Picacho Hills Dev. Co. v. Coll (In re Picacho Hills Util. Co.)
| Decision Date | 18 January 2019 |
| Docket Number | Adversary Case No. 16-01007-t,Bankruptcy Case No. 13-10742-t7 |
| Parties | In Re: PICACHO HILLS UTILITY COMPANY, INC., Debtor. PICACHO HILLS DEVELOPMENT COMPANY, INC., Defendant/Appellant, v. CLARKE C. COLL, Chapter 7 Trustee, Plaintiff/Appellee. |
| Court | U.S. District Court — District of New Mexico |
This case was referred to the undersigned Magistrate Judge "to conduct hearings, if warranted, including evidentiary hearings, and to perform any legal analysis required to recommend to the Court an ultimate disposition of the case." [Doc. 2, p. 1]. The Court is cognizant of the presumption of oral argument in bankruptcy appeals; however, the Court finds that "the facts and legal arguments are adequately presented in the briefs and record, and the decisional process would not be significantly aided by oral argument[]" in this case. Fed. R. Bankr. P. 8019(b)(3). Having studied the parties' briefs, the appellate record, and the pertinent law, the Court recommends that the Bankruptcy Court's decision granting Trustee Clarke C. Coll summary judgment be affirmed in part and reversed in part, and that this case be remanded to the Bankruptcy Court for further proceedings.
Before delving into the facts of this case it is important to understand the identity of the parties. Picacho Hills Utility Company, Inc. ("the Utility"), is the Debtor. Picacho Hills Development Company, Inc. ("Development Company"), is the Defendant/Appellant here. Clarke C. Coll is the Chapter 7 Trustee ("the Trustee"), Plaintiff below and Appellee here. The New Mexico Public Utility Commission was succeeded by the New Mexico Public Regulation Commission, which entered an Order in 2010 creating a debt in favor of the Utility. Both are referred to herein as "the Commission."
The Utility filed for Chapter 11 bankruptcy on March 7, 2013. [Doc. 3, p. 4]. The case was converted to Chapter 7, and the Trustee was appointed on September 17, 2014. [Doc. 3, p. 4]. The Trustee filed an adversary proceeding against Development Company on February 12, 2016. [Doc. 3, p. 4]. The parties stipulated to certain undisputed material facts for the purposes of the Bankruptcy Court ruling on motions for summary judgment on July 18, 2017. [Doc. 7, p. 29].
Prior to 1991, the Development Company operated the Utility. [Doc. 7, p. 29]. On September 20, 1991, the Utility filed an application with the Commission for a Certificate of Public Convenience and Necessity as a water and sewer utility. [Doc. 7, p. 37]. Subsequently, in its Final Order in Case No. 2418, the Commission ordered Development Company to convey all utility assets to the Utility, including real property used in the utility as a tank site (the "Old Tank Land"). [Doc. 7, p. 29; see Doc. 3, pp. 24, 44, 50]. However, the Development Company never conveyed the Old Tank Land to the Utility. Instead, the Development Company conveyed the Old Tank Land to SRI Realty Fund VI as two separate lots (46 and 47). SRI subsequently sold lot 46 to a thirdparty on August 31, 2007, for $84,000, and transferred lot 47 for an undisclosed amount. [Doc. 7, p. 30].
On or about October 23, 2008, the Commission initiated an investigation of the Utility. [Doc. 7, p. 38]. Thereafter, on May 26, 2010 the Commission issued a Final Recommended Decision ("FRD"). In the FRD the Commission found that the Old Tank Land should have belonged to the Utility when the land was sold by the Development Company. The FRD therefore proposed to order the Development Company to reimburse the Utility for the purchase price of the Old Tank Land in the amount of $168,000. [Doc. 7, p. 30; see Doc. 5, pp. 4-5, Doc. 6, pp. 4, 9]. On August 12, 2010, the New Mexico Public Regulation Commission adopted, approved and accepted the FRD. [Doc. 7, p. 38; see Doc. 6, pp. 8-17]. Neither the Commission nor any other party took any further legal action to recover the funds from the Development Company prior to the trustee filing the instant case on February 12, 2016. [Doc. 7, p. 30].
On September 2, 2010, creditor Bank of the Rio Grande filed a Receiver Action against the Utility and others in New Mexico State Court. [Doc. 7, p. 30]. A Receiver was appointed on November 14, 2011. [Doc. 7, p. 30]. Ultimately, the Receiver negotiated the sale of the receivership assets to Dona Ana Mutual Domestic Water Consumers Association ("Dona Ana WCA") for $2,250,000.00. [Doc. 7, p. 31].
