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Dao v. Sommers

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

March 1, 2018

HOA DAO, et al, Appellants,
v.
RONALD J. SOMMERS, Appellee.

          ORDER AND OPINION

          MELINDA HARMON UNITED STATES DISTRICT JUDGE.

         Before 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.

         Background

         On 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.

         Debtor also listed two pending lawsuits as assets in his voluntary petition. In the first lawsuit (MCC lawsuit), Appellant Hoa Dao[1] (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.

         Soon 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.

         When 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.

         In 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.

         Thereafter, 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.

         On 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.

         Ms. Dao 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.

         Trustee 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.[2]

         Discussion

         Courts 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[3] and the Fourth Circuit, [4] have applied the doctrine of equitable ...


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