Opinion
Civil Action No. 3:01-CV-2284-D, (Bank. Ct. No. 00-35322-SAF-11)
April 24, 2002
APPEAL FROM THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS
This appeal arises from the bankruptcy court's order granting the debtors' motion to reject executory contract, in which it concluded that a contract for the sale of real estate would be rejected, and it awarded a creditor a general unsecured damages claim for $1,666,904.00. The debtors argued below that the contract had expired of its own terms. The bankruptcy court disagreed, finding that they had waived their reliance on the expiration of a specific closing deadline and were equitably estopped from invoking incurable title defects to contend the contract had lapsed. The debtors now challenge the order on several grounds. The court affirms the bankruptcy court's waiver decision. Because the court cannot determine that the bankruptcy court based its estoppel ruling on affirmable findings and conclusions, it vacates that part of the order and remands for further proceedings.
The written order does not state that the motion is granted, but the oral bench ruling states that it is. See R. 338.
I
Appellants-movants Jerry W. Biesel ("Biesel") and Elizabeth S. Biesel (the "Biesels") are chapter 7 debtors. They filed in their bankruptcy case a motion to reject executory contract to purchase real estate in Terrell, Texas. The motion related to a March 25, 1994 contract of sale ("Contract") under which appellee-respondent Karl Billings ("Billings") agreed to purchase from Biesel the Village East Mobile Home Park ("Village East"), located in Terrell, Kaufman County, Texas. The Biesels contended the Contract had terminated before they filed for bankruptcy. If it had not, however, they sought bankruptcy court approval to reject the Contract on the ground that the real estate is more valuable than the purchase price and that their estate would benefit from rejecting the Contract. For purposes of the hearing on the motion, the parties stipulated that two primary issues were presented for decision: (1) Is the Contract an executory contract or did it expire or terminate prepetition? (2) If the Contract is executory, the parties agree that the Biesels must reject it. Therefore, what are the rejection damages? The bankruptcy court held the Contract was executory at the time of the Biesels' bankruptcy petition, recognized the parties' agreement that the Contract must be rejected, and found that Billings was entitled to recover $1,666,904.00 as rejection damages.
The Biesels initiated the case under chapter 11.
The Biesels had been debtors in a 1989 bankruptcy case that resulted in a confirmed reorganization plan ("Plan") in 1991 that included a requirement that they pay an Internal Revenue Service ("IRS") claim. The IRS pay-out contemplated the sale of Village East during the second Plan year. After Plan confirmation, Biesel objected to and sought to reduce the IRS claim. The Biesels and the IRS reached a tentative settlement, subject to Justice Department and bankruptcy court approval. The bankruptcy court accepted the settlement.
In 1993 Biesel and Billings contracted for a partly seller-financed sale of Village East for $810,000. The agreement foundered when the IRS and the bankruptcy court both declined to approve the transaction. Title work performed in connection with the proposed sale revealed that Parque, Inc. ("Parque"), not Biesel, held title to Village East. In the Biesels' 1989 bankruptcy, Biesel had correctly scheduled the property as his, reported it in his disclosure statement as his, and provided for its sale in his Plan. This was so because Parque had been dissolved in 1977. Parque had two shareholders, Biesel and Danny L. Faulkner ("Faulkner"). Faulkner conveyed his interest in Parque to Biesel in 1980. Although Biesel failed to record the deed, he held title to Village East.
Following this aborted 1993 transaction, Biesel and Billings negotiated an all-cash sale of $660,000, resulting in the Contract that is the subject of this appeal. Billings' counsel, Herb Chavers, Esquire ("Chavers"), requested that the Contract name Parque as the seller to reflect the record title holder. Although Biesel knew that he held the title to the property, he agreed to this provision. Biesel's counsel, Dale Wootton, Esquire ("Wootton"), testified that he and Biesel knew updating the title to reflect Biesel's ownership would be relatively easy and that the Contract could be amended and title delivered. Accordingly, under the terms of the Contract, Parque was the seller and Billings the purchaser. Biesel signed the Contract as President of Parque on March 23, 1994. Billings, as buyer, executed the Contract on March 25, 1994 which, as the last signed date, was the contract effective date. He tendered the required earnest money of $10,000.
The Contract contained a financing condition that Billings would be able to obtain a conventional loan of not less than $450,000. If all financing could not be approved within 30 days from the effective date of the agreement, the Contract would terminate and Billings' earnest money would be refunded to him without delay. The agreement also contained a clause that required that, within 10 days of the date of the Contract, Parque deliver to Billings a title commitment or title binder and copies of instruments referenced as exceptions in the title binder. Billings then had five days to review the title binder and deliver any written objections to Parque. Paragraph 4(A) of the Contract provided that, if Billings objected, Parque "shall in good faith attempt to satisfy them prior to closing, but [Parque] shall not be required to incur any cost to do so." If Parque delivered written notice to Billings on or before the closing date indicating that it could not satisfy any objections, or if Parque could not convey title, Billings could waive the objection or terminate the Contract by written notice. In ¶ 4(B) of the Contract, Parque represented and warranted "that at the closing [it] will have and will convey to [Billings] good and marketable title to the Property free and clear of any and all encumbrances except the `Permitted exceptions'".
