In re Saunders
| Decision Date | 09 April 1993 |
| Docket Number | Adv. No. 92-5052-LMC.,Bankruptcy No. 91-52432-LMC |
| Citation | 155 BR 405 |
| Parties | In re Douglas L. SAUNDERS, Sr., Debtor. John Patrick LOWE, Trustee, Plaintiff, v. SHEINFELD, MALEY & KAY, P.C., Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Texas |
COPYRIGHT MATERIAL OMITTED
Joel P. Kay, Houston, TX, for debtor and defendant.
Robert L. Barrows, San Antonio, TX, for trustee, plaintiff.
DECISION AND ORDER DENYING TRUSTEE'S COMPLAINT AND AMENDING DECISION ON FINAL FEE APPLICATION OF SHEINFELD, MALEY & KAY
CAME ON for hearing the Complaint (the "Complaint") of John Patrick Lowe, Chapter 7 Trustee (the "Trustee") for turnover of money, avoidance of lien and avoidance of pre-petition payments received by Sheinfeld, Maley & Kay ("SMK"), counsel for the Debtor. The Court also issued a Sua Sponte Administrative Order Regarding the Final Fee Application of Sheinfeld, Maley & Kay, P.C. For Approval of Attorneys' Fees to consolidate hearing that matter with the Complaint.
The court has jurisdiction over this proceeding pursuant to 28 U.S.C § 1334(b), (d). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E), (F), (K), and (M).
The background facts, and accompanying legal analysis, of this Complaint are somewhat lengthy and complex. To briefly summarize, SMK performed various prebankruptcy legal services for the Debtor. To secure payment for its services, SMK accepted an assignment of rents generated by the Debtor's interest in a parcel of property owned by a partnership to which the Debtor belonged. As the Debtor could not unilaterally encumber the partnership property himself, the Debtor rather granted SMK a security interest in his rights to the income distribution from the partnership. SMK attempted to perfect its security interest by filing an executed Deed of Trust in the Real Property Records for Bexar County—not an effective procedure for perfecting a security interest in personalty. However, SMK also relies on a letter sent by the Debtor to the partnership, in its capacity as recipient of rent and disburser of monies, which described the collateral and SMK's interest in it. SMK says that this letter is sufficient to perfect its interest under UCC § 9.305. The court agrees with this latter contention, and thus finds that the Trustee was not entitled to avoid SMK's lien or force the turnover of prepetition payments as preferences. As for post-petition payments received by SMK, they constitute SMK's cash collateral, though in the possession of SMK. The Trustee could avoid the post-petition receipt and application of those monies to the outstanding secured debt, but such avoidance and turnover would not serve a purpose in this case. Furthermore, the Trustee never initiated an action to use the funds or provide SMK with adequate protection, so the Trustee cannot complain about SMK's keeping these monies.
Douglas L. Saunders, Sr., the Debtor, filed his petition under chapter 7 of title 11 of the United States Code on June 28, 1991 (the "Petition Date"). For quite some time, the Debtor was active in the development of real estate in San Antonio. One of the Debtor's real estate interests lies at the heart of this matter.
By deed dated September 21, 1967, the Urban Renewal Agency of the City of San Antonio conferred a certain lot of real property (the "Property")1 to Mendel S. Kaliff, Billy Joe ("Red") McCombs, David Miller, Douglas L. Saunders, A.D. McCombs and Norman Harwell (collectively referred to as the "Members"). The Members had pooled their monies to collectively purchased the Property, with the intent to lease it. In fact, the Members had already pre-leased the Property to Holiday Inns of America, Inc. ("HIA") (the "Ground Lease").2 In connection with the Ground Lease, HIA built a hotel on the Property and paid rent to the members under the Ground Lease, based on three percent of room charges, plus one percent of food and beverage sales, plus certain other revenues (the "Rent").
Under the Ground Lease, the Members were permitted to transfer their ownership interests into a Texas corporation. In December, 1967, the Members, exercising their rights under the Ground Lease, conveyed legal title to the Property to Holiday Properties Management, Inc., a Texas Corporation (the "Corporation"), controlled by the Members. In 1975, after the debt against the Property was paid off, the Members dissolved Holiday Properties Management, Inc. The Articles of Dissolution of the Corporation, dated April 15, 1975, indicated that title to the Property was reconveyed to the Members as tenants in common.
