniture,
telephone equipment, etc.” 5 and provided proof of the charges for storing them, he “offered no
evidence that it was reasonable and necessary to pay $4,750 a month for 5,000 square feet to
store the items or that this in any way was a benefit to the estate.” Appellants’ Brief at 14.
Instead, Appellants contend, the Appellant Chapter 11 Trustee testified that “he could not
identify anything Black did that was a benefit to the estate.” Id. The theme of “no evidence”
and the Trustee’s testimony of “no benefit to the estate” are repeated throughout Appellants’
argument. 6
Similarly, Appellants do not dispute that Appellee Black hired law firm Crouch &
Ramey, On-Target or TreCo to handle legal, logistical and administrative issues deriving from
his receivership appointment in the state court, but contend that there was “no evidence” that the
amounts billed for these services were reasonable or necessary or a benefit to the estate. Id.
Appellants also argue that there is no evidence that the books and records Appellee Black
5
Appellants commonly characterize the property Appellee Black seized in his role as Receiver
as little more than office furniture. In fact, the inventory included a wide array of computer
systems, copiers, printers, and associated equipment as well as the Nortel telephones and other
items necessary for an ongoing business. See generally USBC Doc. No. 216-1 (Inventory).
6
Appellants make much of the fact that neither Appellee Black nor the testifying representatives
of On-Target or Crouch & Ramey stated in testimony that their activities were either “reasonable
or necessary” or that they “benefitted the estate.” However, even had counsel for either side
asked that question during testimony, those are determinations for the Bankruptcy Judge to make.
Here, the Chief Bankruptcy Judge did precisely that, based in part on the testimonial evidence
adduced during the October 23, 2014, hearing.
10
delivered aided in post-petition litigation against Steadfast and others, or that it benefitted the
bankruptcy estate. Id. at 15. Likewise, that there is no evidence the Receiver’s action to store
and safeguard property belonging to RRCH was reasonable or necessary or a benefit to the estate.
Id.
Moreover, Appellants explicitly state that, “in fact there was direct evidence to the
contrary.” Id. Despite this bald contention, Appellants have not identified any such evidence
whatsoever, which undercuts their argument.
Instead, Appellants simply argue that “It is the burden of the party requesting an
administrative expense to prove benefit to the estate.” Id. at 14 (quoting the Mem. Op. at 8
(observing that the “benefit-to-the estate” standard applies to both pre-petition services under 11
U.S.C. § 503(b)(3)(E) and post-petition services under 11 U.S.C. § 543(b))). They therefore
base their entire claim on the proposition that Appellee Receiver Black did not provide “any
evidence” that his assistance (including hiring others for their specialized skills) was reasonable
or necessary or that it constituted a benefit to the bankruptcy estate. In particular, Appellants
contend the Chief Bankruptcy Judge did not base her findings on record evidence.
Their
argument is without merit.
The Bankruptcy Court’s Memorandum Opinion and Order is replete with determinations
that Appellee Black’s efforts were, for the most part, “reasonable or necessary” and were of
“benefit to the estate.” In several instances, the Bankruptcy Court disallowed certain claims,
discounting Appellee Black’s original request by about $76,000. It did so explicitly where
Appellee Black did not submit adequate evidence to show that the services claimed were
11
reasonable or necessary or benefitted the estate. It is clear that the Bankruptcy Court carefully
considered record evidence in making its determinations of benefit to the estate.
To that end, Appellee summarized certain evidence of his service and the services he
hired as follows:
1.
Hired Crouch & Ramey as counsel to assist him in his efforts as Receiver
(Tr. 18:11-16; Ex. 2);
2.
Hired On-Target Supplies & Logistics to provide business support and
consulting services (Tr. 18:17-21; Ex. 3);
3.
Made demand on the Receivership Defendants to produce documents as
required by the state court receivership order, which was necessary
because the Receiver did not receive the documents initially requested
from those parties at their first meeting with the Receiver (Tr. 19:1420:21; Ex. 4);
4.
Traveled to Leon County to identify oil and gas interests held by RRCH in
Leon County (Tr. 20:22-21:5);
5.