The Contract provided that "closing shall be held on or before fifteen days after approval of the financing described" in the agreement. The parties could postpone the closing by written notice, but not by more than 30 days after the date prescribed by the Contract. The agreement did not provide that time is of the essence. It did provide for the return of Billings' earnest money deposit.
On April 21, 1994 Billings (through his counsel, Chavers) requested an extension to May 25, 1994, to which Biesel agreed. Billings made a second request, by May 23, 1994 letter from Chavers to Biesel, asking for an extension to June 24, 1994. Biesel did not agree in writing to the extension. When May 25, 1994 passed without Billings' having obtained financing approval, Biesel did not orally or in writing declare the Contract terminated, and he took no action to return the earnest money deposit, because he wanted to close the sale. Biesel anticipated that the sale and his settlement with the IRS would resolve all his IRS problems. He desired to hold the transaction open because the Justice Department had not yet approved the IRS settlement.
Before May 25, Chavers informed Wootton on May 16 that an appraisal would be performed as part of the loan process. They both knew that Billings was continuing to pursue financing for the purchase. Parque did not deliver a title binder to Billings within ten days of March 25, 1994, as the Contract required. Billings did not complain about this failure, but instead sought financing and pursued other matters necessary for closing.
On May 31, 1994 (effective as of May 24, 1994), Billings obtained a title commitment from Commonwealth Land Title Insurance Company ("Commonwealth"). Because the Contract listed Parque as seller, Commonwealth's title commitment required a corporate resolution that authorized the sale and a certification that Parque was in good standing. Billings learned that back taxes were owed on Village East, which Biesel agreed to pay at closing. Current year taxes were prorated.
On July 1, 1994 Chavers advised Wootton by letter that Billings had a "verbal commitment" for financing, that he anticipated a written commitment within a week, and draft loan documents by July 14, 1994, Billings arranged for the property to be surveyed, and he received loan approval on July 14. Billings and his father were shown on the loan approval as the borrowers, although the Contract only named Billings as the purchaser. Billings neither informed Biesel that his father was involved nor that he had received written loan approval.
According to the Contract, the closing of the Village East sale should have occurred 15 days after July 14, 1994. Because Billings did not inform Biesel of the written financing approval, Biesel would not have known that the 15-day period had commenced. His counsel (Wootton) knew, however, of the verbal commitment on July 1, 1994, and neither Biesel nor Wootton inquired of Billings or Chavers whether the written approval had been received.
In response to the July 1, 1994 letter, Biesel did not begin title work, despite his knowledge that Parque did not exist, because he desired to ensure that financing was in place before he did so. At the time, he had not received Justice Department approval of the IRS settlement, and, until he did, he had no desire to proceed to closing. He wanted to close the sale after he had a complete resolution of the IRS' claims against him. Accordingly, it served Biesel not to inquire of the written loan approval and to delay working on title matters.
On July 6, 1994 (effective June 28, 1994) Commonwealth issued a title commitment that revealed that Parque might be dissolved. It therefore required Parque's articles of dissolution, a deed from the shareholders, and the shareholders' names in order to perform an involuntary lien search. Because of issues relating to Billings' father and his wife, drafting the loan documents languished through the summer and into the fall. During this period, Billings did not keep Biesel updated, but he did proceed to work on other matters.
By letters dated May 18, 1994 and August 22, 1994, Wootton wrote to IRS counsel about the status of the settlement approval, but he received no response.
Neither Biesel nor Billings had been forthright with each other about developments. Biesel did not disclose that he had no desire to close until the Justice Department had approved his settlement with the IRS, even though the settlement was outside the Contract. Billings did not reveal that he could not close until his father's role in the financing had been nailed down, even though his father was outside or a stranger to the Contract. Neither took any steps to declare the Contract terminated or cause the return of the earnest money. Both acted to keep the Contract open and viable.
On September 20, 1994 Chavers wrote Biesel regarding the Parque dissolution, stating that he was doing so in anticipation of the closing of the sale by October 1, 1994. Biesel did not respond to this correspondence by stating that the Contract had already terminated. On September 23, 1994 Commonwealth wrote Biesel about the Parque dissolution, stating that Billings wanted to close the sale the next week. Biesel did not respond to this notification by asserting that the Contract had been terminated.
