Assadi v. Osherow et al
Filing
28
MEMORANDUM OPINION AND ORDER. Signed by Judge Lee Yeakel. (cc3)
Case 1:21-cv-00489-LY Document 28 Filed 05/04/22 Page 1 of 12
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
FILED
MAy
4 2022
CC
IN RE: MOHAMMAD REZA ASSADI, §
DEBTOR,
DPt
§
§
MOHAMMAD REZA ASSADI,
APPELLANT,
§
V.
CAUSE NO. 1:21-CV-489-LY
BANKRUPTCY NO. 20-10766-TMD
§
§
§
RANDOLPH N. OSHEROW, AS
CHAPTER 7 TRUSTEE, AND AMIR
BATOEI,
APPELLEES.
§
§
§
§
MEMORANDUM OPINION AND ORDER
This case arises from Appellant Mohammad Reza Assadi's appeal of the following
orders of the United States Bankruptcy Court: (1) Order Granting Trustee's Motion to
Compromise and Settle Claims with Amir Batoei Pursuant to Bankruptcy Rule 9019, (2) Order
Denying Motion to Reconsider Motion to Disqualify; and (3) Order Sustaining in Part and
Denying in Part Objection to Claim Nos. 9-2, 10-1 and 11-1.
Before the court are pro se Appellant Assadi's Brief filed August 17, 2021 (Doc. #11)
and Appellee Randolph N. Osherow' s Brief filed September 16, 2021 (Doc. #16). On December
2, 2021, the court entertained oral argument, at which all parties appeared either in person or
through counsel.
Having carefully considered the filings, argument, and applicable law, the
court concludes that the above referenced bankruptcy court's orders should be affirmed for the
reasons to follow.
I.
Factual Background
Appellant Mohammad Reza Assadi was the owner or principal in charge of several
automobile and real estate businesses, including Roblan, LLC ("Roblan"), Gidland Corp.
("Gidland"), Landmag Corp., F&F Operating Company, LLC ("FOC"), and F&F Family, LP
RI
Case 1:21-cv-00489-LY Document 28 Filed 05/04/22 Page 2 of 12
("F&F LP"). On July 7, 2020, Assadi filed for bankruptcy following a judgment rendered jointly
and severally against Assadi, FOC and F&F LP in Texas state court.
Assadi appealed the
judgment to the Texas Third Court of Appeals, but the appeal was stayed after Assadi filed for
bankruptcy. Assadi now appeals three orders of the bankruptcy court.
Austin Property
In early 2015, Assadi told Appellee Amir Batoei that he was down on his luck and
needed loans for his businesses.
That spring, Assadi drafted documents for Batoei to form
Family AB Austin FebS, LP ("AB Austin"), which borrowed $363,500 from Ozona National
Bank ("Ozona Bank") to pay off debt on property in Austin at Sunrise Terrace (the "Austin
Property") titled in Assadi's company, Roblan. Batoei signed a personal guaranty to Ozona
Bank.
AB Austin signed a Deed of Trust to Ozona Bank encumbering the land.
Roblan
transferred the property by General Warranty Deed with Vendor's Lien to AB Austin.
Assadi promised Batoei that he would pay the note to Ozona Bank and, on May 28, 2015,
Assadi presented Batoei with a document he prepared, entitled "Special Warranty Deed with
Vendor's Lien," whereby AB Austin would convey the Austin Property to Assadi in exchange
for a vendor's lien. However, the deed purporting to grant Batoei a vendor's lien was devoid of
any vendor's lien language in the body of the document. Assadi promised that he would not
record the special warranty deed until Ozona Bank and Batoei had been repaid in full. Batoei
signed the deed and gave it to Assadi, who retained the original signed document. Assadi did
not record the deed until October 2018, but did so before the Ozona Bank note had been fully
paid.
2
Case 1:21-cv-00489-LY Document 28 Filed 05/04/22 Page 3 of 12
Lee County Properties
In summer 2015, Assadi asked for Batoei's help in paying a debt Assadi owed that was
secured by a lien on approximately 92 acres of real property located on County Road 103 in Lee
County, Texas, consisting of seven separate but contiguous tracts of land (the "Lee County
Properties"). The Lee County Properties were owned by Assadi's company, Gidland. Similar to
the prior transaction, Assadi prepared documents for Batoei to form Lee AB Land, LLC ("Lee
AB") that on August 25, 2015, borrowed $371,200 from Round Top State Bank ("Round Top
Bank") to pay off Gidland's debt on the properties. Batoei signed a personal guaranty to Round
Top Bank. Lee AB signed a Deed of Trust to the bank securied by the Lee County Properties.
