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

• Decision Date: 25 April 2013
• Docket Number: 10–03585.,10–03584,Adversary Nos. 10–03583,Bankruptcy No. 10–34132.
• Citation: 492 B.R. 858
• Parties: In re Charles Phillip COWIN, Debtor. Countrywide Home Loans, Inc. and Deutsche Bank National Trust Company, as Trustee, Plaintiffs, Chase Home Finance, LLC and Wells Fargo Bank, N.A., as Trustee, Plaintiffs, WMC Mortgage Corporation, Plaintiff, v. Charles Phillip Cowin, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Texas

492 B.R. 858

In re Charles Phillip COWIN, Debtor.Countrywide Home Loans, Inc. and Deutsche Bank National Trust Company, as Trustee, Plaintiffs,Chase Home Finance, LLC and Wells Fargo Bank, N.A., as Trustee, Plaintiffs,WMC Mortgage Corporation, Plaintiff,

v.Charles Phillip Cowin, Defendant.

Bankruptcy No. 10–34132.

Adversary Nos. 10–03583, 10–03584, 10–03585.

United States Bankruptcy Court,

S.D. Texas,

Houston Division.

April 25, 2013.

Robert Frank Maris, Maris & Lanier, P.C., Joshua J. Bennett, Michael J. McKleroy, Jr., Akerman Senterfitt, LLP, Dallas, TX, for Plaintiffs.

Wells Fargo Bank, N.A., pro se.

Chase Home Finance, LLC, pro se.

WMC Mortgage Corporation, pro se.

Kevin L. Colbert, Mason Coplen et al., Richard L. Fuqua, II, Fuqua & Associates, PC, Houston, TX, for Defendant.

MEMORANDUM OPINION ON NONDISCHARGEABILITY OF DEBTS PURSUANT TO §§ 523(a)(4) and 523(a)(6)

[relates to Adv. No. 10–03583, Doc. No. 41; Adv. No. 10–03584, Doc. No. 51; Adv. No. 10–03585, Doc. No. 58]

JEFF BOHM, Chief Judge.

I. Introduction

These adversary proceedings, which were tried simultaneously, concern the existence of certain debts pursuant to Texas state law, and the nondischargeability of these debts under the “larceny” and “embezzlement” exceptions of section 523(a)(4) of the Bankruptcy Code¹ and the “willful and malicious injury” exception of section 532(a)(6).²

Plaintiffs Countrywide Home Loans, Inc. and Deutsche Bank National Trust Company, as Trustee, Chase Home Finance, LLC and Wells Fargo Bank, N.A., as Trustee,³ and WMC Mortgage Corporation (collectively, the Plaintiffs) allege that the Debtor, Charles Phillip Cowin (the Debtor), engaged in a conspiracy involving sections 32.06 and 32.065 of the Texas Tax Code (the Transfer Tax Lien Statutes) to defraud them of their preexisting liens on real property as well as the excess proceeds generated from foreclosure sales of those properties. The Plaintiffs assert that this scheme functioned as follows: (1) one party would purchase a property subject to a first lien mortgage held by one of the Plaintiffs at a foreclosure sale of a condominium association's assessment lien; (2) that party would then enter into a “sham” agreement with a second party for the second party to pay the ad valorem taxes assessed against the property in exchange for a super-priority transfer tax lien against the property; (3) the first party would soon thereafter intentionally default on his obligations to repay the tax loan, resulting in the foreclosure of the transfer tax lien and sale of the property free and clear of both the tax lien and the preexisting mortgage; and (4) the first and second party would then abscond with the proceeds from the foreclosure sale. [ Adv. No. 10–03583, Doc. No. 41, p. 2]; [ Adv. No. 10–03584, Doc. No. 51, p. 2]; [ Adv. No. 10–03585, Doc. No. 58, p. 2].

According to the Plaintiffs, the effect of this scheme was to deprive them of both their security interests in the properties and the proceeds of the sales. Therefore, they seek judgments in this Court declaring that: (1) the Debtor owes each of the Plaintiffs a debt for the taking of the excess proceeds from foreclosure sales on certain properties on which the Plaintiffs held preexisting mortgage liens; and (2) the damages flowing from the takings constitute nondischargeable debts pursuant to 11 U.S.C. §§ 523(a)(4) and/or 523(a)(6).

For his part, the Debtor admits that he had a role in the foreclosures on the properties, yet argues that his actions were entirely lawful, and that there was never a “scheme” in place to defraud the Plaintiffs of their excess proceeds. He also contends that his companies (which took assignments of the tax liens) were simply making wise business decisions in choosing to foreclose on these properties, as opposed to acting unlawfully. Additionally, he contends that because of the language of the Texas Property Code, he was never required to distribute the excess proceeds to the Plaintiffs. Therefore, the Debtor contends that he does not owe a debt to any of the Plaintiffs, but that even if this Court finds that he does owe a debt to each of them, these debts are dischargeable due to the absence of any fraud or other skullduggery.

The initial trial in these adversary proceedings took place over four days: September 13–16, 2011. One hundred and five joint exhibits were entered into evidence. Eight witnesses testified at the trial. Closing arguments were made on June 1, 2012, and the Court then took the matter under advisement. The matter was re-opened on June 19, 2012 to allow an additional witness, Allan Groves, to testify.⁴ On August 23 and October 2, 2012, additional closing arguments were heard. The Court then took the matter under advisement.

