The U.S. Bankruptcy Court for the Western District of Texas, Austin Division (Bankruptcy Judge H. Christopher Mott), submits the following Proposed Findings of Fact and Conclusions of Law ("Proposed Findings and Conclusions") to the U.S. District Court for the Western District of Texas, Austin Division ("District Court") for consideration and review, in accordance with 28 U.S.C. § 157(c)(1) and Rule 9033 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules").
TABLE OF CONTENTS
INTRODUCTION AND BACKGROUND ......................................................................... 4
A. Bankruptcy Court Jurisdiction and Authority ......................................................... 4
B. Description of Debtor and Parties to Adversary Proceeding ................................. 6
C. Bankruptcy Case and Munoz acquisition of RTX Claims ...................................... 7
D. Procedural Background of Adversary Proceeding ................................................ 9
E. Trial Transcript and Exhibits ............................................................................... 12
F. Witnesses and Credibility ................................................................................... 12
G. Considerations with respect to Proposed Findings and Conclusions ................. 14PROPOSED FINDINGS OF FACT ............................................................................... 15
A. General Overview ............................................................................................... 15
B. RTX Background ................................................................................................ 16
C. Cedar Park Background ..................................................................................... 18
D. Construction Project Descriptions ....................................................................... 18
E. Business Relationship between RTX and Cedar Park ........................................ 20
F. Fraudulent Transfer Payments ........................................................................... 27
G. Preference Payments ......................................................................................... 30
H. Construction Trust Fund Payments .................................................................... 32
I. Breach of Contract .............................................................................................. 34
1. Old 1431 Project ............................................................................................. 35
2. Verano Project ................................................................................................ 40
3. Cedar Park Defenses ..................................................................................... 48
4. Summary—Breach of Contract ....................................................................... 52
J. Proof of Claim by Cedar Park ............................................................................. 53
K. Objections to Proof of Claim ............................................................................... 54
1. Old 1431 Project ............................................................................................. 55
2. Verano Project ................................................................................................ 56
3. Camino Del Verde Project .............................................................................. 61
4. Valley View Project ......................................................................................... 635. Zen Gardens Project ...................................................................................... 66
6. Angel Valley Project ....................................................................................... 70
7. Summary—Objections to Proof of Claim ........................................................ 70
L. Setoff .................................................................................................................. 71PROPOSED CONCLUSIONS OF LAW ....................................................................... 71
A. Constructive Fraudulent Transfer Cause of Action ............................................. 72
B. Preference Cause of Action ................................................................................ 78
C. Texas Construction Trust Fund Act Cause of Action .......................................... 89
D. Breach of Contract Cause of Action ................................................................... 98
1. Old 1431 Project ............................................................................................. 98
2. Verano Project .............................................................................................. 100
3. Cedar Park Defenses ................................................................................... 103
4. Summary—Breach of Contract ..................................................................... 105
E. Objections to Proof of Claim ............................................................................. 105
1. Cedar Park Proof of Claim ............................................................................ 105
2. Burden of Proof ............................................................................................ 106
3. Specific Objections to Claims by Project ...................................................... 108
4. Summary—Objections to Proof of Claim ...................................................... 111
F. Setoff ................................................................................................................ 112
G. Recovery of Attorney's Fees ............................................................................. 114
1. Plaintiff's Fees and Expenses ....................................................................... 115
2. Defendants' Fees and Expenses .................................................................. 120
CONCLUSION ............................................................................................................ 126
Exhibit A—Proposed Form of Final Judgment
I.INTRODUCTION AND BACKGROUND 1. On December 28 and 29, 2016, this Court conducted a bench trial on the merits in this adversary proceeding no. 15-01110 ("Adversary Proceeding"). This Adversary Proceeding was filed in the Chapter 7 bankruptcy case of RTX Custom Homes, Inc., as debtor ("RTX"), main case no. 14-11732.
2. Appearing at the trial were Mr. Richard Munoz, Jr., as assignee ("Plaintiff"); Cedar Park Construction, LLC and Tom McGrath (collectively "Defendants"); and respective counsel for Plaintiff and Defendants.
A. Bankruptcy Court Jurisdiction and Authority 3. This Court (a bankruptcy court) has statutory jurisdiction over the Adversary Proceeding under 28 U.S.C. § 1334(b). This Adversary Proceeding and this bankruptcy case has been referred to this Court by the District Court under 28 U.S.C. § 157(a)(1) and the Standing Order of Reference of Bankruptcy Cases and Proceedings entered in this District on October 4, 2013.
4. However, this Court does not have jurisdiction and authority to enter a final judgment on all of the claims in this Adversary Proceeding. In short, this is because only some of the claims are "core" proceedings under 28 U.S.C. § 157(b)(1).
5. On the one hand, Plaintiff's claims for recovery of fraudulent transfers and preferences under the Bankruptcy Code, and its objection to the proof of claim filed in this bankruptcy case, are all statutory "core" proceedings. 28 U.S.C. § 157(b)(2)(B), (F), (H). This Court has statutory jurisdiction to enter a final judgment on claims that are "core" proceedings under 28 U.S.C. § 157(b)(1).
6. On the other hand, some of Plaintiff's claims—such as claims under the Texas Construction Trust Fund Act, Texas Theft Liability Act, and breach of contract—are based solely on state law. These state law claims are only "related to" this bankruptcy case under 28 U.S.C. § 157(c)(1). This Court has the statutory jurisdiction and authority to enter a final judgment in "related to" proceedings (often called "non-core" proceedings)—only with the consent of all parties under 28 U.S.C. § 157(c)(2).1 Here, the Defendants expressly did not consent to entry of a final judgment by this Court. As a result, this Court only has jurisdiction and authority to submit proposed findings of fact and conclusions of law to the District Court for review on these "non-core" (related to) claims under 28 U.S.C. § 157(c)(1).
7. In sum, this Adversary Proceeding has a mix of claims—some claims are "core" proceedings and some claims are "non-core" (related to) proceedings. This Court has statutory jurisdiction to enter a final judgment only on the claims that are "core" proceedings. This Court does not have statutory jurisdiction and authority to enter a final judgment on the claims that are "non-core" (related to) proceedings, due to lack of party consent. This Court is required to submit proposed findings and conclusions to the District Court on the "non-core" (related to) claims.
8. Given the situation, this Court has chosen to submit all of its findings and conclusions in this Adversary Proceeding to the District Court for review and entry of a final judgment by the District Court under 28 U.S.C. § 157(c)(1) and Bankruptcy Rule 9033. This approach has been chosen by the Court for several reasons.
9. First, the facts in this Adversary Proceeding are common and closely intertwined between...
