Craig v. Ponderosa Development, Lp

Citation392 B.R. 683
Decision Date08 November 2007
Docket NumberCivil Action No. 1:07-CV-540.
PartiesBruce CRAIG and Julie Craig, Appellants, v. PONDEROSA DEVELOPMENT, LP, AK/HA Manufacturing, LLC, AK Industries, Inc. and T. Gig Drewery, Appellees.
CourtU.S. District Court — Eastern District of Texas

Michael Edward Gazette, Law Offices of Michael E. Gazette, Tyler, TX, for Appellants.

Amy Bates Ames, Jason R. Searcy, PC, Longview, TX, Robert Bruce Dunham, Sheldon Dunham & Edwardson, Beaumont, TX, Glenn H. Steele, Jr., McPherson, Monk, Hughes, Bradley, Wimberley & Steele, L.L.P., Port Arthur, TX, for Appellees.

MEMORANDUM AND ORDER

MARCIA A. CRONE, District Judge.

Pending before the court is an appeal of a decision rendered by United States Bankruptcy Judge Bill Parker ("Judge Parker") granting Appellees Ponderosa Development, LP ("Ponderosa"), AK/HA Manufacturing, LLC ("AK/HA"), AK Industries, Inc. ("AK"), and T. Gig Drewery's ("Drewery") (collectively, "Appellees") Motion for Summary Judgment (# 33) seeking a judgment declaring a deed of trust to be extinguished and directing Appellants Bruce Craig and his wife, Julie Craig (collectively, "the Craigs"), to execute a written release of said deed of trust. See In re Ponderosa Development, LP, No. 06-10210, Adv. No. 06-1030, 2007 WL 1556866 (Bkrtcy. E.D.Tex. May 25, 2007). Having reviewed the record, the submissions of the parties, and the applicable law, the court is of the opinion that the decision of the bankruptcy court should be affirmed.

I. Background

The relevant facts from which this appeal arises are admitted by all the parties. Ponderosa is the owner of certain real property, approximately 10. 126 acres, located on or near Broussard Road in Beaumont, Jefferson County, Texas (the "Property"). On May 31, 2000, Ponderosa executed a promissory note (the "HPLP Note") in the amount of $48,833.25, payable to Hendricks Place LP ("HPLP"). The HPLP Note was secured by a deed of trust (the "HPLP Deed of Trust") of the same date, which was executed against the Property by Ponderosa in favor of HPLP and was signed on behalf of Ponderosa by Drewery and Bruce Craig ("Craig"), then presidents of Ponderosa's corporate general partners. Among other provisions, the HPLP Deed of Trust contains the following "dragnet" clause:

2.01. INDEBTEDNESS. The Indebtedness secured by this Instrument shall mean and include the following:

(a) Any and all sums becoming due and payable pursuant to the [HPLP Note],

(b) Any and all other sums becoming due and payable by Borrower to Lender as a result of advancements made by Lender pursuant to the terms and conditions of this Instrument or any other instruments securing or executed in connection with or otherwise relating to the [HPLP Note], including but not limited to the repayment of any future advance made by Lender to Borrower and the repayment of any sums advanced for the protection of Lender's security pursuant to section 3.01;

(c) All other present or future indebtedness and liabilities of all kinds of Borrower to Lender, whether or not related to the Property, and whether fixed or contingent, joint or several, direct or indirect, primary or secondary, and regardless of how created or evidenced, but in no event shall this Installment secure payment of any installment loan or any open end line of credit established under Chapter 3, Chapter 4 or Chapter 15 of the Texas Credit Code;

(d) Any and all renewals, exclusions and modification of the foregoing described indebtedness.

Regarding release, paragraph 6.01 of the HPLP Deed of Trust further provides that "[u]pon payment of all sums accrued by this Instrument, Lender shall release this Instrument."

On or about May 31, 2002, HPLP transferred its interest in the HPLP Note and the HPLP Deed of Trust to Craig. On such date, the principal balance outstanding on the HPLP Note was $2,522.20. The parties agree that this amount and any accrued interest was paid in full on or about July 18, 2002. At the time of payment, no other indebtedness existed between Craig and Ponderosa or between HPLP and Ponderosa. Following satisfaction of the HPLP Note, however, Craig did not execute a release of either the HPLP Deed of Trust or the HPLP Note.