On September 23, 1994 Chavers wrote Biesel requesting an extension of the closing date to October 15, 1994, stating that financing was taking longer than either party originally anticipated. Although this statement was misleading (Billings had obtained financing approval in July but was negotiating note terms), Biesel nevertheless accepted the assertion and agreed to the extension. Accordingly, even if Billings lacked financing approval as of September 23, 1994, Biesel agreed to extend the closing date. Biesel neither responded that the Contract had already been terminated nor did he return the earnest money.
On September 26, 1994 counsel for Terrell State Bank advised Wootton that an agreement had been reached regarding the wording of the loan documents and that the only impediment to closing appeared to be resolution of the Parque ownership (in view of its dissolution), which the Bank viewed as a title company matter. Wootton informed Biesel of this communication, but neither one advised the Bank that the Contract had been terminated.
On September 27, 1994 Commonwealth provided Biesel its revised commitment issued the same date and effective September 14, 1994. The exceptions listed the Parque dissolution, which did not surprise Biesel. The commitment also listed the IRS tax lien, an abstract of judgment held by Faulkner and John T. Mitchell ("Mitchell"), a lis pendens filed by the Federal Savings and Loan Insurance Corporation ("FSLIC"), and a delinquent property tax suit. Biesel did not respond that the Contract had been terminated.
Wootton sent a fax to the IRS on October 5, 1994 regarding the status of the Justice Department's approval of the settlement.
By October 15, 1994 Billings was ready to close, but Biesel was not. He could not deliver good and marketable title, and Parque, the seller under the Contract, did not exist. On October 13, 1994 Chavers wrote Wootton to negotiate a further extension. By October 17, 1994 letter, Chavers informed Wootton that Billings did not agree to the release that Biesel sought. Biesel did not agree to a further extension of the closing date, even though he could not deliver good and marketable title by October 15, 1994, the extended closing date. As before, neither Biesel nor Billings took any action to declare the Contract terminated or to return the earnest money.
On November 1, 1994 Wootton wrote to IRS counsel urging approval of the settlement so that Biesel could close the Village East sale. On November 4, 1994 Chavers wrote Wootton urging that the IRS dispute should not prevent the closing. Chavers contacted the IRS to pursue the settlement status. Billings retained Mike Chitty, Esquire ("Chitty") to pursue performance.
On December 19, 1994 Wootton again wrote to IRS counsel. On December 29, 1994 the Assistant Attorney General for the Justice Department Tax Division rejected the settlement. On January 5, 1995 Chitty informed Wootton that Billings still desired to perform the agreement to purchase Village East. Thereafter, Billings sued Biesel for specific performance of the Contract. On the eve of trial in August 2000, the Biesels filed for chapter 11 protection, staying the state case.
Biesel contended in the bankruptcy court that the Contract terminated by its own terms on May 25, 1994 (by which time Billings had not provided written notification of financing approval), 30 days after the Contract date was extended, or when the sale did not close by October 15, 1994. Billings argued that the parties waived the contractual time requirements and held the Contract open as a viable agreement, subject to specific performance. The bankruptcy court held that Biesel and Billings waived the time requirements under the Contract. It concluded that the Contract could have terminated on May 25, 1994 or October 15, 1994, but Biesel did not declare it terminated and took no action to cause the return of Billings' earnest money. Instead, both parties knew their rights and the benefits and advantages of the Contract, both had notice of them and acted with the intent to relinquish them to keep the Contract alive, and both proceeded with the desire to close the sale after satisfying their undisclosed agendas. Biesel desired to obtain IRS settlement approval from the Justice Department. Billings wished to effect his father's participation in the purchase loan.
The bankruptcy court found that Billings should have informed Biesel that he had obtained financing approval on July 14, 1994, which would have triggered the contractual closing date. Because Biesel did not have Justice Department approval of the IRS settlement and his title work completed, both Biesel and Billings waived any time defaults when they agreed to a closing on October 15, 1994. Before agreeing to the closing, Biesel knew that Billings had secured loan funding, provided Biesel could deliver good and marketable title. The bankruptcy court rejected as not credible the testimony of Wootton and Biesel that they did not read the Bank's facsimile that way. The Bank stated in writing that agreement had been reached on the loan documents and that the matter of title was the only impediment to closing. Biesel was therefore the impediment.
