BOT Real Estate LLC et al v. Anderton

Filing 18

MEMORANDUM OPINION AND ORDER. For the reasons discussed above, the bankruptcy court's order dismissing the chapter 11 proceedings is AFFIRMED. Because the dismissal was proper, the Court does not reach the remaining issues as those matters are moot. Signed by Judge Michael H. Schneider on 09/23/13. (mll, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TYLER DIVISION
IN RE:

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LEWIE CARL ANDERTON
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Case No. 6:12-cv-548
CONSOLIDATED WITH 6:12CV332
BOT REAL ESTATE LLC
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v.
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LEWIE CARL ANDERTON, et al.,
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Appellees
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MEMORANDUM OPINION AND ORDER AFFIRMING DISMISSAL OF
BANKRUPTCY PROCEEDINGS
The debtor in this case, Lewie Carl Anderton, filed for bankruptcy protection after a state
court entered judgment against him for more than $8 million. When ordered to post a
supersedeas bond equal to half his net worth, Anderton instead filed for bankruptcy protection
under chapter 11 of the U.S. Bankruptcy Code. The debtor failed to propose a plan of
reorganization, so the trustee and BOT Real Estate, LLC, the creditor with the greatest interest in
the bankruptcy estate, jointly proposed a plan. Anderton objected. The bankruptcy court denied
confirmation of the plan and ultimately dismissed the case.
BOT challenges both the bankruptcy court’s rejection of the plan and the dismissal.1
Having carefully considered the parties’ briefing, the record, and the applicable law, the Court

1

 BOT filed two separate appeals. The first appeal challenges the bankruptcy court’s rejection of the proposed plan
of reorganization. See BOT Real Estate LLC v. Anderton, No. 6:12-cv-332. The second appeal challenges the
bankruptcy court’s dismissal order. See BOT Real Estate LLC v. Anderton, No. 6:12-cv-548. The Court granted
BOT’s unopposed motion to consolidate the appeals and designated the above styled action as the lead case.

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AFFIRMS the decision of the bankruptcy court. Accordingly, the remaining issues are moot and
thus are not addressed in this opinion.
I.

BACKGROUND
In 2002, William Cawley and Debtor Lewie Carl Anderton formed two partnerships—

Cascades Properties, Ltd. (Cascades) and Bellwood Lake Partnership, Ltd. (Bellwood) to
develop a residential community and golf course called The Cascades in Tyler, Texas (the
Cascades Development). Over the next several years, the partnerships borrowed millions of
dollars from Park Cities Bank (the Bank), where Cawley was a 10% shareholder, director, and
member of the loan committee.
In January 2008, Anderton executed a $25 million note on behalf of Cascades in favor of
Cawley-PB Funding, LP, an entity affiliated with Cawley. The note was secured by a deed of
trust on Cascades’ real and personal property. In late 2008, Cawley-PB Funding acquired
Cascades’ debt. Just two months later, Cawley-PB Funding sent Cascades a notice of default and
acceleration of the debt. Anderton claims that Cawley caused the Cascades’ default when he
allegedly misapplied funds. At the foreclosure sale, Cawley-PB Funding purchased the
Cascades’ property for the amount of the outstanding debt.
Cawley also established BOT Real Estate, LLC, which ultimately purchased the debt
owed by Bellwood to the Bank. Just one day after paying Bellwood’s 2008 property taxes, the
Bank demanded reimbursement for the tax payment and gave notice of its intent to accelerate the
debt. Less than two weeks later, the Bank assigned the Bellwood debt to BOT. At the foreclosure
sale, BOT purchased the Bellwood property for less than the amount owed, leaving a deficiency
of nearly $8.4 million, personally guaranteed by Anderton.

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In the midst of these transactions, Anderton formed three trusts and also established
Anderton Development Partnership, LP (ADP). Anderton then transferred assets to the trusts, to
ADP, and to his counsel.
In May 2008, Anderton and ADP sued Cawley, BOT, and others in state court, accusing
the defendants of breach of fiduciary duty and civil conspiracy related to the handling of the
Cascades and Bellwood debt and foreclosure sales. BOT and other co-defendants
counterclaimed, seeking to remove Anderton from control of the Cascades and also to recover
the Bellwood deficiency. In April 2010, the state court granted summary judgment in favor of
defendants, dismissing Anderton’s claims and awarding affirmative relief on BOT’s
counterclaim, resulting in an $8.617 million judgment against Anderton.
Anderton and ADP appealed the state court judgment, and the state court ordered
Anderton to post a supersedeas bond equal to half his net worth, rejecting Anderton’s claim that
he had a negative net worth. Anderton did not post the supersedeas bond.
On June 8, 2011, Anderton filed for bankruptcy protection under chapter 11, title 11 of
the U.S. Bankruptcy Code. In mid-September 2011, the bankruptcy court granted BOT’s
unopposed motion to appoint a chapter 11 trustee of Anderton’s bankruptcy estate. When
Anderton did not propose a plan of reorganization, BOT and the trustee jointly proposed a plan
(the BOT Plan). Anderton opposed the BOT Plan.
On February 6, 2012, the bankruptcy court held a hearing to consider confirmation of the
BOT Plan. The matter was not fully heard because Anderton was admitted to the hospital the
night before the hearing. The hearing was continued until March 22, 2012.
In the interim, the trustee filed an adversary proceeding against ADP, Anderton, and his
wife, Louise Anderton, related to the formation of ADT and other entities and the subsequent

