Guffy v. Brown et al
Filing
126
MEMORANDUM AND ORDER granting 103 Motion for Summary Judgment on Res Judicata, Collateral Estoppel, and Rooker-Feldman Defenses.(Signed by Judge Nancy F Atlas) Parties notified.(TDR, 4)
United States District Court
Southern District of Texas
ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
In re:
BROWN MEDICAL CENTER, INC.,
Debtor.
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ELIZABETH M. GUFFY, Plan Agent, §
Plaintiff,
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v.
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MARSHALL DAVIS BROWN, JR.,
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et al.,
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Defendants.
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June 29, 2017
David J. Bradley, Clerk
CIVIL ACTION NO. 16-0084
Bankruptcy Adversary No. 15-3229
MEMORANDUM AND ORDER
Elizabeth Guffy, the Plan Agent under the confirmed Chapter 11 Plan of
Liquidation in the Brown Medical Center, Inc. bankruptcy, filed this adversary
proceeding seeking to avoid certain attorney’s fee and other payments as fraudulent
transfers under 11 U.S.C. § 548 and the Texas Uniform Fraudulent Transfer Act
(“TUFTA”). The case is now before the Court on the Plan Agent’s Motion for
Summary Judgment on the Brown Defendants’ Res Judicata, Collateral Estoppel, and
Rooker-Feldman Defenses [Doc. # 103], to which the Brown Defendants filed a
Response [Doc. # 110], and the Plan Agent filed a Reply [Doc. # 114]. The Court has
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reviewed the full record and the applicable legal authorities. Based on this review, the
Court grants the Plan Agent’s Motion.
I.
BACKGROUND
Michael Brown, the owner of 100% of the shares of Debtor Brown Medical
Center, Inc. (“BMC”), and his former wife Rachel Brown, were involved in
contentious divorce proceedings beginning in 2010. Rachel Brown was represented
by multiple attorneys, including Marshall Davis Brown, Jr. Plaintiff alleges that BMC
transferred funds indirectly to the Brown Defendants after BMC became insolvent.
In January 2013, Michael Brown filed a voluntary Chapter 11 bankruptcy
petition. On October 15, 2013, his Chapter 11 Trustee filed a voluntary Chapter 11
bankruptcy petition on behalf of BMC. The Bankruptcy Court appointed Plaintiff
Elizabeth Guffy as the Chapter 11 Trustee for BMC. On October 1, 2014, the
Bankruptcy Court confirmed a plan of liquidation in BMC’s bankruptcy case and
appointed Guffy as the Plan Agent.
Plaintiff filed this Adversary Proceeding against Defendants, asserting
fraudulent transfer claims under 11 U.S.C. § 548 and under TUFTA. See Second
Amended Complaint [Doc. # 41]. Plaintiff alleges that the transfers to the Brown
Defendants were the result of constructive fraud in that they were made while BMC
was insolvent and without receiving reasonably equivalent value. By Memorandum
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and Order [Doc. # 15] entered February 3, 2016, this Court withdrew the reference of
this Adversary Proceeding and retained the case on its own docket.
After conducting discovery, the Plan Agent moved for summary judgment on
three affirmative defenses asserted by the Brown Defendants – res judicata, collateral
estoppel, and the Rooker-Feldman defense. The Motion for Summary Judgment on
the three affirmative defenses has been fully briefed, and it is now ripe for decision.
II.
LEGAL STANDARD FOR SUMMARY JUDGMENT
Summary judgment is proper only if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with any affidavits filed in support
of the motion, show that there is no genuine issue as to any material fact, and that the
moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a). The
moving party bears the burden of demonstrating that there is no evidence to support
the nonmoving party’s case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986); Nat’l
Union Fire Ins. Co. v. Puget Plastics Corp., 532 F.3d 398, 401 (5th Cir. 2008). If the
moving party meets this initial burden, the burden shifts to the nonmovant to set forth
specific facts showing the existence of a genuine issue for trial. See Hines v. Henson,
293 F. App’x. 261, 262 (5th Cir. 2008) (citing Pegram v. Honeywell, Inc., 361 F.3d
272, 278 (5th Cir. 2004)). The Court construes all facts and considers all evidence in
the light most favorable to the nonmoving party. Nat’l Union, 532 F.3d at 401.
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III.
AFFIRMATIVE DEFENSES
The state court in the Browns’ divorce proceeding issued several orders for
payment to Marshall Davis Brown, Jr. of reasonable and necessary attorneys’ fees
incurred in his representation of Rachel Brown. See Exhs. N1-N18 to Brown
Defendants’ Motion for Summary Judgment [Doc. # 67]. The Brown Defendants
argue that these orders have res judicata and collateral estoppel effect in this
fraudulent transfer lawsuit. They argue also that the Rooker-Feldman doctrine
precludes the Plan Agent from challenging these orders.
A.