The bankruptcy court also held that Biesel was equitably estopped from asserting that title-related matters caused the Contract to terminate when closing did not occur by October 15, 1994 or the parties did not expressly agree to continue the closing date. Biesel is a licensed Texas attorney with experience in real estate transactions. Under penalty of perjury, Biesel accurately told the bankruptcy court in his first case that he held title to East Village. When he signed the Contract in 1994, however, he represented that Parque was the seller, although he knew from a 1993 search that record title was in Parque, that Parque had been dissolved, and that he held an unrecorded deed from Parque's other shareholder, giving him title to Village East. When he signed the Contract and represented that Parque was the seller, that he was its President, and that he would deliver good and marketable title, he knew this was false. Biesel knew that he would have to correct record title, which would require that the Contract be amended to make him the seller. He also knew that Billings had relied on him to deliver good and marketable title. Therefore, Biesel is estopped from asserting that title-related matters caused the Contract to terminate when closing did not occur by October 15, 1994 or the parties did not expressly agree to continue the closing date.
The bankruptcy court also found that to deliver good and marketable title, Biesel had to address six matters: (1) Parque's dissolution; (2) the Faulkner deed; (3) delinquent property taxes on Village East; (4) the Mitchell abstract of judgment; (5) the FSLIC lis pendens; and (6) the IRS lien. The Contract obligated the seller to make a good faith effort to satisfy the purchaser's objections to title exceptions, provided he did not have to incur any cost. Biesel did not establish that he had done all he reasonably could have to satisfy the objections and that good faith efforts could have resolved the objections. Each title exception objection had been or could have been resolved by good faith effort without incurring more than de minimis costs, and specific performance of the Contract could have been ordered under Texas law.
Biesel had conceded that recording the Parque dissolution articles was or could have been accomplished. The title company viewed Faulkner's 1980 unrecorded deed as stale, and Biesel obtained another deed from Faulkner that was recorded. Biesel agreed that he would pay delinquent property taxes at closing and the parties agreed to prorated taxes for the current year.
Regarding the Mitchell abstract of judgment, Mitchell and Faulkner obtained an assignment of a judgment and Mitchell filed the abstract. Although Biesel testified that he made a reasonable effort to find Mitchell to obtain a release but could not locate him, he had experience in real estate and as an attorney but did not ask the title company for the copy of the abstract or separately seek a copy of the county records. The abstract contains Mitchell's address in Irving, Texas, and the telephone book contains his number in Irving. A simple review of the abstract and a telephone call would have resolved that title. Faulkner's name is also on the abstract, and Biesel obtained his release.
Regarding the FSLIC lis pendens, although Biesel testified that he would have had to obtain the services of an attorney to obtain the release, Biesel is an attorney and could have obtained the release as easily as Chitty obtained it.
Concerning the IRS lien, although Biesel maintained that the sale proceeds were insufficient to satisfy the lien, meaning that he could not satisfy the objections without incurring costs, the evidence established that Biesel did not make a good faith effort to obtain the release without fully paying the lien amount, and the evidence suggests that a good faith effort would have been successful. The bankruptcy court found that Biesel's 1991 confirmed plan in his first bankruptcy required that Village East be sold by 1993, with the greater of the net proceeds of the sale or $150,000 going to the IRS. Biesel attempted unsuccessfully to obtain court approval for the sale in 1993. He addressed the IRS' objection to self-financing in the 1993 proposed sale by entering into the 1994 transaction under the terms of the Contract. Even though the Justice Department had not approved the settlement of his entire tax obligations, he could simply have requested that the IRS agree to the 1994 sale and release the lien at closing. Although the sale was for fair market value, Biesel did not attempt even this basic effort. Had that effort been made, the parties would have engaged in discovery of fair market value for the hearing, which would have revealed the fair market value to the IRS. Chavers told Wootton by May 16, 1994 letter that the Bank was obtaining an appraisal. The May 26 appraisal reflected a fair market value of $675,000, supporting the $660,000 sale. Had the IRS contested fair market value, that appraisal would have been discovered in preparation for the hearing.
Additionally, Biesel had two approaches to obtaining court approval for a sale free of the IRS lien. First, when they discussed the homestead sale at the hearing on the Biesels' objection to the IRS claims, the parties agreed that if the IRS disputed whether a sale was at fair market value, the matter could be submitted to the court. Although the court accepted the stipulation, Biesel did not follow that procedure. Second, Biesel could have sought an order under § 1142 of the Bankruptcy Code to require the sale free of the IRS lien, as required by the Plan. Wootton conceded that because Biesel had a bona fide dispute with the IRS about its claim, and the Justice Department had not approved the global settlement, Biesel could not have moved the court to order a sale free and clear of the IRS lien under § 363(f)(4).
Therefore, Billings had a basis under Texas law to seek specific performance and the Contract remained viable with the commencement of Billings' suit for such relief Because the lawsuit had not been adjudicated before the Biesels filed their second bankruptcy case, the Contract remained viable and executory.