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transfer of assets to those entities in late 2008. Attorneys from Andrews & Barth, PC—a creditor
as well as the then-counsel of record for ADP—filed a motion to abate consideration of the BOT
Plan pending resolution of the adversary proceeding and the state appellate court’s consideration
of the state case involving the Cascades Development.
At the March 22, 2012 hearing (the March Hearing), the bankruptcy court heard oral
argument and ordered the following: (1) confirmation of the BOT Plan was denied, (2) the
bankruptcy case was abated pending determination of whether the case should be dismissed with
prejudice, and (3) the parties were ordered to show cause why the case should not be dismissed
with prejudice. While, Anderton, BOT, and the trustee each filed written responses, none of the
other creditors responded to the Court’s order. BOT opposed the dismissal. BOT and the trustee
requested that the proceedings be converted to a chapter 7 case. Anderton supported the
dismissal. Before the court issued its order, the state appellate court reversed the summary
judgments in favor of BOT and remanded to the trial court. On June 21, 2012, the bankruptcy
court dismissed the bankruptcy proceedings with prejudice to Anderton’s right to refile for 24
months.
II.

JURSDICTION
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 158(a)(1).

III.

LEGAL STANDARD
A court may dismiss or convert to chapter 7 a bankruptcy proceeding under chapter 11

when the court finds “cause.” 11 U.S.C. § 1112(b)(1). The statute provides a list of nonexhaustive circumstances which would amount to “cause.” 11 U.S.C. § 1112(b)(4). The
bankruptcy court assesses whether cause exists to dismiss a chapter 11 case based on the totality
of the circumstances. In re Starmark Clinics, LP, 388 B.R. 729, 736 (S.D. Tex. 2008). If the

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court finds cause, then it must determine whether dismissal or conversion to chapter 7 is in the
best interest of the creditors and the estate. 11 U.S.C. § 1112(b)(1).
The district court reviews the decision to dismiss a chapter 11 case under an abuse of
discretion standard. In re Humble Place Joint Venture, 936 F.2d 814, 816 (5th Cir. 1991).
IV.

ANALYSIS
The bankruptcy court did not explicitly state its statutory basis for dismissal. But the

court made a number of findings in its order and also incorporated the findings made on record
during the March Hearing. These findings support the Court’s dismissal.
First, the bankruptcy court concluded that the debtor filed the bankruptcy proceeding for
the improper purpose of seeking protection pursuant to the automatic stay rather than procuring
the supersedeas bond as ordered by the state court. Second, the bankruptcy court found that the
proceedings presented “a continuation of a two-party dispute that has consumed these parties”
rather than a true bankruptcy proceeding designed to protect creditors. The bankruptcy court
concluded that “[t]he circumstances have now fully revealed that this case was, and still is,
driven by this dispute between the Anderton entities and the Cawley entities — it is not about the
general adjustment of debtor-creditor relationships.”
BOT argues that the bankruptcy court abused its discretion in dismissing the bankruptcy
proceeding for the following reasons: (1) the bankruptcy court erred in finding cause to dismiss
the matter, and (2) the bankruptcy court did not consider the best interests of the creditors.
Anderton responds that the dismissal is supported by the record and the applicable law.
The Court agrees.

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A. Cause
The bankruptcy court’s dismissal rests largely on its finding that Anderton filed the
proceedings for an improper purpose: to stay the execution of the state court judgment without
having to procure a supersedeas bond. The bankruptcy court further noted at the March Hearing
that “Anderton has failed miserably” to make a genuine effort toward reorganization. The parties
do dispute that an improper purpose could constitute cause. See, e.g., In re Starmark Clinics, LP,
388 B.R. at 736 (“A debtor's attempt to use the provisions of the Bankruptcy Code to gain an
unfair advantage in a two party dispute strongly supports a finding of cause for dismissal.”).
But BOT argues that the bankruptcy court abused its discretion in so finding because the
court did not hold an evidentiary hearing on the issue. According to BOT, the bankruptcy court’s
conclusion is unsupported by evidence. Also, BOT claims it was prevented from presenting
evidence to show that Anderton was genuinely seeking reorganization.
The Court finds BOT’s argument egregiously inconsistent with its own position. BOT
insists that Anderton filed his bankruptcy petition “in lieu of posting the supersedeas bond.”
Furthermore, at the March Hearing, BOT’s attorney made the following statement: “[W]hat
we’ve seen out of this debtor in this case is nothing but delay. He had four months to file a plan.
He didn’t file a plan. He didn’t file this case in order to reorganize his affairs. If he had, he would
have filed a plan in this case.” Later in the hearing, BOT’s attorney claimed, “They don’t want
this case to come to fruition. They don’t want to reorganize. They only want to buy time until
they can get a ruling out of the appellate court in the state case that they think will be in their
favor, but actually will not resolve anything.” BOT made similar statements in its response to the
court’s show cause order regarding Anderton’s “bad faith” in filing the bankruptcy petition.

