In Re Endeavour Highrise

Decision Date13 July 2010
Docket NumberAdversary No. 09-03267.,Bankruptcy No. 09-33151-H4-11.
Citation432 B.R. 583
PartiesIn re ENDEAVOUR HIGHRISE, L.P., Debtor.Endeavour GP, LLC, Plaintiff,v.Endeavour Highrise, L.P. et al., Defendants.
CourtU.S. Bankruptcy Court — Southern District of Texas










Susan J. Taylor, Taylor Law Group, Houston, TX, for Plaintiff.

Amy Kathleen Wolfshohl, Joshua Walton Wolfshohl, Porter & Hedges, William L. Van Fleet, II, Frank, Elmore, Lievens, Chesney & Turet, L.L.P, Paul J. McConnell, III, DeLange, Hudspeth, McConnell & Tibbets, Houston, TX, for Defendants.


JEFF BOHM, Bankruptcy Judge.

I. Introduction

The facts in this case demonstrate the continuing vitality of the adage that “if it sounds too good to be true, it really is.” Here, several individuals paid over $1 million in the aggregate as non-refundable deposits for certain real estate without reading the contracts or inspecting the condominium units they were purchasing. Their actions were motivated at least in part by the belief-however unrealistic-that they could earn a significant return on their investment within a matter of weeks. With unrealized expectations, they now seek a judgment from this Court returning the rashly spent monies to their possession. This, the Court will not do.

On March 23-26 and 30, 2010, this Court held a trial in this adversary proceeding. Nineteen witnesses testified at this trial, and a total of 72 exhibits were admitted into evidence.1 Based upon the entire record, the Court now makes findings of fact and conclusions of law pursuant to Federal Bankruptcy Rule 7052.2 To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such; and to the extent any conclusion of law is construed as a finding of fact, it is also adopted as such. This Court reserves the right to make additional findings and conclusions as it deems appropriate or as any party may request.

II. Present Posture of this Chapter 11 Case

This Chapter 11 case is almost one year old. A Chapter 11 trustee was appointed in the second month of the case, and he spent several months thereafter overseeing the repair and sale of the major tangible asset of the estate: a condominium complex. Now, through the filing of various suits, he is attempting to recover assets for the estate in order to pay claims, in part if not in whole. The pending adversary proceeding is one of the suits the trustee has prosecuted in order to recover assets. No plan has yet been filed in the main case.

III. Findings of Fact
A. General Background of this Chapter 11 Bankruptcy

1. Endeavour Highrise, L.P. (the Debtor) 3 is a limited partnership whose principal place of business is located at 3901 NASA Parkway, Seabrook, Texas. The Debtor is the developer of a high-rise condominium complex located in Seabrook, Harris County, Texas.

2. On May 4, 2009, the Debtor filed a voluntary Chapter 11 petition in this Court. [Main Case 09-33151, Doc. No. 1]. On the petition date, the Debtor had total assets of approximately $9.5 million and total liabilities of $31.0 million,4 and its primary asset consisted of its interest in a condominium highrise project (the Property). Within the one year preceding the filing of the petition, the Debtor's liabilities also exceeded its assets.

3. On June 12, 2009, this Court appointed David R. Jones as trustee of the Debtor's Chapter 11 estate (the Trustee). [Main Case 09-33151, Doc. No. 96]. Mr. Jones is a very experienced, seasoned attorney who has been practicing as a bankruptcy lawyer since 1992. He has served as counsel for a trustee-in-bankruptcy on numerous occasions, and has been appointed as a Chapter 11 trustee by bankruptcy courts between ten and twelve times. [March 23, 2010 Tr. 90:8-17].

4. After his appointment, the Trustee took possession of all of the Debtor's books and records from the place of business where the Debtor previously maintained its files, and has since kept the books and records in a single location, preserving their original content.5 [March 24, 2010 Tr. 25:19-26:18]. The Trustee carefully reviewed these documents and met with numerous individuals who have knowledge about the Property to determine, among other things, what causes of action the Debtor's estate had, or might have, against third parties to recover monies for the Chapter 11 estate.

5. The Trustee also investigated pre-petition transactions concerning the Debtor in order to determine whether the Debtor's Chapter 11 estate had any claims against third parties. The Trustee conducted this investigation to fulfill his fiduciary duty to the estate to recover assets so that claims against the estate could be paid, in part if not in whole.

