Rozelle, Jr. et al v. Branscomb, P.C., et al
MEMORANDUM OPINION This Court finds that the Bankrupicy Court did not errin granting any of these five orders. Accordingly, this Court will affirm all five of the Bankruptcy Court's orders on appeal. Signed by Judge Royce C. Lamberth. (rg)
UN.ITEI.) STATES DISTRICT COURT
FOR TIlE WESTERN DISTRICT OF TEAS
VSTERN D1I1 OF TEXAS
ROZELLE, JR ET AL.,
Civil Case No. 5:16-cv-01024 (RCL)
BRANSCOMB, P.C., ET AL.,
This case comes before the Court on appeal from live separate orders of the Bankruptcy
Court regarding the jointly administered bankruptcy cases of Francis MeQucen Rozelle, Jr.
(appeliantldcbtor) and Clarita Sonmiers Johnson (appellant/debtor). The debtors, Francis
MeQuecu Rozel Ic. Jr. and Clarita Somniers. appeal the following Orders oft he Bankruptcy Court:
(1) Order Allowing First interim Application of Branscomb PC (appcllce/Uranscomb), for
Professional Fees and Expenses for Patrick Autry during the Period September
October 31, 2015 (EU? No, 593):
(2) Order Granti
& Griesenbeck, Inc., as litigation Cowscl i>c the
Texas Realty & l)cve.lopmcnt.
Amended Application to Employ Plunktt
lstate (E( 'F No. 595); (3) Order Granting Central
Reimbursement of Expenses (ECF No, 597): (4) Order (.iranhing Motion For Sanctions tor
Dchtors Attorney Misconduct under Rule 9011 LCF
N. bOO): and (5) Order (.Iranting Motion
l)ebtors Auorney Misconduct under Rule 9011 filed by Patrick
Trustee John Patrick lowe (IiCF No. 601). This Court finds that the l3ankrupicy Court did not err
in granting any of these five orders. Accordingly, this Court will affirm all five
of the Bankruptcy
Court's orders on appeal.
On or about June 22, 2005, debtors inherited approximately 114 acres of land in San
Antonio, Texas (real property). On June 2, 2006, the debtors borrowed $8.225 million from
Broadway Bank to buy out Mr. Rozelle's sister,a third heir to the real property, and to pay property
taxes. Debtors extended the loan on three occasions, making the date
of maturity August
However, the loan was not repaid by the date of maturity and Broadway Bank posted the property
for a non-judicial foreclosure sale on September 6, 2011. Because of the posting of the foreclosure
sale, debtors filed for Chapter
bankruptcy in August 2011. In this initial Chapter
debtors confirmed a plan of reorganization that affbrded them 18 months to satisfy the debt before
Broadway Bank could foreclose on the real property. After the reorganization plan was confirmed,
SLF Noteholder acquired the debt from Broadway Bank. Appellants failed to sell the Real Property
or pay the debt and SLF Notehoider scheduled a foreclosure sale for June 3, 2014.
On June 2, 2014, Debtors filed voluntary Chapter
bankruptcy petitions for a second time
and avoided foreclosure. The cases were jointly administered at Case No, 14-5i480-RBK. On
August 28, 2014, the Bankruptcy Court ordered the appointment
a Trustee in the jointly
administered Chapter Ii cases. John Patrick Lowe (appellee/trustee) was appointed as Trustee by
the United States Trustee and the i3ankruptcy Court approved the appointment an September 9,
2014. The trustee subsequently filed an Application to Engage Central Texas Realty &
Development LLC (appeIJeefbroker as the real estate broker to assist in the sale of the real
property. The Bankruptcy Court granted the application on October 30, 2014. \Valter G. Busby
(appellee) was designated as the principal of Central Texas Realty & Development. The debtors
appealed the order appointing Central Texas Realty but the District Court affirmed the Bankruptcy
Judge's decision. Broker was then retained by the trustee to market and sell the 14 acres pursuant
to an Exclusive Listing Agreement, which stipulated that broker would receive a commission equal
to four percent (4%) of the gross purchase price of the real property and would be reimbursed for
out of pocket marketing costs up to the amount of$ 1 0000.00. With the approval of the Bankruptcy
Court, trustee also retained Patrick Autry and his law finnBranscomb PCto act as his counsel
in the administration of the bankruptcy cases.
