Payne v. Bowers (In re Pickens)

• Decision Date: 27 September 2019
• Docket Number: Case No. 16-40667,Adv. Proc. No. 18-4038
• Parties: IN RE: MICHAEL O. PICKENS, Debtor. LINDA PAYNE, CHAPTER 7 TRUSTEE, Plaintiff, v. THOMAS D. BOWERS, III, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Texas

IN RE: MICHAEL O. PICKENS, Debtor.

LINDA PAYNE, CHAPTER 7 TRUSTEE, Plaintiff, v. THOMAS D. BOWERS, III, Defendant.

Case No. 16-40667

Adv. Proc. No. 18-4038

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TEXAS SHERMAN DIVISION

September 27, 2019

(Chapter 7)

MEMORANDUM OPINION AND ORDERS

Linda Payne, the chapter 7 trustee, initiated this action against the defendant, Thomas D. Bowers, III, in which she seeks, among other things, a judgment avoiding and recovering an alleged transfer to Bowers in the total amount of $450,000 as preferential or fraudulent. Bowers seeks a summary judgment denying the chapter 7 trustee's claims. In addition, the chapter 7 trustee seeks a partial summary judgment on her claim that the alleged transfer to Bowers is avoidable as a preference. The Court exercises its core jurisdiction over this matter, see 28 U.S.C. §§ 157(b)(2)(F), (H) and 1334, and makes the following findings of fact and conclusions of law, see FED. R. BANKR. P. 7052.

I. SUMMARY JUDGMENT STANDARDS

The trustee and Bowers bring their motions for summary judgment in this adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 7056. That rule incorporates Federal Rule of Civil Procedure 56, which provides: "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). A party seeking summary judgment must demonstrate the absence of a genuine dispute of material fact. Sossamon v. Lone Star State of Tex., 560 F.3d 316, 326 (5^th Cir. 2009). A genuine dispute of material fact is one that could affect the outcome of the action or allow a reasonable fact finder to find in favor of the non-moving party. Gorman v. Verizon Wireless Tex., L.L.C., 753 F.3d 165, 170 (5^th Cir. 2014) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

The way the necessary summary judgment showing can be made depends upon which party will bear the burden of persuasion at trial. If, as with the trustee's motion, the burden of persuasion rests on the moving party, the moving party must support its motion with credible evidence that would entitle it to a directed verdict if not controverted at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 331 (1986). If, as with Bowers' motion, the burden rests on the non-moving party, the moving party may satisfy its burden by submitting affirmative evidence that negates an essential element of the non-moving party's claim or by demonstrating to the Court that the non-moving party's evidence is insufficient to establish an essential element of the non-moving party's claim.@ Celotex, 477, U.S. at 322-323 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)) (internal citations omitted).

Once the movant carries its initial burden, the burden shifts to the non-movant to show that summary judgment is inappropriate. See Duckett v. City of Cedar Park, 950 F.2d 272, 276 (5^th Cir. 1992). The nonmovant is required to go beyond the pleadings and designate specific facts showing that a genuine issue of material fact exists. MatsushitaElec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). That party may not rest on conclusory allegations or denials in its pleadings that are unsupported by specific facts. FED. R. CIV. P. 56(e). The non-moving party must cite to specific evidence demonstrating a genuine dispute. FED. R. CIV. P. 56(c)(1); Celotex, 477 U.S. at 324. The non-moving party must also "articulate the manner in which that evidence supports that party's claim." Duffie v. United States, 600 F.3d 362, 371 (5^th Cir. 2010).

The Court always views the facts and evidence in the light most favorable to the non-moving party. Ben-Levi v. Brown, 136 S.Ct. 930, 930 (2016). Nevertheless, the Court is not obligated to search the record for the non-moving party's evidence. Keen v. Miller Envtl. Grp., Inc., 702 F.3d 239, 249 (5^th Cir. 2012). "Summary judgment may not be thwarted by conclus[ory] allegations, unsupported assertions, or presentation of only a scintilla of evidence." Hemphill v. State Farm Mut. Auto. Ins. Co., 805 F.3d 535, 538 (5^th Cir. 2015).

In this case, the parties' cross-motions for summary judgment, their responses, and their replies establish the following body of uncontested facts.

II. UNCONTESTED FACTS

On October 31, 2014, Bowers entered into a written contingency fee agreement with Michael Pickens to represent Pickens in a Texas state court lawsuit against his father. On October 27, 2015, Pickens signed a new contingency fee agreement with Bowers and Bowers' co-counsel, Willie Gary. This new agreement superseded the prior agreement.