6. After reviewing the Debtor's books and records and conducting his investigation, the Trustee determined that the estate has claims against certain funds on deposit at two title companies totaling $1,030,205.47. 6

7. The parties who have asserted or could potentially assert an interest in these funds are as follows (collectively the Interested Parties or the Nichols Group):

(1) Horace James Colbert;
(2) Carter Hartwig;
(3) Glenn Nichols;
(4) Jerry Wayne Pace;
(5) Dorothy Eileen Pace;
(6) Fred Shepherd;
(7) Mary Shepherd;
(8) Daniel Waldenmaier;
(9) Gregory Boyle;
(10) Demostene F. Tajolosa;
(11) Joyson Abraham;
(12) Anna Abraham;
(13) Edward A. Schroeppel;
(14) Jim Butcher;
(15) Vivian Abobo;
(16) Glenn Nichols, trustee for Behrouz Abassi;
(17) Kevin D. Mitchell;
(18) Andrew N. Pace;
(19) Stephanie Pace;
(20) Rebecca Anne Pace;
(21) Wayne Alexander Pace;
(22) Amina Abdulla;
(23) Tom Monheim;
(24) Entrust Retirement Services, Inc. FBO Amina Abdulla IRA# 10846-01;
(25) Entrust Retirement Services, Inc. FBO Vivian Abobo IRA# 10812-01;
(26) Entrust Retirement Services, Inc. FBO Suleman Abdulla IRA# 10821-01;
(27) Entrust Retirement Services, Inc. FBO Tom Monheim IRA# 10695-01;
(28) Entrust Retirement Services, Inc. FBO Gregg Boyle IRA# 10811-01;
(29) Entrust Retirement Services, Inc. FBO Wayne Pace IRA# 11214-21;
(30) Entrust Retirement Services, Inc. FBO Andrew Pace IRA# 11257-21;
(31) Entrust Retirement Services, Inc. FBO Jerry Pace IRA# 10853-21;
(32) Entrust Retirement Services, Inc. FBO Joyson C. Abraham IRA# 11222-21;
(33) Entrust Retirement Services, Inc. FBO Anna G. Abraham IRA# 11223-21;
(34) Entrust Retirement Services, Inc. FBO Carter Hartwig IRA# 10693-01;
(35) Entrust Retirement Services, Inc. FBO Danny Tajolosa IRA# 10733-01;
(36) Entrust Retirement Services, Inc. FBO Glenn Nichols IRA# 10675-02; and
(37) Entrust Retirement Services, Inc. FBO James Butcher IRA# 10865-21. 7
B. Procedural Background of this Adversary Proceedingi) Initial Suit: Endeavour GP, LLC v. the Debtor (Trustee),8

the Title Company, and StarTex

8. On July 13, 2009, the pending adversary proceeding was initiated through the filing of a complaint by an entity known as Endeavour GP, LLC (the Plaintiff).9 [Adv. Doc. No. 1]. Three defendants were named in this suit: (a) the Debtor; (b) First American Title (the Title Company); and (c) StarTex Title Company (StarTex). The Plaintiff alleged that: (a) the title companies were holding earnest money relating to contracts between the Debtor and various purchasers; and (b) contrary to any position taken by the Trustee (on behalf of the Debtor's estate), the earnest money is not property of the bankruptcy estate, but rather belongs to these purchasers. The Plaintiff requested this Court enter a declaratory judgment that the earnest money is not property of the Debtor's estate, and consequently order the title companies to immediately deliver the monies to the Plaintiff.10 [Adv. Doc. No. 1, p. 3].

a First Counterclaim and Cross-claim: StarTex v. the Plaintiff; and StarTex v. the Debtor (Trustee)

9. On August 10, 2009, StarTex filed its counterclaim against the Plaintiff and cross-claim against the Debtor. [Adv. Doc. No. 7]. These claims were made in the nature of an interpleader, with StarTex asserting that it is an innocent stakeholder with respect to the earnest money which it holds (totaling $100,000.00) and that it will pay the funds to the party entitled to them, less attorneys' fees and costs of court. [Adv. Doc. No. 7, ¶¶ 1-2].

b. Second Counterclaim and Cross-claim and First Third-Party Complaint: the Title Company v. the Plaintiff; the Title Company v. the Debtor (Trustee); and the Title Company v. the Interested Parties

10. On August 20, 2009, the Title Company filed its counterclaim against the Plaintiff, cross-claim against the Debtor, and third-party complaint against Daniel Waldenmaier, Fred and Mary Shepherd, Jerry and Dorothy Pace, Glenn Nichols, Carter Hartwig, Horace Colbert, and Entrust Retirement Services, Inc. [Adv. Doc. No. 9]. The Title Company asserted that it held, as escrow agent, earnest money deposits made by the named members of the Nichols Group totaling $994,760.00, and, thus, requested that: (a) the Court permit it to interplead the earnest money deposits into the registry of the Court; (b) the Court discharge the Title Company from any claims or liability with respect to the deposits; and (c) the Court award it reasonable and necessary attorneys' fees. [Adv. Doc. No. 9, p. 7].

c. Third Counterclaim and Cross-claims: the Trustee v. the Plaintiff; the Trustee v. StarTex; the Trustee v. the Title Company

11. On September 30, 2009, the Trustee filed his counterclaim against the Plaintiff and cross-claims against StarTex and the Title Company. [Adv. Doc. No. 51]. The Trustee requested: (a) a declaratory judgment that the earnest money is property of the Debtor's bankruptcy estate; (b) an immediate turnover of all estate property pursuant to § 542; and (c) an award of attorney's fees, interests, and...

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