Black
Filing
40
MEMORANDUM OPINION AND ORDER. Black's 32 Motion to Abate Pending Ruling by the Bankruptcy Court is Granted, and this appeal is hereby Stayed. (Signed by Judge John D. Rainey.) Parties notified. (yhausmann, )
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
§
§
CASE NO. 09-20206
§
BNP PETROLEUM CORP. &
CASE NO. 09-20612
§
BNP OIL & GAS PROPERTIES, LTD.,
(Chapter 7)
§
§
JOINTLY ADMINISTED UNDER
Debtors,
§
CASE NO. 09-20206
§
______________________________________________________________________________
In Re:
§
§
§
§
§
§
§
§
§
§
§
§
PAUL BLACK, et al.,
Appellants,
v.
MICHAEL B. SCHMIDT, Trustee,
TOBY SHOR, SEASHORE
INVESTMENTS MGMT. TRUST, &
2004 GRAT,
Appellees.
CIVIL ACTION NO. 2:11-CV-258
MEMORANUM OPINION & ORDER
This appeal arises from the Bankruptcy Court’s entry of a Final Sale Order approving the
Joint Sale Motion and the Sale and Conveyance of Estates’ Rights, Settlement Agreement, and
Mutual Release between Appellees Toby Shor, Seashore Investments Management Trust, and
2004 GRAT (collectively “Seashore”) and the Chapter 7 Trustee (the “Trustee”) of the estates of
the above-captioned debtors (the “Debtors”). Now pending before the Court is Appellant Paul
Black’s Motion to Abate Pending Ruling by the Bankruptcy Court (Dkt. No. 32), which the
Court will construe as a motion to stay the appeal. The Trustee and Seashore have responded to
Black’s motion (Dkt. Nos. 35 & 36, respectively), Black has replied (Dkt. No. 37), and Seashore
has filed a supplemental response (Dkt. No. 39).
1
I. Background
On April 3, 2009, three major oil and gas service providers filed an involuntary petition
against Debtor BNP Petroleum Corporation (“BNP Petroleum”) under Chapter 7 of the United
States Bankruptcy Code in the Bankruptcy Court. On August 5, 2009, BNP Petroleum moved to
convert its case to Chapter 11, after which the Bankruptcy Court entered an order converting
BNP Petroleum’s case to Chapter 11. On September 22, 2009, Debtor BNP Oil & Gas
Properties, Ltd. (“BNP Oil & Gas”) filed a voluntary petition under Chapter 11. On October 13,
2010, the Bankruptcy Court granted Seashore’s motion to convert the Debtors’ cases to Chapter
7 for cause and appointed Michael B. Schmidt as the Trustee of the Debtors’ Chapter 7 estates.
The BNP Petroleum and BNP Oil & Gas cases are jointly administered in the Bankruptcy Court.
While the Debtors’ bankruptcy cases were pending, and pursuant to an order of the
Bankruptcy Court lifting the automatic stay with respect to BNP Oil & Gas for such purpose,
Seashore pursued its claims against BNP Oil & Gas and other Black Entities1 in an Arbitration
Proceeding styled PBF Investments, et al. v. Toby Shor and Seashore Investments Management
Trust, AAA Arbitration No. 70-198-Y00161-09 (AAA Dallas, TX), whereby Seashore alleged
causes of action for breach of promissory notes between Seashore and the Black Entities along
with fraud and various tort claims. On August 17, 2010, following several weeks of trial, the
1. The “Black Entities” are defined in the Seashore Sale Agreement to include Appellant Paul Black,
certain family members of Paul Black, and a number of entities owned, controlled, or otherwise connected to Paul
Black, including Land & Bay Gauging, LLC (“Land & Bay”), SGW Interests, LLC (“SGW”), BNP Operating, LLC
(“BNP Operating”), 5302 Mandell Property, LP (“Mandell Property”), 5302 Mandell Property I, LLC (“Mandel
Property LLC”), BNP Commercial Properties, LLC (“BNP Commercial”), BNP Commercial Properties, Ltd
(Commercial Ltd”), HBP Ltd. (“HBP”), HBP Partners, Ltd. (“HBP Partners”), BNP Networks, LLC (“BNP
Networks”), 500 N. Water, LLC (“N. Water”), 5262 Staples, LLC (“Staples”), BNP Holdings, Ltd. (“BNP
Holdings”), 500 N. Water St. Property I, LLC (500 N Water), 500 N. Water St. Property, LP (N Water LP), 5262
Staples, Ltd (Staples Ltd), 5262 GP, LLC (Staples GP), 5262 Staples II, Ltd (Staples II, Ltd), 5262 Staples GP II,
LLC (Staples II LLC), Bistro CP, LLC (“Bistro”), Black Commercial Holding, LLC (“Commercial Holdings”),
Black Energy Resources Co. (Black Energy”), BNP Exploration Company (BNP Exploration”) CCEX, LLC
(“CCEX”), Intrepid Oil & Gas, LLC (“Intrepid”), PBF Investments, Ltd (“Investments”), RPH Financial
Investments Corp (“RPH”), TSE Equities I, LLC (“TSE”), James Black, III (“Black, III”), James Black, IV (“Black
IV”), Wendy Bennett (“Bennett”).