Gidland transferred the Lee County Properties by Warranty Deed to Lee AB.
Assadi informed Batoei that Assadi would pay the note to Round Top Bank and
presented a document entitled "Special Warranty Deed with Vendor's Lien" that Assadi had
prepared whereby Lee AB would convey the Lee County Properties to Assadi, individually, in
exchange for a vendor's lien in favor of Batoei. However, the language providing Batoei with a
vendor's lien was not in the document. Assadi promised that he would not record the special
warranty deed until Round Top Bank and Batoei had been repaid in full. Batoei signed the deed
and gave it to Assadi, who retained the original, signed document. Assadi did not record the
deed until October 2018, but did so before the debt to Round Top Bank was fully paid.
Between October 2015 and September 2018, Assadi sold four tracts of the Lee County
Properties and the net sales proceeds were delivered to Round Top Bank in partial payment of
the loan. Despite Assadi's agreements to pay the Ozona Bank and Round Top Bank loans, most
of those payments were made by Batoei. As a result, a dispute arose between Assadi and Batoei.
C]
Case 1:21-cv-00489-LY Document 28 Filed 05/04/22 Page 4 of 12
The State-Court Lawsuit
On October 1, 2018, Assadi recorded the special warranty deeds to the Austin Property
and Lee County Properties and also recorded deeds transferring the properties to Assadi's
personal company, F&F LP. As a result, F&F LP became the record owner of real estate that
was previously owned by AB Austin and Lee AB, each of which was primarily obligated on
loans to Ozona Bank and Round Top Bank respectively, and for which Batoei was obligated as a
guarantor.
Batoei, Austin AB, and Lee AB had paid for the properties and were obligated to
continue paying the mortgages, but title was held by F&F LP.
On October 19, 2018, Batoei, Lee AB, and AB Austin (together, the "Batoei Creditors")
filed a lawsuit styled Amir Batoei, et al.
v.
Mohammad Assadi, et al., Cause No. D- 1 -GN- 18-
006408 in the 353rd Judicial District Court of Travis County, Texas against Assadi; F&F LP;
and FOC, the general partner of F&F LP (the "state-court lawsuit").
In October 2018, Batoei paid off the note to Round Top Bank. The bank then transferred
the debts and the lien on the Lee County Properties to Batoei.
After filing the state-court lawsuit, the Batoei Creditors recorded a
us pendens
in Lee and
Travis Counties to identify the property interests in dispute owned by Assadi; F&F Family, LP;
and F&F Operating Company, LLC. Trial on the state-court lawsuit was set for February 3,
2020. On January 24, 2020, less than two weeks before the trial, Assadi caused F&F LP to
transfer the Austin Property and Lee County Properties back to himself The deed records in
both Travis and Lee Counties, therefore, reflected Assadi as record owner of the properties.
On March 12, 2020, the state court granted judgment against Assadi; F&F LP, and FOC,
which was subsequently modified on March 27, 2020. The Modified Final Judgment granted
judgment for $742,824.18 ($805,508.29 after interest charges and appeal charges) jointly and
Case 1:21-cv-00489-LY Document 28 Filed 05/04/22 Page 5 of 12
severally against all three defendants. Also, the Modified Final Judgment granted the Batoei
Creditors a vendor's lien in the Austin Property and Lee County Properties in the amount of
$413,091.91. This resulted in Batoei holding a total claim against the bankruptcy estate for
$742,824.18, comprised of a secured claim of $413,091.91 and an unsecured claim of
$329,732.27. Batoei is the largest secured and unsecured creditor in the bankruptcy case.
Assadi individually appealed the judgment in the state-court lawsuit to the Texas Third
Court of Appeals, but F&F LP, and FOC did not appeal the judgment. Thus, the state-court
judgment is final as to F&F LP and FOC. Assadi's appeal has been stayed due to the bankruptcy
filing.
Bankruptcy Proceedings
On July 7, 2020, Assadi filed a voluntary petition under Chapter
11
of the United States
Bankruptcy Code. The case was involuntarily converted to Chapter 7 on September 14, 2020,
and Randolph Osherow was appointed as Chapter 7 Trustee. On September 29, 2020, Assadi
filed an appeal of the order converting the case to Chapter 7, which this court affirmed on March
9,2021. This court's ruling was upheld by the Fifth Circuit on October 19, 2021.