II
"The court reviews the bankruptcy court's conclusions of law de novo, but reviews its fact findings only for clear error." In re Nary, 253 B.R. 752, 756 (N.D. Tex. 2000) (Fitzwater, J.) (quoting In re ICH Corp., 230 B.R. 88, 91 n. 10 (N.D. Tex. 1999) (Fitzwater, J.) (citations omitted)). "A finding of fact is clearly erroneous when, although there is evidence to support it, the reviewing court is left with the definite and firm conviction that a mistake has been committed." In re Johnson Southwest, Inc., 205 B.R. 823, 827 (N.D. Tex. 1997) (Fitzwater, J.) (quoting In re Placid Oil Co., 158 B.R. 404, 412 (N.D. Tex. 1993) (Fitzwater, J.)). "If the trier of fact's account of the evidence is plausible in light of the record viewed in its entirety, the appellate court may not reverse it." Id. "[T]his court does not find facts. Neither is it free to view the evidence differently as a matter of choice." Id. "The bankruptcy judge's `unique perspective to evaluate the witnesses and to consider the entire context of the evidence must be respected.'" Id. (quoting Endrex Exploration Co. v. Pampell, 97 B.R. 316, 323 (N.D. Tex. 1989) (Fitzwater, J.)).
III A
Biesel contends the bankruptcy court erred in applying legal principles of waiver in concluding that he had waived his right under ¶ 7(A) of the Contract to rely on a July 29, 1994 closing date by subsequently agreeing to a October 15, 1994 closing date. He maintains that he did not know about the July 14, 1994 financing approval at the time he agreed to the October 15, 1994 closing date. Biesel reasons that because, under Texas law, waiver is the intentional relinquishment of a known right, he could not have voluntarily chosen to forgo the right to insist on a sale closing by July 29, 1994 when he never knew he had that right. He argues that absent a waiver, the Contract terminated when the closing did not occur before July 29, 1994.
This court addressed the Texas law of waiver in a bankruptcy appeal context in Holloway v. HECI Exploration Co. Employees "Profit Sharing Plan, 76 B.R. 563 (N.D. Tex. 1987) (Fitzwater, J.), aff'd, 862 F.2d 513 (5th Cir. 1988):
Texas embraces the classic definition that waiver is the intentional relinquishment of a known right or intentional conduct inconsistent with claiming the right. To establish abandonment or waiver under Texas law, there must be proof of intent to relinquish a known right. A waiver of rights may result where a party demonstrates intentional relinquishment of rights of which the party has full knowledge. Waiver is largely a question of intention and may be either express or implied. Implied waiver must be evidenced by clear, unequivocal, and decisive acts from which can be inferred an intent to relinquish the right in question. Waiver by implication will be applied only to prevent fraud or inequitable consequences. As is clear from a reading of Texas law, waiver is principally an issue of the intent of the party possessing the right. In Texas, questions such as intent are considered inherently to be for the trier of fact.Id. at 572-73 (citations omitted).
B
Biesel's argument suffers from two principal fallacies. First, he focuses on a single component of the bankruptcy court's comprehensive waiver ruling and, from that, contends the entire waiver decision is erroneous. The bankruptcy court, however, broadly considered Biesel's conduct after he entered into the Contract with Billings. Regardless whether he knew that Billings had obtained financing and that the 15-day closing deadline of ¶ 7(A) of the Contract had commenced, his acts and omissions over a period of several months were fully consistent with someone who wanted the sale to close and was willing to relinquish contractual rights that permitted him to call it off. Second, although Biesel phrases his appellate argument in a manner that could be intended to avoid review under the deferential clear error standard, he essentially argues that the bankruptcy court erred factually in finding that he had waived his right to rely on a July 29, 1994 closing date. When the bankruptcy court's waiver ruling is considered as a whole, under the correct standard of review, it is clear that the decision is not reversible.
Biesel asserts in his brief that "[t]he bankruptcy court erred, however, in applying the legal principles of waiver in concluding that Biesel waived his right to rely on that closing date in subsequently agreeing to an October 15, 1994, closing date." Appellant Br. at 7 (emphasis added) (citation omitted).
With ample support in the record, the bankruptcy court found that Biesel had engaged in conduct that was fully consistent with that of someone who wanted a real estate sale to close. Under the Contract, if all financing could not be approved within 30 days from the March 25, 1994 effective date, the agreement would terminate and Billings' earnest money would be refunded to him without delay. Biesel agreed to extend that deadline to May 25, 1994. Billings requested a second extension to June 24, 1994. When May 25, 1994 passed without Billings' having obtained financing approval, Biesel did not terminate the Contract. He wanted the transaction to close because he believed the sale of Village East and his settlement with the IRS would resolve all his IRS problems. Biesel desired to keep the contemplated sale alive because the Justice Department had not yet approved the settlement with the IRS.
