Cowin v. Countrywide Home Loans, Inc. (In re Cowin), 15-20600

• Decision Date: 18 July 2017
• Docket Number: No. 15-20600,cons w/ 16-20100,15-20600
• Citation: 864 F.3d 344
• Parties: In the MATTER OF: Charles Phillip COWIN, Debtor Charles Cowin, Appellant v. Countrywide Home Loans, Incorporated; Deutsche Bank National Trust Company, as trustee under the Pooling and Servicing Agreement relating to IMPAC Secured, Appellees In the Matter of: Charles Cowin, Debtor Bank of America, N.A., Appellee v. Charles Cowin, also known as Charles Phillip Cowin, also known as Charles P. Cowin, Appellant
• Court: U.S. Court of Appeals — Fifth Circuit

864 F.3d 344

In the MATTER OF: Charles Phillip COWIN, Debtor

Charles Cowin, Appellant

v.Countrywide Home Loans, Incorporated; Deutsche Bank National Trust Company, as trustee under the Pooling and Servicing Agreement relating to IMPAC Secured, Appellees

In the Matter of: Charles Cowin, Debtor

Bank of America, N.A., Appellee

v.Charles Cowin, also known as Charles Phillip Cowin, also known as Charles P. Cowin, Appellant

No. 15-20600

cons w/ 16-20100

United States Court of Appeals, Fifth Circuit.

July 18, 2017

Donald Louis Wyatt, Jr., Lindsay Michelle Morrow, Wyatt & Mirabella, P.C., 26418 Oak Ridge Drive, The Woodlands, TX 77380, for Appellant.

Michael J. McKleroy, Jr., Esq., Akerman, L.L.P., Suite 3600, 2001 Ross Avenue, Dallas, TX 75201, for Appellees.

Before WIENER, CLEMENT, and HIGGINSON, Circuit Judges.

STEPHEN A. HIGGINSON, Circuit Judge:

Charles Cowin—the bankruptcy debtor—appeals from the findings and conclusions of two bankruptcy court adversary proceedings. In both proceedings the bankruptcy court found that Cowin was involved in a scheme designed to deprive mortgage holders of foreclosure sale proceeds. The bankruptcy courts determined that the damages flowing from this scheme were nondischargeable debts pursuant to 11 U.S.C. §§ 523(a)(4) and 523(a)(6). Cowin appealed the rulings in both proceedings, and we now affirm.

I

Both appeals center around a scheme designed to deprive mortgage holders of excess foreclosure sale proceeds through the use of tax-transfer liens authorized by the Texas Tax Code. The basic structure of the scheme was as follows: A purchaser/borrower bought a property subject to a first-lien mortgage at a condominium association foreclosure sale. Shortly after acquiring the property, the purchaser/borrower entered into a tax-transfer loan agreement with one of two Texas companies that Cowin controlled—Woodway Campton, Ltd. ("WCL") or Dampkring, LLC—for the purpose of paying real property taxes assessed against the property. In exchange for paying the taxes, the lender received a tax-transfer lien against the property.

Under Texas law, after a foreclosure sale, tax-transfer liens take priority, junior liens are extinguished, and any excess funds are paid to the junior lienholders in seniority order. See TEX. TAX. CODE§ 32.06(b) & (j) ; Saturn Capital Corp. v. City of Hous. , 246 S.W.3d 242, 245 (Tex. App.–Hous. [14th Dist.] 2007, pet. denied). The WCL and Dampkring deeds of trust, which Cowin prepared, omitted language requiring the Trustee to distribute "any amounts required by law to be paid before payment to Grantor." By omitting this language, the bankruptcy court found that Cowin intended to divert the excess proceeds from the foreclosure sales away from the preexisting mortgage holders and to entities controlled by a co-conspirator.

Immediately after entering into the tax-transfer loan agreement, the purchaser/borrower would default on the payment obligations under the agreement, and Cowin would instruct the trustee of the tax-transfer deed to foreclose on the property. From the foreclosure sale proceeds, the trustee took a $1,000 fee, paid the private lenders' tax-transfer liens in full, and delivered the excess proceeds to the purchaser/borrower.

At issue in this appeal are four specific instances in which this scheme was carried out.¹ In the first instance, Cowin and his co-conspirators deprived Countrywide Home Loans Inc. of excess proceeds from the foreclosure sale of a property on which Countrywide serviced a preexisting mortgage loan (the "Countrywide Property").² The same scheme deprived Bank of America, N.A. of excess proceeds from the foreclosure sales of three properties on which Bank of America serviced mortgages (the "BANA Properties").

II

Bank of America sued Cowin and the other scheme participants, seeking to recover excess funds (and other damages) from the foreclosure of the BANA Properties. On February 14, 2010, while the Bank of America litigation was pending in the Southern District of Texas, Cowin filed for Chapter 11 bankruptcy in that district's bankruptcy court. The bankruptcy case was dismissed five weeks later.

