Opinion
NO. 01-14-00455-CV
04-28-2016
PHILLIPPE TANGUY, 13500 AIR EXPRESS, L.L.C. AND 13500 AIR EXPRESS, L.P., AND PTRE HOLDINGS, L.P., Appellants v. WILLIAM G. WEST, AS CHAPTER 7 TRUSTEE OF RICHARD DAVIS, DEBTOR, AND EVA S. ENGELHART, RECEIVER, Appellees
On Appeal from the 270th District Court Harris County, Texas
Trial Court Case No. 2013-67779
OPINION
After the trial court domesticated a foreign judgment against appellants Philippe Tanguy, 13500 Air Express, LLC, and 13500 Air Express, L.P., it entered several orders that (1) appointed a receiver; (2) ordered appellants to turn over property to satisfy the judgment; and (3) authorized the receiver to sell certain property. On appeal, appellants collaterally attack the judgment that was domesticated and directly attack the post-domestication orders entered by the trial court. We reverse and remand.
BACKGROUND
In 2007, Richard Davis filed a voluntary petition under Chapter 7 of the Bankruptcy Code, and appellee, William G. West ["the Trustee"], was named the Chapter 7 Trustee. West filed an adversary proceeding against appellant, Philippe Tanguy, and two businesses owned and operated by him, Air Express, LLC and Air Express, LP [collectively, "appellants"], based on a promissory note that appellants had issued to Davis in conjunction with the purchase of an airplane, which had since become a part of Davis's bankruptcy estate. The Bankruptcy Court entered a judgment in favor of the Trustee in the amount of $1,183,090.80 for the principal and interest on the note, plus $31,180.75 in attorney's fees. See West v. Tanguy (In re Davis), Bankruptcy No. 07-33986-H3-7, 2010 WL 1330232 (Bankr. S.D. Tex. Mar. 30, 2010).
Appellants appealed to the U.S. District Court, which (1) concluded that Stern v. Marshall, 564 U.S. 462, 131 S. Ct. 2594 (2011) was not applicable to the appeal, (2) affirmed the Bankruptcy Court's opinion and dismissed the appeal; and (3) assessed fees and costs against appellants for filing a frivolous appeal. See Tanguy v. West (In re Davis), No. H-10-1194, 2012 WL 2871662 (S.D. Tex. July 10, 2012).
Stern held that the bankruptcy court lacked subject matter jurisdiction over counterclaims asserted by the bankruptcy estate against a creditor when the claim is a "state law action independent of the federal bankruptcy law and not necessarily resolvable by a ruling on the creditor's proof of claim in the bankruptcy." 564 U.S. at 487, 131 S. Ct. at 2611. Instead, such claims had to be resolved by an Article III court. Id.
Appellants appealed to the Court of Appeals for the U.S. Fifth Circuit, which (1) held that Stern did not apply, and the bankruptcy and district courts had both properly exercised jurisdiction, and (2) affirmed the district court's judgment and adopted its analysis in full; appellants' subsequent petition for certiorari to the United States Supreme Court was denied. See Tanguy v. West, 538 F. App'x 440 (5th Cir. 2013), cert. denied, 134 S. Ct. 1002 (2014).
The Trustee then domesticated the federal court's judgment in the 270th District Court of Harris County. See, e.g., Tanner v. McCarthy, 274 S.W.3d 311, 318-20 (Tex. App.—Houston [1st Dist. 2008, no pet.) (holding that foreign judgment that may be domesticated under Chapter 35 of Texas Civil Practices and Remedies Code includes judgment of federal court located in Texas). PTRE Holdings, L.P. ["PTRE"] intervened seeking to recover money it paid to Tanguy for mortgage payments on and improvements to real property located at 1714 Driscoll Street, Harris County, Texas.
The trial court entered three orders complained of on appeal. On April 25, 2014, the trial court signed an Order Granting Turnover and Appointing Receiver and Master, which appointed Eva Engelhart as the Receiver ["the Receiver Order"], and also made her master in chancery. On May 30, 2014, the trial court signed an Order to Compel Turnover of Non-Exempt Real Estate ["the Turnover Order"], specifically, the real property located at 1714 Driscoll Street. And, on October 10, 2014, the trial court entered its Third Amended Order to Sell Property at 1714 Driscoll Street. ["the Sale Order"].
On appeal, appellants challenge these three orders, contending that:
(1) The bankruptcy court judgment on which the trial court's orders were based is void for lack of Article III subject matter jurisdiction under the United States Constitution, is subject to collateral attack, and requires dismissal.
(2) Real property subject to execution and sale by ordinary legal process cannot serve as a basis for a turnover order appointing a receiver. The credit against judgment to be received by the judgment debtor for the sale of such property cannot be reduced by receiver broker fees and costs.