Other than Assadi's Lee County Properties and Travis County Property, the bankruptcy
estate had little or no other assets of any significant value. Thus, Osherow had no funds until the
properties were sold. During the pendency of the bankruptcy case, numerous legal and factual
controversies arose between and among Osherow, Batoei, and Assadi.
Osherow and Assadi
Assadi demanded Osherow continue Assadi's appeal of the state-court lawsuit, arguing
that prosecution of the appeal would greatly reduce or even eliminate the judgment held by
Batoei against Assadi.
Osherow was successful in reducing the state-court judgment from
5
Case 1:21-cv-00489-LY Document 28 Filed 05/04/22 Page 6 of 12
$805,508.29 to $506,116.63 due to duplicative claims.
However, he determined that the
likelihood of prevailing on a full appeal was low and the appeal would not be worth the risk and
expense involved. Once Osherow sold the Travis County Property and Lee County Properties,
the balance owed to Ozona Bank was paid and the bankrpucty estate received dollar for dollar
credit paid to Ozona Bank.
Osherow also determined that the Rooker-Feidman doctrine 1
prevented pursuing a further reduction of the state-court judgment in bankruptcy proceedings.
Assadi also demanded that Osherow prosecute a pending lawsuit against Batoei
regarding alleged violations of a management agreement between the two parties, Mohammad
Reza Assadi
v.
Amir Batoei, et al., Cause No. D- 1 -GN- 19-007501, in the 353rd Judicial District
Court of Travis County, Texas. Osherow determined that the issues were complicated and that
the lawsuit would have been costly and time consuming.
Osherow was concerned that the
management agreement between Batoei and Assadi was unauthorized and determined that
discontinueing the suit was in the best interest of the estate.
Osherow then abandoned the
lawsuit, giving Assadi full control over its prosecution.
Osherow and Batoei
In addition to the secured nature of the claims, Batoei asserted that the Travis County
Property and Lee County Properties were fully subject to Batoei's judgment lien, arguing that he
held equitable rights in the properties:
Property in which the debtor holds, as of the commencement of the case, only
legal title and not an equitable interest . . . becomes property of the estate under
subsection (a)( 1) or (2) of this section only to the extent of the debtor's legal title
to such property, but not to the extent of any equitable interest in such property
that the debtor does not hold.
11
U.S.C. § 541(d) (2016).
For a discussion of the Rooker-Feldman doctrine, see Exxon Mobil Corp. v. Saudi Basic
Industries Corp., 544 U.S. 280, 284-85 (2005) (citing Rooker v. Fidelity Trust Co., 263 U.S. 413
(1923) and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983)).
I
Case 1:21-cv-00489-LY Document 28 Filed 05/04/22 Page 7 of 12
Batoei further argued that the estate held only bare legal title to the properties, rendering
the properties valulesss to the estate.
See In re
MCZ,
Inc.,
82 B.R. 40, 42 (Bankr. S.D. Tex.
1987) ("[w]here Debtor merely holds bare legal title to property as agent or bailee for another,
Debtor's bare legal title is of no value to the estate, and Debtor should convey the property to its
rightful owner"). In addition, Batoei objected to the sales of the properties. Osherow reached an
agreement with Batoei to sell both properties.
Orders at Issue
On May 4, 2021, the bankruptcy court rendered an order granting Osherow' s motion to
compromise and settle claims with Batoei. The court found that the proposed compromise and
settlement was equitable, would allow the estate to improve its financial outlook, and would pay
offal! relevant debts.
Also on May 4, 2021, the bankruptcy court rendered an order sustaining in part and
denying in part Assadi's objections to the creditors' claims, reducing Batoei's state-court
judgment claim from $805,508.29 to $506,116.63.
The court sustained objections that the
claims were duplicative but overruled other objections raised by Assadi.
Finally, on May 17, 2021, the bankruptcy court rendered an order denying Assadi's
motion to reconsider his motion to disqualify the bankruptcy judge. The order was proceeded by
a January 19, 2021 hearing, during which the court explained its reasoning for denying the initial
motion for disqualification.
II.
Standard of Review
District courts review bankruptcy court approvals of motions to compromise for abuse of
discretion.
In re
Emerald Oil Co., 807 F.2d 1234, 1239 (5th Cir. 1987).
