Cage v. GDH Int'l, Inc. (In re Great Gulfcan Energy Tex., Inc.)

• Decision Date: 08 March 2013
• Docket Number: 11–40831–H1–7,Adversary No. 12–3113.,11–40832–H1–7.,Bankruptcy Nos. 11–40829–H4–7,11–40830–H4–7
• Citation: 488 B.R. 898
• Court: U.S. Bankruptcy Court — Southern District of Texas
• Parties: In re GREAT GULFCAN ENERGY TEXAS, INC., et al., Debtors. Lowell T. Cage, Trustee, Plaintiff, v. GDH International, Inc., et al., Defendants.

488 B.R. 898

In re GREAT GULFCAN ENERGY TEXAS, INC., et al., Debtors.

Lowell T. Cage, Trustee, Plaintiff,

v.GDH International, Inc., et al., Defendants.

Bankruptcy Nos. 11–40829–H4–7, 11–40830–H4–7, 11–40831–H1–7, 11–40832–H1–7.

Adversary No. 12–3113.

United States Bankruptcy Court,

S.D. Texas,

Houston Division.

March 8, 2013.

Timothy L. Wentworth, Cage, Hill & Niehaus, LLP, Houston, TX, for Plaintiff.

Robert Patrick Vance, Tyler J. Rench, Jones Walker Waechter et al., New Orleans, LA, for Defendant.

MEMORANDUM OPINION REGARDING: (1) GDHI'S MOTION FOR SUMMARY JUDGMENT: AND (2) THE TRUSTEE'S MOTION FOR PARTIAL SUMMARY JUDGMENT

JEFF BOHM, Chief Judge.

I. Introduction

This dispute underscores the importance of careful legal drafting and attention to jurisdictional issues, and that is the reason the Court chooses to write this Memorandum Opinion.

In the suit at bar, the debtors, Great Gulfcan Energy Texas, Inc., Seiran Exploration and Production Company, LLC, and Great Gulfcan H198L, LLC (collectively, the Debtors) and the defendant, GDH International Inc. (GDHI), have shared similar experiences. Both parties were direct and indirect victims of Richard A. Sharp (Sharp), who acted as a principal and officer at both GDHI and one of the debtor companies, Seiran Exploration and Production (Seiran). Both GDHI and Seiran were harmed by Sharp's use of his position of power and trust to misappropriate corporate assets, and both companies filed lawsuits against Sharp seeking redress for Sharp's wrongdoing—GDHI in a Louisiana state court and Seiran in a Texas state court.

Prior to bankruptcy, Seiran conveyed title to real property and a boat to Sharp for less than equivalent value. Thereafter, Sharp conveyed this same real property and boat to GDHI. Finally, GDHI, in turn, sold the real property to Ernest and Nancy Williams (the Williamses) and the boat to Vincent F. Wynne Jr. (Wynne).

As Seiran has now filed a Chapter 7 petition, Lowell Cage (the Trustee), standing in the shoes of Seiran, asserts five claims in his complaint against GDHI, including: (1) a declaratory judgment that the real property belongs to the Debtors' estate and must be turned over to the Trustee; ¹ (2) avoidance of Seiran's pre-petition transfer of the real property and the boat to Sharp pursuant to 11 U.S.C. §§ 548² and 550; ³ (3) avoidance of the post-petition transfer of the real property from Sharp to GDHI, pursuant to 11 U.S.C. § 549; ⁴ (4) imposition of a constructive trust on the real property and the boat; and finally, (5) a declaratory judgment that GDHI willfully violated the automatic stay by transferring the real property to the Williamses, and a related assessment of damages.

Both the Trustee, on behalf of the Debtors' estate, and GDHI have brought competing motions for summary judgment. For the reasons set forth herein, this Court concludes that the Trustee's Motion for Partial Summary Judgment should be denied in its entirety, and that GDHI's Motion for Summary Judgment should be granted in its entirety.

The Court now makes the following Findings of Fact and Conclusions of Law under Federal Rule of Civil Procedure 52, as made applicable by Federal Rule of Bankruptcy Procedure 7052. To the extent that any Finding of Fact is construed to be a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law is construed to be a Finding of Fact, it is adopted as such. The Court reserves the right to make any additional Findings and Conclusions as may be necessary or as requested by any party.

II. Findings of Fact

1. On September 30, 2010, Seiran purchased real property in Plaquemines Parish, Louisiana at 307 Martin Lane, Port Sulphur, Louisiana 70083 (the Real Property). This sale was effectuated by Seiran's authorized agent and principal, Sharp. In addition to the Real Property, Seiran (through Sharp) also purchased a boat (the Boat), which was then stored at the Real Property. [Adv. Doc. No. 91–1, p. 2].

2. On May 20, 2011, Seiran executed an irrevocable donation (i.e., a gift by deed) of the Real Property to Sharp, which was filed for registry in the Plaquemines Parish Conveyance Records on May 24, 2011. Seiran also transferred the Boat to Sharp. Seiran received no consideration for either of these transfers. [ Id.].

3. Soon thereafter, Sharp was removed from his management position at Seiran for committing “unauthorized actions,” which involved numerous instances of self-dealing and misappropriation of company property. [ Id. at p. 3].