Identified “large gaps” in the documents and bank accounts pertaining to
the Receivership Defendants and their financial dealings, which missing
documents the Receiver believed were “in the possession of the individual
defendants, Kenneth Goggans, Max Elghandour, Kristoffer Goggans and
Kimberly Goggans, or their agents, attorneys, employees, representatives,
related companies, or subsidiaries” (Ex. 6; Tr. 21:6-22:16);
6.
Requested the state court to modify its receivership order to (i) direct the
individual defendants, their agents, attorneys, employees, representatives,
related companies, or subsidiaries to turn over to the Receiver all books,
records, documents (whether in digital or paper form) and all passwords
for access to any databases pertaining to the financial transactions of the
Receivership Defendants, and (ii) direct Citibank, Texas Heritage Bank,
and Sovereign Bank to transfer the Receivership Defendants’ funds to the
Receiver and provide the Receiver with all records regarding the Receiver
Defendants’ accounts so that he could trace money transferred between the
individual Defendants and the entity Defendants (Ex. 6; Tr. 21:6-22:16);
7.
Complied with the receivership order’s requirements to not move or
otherwise alter the property and to ensure that the facility where the
12
property was located was properly insured (Tr. 38:1-7);
8.
Complied with the receivership order’s requirements to provide security to
deny access to the property to anyone, other than the debtors and their
agents and representatives, while the bankruptcy cases were pending
(Tr. 38:8-17);
9.
Stored the receivership property, which included computers, servers, and
printers, in a secure, climate controlled, and accessible environment,
providing positioning and staging of the inventory in a manner consistent
with On-Target’s practices for any of its warehousing jobs (Tr. 38:2539:7, 41:8-17, 41:25-43:8); and
10.
Work organizing documents and analysis of potential claims (Tr. 26:7-11).
Appellees’ Sur-Reply (Doc. No. 20) at 3-4. The Court has reviewed and finds this to be
abundant evidence of “benefit to the estate” by Appellee Black and the services he hired.
Explicitly addressing Appellants’ claim that “no evidence” supported the need for 5,000
square feet of warehouse space, Scott Sessions (General Counsel and Senior Vice President for
On-Target) testified that the space is not excessive for the purpose of storing all of the property
that the Appellee Receiver Black seized.
See Tr. 41:18-21.
That constitutes evidence
supporting a finding by the Bankruptcy Court that such space was reasonable and necessary.
Mr. Sessions also testified that transporting all of this property from the office site to the
warehouse took multiple trips over a three-day period using On-Target’s 12-15 foot Bobtail
truck. Tr. 42:22-25 – 43:1-7.
In her Memorandum Opinion and Order, the Chief Bankruptcy Judge also found that after
the bankruptcy petition had been filed in this case and after Appellee Black’s motion to dismiss
the bankruptcy was denied, Black returned certain books and records to Mr. Goggans for use in
the Chapter 11 Trustee’s litigation against, inter alia, Steadfast. That litigation resulted in a
13
settlement of over $2,000,000 to the bankruptcy estate. Mem. Op. at 13. Appellants argue that
there is “no evidence” that these books and records resulted in the settlement and, in any case,
that the settlement funds had not yet been paid to the bankruptcy estate at the time Appellants
filed their brief herein. Addressing the latter point first, whether the amount has been paid to the
bankruptcy estate matters a great deal to the estate, but not at all for the analysis of whether
Appellee Receiver’s actions provided a benefit to the estate. Here, the simple fact that Black
preserved books and records that helped in any way to obtain a settlement from the absconding
companies means that he provided a benefit to the estate.
As for Appellants’ broad claim that there is “no evidence” that the records Appellee
returned to Goggans actually had a part in obtaining the $2,000,000-plus settlement, the
argument is little more than smoke. Appellee Black testified that, via the counsel he retained,
Crouch & Ramey, a letter demand for the documents was made on Ken Goggans’ counsel. Tr.
19:16-19. Appellee therefore seized and preserved the records. He also testified he allowed
representatives of the Debtor to take what they needed from the inventory after the motion to
dismiss was denied. Tr. 26:4-6. He further testified that he “was most definitely on the right
track” for gaining the information he needed to pursue claims over the questionably transferred
monies and that in time he could have pursued in good faith claims against Goggans for
misappropriations of funds. Tr. 15-21. In the face of this evidence, the Court would require
Appellants to affirmatively demonstrate the means by which they obtained the settlement, if not
with the books and records Appellee provided.