Closing was to occur within 15 days after Billings obtained financing. Because Billings was obligated to obtain financing within 30 days, the parties effectively agreed that, at least insofar as financing affected closing, the sale could be closed no later than 45 days after the effective date of the Contract, unless the deadlines were extended. Biesel did not rely on the passage of time to contend the Contract had terminated. His conduct is completely inconsistent with that of one who sought to invoke contractual termination on this basis.
On July 1, 1994 Chavers advised Wootton by letter that Billings had a financing commitment and expected draft loan documents by July 14, 1994. This plainly indicated that Billings had not obtained financing within the contractually-mandated period and would have supported terminating the Contract had Biesel had any interest in doing so. Additionally, Wootton knew of the commitment on July 1, 1994 and neither Biesel nor Wootton inquired of Billings or Chavers whether the written approval had been received, which also evinces an intention not to rely on the 15-day deadline. Biesel did not want to proceed to closing at that time because he had not yet received Justice Department approval of the IRS settlement. Consistent with this intent, he did not inquire about the status of Billings' loan approval, and he delayed work on title matters. And when Chavers wrote Biesel on September 23, 1994 requesting an extension of the closing date to October 15, 1994, Biesel acquiesced and did not assert that the Contract had already terminated. When October 15, 1994 arrived, Billings was ready to close, but Biesel was not because he could not deliver good and marketable title. In the course of unsuccessful negotiations concerning a further extension of the closing date, Biesel took no action to declare the Contract terminated. These findings, which are not clearly erroneous, amply support the bankruptcy court's conclusion that Biesel waived the right to assert that the Contract had terminated by its own terms on May 25, 1994 or on October 15, 1994.
Biesel contends in his reply brief that, by relying on the 30-day financing deadline of ¶ 1(b) of the Contract, Billings is collapsing that contractual provision and ¶ 7(A), which permitted Biesel to terminate the Contract if the closing was not held within 15 days of loan approval. The court rejects the contention that Billings (and, by implication, the bankruptcy court) has improperly conflated the two clauses of the agreement. Although ¶ 1(b) of the Contract is a distinct provision that imposes a separate requirement, Biesel's failure to invoke it to terminate the Contract is probative of his overall intent not to do so because he anticipated that the sale, and his settlement with the IRS, would resolve all his IRS problems, and he desired to hold the transaction open because the Justice Department had not yet approved the IRS settlement.
The bankruptcy court did not clearly err, and this aspect of its order is affirmed.
IV
Biesel next argues that the bankruptcy court erred by holding that he was equitably estopped from relying on ¶ 4(A) of the Contract to contend that, because he could not have cured the FSLIC lis pendens without cost, Billings would have been required either to waive his objection or to terminate the Contract. Biesel maintains that the lis pendens was incurable without expense and incurable before the closing date; he is not estopped to rely on the existence of the lis pendens because it did not result from his alleged bad conduct; and the bankruptcy court improperly held him to an elevated standard of conduct because he is a lawyer. Billings contends that the bankruptcy court did not err and, assuming arguendo that it did, the error was harmless.
A
If Biesel is estopped from relying on the FSLIC lis pendens notice, it is immaterial that he could not have cured it without expense or before the closing date. The court therefore turns to whether the bankruptcy court's estoppel ruling can be affirmed.
B 1
Biesel argues that he is not estopped from relying on the existence of the FSLIC lis pendens because the notice was not the result of his alleged bad conduct. He maintains that, assuming Billings was entitled to rely on Biesel's representations that Parque was still extant and that he would obtain good and marketable title by closing, Billings' reliance was not detrimental because neither Biesel's representation nor Billings' reliance caused the lis pendens. Biesel contends the lis pendens was filed in 1987, years before he failed to report the dissolution of Parque to Billings, and had nothing to do with alleged misrepresentations that he made in 1994. Therefore, even if he had reported Parque's dissolution and the transfer of title in 1994, the lis pendens still would have constituted a title defect and an impediment to closing.
Both sides appear to recognize that, under Texas law, to establish equitable estoppel, the party with the burden of proof must show that (1) the opposing party made a false representation or concealment of facts; (2) such representation or concealment was made with knowledge, actual or constructive, of those facts; (3) such representation or concealment was made to a party without knowledge or the means of knowledge, of such facts; (4) the representation or concealment was made with the intention that it be acted upon; and (5) the party to whom the misrepresentation was made relied on it to his detriment. Johnson Higgins of Tex., Inc. v. Kennco Energy, Inc., 962 S.W.2d 507, 515-16 (Tex. 1998) (citing Schroeder v. Tex. Iron Works, Inc., 813 S.W.2d 483, 489 (Tex. 1991)).
