IN RE PERRY

• Decision Date: 24 February 2010
• Docket Number: No. 08-32362-H4-11.,08-32362-H4-11.
• Parties: In re Will Clay PERRY, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Texas

425 B.R. 323

In re Will Clay PERRY, Debtor.

No. 08-32362-H4-11.

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

February 24, 2010.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

John Richard Millard, Law Office of John Millard, PC, John Wesley Wauson, Matthew Brian Probus, Wauson Probus, Sugar Land, TX, Ray J. Black, Jr., Law Offices of Ray J. Black, Jr., Houston, TX, for Debtor.

Stephen Douglas Statham, Office of U.S. Trustee, Houston, TX, for U.S. Trustee.

MEMORANDUM OPINION REGARDING ESTIMATION OF THE CLAIMS OF UNITED DEVELOPMENT FUNDING, L.P. AND UNITED DEVELOPMENT FUNDING III, L.P.

Main Case Docket No. 695¹

JEFF BOHM, Bankruptcy Judge.

I. INTRODUCTION

The Purpose of this Memorandum Opinion is to set forth this Court's findings of fact and conclusions of law regarding its estimation of certain claims for plan confirmation procedures. The Court conducted a two-day mini trial in order to estimate the claims of two large claimants in this Chapter 11 case. The claims, which are the subject of an adversary proceeding, involve relatively complex areas of the law, primarily usury. The Court hopes that by issuing its estimation ruling in writing, the parties will be better able: (1) to narrow the issues to be tried in a full-blown trial on the merits; and (2) to assess whether filing a motion for summary judgement would be appropriate.

II. PROCEDURAL BACKGROUND

On July 23, 2009, the Plaintiffs—WC Southern Colony Development, LLC (Southern Colony); Hidden Lakes Investments, LP (Hidden Lakes); and Will Clay Perry (Perry)—filed a complaint entitled "Plaintiffs' Original Complaint" (the Complaint) Docket No. 1 naming United Development Funding, LP (UDF) and United Development Funding III, LP (UDF III) as defendants (together, "the Defendants"). The Complaint requests the disallowance of the following Proofs of Claim, each of which arose from Perry's guarantees of a series of loans made by UDF and UDF III:(1) Proof of Claim number 43 by UDF III; (2) Proof of Claim number 44 by UDF; (3) Proof of Claim 45 by UDF III; and (4) Proof of Claim 46 by UDF III. In addition to the disallowance of these Proofs of Claim, the Complaint seeks: (1) actual damages pursuant to Tex. Fin.Code §§ 305.003 and 305.004 in favor of Hidden Lakes and Southern Colony; (2) equitable subordination of any claim that this Court may allow in favor of UDF or UDF III; and (3) court costs and reasonable attorneys' fees in favor of Hidden Lakes and Southern Colony.

On August 24, 2009, UDF and UDF III filed a "Motion to Dismiss for Lack of Subject Matter Jurisdiction, for Failure to State A Claim Upon Which Relief Can be Granted and, Alternatively, for More Definite Statement" Docket No. 10. Shortly thereafter, on August 28, 2009, the Plaintiffs filed an amended complaint entitled "Plaintiffs' First Amended Complaint" Docket No. 12. On September 8, 2009, the Defendants responded by filing a "Motion to Dismiss Plaintiffs' First Amended Complaint for Lack of Subject Matter Jurisdiction, for Failure to State a Claim Upon Which Relief Can Be Granted and, Alternatively, for More Definite Statement and Brief in Support Thereof (the Second Motion to Dismiss) Docket No. 14. On October 9, 2009, the Plaintiffs filed "Plaintiffs' Motion For Leave to File Second Amended Complaint" (the Motion to Amend) Docket No. 19, which was accompanied by "Plaintiffs' Second Amended Complaint" (the Second Amended Complaint) attached as Exhibit A. On October 14, 2009, the Court held a hearing on the Second Motion to Dismiss, and took the matter under advisement. On October 22, 2009, this Court issued an order Docket No. 23 granting leave to the Plaintiffs to file the Second Amended Complaint and abating the adversary proceeding until the Court could hold a mini-trial to estimate the claims of UDF and UDF III. With the issuance of this Memorandum Opinion on the estimation of these claims, the Court will now set a status conference to discuss the posture of the adversary proceeding with the parties' counsel.