(3) The [Receiver Order] failed to specifically describe any property to be turned over and must be reversed.
(4) The [Receiver Order, Turnover Order, and Sale Order] are not supported by any proof that the debtors (Tanguy, 13500 Air Express, LLC and 13500 Air Express, LP) own any non-exempt property which is not subject to sale by ordinary legal process.
(5) The [Receiver Order, Turnover Order, and Sale Order] are not supported by legally or factually sufficient evidence that the debtors (Tanguy, 13500 Air Express, LLC and 13500 Air Express,
LP) own any non-exempt property which is not subject to sale by ordinary legal process.
(6) Appellants, Tanguy, 13500 Air Express, LLC and 13500 Air Express, LP and [Intervenor] PTRE Holdings, L.P., were entitled to a Jury Trial on the contested fact issues raised by their answer, counterclaim, and intervention petition.
(7) The trial court's [Receiver Order, Turnover Order, and Sale Order] appointing the receiver a master, appointing a biased receiver, and awarding a 25% receiver's fee without proof of reasonableness were an abuse of discretion.
COLLATERAL ATTACK ON BANKRUPTCY JUDGMENT
In their first issue on appeal, appellants contend that the bankruptcy court judgment is void, and that, therefore, the domesticated judgment is likewise void. Specifically, appellants claim that the "Bankruptcy Judge signed a judgment disposing of Tanguy's common law and statutory private claims and defenses over which that Judge had no Article III jurisdiction under the United States Constitution."
However, appellants raised this jurisdictional argument both in the U.S. District Court and on appeal to the U.S. Court of Appeals for the Fifth Circuit, where the issue was resolved against them. See In re Davis, 538 F. App'x. at 443 ("We are unpersuaded by Tanguy's argument that neither the bankruptcy court, the district court, nor this Court have subject matter jurisdiction over these proceedings . . . ."). When a federal court has decided the question of its jurisdiction as a contested issue, a state court has no power, in the absence of allegations of fraud, to inquire again into such question. See Stoll v. Gottlieb, 305 U.S. 165, 172, 59 S. Ct. 134, 138 (1938); see also Republic Supply Co. v. Shoaf, 815 F.2d 1046, 1052-53 (5th Cir. 1987).
Because the issue of the bankruptcy court's jurisdiction was fully tried in the federal courts, the issue cannot be retried here. See Stoll, 305 U.S. at 172, 59 S. Ct. at 138; see also Durfee v. Duke, 375 U.S. 106, 111-12, 84 S. Ct. 242, 245 (1963) (applying Stoll even when jurisdiction was fully litigated in sister state court rather than federal court); Baker & Taylor Drilling Co. v. Amend, 438 S.W.2d 144, 149 (Tex. Civ. App.—Amarillo 1969, writ ref'd n.r.e.) (refusing to address issue of federal court's jurisdiction when that issue had been decided by both federal district court and federal court of appeals). As such, appellants' collateral attack on the bankruptcy court's judgment fails.
We overrule appellants' first issue on appeal.
COMPLIANCE WITH TURNOVER STATUTE
In four related issues on appeal, appellants contend the trial court abused its discretion in entering the Receiver Order, the Turnover Order, and the Sale Order.
We review the entry of a turnover order for an abuse of discretion. Tanner v. McCarthy, 274 S.W.3d 311, 320 (Tex. App.—Houston [1st Dist.] 2008, no pet.). A turnover order is proper if the conditions of the turnover statute, Texas Civil Practice and Remedies Code section 31.002, are met. TEX. CIV. PRAC. & REM. CODE ANN. § 31.002 (West 2015); Tanner, 274 S.W.3d at 322. The trial court "must have some evidence before it that establishes that the necessary conditions for the application of 31.002 exist." Tanner, 274 S.W.3d at 322.
Section 31.002(a) provides:
(a) A judgment creditor is entitled to aid from a court of appropriate jurisdiction through injunction or other means in order to reach property to obtain satisfaction on the judgment if the judgment debtor owns property, including present or future rights to property, that:
TEX. CIV. PRAC. & REM. CODE ANN. § 31.002(a) (emphasis added).(1) cannot readily be attached or levied on by ordinary legal process; and
(2) is not exempt from attachment, execution, or seizure for the satisfaction of liabilities.
Once the predicate showing is made under section 31.002(a), the trial court may grant relief under 31.002(b) as follows:
(1) order the judgment debtor to turn over nonexempt property that is in the debtor's possession or is subject to the debtor's control, together with all documents or records related to the property, to a designated sheriff or constable for execution;Id. § 31.002(b) (emphasis added).