On March 27, 2015, the Bankruptcy Court entered an order Authorizing and Approving
the Sale of Real Property Free and Clear of all Interests Pursuant to
Appellants filed a Motion to Set Aside the Sale Order on March 24, 2016, which was amended
four days later, The Bankruptcy Court denied Appellants' motion but it prohibited the buyer from
obtaining title insurance, effectively stopping the closure of the sale. Consequently. the principal
secured creditor, SLF 1V-UTSA Blvd. Noteholder, LP (SLF Noteholder) renewed its previous
request to modify the automatic stay to allow it to foreclose on the property. The Bankruptcy Court
granted SLF Noteholder's request. To avoid ibreclosure, debtors dismissed their appeal of the Sale
Order and the sale of the real property went through. In March 2016, after the sale was completed,
debtors alleged that the sale was procured through fnwd and should be set aside pursuant to Federal
Rule of Civil Procedure 60. The Bankruptcy Court dismissed the Rule 60 motion with prejudice.
On December i 4, 2015 the debtors' cases were converted to Chapter 7 proceedings, and appellee
John Patrick Lowe was again appointed as the Trustee in the converted cases.
Bankruptcy allows a dchtnr to retain their assets while they attempt to reorganize their debts and repay
creditors, whereas under Chapter 7 Bankruptcy a debtors assets are immediately liquidated arid creditors are paid from
the proceeds. Conversion occurred in this case to liquidate the assets of the bankruptcy estate and pay creditors afler
of the land.
JURiSDICTION AND STANI)ARI) OF REVIEW
This Court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a) which
provides district court's with the authority to h'ar appeals from tinal judgments and orders of
bankruptcy judges. When
district court reviews the decision of a hank rupicy court ii "functions
as an appellate court, applying the Standards of review generally applied in federal appeals courts."
Harvey Gulfhu'! Marine,
Gas, LLC, 559 B. R. 152, 154
(S.D. Tex. 2016).
Standard f Review
On appeal. a district court "reviews the bankruptcy court's findings of fact under the clearly
erroneous standard and its conclusions
of law de novo.' in re
555 F.3d 473,
Cir. 2009). Mixed questions oflaw and tact arc reviewed tIC JwvO. See In e Po.cihve HeaIiIi j1mL,
769 F.3d 899 903 5th Cir. 2014), Maiters within a bankruptcy judge's discretion are reviewed
for an abuse of discretion." Mud King Prod.,
(S.D. Tex. 2015). 'ilie standard
Aai 'I Ui/we/I
2015 WI. 862319
of review appropriate for each issue raised on appealfee and
compensation awards, granting employment of iitigathm counsel, and imposing
abuse of discretion. "[lYfeferenec
is the hallmark of abuseof-discretion review." Gen. Eiec.
Joiner, 522 U.S. 136, 143 (1997). A Bankruptcy Court abuses its discretion if "its ruling is
based on an erroneous review
chuves V. M/L
. . .
of ihe law or on a ckarft erroneous assessment of the evidence."
Alcdina S/ar, 47 F.3d 153, 156 (5th
Cir. 1995) (citations omitted).
ANALYSIS OF DEBTORS' CENTRAL ARGUMFNTS ON APPEAL
appellants here- arguc that the lnnkruptcv ('ourt erred in granting all five
of appcllees' motions on the grounds that "the ftcs were procured by fraud, and the sanctions were
nothin more than efforts to cover up the fraud and punish the debtors ibr upholding their duly to
report fraud to the proper authorities." Appellants .Mot. to Amend Appellants Br. to Bankr. Orders.
29, ECF No, 17.
Fraud upon the court "requires a showing
of an unconscionable plan or scheme which is
designed to improperly influence the court in its decision." Wi/son
v. ./ohn.-A1uni'i/Ie Sales Coi'p.,
873 F.2d 868, 872 (5th ('jr. 1982). Under Federal Rule olCivil Procedure 9(h). "[i]n alleging fraud
or mistake, a party must state with particularity the circumstances constituting ftaud or mistake."
Fed. R. Civ. P. 9(b). In order to prove fraud, appellants' hear the burden of establishing that: (1)
appellee made a material representation that was false: (2) the appellec knew the representation
was false or made it recklessly as a positive assertion without any knowkdge of its truth; (3) the
appellee intended to induce the appellant to act upon the representation, and (4) the appellant
actually and justifiably relied on the appellee's representation. (5) which caused the appellant's
injury. See Ernst &
MutuaiLifk Ins. Co., Si S.W.3d 573, 577 (Tex. 2001).
