In re Duval County Ranch Co.

Citations: 155 B.R. 723; 1993 Bankr. LEXIS 1260; 1993 WL 255874Docket: Bankruptcy No. 89-01286-C-11

Court: United States Bankruptcy Court, S.D. Texas; July 2, 1993; Us Bankruptcy; United States Bankruptcy Court

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The court granted the Motion of Manges Liquidating Trust to void and cancel Notices of Lis Pendens filed by Clinton Manges and Helen Ruth Manges, allowing the Liquidating Trustee to proceed with the sale of trust property for the benefit of creditors. The background reveals that a Creditor Plan of Reorganization was confirmed in 1991, which established a liquidating trust for the Manges Debtors' property. Following the confirmation, the Manges Debtors filed a Notice of Appeal and sought a stay, both of which were denied. Subsequently, they filed lis pendens notices against properties owned by the Liquidating Trust, which the Liquidating Trustee sought to cancel. Despite attempts to obtain cooperation from the Manges Debtors, the Trustee ultimately executed the cancellation of the notices. However, the Manges Debtors re-filed new lis pendens notices, prompting the Liquidating Trust's motion to void these filings to facilitate property sales. The Manges Debtors contended that the motion should be dismissed because it required an adversary proceeding. The court referenced the Fifth Circuit's ruling in Texas Extrusion, which allows for the avoidance of unauthorized lis pendens without adhering to Texas procedural requirements, affirming the motion’s validity under Bankruptcy Rule 9014.

The Liquidating Trust filed an Original Complaint for Declaratory Relief, Emergency Application for Temporary Restraining Order, and Request for Expedited Hearing on May 20, 1993, assigned Adversary Proceeding Number 93-2079-C. Count 1 of this Complaint requests the Court to declare all past and future notices of lis pendens filed by the Manges debtors or Helen Manges concerning the bankruptcy case as void. The Court may treat the pending motion as a Motion for Summary Judgment within this Adversary Proceeding, leading to the conclusion that the Manges debtors’ arguments would ultimately fail.

Texas Property Code § 12.007(a) allows for the filing of a lis pendens in certain situations. The case of Texas Extrusion illustrates that a Bankruptcy Court can declare a lis pendens void, as the Fifth Circuit affirmed that the lis pendens filed by debtors in that case was unauthorized by Texas Statute. The context involved four debtors who, like the Manges Debtors, appealed a confirmed Joint Creditors Plan of Reorganization and sought stays that were denied. The creditors committee requested cancellation of the lis pendens, which the Bankruptcy Court subsequently voided. The Fifth Circuit confirmed that an order confirming a plan of reorganization does not fit within the scenarios outlined by Texas Statute § 12.007. 

Additionally, the case Lane v. Fritz provides interpretive guidance, where the court held that the predecessor to § 12.007 did not apply in a suit for alienation of affection, indicating that the lis pendens filed in that context was not valid.

The Court ruled that the phrase "to enforce any lien, charge or encumbrance" in Article 6640 (now 12.007) does not apply unless a lien exists prior to a judgment arising from a contract, statute, or constitutional provision. In Helmsley-Spear of Texas, Inc. v. Blanton, the Texas Court of Appeals determined that the lien sought by plaintiffs did not affect the defendant's real property, thus falling outside the provisions of 12.007. Section 12.008 outlines procedures for canceling a lis pendens, allowing cancellation during proceedings if the party seeking relief can be adequately protected by monetary deposit or an undertaking. However, if a lis pendens does not fall under 12.007, compliance with 12.008 is unnecessary for cancellation.

In the current case, confirmation of a Chapter 11 Plan does not involve real property title or interest enforcement under 12.007. The Manges Debtors' property became part of the Bankruptcy estate upon filing, and the transfer of property to the liquidating trust under the confirmed plan does not invoke 12.007. The Court concluded that the Manges Debtors were attempting to achieve through state law what they could not under federal law, as they were unsuccessful in seeking stays on the confirmation of the Creditor Plan. The filing of lis pendens notices was seen as an effort to obstruct the Liquidating Trust's property transfer under the confirmed plan.

The Court emphasized that when conflicts arise between federal and state law, federal law takes precedence. Allowing a lis pendens to block enforcement of a confirmed reorganization plan would undermine the Bankruptcy Code. The Court affirmed its jurisdiction to enforce the confirmation order and prevent the Manges Debtors from obstructing the Creditor Plan, reinforcing the supremacy of federal law. Consequently, the lis pendens notices filed by the Manges Debtors are to be canceled, with a separate Order to be issued.

Article IV.2.1 of the Creditor Plan mandates that the Manges Debtors and Helen Ruth Manges must execute the Manges Creditor Trust Agreement and Blanket Conveyance within three days of the Confirmation Date to establish the Manges Creditor Trust and transfer all Manges Debtor Estate property into it, creating Trust Property. Clinton Manges retains the exempt property listed in his schedules from March 14, 1990, and there is no homestead claim on the Duval County Ranch or any estate or Trust Property. The Manges Creditor Trust Agreement and Blanket Conveyance must adhere to the forms in Appendix 1 and 2. The Manges Debtors and Helen Ruth Manges are obliged to execute any necessary documents within three days of demand to facilitate the Creditor Plan's purposes. The Court can order any other individual to sign documents to assist with the Creditor Plan under section 1142. If the Manges Debtors or Helen Ruth Manges fail to execute documents by the deadline, Colin K. Kaufman is appointed to sign on their behalf, with such signatures carrying the same legal weight. There is no recourse against Kaufman or the Court for his actions, although recourse may exist against the signatories. Should Kaufman be unable to execute documents due to incapacity, a substitute may be appointed. The Creditor Plan serves to transfer and protect title as effectively as the Blanket Conveyance and can be publicly recorded in its place. Additionally, it is noted that the attorney who moved for the cancellation of the lis pendens notice is affiliated with the same firm representing the Manges Debtors, who oppose the cancellation.