In re Am. Hous. Found.

• Decision Date: 10 February 2012
• Docket Number: No. 09–20232–RLJ–11.,09–20232–RLJ–11.
• Citation: 56 Bankr.Ct.Dec. 29,469 B.R. 257
• Parties: In re AMERICAN HOUSING FOUNDATION, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Texas

469 B.R. 257

56 Bankr.Ct.Dec. 29

In re AMERICAN HOUSING FOUNDATION, Debtor.

No. 09–20232–RLJ–11.

United States Bankruptcy Court,

N.D. Texas,

Amarillo Division.

Feb. 10, 2012.

Recognized as Unconstitutional

28 U.S.C.A. § 157(b)(2)(C)

Validity Called into Doubt

28 U.S.C.A. § 157(b)(2)(F, H)

Stephen A. McCartin, Gardere Wynne Sewell LLP, Dallas, TX, Max Ralph Tarbox, Tarbox Law, P.C., Lubbock, TX, for Trustee/Plaintiff.

Roger S. Cox, Underwood Law Firm, Amarillo, TX, for Defendants Greystone Servicing Corp., Inc.; United Community Bank; A & R Mechanical Services, Inc.; and Jet Support Services, Inc.

Jill L. Nicholson, Attorney at Law, Foley & Lardner LLP, Chicago, IL, for Defendant Greystone Servicing Corp., Inc.

John T. Cox III, John Volney, Lynn Tillotson Pinker & Cox, LLP, Dallas, TX, for Defendants TRC730/06—Talking Rock, Ltd.; Minerva Partners, Ltd.; Malouf Interests, Inc.; Matthew E. Malouf; 98th Slide Partners, Ltd.; Soak Creek Partners, L.P.; Milwaukee Avenue Partners, Ltd.; MM Millenium Trust FG; and William C. Dunlap.

Paul Durdaller, Taylor English Duma LLP, Atlanta, GA, for Defendant United Community Bank.

John H. Lovell, Joe L. Lovell, Lovell, Lovell, Newsom & Isern, L.L.P., Amarillo, TX, for Defendants Martha Templeton; Campbell Burgess; Carson Burgess; Carson Burgess, Inc.; Carson Herring Burgess; C.C. Burgess; Charlotte A. Burgess–Griffiths; Banjo, Inc.; Burgess Trust No. 4; Terry Wright as Co–Trustee of the Louise Johnston Thomas Trust and the Cornelia Johnson Slemp Trust; Monarch Trust Co. as Trustee of the Burgess Trust No. 2; Jessie Herring Johnson Trust No. 1 and 2; Herring Financial Services; Chain–C, Inc.; Keevin Clark; Herring National

Bank; Vaudrey Capital, L.P.; William Scott; William Scott, IRA; Dennis Dougherty; Heron Land Company; Herring Bank; Jessie Herring Johnson Estate No. 1 and 2; Paul King; Matt Malouf; Clay Storseth; Don Storseth, Individually and as Trustee of the Storseth Family Trust; Robert L. Templeton, Individually and as Executor of the Estate of Frances Maddox; and Susan Solomon Miller.

Joseph D. Martinec, Martinec, Winn, Vickers & McElroy, P.C., Austin, TX, for Defendants Mary C. Schooler, Trustee of the Mary Catherine Schooler Trust aka Mary C. Schooler Trust; Louise Trammell Conley, as Trustee of the Louise Trammell Trust; Schooler Properties, Ltd.; JRK–CDK, Ltd.; MKS–CDK, Ltd.; Catherine Suzanne Schooler; Maurice Schooler as Custodian for Augustine Wendt; Maurice Schooler as Custodian for Erin Wendt; Maurice Schooler as Custodian for Koehler Wendt; and Marty Rowley, as Trustee of the Schooler/Conley Creditors' Liquidation Trust.

Nancy J. Stone, Amarillo, TX, for Defendants Mary C. Schooler, Trustee of the Mary Catherine Schooler Trust aka Mary C. Schooler Trust; Louise Trammell Conley, as Trustee of the Louise Trammell Trust; Schooler Properties, Ltd.; JRK–CDK, Ltd.; LKC–CDK, Ltd.; MKS–CDK, Ltd.; Catherine Suzanne Schooler; Maurice Schooler as Custodian for Augustine Wendt; Maurice Schooler as Custodian for Erin Wendt; Maurice Schooler as Custodian for Koehler Wendt; and Marty Rowley, as Trustee of the Schooler/Conley Creditors' Liquidation Trust.

Monte L. Mann, Novack Macey, Chicago, IL, for Defendant Jet Support Services, Inc.

Kent Ries, Attorney at Law, Amarillo, TX, for Defendants Estate of Catherine D. Koehler; Estate of Maurice and Mary C. Schooler; and Estate of Louise Conley.

James N. Henry, Hallett & Perrin, P.C., Dallas, TX, for Defendants Rainier American Investors I, LLC; Rainier American Investors II, LLC; and Rainier American Invertors III, LLC.

Michelle E. Shriro, Larry A. Levick, Singer & Levick, P.C., Addison, TX, for Defendants Rainier American Investors I, LLC; Rainier American Investors II, LLC; and Rainier American Investors III, LLC.

Mark Platt, Casey Moore, Fulbright & Jaworski L.L.P., Dallas, TX, for Defendant Bank of America, N.A. as Trustee of the James R. Koehler 1997 Trust.

