In re Ozcelebi
| Decision Date | 01 April 2022 |
| Docket Number | CASE NO: 20-70295 |
| Citation | 639 B.R. 365 |
| Parties | IN RE: Fatih OZCELEBI, Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of Texas |
Andrew Jimenez, US Department of Justice, Corpus Christi, TX, Alicia Lenae Barcomb, Office of the US Trustee, Houston, TX, for U.S. Trustee.
David N. Calvillo, Jarrod B. Martin, Chamberlain Hrdlicka, Houston, TX, for Debtor.
Catherine Stone Curtis, Pulman, Cappuccio & Pullen, LLP, McAllen, TX, for Trustee.
"Falsehood flies, and the Truth comes limping after it ...."1 After two decades of contentious litigation in state court, Dr. K.V. Chowdary obtained a final judgment against his former employee and colleague, Dr. Fatih Ozcelebi, and is now the largest non-insider creditor in this subchapter V proceeding holding a two-million-dollar allowed claim. Dr. Ozcelebi's bankruptcy case has been no less contentious, resulting in numerous contested hearings before this Court. Throughout the course of those hearings, the numerous falsehoods put forth by Dr. Ozcelebi were slowly revealed as the truth has finally caught up.
On November 29, 2021, the Court conducted an evidentiary hearing on confirmation of Dr. Ozcelebi's subchapter V plan of reorganization. Dr. Chowdary, the subchapter V trustee, and the United States Trustee all objected to confirmation. On December 6, 2021, the United States Trustee went a step further, filing a motion seeking conversion of this case to chapter 7. Dr. Chowdary joined the United States Trustee in that request. On January 5, 2022, the Court conducted a hearing on the United States Trustee's motion to convert, and considered, sua sponte, whether debtor should remain in possession or be removed pursuant to 11 U.S.C. § 1185(a).
For the reasons set forth herein, this Court grants in part the "Motion of the United States Trustee to Convert Case,"2 along with "Chowdary's Joinder in (Doc#296) Motion of the United States Trustee to Convert Case."3 The Court finds cause to convert Debtor's case for gross mismanagement pursuant to § 1112(b)(4)(B). As to the remainder of the statutory grounds raised, the Motion is denied. Additionally, based on the Court's findings below, the Court finds cause to convert this case pursuant to § 1112(b)(1) for Debtor's bad faith not only in filing this case, but in carrying out his duties under §§ 521 and 1187(b) of the Bankruptcy Code and the instant subchapter V proceeding is converted to chapter 7. Conversion of this case to chapter 7 is dispositive, and therefore, "Chowdary's Objection to Debtor's First Amended Plan"4 filed by Dr. K.V. Chowdary, M.D., individually and doing business as Valley Gastroenterology, Clinic, P.A. on November 22, 2021, the "Notice of Subchapter V Trustee's Position on Debtor's Amended Plan of Reorganization"5 filed by Catherine Stone Curtis, on November 22, 2021 and treated as an objection, and the "Objection of the United States Trustee to Debtor's Amended Subchapter V Plan of Reorganization"6 filed by Kevin M. Epstein, on November 22, 2021 are denied as moot. Likewise, confirmation of "Debtor's Amended Subchapter V Plan of Reorganization,"7 which includes two supplements: "Supplement to Debtor's Amended Subchapter V Plan of Reorganization"8 and "Second Supplement to Debtor's Amended Subchapter V Plan of Reorganization"9 is denied as moot. Lastly, this Court's sua sponte consideration under § 1185(a) of whether Dr. Ozcelebi should remain as debtor in possession as an alternative to conversion is moot.
Dr. Fatih Ozcelebi ("Dr. Ozcelebi " or "Debtor ") is a gastroenterologist employed by McAllen Gastroenterology Clinic, L.P. ("Clinic "). Dr. Ozcelebi formed the Clinic as a Texas limited partnership in 2006.10 Dr. Ozcelebi is the only gastroenterologist employed by the Clinic.11 Julie Ozcelebi ("Mrs. Ozcelebi "), Debtor's non-filing spouse, is a registered nurse and the Clinic's business manager.12 The Clinic's general partner is Fatih Ozcelebi MD Management, LLC ("Fatih Management "), which holds a .1% partnership interest therein.13 The remaining 99.9% partnership interest is held by Lyra Heritage Trust ("Lyra "), the Clinic's limited partner.14 Profit derived from the services provided at the Clinic is transferred to Lyra.15 Lyra was formed in 2007 as a Texas trust.16 Debtor and Mrs. Ozcelebi are 50/50 beneficiaries of Lyra.17 Debtor's brother, Cengiz Ozcelebi ("Cengiz "), is Lyra's trustee. Lyra also holds a 99% ownership interest in Fatih Management.18 The remaining 1% interest in Fatih Management is held by Mrs. Ozcelebi.19
Dr. Ozcelebi also performs procedures at the Endoscopy Center at Ridge Plaza L.P. ("Endoscopy Center ") along with three other gastroenterologists.20 The Endoscopy Center was formed by Dr. Ozcelebi as a Texas limited partnership in 2002.21 The Endoscopy Center's general partner is Endoscopy Center at Ridge Plaza Management, LLC, which holds a 1% partnership interest therein.22 McAllen Business Management, LP ("McAllen Business "), a limited partner of the Endoscopy Center, holds a 39.5% partnership interest therein.23 McAllen Business also holds a 50% membership interest in Endoscopy Center at Ridge Plaza Management, LLC.24 The Endoscopy Center at Ridge Plaza Management, LLC regularly disburses the Endoscopy Center's profits to its owners, which includes McAllen Business.25