On July 18, 2003, the parties to this appeal, as well as other entities not parties to this case, entered into a Compromise and Settlement Agreement ("CSA") in an action then pending in state court. See Drewery v. Craig, No. A-0165035 (58th Dist. Ct., Jefferson County, Tex., filed May 8, 2001). Pursuant to the terms of the CSA, the parties to the state action executed a mutual release of all claims (the "Mutual Release"). Also in furtherance of the CSA, on October 10, 2003, Ponderosa, Aqua-Partners, Ltd., and Drewery executed a non-recourse promissory note (the "Non-Recourse Note") in the amount of $235,000, payable to Craig. This note is secured by ownership in various entities held by Craig but transferred to Ponderosa and other related parties under the CSA. Neither the Non-Recourse Note nor the CSA expressly states that the Non-Recourse Note is further secured by the HPLP Deed of Trust or any real property owned by Ponderosa.

Within a year of its execution, the signatories to the Non-Recourse Note became unable to make payments as they came due, and the note went into default. As a result, Craig asserted a right to foreclose on the HPLP Deed of Trust against the Property and gave notice of his intention to do so.

Ponderosa filed a voluntary petition for bankruptcy relief on June 1, 2006. Eighteen days later, on June 19, 2006, Ponderosa removed to this court three consolidated state court cases originally filed in the 60th and 136th Judicial District Courts of Jefferson County, Texas. See Ponderosa Dev. LP v. AK Indus., No. B-173268 (60th Dist. Ct., Jefferson County, Tex., filed Sept. 22, 2004); Ponderosa Dev. LP v. Craig, No. B-173342 (60th Dist. Ct., Jefferson County, Tex., filed Oct. 4, 2004); Craig v. AK Indus., No. D-173294 (136th Dist. Ct., Jefferson County, Tex., filed Sept. 24, 2004). This court referred the removed case, then Case No. 1:07-CV-333, to Judge Parker on June 28, 2006. On October 16, 2006, Appellees filed an amended complaint against the Craigs, seeking a declaration that the HPLP Deed of Trust was released upon payment in full of the HPLP Note and a judgment directing Craig to execute and deliver to Ponderosa a written release of the HPLP Deed of Trust to be filed in the public records of Jefferson County. The Craigs filed an answer to the amended complaint, denying the allegations stated therein.

On March 12, 2007, Ponderosa filed a motion for summary judgment, arguing that Appellees were entitled to the relief requested as a matter of law. In their response, the Craigs contended that genuine issues of material fact existed regarding whether the HPLP Note had been paid in full and the intent of the parties at the time the HPLP Deed of Trust was executed. On May 25, 2007, the bankruptcy court entered an order granting Appellees' motion for summary judgment. The court found that the Craigs were barred from contesting that the HPLP Note was satisfied on or about July 18, 2002, having admitted such in their answer. The court additionally held that the HPLP Deed of Trust was extinguished as a matter of law upon payment in full of the HPLP Note.

The Craigs filed a motion for a new trial on June 4, 2007, which was denied. On June 28, 2007, the Craigs filed their Notice of Appeal. On appeal, although conceding satisfaction of the HPLP Note, the Craigs contend that the bankruptcy court failed to consider alternate grounds of indebtedness upon which the HPLP Deed of Trust may be enforced. Specifically, the Craigs argue that Judge Parker failed to consider the continued effect of the dragnet clause. Appellees counter that the dragnet clause, like all other provisions in the HPLP Deed of Trust, was extinguished when the underlying note was paid in full. Alternatively, they argue that the Non-Recourse Note was not within the reasonable contemplation of the parties when the HPLP Deed of Trust was executed.

II. Analysis
A. Jurisdiction and Standard of Appellate Review

This court has jurisdiction of this appeal pursuant to 28 U.S.C. § 158(c)(2), which provides that an appeal from the bankruptcy court to the district court "shall be taken in the same manner as appeals in civil proceedings generally are taken to the courts of appeals from the district courts. ..." Therefore, "when reviewing a bankruptcy court's decision in a `core proceeding,' a district court functions as a[n] appellate court."1 In re Webb, 954 F.2d 1102, 1103-04 (5th Cir.1992). In reviewing a decision of the bankruptcy court, Rule 8013 of the Federal Rules of Bankruptcy Procedure requires the court to accept the bankruptcy court's findings of fact unless clearly erroneous and to examine de novo the conclusions of law. See In re Soileau, 488 F.3d 302, 305 (5th Cir. 2007); Carrieri v. Jobs. com Inc., 393 F.3d 508, 517 (5th Cir.2004); In re Homeowners Mortgage & Equity, Inc., 354 F.3d 372, 375 (5th Cir.2003); Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1307-08 (5th Cir.1985).

B. Summary Judgment Standard of Review

In the bankruptcy court, Ponderosa moved for summary judgment pursuant to Federal Rule of Bankruptcy Procedure 7056. That rule incorporates Rule 56(c) of the Federal Rules of Civil Procedure, which provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). The parties seeking summary judgment bear the initial burden of informing the court of the basis for their motion and identifying those portions of the pleadings, depositions, answers to interrogatories, admissions on file, and...

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