2
Arbitration Panel entered an Arbitration Award providing Seashore with an award of over $26
million against BNP Oil & Gas and over $30 million against the Black Entities, including an
award of $5 million in exemplary damages against Appellant Paul Black based on findings of
fraud and violations of fiduciary duty. Seashore then obtained a final judgment on the Arbitration
Award in County Court at Law No. 3 in Nueces County, Texas on April 6, 2011. On August 8,
2011, the State Court entered an order requiring the turnover of certain non-exempt assets of
Paul Black.
Meanwhile, on June 1, 2010, the Trustee commenced an action against Seashore and the
Black Entities (“Trustee Suit”) by filing a Complaint alleging causes of action for: actual and
constructive fraudulent transfers under state and federal law, conversion, breach of fiduciary
duty, turnover of estate property, equitable subordination, and aiding and abetting. In response,
Seashore filed a counterclaim against the Trustee pursuant to Texas Business & Commerce Code
§ 24.013 for the payment of legal fees that Seashore has incurred. The Trustee initially
negotiated a settlement of the Trustee Suit with Black dated June 8, 2011 (“Black Settlement”).
The Trustee announced the Black Settlement before the Nueces County Court at Law No. 3,
stating he would file a motion for approval by the Bankruptcy Court on an expedited basis.
Shortly thereafter, on June 24, 2011, the Trustee executed a separate settlement
agreement with Seashore, providing for the Trustee’s sale to Seashore of all claims held by the
Debtors’ estates against the Black Entities and a settlement of claims between the Trustee and
Seashore (“Seashore Sale Agreement”). Specifically, the Seashore Sale Agreement provided for
Seashore to pay to the Trustee the sum of $216,000; Seashore to share recoveries with the
Trustee that it obtains from the Black Entities, up to a cap of $1,750,000; and mutual releases
between the Trustee and Seashore and the dismissal with prejudice of the claims pending
between those Parties. The Trustee concluded that the Seashore Sale Agreement provided the
3
Debtors’ estates with higher and better value than the Black Settlement Agreement. Thus, on
June 28, 2011, the Trustee and Seashore filed their Joint Sale Motion to approve the Seashore
Sale Agreement in the Bankruptcy Court. In response, Black filed a Motion to Compel the
Trustee to seek approval of the Black Settlement Agreement.
On July 26, 2011, following full evidentiary hearings, the Bankruptcy Court entered
detailed Findings of Fact (FOF) and Conclusions of Law (COL) and a separate Final Sale Order.
In its FOF/COL, the Bankruptcy Court approved the Seashore Sale Agreement, concluding that
it was fair and reasonable and was negotiated in good faith between the Trustee and Seashore.
The Bankruptcy Court also expressly disapproved the Black Settlement and a last-minute
informal proposal from Paul Black’s close friend, Walter Oblach.