Having now considered the testimony, the exhibits, and the applicable law, this Court concludes that the Debtor is liable to the Plaintiffs for violations of the Texas Theft Liability Act (Chapter 134 of the Texas Civil Practice & Remedies Code), Chapter 12 of the Texas Civil Practice & Remedies Code, and the Texas Uniform Fraudulent Transfer Act (Section 24.001 et seq. of the Texas Business & Commerce Code). Further, this Court concludes that these debts were incurred by the Debtor's larceny and also arose through willful and malicious injury by the Debtor; and that, therefore, these debts are non-dischargeable pursuant to 11 U.S.C. §§ 523(a)(4) and (a)(6). The Court now makes the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 9014 and Federal Rule of Civil Procedure 52, as made applicable by Federal Rule of Bankruptcy Procedure 7052.⁵

II. Findings of Fact

Parties and Entities Involved

1) The Plaintiffs in these adversary proceedings are: (1) Countrywide Home Loans, Inc. (Countrywide) and Deutsche Bank National Trust Company (Deutsche Bank), as Trustee under the Pooling and Servicing Agreement Relating to IMPAC Secured Assets Corp, Mortgage Pass–Through Certificates, Series 2006–4 (IMPAC) [Adv. No. 10–03583]; (2) Chase Home Finance, LLC (Chase) and Wells Fargo Bank, N.A. (Wells Fargo), as Trustee [Adv. No. 10–03584]; and (3) WMC Mortgage Corporation (WMC) [Adv. No. 10–03585]. At the request of the parties, this Court consolidated these three suits for trial purposes on September 13, 2011. See [Adv. No. 10–03583, Doc. No. 20]; [Adv. No. 10–03584, Doc. No. 21]; [Adv. No. 10–03585, Doc. No. 21].

2) Plaintiffs are the mortgage holders, trustees, and/or servicers for three mortgage loans: (1) the Countrywide loan, which was secured by a lien against the property located at Tremont Tower, 3311 Yupon St., Unit 307, Houston, Texas 77006 (the Countrywide Property) [Ex. No. 86]; (2) the WMC loan, which was secured by a lien against the property located at 3231 Allan Parkway, Unit 6306, Houston, Texas 77019 (the WMC Property) [Ex. No. 70]; and (3) the Chase loan, which was secured by a lien against the property located at Memorial Cove Lofts, 6007 Memorial Drive, Unit 404, Houston, Texas 77007 (the Chase Property). [Ex. No. 45]. The Countrywide Property, the WMC Property, and the Chase Property are all located in Harris County, Texas.

3) The Debtor holds a Masters Degree in Business from the University of Chicago. [Sept. 15, 2011 Tr. 68:2–6]. He worked at Exxon for over 29 years, most recently as “new venture operations manager,”until his retirement in 2006. [Id. at 67:15–68:1]. While employed at Exxon, the Debtor engaged in making tax transfer loans in his own name. [Id. at 69:23–70:3]. After he retired, the Debtor continued to make tax transfer loans; however, he stopped doing so in his own name and, instead, made tax loans under LLCs which he established for that purpose. [Id. at 68:7–14].

4) Allan Groves is a personal friend of the Debtor [Doc. No. 14–5, ¶ 24]; [Sept. 15, 2011 Tr. 75:17–22] and is the ex-husband of Nancy Groves. [Doc. No. 14–5, ¶ 25]. Allan Groves, acting by and through his companies, was involved in purchasing a number of properties upon foreclosure of condominium association assessment liens, encumbering those properties with transfer tax liens, and allowing those liens to be foreclosed.

5) Nancy Groves is a retired real estate investor [Sept. 14, 2011 Tr. 185:17–22] and is the ex-wife of Allan Groves [Id. at 186:7–187:1]. Nancy Groves was involved in purchasing a number of properties upon foreclosure of condominium association assessment liens, encumbering those properties with transfer tax liens [Id. at 202:10–15; 205:21–24], and allowing those liens to be foreclosed. See, e.g., [Sept. 15, 2011 Tr. 30:11–31:18].

6) G.P. Matherne (Matherne) is an attorney [Sept. 13, 2011 Tr. 93:2–11] and long time friend of Allan Groves. [Id. at 138:14–17]. Pursuant to an agreement with the Debtor, Matherne was named as trustee in all of the Deeds of Trust associated with the transfer tax loans granted by Woodway Campton, Ltd. and Dampkring, LLC.⁶ [ Id. at 100:7–24].

7) Perc, LLC (Perc) and Texas Realty Holdings, LLC (TRH) are Nevada limited liability companies controlled by Allan Groves. Allan Groves hired Lance Kerness (Kerness) and paid him a fee to serve as managing member for both of these entities.⁷ [Sept. 14, 2011 Tr. 40:1–14; 57:9–23; 58:17–24]. There were no other employees, officers, managers, or directors of either entity [ Id. at 38:20–39:25], and Allan Groves was the only person who Kerness could identify as having any affiliation with either Perc or TRH. [ Id. at 41:2–14]. Kerness himself had very little knowledge of the day-to-day business of Perc and TRH, see, e.g., [ Id. at 48:19–21; 49:2–9; 49:25–50:9; 50:22–24; 51:4–9], and had no actual authority or control over either entity; he performed only ministerial tasks such as signing documents, making bank withdrawals, and sending out mail, but only at the instruction of Allan Groves. [ Id. at 41:2–5; 51:16–52:1; 52:20–21; 54:9–15; 54:22–24; 58:25–59:15]. For these reasons, the Court finds that Kerness was simply the pawn...