(2) otherwise apply the property to the satisfaction of the judgment; or
(3) appoint a receiver with the authority to take possession of the nonexempt property, sell it, and pay the proceeds to the judgment creditor to the extent required to satisfy the judgment.
Appellants contend that the Receiver Order, and the subsequent orders based thereon, were erroneously entered because there was no evidence that each piece of property that the receiver later sought to have turned over could not have been readily attached or levied on by ordinary legal process. Specifically, appellants claim that all three orders, as they relate to the house at 1714 Driscoll Street, are erroneous because 1714 Driscoll Street is real property located within Texas, and, as such, may be readily attached or levied on by ordinary legal process. See Suttles v. Vestin Realty Mortg. I, Inc., 317 S.W.3d 412, 418 (Tex. App.—Houston [1st Dist.] 2010, no pet.). Appellant's counsel indicated to the trial court that he would prefer to sell the property by ordinary legal process, i.e., a sheriff's sale, because he believed his clients would recover more money to go toward the judgment if they did not have to pay a receiver's fee or a broker's fee.
In response, the Trustee contends that once the predicate set forth in 31.001(a) is met by showing that the judgment debtor has any non-exempt property that cannot be readily attached or levied on by ordinary legal process, then the court can grant the relief in section 31.001(b) as to all non-exempt property the debtor may have, even property that can be readily attached or levied on by ordinary legal process. The Trustee does not claim that the real property at 1714 Driscoll Street could not have been readily attached or levied on by ordinary legal process. Instead, it claims that it did not have to make such a showing. Specifically, the Trustee claims that once it showed any non-exempt property that could not be readily attached or levied on—here, an airplane in Georgia and accounts receivable in connection with rental income—the receiver was entitled to require the judgment debtor to turn over all non-exempt property, including 1714 Driscoll Street, which the parties agree is property that could be readily attached and levied on.
In the trial court, before signing the Turnover Order, the parties discussed the issue raised in this appeal as follows:
[Appellants' counsel]: We believe—we believe that the turnover statute does not allow a Receiver to sell property that's nonexempt that is subject to legal process, and we believe that they are—and this specific property was not mentioned. This is generally all the property in the first receivership order.
. . . . The question is, if the Debtor has one nonexempt piece of property that's not subject to legal process, does that mean the Receiver gets to sell all the property?
[Trial court]: That's been my general experience, yeah.
[Appellants' counsel]: Some of which is nonexempt and is subject to legal process? That's the only reason why I'm down here.
[Trial court]: That's my general understanding, yeah.
There is substantial authority holding that property may be subject to a turnover order if (1) the judgment debtor owns the property, (2) the property is property that a creditor cannot readily attach or levy by ordinary process, and (3) the property is not exempt. See Holland v. Alker, No. 01-05-00666-CV, 2006 WL 1041785 (Tex. App.—Houston [1st Dist.] Apr. 20, 2006, pet. denied); Europa Intern., Ltd. v. Direct Access Trader Corp., 315 S.W.3d 654, 656 (Tex. App.—Dallas 2010, pet. denied); Black v. Shor, 443 S.W.3d 170, 175 (Tex. App.—Corpus Christi 2013, no pet.); see also Schultz v. Fifth Judicial District Court of Appeals, 810 S.W.2d 738 (Tex. 1991) ("The statute requires a factual showing that the judgment debtor has non-exempt property that is not readily subject to ordinary execution . . . Upon proof of the necessary facts, it authorizes the trial court to order affirmative action by the judgment debtor and others to assist the judgment creditor in subjecting such non-exempt property to satisfaction of the underlying judgment."); Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 224 (Tex. 1991) (characterizing the turnover statute as "the procedural device by which judgment creditors may reach assets of a debtor that are otherwise difficult to attach or levy on by ordinary legal process"). Similarly, a factual showing that the judgment debtor has property that is not readily subject to ordinary execution is of particular importance in applying 31.002. See Main Plain Custom Homes, Inc. v. Honaker, 192 S.W.3d 604, 628 (Tex. App.—Fort Worth 2006, pet. denied).
However, the Trustee provides no authority, and we can find none, to support the expansive reading of section 31.002 that he urges. We find not one case in which a court has allowed the turnover of non-exempt property that is, without dispute, readily subject to attachment or levy by ordinary process simply because the judgment creditor had other non-exempt property that was not. The supreme court has recognized that "[t]he purpose of the turnover statute is to give courts the power to satisfy a judgment by reaching the judgment debtor's property that cannot be attached or levied on by ordinary procedures." Ex parte Swate, 922 S.W.2d 122, 125 (Tex. 1996).