Denial of the
bankruptcy court's recusal motion is also reviewed for abuse of discretion. 28 U.S.C.
7
§
455(a);
Case 1:21-cv-00489-LY Document 28 Filed 05/04/22 Page 8 of 12
US.
v.
Anderson, 160 F.3d 231, 233 (5th Cir. 1998). Bankruptcy court findings of fact are
reviewed by the district court for clear error and conclusions of law are reviewed de novo. In re
Mandel, 578 Fed.Appx. 376, 382 (5th Cir. 2014).
III.
Analysis
Order Granting Motion to Compromise and Settle Claims
The bankruptcy court acted within its discretion when it approved Osherow's motion to
compromise and settle claims with Batoei.
Rule 9019 of the Federal Rules of Bankruptcy
Procedures tasks bankruptcy courts with reviewing and approving settlements between the
parties. Approval is at the discretion of the court, so long as the settlement is fair and equitable
and in the best interest of the estate. Matter of Beach, 731 Fed.Appx. 322, 325 (5th Cir. 2018).
In appraising a motion to compromise, a bankruptcy judge must evaluate five factors: (1)
the probability of success in the litigation, with due consideration for the uncertainty in fact and
law; (2) the complexity and likely duration of the litigation and any attendant expense,
inconvenience and delay; (3) the paramount interest of the creditors and a proper deference to
their respective views; (4) the extent to which the settlement is truly the product of arm's-length
bargaining and not fraud or collusion; and (5) all other factors bearing on the wisdom of the
compromise. The Cadle Co.
v.
Mims (In re Moore), 608 F.3d 253, 263 (5th Cir. 2010); In re
Jackson Brewing, 624 F.2d 605, 607-08 (5th Cir. 1980). In considering a compromise, the court
should give weight to the views of experienced counsel for the parties. Cotton
v.
Hinton, 559
F.2d 1326, 1330 (5th Cir. 1977).
The bankruptcy court properly considered all factors in approving the compromise at
issue. First the court found that the probability of success in litigation was low due to the state
court's consideration of the issue and large award in favor of the Batoei Creditors. The court
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Case 1:21-cv-00489-LY Document 28 Filed 05/04/22 Page 9 of 12
properly credited Osherow's evaluation of the pending appeal and its low likelihood of reducing
or overturning the judgment. Next, the court expressed agreement with Osherow's contention
that pursuing litigation would be costly and time consuming. Third, the court found it clear that
the proposed settlement would benefit the creditors and was negotiated at arm's length between
the creditors and an independent trustee.
Finally, the court concluded that the compromise
would result in payment to all creditors and a chance for Assadi to move forward with a fresh
start and a surplus of funds from the estate. The bankruptcy court carefully reviewed the motion
for compromise and Assadi's objections, accurately applied the law, and acted within its
discretion in granting Osherow's motion.
Order Denying Motion to Reconsider Motion to Disqualify
The bankruptcy court acted within its discretion when it denied Assadi's motion to
reconsider his earlier motion to disqualify. A judge must disqualif' himself in any proceeding in
which his impartiality might be questioned or there might be an appearance of partiality. 28
U.S.C.
§
455(a). A movant seeking disqualification bears the burden of proving impartiality by
clear and convincing evidence. Kinnear-Weed Crop.
v.
Humble Oil & Refining Co., 441 F.2d
631, 634 (5th Cir. 1971). The relevant test is whether a reasonable person with knowledge of the
relevant facts would conclude that a judge's impartiality might reasonably be questioned.
Caperton
v. A.
T Massey Coal Co., 556 U.S. 868, 889 (2009).
In the hearing on disqualification, the court addressed each of Assadi's arguments in
turn: (1) that Assadi was not given adequate time to prepare or argue, (2) that the court displayed
personal bias against Assadi, and (3) that the courts findings and orders favored the positions
argued by Mr. Ritter, the Batoei Creditors' attorney. In his brief in support of this appeal, Assadi
made several additional arguments. First, Assadi argues that the court displayed bias when it
Case 1:21-cv-00489-LY Document 28 Filed 05/04/22 Page 10 of 12
converted his Chapter
11
case to a Chapter 7 case.
The decision was appealed by Assadi,
affirmed by this court, and subsequently upheld by the Fifth Circuit. The conversion was wellsupported by the record and the bankruptcy court's order reveals no bias.
