In re Greenhaw Energy, Inc.

359 B.R. 636

In re: GREENHAW ENERGY, INC., Debtor(s) W Steve Smith Plaintiff(s) v. Morris R Greenhaw Oil and Gas, Inc, et al Defendant(s).

Bankruptcy No. 03-30422.

Adversary No. 06-3343.

United States Bankruptcy Court, S.D. Texas, Houston Division.

January 4, 2007.

COPYRIGHT MATERIAL OMITTED

Richard L. Fuqua, II, Fuqua & Keim, Houston, TX, for Debtor.

W. Steve Smith, Blanche D. Smith, Houston, TX, Richard H. Parker, Anna Barron, Richard Parker & Associates Houston, TX, Trustees for Estate of Greenhaw Energy, Inc.

Rhett G. Campbell, Mitchell E. Ayer, Tye C. Hancock, Thompson & Knight LLP, Houston, TX, for. Laughlin and Kenmor Properties.

Barnet B. Skelton, Jr., Houston, TX, for Morris Greenhaw, Individually, and Morris R. Greenhaw Oil and Gas, Inc.

Marcy Kurtz, Bracewell & Giuliani, Houston, TX, for Tommy Warford, Individually, and as Trustee for Greenhaw Oil and Gas.

ORDER GRANTING IN PART AND DENYING IN PART GREENHAW'S MOTION TO DISMISS (DOCKET #53)

MARVIN ISGUR, Bankruptcy Judge.

On January 6, 2003, Greenhaw Energy, Inc. ("Debtor") filed a petition for chapter 11 bankruptcy. On Schedule D, Debtor listed Morris R. Greenhaw Oil & Gas, Inc. ("Greenhaw Oil & Gas") as a secured creditor holding a deed of trust on oil and gas interests in Erath, Comanche and Eastland Counties.

The property subject to the security interest was purchased by Debtor in February 2001 from Greenhaw Oil & Gas for approximately $1.1 million. In purchasing the properties, Debtor signed a promissory note secured by two deeds of trust. One deed of trust covered particular rights and interests referred to as Desdemona Field. The other covered a 3/4 interest in a Gas Plant and certain real property and leaseholds in Eastland County. Desdemona Field and the 3/4 interest are collectively referred to as "Desdemona."

After Debtor filed bankruptcy, Greenhaw Oil & Gas filed a motion for relief from the stay. The Court entered an agreed order resolving the lift stay motion on March 17, 2003 (docket no. 48). The order stated that Debtor was to pay Greenhaw Oil & Gas $100,000 by May 16, 2003, $25,000 by July 15, 2003, and the remaining balance of the claim by September 15, 2003.¹ In addition, the Debtor was to pay $3,000 on the twelfth day of each succeeding month beginning April 12, 2003, and continuing until the September 15, 2003, payment was made. The $3,000 was characterized as adequate protection payments for use of cash collateral.² The agreed order provided if the Debtor failed to timely make any of the payments described in the order, the automatic stay was to lift on the day after the missed payment was due without further order of the Court.

The cash collateral order stated that any notice required to be given under the cash collateral order should be addressed to Debtor at Post Office Box 580337, Houston, Texas 77258 with a copy to Richard Fuqua at 2777 Allen Parkway, Suite 480, Houston, Texas 77019. Agreed Order Authorizing Use of Cash Collateral ¶ 33. Neither order provided a valuation method for Desdemona in the event of a default.

After Debtor failed to make the adequate protection payment due on August 12, 2003, Greenhaw Oil & Gas began foreclosure proceedings. The foreclosure sale occurred on October 7, 2003. Notice of the sale and a letter stating an amount due of $441,200, were sent to the Debtor at 12700 N. Featherwood, Houston, Texas 77034 ("Featherwood Address"). The Trustee alleges that of the amount due, $205,316 represented attorney's fees and expenses. At the foreclosure sale, the gas plant was sold first for $175,000. There was a subsequent sale for the balance of the Desdemona Field for $250,000.

The Trustee commenced this adversary proceeding on April 14, 2006, alleging that Debtor had made the August 12, 2003, adequate protection payment. An amend ed complaint was filed by the Trustee on June 15, 2006. In his amended complaint, the Trustee claimed that the foreclosure sale was avoidable for the following reasons: (1) under § 362 for violation of the automatic stay; (2) under § 549 as an unauthorized post-petition transfer; and (3) as property of the estate subject to turnover under §§ 541 and 542. The Trustee also asserted claims under § 544 for (1) wrongful foreclosure; (2) conspiracy to commit wrongful foreclosure; (3) fraudulent transfer; and (4) conspiracy to commit fraudulent transfer. Further, the Trustee requested attorney fees and injunctions preventing Defendants from disposing of any proceeds from the sale of Desdemona.