On August 2, 2011, Paul Black and the Black Entities filed a Notice of Appeal of the
Final Sale Order seeking to dissolve the Seashore Sale Agreement and substitute another
agreement in its place—either the Black Settlement or the offer from Mr. Oblach. That same day,
Black filed an Emergency Expedited Motion Seeking Stay Pending Appeal with this Court. The
Court temporarily granted Black’s motion pending further order of the Court, explaining that it
was currently presiding over a jury trial and needed more time to thoroughly consider the
motion. However, after fully considering Black’s motion, on September 1, 2011 the Court issued
a second order annulling and terminating the previously-issued stay.
At the present time, the appeal has been fully briefed. Seashore has also moved to dismiss
the appeal, to which Black has responded. Both Black’s appeal and Seashore’s motion to dismiss
are pending and ripe for ruling; however, before the Court could rule on either, Black filed a
Motion to Set Aside Seashore [Sale] Agreement with the Bankruptcy Court, which is actually a
motion for relief from judgment or order under Federal Rule of Civil Procedure 60. In sum,
Black’s motion alleges that the Bankruptcy Court’s approval of the Seashore Sale Agreement
4
was fraudulently obtained after Seashore concealed from the Bankruptcy Court that Seashore and
its attorneys: (1) were seeking a turnover order from Nueces County Court at Law No. 3 that
would illegally convey ownership of certain Black Entities directly to Seashore; (2) had entered
into an agreement with the Canales Group, who oversaw the Black children’s trust, whereby
Seashore would convey to them 10% of its recoveries from Black on the Arbitration Award; and
(3) had convinced a limited partner of Black to breach fiduciary duties to Black by agreeing not
to assist Black but to instead affirmatively provide Seashore with material assistance in its
collection efforts.
According to Black, if the Bankruptcy Court grants the relief requested in his Motion to
Set Aside, then his appeal currently pending before this Court will be moot. As such, Black now
asks the Court to stay the appeal until such time that the Bankruptcy Court rules on his Motion to
Set Aside.
II. Analysis
A. Jurisdiction
Seashore first argues that there is no reason to abate this appeal in deference to Black’s
Motion to Set Aside before the Bankruptcy Court because the Bankruptcy Court lacks
jurisdiction to consider Black’s motion.
“It is a fundamental tenet of federal civil procedure that—subject to certain, defined
exceptions—the filing of a notice of appeal from the final judgment of a trial court divests the
trial court of jurisdiction and confers jurisdiction upon the appellate court.” In re Transtexas Gas
Corp., 303 F.3d 571, 578–79 (5th Cir. 2002) (citing Griggs v. Provident Consumer Co., 459 U.S.
56, 58 (1982)). “This rule applies with equal force to bankruptcy cases.” Id. (citing In re
Statistical Tabulating Corp., Inc., 60 F.3d 1286, 1289 (7th Cir. 1995)).
5
Once the notice of appeal has been filed, a bankruptcy court may consider or deny a Rule
60 motion; however, it no longer has jurisdiction to grant such a motion while the appeal is
pending. See Shepherd v. International Paper Co., 372 F.3d 326, 329 (5th Cir. 2004). If the
bankruptcy court is inclined to grant the Rule 60 motion, then it must obtain the leave of the
district court. See Id. “‘Without obtaining leave, the [bankruptcy court] is without jurisdiction,
and cannot grant the motion.’” Id. (quoting Winchester v. United States Atty. for S.D. of Tex., 68
F.3d 947, 950 (5th Cir. 1995) (emphasis in Shepard)). If the bankruptcy court “‘indicates that it
will grant the motion, the appellant should then make a motion in the [district court] for a remand
of the case in order that the [bankruptcy] court may grant such motion.’” See Id. (quoting
Winchester, 68 F.3d at 949). See also FED. R. CIV. P. 62.1.
Thus, although Black must move this Court to remand in the event the Bankruptcy Court
indicates that it will grant his Motion to Set Aside, Seashore’s argument that the Bankruptcy
Court is without jurisdiction to even consider Black’s Motion to Set Aside is incorrect.