2
The bankruptcy court appears to have based its equitable estoppel finding on either of two analytical predicates. According to the first, and more general, approach, when Biesel signed the Contract, he represented that Parque was the seller of the property, despite his knowledge that he held the title under an unrecorded deed. When he represented that Parque was the seller and would deliver good and marketable title, he knew the representation was false because he would have to obtain a contractual amendment making him the seller. Biesel knew that Billings relied on him to deliver good and marketable title. Thus Biesel is estopped from asserting that title-related matters caused the Contract to terminate when the closing did not occur by October 15, 1994 or when the parties did not expressly agree to continue the closing date. As the court understands this reasoning, the bankruptcy court in this respect based its estoppel decision on the fact that Biesel had misrepresented that Parque was the seller and would deliver good and marketable title, and then relied on title defects to excuse his failure to perform.
Billings appears in its brief to construe the bankruptcy court's ruling similarly, see Appellee Br. at 14-15, and his counsel confirmed at oral argument this interpretation of the decision.
If this is the basis for the bankruptcy court's decision, Biesel's causation-type argument presents no reason for reversal. Biesel argues that estoppel could not apply because his representation in 1994 concerning Parque did not cause the 1987 FSLIC lis pendens. He maintains that the existence of the lis pendens since 1987 had nothing to do with his alleged misrepresentations in 1994, because it would still have constituted a title defect and an impediment to closing the sale. Biesel reasons that, even had he reported Parque's dissolution, the lis pendens would have turned up when the title search was conducted. This argument, however, appears to misperceive the detrimental reliance that forms the predicate for the bankruptcy court's estoppel ruling.
During oral argument, Biesel contended his no-detrimental-reliance argument extended to all title defects, not merely the FSLIC lis pendens. In view of the limited argument presented in his brief, however, the court holds that he has waived any error based on the absence of detrimental reliance with respect to other title defects. Although Biesel asserted in his brief that "[a]t least one of Billings' objections, the FSLIC lis pendens, could not be cured without cost," Appellant Br. at 9, he only argued the merits of lack of detrimental reliance with respect to the FSLIC lis pendens, see id. at 11-13; Appellant Rep. Br. at 2-4. "[T]his court will not consider an argument that is inadequately briefed." Nary, 253 BR. at 762 n. 23. Therefore, the court need only address Biesel's argument based on the FSLIC lis pendens.
Billings suffered detrimental reliance, not from the fact that Biesel misrepresented that there were no title defects, but from the fact that Biesel misrepresented that Parque was the seller and would deliver good and marketable title, and then relied on title defects to argue that he was not obligated to perform under the Contract. "It is a well-established principle in Texas that `contract rights cannot be created by estoppel [but estoppel can] prevent a party's conduct and actions from operating as a denial of the right of enforcement of a contractual obligation already created.'" Oliver Res. PLC V. Int'l Fin. Corp., 62 F.3d 128, 131 (5th Cir. 1995) (quoting Roberts v. Cal. — W. States Life Ins. Co., 470 S.W.2d 719, 726 (Tex.Civ.App. 1971)). The estoppel the bankruptcy court appears to have found arises because Biesel cannot invoke title defects to excuse his performance after he contractually agreed that Parque was the seller and would deliver good and marketable title.
This reasoning is consistent with the holding of Aranda v. Insurance Co. of North America, 833 S.W.2d 209, 217 (Tex.App. 1992, no writ), on which Biesel relies. See Appellant Rep. Br. at 3. The Aranda court held that "[e]stoppel is a tool that is totally defensive in character and its design is to protect those who have been misled from suffering a loss due to attempts of others to take positions which are inconsistent." (emphasis added).
Biesel deems it significant that Billings is attempting to require Biesel to perform the Contract rather than to excuse his own performance. But this distinction is not controlling since Billings is essentially contending that he relied to his detriment on representations that led him to believe Parque was the seller of Village Estates, it would deliver good and marketable title, and thus would not rely on title defects to terminate the Contract and avoid closing the sale. And, as the court has noted, one party can rely on equitable estoppel to prevent the other party from denying the right of enforcement of a contractual obligation already created. Oliver Res., 62 F.3d at 131.
The bankruptcy court's opinion did not, however, follow only one clear analytical path that decided the estoppel question at this level of generality. The court proceeded instead to make specific findings concerning the six title defects that arguably precluded Biesel from conveying good and marketable title, and it entered findings concerning why Biesel could have resolved each such objection by good faith effort and without incurring more than de minimis costs. Regarding the FSLIC lis pendens, the court found that because Biesel is an attorney, he could have obtained the release as easily as had Billings' attorney.
