Lee v. Choudhri (In re Briar Bldg. Hous. LLC)

645 B.R. 896

IN RE: BRIAR BUILDING HOUSTON LLC, Debtor.

George M Lee, Plaintiff,

v.Mohammad Ali Choudhri, Defendant.

CASE NO: 18-32218

ADVERSARY NO. 20-3395

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

Signed November 14, 2022

Thane Tyler Sponsel, III, Sponsel Miller Greenberg PLLC, Houston, TX, for Plaintiff.

Evelyn Irene Breithaupt, Gold, Weems, Bruser, Sues & Rundell, Alexandria, LA, Benjamin Gubernick, Gubernick Law P.L.L.C., Phoenix, AZ, Seth A. Nichamoff, Attorney at Law, Houston, TX, James R. Wetwiska, Akin Gump et al., Houston, TX, Gregg Costa, Gibson, Dunn & Crutcher, LLP, Houston, TX, for Defendant.

MEMORANDUM OPINION

Eduardo Rodriguez, United States Bankruptcy Judge

Mohammad Ali Choudhri seeks reconsideration of this Court's May 25, 2022 Order which, inter alia, struck all thirteen of Mohammad Ali Choudhri's affirmative defenses in this adversary proceeding. On November 4, 2022, the Court held a hearing on the matter and for the reasons stated below, the Court finds that Mohammad Ali Choudhri's motion to reconsider is granted in part and denied in part. The Court will amend its May 25, 2022 Order to allow Mohammad Ali Choudhri to raise affirmative defenses two and nine in his answer to the complaint, waiver and release respectively. The rest of the Court's May 25, 2022, Order will remain in effect.

I. BACKGROUND

1. On July 1, 2014, Mohammad Ali Choudhri ("Defendant ") executed a personal guaranty (the "Guaranty ") of a loan to 1001 West Loop, L.P. (the "Loan ") made by George M. Lee ("Plaintiff ").¹

2. The Loan by Plaintiff was memorialized by a certain promissory note (the "Note ") in the total amount of $2,681,830.00.² The Loan had an interest rate of fourteen percent (14%).³

3. In the Guaranty, Defendant promised that he would remain liable for the Note in the event that 1001 West Loop, L.P. should fail to make its payment obligations under the same.⁴

4. 1001 West Loop, L.P. ceased payments on the Note after January of 2017.⁵

5. The Note fully matured on July 1, 2017, when all payment and principal became due and owing on that date.⁶

6. On April 10, 2018, BDFI, LLC ("BDFI ") filed an Appointment of Substitute Trustee ("Foreclosure Notice ") in the real property records of Harris County, Texas ("Harris County Records ").⁷

7. The Foreclosure Notice indicated that BDFI intended to foreclose against a property located at 50 Briar Hollow Lane, Houston, Texas 77027 ("Property ") subject to a certain Deed of Trust, dated December 30, 2013 ("First Lien DOT "), which had been executed by the Property's previous owner 50 Briar Hollow, LLC.⁸

8. The First Lien DOT secured a $20,000,000 Promissory Note, dated December 30, 2013 ("Senior Note "), made by 50 Briar Hollow, LLC in favor of Green Bank, N.A. ("Green Bank ").⁹

9. Green Bank subsequently assigned the Senior Note, the First Lien DOT, and certain related liens and other documents to BDFI on March 9, 2018, pursuant to an assignment and assumption agreement, dated March 9, 2018 ("Assignment ").¹⁰

10. The Assignment was recorded in the Harris County Records on March 12, 2018.¹¹

11. On April 30, 2018, Briar Building Houston, LLC ("Debtor ") filed a chapter 11 petition ("Petition ").¹²

12. At the time of filing, Debtor's main asset was the Property.¹³ Plaintiff owns one hundred percent (100%) of the membership interests of the Debtor.¹⁴ Plaintiff previously owned the Property individually but transferred the Property to Debtor pursuant to a special warranty deed dated April 4, 2018 ("April 4, 2018 Deed "), which was recorded on April 5, 2018.¹⁵

13. In exchange for the April 4, 2018 Deed, Debtor gave Plaintiff a $3,150,000 Promissory Note ("Junior Note ") and granted Plaintiff a Deed of Trust, Security Agreement-Financing Statement, dated April 5, 2018 ("Second Lien DOT "), against the Property to secure the Junior Note.¹⁶ The Second Lien DOT was recorded in the Harris County Records on April 5, 2018.¹⁷

14. On May 4, 2018, a dispute arose regarding, inter alia, Debtor's use of cash collateral.¹⁸ Nevertheless, on May 11, 2018, Debtor, Plaintiff, and BDFI resolved their differences regarding the Property, which resulted in Debtor filing a Motion to Compromise on May 15, 2018, setting forth a Forbearance Agreement ("Motion to Compromise ").¹⁹ Debtor asked the Court to approve it, along with a Motion to Dismiss the Chapter 11 Proceeding.²⁰ Attached to the Order approving the Motion to Compromise was a fully executed copy of an agreement between the parties dated May 11, 2018 ("May 11, 2018 Forbearance Agreement ").²¹ After conducting an evidentiary hearing on May 22, 2018, the Court approved the Motion to Compromise ("May 22, 2018 Order ") and the Motion to Dismiss.²² The bankruptcy case was dismissed on the same date.²³

15. On August 11, 2020,²⁴ and again on September 14, 2020,²⁵ Defendant was put on written notice of default under the Guarantee of the Note.

