United States District Court, S.D. Texas, Houston Division
MEMORANDUM OPINION AND ORDER
H. MILLER UNITED STATES DISTRICT JUDGE
before the court are (1) an appeal filed by appellant R.
Hassell Holding Co., Inc. (“RHHC”) (Dkt. 8
(appellant brief)); and (2) a motion to strike materials RHHC
attached to its appellant's brief that were not part of
the record on appeal filed by appellees James C. Hassell,
Hassell Construction Company, Inc., and Hassell Management
Services, L.L.C. (collectively, “HCCI”) (Dkt.
11). After considering the motion to strike and applicable
law, the court is of the opinion the motion (Dkt. 11) should
be GRANTED. After considering the appellate briefs and record
evidence, the court is of the opinion that the Bankruptcy
Court's order granting summary judgment should be
AFFIRMED IN PART and otherwise REMANDED FOR ADDITIONAL
FINDINGS OF FACT.
February 5, 2016, RHHC filed an involuntary petition under
Chapter 7 of the Bankruptcy Code against Hassell 2012 Joint
Venture (the “Joint Venture” or the
“Alleged Debtor”). Dkt. 5-2 at 322. On June 2,
2016, HCCI moved for summary judgment on the involuntary
bankruptcy petition, asserting that RHHC lacked evidence to
support an essential element of the petition. See
Dkt. 10; see also Dkt. 2-2 at 385 (motion for
summary judgment); Dkt. 2-2 at 835 (memorandum opinion
relating to order granting summary judgment); Dkt. 2-2 at 854
(order granting summary judgment). On September 23, 2016, the
Bankruptcy Court granted the motion for summary judgment,
holding that RHHC failed to present sufficient evidence that
the Alleged Debtor was failing to pay undisputed debts as
they came due. Dkt. 10; see also Dkt. 2-2 at 835.
RHHC moved for reconsideration, and the Bankruptcy Court
denied the motion. Dkt. 10; see also Dkt. 2-2 at 880
(motion to reconsider); Dkt. 2-2 at 911 (order denying motion
to reconsider). RHHC timely filed a notice of appeal. Dkt. 1.
RHHC filed its appellant's brief on January 26, 2017.
Dkt. 8. HCCI filed its appellee's brief on February 24,
2017, and RHHC filed a reply on March 10, 2017. Dkts. 10, 12.
The appeal in now ripe for consideration.
Motion to Strike
filed a motion to strike on February 24, 2017. Dkt. 11. In
this motion, HCCI asserts that the appendix filed with
RHHC's appellant brief contained a document that is not
part of the record on appeal. Id. (citing Dkt. 9).
HCCI specifically takes issue with Appendix Item 6, which is
a request for abstract of judgment. See id.; see
also Dkt. 9-6 (the contested document). RHHC did not
file a response to the motion to strike. Under Local Rule
7.4, “[f]ailure to respond will be taken as a
representation of no opposition.” S.D. Tex. L.R. 7.4.
The court therefore deems the motion to strike unopposed.
HCCI's motion to strike (Dkt. 11) is GRANTED. The court
will not consider Appendix Item 6 when considering RHHC's
an involuntary bankruptcy case. Under 11 U.S.C. §
303(b), an “involuntary case against a person is
commenced by the filing with the bankruptcy court of a
petition under chapter 7 or 11 of [the Bankruptcy Code], . .
. [i]f such person is a partnership[, ] . . . by fewer than
all of the general partners in such partnership; or . . . if
relief has been ordered under [the Bankruptcy Code] with
respect to all of the general partners in such partnership,
by a general partner in such partnership, the trustee of such
a general partner, or a holder of a claim against such
partnership.” 11 U.S.C. § 303(b). Under 11 U.S.C.
§ 303(h), a Bankruptcy Court may order relief in an
involuntary case only if “the debtor is generally not
paying such debtor's debts as such debts become due
unless such debts are the subject of a bona fide dispute as
to liability or amount; or . . . within 120 days before the
date of the filing of the petition, a custodian, other than a
trustee, receiver, or agent appointed or authorized to take
charge of less than substantially all of the property of the
debtor for the purpose of enforcing a lien against such
property, was appointed or took possession.” 11 U.S.C.
§ 303(h). The determination of whether a debtor is
“generally not paying” its debts as they become
due is made as of the date the original petition is filed.
In re Sims, 994 F.2d 210, 222 (5th Cir. 1993).
