In re Greenhaw Energy, Inc., Case No: 03-30422 (Bankr. S.D. Tex. 7/3/2007)

Decision Date03 July 2007
Docket NumberCase No: 03-30422.,Adversary No. 06-3343.
PartiesIN RE: GREENHAW ENERGY, INC. CHAPTER 7, Debtor(s) W STEVE SMITH Plaintiff(s) v. MORRIS R GREENHAW OIL AND GAS, INC, et al Defendant(s)
CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas

MARVIN ISGUR, Bankruptcy Judge.

For the reasons set forth below, the Defendants' motions for summary judgment will be granted. A separate order will issue. This Court has jurisdiction of this proceeding pursuant to 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. § 157.


On January 6, 2003, Greenhaw Energy, Inc. ("Debtor") filed a petition for chapter 11 bankruptcy. On Schedule D, Debtor listed Morris R. Greenhaw Oil & Gas, Inc. ("Greenhaw Oil & Gas") as a secured creditor holding a deed of trust on oil and gas interests in Erath, Comanche and Eastland Counties.

The property subject to the security interest was purchased by Debtor in February 2001 from Greenhaw Oil & Gas for approximately $ 1.1 million. In purchasing the properties, Debtor signed a promissory note secured by two deeds of trust. One deed of trust covered particular rights and interests referred to as Desdemona Field. The other covered a 3/4 interest in a Gas Plant and certain real property and leaseholds in Eastland County. Desdemona Field and the 3/4 interest are collectively referred to as "Desdemona."

After Debtor filed bankruptcy, Greenhaw Oil & Gas filed a motion for relief from the stay. The Court entered an agreed order resolving the lift stay motion on March 17, 2003 (docket no. 48). The Order stated that Debtor was to pay Greenhaw Oil & Gas $100,000 by May 16, 2003, $25,000 by July 15, 2003, and the remaining balance of the claim by September 15, 2003.1 In addition, the Debtor was to pay $3,000 on the twelfth day of each succeeding month beginning April 12, 2003, and continuing until the September 15, 2003, payment was made. The $3,000 was characterized as adequate protection payments for use of cash collateral.2 The agreed order provided if the Debtor failed to timely make any of the payments described in the order, the automatic stay was to lift on the day after the missed payment was due without further order of the Court.

The cash collateral order stated that any notice required to be given under the cash collateral order should be addressed to Debtor at Post Office Box 580337, Houston, Texas 77258 with a copy to Richard Fuqua at 2777 Allen Parkway, Suite 480, Houston, Texas 77019. Agreed Order Authorizing Use of Cash Collateral ¶ 33. Neither order provided a valuation method for Desdemona in the event of a default.

After Debtor failed to make the adequate protection payment due on August 12, 2003, Greenhaw Oil & Gas began foreclosure proceedings. The foreclosure sale occurred on October 7, 2003. Notice of the sale and a letter stating an amount due of $441,200, were sent to the Debtor at 12700 N. Featherwood, Houston, Texas 77034 ("Featherwood Address"). The Trustee alleges that of the amount due, $205,316 represented attorney's fees and expenses. At the foreclosure sale, the gas plant was sold first for $175,000. There was a subsequent sale for the balance of the Desdemona Field for $ 250,000. The Trustee alleges the properties were sold for a grossly inadequate price resulting from a conspiracy between Morris Greenhaw, Greenhaw Oil & Gas, Kenneth K. Laughlin, Kenmor Properties, and Tommy Warford3 (collectively "Defendants").4

The Trustee commenced this adversary proceeding on April 14, 2006, alleging, inter alia, that Debtor had made the August 12, 2003, adequate protection payment. An amended complaint was filed by the Trustee on June 15, 2006.

The Trustee's belief that Debtor made the August 2003 payment was incorrect. On August 28, 2006, the Trustee appeared before the Court and stipulated that the payment was not made. Accordingly, the Court issued an order declaring the same.5 The Court then ruled on the Defendants' motions to dismiss.

In so ruling, the Court determined that the only surviving causes of actions from the amended complaint were the Trustee's claims for wrongful foreclosure and conspiracy to commit wrongful foreclosure. The Trustee had asserted these claims under 11 U.S.C. § 544. The Court found that the Trustee was barred from asserting these claims under § 544 due to the limitations period stated in § 546, but that the Trustee had authority under § 541 to maintain these causes of action. See 11 U.S.C. §§ 541(a)(7) and 544(a).

Now pending before the Court are motions for summary judgment filed by Morris R. Greenhaw Oil & Gas and Morris R. Greenhaw (collectively "Greenhaw"), Kenneth K. Laughlin and Kenmor Properties, L.L.C. ("Laughlin"), and Tommy Warford ("Warford").6

Summary Judgment Standard

A party seeking summary judgment may demonstrate: (i) an absence of evidence to support the non-moving party's claims or (ii) the absence of a genuine issue of material fact. Warfield v. Byron, 436 F.3d 551, 557 (5th Cir. 2006); Condrey v. SunTrust Bank of Ga., 429 F.3d 556, 562 (5th Cir. 2005). Material facts are those that could affect the outcome of the action or could allow a reasonable fact finder to find in favor of the non-moving party. DIRECTV, Inc. v. Budden, 420 F.3d 521, 529 (5th Cir. 2005).

