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Rich v. Durie

Court of Appeals of Texas, Twelfth District, Tyler

June 21, 2017

JOHN V. RICH, JR.; JOHN V. RICH, III; MICHAEL RYAN RICH & CHEROKEE HEALTH PROPERTY, LLC, APPELLANTS
v.
ANDREA DURIE, AS NEXT FRIEND FOR LARRY KOLB, APPELLEE

         APPEAL FROM THE 2ND JUDICIAL DISTRICT COURT CHEROKEE COUNTY, TEXAS (TR.CT.NO. 2016-04-0244)

          Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.

          OPINION

          James T. Worthen Chief Justice.

         John V. Rich, Jr., John V. Rich, III, Michael Ryan Rich, and Cherokee Health Property, LLC (collectively the Riches), appeal the trial court's order denying their motion to dismiss the lawsuit filed by Andrea Durie, as Next Friend for Larry Kolb. In one issue, the Riches contend that the trial court lacks subject matter jurisdiction. We reverse and render.

         Background

         Kolb alleged he received negligent medical treatment at a nursing home operated by MSHC Bonner Street Plaza (MSHC) while he resided there in 2012. Acting as next friend for Kolb, Durie sued MSHC and recovered an uncontested judgment in the amount of $31, 040, 261.30. Approximately thirty million dollars of this award was for punitive damages.

         Later, MSHC filed a Chapter Seven bankruptcy proceeding in the United States Bankruptcy Court for the Eastern District of Texas, Tyler Division. Durie filed a motion for relief from the automatic stay resulting from the bankruptcy filing so she could continue seeking to collect the state court judgment from MSHC and the Riches. Following a hearing on Durie's motion, the bankruptcy court entered an order denying her motion for relief from the automatic stay. In its order, the bankruptcy court stated as follows:

The movant no longer has the right as a litigant to pursue any fraudulent transfer litigation-the Chapter 7 Trustee is the exclusive party with that power. The decision as to whether to seek such relief belongs to the Trustee, and the processes by which information is obtained regarding that decision, exclusively ones arising within the bankruptcy code and the bankruptcy rules.

         Subsequently, the Chapter 7 Trustee, Michael J. McNally, evaluated Durie's claims, with the assistance of her attorney, Cory Fein. Before the bankruptcy case was closed, McNally filed an application for attorney's fees on behalf of McNally and Patrick, the limited liability partnership of which he was a member. The attorney's fee application filed with the bankruptcy court stated, in pertinent part, as follows:

9. Applicant, as Counsel for the Trustee, has rendered substantial legal services to the bankruptcy estate. A summary of the nature and extent of the services performed by Applicant for the Estate is set forth below:
a) Asset Analysis and Recovery: The primary purpose, necessity and benefit to the estate of the employment of McNally & Patrick was to obtain and review voluminous information to determine facts relevant to various possible causes of action against third parties including fraudulent transfers, preferential payments, inadequate capitalization and disregard of the corporate veil. The Debtor and others cooperated voluntarily with the disclosure of information and documentation to avoid the delay and expense of formal discovery. The case involved only one very large unsecured creditor represented by attorney Cory Fein. Trustee worked with Mr. Fein in reviewing the facts, exploring possible causes of action and, with the concurrence of Mr. Fein, determining that Trustee would take no action against third parties. These services were necessary because of the serious and thoughtful claims of the principal creditor. The benefit to the estate was that the possible causes of action were investigated and evaluated. Michael J. McNally was the professional providing services on this project with 11.0 hours spent.

         Following the distribution of the assets, including a portion to Durie, the bankruptcy court entered an order discharging the Chapter 7 Trustee and closing the case. But before the bankruptcy case was closed, Durie filed suit against the Riches in state court and she sought to pierce the corporate veil of MSHC thereby and to collect the judgment from the Riches individually. The Riches filed a motion to dismiss Durie's suit, alleging that only the bankruptcy court had jurisdiction over her cause of action. The trial court denied the Riches' motion to dismiss, and this interlocutory appeal followed.[1]

         Subject Matter Jurisdiction

         In their sole issue, the Riches argue that the trial court lacks subject matter jurisdiction over Durie's suit to pierce ...


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