In re Palasota

1

IN RE: ELAINE PALASOTA, Debtor.

No. 22-30195

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

May 25, 2023

CHAPTER 11

MEMORANDUM OPINION

Eduardo V. Rodriguez Chief United States Bankruptcy Judge

Elaine Palasota objects to three proofs of claim filed by Prosperity Bank requesting a sum total of $2,659,668.70. The Court conducted several hearings on the matter beginning on Novem-ber 15, 2022 and concluding on February 6, 2023. For the reasons stated herein, Elaine Palasota's objections to Prosperity Bank's Proofs of Claim Nos. 9, 10, and 11 are overruled. Prosperity Bank's secured claims Nos. 9 10 and 11 will be allowed in the combined total amount of $2,659,668.70. Specifically, Prosperity Bank's secured Claim No. 9 is allowed in the amount of $1,293,093.39. Prosperity Bank's secured Claim No. 10 is allowed in the amount of $925,426.55. And Prosperity Bank's secured Claim No. 11 is allowed in the amount of $441,148.76.

I. Findings Of Fact

This Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, which is made applicable to adversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7052. 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.

A. Factual Background 1. Elaine Palasota ("Mrs. Palasota" or "Debtor") is the co-owner of BVS Construction, Inc. ("BVS") along with her husband, Ricky Joe Palasota, Sr. ("Mr. Palasota").^[1]

2. In November of 2014, BVS and Mr. Palasota separately filed voluntary petitions under chapter 11 of the Bankruptcy Code^[2] in the United States Bankruptcy Court for the Western District of Texas ("BVS and Mr. Palasota's First Bankruptcy").^[3]

3. Mrs. Palasota was not a party to BVS and Mr. Palasota's First Bankruptcy.^[4]

4. In September of 2015, BVS and Mr. Palasota filed an amended joint plan of reorganization (the "2015 Plan"). The 2015 Plan set out, in detail, the amounts BVS owed to its creditors.^[5]

5. Of note, the 2015 Plan described the amounts BVS owed to one of its secured creditors, Prosperity Bank ("Prosperity"), on five separate promissory notes-which Prosperity rolled into one note prior to BVS's and Mr. Palasota's bankruptcy petitions.^[6] The 2015 Plan provided as follows:

Prosperity shall have an Allowed Secured Claim in the amount of $1,812,472.43 (the "Prosperity Claim"). The Prosperity Claim shall be paid based upon a 120 month amortization with interest at the rate of 5% per annum. Commencing on the Effective Date, the Debtor, BVS, shall make 59 equal payments of $ 19,224.72 and one payment on the 60th month of all outstanding principal and interest. The payments shall be due on the 15th day of each month. The Debtor shall receive credit on the Prosperity Claim for all amounts paid post-petition pre-confir-mation on the Prosperity Claim.^[7]

6. Mr. Palasota, in his individual capacity and on behalf of BVS, signed the 2015 Plan, to which no objection was filed.^[8]

7. On September 25, 2015, the bankruptcy court confirmed the 2015 Plan; neither Mr. Palasota nor BVS appealed that order.^[9]

8. For thirty-eight straight months following the Effective Date of the 2015 Plan, BVS made payments to Prosperity according to the terms of the 2015 Plan, which Prosperity applied to BVS's principal and interest obligations. But BVS did not make all fifty-nine monthly payments as required by the 2015 Plan, nor did it make the sixtieth "balloon payment," which was to equal the amount outstanding on the claim after BVS made its fifty-nine monthly payments.^[10]

9. In January of 2019, BVS again filed for bankruptcy under chapter 11 ("BVS's Second Bankruptcy").^[11]

10.In BVS's Second Bankruptcy, Prosperity filed a proof of claim in the amount of $1,333,695.84. According to Prosperity, this claim amount accounted for every payment it had received from BVS as of the petition date of the Second Bankruptcy.^[12]

11.BVS filed a claim objection arguing that the amount of Prosperity's claim in the second bankruptcy was incorrect because (a) it was calculated based on an incorrect claim amount in the 2015 Plan, and (b) it failed to account for certain payments that BVS made to Pros-perity on the claim from July to October of 2015 and May to November of 2019.^[13]

12.Prosperity argued that it was BVS and Mr. Palasota that proposed the 2015 Plan that the bankruptcy court ultimately confirmed, and that BVS failed to object to Prosperity's claim in the 2015 Plan or otherwise seek direct appeal after the bankruptcy court confirmed the 2015 Plan. Prosperity maintained that the 2015 Plan set out its claim against BVS in detail, and that BVS clearly had no legitimate objection to that amount, as evidenced by its failure to object or appeal and by its subsequent payments to Prosperity pursuant to the 2015 Plan. Finally, Prosperity claimed that it applied the payments BVS made from July to October of 2015 to "accrued interest," and that its ledger reflected the payments it received from BVS between May and November of 2019.^[14]

