Kan. City S. Ry. Co. v. Chavez (In re Rosenthal & Watson, P.C.)
| Decision Date | 31 January 2020 |
| Docket Number | Case No. 14-10286-HCM,Adversary No. 18-01091-HCM |
| Parties | IN RE: ROSENTHAL & WATSON, P.C., Debtor. Kansas City Southern Railway Company and Jose Juarez, Plaintiffs v. Luz Chavez, Individually and as Representative of the Estates of Rudolph Chavez, Sr. (deceased) and Rudolph Chavez, Jr. (deceased); Joel Chavez; Darlene Chavez; Allen Chavez; Francisco Chavez; and Celia Chavez, Defendants v. Rosenthal & Watson, P.C., Crossdefendant. |
| Court | U.S. Bankruptcy Court — Western District of Texas |
Merritt M. Clements, Ray, Pena & McChristian, P.C., San Antonio, TX, for Plaintiffs.
Mark Alvarado, Law Office of Mark Alvarado, Austin, TX, for Defendants.
Here, the Court grapples with an inheritance—the latest chapter of a litigation odyssey that began over a decade ago in a different domain.
The saga began in 2007, when a father and son were tragically killed in a train accident at a South Texas railroad crossing. Surviving family members hired a law firm that immediately filed a wrongful death suit against the railway in state court. Just before trial in 2009, the law firm (without the family's knowledge) saw fit to associate a different attorney who tried the case to a jury. A unanimous defense verdict was rendered by the jury against the family in 2009, which appeared to end the saga. Fate then intervened, as the family was granted a new trial against the railway based on newly discovered evidence.
In 2010, the railway made a seemingly reasonable settlement offer to the associated trial attorney hired by the family's law firm. The associated attorney communicated the settlement offer to the family's law firm, who relayed the settlement offer to one family member. The law firm obtained the disputed oral consent of one family member (the widow) to the railway's settlement offer on the phone, but never discussed the settlement with the four other adult family members. After the associated attorney sent the railway a letter accepting the settlement offer for the whole family, the entire family denied authorizing any settlement.
The litigation odyssey then restarted in earnest, this time with a complete role reversal. In 2011, the railway sued the family to enforce the settlement, winning temporary success twice through summary proceedings in state trial court. This spawned two journeys to the Texas Court of Appeals, one journey to Texas Supreme Court, and three written appellate opinions. Ultimately, in 2017, the settlement enforcement suit against the family was reversed and remanded for trial in state court.
Meanwhile, the lead partner of the law firm was convicted of bribing witnesses and fabricating evidence in other railroad cases, resulting in a 20-year federal prison sentence. This twist in the voyage led the law firm to close operations and file Chapter 7 bankruptcy. The bankruptcy trustee then attempted to collect the law firm's expenses owed by the family out of the still disputed settlement with the railway, by removing the settlement enforcement suit from the domain of the state court to this Court.
Now, through this Opinion, the Court will deal with the inherited chapter of this litigation odyssey.
TABLE OF CONTENTS
On December 2, 3, 4, and 19, 2019, the Court conducted a trial in this adversary proceeding. This adversary proceeding is a severed state court suit that originated in the 406th District Court of Webb County, Texas, cause no. 2017-CVA-002223-D4, which was removed to this Court.
The parties to this adversary proceeding are as follows: Kansas City Southern Railway Company and Jose Juarez (collectively "KCSR"); Luz Chavez, individually, and as representative of the estates of Rudolph Chavez, Sr. (deceased) and Rudolph Chavez, Jr. (deceased), Joel Chavez, Darlene Chavez, Allen Chavez, Francisco Chavez, and Celia Chavez (collectively "Chavez Family"); and the bankruptcy estate of Rosenthal & Watson, P.C. ("R&W"), acting through Mr. Ron Satija, in his capacity as Chapter 7 trustee ("Trustee").
This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b). This adversary proceeding arises in and relates to a bankruptcy case referred to this Court by the U.S. District Court through the Standing Order of Reference entered in this District under 28 U.S.C. § 157(a). Both "core" proceedings under 28 U.S.C. § 157(b)(2) and "related to" proceedings under 28 U.S.C. § 157(c)(1) are involved in this adversary proceeding. The parties have expressly consented to entry of a final judgment by this Court under 28 U.S.C. § 157(c)(2). As a result, this Court has the jurisdiction and authority to enter a final judgment in this adversary proceeding.