The October 27^th fee agreement set the amount of the attorneys' fees at 40 percent if the case was resolved after filing suit but before appeal. Paragraph 2.01 provided Bowers and Gary would split the fee 50-50 if the case was not resolved within 90 days. In addition,Paragraph 3.01 of the agreement contained the following assignment of interest: "In consideration of Attorney's services, the Clients hereby sell, convey and assign to the Attorney an interest to the Clients' claim and cause of action, and in any action, compromise, settlement, judgment, payment of services, profits or recovery thereon."¹ Paragraph 6.01 also provided that "all reasonable expenses incurred by the Attorney in the handling of this project shall be deducted from the gross amount of the settlement proceeds at the time the case is settled."

Paragraph 4.08 of the agreement granted Bowers and Gary a power of attorney to handle settlement discussions. Paragraph 4.08(a) stated that "this expressly includes the right to sign Clients' name" on any settlement check. In addition, Paragraph 4.08(b) stated:

This limited power of attorney further authorizes the Attorney to place these monies ... in the Attorney's trust account and from that trust account, make distributions and payment to the Attorney for the agreed to fee stated above, reimbursement to Attorney for any and all expenses incurred by the attorney in handling this case, payments to Clients of Clients' interest in the monies recovered and stated above, and payments to parties other than Clients and Attorney for their services performed, fees charged or bills rendered in connection with representing Clients, including but not limited to medical bills, court reporter fees, deposition fees, investigative services, costs of exhibits or other special expenses incurred by Attorney on behalf of Clients.

Paragraph 4.09 provided "no settlement of any kind shall be made for any of the aforesaid claims or profits of the Clients without the complete approval of the Clients."

On February 4, 2016, Pickens settled his claims against his father for $450,000. The settlement check was made out to Pickens and given to Bowers. Bowers signed Pickens' name to the check and deposited the settlement funds into his IOLTA (Interest on Lawyers Trust Account). Although Bowers asserts that fees and expenses far exceeded thesettlement amount, and he attached a list of his purported expenses to his motion for summary judgment, Bowers issued a check to Pickens for $148,628.18 on February 5, 2016.²

While Pickens' suit against his father was pending, Jack M. Thomas, M.D., was pursuing a lawsuit against Pickens, among others, in Texas state court. On December 9, 2014, Thomas obtained a default judgment against Pickens. The default judgment was in the principal amount of $120,000 plus interest, attorney's fees, and costs of court.

Thomas learned of the settlement between Pickens and his father at some point. Thomas promptly filed an application for turnover of the settlement proceeds in his state court case against Pickens. On February 8, 2016, the state court in the Thomas case signed a turnover order appointing a receiver and requiring Pickens to turn over "any money as a result of the settlement" of his suit against his father.

On February 9, 2016, Bowers issued a check for $112,500 to his co-counsel, Willie Gary, from the IOLTA. On the same day, he issued a check for $112,500 to himself from the IOLTA. In addition, on February 9, 2016, Bowers issued a $76,371.82 check to Radics Revocable Living Trust from the IOLTA, thereby completely depleting the settlement funds.

Pickens filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code on April 8, 2016. This Court appointed Linda Payne as the chapter 7 trustee. The trustee retained special counsel to pursue claims for recovery of the funds Bowers, Gary andRadics Revocable Living Trust received from the Pickens' settlement. The trustee subsequently settled her claims against Gary and Radics Revocable Living Trust, leaving only her claims against Bowers for this Court to decide.

According to the chapter 7 trustee, the bankruptcy estate was holding cash in the amount of $38,497.26 as of May 7, 2019. Creditors had filed priority claims in the amount of $81,312.94 and unsecured claims in the amount of $785,223.77. The trustee states in her declaration in support of summary judgment that Bowers, as an unsecured creditor, would have received no more than $38,497.26 in the chapter 7 proceeding.

III. DISCUSSION

A. The Cross-Motions for Summary Judgment on the Trustee's Preferential Transfer Claim

Bankruptcy Code § 547 authorizes a trustee to avoid a debtor's pre-bankruptcy preferential transfers of property. To recover a preferential transfer under § 547(b), the trustee must prove:

(1) a transfer of an interest of the debtor in property;

(2) to or for the benefit of a creditor;

(3) for or on account of antecedent debt;

(4) made while the debtor was insolvent;

(5) made on or within 90 days before the date of the filing of the bankruptcy petition; and

(6) that enabled the creditor to receive more than it would otherwise have received if the transfer had not been made and the case had proceeded under Chapter 7.

See 11 U.S.C. § 547(b). See also ...