13.At the conclusion of the hearing, the bankruptcy court orally overruled BVS's claim ob-jection and allowed Prosperity's claim of $1,333,695.84. It found that the 2015 Plan, which BVS and Mr. Palasota proposed, described BVS's debt to Prosperity in great detail and that neither BVS nor Mr. Palasota objected to or disputed Prosperity's claim amount in that plan. It further found that BVS made payments pursuant to the 2015 Plan for thirty-eight straight months and that BVS did not make the sixtieth "balloon payment." Based on these findings, it concluded that the doctrines of res judicata, judicial estoppel, and judicial ad-mission barred BVS's claim objection in the second bankruptcy to the extent it was prem-ised on the impropriety of Prosperity's claim in the 2015 Plan.^[15]

14.BVS timely filed a notice of appeal in the United States District Court for the Western District of Texas. The district court affirmed the judgment of the bankruptcy court and dismissed the appeal.^[16] 15.BVS appealed to the Fifth Circuit. The Fifth Circuit affirmed the judgment of the bank-ruptcy court.^[17]

16.On December 2, 2019, the Court confirmed BVS's Amended Plan of Reorganization (the "2019 Plan") in BVS's Second Bankruptcy.^[18]

17.On June 1, 2021, Mr. Palasota again filed for bankruptcy protection in the Western District of Texas ("Mr. Palasota's Second Bankruptcy"). That bankruptcy was transferred to Case No. 21-32344 in the Southern District of Texas and was later dismissed.^[19]

18.On January 1, 2022 (the "Petition Date"), Debtor filed for bankruptcy protection under chapter 11 of the Bankruptcy Code initiating the instant bankruptcy case in the Western District of Texas.^[20]

19.On January 18, 2023, the Bankruptcy Court for the Western District of Texas entered an order transferring venue to the Southern District of Texas.^[21]

20.On March 11, 2022, the Court entered an order approving the sale of a 507.45 acre tract in Milam County Texas for the total amount of $2,240,000.00 which authorized the payment of reasonable closing costs and expenses associated with the sale and further ordering the remainder of the funds to be held in Debtor's counsel's IOLTA account pending further orders of the Court.^[22]

21.On April 26, 2022, Prosperity filed three secured proofs of claim: (1) No. 9 in the amount of $1,293,093.39; (2) No. 10 in the amount of $925,426.55.; and (3) No. 11 in the amount of $441,148.76. The sum total requested by these three proofs of claim is $2,659,668.70.

22.On August 16, 2022, Prosperity filed "Motion Of Prosperity Bank For Order Approving Distribution Of Sales Proceeds" ("Motion For Sales Proceeds")^[23] in which Prosperity Bank stated that "[a]s of August 5, 2022, Prosperity is owed $1,428,995.96 plus per diem interest of $172.23 from and after August 5, 2022, on its claim in the 2014 Bankruptcies."^[24]

23.On September 22, 2022, Debtor filed: (1) "Objection To Proof Of Claim Number 9 Filed By Prosperity Bank" ("Debtor's Objection to Claim No. 9")^[25]; (2) "Objection To Proof Of Claim Number 10 Filed By Prosperity Bank" ("Debtor's Objection to Claim No. 10")^[26]; and (3) "Objection To Proof Of Claim Number 11 Filed By Prosperity Bank" ("Debtor's Objection to Claim No. 11").^[27]

24.On September 30, 2022, Prosperity filed: (1) "Prosperity Bank's Response To Debtor's Objection To Proof Of Claim Number 9" ("Prosperity Bank's Response To Claim Objec-tion No. 9")^[28]; (2) "Prosperity Bank's Response To Debtor's Objection To Proof Of Claim Number 10" ("Prosperity Bank's Response To Claim Objection No. 10")^[29]; and (3) "Pros-perity Bank's Response To Debtor's Objection To Proof Of Claim Number 11" ("Prosper-ity Bank's Response To Claim Objection No. 11").^[30]

25.On November 15, 2022, the Court held an initial hearing ("Initial Hearing") and continued the matter to December 7, 2022.^[31]

26.On November 29, 2022, Ash Grove Cement Company ("Ash Grove") filed: (1) "Ash Grove Cement Company's Comment To Elaine Palasota's Objection To Proof Of Claim Number 9Of Prosperity Bank" ("Ash Grove's Comment to Claim No. 9")^[32]; (2) "Ash Grove Cement Company's Comment To Elaine Palasota's Objection To Proof Of Claim Number 10 Of Prosperity Bank" ("Ash Grove's Comment to Claim No. 10")^[33]; and (3) "Ash Grove Ce-ment Company's Comment To Elaine Palasota's Objection To Proof Of Claim Number 11 Of Prosperity Bank" ("Ash Grove's Comment to Claim No. 11").^[34]

27.On December 7, 2022, the Court held a further hearing ("Second Hearing") and continued the matter to February 6, 2023.^[35]

28.On February 2, 2023, Ash Grove filed: (1) "Ash Grove...