Res Judicata and Collateral Estoppel
“A claim in a subsequent suit will be barred under res judicata principles if: (1)
the prior suit involved identical parties; (2) the prior judgment was rendered by a court
of competent jurisdiction; (3) the prior judgment was a final judgment on the merits;
and (4) the same claim or cause of action was involved in both cases.” Retractable
Techs., Inc. v. Becton Dickinson & Co., 842 F.3d 883, 898 (5th Cir. 2016), cert.
denied, 137 S. Ct. 1349 (2017). The collateral estoppel doctrine requires proof of four
elements: “(i) The issue under consideration in a subsequent action must be identical
to the issue litigated in a prior action; (ii) The issue must have been fully and
vigorously litigated in the prior action; (iii) The issue must have been necessary to
support the judgment in the prior case; and (iv) There must be no special circumstance
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that would render [estoppel] inappropriate or unfair.” Trinity Marine Prod., Inc. v.
United States, 812 F.3d 481, 491 (5th Cir. 2016).
The Plan Agent seeks to avoid certain transfers pursuant to § 548 and TUFTA.
Under § 548(a)(1)(B), a bankruptcy trustee may avoid a transfer that was made within
two years before the date the bankruptcy petition was filed if the debtor “received less
than a reasonably equivalent value in exchange for such transfer or obligation” and
either was insolvent when the transfer was made or became insolvent as a result of the
transfer. See 11 U.S.C. § 548(a)(1)(B); In re Inspirations Imports, Inc., 2014 WL
1410243, *2 (N.D. Tex. Apr. 3, 2014) (citing In re GWI PCS 1 Inc., 230 F.3d 788,
805 (5th Cir. 2000)). Under TUFTA, a transfer made by a debtor is fraudulent if made
“without receiving a reasonably equivalent value in exchange for the transfer or
obligation and the debtor was insolvent at that time or the debtor became insolvent as
a result of the transfer or obligation.” TEX. BUS. & COMM. CODE § 24.006(a).
In its orders awarding attorney’s fees in the Browns’ divorce proceeding, the
state court awarded “reasonable and necessary” fees to Defendant Brown in varying
amounts. Whether the attorney’s fees charged by Defendant Brown in connection
with his representation of Rachel Brown were reasonable and necessary is not an issue
in this fraudulent transfer action. The relevant issue in this case is whether the
transfers to the Brown Defendants were in exchange for reasonably equivalent value
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to BMC. In none of the state court orders was Debtor BMC ordered to pay any
attorney’s fees to Defendant Brown, and in none of the orders did the state court find
that any transfers to Brown in payment of attorney’s fees for representing Rachel
Brown were in exchange for reasonably equivalent value to BMC. Because these
material fact issues in this fraudulent transfer action were not decided in the state court
divorce proceeding, neither res judicata nor collateral estoppel apply to preclude the
Plan Agent’s claims in this lawsuit. The Plan Agent is entitled to summary judgment
on these two affirmative defenses.
B.
Rooker-Feldman Defense
The Rooker-Feldman doctrine “dictates that federal district courts lack subject
matter jurisdiction over lawsuits that effectively seek to overturn a state court ruling.”
Brown v. Taylor, 2017 WL 432795, *2 (5th Cir. Jan. 31, 2017) (citing Exxon Mobil
Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 291 (2005)). This Court may not
hear “cases brought by state-court losers complaining of injuries caused by state-court
judgments rendered before the district court proceedings commenced and inviting
district court review and rejection of those judgments.” Id. (citing Exxon Mobil, 544
U.S. at 284).
The Plan Agent in her fraudulent transfer claims seeks to avoid transfers to
Defendant Brown that she argues were not in exchange for reasonably equivalent
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value. She does not seek direct review and rejection of the state court’s orders.
Indeed, she is neither challenging nor asserting any injury based on the state court
orders in the Browns’ divorce proceeding. As a result, the Rooker-Feldman doctrine
does not apply. The Plan Agent is entitled to summary judgment on the Brown
Defendants’ Rooker-Feldman defense.
IV.
CONCLUSION AND ORDER
The state court orders in the Browns’ divorce proceeding relating to the
payment of Defendant Brown’s attorney’s fees did not involve the same claim or
issues as are present in this fraudulent transfer lawsuit. Therefore, those orders do not
have res judicata or collateral estoppel effect in this case. Additionally, because the
Plan Agent is not challenging the state court orders, the Rooker-Feldman defense does
not apply. As a result, it is hereby
ORDERED that the Plan Agent’s Motion for Summary Judgment on the
Brown Defendants’ Res Judicata, Collateral Estoppel, and Rooker-Feldman Defenses
[Doc. # 103] is GRANTED.
SIGNED at Houston, Texas, this 29th day of June, 2017.
NAN Y F. ATLAS
SENIOR UNI
STATES DISTRICT JUDGE
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