United States District Court, S.D. Texas, Houston Division
ORDER AND OPINION
MELINDA HARMON UNITED STATES DISTRICT JUDGE.
the Court are Appellee's Motion to Dismiss Appeal
(Document No. 12), Appellants' Response in Opposition to
Appellee's Motion to Dismiss Appeal (Document No. 14),
and Appellants' Supplemental Response to Appellee's
Motion to Dismiss Appeal (Document No. 18). After considering
these documents, the facts in the record, and the applicable
law, the Court concludes that Appellee's Motion to
Dismiss Appeal (Document No. 12) is granted.
January 2, 2015, Huy Can Dao (the Debtor) filed for Chapter
13 bankruptcy. Document No. 5-2 at 1. The main asset Debtor
listed in his voluntary petition was a commercial building
located at 2218 Northpark Dr., Kingwood, TX 77339 (the
Property). Document No. 5-2 at 6. At the time Debtor filed
for bankruptcy, the Property was encumbered by a mortgage
owned by PAL Realty, Inc.
also listed two pending lawsuits as assets in his voluntary
petition. In the first lawsuit (MCC lawsuit), Appellant Hoa
(Ms. Dao), acting on behalf of Debtor, filed suit against
Maryland Casualty Company (MCC) and Craig Raus seeking
monetary damages for claims arising from an insurance policy
issued by MCC covering damage to the Property from Hurricane
Ike. Document No. 5-2 at 316. In the second lawsuit (iSenior
lawsuit), Ms. Dao, acting on behalf of Debtor, filed suit
against iSeniorSolutions, LLC and First American Title
Company seeking the release of escrowed funds held in
connection with a prior contract to buy the Property.
Specifically, Ms. Dao argued that iSenior failed to close on
a sale of the Property and, therefore, she and Debtor were
entitled to $38, 500 in escrowed funds held by First American
Title. In connection with the iSenior lawsuit, Ms. Dao filed
a lis pendens encumbering the Property in the Harris
County real property records.
after Debtor filed for bankruptcy, PAL Realty, as lienholder
on the Property, filed a motion for relief from the automatic
stay on action against the Property. Document No. 5-2 at 60.
PAL Realty alleged that the Property was not properly insured
and that the Property was in disrepair. As a result, PAL
Realty sought to lift the stay so it could foreclose on the
Property and protect its interest. In April 2015, the
bankruptcy court denied PAL Realty's motion, but ordered
the Debtor to sell the Property within six months of the
order. Document No. 5-2 at 172. Several months later, PAL
Realty filed a motion for reconsideration of the order
denying the motion for relief, alleging that the Property was
about to lose insurance coverage. Document No. 5-2 at 185-88.
The bankruptcy court granted the motion for reconsideration
and lifted the stay, allowing PAL Realty to foreclose on the
Property. Document No. 5-2 at 201.
PAL Realty attempted to foreclose on the Property, Debtor and
Ms. Dao filed a lawsuit against PAL Realty seeking to enjoin
the foreclosure (the PAL Realty lawsuit). Document No. 5-2 at
316-17. Ms. Dao also filed a lis pendens encumbering
the Property in the Harris County real property records in
connection with the lawsuit.
August 2015, Debtor filed a notice of conversion to Chapter 7
bankruptcy. Document No. 5-2 at 309-10. The bankruptcy was
automatically converted, and soon after, Ronald J. Sommers
(Trustee) was appointed as the trustee of the bankruptcy
estate. On December 15, 2015, Trustee filed an Emergency
Motion to Approve Compromise with PAL Realty, MCC, and Craig
Raus. Document No. 5-2 at 313-22. In the motion, Trustee
explained that PAL Realty had received a time-sensitive offer
to sell the Property, but needed the pending litigation and
lis pendens encumbering the property to be lifted.
Trustee, MCC, Raus, and PAL Realty entered into a global
compromise settling the pending lawsuits and removing the
lis pendens. Under the agreement, (1) PAL Realty
would withdraw and release any and all claims against the
bankruptcy estate of Debtor; (2) PAL Realty would assign all
of its claims against MCC and Raus to Trustee; (3) MCC would
make a lump sum payment of $60, 000 to Trustee; (4) Trustee
would release and discharge PAL Realty from any and all
claims or causes of actions asserted on behalf of Debtor; and
(5) Trustee would release and discharge MCC and Raus from all
claims or causes of action asserted on behalf of Debtor.
Document No. 5-2 at 317-18. The Bankruptcy Court granted the
motion and approved the compromise on December 16, 2015.
Document No. 5-2 at 337-40.
Debtor and Ms. Dao moved for the Bankruptcy Court to
reconsider its approval of the compromise. In her motion, Ms.
Dao argued that she and her adult children, Quynh Nhu Dao and
Thuy Vi Dao (the Daughters), had property interests in the
Property and the MCC lawsuit. Document No. 5-2 at 341-43.
February 18, 2016, Trustee filed a Motion to Approve
Compromise with iSenior Solutions, LLC. Document No. 5-2 at
432-41. In the motion, Trustee asked the Bankruptcy Court to
approve the agreement with iSenior in which iSenior would
agree to release $8, 500 of the escrowed $38, 500 to the
Trustee in exchange for a full and final release of the
estate's claims in connection with the iSenior lawsuit.
Document No. 5-2 at 434-35. On May 3, 2016, the Bankruptcy
Court held a hearing and granted Trustee's Motion to
Approve the Compromise with iSenior and denied the motion to
reconsider the approval of the compromise with PAL Realty,
MCC, and Raus. Document No. 5-2 at 523-25.
and the Daughters (collectively “Appellants”)
appealed the following orders to this Court: (1) the Order
Granting Emergency Application to Compromise Controversy; (2)
the Order Granting Application to Compromise Controversy with
iSenior Solutions, LLC; (3) the Order Denying Motion to
Vacate Order Approving Compromise with PAL Realty, Inc.,
Maryland Casualty Co., and Craig Raus; and (4) the Order
Denying Motion to Reconsider Order Granting the Trustee's
Emergency Motion to Approve Compromise with PAL Realty, Inc.,
Maryland Casualty Co., and Craig Raus. Document No. 8 at 1.
filed a Motion to Dismiss the Appeal (Document No. 12)
arguing that the appeal is equitably moot and seeking the
dismissal of the Daughters as appellants.
do not normally apply equitable mootness to Chapter 7
proceedings because “it is a doctrine that courts have
developed in response to the particular problems presented by
the consummation of plans of reorganization under Chapter
11.” In re Grimland, Inc., 243 F.3d 228, 231
(5th Cir. 2001). However, it is not unheard of. In ANR
Co. v. Rushton, No. 2:10-CV-79 TS, 2012 WL 1556236, at
*3-7 (D. Utah May 2, 2012), the United States District Court
for the District of Utah conducted an extensive, national
review of the case law on the application of equitable
mootness to Chapter 7 proceedings. The court found that
several circuits, including the Ninth Circuit and the Fourth
Circuit,  have applied the doctrine of equitable