Courts consider various factors in determining whether a
debtor is generally not paying its debts, including (1)
“the number and amount of the unpaid debts in relation
to the size of the debtor's operation”; (2)
“the age and number of unpaid debts”; (3)
“the total amount of indebtedness”; and (4)
“the number of unpaid creditors.” In re
Arriola Energy Corp., 74 B.R. 784, 790 (S.D. Tex. 1987)
(Bue, J.). Another court sums up the factors as follows:
“(1) the number of unpaid claims; (2) the amount of
such claims; (3) the materiality of the non-payments; and (4)
the debtor's overall conduct in her financial
affairs.” In re Moss, 249 B.R. 411, 422 (N.D.
Tex. Bankr. 2000).
time HCCI moved for summary judgment, the Bankruptcy Court
had held that the Joint Venture was a general partnership and
that RHHC was eligible to file an involuntary bankruptcy
petition under § 303(b)(3) of the Bankruptcy Code. Dkt.
8. The issue on summary judgment was whether, under §
303(h)(1), the Joint Venture was “generally not paying
such debtor's debts as such debts [became] due unless
such debts are the subject of a bona fide dispute as to
liability or amount.” Id. (quoting §
303(h)(1)). The Bankruptcy Court determined that “the
ratio of delinquent to current debts is not supportive of a
pattern of the [Joint Venture] generally not paying its debts
as they become due. Furthermore, the totality of the
circumstances reflects that the few debts remaining as of the
petition date reflect a pattern of payment of debts by the
[Joint Venture].” Dkt. 2-2 at 852. The Bankruptcy Court
ultimately held that RHHC had “not demonstrated that
the [Joint Venture] was not paying its undisputed debts as
they became due” and accordingly granted summary
judgment in HCCI's favor. Id. at 852-54.
presents the following issues for appellate review: (1)
whether the Bankruptcy Court erred in finding that the
summary judgment burden shifted to RHHC; (2) the Bankruptcy
Court incorrectly determined that RHHC had the burden to
amend the bankruptcy schedules; (3) whether the Bankruptcy
Court erred in concluding that the amended schedules had any
probative value in light of the disclaimers contained within
the amended schedules; (4) whether the Bankruptcy Court erred
in its conclusion that debts that were the subject of
litigation and arbitration were subject to a bona fide
dispute; (5) whether the Bankruptcy Court's findings of
fact and conclusions of law relating to current and
delinquent debts remaining as of the petition date are
clearly erroneous; (6) whether the Bankruptcy Court's
finding that there was no evidence that the McCain debt was
due as of the petition date is incorrect; (7) whether the
Bankruptcy Court should have taken into consideration an
outstanding claim by the U.S. Department of Labor; (8)
whether the Bankruptcy Court's finding that the ratio of
debts due as of the petition date to debts that were not due
as of the petition date was 47% to 53% is incorrect; (9)
whether the Bankruptcy Court inappropriately allowed HCCI to
submit new evidence with their reply brief without giving
RHHC an opportunity to examine and respond to the new
evidence; and (10) whether the Bankruptcy Court incorrectly
failed to find and conclude the RHHC satisfied its burden of
showing there is a genuine issue of fact for trial. Dkt. 8 at
argues that the Bankruptcy Court properly granted its motion
for summary judgment for the following reasons: (1) HCCI
satisfied its burden by identifying a portion of the record
that suggests RHHC could not satisfy its burden of proof; (2)
the Bankruptcy Court correctly excluded debts subject to a
bona fide dispute and debts that were not outstanding as of
the petition date; (3) the Bankruptcy Court correctly
concluded that there was insufficient evidence that the Joint
Venture was generally not paying its undisputed debts as they
came due as of the petition date; and (4) the Bankruptcy
Court properly considered the summary judgment evidence
attached to the reply, as RHHC had ample to time to respond
to the rebuttal evidence and did not do so. Dkt. 10.
court will first set forth the legal standard for reviewing a
Bankruptcy Court's order, and then it will analyze each
of the alleged points of error.
Standard of Review
reviewing a decision of the Bankruptcy Court, this court
functions as an appellate court, applying the standards of
review generally applied in federal appeals courts. Webb
v. Reserve Life Ins. Co. (In re Webb), 954 F.2d
1102, 1103-04 (5th Cir. 1992); see also Coston v. Bank of
Mavren (In re Coston), 991 F.2d 257, 261 n.3
(5th Cir. 1993) (en banc) (citing Griffith v. Oles
(In re Hipp, Inc.), 895 F.2d 1503, 1517 (5th Cir.