Vega Heritage Trust ("Vega" ) holds a 99.8% partnership interest in McAllen Business.26 Vega was formed as a Texas trust in 2007.27 Debtor and Mrs. Ozcelebi are 50/50 beneficiaries of Vega.28 Cengiz is Vega's trustee.29 Mission Business Management, LLC ("Mission Business ") holds the remaining 0.2% partnership interest in McAllen Business.30 Vega also holds a 99% membership interest in Mission Business and Mrs. Ozcelebi holds the remaining 1%.31 McAllen Business transfers the money it receives from the Endoscopy Center to Vega.32
Debtor and Mrs. Ozcelebi are 50/50 beneficiaries of one other trust, Solano Heritage Trust ("Solano ," and together with Lyra and Vega, "Trusts ").33 Solano was formed as a Texas trust in 2010.34 Debtor's nephew, Kaan Ozcelebi ("Kaan "), is the trustee.35 Solano owns an investment account valued at $7,519,021.78 as of August 10, 2021.36 Solano also has membership interest in five LLCs: Vulcan Oilfield Services of Texas LLC (4%), Alliance Oil and Gas Services, LLC (3%), Efficient Construction Operation, LLC (5%), Horseshoe Hay Farm, LLC (99.9%), and Solano Land, LLC (99.9%).37
Before Dr. Ozcelebi formed the Clinic and the Endoscopy Center, he worked for Dr. K.V. Chowdary ("Dr. Chowdary "). In 1997, Dr. Chowdary sued Dr. Ozcelebi in state court.38 In 2016, Dr. Chowdary prevailed, obtaining a $1.8 million dollar judgment against Dr. Ozcelebi.39 After unsuccessful appeals to the Texas Court of Appeals and the Texas Supreme Court,40 Dr. Ozcelebi filed his initial petition under chapter 11, subchapter V of title 11 of the Code on October 16, 2020.41
Debtor was ordered to file a plan no later than January 14, 2021, pursuant to 11 U.S.C. § 1189(b).42 Before Debtor filed his plan, Dr. Chowdary filed a motion to convert or dismiss case, or alternatively, for authority to pursue chapter 5 causes of action against insiders,43 which was set for hearing on January 14, 2021. On December 20, 2020, Dr. Chowdary filed a motion to expedite the January 14, 2021 hearing because, inter alia, "[o]n December 18, Dr. Chowdary's counsel was informed that the Debtor's brother, supposedly as the trustee of the Debtor's fraudulently created trusts, was seeking to remove the Debtor as a beneficiary of the trusts."44
The same day, Debtor filed an objection to Dr. Chowdary's motion to expedite the January 14, 2021 hearing, arguing that a hearing would not be necessary because Debtor's brother, who resides in Turkey, was unfamiliar with U.S. bankruptcy law and that upon learning of such action, 45 On December 22, 2020, the Court held a hearing on the sole issue of Debtor's beneficial interest in the Trusts and after taking evidence, the Court was satisfied that although Debtor's beneficial interests were removed by Cengiz, they were in fact restored at the time of the hearing.46
Thereafter, on January 7, 2021, Debtor objected to Dr. Chowdary's motion to convert or dismiss Debtor's case.47 On January 14, 2021, the Court held a hearing on Dr. Chowdary's motion to convert or dismiss ("January 2021 Hearing "). The Court denied the motion.48
On January 12, 2021, Dr. Chowdary filed an objection to Debtor's claimed exemptions.49 On January 13, 2021, Debtor filed his first plan of reorganization.50 On February 2, 2021, Debtor filed an objection to Dr. Chowdary's objection to Debtor's claimed exemptions.51 Given the pending matters, Debtor, Dr. Chowdary, Cengiz, and Kaan submitted a "Joint Emergency Motion for Mediation Order" anticipating a contested confirmation hearing.52 The Court granted their request.53 However, on April 30, 2021, the parties announced that mediation was unsuccessful.54 The Court set a hearing for September 2, 2021, later rescheduled for September 7, 2021, on confirmation and Dr. Chowdary's objection to Debtor's claimed exemptions.55
On August 26, 2021, Catherine Curtis ("Subchapter V Trustee ") filed her "Notice of Subchapter V Trustee's Position on Debtor's Plan of Reorganization"56 and Dr. Chowdary filed "Chowdary's Objection to Debtor's Plan."57 On September 7, 2021, the Court held a confirmation hearing ("September Hearing "). The hearing was continued to September 15, 2021.58
On September 9, 2021, before the continued hearing however, Dr. Chowdary filed an "...
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... ... community often relies, as creditor democracy could otherwise ... be frozen as a consequence of the disinterest of ... others.") ... [ 98 ] S ee 11 U.S.C. § ... 1183(b)(7) ("facilitate the development of a consensual ... plan"); In re Ozcelebi , 639 B.R. 365, 381 ... (Bankr.S.D.Tex. 2022) (this duty is "unique" to a ... subchapter V trustee) ... [ 99 ] See 8 Collier on Bankruptcy ... P 1180.01 ("Small business enterprises historically have ... had difficulty reorganizing in chapter 11 for a number of ... ...