Rohi v. Brewer & Pritchard (In re ABC Dentistry, P.A.), BANKRUPTCY NO. H-16-34221-11
| Decision Date | 17 December 2019 |
| Docket Number | BANKRUPTCY NO. H-16-34221-11,CIVIL ACTION NO. H-19-0682 |
| Parties | IN RE: ABC DENTISTRY, P.A., et al., Debtor. DR. SAEED ROHI, Appellant, v. BREWER & PRITCHARD, A PROFESSIONAL CORPORATION, J. MARK BREWER AND A. BLAIRE HICKMAN, Appellees. |
| Court | U.S. District Court — Southern District of Texas |
entered in Adversary No. 18-3205 filed in Bankruptcy Case No. H-16-34221-11 (the "Bankruptcy Case").2 For the reasons explained below, the Memorandum Opinion and Dismissal Order of the Bankruptcy Court will be affirmed.
ABC Dentistry filed a chapter 11 bankruptcy petition on August 26, 2016 (Case No. H-16-34221-11).7 After ABC Dentistry's bankruptcy filing, Appellant's state court lawsuit against the underlying defendants was removed from state to federal court as an adversary proceeding within ABC Dentistry's bankruptcy case.8 The Bankruptcy Court ordered the parties in the qui tam action to mediation on November 16, 2016.9 The mediation resulted in an agreement memorialized in an "Amended Term Sheet" pursuant to which the underlying defendants agreed to be "jointly and severally liable to [Appellant] in the aggregate amount of $3.5 million,"10 that amount would "be amortized monthly beginning on December 1, 2016 and continuing monthly until the effective date of a plan of reorganization incorporating the material terms of this Term Sheet (the 'Plan'),"11 the amortized monthly payments would be "place[d] into the registry of the Court," and Appellant would "not be entitled to a disbursement of any such escrowed funds until the Effective Date of the Plan."12
The State of Texas, which had to consent to settlement of the qui tam claims, refused to consent to the terms of the "Amended Term Sheet."13 On July 26, 2017, the Bankruptcy Court ordered the parties to a second mediation and compelled the State of Texas to attend.14 The second mediation resulted in agreement to a total settlement amount of $4 million but no agreement as to how that amount would be apportioned.15 In briefing submitted to the Bankruptcy Court, Appellant proposed a division that treated the settlement as a common fund and allocated the proceeds first by deducting Appellant's and the State's individual claims in full, then deducting attorney's fees based on contingency agreements, and finally allocating 30% of the remaining proceeds to Appellant and 70% to the State.16 The State argued that the common fund doctrine did not apply, and that Appellant was instead entitled to a pro rata share of the proceeds. The State also objected to payment of Appellant's attorney's fees, arguing that such payment would violate Texas law, which capped Appellant's recovery at 30% of the proceeds.17 Despite lengthy negotiations, the parties failed to reach an agreement on how to allocate the settlement proceeds.18
On November 7, 2017, the Bankruptcy Court held a hearing to determine the appropriate division of the settlement proceeds.19 The hearing was attended by attorneys for the State of Texas, by Appellant, who was represented by attorneys from Brewer & Pritchard who had represented him in the state court qui tam action, and by Charles Long ("Long"), who was hired to represent Appellant in the adversary proceeding.20 The Bankruptcy Court began the hearing with a proposal to divide the proceeds based on the 45% contingency fee in Appellant's contract with Brewer & Pritchard.21 When the Bankruptcy Court asked the parties if they opposed the proposed allocation, Long requested a break to consult with the Appellant.22 Counsel for the State of Texas objected arguing that the 45% fee applied only if the case was called to trial and that event never occurred.23 The Bankruptcy Court agreed, readjusted the figures, and proposed to divide the proceeds based on the 40% contingency fee in the Brewer & Pritchard contract: "1,599,000 to the State, 720,000 for Dr. Rohi, and 1,681,000 to the attorneys."24 Following a ten minute break all parties consented to the Bankruptcy Court's proposed allocation of the settlement proceeds and waived theirrights to an evidentiary hearing, written order, and appeal.25 The Bankruptcy Court then issued an order by stating on the record: "The $4 million will be allocated $1,599,000 to the State of Texas, $720,000 to Dr. Rohi, and $1,681,000 to the attorneys representing Dr. Rohi to be divided by the attorneys in accordance with their own agreements."26 The Bankruptcy Court memorialized its oral order in a docket entry that states: "The court announced and ordered the division of the proceeds of $4,000,000.00 as follows: $1,599,000.00 to the State of Texas; $720,000.00 to Dr. Rohi; $1,681,000.00 to the attorneys representing Dr. Rohi to be divided by the attorneys in accordance with their own agreements."27