16. On March 10, 2020, Plaintiff filed a lawsuit in the 152^nd Judicial District Court, Harris County, Texas styled as Cause No. 2020-16175 George M. Lee v. Mohammad Ali Choudhri ("State Court Lawsuit ").²⁶ The State Court Lawsuit involves a dispute regarding Defendant's Guaranty of the Loan made by Plaintiff regarding a commercial real property located at 1001 West Loop L.P. South, Houston, Texas and in which Plaintiff seeks damages in the amount of $4,219,951.30.²⁷

17. On August 19, 2020, the State Court Lawsuit was removed to this Court.²⁸

18. On February 1, 2021, Plaintiff filed "Plaintiff George M. Lee's First Amended Complaint" ("Complaint ").²⁹

19. On March 1, 2021, Defendant filed "Defendant Ali Choudhri's Answer to Plaintiff George M. Lee's First Amended Complaint" ("Answer ") in which Defendant raised thirteen separate affirmative defenses, including for (1) failure to state a claim, (2) waiver, (3) equitable estoppel, (4) judicial estoppel, (5) laches, (6) failure to mitigate damages, (7) failure of conditions precedent, (8) lack of consideration, (9) release, (10) offset, (11) unjust enrichment, (12) unconscionability, and (13) existence of an arbitration agreement ("Affirmative Defenses ").³⁰

20. On March 31, 2021, Plaintiff and Defendant filed their "Joint Discovery/Case Management Plan Pursuant to Federal Rule of Civil Procedure 26(f)" ("Joint Discovery/Case Management Plan ").³¹

21. On April 4, 2021, the Court entered its Comprehensive Scheduling, Pre-Trial & Trial Order affirming and incorporating the Joint Discovery/Case Management Plan ("26(f) Order ").³² The 26(f) Order required the parties to serve their initial disclosures under Federal Rule of Civil Procedure 26(a), including documents in support of the party's claims or defenses, no later than April 9, 2021.³³ The 26(f) Order identified the close of the discovery period as February 1, 2022 ("Discovery Period ").³⁴

22. On April 9, 2021, Defendant filed "Defendant Ali Choudhri's Initial Disclosures" ("Initial Disclosures ") pursuant to the Court's 26(f) Order and Federal Rule of Civil Procedure 26(a).³⁵ Defendant did not produce any documents in support of his Affirmative Defenses in his Initial Disclosures, and only made reference to "the records of proceedings in the related bankruptcy cases as well as the forbearance agreement entered into May 11, 2018..."³⁶

23. Plaintiff requested that Defendant produce documents related to his Affirmative Defenses three times on December 29, 2021, February 14, 2022, and March 9, 2022.³⁷

24. On March 24, 2022, Plaintiff filed "Plaintiff George M. Lee's Motion to Compel Discovery and Motion for Sanctions/Costs" ("Motion to Compel ").³⁸ On April 4, 2022, Plaintiff filed his "Plaintiff George M. Lee's First Supplement to Motion to Compel Discovery and Motion for Sanctions/Costs" ("Motion to Compel Supplement ").³⁹

25. Defendant filed no response to the Motion to Compel or Motion to Compel Supplement.

26. On May 25, 2022, the Court held an evidentiary hearing on the Motion to Compel and Motion to Compel Supplement and after considering the pleadings on file, evidence in the record, arguments of the parties, and applicable law, the Court found that the Plaintiff's Motion to Compel and Motion to Compel Supplement should be granted in part.⁴⁰ Among other things, the Court struck all of Defendant's Affirmative Defenses pursuant to FED. R. CIV. P.⁴¹ 37(b)(2)(A)(iii) ("Sanctions Order ").⁴²

27. On September 27, 2022, Defendant filed "Defendant's Motion to Set Aside Death Penalty Sanctions" ("Motion to Reconsider ").⁴³

28. On October 18, 2022, Plaintiff filed "Plaintiff George M. Lee's Response to Motion to Set Aside Death Penalty Sanctions" ("Response ").⁴⁴

29. On November 3, 2022, Defendant filed "Defendant's Reply in Support of Motion to Set Aside Death Penalty Sanctions (Dkt. No. 97)" ("Reply ").⁴⁵

30. On November 4, 2022, the Court held a hearing on the matter ("Hearing ") and now issues its instant memorandum opinion.

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."⁴⁶ 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.⁴⁷ This Court determines that pursuant to 28 U.S.C. § 157(b)(2)(A), this Adversary Proceeding contains core matters because the Complaint primarily asserts claims and seeks relief that rely on the Court's interpretation and enforcement of its May 22, 2018 Order.⁴⁸

Furthermore, this Court may only hear a case in which venue is proper.⁴⁹ Pursuant to 28 U.S.C. § 1409(a), "a proceeding arising under title 11 or arising in or related to a case under title 11 may be commenced in the district court in which such case is pending."⁵⁰ This Court presided over Debtor's main bankruptcy proceeding.⁵¹ Therefore, venue is proper.

This Court must evaluate whether it has constitutional authority to...