Gruppo Formstar LLC v. FM Forrest, Inc. (In re FM Forrest, Inc.)

• Decision Date: 18 July 2018
• Docket Number: Adversary No. 17-03452,Case No. 17-36103
• Citation: 587 B.R. 891
• Parties: IN RE: FM FORREST, INC., Debtor. Gruppo Formstar LLC, Plaintiff, v. FM Forrest, Inc. and Fred F. Morgan, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Texas

587 B.R. 891

IN RE: FM FORREST, INC., Debtor.Gruppo Formstar LLC, Plaintiff,

v.FM Forrest, Inc. and Fred F. Morgan, Defendants.

Case No. 17-36103

Adversary No. 17-03452

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed July 18, 2018

Garrett L. Roberts, Cliff A. Wade, MBL Law, Dallas, TX, for Plaintiff.

FM Forrest, Inc., pro se.

Bruce C. Morris, Michael P. Ridulfo, Kane Russell Coleman and Logan, PC, Houston, TX, Angela Nicole Offerman, Cudd Energy Services, The Woodlands, TX, for Defendants.

MEMORANDUM OPINION ON FRED F. MORGAN'S MOTION FOR RELIEF FROM FINAL SUMMARY JUDGMENT AND RELATED ENFORCEMENT ORDERS

[This Order Relates to Adv. Doc. No. 43]

Jeff Bohm, United States Bankruptcy Judge

I. INTRODUCTION

The dispute at bar is governed by Federal Rule of Civil Procedure 60(b) for which there is voluminous case law; hence, this Court would not ordinarily issue a Memorandum Opinion involving this rule. However, the dispute at bar involves a Rule 60(b) motion filed in a lawsuit removed from state court, and there is split case law as to whether the Rooker - Feldman doctrine applies in such a situation; if it does, it would deprive this Court of subject matter jurisdiction over the motion. Further, even if this Court does have jurisdiction, a question has arisen as to whether, based upon rulings issued by the state court prior to removal, the law of the case doctrine applies, thereby requiring this Court to adhere to the orders of the state court. Given these points of law, the Court has decided to issue this Memorandum Opinion.

This adversary proceeding involves three parties: (1) a private lender, Gruppo Formstar LLC (the "Plaintiff"); (2) a privately-held company, FM Forrest, Inc.—the debtor in the main Chapter 7 case (the "Debtor"); and (3) the Debtor's sole shareholder, Fred F. Morgan ("Morgan"). Prior to the filing of the Debtor's Chapter 7 petition, the Plaintiff filed suit against the Debtor and Morgan (collectively, the "Defendants") in state court to enforce the terms of a promissory note executed by the Debtor and a guaranty executed by Morgan. The Plaintiff eventually obtained a judgment against the Defendants, and thereafter obtained orders from the state court in order to collect the judgment, including an order appointing a receiver and requiring turnover of assets, and an order sanctioning the Defendants for failure to comply with post-judgment discovery. The Defendants requested the state court to vacate the judgment and associated orders, but the state court, after holding an evidentiary hearing, denied their requested relief. Soon thereafter, the Plaintiff filed a motion for contempt. A few weeks later, the Debtor filed a voluntary Chapter 7 petition; and on the eve of the contempt hearing in state court, Morgan—who was not protected by the automatic stay and therefore required to defend himself at this contempt hearing—removed the state court suit to federal court, thereby stopping the state court from holding the hearing. [Adv. Doc. No. 1]. Following the removal and transfer of the lawsuit to this Court, Morgan filed a pleading entitled "Fred F. Morgan's Motion For Relief From Final Summary Judgment and Related Enforcement Orders" (the "Motion"). [Adv. Doc. No. 43]. The Motion requests this Court to set aside the judgment issued by the state court as well as the related enforcement orders. Not surprisingly, the Plaintiff filed a response opposing the Motion. [Adv. Doc. No. 64].

On June 4, 2018, this Court held a hearing on the Motion (the "Hearing"). The parties introduced exhibits and adduced testimony from three witnesses, the Court heard closing arguments, and then took the matter under advisement. The parties then filed post-hearing briefs. Having now considered all of the evidence and the legal arguments made by the parties, the Court now issues this Memorandum Opinion explaining why it will deny the Motion. Set forth below are this Court's findings of fact and conclusions of law, which this Court makes pursuant to Bankruptcy Rule 7052. To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such; and to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. The Court reserves the right to make additional findings and conclusions as it deems appropriate or as any party may request.

II. FINDINGS OF FACT

1. Morgan is a developer of multi-family apartments. [Defs.' Ex. 16]. He is 82 years old and is a seasoned and sophisticated businessman who has been a party to previous lawsuits. [Id. ; Adv. Doc. No. 72, June 4, 2018, Tr. 51:3-4, 61:1-5, 101:19-23].

2. Morgan is the 100% shareholder and president of the Debtor. [Main Case Doc. No. 1, at 32 of 35; Adv. Doc. No. 72, June 4, 2018, Tr. 51:7-12].