In interpreting a statute, we focus not on isolated words or phrases, but on the statute as a cohesive, contextual whole. Tex. Student Housing Auth. v. Brazos Cty. Appraisal Dist., 460 S.W.3d 137, 141 (Tex. 2015). The full context of section 31.002 makes evident that "the nonexempt property" referenced by section 31.002(b)(3) and subject to disposition through receivership is the same nonexempt property previously referenced by the predicate laid in section 31.002(a), that is, nonexempt property that "cannot readily be attached or levied on by ordinary legal process." This accords with the interpretive principle ejusdem generis, which provides that "when words of a general nature are used in connection with the designation of particular objects or classes of persons or things, the meaning of the general words will be restricted to the particular designation." Hilco Elec. Co-op. v. Midlothian Butane Gas Co., 111 S.W.3d 75, 81 (Tex. 2003) (citing Carr v. Rogers, 383 S.W.2d 383, 387 (Tex. 1964)).
Thus, to the extent that the orders complained of in this appeal require appellants to turn over the real property located at 1714 Driscoll Street—property which even the Trustee admits can be readily attached or levied on by ordinary legal process, and there being no evidence to the contrary—the orders are an abuse of discretion. Accordingly, we sustain issues two, four, and five. We reverse the orders and remand for further proceedings. Having found reversible error, we need not address the remaining issue three regarding the sufficiency of the Receiver Order, and decline to do so. See TEX. R. APP. P. 47.1.
RIGHT TO JURY TRIAL
In issue six, appellants and the intervenor, citing Steenland v. Tex. Commerce Bank N.A., 648 S.W.2d 387, 390 (Tex. App—Tyler 1983, writ ref'd n.r.e). contend that they were entitled to a jury trial because there was a fact issue as to whether the real property at 1714 Driscoll Street was "not subject to sale under ordinary legal process." The Trustee responds that no jury trial is available in receivership proceedings. We need not decide the issue because, in this case, there is no fact issue. This Court has held that real property in Texas, as a matter of law, is subject to sale under ordinary process, stating:
In Steenland, the Tyler Court of Appeals held that the judgment debtor was entitled to a jury trial to determine the excess nonexempt value of his homestead. 648 S.W.2d at 390. --------
Real property in Texas may be attached. See TEX. R. CIV. P. 593 (writ of attachment "shall be directed to the sheriff or any constable within the State of Texas" and "shall command him to attach and hold . . . the property of the defendant . . . as shall be found within his county"); see also Pillitteri v. Brown, 165 S.W.3d 715, 722 (Tex. App.—Dallas 2004, no pet.) (noting real property outside of Texas is subject to
turnover order because "ordinary legal process by which property is attached or levied upon" is writ and writ directs "a sheriff or constable in the State of Texas . . . to attach and hold the defendant's property as shall be found within his county"). Because the Victoria County property is real property located within Texas, it may be readily attached or levied on by ordinary legal process. See TEX. R. CIV. P. 593, 639; see also Pillitteri, 165 S.W.3d at 722. Thus, the requirements of the turnover statute are not met. See TEX. CIV. PRAC. & REM. CODE ANN. § 31.002(a)(1) (providing turnover order available if judgment debtor owns property that "cannot be attached or levied on by ordinary legal process").Suttles, 317 S.W.3d at 417-18.
There being no fact issue regarding whether the real property at 1714 Driscoll Street was subject to attachment by ordinary legal process, the trial court did not err in denying a jury trial.
We overrule issue six.
APPOINTMENT OF MASTER IN CHANCERY
In issue seven, appellants contend the Receiver Order, the Turnover Order, and the Sale Order are abuses of discretion because, in the Receiver Order the trial court also gave the receiver the powers of a master in chancery. However, this Court has held that we have no appellate jurisdiction to consider an order appointing a master in chancery, even when such order is embedded within a turnover-and-receivership order. See Sheikh v. Sheikh, 248 S.W.3d 381, 394 (Tex. App.—Houston [1st Dist.] 2007, no pet.) We note, as this Court did in Sheikh, that, inasmuch as we have reversed the orders complained of, the trial court, on remand, may reconsider whether the receiver should also be appointed master in chancery. See id. at 394-95.
We dismiss issue seven for lack of jurisdiction.
CONCLUSION
We reject appellants' collateral attack on the bankruptcy court judgment, and we have no jurisdiction to address on appeal appellants' complaints about the order appointing a master in chancery. However, because the trial court's orders compelled the turnover of real property located in Texas, which, by definition, can be readily be attached or levied on by ordinary legal process, those orders constitute an abuse of discretion. Accordingly, we reverse the Receiver Order, the Turnover Order, and the Sale Order, and remand for further proceedings. We express no opinion as to whether appellants' possess other property that meets the requirements of the turnover statute, as that issue is not before us in this appeal. See TEX. R. APP. P. 47.1.
Sherry Radack
Chief Justice Panel consists of Chief Justice Radack and Justices Massengale and Brown.