Here, debtors' brief is composed of numerous conelusory and unsupported allegations that
detail how appellees schemed to sell the real properly for millions less than its actual worth and
subsequently committed ii'aud upon the court by providing "their own perjured testimony."
Appellants Mot, to Amend Appellants Br. to Raukr. Orders. 12. More specifically, debtors allege
thai "[buyrrsj attained the property appraised
$50 million toe some $30 million below fair
market value due to the perjured testimony ol' Walt Busby, trustee John lairick Lowe and his
counsel Patrick Autry regarding entitlements and value." Id. at 16, Judge King thund that the sak
price was adequate given that the valuations debtors rrovided were for the real property "as
developed" rather than "as is." However, debtors also assert that "the impartial function of the
court was directly corrupted by an officer or ufli'c
couut. and Judge King. did not perform
his judicial function, when he twice approved the sale of' the debtors property based on the now
public false and perjured testimony proffered by Sanders, Schumacher and those who aid, abet and
ignore." Appellants Mot. to Amend Appellants Br. to Bankr. Orders. 21. While debtors brief
contains an explanation of how the aUeged scheme
to provide sufficient
carried Out, this
Court finds that they fail
support their allegations of
debtors' subsequent argument that the sanctions were granted in an effort to cover up the alleged
fraud also fails.
THE BANKRUPTCY COURT DID NOT ERR IN GRANTING THE FIRST
INTERIM APPLICATION OF BRANSCOMB'S APPROVAL OF ATrORNEY'S
FEES AND EXPENSES AS COUNSEL TO TRUSTEE
Bankruptcy Court's Decision
The Bankruptcy Court granted the First Interim Application of Branscomb PC for
Approval of Attorneys' Fees and Expenses as Counsel to Trustee for the period beginning
September 1, 2014 through October 31, 2015 in the amount of $203,659.0() for fees and $1,718.62
for expenses. The Bankruptcy Court found the fees and expenses to be reasonable and
given that appellee Branseomb and their attorneyPatrick
businessmen" throughout the sale of the Real Property. Trans. of Aug.
Ii. ECF No. ii -
compensation of Officers
under Section 330 of the Bankruptcy Code, Bankruptcy Courts have the discretion to
award reasonable compensation "for actual, necessary services rendered" to debtors' trustee,
attorney, or other paraprofessionals employed by any such person in bankruptcy cases.
330(a)(1)(A). The Bankruptcy Court also has the discretion to reimburse these parties for "actual
necessary expenses." Id. § 330(a)( I )(A). Section 330(a)(3) further asserts that "[iJn determining
the amount of reasonable compensation to be awarded to an exaniiner, trustee under chapter II
or professional person, the court shall consider the nature. the extent, and the value of such
services. iakrng into accun1 all relevant fic.tors.
(A) the tesperri on such, services;
(B) the rates charged for such services; (C) whether the services were necessary
administration of or beneficial at the time at which the service was rendered toward the completion
of, a case under this title
ft (D) whether the services were peribrrned wiUtin a reasonable amount
of time commensurate with the complexity, importance, and nature of the problem, issue, or task
addressed; (E) with respect to a professional person, whether the person is board certified or
otherwise has demonstrated skill and experience in the bankruptcy field; and (F) whether
compensation is reasonable based on the customary compensation charged by comparably skilled
practitioners in cases other than cases under this title 1J.'ld.
The Fifth Circuit recognizes the lodestar method as a proper tool to calculate "reasonable"
under § 330. See Cahill v. Walker
l'C, 428 F.3d 536. 539, (5th Cir,
2005). "A court computes the lodestar by multiplying the number of hours an attorney
reasonably spend for the same type of work by the prevai[in hourly rate in the community,
court then may adjust the lodestar up or down based on the factors contained in 330
consideration ol the twelve factors listed in
488 F.2d at 71749,2 White the bankruptcy
Under,k4w.son. eturt's should consider the fcillowinr when calculating reasonable attorneys' les: "tfi time
labor required: the novelty and diliicultv of the questions: the skill requisite to pertirm the
legal service properly;
the preclusion olother employment by the attorney due to acceptance of the ea
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