In sum, Appellants’ argument that there is “no evidence” to support the Bankruptcy
Court’s determinations that Appellee Black’s services and management were “reasonable and
14
necessary” and of “benefit to the estate” fails. This contention is without merit.
B.
Allocation Of Receiver’s Claim Among The Various Entities
Appellants next contend that there is no evidence in the record to support the Bankruptcy
Court’s determination that Appellee Black’s claim for compensation was properly allocated to
RRCH alone, and not any of the related entities.
Appellants first appear to contend that the Bankruptcy Court erroneously read Texas law
to give a court discretion in the taxation of costs and expenses where a receivership is appointed
under state law. However, to the extent the Appellants appear poised to argue the point, they
then ignore it. 7 Instead, they argue that the Bankruptcy Court erroneously allocated Appellee’s
compensation to RRCH alone on the finding that “RRCH is the only one of the eight receivership
debtors with any significant assets.” Appellants’ Brief at 17 (citing Mem. Op. at 11.)
To that end, Appellants simply cite one brief set of line items from Appellee’s
receivership inventory that list four hard hats and one cap from the entity Manek Energy. Id.
(citing USBC Doc. No. 216-1 at 1). In other words, by this citation, they are suggesting that not
all of the “significant assets” in the inventory belonged to RRCH, with the further implication
that the fees and expenses claimed by Appellee Black should have been allocated accordingly.
Appellants are cherry-picking from the inventory list contained at USBC Doc. No. 216-1.
A handful of line items, including the miniscule reference to the Manek Energy headgear above,
are labeled as from receivership entities other than RRCH. However, the great balance of the 11
7
Accordingly, Appellants do not dispute that under Texas law, a court has significant discretion
in allocation the taxation of costs and expenses where a receiver is appointed. See Hill v. Hill,
460 S.W.3d 751, 767 (Tex. App. – Dallas 2015, pet. denied) (“[W[here a receiver is appointed,
taxation of costs of the receivership and the manner of their collection are matters entirely within
the sound discretion of the trial court.”).
15
pages and scores of line items of inventory under the heading of Richland Resources
Receivership consist of copiers, computer servers, Nortel phones, cell phones, printers,
shredders, laptop computers, computer monitors and associated computer accessories, desks,
lamps, chairs and other office equipment seized from RRCH. The cover letter on the inventory,
from Appellee Receiver’s counsel at Wright Ginsberg Brusilow, identifies the inventory as
“significant property of Richland” in the Chapter 11 bankruptcy proceeding, meaning the Chapter
11 entity RRCH. Appellants make no attempt to claim that these items are not the property of
RRCH. This property makes up far more “significant assets” than the four hard hats and a cap
Appellants cite, or any number of similar minor chattels. Moreover, as is discussed in greater
detail in the previous section, RRCH also obtained a settlement in post-petition litigation for over
$2,000,000.00, making it the holder – or at least the potential holder – of far more assets than has
been identified for any other receivership entity. In fact, Appellants have not even attempted to
show that any other receivership entity or combination of entities has any significant assets
whatsoever.
In that light, as Appellee correctly points out, each and every other receivership entity
than RRCH entered into Chapter 7 bankruptcy (or in the case of RIRC, a Chapter 11 bankruptcy
that was then converted to Chapter 7), suggesting liquidation of any of their remaining assets.
See Appellee’s Sur-Reply (Doc. No. 20) at 5 (citing Mem. Op. at ¶¶ 15-17, also quoted supra)
(observing that the Chapter 7 Trustee filed reports of no distribution in five of the other seven
receivership entities (including RIRC, post-conversion from Chapter 11 to Chapter 7), and only
relatively minor assets belonging to the remaining two entities).
It is undisputed that Appellee was appointed Receiver over all of the entities in state
16
court. RRCH – the only entity with significant assets – led the charge to Chapter 7 filings by all
of the other receivership entities, while RRCH alone remained in Chapter 11. The Court finds
accordingly that the Bankruptcy Court did not abuse its discretion in determining that there was
no reason to allocate Appellee Black’s claim of fees and expenses among the other,
non-asset-holding, entities. This contention is without merit.