4. On August 2, 2011, GDHI was incorporated in Louisiana with Sharp, among others, as an owner and officer. Soon after GDHI's creation, Sharp allegedly began an extended series of improper acts and questionable conduct at GDHI, including the writing of bad checks, to misappropriate company assets. Sharp also began to divert corporate business opportunities for his personal use, causing GDHI to lose valuable contracts and other investments. [ Id. at p. 4].

5. On August 26, 2011, Seiran—having rid itself of Sharp—filed an application for a temporary restraining order (the TRO) against Sharp in the District Court of Brazoria County, Texas (the Texas Court) in Great Gulfcan Energy Texas, Inc. and Seiran Exploration and Production Company, LLC v. Richard A. Sharp, III and Lysette R. Sharp (f/k/a Lysette R. Lerma), Doc. No. 64697 (the Texas Suit). The Texas Court granted the TRO that same day. The TRO “restrained [Sharp] from transferring, selling, or otherwise alienating the funds, property and proceeds described” within the TRO. The Texas Court went on to describe the Real Property and several other handwritten withdrawal slips prepared by Sharp. The TRO made no reference to the Boat. [Adv. Doc. No. 1, p. 3]; [Adv. Doc. No. 59, p. 3]; [Adv. Doc. No. 1–5].

6. On September 12, 2011, Seiran filed for, and obtained, a temporary injunction against Sharp from the Texas Court (the Temporary Injunction). The Temporary Injunction “restrained [Sharp] from transferring, selling, or otherwise alienating the funds, property and proceeds described” within the order. In the Temporary Injunction, the Texas Court expressly described the Real Property and several other handwritten withdrawal slips prepared by Sharp. The Temporary Injunction made no mention of the Boat. [Adv. Doc. No. 6].

7. On October 25, 2011, GDHI forced Sharp to resign. [Adv. Doc. No. 91–1, p. 4].

8. On November 29, 2011, GDHI—having rid itself of Sharp—brought suit against him in the 22nd Judicial District Court for the Parish of St. Tammany, Louisiana (the Louisiana Court) in GDH International, Inc. v. Richard A. Sharp, III and Sharp Global Energy Services, LLC, Doc. No.2011–16710 (the Louisiana Suit). GDHI's petition in the Louisiana Suit stated claims for breach of contract, breach of fiduciary duty, theft, conversion, unfair trade practices, racketeering violations, tortuous interference with contract, and fraud. [ Id.].

9. On the same day that GDHI initiated the Louisiana Suit, GDHI caused the Real Property to be seized by a sheriff of Plaquemines Parish and attached pending resolution of the Louisiana Suit. GDHI, through its counsel at that time, conducted a title search of the Plaquemines Parish Mortgage and Conveyance Records, which revealed no questionable encumbrances, liens, or notices of lis pendens on the Real Property. Rather, the title search indicated that Sharp was record owner of the Real Property. [ Id. at p. 4–5]; [Adv. Doc. No. 48–3, Ex. G ¶ 13].

10. On December 12, 2011, the Texas Court entered a Final Order (the Final Order) voiding the transfer of the Real Property from Seiran to Sharp that had occurred on May 20, 2011. Three separate times the Final Order decreed that the donation “is hereby declared VOID.” Having declared the donation void, the Final Order then “fully vested” ownership of the Real Property in Seiran. The Final Order also decreed that Sharp is prohibited from “signing any deed or legal instrument of any kind involving the Real Property, save and except an instrument affirming that that [sic] the deed [to the Real Property] is void” and then conveys his remaining interest in the Real Property to the Debtor. ⁵ The Final Order did not reference the Boat. [Adv. Doc. No. 1–7]. GDHI had no knowledge of the Final Order at the time it was signed by the Texas Court.

11. On December 27, 2011, the Debtors filed a Chapter 7 petition in this Court (the Petition Date). [Adv. Doc. No. 91–1, p. 8]. On the Petition Date, GDHI was not a creditor of the Debtors, and therefore was neither listed on the creditors' matrix nor received notice of this bankruptcy filing. See [Main Case Doc. No. 2].

12. On January 5, 2012, Sharp entered into an agreement with GDHI, admitting to all of the claims and allegations made by GDHI in the Louisiana Suit. Sharp agreed to a monetary judgment of $450,000.00. To partially satisfy this judgment, Sharp executed, and GDHI signed, a dation en paiement, or “giving in payment” (the Dation), which conveyed both the Real Property and the Boat to GDHI. At the time Sharp signed the Dation, GDHI believed that Sharp owned the Real Property [Adv. Doc. No. 59–3], and as of the date the parties signed the Dation (i.e., January 5, 2012), GDHI had no knowledge of either the Texas Suit or Seiran's bankruptcy. [Adv. Doc. No. 91–1, p. 5]; [Adv. Doc. No. 92, p. 6].

13. On January 6, 2012, the Trustee notified GDHI of the Debtors' bankruptcy. See [Doc No. 52–1, p. 3, 4]. On January 10, 2012, the Louisiana Court signed the judgment approving the consent agreement conveying the Real Property and the Boat to GDHI.⁶ [Adv. Doc. No. 48–3, Ex. G, p. 6].

14. On January 11, 2012, the judgment in the Louisiana Suit and the Dation were filed in the registry of the Plaquemines Parish conveyance records, thereby giving notice of the Real Property's conveyance from Sharp to GDHI.

15. On February 10, 2012, the Trustee filed an initial complaint (the Initial Complaint) in this Court against Sharp and...