On March 7, 2013 ("the Petition Date"), the Utility filed for Chapter 11 Bankruptcy. [Doc. 7, p. 30]. On the Petition Date, the New Tank Land was titled in the name of the Development Company and used as part of the Utility. [Doc. 7, p. 31]. As part of the Receivership sale, Dona Ana WCA required clear title to all Receivership assets. [Doc. 7, p.31]. In order to get clean title, Dona Ana WCA negotiated an agreement with the Development Company in which theDevelopment Company agreed to transfer its interest in the New Tank Land in exchange for certain consideration ($100,000.00). [Doc. 7, p. 31, see Doc. 6, pp. 22-25]. The Utility never sought approval from the New Mexico Public Regulation Commission to transfer its interest in the New Tank Land to the Development Company. [Doc. 7, p. 31]. In order to effectuate the sale of the Receivership assets the Receiver reduced the amount the Utility received from the sale of the Receivership assets in the amount that the Development Company received from Dona Ana WCA ($100,000.00).
The Bankruptcy Court granted the Trustee's motion seeking summary judgment "for the most part" on December 1, 2017 and denied Development Company's cross-motion. [Doc. 7, p. 75]. Pertinent here, the Bankruptcy Court found that the Trustee had standing to enforce the 2010 Commission Order as a matter of state law. [Doc. 7, p. 81]. The court so found even though the pertinent statute makes no mention of a Utility's right to enforce a Commission Order. To wit, the court noted that "[t]here is no New Mexico case law on whether a utility that obtains a favorable Commission order may enforce it." [Doc. 7, p. 81]. Nonetheless, the court found a private right of action under the pertinent statute and concluded that "in the narrow context of Commission orders specifically benefiting New Mexico utilities, such utilities have standing to enforce the orders." [Doc. 7, p. 82].
Alternatively, the Bankruptcy Court found standing under 11 U.S.C. § 542(b), which provides that "an entity that owes a debt that is property of the estate and that is matured, payable on demand, or payable on order, shall pay such debt to, or on the order of, the trustee..." Id. [Doc. 7, pp. 82-84]. Specifically, the court held that [Doc. 7, pp. 83-84]. Contrary to Development Company's argument, the Bankruptcy Court also found that no statute of limitations applied to preclude the recovery of the $168,000.00 debt. [Doc. 7, p. 84]. As such, the Bankruptcy Court ordered Development Company to turnover $168,000.00 to the Trustee. [Doc. 7, p. 86].
As to the New Tank Land, the Bankruptcy Court ruled in favor of the trustee, ordering Development Company to turn over $100,000 to the estate. [Doc. 7, p. 85]. The Bankruptcy Court reasoned that, under New Mexico law, Commission approval was required for the conveyance of the New Water Tank Land, rendering the 2000 conveyance by Development Company to Dona Ana WCA void and of no effect. [Doc. 7, p. 85 (quoting NMSA 1978, § 62-6-12)]. The Bankruptcy Court therefore ruled that the $100,000 should have been paid to the bankruptcy estate, not to Development Company. [Doc. 7, p. 85].
Development Company appeals both grants of summary judgment.
The district court has appellate jurisdiction to hear appeals from final judgments and orders of the bankruptcy court pursuant to 28 U.S.C. § 158(a)(1). The Court reviews "questions of law, including the proper application of the Bankruptcy Code's turnover provision, de novo." In re Auld, 561 B.R. 512, 515 (B.A.P. 10th Cir. 2017). In adversary proceedings, Federal Rule of Civil Procedure 56 applies. In re Ogden, 314 F.3d 1190, 1195 (10th Cir. 2002) ). Thus, summary judgment is warranted if "there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(a). A grant of summary judgment in a bankruptcy proceeding is reviewed de novo, applying the same legalstandards as the court below. Wells Fargo Bank, N.A. v. Jimenez, 406 B.R. 935, 940 (D.N.M. 2008).
A) The Bankruptcy Court properly granted summary judgment to the Trustee as to the Old Water Tank Land, and the Court should affirm the Bankruptcy Court's Order requiring Development Company to turnover $168,000.00 to the estate.
The Bankruptcy Court granted summary judgment to the Trustee on his turnover claim under 11 U.S.C. § 542(b) pertaining to the Old Water Tank Land, ordering Development Company to turn $168,000.00 over to the estate. Development Company argues that Bankruptcy Court's summary judgment conclusions should be reversed and that it should be granted judgment as a matter of law. For the reasons that follow, the Court disagrees and recommends that the Bankruptcy Court's order be affirmed as to the $168,000.00.
The first question raised on appeal is one of standing, insofar as Development Company asserts that the Trustee did not have the requisite standing to enforce the 2010 Commission Order. The Bankruptcy Court...
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