Assadi's second
argument is that the court did not allow Assadi sufficient time to find an attorney prior to the
case being converted to Chapter 7. The record shows that over two months passed between
Assadi's Chapter
11
filing and the conversion hearing.
Finally, Assadi argues that the
bankruptcy court's refusal to allow Assadi to sell substantially all of the estate's assets early on
in the bankruptcy proceedings reveals bias. The record reveals significant questions regarding
the status of the title of the property Assadi sought to sell. The bankruptcy court's denial of
Assadi's request to sell potentially encumbered assets reveals no bias.
Assadi fails to establish a lack of bankruptcy court impartiality or the appearance of
impartiality by clear and convincing evidence. The bankruptcy court acted within its discretion
in denying the motion to reconsider.
Order Sustaining in Part and Denying in Part Objection to Claim Nos. 9-2. 10-1 and 11-1
The bankruptcy court properly sustained in part and denied in part Assadi's objections to
claims filed by the Batoei Creditors. Assadi argues on appeal that this order was made with
actual malice and reckless disregard for the truth but fails to raise any legal or factual errors
made by the court with any specificity. By failing to adequately brief his appeal of this order,
Assadi has abandoned it. Ramirez v. Escajeda, 921 F.3d 497 (5th Cir. 2019). Even if this court
were to evaluate Assadi's initial objections, it would find no error by the bankruptcy court in
overruling Assadi's objections. Assadi argued, inter alia, that the Batoei Creditors' claims were
invalid because (1) the state-court judgment was not final because of a pending appeal, and (2)
the exact amount of the claims were disputed and unclear. In his initial objections, Assadi also
10
Case 1:21-cv-00489-LY Document 28 Filed 05/04/22 Page 11 of 12
raised an objection that he was not served the relevant proofs of claims. This objection was
sustained but later mooted.
In a claim-objection proceeding, a valid proof of claim serves as prima facie evidence of
the validity and amount of the claim. Fed. R. Bankr. P. 3001(f). A claim supported by this proof
prevails unless the objecting party produces evidence to rebut the claim. In re Fidelity Holding
Co., Ltd., 837 F.2d 696, 698 (5th Cir. 1988). The Bankruptcy Code outlines nine exceptions that
might support an objection.
11
U.S.C.
§
502(b) (2016 & Supp. 2021).
The first and only
potentially relevant objection is for claims that are "unenforceable against the debtor and
property of the debtor, under any agreement or applicable law for a reason other than because
such claim is contingent or unmatured." Id.
In Texas, a judgment is final despite the pendency of an appeal unless the appeal actually
consists of a trial de novo. Scurlock Oil Co.
v.
Smithwick, 724 S.W.2d 1, 6 (Tex. 1986). Any
argument that the state-court judgment is not enforceable against Assadi runs afoul of the
Rooker-Feidman doctrine.
The Rooker-Feldman doctrine prevents district courts, including
bankruptcy courts, from reviewing and rejecting judgments rendered by state courts before the
district court proceedings commenced. Exxon Mobil Corp., 544 U.S. at 284; In re Healey, 2017
WL 4863014, at *4 (Bankr. E.D Tex. Oct. 25, 2017). Because the state-court judgment is final
and unsuperceded, the bankruptcy court properly overruled Assadi's first objection. Because
Assadi presented no evidence rebutting claimant's proofs of claim, his second objection was also
properly overruled.
This court finds no error in the bankruptcy court's Sustaining in Part and Denying in Part
Objection to Claim Nos. 9-2, 10-1 and
il-i.
11
Case 1:21-cv-00489-LY Document 28 Filed 05/04/22 Page 12 of 12
IV.
Conclusion
IT IS ORDERED that the May 4, 2021 Order of the United States Bankruptcy Court for
the Western District of Texas granting Trustee's Motion to Compromise and Settle Claims with
Amir Batoei Pursuant to Bankruptcy Rule 9019 is AFFIRMED.
IT IS FURTHER ORDERED that the May 4, 2021 Order of the United States
Bankruptcy Court for the Western District of Texas denying Appellant's Motion to Reconsider
Motion to Disqualify is AFFIRMED.
IT IS FURTHER ORDERED that the May 17, 2021 Order of the United States
Bankruptcy Court for the Western District of Texas sustaining in part and denying in part
Appellant's objections to claim nos. 9-2, 10-1 and 11-1 is AFFIRMED.
A final judgment shall be filed subsequently.
SIGNED this
day of May, 2022.
UNITED STATES DISTRICT JUDGE
12
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