In re Ramirez

• Decision Date: 17 September 2021
• Docket Number: CASE NO. 13-52576-CAG
• Citation: 633 B.R. 297
• Parties: IN RE: Leroy RAMIREZ and Erika Herrera Ramirez, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Texas

633 B.R. 297

IN RE: Leroy RAMIREZ and Erika Herrera Ramirez, Debtors.

CASE NO. 13-52576-CAG

United States Bankruptcy Court, W.D. Texas, San Antonio Division.

Signed September 17, 2021

William M. Clanton, Law Office of Bill Clanton, P.C., San Antonio, TX, Heidi McLeod, San Antonio, TX, Joris Robert Vanhemelrijck, Vanhemelrijck Law Offices, PC., Castle Hills, TX, Lucius James Wallace, Humphreys Wallace Humphreys, P.C., Tulsa, OK, for Debtor.

John Patrick Lowe, Uvalde, TX, Trustee, Pro se.

ORDER DENYING BANK OF AMERICA, N.A.’S MOTION TO PROHIBIT HUMPHREYS WALLACE HUMPHREYS FROM SEEKING COMPENSATION (ECF NO. 45); REGARDING BANK OF AMERICA, N.A.’S MOTION FOR (I) CLARIFICATION OF SETTLEMENT AGREEMENT & ORDER TO APPROVE SETTLEMENT AGREEMENT AND (II) TO COMPEL MEDIATION (ECF NO. 51); AND GRANTING CHAPTER 7 TRUSTEE'S APPLICATION NUNC PRO TUNC TO EMPLOY HUMPHREYS WALLACE HUMPHREYS AS SPECIAL LITIGATION COUNSEL FOR THE BANKRUPTCY ESTATES (ECF NO. 57)

CRAIG A. GARGOTTA, UNITED STATES BANKRUPTCY JUDGE

Came on for consideration Bank of America, N.A.’s ("BANA") Motion to Prohibit Humphreys Wallace Humphreys P.C. ("HWH") from Seeking Compensation ("Motion to Prohibit Compensation") (ECF No. 45), BANA's Motion (I) for Clarification of Settlement Agreement and Order Approving Settlement Agreement and (II) to Compel Mediation (separately referred to as "Motion for Clarification" and "Motion to Compel") (ECF No. 51), and Trustee's Application Nunc Pro Tunc to Employ HWH as Special Litigation Counsel for the Bankruptcy Estates.¹ ("Application Nunc Pro Tunc to Employ HWH") (ECF No. 57).² The Court held a hearing on August 10, 2021. At that hearing, the Court denied the Motion to Compel and took the remaining matters under advisement.

For the reasons stated herein, the Court grants the Trustee's Application Nunc Pro Tunc to Employ HWH with conditions. The Court denies BANA's Motion to Prohibit Compensation. With respect to the Motion for Clarification, the Court finds that both the Debtors and the Trustee, on behalf of the estate, are entitled to pursue claims against BANA in the lawsuit styled Leroy Ramirez v. Bank of America, N.A., et al. , filed in the 156th Judicial District, Bee County, Texas (Cause No. B-17-1423-CV-B) ("Bee County Matter"). Additionally, the Court finds that the Law Offices of Bill Clanton, P.C. and HWH are permitted to represent the estate in the Bee County Matter.

JURISDICTION

As a preliminary matter, the Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A). Venue is proper under 28 U.S.C. §§ 1408 and 1409. This case is referred to this Court by the Standing Order of Reference entered in this District.

FINDINGS AND CONCLUSIONS

The findings and conclusions set forth herein constitute the Court's findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052(a), made applicable to this hearing by Fed. R. Bankr. P. 9014. To the extent that any of the following findings of fact constitute conclusions of law, they are adopted as such. To the extent that any of the following conclusions of law constitute findings of fact, they are adopted as such.

FACTUAL AND PROCEDURAL BACKGROUND

Co-debtors Leroy and Erika Ramirez filed a Chapter 13 petition on September 24, 2013. (ECF No. 1). On October 16, 2013, Debtors converted their case to Chapter 7. (ECF No. 11). John Patrick Lowe was appointed as the Chapter 7 Trustee ("Trustee"). (Id .). When the Court converted this case, Debtors’ Schedule F listed BANA as a general unsecured creditor. (ECF No. 10). Initially, Trustee deemed Debtors’ case a no-asset case. (Chapter 7 Trustee's Report of No Distribution, Nov. 13, 2013). Debtors received a Chapter 7 discharge on January 16, 2014, (ECF No. 18), and their bankruptcy case was closed on January 17, 2014, (ECF No. 19).

Debtors moved to re-open their bankruptcy case on January 10, 2018 so they could amend their Schedules A, B, and C to reflect that their real property located at 1414 E. Rosewood was in Beeville, Texas—not Katy, Texas. (ECF No. 22). Debtors also added to Schedules A/B causes of action filed in the Bee County Matter. (ECF No. 22). The Bee County Matter includes claims against BANA for wrongful foreclosure and adverse possession. (Id .). Debtors amended their Schedule C to exempt the Bee County Matter. (ECF No. 30).