The Trustee's belief that Debtor made the August 2003 payment, however, was incorrect. On August 28, 2006, the Trustee appeared before the Court and stipulated that the payment was not made. Accordingly, the Court issued an order declaring the same.³

Currently pending before the Court is a motion to dismiss and alternatively for summary judgment filed by Morris R. Greenhaw Oil & Gas and Morris R. Greenhaw (collectively "Greenhaw"). The motion was filed prior to the August 28, 2006, hearing. Therefore, the Court first will address what causes of action survive from the Trustee's amended complaint and are subject to the motion to dismiss.

Surviving Causes of Action in the Trustee's First Amended Complaint

Based on the Trustee's stipulation that the August 12, 2003, adequate protection payment was not made, any arguments that the foreclosure sale violated the automatic stay are now moot. Therefore, the Trustee's assertions that the foreclosure sale should be avoided under §§ 362, 541, 542, and 549 are without merit.

The Trustee also brought causes of action under 11 U.S.C. § 544. These include wrongful foreclosure and conspiracy to commit wrongful foreclosure, and fraudulent transfer and conspiracy to commit a fraudulent transfer.

Defendants argue the Trustee is unable to bring these claims under § 544 due to the limitations period stated in § 546. Defendants are correct. The time for the Trustee to assert claims under § 544 has expired. See 11 U.S.C. § 544(a). The Court, however, finds it is unnecessary for the Trustee to assert these causes of action under § 544. If these claims are claims of the estate, the Trustee, under § 541, has the authority to pursue these causes of action. See 11 U.S.C. § 541(a)(7).

Even though the Trustee has not pled under § 541, the Fifth Circuit has held that courts may look to the substance of pleadings rather than the labels stated in pleadings in determining what relief the movant seeks. See Armstrong v. Capshave, Goss & Bowers, 404 F.3d 933, 936 (5th Cir.2005) (noting district courts must determine the true nature of a pleading by its substance, rather than its labels and stating because movant's "motion to amend his complaint sought to justify his status as an intervenor in federal court, the district court properly treated it as a motion for leave to intervene.") (citing Edwards v. City of Houston, 78 F.3d 983, 995 (5th Cir.1996)) (en banc) ("[W]e have oft stated that the relief sought, that to be granted, or within the power of the Court to grant, should be determined by substance, not a label'") (quoting Bros. Inc. v. W.E. Grace Mfg. Co., 320 F.2d 594, 606 (5th Cir.1963)). The Court in Edwards looked to the substance of the plaintiffs' motion filed under the heading of "Objection to Order of Dismissal" and considered the motion as either a motion to alter or amend the judgment or a motion for relief from the judgment. Edwards, 78 F.3d at 995. Similarly, the Fifth Circuit has ruled that a "motion for reconsideration," which is not recognized under the Federal Rules, was properly treated as a motion to alter or amend or a motion for relief from judgment. Lavespere v. Niagara Mach. & Tool Works, Inc., 910 F.2d 167, 173 (5th Cir.1990).

While the foregoing deals with titling pleadings, the Court finds the same principle applicable to the Trustee's complaint. Under the heading "Turnover of Estate Property Pursuant to 11 U.S.C. §§ 541 and 542" the Trustee sought to recover property of the estate based on the theory Defendants violated the automatic stay and, therefore, the transaction was avoidable under § 549. Under the heading "544 Causes of Action" the Trustee asserted that the foreclosure activities "were conducted wrongfully and in bad faith" and that the transfer was a fraudulent transfer resulting from a conspiracy. First Am. Compl. ¶¶ 33-34.

Although the Trustee is now barred by § 546 from asserting wrongful foreclosure and related causes of actions under § 544, by looking to the overall substance of the Trustee's complaint, the Court finds it may consider the Trustee's claims as arising under the Trustee's authority over property of the estate as defined in § 541. In his first amended complaint, the Trustee asserted a claim for turnover of property of the estate. The claim, however, is based on an erroneous assertion by the Trustee that the stay was violated. This assertion, while the basis of the Trustee's claim under § 541, is not a required element for the Trustee to assert the estate's rights under § 541. The fact that the Trustee was incorrect in his belief that the adequate protection payment was made should not otherwise prevent the Trustee from exercising his rights to manage the estate. The Court will, therefore, characterize the Trustee's claims as falling under § 541, as property of the estate.

Generally, the estate consists of property which the debtor owns at the time of filing the petition. 5 RESNICK & SOMMER, COLLIER ON BANKRUPTCY ¶ 541.01. This includes causes of action. Wieburg v. GTE Southwest Inc., 272 F.3d 302, 306 (5th Cir.2001) (citing In re Educators Group Health Trust, 25 F.3d 1281, 1283 (5th Cir.1994)). See In re Equinox Oil Co., 300 F.3d 614, 618 (5th Cir.2002) ("Section 541 is read broadly and is interpreted to `include all kinds of property, including tangible or intangible property' [and] causes of action . . ."). Therefore, if claims exist which are property of the estate at the time of filing, the...