This Opinion constitutes the Court's findings of fact and conclusions of law in this adversary proceeding, in accordance with Rule 52(a)(1) of the Federal Rules of Civil Procedure ("Rules"), which applies in adversary proceedings through Rule 7052 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules").1 . In reaching the findings and conclusions set forth in this Opinion, the Court has considered and weighed all the evidence, the demeanor and credibility of all witnesses, the admitted exhibits, the arguments of counsel, and all pleadings and briefs filed by all parties, regardless of whether they are specifically referenced in this Opinion.2
On February 26, 2014, R&W (as a debtor) filed a voluntary petition under Chapter 7 of the Bankruptcy Code, bankruptcy case no. 14-10286. Shortly thereafter, the Trustee was appointed as the Chapter 7 trustee for the R&W bankruptcy estate.
On October 1, 2018, the Trustee filed a Notice of Removal with this Court under 28 U.S.C. § 1452 (dkt# 1).3 The Notice removed a severed state court suit styled Kansas City Southern Railway Company, et. al v. Luz Chavez, et. al, cause no. 2017-CVA-002223-D4 ("Severed Suit") from the 406th District Court of Webb County, Texas ("State Court") to this Court. The Severed Suit was assigned adversary proceeding no. 18-01091 by the Clerk of this Court. Pleadings from and orders entered by the State Court in the Severed Suit were filed with this Court (dkt# 1, 29, 30).
Following a status hearing in November 2018, the Court required the parties to replead under the applicable federal rules. KCSR filed a Third Amended Complaint ("KCSR Complaint") (dkt# 18) against the Chavez Family on December 18, 2018. The Chavez Family filed their Third Amended Original Answer and Counterclaims against KCSR and Crossclaims against R&W (dkt# 27) on January 25, 2019. The Trustee, on behalf of the R&W estate, filed an Answer to the Chavez Family's Crossclaims and Counterclaims against the Chavez Family (dkt# 36) on February 8, 2019. With leave of Court, the Chavez Family filed their Fourth Amended Original Answer ("Chavez Answer") with Amended Counterclaims against KCSR ("Chavez Counterclaim") and Amended Crossclaims against R&W ("Chavez Crossclaims") (dkt# 50-1) on March 4, 2019. The Trustee, on behalf of the R&W estate, then filed an Amended Answer to the Chavez Crossclaims ("Trustee Answer") and Amended Counterclaims against the Chavez Family ("Trustee Counterclaims") (dkt# 56) on March 21, 2019.
The parties expressly consented to entry of final orders and a final judgment in this adversary proceeding by the Court (dkt# 12, 13, 16). After hearing, the Court dismissed the civil conspiracy counterclaim asserted by the Chavez Family against KCSR in the Chavez Counterclaim under Rule 12(b)(6) and struck certain affirmative defenses of the Chavez Family under Rule 12(f), by order entered on May 3, 2019 (dkt# 70). After hearing, the Court also dismissed the civil conspiracy and perjury crossclaims asserted by the Chavez Family against the R&W estate in the Chavez Crossclaims under Rule 12(b)(6), by order entered on May 3, 2019 (dkt# 69).
A scheduling order was entered on January 24, 2019 in this adversary proceeding (dkt# 26) ("Scheduling Order"). Following discovery and a failed mediation, docket call for trial was reset for September 4, 2019 (dkt# 87).
On August 29, 2019, the parties filed a Joint Pre-Trial Order ("PTO") (dkt# 98) with the Court. The Court has accepted and considered the stipulated facts set forth in the PTO. Proposed findings of fact and conclusions of law were also filed by each of the parties before trial (dkt# 93, 97, 100). Trial briefs and post-trial briefs were also filed by the parties (dkt# 132, 139).
The following constitutes findings of fact by the Court in this adversary proceeding. These findings include factual stipulations by the parties in the PTO.
The trial in this adversary proceeding was conducted on December 2, 3, 4, and 19, 2019. The Court admitted exhibits into evidence during trial. The exhibits of KCSR admitted into evidence were P-1 through P-51 (herein "Ex. P- "). The exhibits of the Chavez Family admitted into evidence were D-1 through D-6, D-8 through D-11, D-14 through D-18, D-20 through D-22, D-24 through D-44, and D-46 (herein "Ex. D- "). The exhibits of the Trustee admitted into evidence were CD-5 and CD-13 (phone records initially labeled CD-8) (herein "Ex. CD- ").4
Excerpts from the deposition testimony of ten witnesses were admitted into evidence during trial (herein "Ex. JT-1"). After trial, a written...
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