After the dissolution of the corporate form, the Members referred to themselves, collectively, as Holiday Properties Management ("HPM"). Each month, HPM receives the Rent from HIA and divides it evenly among the five Members (the "Distribution"). HPM files partnership income tax returns which state that HPM was "formed" on April 16, 1975, the day after the Members voted to dissolve their corporation. HPM sends IRS Forms K-1, "Reports of Partnership Income," to each Member each year. The Debtor's personal tax returns report his income from HPM as partnership income.
The Debtor, in the course of his affairs, has previously granted security interests in his rights to the Distribution and to his underlying partnership interest in HPM. In June, 1978, the Debtor borrowed money from McCombs, one of the other Members, and as collateral, pledged a security interest in and an assignment of his interest in HPM. The pledging document entitled, "Assignment of Partnership Interest" (the "Assignment") provided, in part:
WHEREAS, the undersigned, Douglas L. Saunders, of San Antonio, Bexar County, Texas, is the present legal and equitable owner of an undivided 20% interest in and to Holiday Properties Management, a general partnership composed of Douglas L. Saunders, Billy J. McCombs, Norman Harwell, Mendel S. Kaliff and David Miller, Trustee, said partnership being the successor-in-interest of all assets and liabilities of Holiday Properties Management, Inc., a Texas Corporation dissolved on April 15, 1975, and in addition, the undersigned is the owner of an undivided 20% interest in and to certain real property (emphasis added).3
The Assignment also explains that HPM owns the Property and the Rent therefrom. The Assignment of Partnership Interest was recorded in the Real Property Records of Bexar County, Texas. The three remaining HPM Members, Messrs. Harwell, Kaliff and Miller, acknowledged the assignment of the Debtor's partnership interest and agreed that, in the event of a default, each would accept McCombs as a partner (the "Acknowledgement"). The Acknowledgement provided, in pertinent part:
The undersigned, being the remaining general partners of Holiday Properties Management, hereby agree and consent to the above assignment of a 20% undivided partnership interest in Holiday Properties Management, a general partnership by Douglas L. Saunders to Billy J. McCombs, together with the rights to collect and receive income, rents, and other rights, and in addition, to the execution and delivery of security instruments and a Deed of Trust as to the real property owned by the individuals comprising Holiday Properties Management, a general partnership.4
Enter SMK. SMK is a well respected Texas law firm and was retained by the Debtor in several bankruptcy-related matters.5 In June, 1990, the Debtor executed a Deed of Trust, Security Agreement and Financing Statement (collectively, the "Deed of Trust"), in favor of SMK for the purpose of securing payment of SMK's fees. Pursuant to the Deed of Trust, SMK was assigned the Debtor's rights in the Property, including his portion of the Distribution. SMK filed the Deed of Trust in the Real Property Records of Bexar County, Texas. The Debtor also sent written notice to Holiday Properties Management, directing the HPM manager to pay all of the Debtor's monthly Distribution directly to SMK. SMK, however, did not file a UCC-1 financing statement.
Since June, 1990, SMK has received approximately $2,000.00 per month from HPM's checking account, totalling $63,300, as of the date of this hearing. Each month, SMK allocates the Disbursement to one of the outstanding receivables due from the Debtor. Since the filing of this action, SMK has deposited the Disbursements in its trust account.
After the Debtor filed his own chapter 7 petition, the Debtor often described HPM as a partnership. He Debtor declared on the Schedules of the Petition that his assets include, inter alia, a 20% interest in "Holiday Properties Management (a partnership)." In his Statement of Financial Affairs, the he disclosed that he had transferred to SMK his interests in the Ground Lease via the Deed of Trust. At the Section 341 meeting on August 6, 1991, the Trustee asked about the Debtor's interest in Holiday Properties Management. The Debtor responded that HPM was a partnership, naming the Members as his partners.
Initially, we must determine whether HPM is a partnership. If it is, then what SMK has a lien on is the Debtor's interests in the partnership, a personal property interest. If no partnership exists, then SMK was assigned an interest in the Debtor's real property. The procedures for perfecting a security interest in real property and personal property differ in Texas.
The existence of a partnership under Texas law is a question of fact. Arnold v. Caprielian, 437 S.W.2d 620, 625 (Tex.Civ.App.—Tyler 1969, writ ref'd n.r.e.). No single fact is determinative, and each case turns on its own particularities, considering the presence or absence of the usual attributes of a partnership relation. Jenkins v. Brodnax White Truck Co., 437 S.W.2d 922, 925 (Tex.Civ.App.—Tyler 1969, no writ). The Texas Uniform Partnership Act defines a...
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