3. In 2015, Morgan, as president and sole shareholder of the Debtor, decided to build an apartment complex in Ingleside, Texas. [Adv. Doc. No. 43, at 3 of 7, ¶ 7]. The Plaintiff extended financing of $750,000.00 to the Debtor in conjunction with this project. [Adv. Doc. No. 72, June 4, 2018, Tr. 53:12-21, 54:19-22]. The Debtor signed a promissory note evidencing this loan, and Morgan himself signed a personal guaranty that guaranteed repayment of this loan. [Pl.'s Ex. E]. Additionally, the terms of this $750,000.00 loan were documented in a lengthy and detailed loan agreement and two security agreements. [Id. ].

4. Subsequently, the Debtor defaulted under the note, and Morgan failed to pay pursuant to the guaranty.¹ [Pl.'s Ex. E, at 3 of 76, ¶¶ 8–10, at 9 of 76, ¶¶ 8–12].

5. On October 27, 2016, the Plaintiff filed a lawsuit against the Defendants in the District Court of Dallas County, Texas (the "State Court"). [Pl.'s Ex. A]. Specifically, the Plaintiff filed its Original Petition and Request for Disclosure (the "Petition"). [Id. ]. The Petition was served upon both Defendants at 4801 Woodway Drive, Suite 306W, Houston, Texas 77056. [Pl.'s Ex. B]. The district clerk assigned this lawsuit Cause No. DC-16-13975, and it was styled as Gruppo Formstar, LLC, A Texas Limited Liability Company v. F M Forrest, Inc., A Texas Corporation, and Fred F. Morgan, An Individual (the "State Court Suit"). [Pl.'s Ex. A].

6. The Petition attached the loan documents that form the basis of the lawsuit and these documents—the loan agreement, promissory note, security agreements, and guaranty agreement—each state the address for both Defendants as 4801 Woodway Drive, Suite 306W, Houston, Texas 77056. [Adv. Doc. No. 1-1, at 2–71 of 71].

7. On November 28, 2016, the Defendants filed their Original Answer to Plaintiff's Original Petition (the "Answer"). [Pl.'s Ex. D]. The Defendants filed no affirmative defenses or counter-claims; they simply filed a general denial. [Id. ].

8. The attorney who filed the Answer on behalf of the Defendants was Jacqueline M. Houlette ("Houlette"). [Id. ]. Since 2009, Houlette had represented Morgan and entities in which he had an interest in various lawsuits. [Adv. Doc. No. 72, June 4, 2018, Tr. 61:1-5, 101:19-23].

9. On December 19, 2016, counsel for the Plaintiff filed the Plaintiff's Motion for Summary Judgment (the "MSJ"), set the hearing for February 1, 2017, and properly served the MSJ and Notice of Hearing upon counsel of record for the Defendants—i.e., Houlette. [Pl.'s Exs. E, F, G, and H].

10. On January 24, 2017, at 11:07 a.m., Houlette wrote an email to counsel of record for the Plaintiff, Cliff Wade ("Wade"), requesting that Wade reset the hearing on the MSJ. Specifically, Houlette's email reads as follows:

I write to respectfully request you re-set your MSJ for no earlier than February 15, 2016 [sic].² I have been helping care for a friend in a home hospice situation since before Christmas and he passed away last week. In addition, Fred [i.e. Morgan] has been out of the office battling pneumonia the last couple of weeks. I appreciate your professional courtesy in this matter and hope to get you a settlement offer before responding to the MSJ.

[Ex. No. 1 attached to Pl.'s Ex. I].

11. In response to Houlette's request for a continuance, Wade, at 4:09 p.m. on January 24, 2017, responded as follows:

Jackie, I have flown to Midland and back today for a hearing and am catching up on email. I am reaching out to my client for discussion as I believe that the extension requires his consideration. Until I respond to you, please assume that we are proceeding under the current setting.

[Id. ]

12. In reply to Wade's response, Houlette, at 4:29 p.m. on January 24, 2017, wrote the following email to Wade:

Thanks for getting back to me. I appreciate your professional courtesy in this matter. Please let me know if your client refuses my request notwithstanding my reasons for requesting it so I can mark you guys as opposed. I will commit to getting you a settlement offer before a hearing should you agree to move it, and perhaps even before my response is due.

Safe travels! I hope you get to catch a meal at Wall Street while you are in Midland.

[Id. ]

13. The record is unclear as to whether Wade ever affirmatively communicated thereafter to inform Houlette that he had conferred with the Plaintiff and that the Plaintiff expressly instructed him to oppose the request for a continuance. What is clear is that on January 25, 2017, at 5:51 p.m., Houlette—on behalf of the Defendants—filed Defendants' Verified Motion for Continuance of Hearing on Plaintiff's Motion for Summary Judgment ("Motion for Continuance"). [Pl.'s Ex. I]. The Motion for Continuance expressly set forth the following grounds for the requested continuance:

Counsel for Defendants has been caring for a close friend in home hospice care for the last month or so. He passed away last week. She has focused much of her time and energy on caring for him over the last six weeks and needs additional time to prepare a response to Plaintiff's Motion for Summary Judgment. In addition, Defendant Fred Morgan, who is also the sole proprietor of Defendant F M Forrest, Inc. has been

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