B. Futility
Seashore next argues that the Court should not abate the appeal because Black’s Motion
to Set Aside is futile and nonmeritorious. Specifically, Seashore claims that Black’s Motion to
Set Aside: (1) is untimely under FED. R. CIV. P. 60(c)(1); (2) contains allegations that are
unsupported by evidence, and, even if true, fail to impact or undermine the vast majority of the
grounds given by the Bankruptcy Court for approving the Seashore Sale Agreement; (3) turns on
state law issues related to state court proceedings that are still pending; and (4) relies on evidence
gathered through misuse of a prior, unrelated hearing before the Bankruptcy Court.
Black acknowledges that motions brought pursuant to Rules 60(a)(1), (a)(2), and (a)(3)
must be filed within one year after entry of the judgment or order in question—in this case, July
26, 2011. However, Black explains that because his motion seeks to set aside the order approving
6
the Seashore Sale Agreement based on fraud on the Bankruptcy Court under Rule 60(d)(3)
and/or “any other reason that justifies relief” under Rule 60(b)(6), his motion need only be
brought within a “reasonable time.” See FED. R. CIV. P. 60(c)(1). Black further argues that it is
the Bankruptcy Court’s responsibility to determine whether the Motion to Set Aside was brought
within a reasonable time and whether there is any merit to its allegations of fraud on the
Bankruptcy Court that would justify setting aside the Seashore Sale Agreement. See Hazel-Atlas
Glass Co. v Hartford Empire Co., 322 U.S. 238, 240–43 (1944), overruled on other grounds by
Standard Oil Co. v. United States, 429 U.S. 17 (1976) (“After a hearing the Circuit Court
concluded that, since the alleged fraud had been practiced on it rather than the District Court, it
would pass on the issues of fraud itself instead of sending the case to the District Court.”).
Because Black’s Motion to Set Aside was filed with the Bankruptcy Court, alleges that
fraud has been committed on the Bankruptcy Court, and asks the Bankruptcy Court to set aside
its own prior order, the Court finds that the proper entity to determine whether Black’s Motion to
Set Aside is timely and/or meritorious is the Bankruptcy Court.
C. Prejudice caused by delay
Finally, Seashore argues that delay in the appeal would prejudice the Parties and the
bankruptcy estate. Specifically, the estate will be prejudiced because the release of $216,000 due
to the Trustee as consideration for the Seashore Sale Agreement cannot occur until the settlement
is no longer subject to appeal. Furthermore, any delay due to abatement would be even longer
given that Black initially filed his Motion to Set Aside in the adversary proceeding, not in the
main bankruptcy case.
Black admits that he originally filed his Motion to Set Aside in Adversary Case No. 1002022 on December 11, 2012; however, based on concerns that the motion should have been
7
filed in the main bankruptcy case as well, Black re-filed an identical motion in the main
bankruptcy case on January 1, 2013.
Given that Black re-filed his Motion to Set Aside within three weeks of the original
filing, the Court finds that there should be no undue delay caused by this misfiling. Moreover,
although $216,000 remains in escrow until the Seashore Sale Agreement is no longer subject to
appeal, the bankruptcy itself is not stayed pending appeal. Seashore is free to pursue its
collection efforts against the Black Entities, and the Trustee is free to sell certain assets of the
Debtors’ estates. As such, staying this appeal until the Bankruptcy Court considers Black’s
Motion to Set Aside will not unduly prejudice the estate.
IV. Conclusion
For the reasons set forth above, Black’s Motion to Abate Pending Ruling by the
Bankruptcy Court (Dkt. No. 32) is GRANTED, and this appeal is hereby STAYED.
If the Bankruptcy Court indicates that it will grant Black’s Motion to Set Aside, Black
shall move this Court for a remand of the case in order that the Bankruptcy Court may grant his
motion. See FED. R. CIV. P. 62.1; Shepherd, 372 F.3d at 329.
If the Bankruptcy Court denies Black’s Motion to Set Aside, the Parties shall
immediately notify this Court, and the stay shall be lifted.
It is so ORDERED.
SIGNED this 27th day of February, 2012.
____________________________________
JOHN D. RAINEY
SENIOR U.S. DISTRICT JUDGE
8
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?