C.
Receiver’s Duty To Turn Over And Account Under 11 U.S.C. § 543(b)
Finally, Appellants contend the Bankruptcy Court committed error in granting Appellee’s
application for compensation despite that he did not immediately turn over the Debtor’s property
after the bankruptcy was filed, pursuant to 11 U.S.C. § 543(b). Appellants also argue that
Appellee Black failed to file an accounting. As with their other arguments above, this claim
only addresses part of the story.
Title 11 Section 543 states in pertinent part:
(b) A custodian shall-(1) deliver to the trustee any property of the debtor held by or transferred to such
custodian, or proceeds, product, offspring, rents, or profits of such property, that is
in such custodian's possession, custody, or control on the date that such custodian
acquires knowledge of the commencement of the case; and
(2) file an accounting of any property of the debtor, or proceeds, product,
offspring, rents, or profits of such property, that, at any time, came into the
possession, custody, or control of such custodian.
11 U.S.C. § 543(b).
Appellee argues that Appellants did not raise the issue of failure to file an accounting in
the Bankruptcy Court and that it is therefore waived on appeal, citing, inter alia, ICEE
Distributors, Inc. v. J&J Snack Foods Corp., 325 F.3d 586, 595 n.29 (5th Cir. 2003) (“Because
17
appellants have not shown that they raised this issue below, it is waived.”). Appellants respond
that they did raise the issue of an accounting in paragraph 7 of individual Appellant Trustee’s
objections to Appellee’s request for compensation, filed in the Bankruptcy Court. Appellants’
Reply (Doc. No. 19) at 9 (citing USBC Doc. No. 218 at 3). However, Appellant Trustee did not
actually object to the Bankruptcy Court that Appellee Black did not file an accounting. All he
did was refer to the language of § 543(b) and argue simply that “the Receiver failed and refused
to comply with this provision and refused to return the assets he had taken control of requiring
the debtor to seek a turnover order from the bankruptcy court.
Yet the Receiver seeks
compensation for failing to comply with his legal obligation.” See USBC Doc. No. 218 at 3.
He made no argument as to an accounting.
Likewise, the Appellant Official Committee did not address the issue of an accounting at
all in its objections to Appellee’s application for compensation. See USBC Doc. No. 226.
Although Appellants contend that the Official Committee did address the point in its separate
Brief in Support of its objections, the Committee did nothing more than quote § 543(b) and state
that “The appellant here did not comply with that statutory directive.” See USBC Doc. No. 246
at 4. That is an insufficient argument to preserve the issue for appeal. See In re Emergency
Room Mobile Services, L.L.C., 529 B.R. 676, 694-95 (N.D. Tex. 2015) (undeveloped assertions
in the Bankruptcy Court are insufficient to preserve the issue on appeal) (citing In re MBS Mgmt
Servs., Inc., 690 F.3d 352, 355 n.1 (5th Cir. 2012) and In re Bradley, 501 F.3d 421, 433 (5th Cir.
2007)). Further, Appellants did not raise the issue in their Motion for Reconsideration of the
Bankruptcy Court’s Memorandum Opinion and Order. See USBC Doc. No. 268. Accordingly,
Appellants waived the issue for the purposes of the instant appeal.
18
Turning to the issue of turnover of the Debtor’s property, Appellants’ argument fails. In
part, Appellants contend that Appellee Black’s refusal to turn over the Debtor’s property (or, for
that matter, file an accounting) upon the filing of the bankruptcy could only be excused by the
Bankruptcy Court under 11 U.S.C. § 543(d), which states:
(d) After notice and hearing, the bankruptcy court—
(1) may excuse compliance with subsection (a), (b), or (c) of this section if
the interests of creditors and, if the debtor is not insolvent, of equity
security holders would be better served by permitting a custodian to
continue in possession, custody, or control of such property, and
(2) shall excuse compliance with subsections (a) and (b)(1) of this section
if the custodian is an assignee for the benefit of the debtor’s creditors that
was appointed or took possession more than 120 days before the date of
the filing of the petition, unless compliance with such subsections is
necessary to prevent fraud or injustice.
As the Court will discuss, below, the Bankruptcy Court issued an order, on the Debtor’s
motion well before the Chapter 11 Trustee or the Official Committee were appointed, consistent
with § 543(d).