1990)). This court generally reviews orders granting summary
judgment de novo, “guided by the same standard
as the Bankruptcy Court: Federal Rule of Civil Procedure
56.” In re Camey, 258 F.3d 415, 418 (5th Cir.
2001) (citing Stults v. Conoco. Inc., 76 F.3d 651,
654 (5th Cir. 1996)); see also In re Oparaji, 698
F.3d 231, 235 (5th Cir. 2012). However, the court reviews
findings of fact made by the Bankruptcy Court under the
clearly erroneous standard. In re Crowell, 138 F.3d
1031, 1033 (5th Cir. 1998); In re Beaubouef, 966
F.2d 174, 177 (5th Cir. 1992).
court will analyze each of the issues raised by RHHC in
the Initial Burden
court reviews the first issue presented by RHHC's de
novo because it concerns a question of law.
argues that Bankruptcy Court improperly applied Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986), because it
found that the burden shifted to RHHC to come forward with an
issue of material fact even though HCCI's motion only
contended that RHHC had no evidence to prove its case. Dkt.
8. RHHC contends that, under Celotex, the movant
must identify portions of the record that demonstrate the
absence of a material fact and cannot merely state that the
non-movant has no evidence to support its case. Id.
argues that their motion correctly identified the portion of
the record demonstrating the absence of a genuine issue of
material fact that the Joint Venture was not paying its debts
as they became due. Dkt. 10 (citing Dkt. 2-2 at 385-93
(motion for summary judgment)). The motion contains the
following heading: “No Evidence of Not Paying Debts As
they Come Due.” Dkt. 2-2 at 391. The motion then notes
that the Bankruptcy Court cannot order relief in an
involuntary bankruptcy case unless the debtor is generally
not paying debts as they are due, and the financial documents
and job cost reports produced by RHHC provided “no
evidence that there are any unpaid debts” of the Joint
Venture. Dkt. 2-2 at 392.
argues, in reply, that “[s]ome reference to documents
that were produced has to state a specific reason why [HCCI]
believed that the voluminous documents ultimately presented
no genuine issue of material fact whether the Debtor was
paying its debts as they became due.” Dkt. 12.
court disagrees with RHHC. In Celotex, the U.S.
Supreme Court noted that the “party seeking summary
judgment always bears the initial responsibility of informing
the district court of the basis for its motion, and
identifying those portions of the ‘pleadings,
depositions, answers to interrogatories, and admissions on
file, together with affidavits, if any, ' which it
believes demonstrate the absence of a genuine issue of
material fact.” 477 U.S. at 323. However, it determined
that there was “no express or implied requirement in
Rule 56 that the moving party support its motion with
affidavits or other similar materials negating the
opponent's claim.” Id. Here, HCCI pointed
to the evidence offered and stated that it did not present an
issue of material fact that the Joint Venture was not paying
its debts. See Dkt. 2-2 at 392. It was then up to
the non-movant at that point to demonstrate that there was an
issue of material fact. The court, after conducting a de
novo review, finds that Bankruptcy Court did not err in
determining that the burden shifted to RHHC. The objection
presented in RHHC's first issue is OVERRULED. The
Bankruptcy Court's finding on this issue is AFFIRMED.
Burden to Amend the Bankruptcy Schedules
court reviews the second issue presented by RHHC de
novo because it concerns a question of law.
Bankruptcy Court stated:
Despite the extensive discovery that has taken place, and the
amount of time RHHC has had to review the documents, RHHC has
not amended the schedules and statement of financial affairs
to identify any debts. If the discovery resulted in evidence
that there were debts owed by the Partnership, RHHC had an
affirmative duty to amend its schedule and statement of
financial affairs to reflect them
. . . . .
Dkt. 2-2 at 841.
contends that this finding was in error because it did not
have a burden to amend the Bankruptcy Schedules. Dkt. 8. RHHC
notes that it is a general partner of the Joint Venture, and
it argues that only the debtor (the Joint Venture)
has an obligation to file and amend the schedules and
statements, citing Bankruptcy Rule 1007(a)(2). Dkt. 8.
citing Bankruptcy Rule 1007(g), asserts that general partners
have a duty to prepare and file schedules of assets and
liabilities and, as such, have a corresponding duty to amend
those schedules if they are incorrect. Dkt. 10. HCCI
additionally contends that, regardless, RHHC waived this
argument for purposes of appeal because it did not raise this
argument in the Bankruptcy Court until it ...