Schmidt v. Villarreal (In re Oga Charters, LLC)

Citation569 B.R. 105
Decision Date23 June 2017
Docket NumberADVERSARY NO. 16–7016,CASE NO: 16–70297
Parties IN RE: OGA CHARTERS, LLC, Debtor Michael B. Schmidt, Trustee, Plaintiff v. Marta Villarreal, et al., Defendants
CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas

Michael Schmidt, Attorney at Law, Corpus Christi, TX, for Plaintiff.

Nathaniel Peter Holzer, Shelby Jordan, Jordan Hyden Womble Culbreth & Holzer PC, Corpus Christi, TX, Wayne Pickering, Martin Disiere et al, Jeffrey Gresham Tinkham, Martin Disiere Jefferson & Wisdom LLP, Steven Douglas Shurn, Hughes Watters and Askanase, Houston, TX, Michael McGurk, Kittleman Thomas et al, McAllen, TX, for Defendant.

Eric Terry, Eric Terry Law, PLLC, San Antonio, TX, Jesus Maria Alvarez, Attorney at Law, Rio Grande City, TX, for Intervenor.

MEMORANDUM OPINION

[Resolving ECF Nos. 31, 58, 67, 85, 86, 87 ]

Eduardo V. Rodriguez, United States Bankruptcy Judge

I. INTRODUCTION

It is an old adage that "no one has the right to be sorry for [themselves] for a misfortune that strikes everyone."1 Here, lives of loved ones have been lost, while many others were injured. This is a story of loss and tragedy, yet the case sub judice , provisions not only for the consideration of a matter of first impression, it abruptly catapults this Court into an unfortunate set of facts and circumstances requiring, inter alia , a determination of whether Debtor's insurance policy and proceeds thereof are property of Debtor's bankruptcy estate.

This case arises from an accident that occurred on May 14, 2016, while a bus owned by OGA Charters, LLC ("OGA ") was transporting passengers to the Kickapoo Lucky Eagle Casino near Laredo, Texas and resulted in the death of nine passengers and the injury of approximately forty others giving rise to personal-injury, survival, and wrongful-death claims. See generally [ECF No. 78 at 10].2 At the time of the Accident, New York Marine and General Insurance Company (the "Insurer ") insured OGA for the total amount of $5 million dollars in liability coverage, in addition to coverage for collision and comprehensive. [ECF Nos. 76, 77].

Pending before this Court are six matters: "Intervenors'3 Motion For Abstention Pursuant to 28 U.S.C. § 1334(c)(1) or (c)(2)," [ECF No. 31] ("Motion for Abstention "); "Motion of Settled Claimants to Dismiss Complaint for Lack of Subject Matter Jurisdiction," [ECF No. 58]; "Motion of Settled Claimants to Dismiss Chapter 7 Trustee's Amended Complaint for Lack of Subject Matter Jurisdiction," [ECF No. 67]4 ("Motion to Dismiss "); "Motion of Settled Claimants for Summary Judgment," [ECF No. 85] ("Motion for Summary Judgment "); "Beatrice Garcia's Notice of Adoption by Reference of Motion of Settled Claimants for Summary Judgment," [ECF No. 86] (the "Notice "), and "Chapter 7 Trustee's and Petitioning Creditors'5 Joint Response to Movant–Creditors Motion for Summary Judgment (Adv. Doc. # 85) and Beatrice Garcia's Notice of Adoption by Reference [Adv. Doc. # 86] and Joint Cross–Motion for Summary Judgment," [ECF No. 87] (the "Cross Motion for Summary Judgment "). This Court considers the pleadings and briefs filed by the parties; the arguments presented at the hearing held on February 24, 2017; all other evidence in the record; and relevant case law. For the reasons discussed herein, the Court finds that Settling Creditors' Motion for Abstention, [ECF No. 31], should be denied as to both mandatory and discretionary abstention, the "Motion of Settled Claimants to Dismiss Complaint for Lack of Subject Matter Jurisdiction," [ECF No. 58], should be denied as moot as having been amended, Settling Creditors' Motion to Dismiss, [ECF No. 67], should be denied, Settling Creditors' Motion for Summary Judgment, [ECF No. 85], and the associated Notice filed by Garcia, [ECF No. 86], should both be denied, and Trustee and Petitioning Creditors' Cross Motion for Summary Judgment, [ECF No. 87], should be granted and OGA's insurance policy, including related proceeds thereof, are declared property of OGA's bankruptcy estate.

II. FINDINGS OF FACT

This Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rules of Bankruptcy Procedure 7052, which incorporates Fed. R. Civ. P. 52, and 9014. To the extent that any Finding of Fact constitutes a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law constitutes a Finding of Fact, it is adopted as such. The Court issued a prior opinion in this matter. [ECF No. 32 at 3–6]; In re OGA Charters, LLC , 554 B.R. 415, 420–22 (Bankr. S.D. Tex. 2016). To the extent that the Court made oral findings and conclusions on the record at the February 24, 2017 hearing, this Memorandum Opinion supplements and supersedes those findings and conclusions.