The evidentiary support needed to meet the initial summary judgment burden depends on whether the movant bears the ultimate burden of proof at trial. At all times, a court views the facts in the light most favorable to the non-moving party. Rodriguez v. ConAgra Grocery Products, Co., 436 F.3d 468, 473 (5th Cir. 2006). However, to weigh evidence would result in a credibility determination which is not part of the summary judgment analysis. Hunt v. Rapides Healthcare Sys., LLC, 277 F.3d 757, 762 (5th Cir. 2001); See MAN Roland, Inc. v. Kreitz Motor Express, Inc., 438 F.3d 476, 478 (5th Cir. 2006). A court is not obligated to search the record for the non-moving party's evidence. Malacara v. Garber, 353 F.3d 393, 405 (5th Cir. 2003).

If the movant bears the burden of proof, a successful motion must present evidence that would entitle the movant to judgment at trial. Hart v. Hairston, 343 F.3d 762, 764 (5th Cir. 2003); Beck v. Tex. State Bd. of Dental Exam'rs, 204 F.3d 629, 633 (5th Cir. 2000). Upon an adequate showing, the burden shifts to the non-moving party to establish a genuine issue of material fact. Warfield, 436 F.3d at 557. The non-moving party has a duty to respond with specific evidence demonstrating a triable issue of fact. Celotex Corp. v. Cattrett, 477 U.S. 317, 324 (1986); Wheeler v. BL Dev. Corp., 415 F.3d 399, 402 (5th Cir. 2005). When identifying specific evidence in the record, the non-movant must articulate how that evidence supports its position. Johnson v. Deep E. Texas Reg'l Narcotics Trafficking Task Force, 379 F.3d 293, 301 (5th Cir. 2004).

Summary Judgment Motions

The Defendants assert they are entitled to summary judgment because (1) the Trustee cannot maintain post—petition claims for wrongful foreclosure and conspiracy to commit wrongful foreclosure under § 541; (2) the Defendants fully complied with the statutory requirements for conducting foreclosure sales, therefore no wrongful foreclosure occurred; (3) because wrongful foreclosure did not occur, there can be no conspiracy to commit wrongful foreclosure; and (4) conspiracy claims are otherwise barred by the applicable statute of limitations.

The Trustee maintains that (1) authority exists under § 541to assert these claims; (2) there were irregularities in the foreclosure sale; and (3) the result of the irregularities is that the price at which the properties were sold was grossly inadequate.

Trustee's Authority Under § 541

Generally, the estate consists of property which the debtor owns at the time of filing the petition. 5 RESNICK & SOMMER, COLLIER ON BANKRUPTCY ¶ 541.01. This includes causes of action. Wieburg v. GTE Southwest Inc., 272 F.3d 302, 306 (5th Cir. 2001) (citing In re Educators Group Health trust, 25 F.3d 1281, 1283 (5th Cir. 1994)). See In re Equinox Oil Co., 300 F.3d 614, 618 (5th Cir. 2002) ("Section 541 is read broadly and is interpreted to `include all kinds of property, including tangible or intangible property [and] causes of action..."). Therefore, if claims exist which are property of the estate at the time of filing, the Trustee becomes the "real party in interest with exclusive standing to assert them." Weiburg, 272 F.3d at 306 (citing In re Educator's Group Health trust, 25 F.3d at 1284).

The estate is an "active legal enterprise" which can "sue or be sued." In re Haberman, 112 B.R. 273 (Bankr. W.D. Tex . 1990). Accordingly, causes of action that arise from the administration of the chapter 11 estate are property of the estate. This principle is codified in 11 U.S.C. § 541(a)(7). Section 541(a)(7) states that property of the estate will include "[a]ny interest in property that the estate acquires after the commencement of the case." 11 U.S.C. § 541(a)(7).

At the commencement of this bankruptcy case, the Debtor listed on Schedule D the property over which the wrongful foreclosure dispute arises. This property became property of the estate the moment the Debtor filed for chapter 11 protection. Any claims stemming from this property would generally belong to the estate.7

However, the Defendants argue that avoidance claims, such as wrongful foreclosure, fall into a special class of actions that may be asserted only under § 549. Because the time to assert claims under § 549 has expired, the Defendants argue that the Trustee has no recourse for such a claim.8

The Court finds a fatal flaw exists in the Defendants' argument. Section 549 is inapplicable to the Trustee's claim. Section 549 applies only to transfers occurring after the commencement of the case that ... "[are] not authorized under this title or by the court." 11 U.S.C. § 549(a). All part...

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