If the bankruptcy court intended to find that equitable estoppel arose at the more particularized level of each title objection, it did not sufficiently address how the misrepresentation that Parque was the seller and would deliver good and marketable title caused a detriment to Billings that estops Biesel from relying upon the incurability (without cost and before the Contract expired) of the FSLIC lis pendens. If the bankruptcy court intended to decide the motion on this basis, Biesel's argument concerning no detrimental reliance must be addressed in more specific findings. Billings conceded during oral argument that he could not have detrimentally relied because Biesel made no specific representation concerning his ability to cure, and in fact did not disclose, the FSLIC lis pendens. Moreover, the bankruptcy court did not enter findings regarding whether, by citing what Billings' lawyer had done in obtaining the release of the FSLIC lis pendens, it was referring to how facilely or expeditiously a release could have been obtained through Biesel's reasonable effort, particularly since he is a lawyer, or whether, because Biesel is a lawyer, he could have done so without cost. This distinction is important in view of ¶ 4(A)'s proviso that "Seller shall in good faith attempt to satisfy [title objection] prior to closing, but Seller shall not be required to incur any cost to do so." (emphasis added).
"Notwithstanding the considerable deference due the bankruptcy court's fact-finding function, the bankruptcy judge is required to make findings of fact that are sufficiently comprehensive to enable appellate review." Endrex, 97 B.R. at 321. "[F]indings of fact must be explicit enough to enable the appellate court to review them." Id. at 322. "An appellate court's `duty to respect the trial court's factual determinations gives rise to a reciprocal one on its part to tell [the appellate court] the reasons for them.'" Id. (quoting Chaiffetz v. Robertson Research Holding, Ltd, 798 F.2d 731, 735 (5th Cir. 1986)). "Moreover, where the trial court fails to make findings of fact with respect to critical or material issues in the case, the deficiency precludes the appellate court from reviewing the correctness of the trial court's ultimate decision." Id. (citing Ionmar Compania Naviera, S.A. v. Olin Corp., 666 F.2d 897, 903 (5th Cir. 1982)).
Billings contends arguendo that any error is harmless because Biesel could not have terminated the Contract based on the FSLIC lis pendens notice without making a good faith attempt to satisfy the problem and delivering notice to Billings on or before the closing date that he was unable to satisfy the title defect, so that Billings could decide whether to waive the defect or terminate the Contract. At oral argument, Billings offered a third alternative: that he could have cured the FSLIC lis pendens himself, at his own expense. Biesel responds that he was not required to make a good faith effort to cure the defect because that obligation arose under ¶ 4(A) of the Contract only if he could do so without cost. He argues that lack of notice is irrelevant, because Billings could not have waived the defect since his loan commitment required that he obtain title insurance, which was impossible until all exceptions, including the one triggered by the FSLIC lispendens, were cleared up. Biesel rejects Billings' third alternative, contending that he did not have the option under the Contract to cure the FSLIC lis pendens himself because the agreement gave him only the two options already discussed.
Although some aspects of these arguments present legal questions — e.g., whether ¶ 4(A) required any good faith effort that involved a cost and whether Billings had the contractual option of curing the defect at his own expense — they also involve factual components that this court is unable to resolve in the first instance on appeal, such as whether, had Billings received notice of the title defect, he would or could have undertaken any option other than terminating the Contract. The court is therefore unable in an appellate context to hold that any error is harmless. These are matters to be addressed, if necessary, on remand. Accordingly, the court vacates the order and remands this part of the bankruptcy court's order and remands this matter for further proceedings consistent with this opinion.
C
Biesel argues that the bankruptcy court improperly imposed the ethical standards that apply to an attorney in a transaction in which the lawyer is a client participating in a personal business matter. Billings contends the bankruptcy court considered Biesel's status as a court officer only in connection with his sworn testimony and posits that Biesel has misread the record and the bankruptcy court's rulings.
The statements at page 327 of the record on appeal that "Biesel is an attorney licensed to practice law in the State of Texas" and that "The Court holds him to the ethical standards of an officer of the court" appear to refer primarily, if not exclusively, to the content of the bankruptcy papers he signed under penalty of perjury in his first bankruptcy. Despite apparently gratuitous and sporadic references to Biesel's attorney status in other parts of the record, there is no clear indication in the balance of the bankruptcy court's ruling that it measured Biesel's conduct under the standards that apply to an officer of the court acting in the capacity of counsel. If, however, it is the bankruptcy court's intention on remand to hold Biesel to a higher standard based on his status as an officer of the court, it must state explicitly that it is doing so and set out the legal basis holding him to such ethical standards in the context of a personal business matter.
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The bankruptcy court's order entered August 29, 2001 on debtors' motion to reject executory contract is AFFIRMED in part and VACATED in part and this matter is REMANDED to the bankruptcy court for further proceedings consistent with this opinion.