Appellants also rely heavily on Earwood v. Bodenheimer, Jones, Szwak & Winchell,
L.L.P., 2013 WL 5234116, at *3 (W.D. La. Sept. 16, 2013), which in turn relies on In re
Bodenheimer, Jones, Szwak & Winchell L.L.P., 592 F.3d 664, 673 (5th Cir. 2009). The common
background to both opinions was that a state court appointed Earwood as liquidator to facilitate
the termination of a law partnership. The partnership proceeded to bankruptcy and Earwood
opposed the bankruptcy, though he ultimately withdrew the opposition.
He later filed for
compensation under, inter alia, 11 U.S.C. § 543, which was opposed by the Trustee and others.
The Bankruptcy Court found Earwood entitled to compensation, although it explicitly found that
19
Earwood had not provided a benefit to the bankruptcy estate. That decision was upheld on
appeal to the District Court.
However, in In re Bodenheimer, the Fifth Circuit found that the Bankruptcy Court had
erred by granting settlement compensation to Earwood that included his expenses in opposing the
bankruptcy; and, that the Bankruptcy Court failed to apply a “benefit to the estate” analysis
regarding Earwood’s services. In re Bodenheimer, 592 F.3d at 674-75.
On remand from In re Bodenheimer, the Bankruptcy Court denied the compensation
Earwood had requested and required him to make certain payments. The Bankruptcy Court
found that Earwood had not turned over certain money nor made an accounting pursuant to §
543(b), and that his services had not provided a “benefit to the estate.” The District Court
affirmed the Bankruptcy Court on appeal. Earwood, 2013 WL 5234116, at *3.
Earwood is factually inapposite here. In the instant case, Appellee Black did indeed
oppose the bankruptcy and filed a motion to dismiss it, believing that Goggans did not have the
authority to file for bankruptcy. However, Appellee Black did not simply refuse or “fail to” turn
over the Debtor’s property after the bankruptcy was filed on December 9, 2013. 8
Instead, following RRCH’s Emergency Motion to Compel Turnover of Property Held by
Receiver, the Bankruptcy Court held a hearing on the motion on December 17, 2013. See USBC
Doc. No. 26 (Agreed Order on Debtors’ Joint Emergency Motion, issued December 20, 2014).
As a result of the explicit agreement between Appellee and the bankruptcy Debtors, the
Bankruptcy Court’s Agreed Order contained a number of specific points. The Bankruptcy Court
8
Furthermore, Appellee is not requesting compensation for any of his or Crouch & Ramey’s
time or services in filing the motion to dismiss or otherwise opposing the bankruptcy. Cf. In re
Bodenheimer, 592 F.3d at 674-75. Additionally, this Court has already found that Appellee
20
enumerated the individual orders, under its preliminary finding that “The Debtors and the
Receiver having announced an agreement on the Motion and the Court finding such an
agreement is in the best interest of the Debtors and their estates, it is accordingly”
ORDERED that to the extent the Receiver intends to seek dismissal of the
Debtors’ cases on the basis of the lack of authority to file bankruptcy, such
motions shall be filed no later than December 20, 2013 (the “Dismissal Motion”);
it is further
***
ORDERED that the Receiver shall maintain the integrity and security of
the Property, shall not move or otherwise alter the Property, and shall ensure that
the Facility is properly insured; it is further
***
ORDERED that in the event the Court denies the Dismissal Motion, the
Receiver shall turnover the Property within two (2) days following entry of the
Court’s order; it is further
ORDERED that the Receiver shall bear all additional costs associated with
maintaining the storage and security of the Property until his turnover of the
Property; it is further
ORDERED that the Receiver shall not provide any party, other than the
Debtors and their agents and representatives, any of the Property or otherwise
provide access to the Property while the Debtors’ bankruptcy cases are pending; it
is further
ORDERED that in the event the Debtors require access to any books and
records prior to the Court’s determination on the Dismissal Motion, Receiver shall
provide the Debtors’ agents and representatives access to those books and records
on twenty-four (24) hour notice with such notice being given by the Debtors to the
Receiver and Ashley Ellis, Receiver’s counsel, via email and/or fax; it is further
***
ORDERED that the Receiver shall cooperate with the Debtors and provide
Debtors’ agents and representatives access to the Property so the Debtors can
Black’s services did provide a benefit to the bankruptcy estate. Id.