William Cornett, Cornett Law Firm PLLC, Amarillo, TX, for Defendant Mack Gordon.

OMNIBUS MEMORANDUM OPINION

ROBERT L. JONES, Bankruptcy Judge.

The Court addresses 37 motions filed in 20 lawsuits by 96 defendants, all of which seek dismissal of bankruptcy-based causes of action upon the authority of the Supreme Court's opinion in Stern v. Marshall, 564 U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) (“Stern ”).¹ The motions assert other grounds for dismissal; this memorandum opinion addresses only the Stern-based grounds for dismissal. The suits include fraudulent transfer actions based both on substantive federal law ( § 548 of the Bankruptcy Code) and substantive state law (through § 544 of the Bankruptcy Code) and preference actions ( § 547 of the Bankruptcy Code). Many, if not all, of the defendants are not claims-filing creditors in the American Housing Foundation (“AHF”) bankruptcy case [Case No. 09–20232], the case under which these suits arise; they do not consent to this Court hearing these actions. The plaintiff, Walter O'Cheskey (the “plaintiff-trustee”), is a trustee of a liquidating trust and to whom was assigned, under the confirmed plan of AHF, the rights of a bankruptcy trustee. As such, and in light of Stern, the Court acknowledges that these actions test the outer boundaries of the bankruptcy system. It concludes, however, that Stern does not require dismissal of the fraudulent transfer and preference claims brought in this Court by the plaintiff-trustee as a representative of the bankruptcy estate.

I.

The defendants seek dismissal under Rule 12(b)(1) of the Federal Rules of Civil Procedure, as incorporated by Rule 7012 of the Federal Rules of Bankruptcy Procedure. Before addressing the defendants' specific arguments, the Court first reviews what the Supreme Court said in Stern.²

A.

The Supreme Court in Stern addressed whether it was proper for the bankruptcy court there to have entered a final judgment on a common law tort claim. The Supreme Court held that while the bankruptcy court had statutory authority to enter the final judgment, it lacked constitutional authority to do so.

Vickie filed a Chapter 11 bankruptcy case in California. In Vickie's bankruptcy case, Pierce sued Vickie for defamation and asserted that his resulting claim was nondischargeable under § 523 of the Bankruptcy Code. Pierce also filed a proof of claim in the bankruptcy case. Pierce's suit created an adversary proceeding, in which Vickie filed a counterclaim for tortious interference against Pierce. Her counterclaim was similar to an action she had previously brought against Pierce in Texas probate court on a fraudulent inducement theory, which was pending at the time of her bankruptcy. The bankruptcy court first entered summary judgment for Vickie on Pierce's defamation claim. Later, upon trial on Vickie's counterclaim for tortious interference, the bankruptcy court found in Vickie's favor and entered a judgment for her in an amount in excess of $400 million.

As noted by the Supreme Court, Pierce, in post-trial proceedings, renewed his claim that the bankruptcy court's authority over Vickie's counterclaim was limited because it was not a “core” proceeding under 28 U.S.C. § 157(b)(2)(C). The bankruptcy court disagreed, concluding that Vickie's counterclaim was clearly a core proceeding under the statute and that it thus had authority to enter a final judgment. On appeal, the district court disagreed. The district court determined that though Vickie's counterclaim fell within the literal language of the statute designating certain matters as “core,” it was really only “somewhat related” to the bankruptcy case and thus outside the normal type of setoff counterclaims that customarily arise in bankruptcy suits. The district court recognized the constitutional problem with treating Vickie's counterclaim as a core proceeding, given the Supreme Court's opinion in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). It therefore treated the bankruptcy court's judgment as “proposed” and performed an independent review of the action. Upon doing so, the district court still found for Vickie on her tortious interference claim but reduced the judgment to approximately $90 million. Of significance, prior to the district court's entry of its judgment, the pending action in the Texas probate court proceeded to a jury trial, resulting in a judgment for Pierce. In entering its judgment, the district court did not recognize the prior Texas probate court judgment.

Upon appeal to the Ninth Circuit Federal Court of Appeals, the Ninth Circuit determined that the district court had erred in not giving preclusive effect to the prior-in-time judgment of the Texas probate court. It therefore reversed the district court. The Ninth Circuit construed the statute, § 157, to provide that a bankruptcy court may enter a final judgment in a proceeding only if the matter satisfies the statute's definition of a core proceeding and arises under or arises in a title 11 case (a bankruptcy case). As such, allowing final judgments by bankruptcy courts on all counterclaims in bankruptcy would run afoul of the Supreme Court's decision in Northern Pipeline. The Ninth Circuit further refined its ruling to provide that a counterclaim is properly a core proceeding arising in or under the Code if its resolution is necessary to resolve the allowance or disallowance of the claim which it counters. Vickie's counterclaim did not satisfy the Ninth Circuit's standard; the bankruptcy court's judgment could not, therefore, constitute a valid final judgment, and the district court's judgment was thus the first validly issued final judgment by a federal court. The problem, of course, was that it came after the Texas probate court judgment.

B.

1.

The Supreme Court, at Part II–A of the opinion, began its analysis by generally outlining the bankruptcy system: how the district courts, under 28 U.S.C. § 1334(a), have jurisdiction over all bankruptcy matters—bankruptcy cases and...