The Court held a mini-trial on November 19 & 20, 2009 (the Hearing). The Court set the Hearing so that a timely confirmation hearing can be held—i.e., so that there would not be the inevitable substantial delay in the main case while the parties fully litigated, for months if not years, the amount of the claims to a final judgment.²

At the Hearing, this Court heard testimony from the following witnesses:

• (1) Dwayne Iselt (Iselt), a land developer employed by Perry Properties to develop the Hidden Lakes Property. Iselt was subsequently hired by UDF to assist with bringing the Hidden Lakes Property into compliance with various legal requirements;

• (2) Patricia Osenbaugh (Osenbaugh), an appraisal expert who holds a Masters Degree in Land Economics and Real Estate as well as MAI and CCIM designations. Osenbaugh also has over 20 years of experience as an appraiser. Osenbaugh was hired by the Plaintiffs to appraise the Hidden Lakes and Southern Colony Properties;

• (3) Perry, a Plaintiff in this adversary proceeding and the Debtor-in-Possession in the main case. Perry is a limited partner in W.C. Perry Properties, LP (Perry Properties); and

• (4) Mehrdad Moayedi (Moayedi), an experienced land developer and an agent of the purchaser of the Hidden Lakes property at a foreclosure sale, CTMGT LP (CTMGT). Moayedi has worked with UMTH Land Development, LP (UMTH), the general partner of UDF III, on a number of projects in the past.

At the Hearing, the Court also admitted the following exhibits: (a) Plaintiffs' Exhibits 2-10, 12-41, 44, and 97-107 (admitted without objection; Plaintiffs' exhibits 12-41 were admitted with the caveat that any missing pages may be supplemented later under the Doctrine of Completeness); (b) Plaintiffs' Exhibits 1, 11, and 42-43 (admitted over the Defendants' objection to their relevance); and (c) UDF and UDF III's exhibits 109-111 (admitted over the Plaintiffs' objection to the legal conclusions contained therein).

After listening to the testimony of these witnesses and hearing oral argument of counsel, the Court took the matter under advisement.

The Court now makes the following findings of fact and conclusions of law pursuant to Federal Bankruptcy Rules 7052 and 9014. To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such. Moreover, to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. The Court reserves its right to make additional findings of fact and conclusions of law as it deems appropriate or as may be requested by any of the parties.

III. FINDINGS OF FACT

1. Perry is an individual residing in the State of Texas and is the Debtor-in-Possession in the main case.

2. Southern Colony is a Texas limited partnership, with its principal place of business located in the State of Texas.

3. Hidden Lakes is a Texas limited partnership, with its principal place of business in the State of Texas.

4. Hidden Lakes GP is a Texas limited liability company and the general partner of Hidden Lakes.

5. UDF is a Nevada limited partnership doing business in the State of Texas.

6. UDF III is a Delaware limited partnership doing business in the State of Texas.

7. UMTH is the general partner of UDF III.

8. Perry is a limited partner in Perry Properties.

9. Perry Properties is a limited partnership, a limited partner of Hidden Lakes, a member of Southern Colony, and a shareholder of Hidden Lakes GP, LLC (Hidden Lakes GP).

10. Hidden Lakes GP owns general partnership and limited partnership interests in Hidden Lakes.

11. On February, 21, 2007, Southern Colony executed a promissory note in the principal amount of $1,911,500.00 in favor of UDF III (the Original Southern Colony/UDF III Note) Exhibit No. 3. This loan was secured by a security agreement (the Southern Colony Security Agreement) Exhibit No. 5 and a deed of trust (the Southern Colony Deed of Trust) Exhibits No. 4 & 5 in favor of UDF III. On that same date, Perry, along with Perry Properties, executed an unsecured guaranty agreement (the Southern Colony Guaranty Agreement) Exhibit No. 10 guaranteeing payment of the Original Southern Colony/UDF III Note. Finally, this loan was secured by a pledge agreement (the Southern Colony Pledge Agreement) Exhibit No. 6 executed by Perry Properties pledging all right and title to any interest in Southern Colony to UDF III.

12. On February 21, 2007, Southern Colony closed on its purchase of a tract of real property—approximately 65.47 acres in Fort Bend County along FM 521 and Highway 6, south of Sienna Plantation (the Southern Colony Property). The Southern Colony Deed of Trust Exhibits No. 4 & 5 grants a lien on this property to UDF III.

13. An appraisal done by Sam Boyd on April 3, 2007 Exhibit No. 6 of a tract of real property located in League City, Galveston County, Texas (the Hidden Lakes Property) set forth that the fair market value of this property on March 20, 2007 was $5,290,000.00 "as-is," and $14,360,000.00 upon completion of development. This latter number represents $4,350,000.00 for the 65 foot lots, $6,210,000.00 for the 75 foot lots, and $3,800,000.00 for the present value of receivables due from a Municipal Utility District (MUD).

14. On May, 21, 2007, Hidden Lakes executed a promissory note in the principal amount of $1,931,250.00 in favor of UDF III (the Original Hidden Lakes/UDF III Note) Exhibit No. 22. This loan was accompanied by a security agreement (the Hidden Lakes/UDF III Security Agreement)³ Exhibit No. 23 granting UDF III a continuing security interest in all assets owned by both Hidden Lakes and Hidden Lakes GP. On that same date, Perry executed an unsecured guaranty agreement (the

...