21
amend and update their service matrices which shall be filed with the Court within
seven (7) days from entry of this order.
Agreed Order on Debtors’ Joint Emergency Motion to Compel Turnover (USBC Doc. No. 26), at
1-3. Appellee timely filed his motion to dismiss and RRCH timely filed its opposition thereto
(USBC Doc. Nos. 27, 51). On January 22, 2014, the Bankruptcy Court issued its Order Denying
Motion to Dismiss (USBC Doc. No. 71). Notably, the Creditors’ Committee was not appointed
until January 23, 2014 (USBC Doc. No. 73) and the Chapter 11 Trustee was not appointed until
February 6, 2014, see USBC Doc. No. 96, after this sequence of events was completed.
However, the Bankruptcy Court’s Agreed Order was noticed to the creditors and counsel by first
class mail and electronically via CM/ECF on December 23, 2014. See USBC Doc. No. 33.
Two oppositions were filed to Appellee Black’s motion to dismiss (see USBC Doc. Nos. 50, 51),
including that of the Debtors, but no objection was filed to the Bankruptcy Court’s Agreed Order.
The Court concludes that the various creditors had no objection to the Agreed Order.
Accordingly, the Court finds that the Bankruptcy Court’s Agreed Order – which, by its
definition, was agreed to by Appellee Black, the Debtors and the Bankruptcy Court, and to which
no creditor objected – meets the standard of 11 U.S.C. § 543(d)(1), even though the Agreed
Order does not specifically cite that section. In other words, the Bankruptcy Court properly
allowed Appellee to retain possession of the Debtors’ property in the pendency of the motion to
dismiss and not turn the property over.
During the Bankruptcy Court’s October 23, 2014, hearing on Appellee Black’s request
for compensation, Appellee testified that once the Bankruptcy Court denied the motion to
dismiss, he cooperated with the Debtors’ representatives and allowed them to take whatever they
22
wanted of the property he had seized under the receivership orders. Tr. 25:25 – 26:6.
Also during the hearing, On-Target’s Mr. Sessions testified that Appellee Black’s
counsel, Ms. Ellis, had contacted him on or about March 31, 2014, about turning the stored
property over to the Trustee and/or the Debtor. Tr. 39:20-23. Mr. Sessions further testified that
he was aware that Ms. Ellis had also offered the property to Appellants, but from that time until
“probably a week” before the October 23, 2014, hearing, nobody from the “Chapter 11 Trustee or
the estate contact[ed] [him] about coming to get that information - - the property[.]” Tr. 39:25 –
40:4. See also Mem. Op. at ¶¶ 24-29 (summarizing the testimony above). It appears to the
Court that Appellants’ argument that Appellee failed to turn over the Debtor’s property is little
more than a paper tiger, inasmuch as it seems the Chapter 11 Trustee had little interest in actually
receiving and taking charge of any of the Debtor’s property.
In summary, the facts of Earwood and In re Bodenheimer are wholly distinguishable
here. Appellee Black has not requested compensation for his or Crouch & Ramey’s services in
opposing the bankruptcy and filing the motion to dismiss. The Court has found that Appellee’s
services provided a benefit to the estate, not the least of which is providing books and records
that facilitated a post-petition litigation settlement of over $2,000,000.00. Particularly telling is
that the Bankruptcy Court issued an Agreed Order, signed onto by the Debtors and unobjected-to
by any of the creditors, that allowed Appellee to retain possession and control of the Debtors’
property until the motion to dismiss was determined. The Court has found that the Agreed
Order was consistent with 11 U.S.C. § 543(d)(1).
In short, Appellants’ contention as to any failure by Appellee under § 543(b) is without
merit.
23
.
IV.
CONCLUSION
In view of the above discussion, the Bankruptcy Court’s decision (Memorandum Opinion
and Order, USBC Doc. No. 265) is AFFIRMED and the instant appeal is DENIED.
It is SO ORDERED.
SIGNED this 7th day of March, 2016.
____________________________________
MICHAEL H. SCHNEIDER
UNITED STATES DISTRICT JUDGE
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