Cowin filed a second bankruptcy case on May 19, 2010. Soon after, on November 10, 2010, Countrywide, Deutsche Bank, and several other banks (together, the "Countrywide Plaintiffs") holding preexisting mortgages on properties purchased by Cowin's co-conspirators brought adversary proceedings, seeking a finding of nondischargeability. The bankruptcy court consolidated the proceedings (the "Countrywide Adversary Proceeding"). In January 2012, while the Countrywide Adversary Proceeding was pending, the bankruptcy court dismissed Cowin's bankruptcy case after finding that Cowin had "abused the [bankruptcy] process by filing two Chapter 11 petitions within the last 2 years [without filing] a plan and disclosure statement." At the parties' request, however, the bankruptcy court retained the Countrywide Adversary Proceeding for final adjudication.

The Bank of America litigation was tried in January 2013. On the fifth day of trial, the parties agreed to settle. Pursuant to the Settlement Agreement, if Cowin paid Bank of America $500,000 before September 1, 2013, the parties' agreed judgment (the "BANA Agreed Judgment") would never enter. If Cowin filed for bankruptcy before then, however, Bank of America would "immediately be entitled to seek relief from the automatic bankruptcy stay to enter the agreed judgment."

On February 21, 2013, before the bankruptcy court issued findings and conclusions in the Countrywide Adversary Proceeding, Cowin filed for Chapter 7 bankruptcy. Cowin's Chapter 7 case was assigned to the same bankruptcy judge handling the Countrywide Adversary Proceeding. The bankruptcy court lifted the automatic stay so the federal district court could enter the BANA Agreed Judgment. The district court entered the judgment on April 24, 2013.

On April 25, 2013, the bankruptcy court issued a memorandum opinion in the Countrywide Adversary Proceeding (the "Countrywide Nondischargeability Opinion"), concluding that Cowin was liable to the Countrywide Plaintiffs for the aggregate amount of the excess proceeds, and that his debts arising from the state-law violations were nondischargeable. Before the bankruptcy court entered final judgment, on May 16, 2013, Cowin filed a suggestion of bankruptcy, formally notifying the court of his Chapter 7 filing. Days later, on May 29, 2013, the bankruptcy court entered final judgment in the Countrywide Adversary Proceeding (the "Countrywide Adversary Judgment"), awarding $268,477.78 in damages, attorneys' fees, costs, and interest to Countrywide and Deutsche Bank. The bankruptcy court emphasized that that its determination of nondischargeability, although rendered in adversary proceedings brought during Cowin's previous Chapter 11 case, applied to Cowin's newly filed Chapter 7 case.

Cowin appealed the Countrywide Nondischargeability Opinion and Judgment to the district court on June 12, 2013. On September 29, 2015, the district court affirmed. Cowin then timely appealed to this court.³

Meanwhile, on May 30, 2013, Bank of America filed an adversary proceeding in Cowin's Chapter 7 case (the "BANA Adversary Proceeding), seeking a determination of nondischargeability as to the BANA Agreed Judgment. On September 30, 2014, the bankruptcy court partially granted summary judgment in favor of Bank of America, holding that collateral estoppel precluded Cowin from contesting findings and conclusions in the Countrywide Nondischargeability Opinion. The bankruptcy court heard testimony and oral argument on three disputed factual issues, and ultimately determined that the BANA Agreed Judgment was a nondischargeable debt. Cowin moved to certify a direct appeal to this court, which the district court granted, and the two appeals were consolidated.

Cowin raises numerous issues in his consolidated appeal. First, he argues that the bankruptcy court erred in ruling that his debts to Countrywide were nondischargeable. Second, he contends that the bankruptcy court violated the automatic stay in his Chapter 7 case by entering the Countrywide Adversary Judgment, and that the Countrywide Adversary Judgment is therefore void. Next, Cowin argues that the BANA Settlement Agreement extinguished all pre-settlement causes of action, including actions to determine nondischargeability. Cowin also contends that the bankruptcy court erred in finding that he was liable for the actions of Dampkring. Additionally, he argues that the bankruptcy court erred in finding that he instructed the trustee to foreclose on the BANA Properties. Finally, Cowin contends that the bankruptcy court erred by giving preclusive effect to the Countrywide Adversary Judgment in the BANA Adversary Proceeding.

III

We review a district court's affirmance of a bankruptcy court's decision by applying the same standard of review that the district court applied. Ad Hoc Grp. of Vitro Noteholders v. Vitro S.A.B. de C.V. (In re Vitro S.A.B. de C.V.) , 701 F.3d 1031, 1042 (5th Cir. 2012) (citing United States v. Martinez (In re Martinez) , 564 F.3d 719, 725–26 (5th Cir. 2009) ). Thus, we review questions of fact for clear error and conclusions of law de novo. Id. Mixed questions of law and fact are also reviewed de novo. Id. We review a bankruptcy court's decision on direct appeal under the same standards. Id.

IV

"[T]he issue of nondischargeability [is] a matter of federal law governed by the terms of the Bankruptcy Code." Grogan v. Garner , 498 U.S. 279, 284, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Nondischargeability must be established by a preponderance of the evidence. Id. at 287, 111 S.Ct. 654. "Intertwined with this burden is the basic principle of bankruptcy that exceptions to discharge must be strictly construed against a creditor and liberally construed in favor of a debtor so that the debtor may be afforded a fresh start." Hudson v. Raggio & Raggio, Inc. (In re Hudson) , 107 F.3d 355, 356 (5th...