On May 14, 2016, a bus carrying passengers, many of which are before this Court, was involved in an accident during an excursion to the Kickapoo Lucky Eagle Casino (the "Accident "). [Bankr. ECF No. 3 at ¶ 9]; [Bankr. ECF No. 22 at ¶ 1]; [Bankr. ECF No. 23 at ¶ 2]; [Bankr. ECF No. 27 at ¶ 2]. This is undisputed by the parties.6 Also undisputed is, as a result of the Accident, the passengers, including the subsequent representatives for their estates or children, respectively, before this Court became creditors of OGA. Furthermore, OGA maintained a liability policy with the Insurer that would cover a maximum of $5,000,000.00 in liability (the "Proceeds "), in addition to coverage for collision and comprehensive. [Bankr. ECF No. 3–4 at 1]; see also [ECF No. 85–3] (the "Policy ").

On July 8, 2016, the Petitioning Creditors filed their involuntary petition. [Bankr. ECF No. 1]. Two days later on July 10, 2016, Petitioning Creditors filed their "Verified Emergency Motion to Enjoin, Pursuant to 11 U.S.C. § 105, and Rule 7065, BRP, the Dissipation of Assets by the Debtor and its Insurers Made Outside the Ordinary Course of its Operations." [Bankr. ECF No. 3]. The Petitioning Creditors stated that Insurer had allegedly reached settlements, which caused the entirety of OGA's liability insurance coverage to be exhausted. Id. at ¶ 13–15; [Bankr. ECF Nos. 3–2, 3–3, and 3–4]. On July 11, 2016, Petitioning Creditors also filed an adversary proceeding against OGA. [ECF No. 1]. In the adversary, Petitioning Creditors filed a motion wherein they sought declaratory relief just as they had done in the main case. Compare [ECF No. 2] with [Bankr. ECF No. 3].

On July 12, 2016, this Court held a preliminary hearing on the Petitioning Creditor's motions. [Bankr. ECF No. 4] (setting a hearing on [Bankr. ECF No. 3] and [ECF No. 2] ). At that hearing, the Petitioning Creditors presented their arguments for why the Court should issue a temporary restraining order. C.f. [Bankr. ECF No. 2]. In addition, Intervenors' Counsel argued why a temporary restraining order should not be entered.

As a result of the July 12, 2016 hearing, this Court entered a temporary restraining order that enjoined certain parties from undertaking certain actions related to the Accident and the insurance policy and set a hearing on the merits for July 26, 2016. See generally [Bankr. ECF No. 13]. The Court also ordered the parties to file briefing on the issue of whether the Proceeds of OGA's Policy are property of OGA's bankruptcy estate as the insurance policy is undisputedly property of OGA's bankruptcy estate. [Bankr. ECF No. 11] (stating "[t]he court ordered briefing on issue of whether or not insurance proceeds are property of the Estate"); In re Edgeworth , 993 F.2d 51, 55 (5th Cir. 1993). On July 21, 2016, the parties filed their respective briefs. [Bankr. ECF Nos. 22, 23, 25, 27]; [ECF Nos. 17, 18, 20].

At the July 26, 2016 hearing, Counsel for the Petitioning Creditors, Counsel for the Intervenors, Counsel for Garcia, and Counsel for OGA appeared before this Court. Mr. Steven Shurn, Counsel for OGA, had been recently retained and announced on the record and via stipulation submitted to the Court that service of process of OGA could be effectuated through his office. Counsel for each of the above referenced parties presented argument to this Court on the respective motions in the main bankruptcy case and adversary proceeding. Furthermore, Mr. Shurn represented that OGA had received an insurance payment in the amount of $20,000.00 for damage to its bus that was involved in the accident. [ECF No. 32 at 6]; see also [Bankr. ECF No. 36] (noting the $20,000.00 payment and ordering that it was not affected by the preliminary injunction). The Court entered its ruling the following day granting the request for a preliminary injunction. [Bankr. ECF Nos. 35, 36]; see also [ECF Nos. 32, 33].

On August 22, 2016, OGA consented to the entry of an order for relief and Michael B. Schmidt was subsequently appointed chapter 7 trustee ("Trustee" ). [Bankr. ECF No. 55].

On October 11, 2016, the Settling Creditors filed their Motion of Settled Claimants to Dismiss Complaint for Lack of Subject Matter Jurisdiction without any exhibits attached. [ECF No. 58]. Six days later, the Settling Creditors filed their "Motion of Settled Claimants to Dismiss Chapter 7 Trustee's Amended Complaint for Lack of Subject Matter Jurisdiction," which, like the prior motion to dismiss, also did not have any exhibits attached. [ECF No. 67].7 In the Motion to Dismiss, the Settling Creditors allege that the Court lacks subject matter jurisdiction as (1) the Proceeds of the Policy are not property of the estate under Fifth Circuit precedent; and (2) the secondary impact exception, which Settling Creditors argue does not exist, does not apply to a chapter 7 case where there are few assets within the estate. See generally id. The Trustee filed his response to the Motion to Dismiss wherein he argues that Fifth Circuit precedent not only sets forth that the proceeds from the Insurer's policy with OGA is property of the bankruptcy estate, but also establishes the secondary impact exception. See generally [ECF No. 69].

On October 20, 2016, the Court granted ...

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