On February 6, 2018, Trustee filed a Request for Notice of Assets indicating May 7, 2018 as the last date for filing proofs of claim. (ECF No. 28). On February 9, 2018, the Clerk of Court issued an Order Fixing Last Date for Filing Proof of Claim, Combined With Notice Thereof, and BANA was included on the attached Certificate of Notice. (ECF No. 29).

Trustee objected to Debtors’ claimed exemption of the Bee County Matter in the amended schedules. (ECF No. 31). Debtors reached an agreement with Trustee regarding prosecution of the Bee County Matter, and Trustee filed a Motion to Approve a Settlement Agreement between Trustee and the Debtors Regarding Trustee's Objections to Exemptions ("Settlement Agreement") (ECF No. 35). The Settlement Agreement reflects Trustee and Debtors’ agreement to prosecute jointly the Bee County Matter, and that Debtors and Trustee would equally divide any recovery from the Bee County Matter. BANA was served notice of the Settlement Agreement and did not object. (ECF No. 35). The Court issued an Agreed Order Granting Motion to Approve Settlement Agreement Between the Trustee and the Debtors Regarding Trustee's Objections to Exemptions ("Settlement Order") (ECF No. 36).

On June 4, 2018, Trustee filed an Application to Employ The Law Office of Bill Clanton, P.C. as Special Litigation Counsel for the Bankruptcy Estates ("Clanton Application") (ECF No. 38). The Clanton Application includes as an attachment the retainer agreement between Trustee and The Law Office of Bill Clanton, P.C. ("Clanton"), which contains a provision allowing Clanton to associate with co-counsel. (ECF No. 38-2). BANA was served notice of the Clanton Application. (ECF No. 38-3). The Court granted the Clanton Application ("Clanton Application Order") (ECF No. 39). Thereafter, Trustee withdrew his no asset report. (ECF No. 42).

More than two years after the Court entered the Clanton Application Order, BANA filed its Motion to Prohibit Compensation (ECF No. 45),³ which argued HWH cannot receive legal fees and expenses for its work in the Bee County Matter because only Clanton—and not HWH—received the Court's permission to serve as counsel. BANA also filed the Motion for Clarification and Motion to Compel (ECF No. 51),⁴ The Motion for Clarification asked the Court to explain which parties had the right to prosecute the Bee County Matter; the Motion to Compel asked the Court to require the designated parties in the Bee County Matter to mediate. Trustee then filed the Application Nunc Pro Tunc to Employ HWH (ECF No. 57).⁵ The Court heard arguments at a hearing on August 10, 2021. BANA's request to compel mediation was denied at the hearing (ECF No. 87).

PARTIES’ CONTENTIONS AND LEGAL ANALYSIS

The parties raised numerous issues in multiple motions. The Court will address the arguments contained in each motion, taking each issue in turn.

I. Motion to Prohibit Compensation

BANA's Motion to Prohibit Compensation argues HWH cannot serve as counsel in the Bee County Matter because the Court only approved Clanton's employment. Moreover, BANA contends HWH cannot receive compensation because HWH did not receive the Court's permission to represent the estate in the Bee County Matter as required by 11 U.S.C. § 327. In response, Trustee argued BANA does not have standing to object to employment of HWH as special litigation counsel. Additionally, Trustee argues that HWH can serve as Clanton’ co-counsel in the Bee County Matter because Clanton Application Order includes as an attachment the Trustee and Clanton's retainer agreement, which contains a provision allowing Clanton to associate with co-counsel. The Court will review each argument in turn.

A. BANA'S Standing to Serve as Counsel in the Bee County Matter

As a preliminary matter, the Court must address Trustee's argument that BANA cannot file its Motion to Prohibit because BANA does not have standing due to its failure to file a proof of claim. The Court agrees with Trustee that BANA has not filed a proof of claim; however that fact is not dispositive of BANA's standing. Initially, this case was a no-asset case. (Chapter 7 Trustee's Report of No Distribution, Nov. 13, 2013). After Debtors amended their Schedules, however, Trustee filed a Request for Notice of Assets setting the proof of claim deadline as May 6, 2018. (ECF No. 28). The Clerk of Court issued the notice by first class mail to the matrix, which included BANA. (ECF No. 29). After Fannie Mae filed Notice of Removal on October 31, 2018 in an attempt to remove the Bee County Matter to this Court, (ECF No. 41), Trustee withdrew the no-asset report on the same day, (ECF No. 42).

The Federal Rules of Bankruptcy Procedure.⁶ provide procedure for when an asset is later discovered in what was initially a no-asset case. Under Rule 2003(c)(5):

If notice of insufficient assets to pay a dividend was given to creditors under Rule 2002(e), and subsequently the trustee notifies the court that payment of a dividend appears possible, the clerk shall give at least 90 days’ notice by mail to creditors of that fact and of the date by which proofs of claim must be filed.

Fed. R. Bankr. P. 2003(c)(5) (West 2021).

Here, the Clerk's Office issued its Order Setting Proof of Claims Bar Date (ECF No. 29) after Trustee was on notice that the Bee County Matter could result in assets available to pay a dividend to creditors.⁷ The Bee County Matter remains pending. Until BANA loses or settles the Bee County Matter, there is no asset to benefit the estate. Indeed, BANA could prevail at the county court, and the estate would receive no more property than before....