In re Porter Dev. Partners

1

IN RE: PORTER DEVELOPMENT PARTNERS, LLC and WB MURPHY ROAD DEVELOPMENT, LLC and CREEKMONT PLAZA PARTNERS, L.P. and CREEKMONT PLAZA PARTNERS GP, LLC and REPLACEMENT SANCTUARY GP, LLC and WB SANCTUARY GP, LLC and WB CHANCEL GP, LLC and WB 2610, LLC and MEADOW CREST DEVELOPERS 226, L.P. and MEADOW CREST DEVELOPERS GP, LLC and MORTON & PORTER, L.P. and MORTON & PORTER GP, LLC and RIATA WEST INVESTMENT, LLC and LAKECREST VILLAGE INVESTMENTS, LLC and WB REAL ESTATE HOLDINGS, LLC and U.S. PUBLIC - PRIVATE REAL ESTATE FUND I, LP and WALLACE BAJJALI INVESTMENT FUND II, LP and WEST HOUSTON WB REALTY FUND, LP and WBIF II GP, LLC and WB SUBSTITUTE GP, LLC and PPP MANAGEMENT, LLC, Debtors.

No. 15-31305

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

April 9, 2024

Jointly Administered

CHAPTER 7

MEMORANDUM OPINION

Eduardo V. Rodriguez Chief United States Bankruptcy Judge

In his Motion for Summary Judgment, Lowell T. Cage, Chapter 7 Trustee, seeks to disallow $7,025,000.00 in claims filed by James Pier, Michael Dorsey, Jim Maas, Jimmy Harrell &amp Carolyn Graves, Albert & Sathya Furtado, Ron & Emily Bass, Randall DePue, Blake Taylor, and Donald Taylor individually and as Trustee for the Ethelyn Taylor Trust and the Roger Taylor Trust against the bankruptcy estates of Porter Development Partners, LLC, WB Real Estate Holdings LLC, WB Murphy Road Development, LLC, and Wallace Bajjali Investment Fund II, LP. For all of the reasons stated in this Memorandum Opinion, summary judgment is granted in part and denied in part.

I. Background

1. For the purposes of this Memorandum Opinion and, to the extent not inconsistent herewith, this Court adopts and incorporates by reference each of the background facts in this Court's May 13, 2022 and January 25, 2023 Memorandum Opinions.^[1]

2. On November 27, 2023, Lowell T. Cage, Chapter 7 Trustee ("Trustee") filed his "Trustee's Second Amended Motion for Summary Judgment on the Late-Filed Claims of the Taylor Claimants and Memorandum of Law in Support Thereof"^[2] ("MSJ").

3. On December 27, 2023, James Pier, Michael Dorsey, Jim Maas, Jimmy Harrell & Carolyn Graves, Albert & Sathya Furtado, Ron & Emily Bass, Randall DePue, Blake Taylor, and Donald Taylor individually and as Trustee for the Ethelyn Taylor Trust and the Roger Taylor Trust (collectively, the "Claimants") filed their, "Taylor Claimants' Response to Trustee's Second Amended Motion for Partial Summary Judgment & Memorandum of Law in Support"^[3] ("Response").

4. On January 23, 2024, Trustee filed his, "Lowell T. Cage, Trustee's Reply to Taylor Claimants' Response to Second Amended Partial Motion for Summary Judgment"^[4]("Reply").

5. On February 6, 2024, Claimants filed their, "Taylor Claimants' Surresponse to Trustee's Second Amended Motion for Partial Summary Judgment & Memorandum of Law in Support"^[5] ("Sur-Reply").

6. On February 15, 2024, Trustee filed his, "Supplement to Trustee's Second Amended Motion for Summary Judgment on the Late-Filed Claims of the Taylor Claimants and Memorandum of Law in Support Thereof"^[6] ("MSJ Supplement").

7. On February 22, 2024, Claimants filed their, "Taylor Claimants' Response to Trustee's Supplement to Second Amended Motion for Partial Summary Judgment & Memorandum of Law in Support"^[7] ("MSJ Supplement Response").

II. Jurisdiction, Venue, and Constitutional Authority

This Court holds jurisdiction pursuant to 28 U.S.C. § 1334, which provides "the district courts shall have original and exclusive jurisdiction of all cases under title 11 or arising in or related to cases under title 11." Section 157 allows a district court to "refer" all bankruptcy and related cases to the bankruptcy court, wherein the latter court will appropriately preside over the matter.^[8]This Court determines that pursuant to 28 U.S.C. § 157(b)(2)(A) and (B) this proceeding involves primarily core matters as it "concern[s] the administration of the estate and allowance and disallowance of claims."^[9] This Court may only hear a case in which venue is proper.^[10] Pursuant to 28 U.S.C. § 1408(1), venue of this jointly administered bankruptcy proceeding is proper.