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Thus, the very facts relied on by BOT’s attorney to conclude that Anderton’s purpose
was improper were a part of the record and properly before the Court. Anderton’s failure to file a
plan was a matter of record. His opposition to the BOT Plan was also a matter of record. Finally,
Anderton’s support of the proposed abatement was a matter of record. Thus, BOT’s position—in
direct conflict with its earlier statements—is without merit.
Additionally, BOT suggests in its brief that an evidentiary hearing “might have shed light
on the matter” (Doc. No. 8 at 14 (emphasis added)). BOT further complains that it was precluded
from presenting evidence to counter the Court’s conclusion. But the bankruptcy court provided
notice of its intent to dismiss and invited briefing. BOT never clarified to the bankruptcy court—
or as a part of this appeal—what evidence it would proffer to counter the bankruptcy court’s
conclusion. (Conversely, and as discussed above, BOT has consistently argued that Anderton
filed the bankruptcy proceedings for an improper purpose.) See In re Wren Alexander
Investments, L.L.C., slip op., 2013 WL 2421945, at *3 (5th Cir. June 4, 2013) (per curiam)
(noting that a party complaining that the bankruptcy court did not allow it to present evidence,
the party must preserve any error by making an offer of proof).
The bankruptcy court ultimately determined that neither Anderton nor BOT sought to
invoke the bankruptcy court’s authority for a legitimate bankruptcy purpose. As the bankruptcy
court assessed, this case boils down to a dispute between former business partners and their
attempts to recover for alleged financial transgressions. The dispute has spanned multiple forums
including two state trial courts,2 a state appellate court, and the bankruptcy court, both in the
form of a chapter 11 proceeding and an adversary proceeding. But at its heart, it is a dispute

2

 While the bankruptcy case was pending, Anderton filed a second state court case related to the Cascades
Development, this time naming the Bank as a Defendant. 

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between BOT and Anderton related to the Cascades development and the alleged misconduct by
both sides—a matter that is squarely before the state court.
Based on the evidence before it—including the timing of the bankruptcy filing and the
lack of evidence showing Anderton made any effort to genuinely pursue a plan of reorganization,
the bankruptcy court did not abuse it discretion in determining that Anderton did not initiate the
bankruptcy proceedings for a legitimate purpose. Accordingly, the bankruptcy court did not
abuse its discretion in finding cause to dismiss the proceedings.
B. The Interests of the Estate and Creditors
BOT also argues that the bankruptcy court failed to consider the interests of the creditors.
Despite BOT’s position, the bankruptcy court clearly considered and admittedly struggled with
the question of the creditors’ best interests. In the court’s comments at the March Hearing
(incorporated by reference into the order of dismissal), the bankruptcy court weighed the
interests of the creditors in moving ahead with the bankruptcy proceedings versus not
proceeding: “[I]s it in the best interest of creditors and the estate . . . to accept the money that’s
proposed in the [BOT Plan] . . . ? Or is it in the best interest of creditors and/or the estate to
allow the state process to continue in hope that the summary judgment gets reversed and
Anderton’s affirmative claims prevail?” Given the status of the various related proceedings, the
bankruptcy court concluded that it could not determine which would be in the best interest of the
creditors. As did the bankruptcy court, this Court also finds significant that other than BOT, none
of the creditors filed briefs opposing the dismissal, despite the bankruptcy court’s invitation to do
so in its show cause order.3

3

 The Court notes that these “Unaffiliated Creditors,” as referred to by BOT, are not participating in this appeal,
either, with the exception of Andrews & Barth, P.C. Andrews & Barth agree with the dismissal. 

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As suggested in the Court’s comments at the March Hearing, the interests of the nonBOT creditors would improve if Anderton prevailed in the state court matter against BOT. The
bankruptcy court also noted during the hearing that BOT’s support for the BOT Plan would
essentially prevent review of the state court’s summary judgment ruling, thus allowing BOT to
“[walk] away with the fruits of a trial court victory that it might not [have] deserved” and as
previously noted, a victory that would not be in the best interest of the estate or the remaining
creditors. After the March Hearing but before the court issued its order of dismissal, the state
appellate court reversed the state court summary judgment, undermining BOT’s position as a
creditor.
In view of all these circumstances, it is clear that the bankruptcy court carefully
considered the interests of creditors and did not otherwise abuse its discretion in dismissing the
.
bankruptcy proceedings.
V.

CONCLUSION
For the reasons discussed above, the bankruptcy court’s order dismissing the chapter 11

proceedings is AFFIRMED. Because the dismissal was proper, the Court does not reach the
remaining issues as those matters are moot.
It is SO ORDERED.
SIGNED this 23rd day of September, 2013.

____________________________________
MICHAEL H. SCHNEIDER
UNITED STATES DISTRICT JUDGE

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