A short time thereafter Appellant voted for and signed ABC Dentistry's plan of reorganization, the plan was confirmed,28 ABC Dentistry started to make quarterly payments into the registry of the court,29 and disbursements to the parties began in accordancewith the Bankruptcy Court's November 7, 2017, Order.30 The disbursements led to a dispute between Appellant and Appellees. Appellant contended that the Bankruptcy Court's Order entitled him to a total recovery of $2,401,000.00 (consisting of his award of $720,000.00 and the award of $1,681,000.00 to his attorneys), and that Appellees were only entitled to 40% of that amount pursuant to the Brewer & Pritchard contingency fee contract.31 Appellees contended that Bankruptcy Court's November 7, 2017, Order made $720,000.00 payable to Appellant, and the fee award of $1,681,000.00 payable to them.32
On June 1, 2018, Appellant filed suit against Appellees in state court alleging breach of contract, breach of fiduciary duty, misapplication of fiduciary property, money had and received, and violations of the Texas Deceptive Trade Practices and Theft Liability Acts.33
On July 25, 2018, Appellees filed a Notice of Removal pursuant to 28 U.S.C. § 1452(a), Federal Rule of Bankruptcy Procedure 9027,and Local Rule of Bankruptcy Procedure 9027-1, asserting that "[t]he Court has jurisdiction over one or more of the causes of action in the Removed Action pursuant to its 'arising under' or 'arising in' jurisdiction under 28 U.S.C. § 157(b)."34 On July 26, 2018, Appellees filed a motion to dismiss arguing that Appellant's state court action was barred by res judicata pursuant to the Bankruptcy Court's November 7, 2017, Order.35
On August 3, 2018, Appellant filed a motion to remand and abstain.36 After conducting hearings on August 13, 2018,37 and September 20, 2018,38 the Bankruptcy Court issued the February 21, 2019, Memorandum Opinion granting Appellees' motion to dismiss and denying Appellant's motion to remand and abstain, and the Dismissal Order from which Appellant appeals.39
Final judgments, orders, and decrees of a bankruptcy court may be appealed to a federal district court. 28 U.S.C. § 158(a). Because the district court functions as an appellate court, it applies the same standard of review that federal appellate courts use when reviewing district court decisions. See Webb v. Reserve Life Insurance Co. (In re Webb), 954 F.2d 1102, 1103-04 (5th Cir. 1992). This court reviews the Bankruptcy Court's findings of fact for clear error and its rulings on questions of law or mixed questions of law and fact de novo. Id. at 1104. See also Wooley v. Faulkner (In re SI Restructuring, Inc.), 542 F.3d 131, 134-35 (5th Cir. 2008). The Bankruptcy Court's denial of Appellant's motion to remand, and granting of Appellees' Rule 12(b) (6) motion to dismiss are subject to de novo review. See S.W.S. Erectors v. Infax, Inc., 72 F.3d 489, 492 (5th Cir. 1996) (motions to remand); Stokes v. Gann, 498 F.3d 483, 484 (5th Cir. 2007) (motions to dismiss). The court reviews discretionary decisions of the Bankrutpcy Court for abuse of discretion. Mendoza v. Temple-Inland Mortgage Corp. (In re Mendoza), 111 F.3d 1264, 1270 (5th Cir. 1997). A bankruptcy court abuses its discretion when "its ruling is based on an erroneous review of the law or on a clearly erroneous assessment of the evidence." Leonard v. Luedtke (In re Yorkshire, LLC), 540 F.3d 328, 331 (5th Cir. 2008) (per curiam) (citation omitted).
Appellant "requests reversal of the Bankruptcy Court's order dated February 21, 2019 which denied Appellant's motions to remand and for mandatory and permissive abstention and granted Appellees Brewer & Pritchard, PC, J. Mark...
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