While bankruptcy judges can issue final orders and judgments for core proceedings, absent consent, they can only issue reports and recommendations for non-core proceedings.^[11] 28 U.S.C. § 157 provides a non-exclusive list of matters considered core proceedings. Included in that list and relevant here is the allowance or disallowance of claims against the estate.^[12] However, the Claimants' claims are solely based on state law causes of action, which are non-core. "Whether a pre-petition state law claim constitutes either a core or non-core proceeding depends upon (1) whether the creditor filed a proof of claim with the bankruptcy court and (2) the relationship between the state action and proof of claim."^[13] "Where a party has filed a proof of claim in a debtor's case, any action asserted by that party against the debtor that raises the same issues as those encompassed by the proof of claim is a core proceeding under the authority of 28 U.S.C. § 157(b)(2)(B)."^[14] Because the Taylor Claimants' state law causes of action are asserted as the basis of their claims, this is a core proceeding and thus, this Court has constitutional authority to enter a final judgment.

However, even if the state law nature of the Claimants' causes of action made this a non-core proceeding, the Trustee explicitly consented to this Court's entry of final judgments on non-core matters by filing a Notice of Consent^[15] and Claimants implicitly consented.^[16] Claimants never filed a notice of non-consent and have appeared before this Court and engaged in motions practice, without ever objecting to this Court's authority to enter a final judgment. Therefore, this Court has consent, both express and implied, to enter a final judgment in this case.

III. Analysis

A. Rule 56 Standard

Federal Rule of Civil Procedure ("Rule") 56 permits a party to move for summary judgment, "identifying each claim or defense-or the part of each claim or defense-on which summary judgment is sought."^[17] Federal Rule of Bankruptcy Procedure ("Bankruptcy Rule") 7056 incorporates Rule 56 in adversary proceedings. Rule 56 states that the Court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."^[18] Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."^[19] Courts employing this standard of review must determine "not merely whether there is a sufficient factual dispute to permit the case to go forward, but whether a rational trier of fact could find for the nonmoving party based upon evidence before the court."^[20] To prevail on summary judgment, the moving party has the burden of showing the absence of a genuine issue of material fact and the appropriateness of judgment as a matter of law.^[21] A material fact is one "that might affect the outcome of the suit under the governing law."^[22] A factual dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the non-moving parties.^[23]

Rule 56 creates a shifting burden. Once a properly supported motion for summary judgment is presented, "the nonmoving party must rebut with 'significant probative' evidence."^[24]If the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party, then there is no genuine issue for trial.^[25] When there is no genuine issue for trial, the Court should grant summary judgment.^[26] In determining whether summary judgment is appropriate, a court is not to weigh evidence, assess its probative value, or resolve factual disputes,^[27] but the facts must be reviewed with all "justifiable inferences" drawn in non-movants' favor.^[28] Nevertheless, factual controversies will be resolved in non-movants' favor "only when there is an actual controversy-that is, when both parties have submitted evidence of contradictory facts."^[29] If, however, the record could not lead a rational trier of fact to find for non-movants, summary judgment is appropriate.^[30] While the Court may consider other materials in the record, it need only consider those actually cited.^[31] Where the facts are undisputed and only questions of law exist, a court must apply the appropriate law to the facts to determine whether the moving party is entitled to judgment as a matter of law.^[32]

B. Trustee's MSJ

Trustee asserts that the claims asserted against Debtors' estates by Claimants as (1) KCM and Biz Radio equity plaintiffs and as (2) WBL Partnership plaintiffs as delineated in a certain petition filed in the 61^st Judicial District of Harris County attached to their proofs of claim ("State Court Petition")^[33] should be disallowed.^[34] The Court will consider each in turn.

1. Claims asserted as KCM and Biz Radio equity plaintiffs

Trustee asserts that (a) the Claimants' causes of action asserted as KCM and BizRadio equity plaintiffs against the estate for conspiracy to commit fraud, breach of fiduciary duty, and securities fraud ("Conspiracy Claims") are time-barred by applicable statute of limitations, and thus Claimants' proofs of claim predicated on the Conspiracy Claims should be disallowed.^[35]Claimants have previously stipulated that their claims brought as KCM and BizRadio equity plaintiffs are limited to their Conspiracy Claims.^[36] Claimants disagree that the Conspiracy Claims are time barred and alternatively assert that, should...