Chase Manhattan Bank v. BowlesChase Manhattan Bank v. Bowles
OPINION
Robert and Joanne Berg were getting a divorce. Part of the marital estate was their residence (“the property”) worth hundreds of thousands of dollars. 1 After a dispute over Mr. Berg’s handling of one- and-a-half million dollars of the business assets of the estate, on October 21, 1999, the trial court appointed Michael Bowles as Receiver over certain assets.
Robert and Joanne reached a Mediated Settlement Agreement for most of their assets. However, the property was not included. Because the divorce was about to be finalized, on February 24, 2000, the trial court ordered the property placed into the existing receivership, and severed the receivership proceeding and three pending motions for enforcement and for contempt from the divorce proceeding, giving the receivership proceeding a new cause number. Bowles listed the home with a realtor who advertised it for $425,000.
After the property did not sell, Bowles and two lienholders engaged in a dispute over their respective rights. These appeals are from two orders which were entered concerning that dispute.
HISTORICAL AND PROCEDURAL EVENTS
The historical and procedural events leading to these appeals are involved, but reciting them is necessary to understand the issues and their resolution.
The Banks
Chase Manhattan Bank (“Chase”) and Bank One (collectively “the banks”) each have a lien on the property as a result of loans they made to the Bergs. Chase is the successor-in-interest to Long Beach Mortgage Corporation (“Long Beach”) by virtue of an assignment of a deed of trust on the property dated October 1998. Long Beach continued as the “servicer” of the note. The deed of trust had been assigned to Long Beach in September 1998 by the original lienholder, Assurance Mortgage Corporation of America. The original deed of trust was filed by Assurance Mortgage in Volume 2229, Page 820 of the Johnson County deed records. The original principal amount of the note was $281,250. Bank One is the second lien-holder, and the original principal amount of its note was $56,250.
*875 The Temporary Injunction
The loans were in default, and the banks pressed to have the property sold. When that process was delayed, Bank One commenced non-judicial foreclosure under its deed of trust. Bowles responded on May 31, 2000, by seeking an injunction against Bank One and Long Beach. Presumably Bowles did not realize that Long Beach no longer was the lienholder. Bowles obtained a temporary restraining order against Bank One and Long .Beach (but not Chase) which blocked Bank One’s attempt to foreclose. Bank One and Long Beach (but not Chase) were served with citation and a copy of the temporary restraining order.
On June 12, 2000, Bank One sent Bowles a letter stating it “will take no further action to foreclose on said property until the receivership is dissolved or otherwise terminated.” Bowles filed the letter with the clerk of the court as a Rule 11 agreement.
By November 2000 the property had still not been sold. Chase filed a Motion to Terminate Injunction, requesting that Chase be allowed to proceed with nonjudicial foreclosure on January 2, 2001. The motion recited the history of the assignments of the deed of trust, and pointed out that Long Beach was not the owner of the note. The motion did not argue that the temporary injunction may be void as to Chase because Chase was not a named third-party defendant to the receiver’s third-party action. Two weeks later Bank One filed a “copy cat” motion to terminate the injunction.
The Hearing on the Sale of the Property
A hearing was held on December 14, 2000. Bowles lawyer informed the court he had a contract for sale on the house for $422,000. (The realtor testified that if the property had not been allowed to deteriorate during the pendency of the divorce, it might have sold for $500,000.) The closing was to occur December 15. The lawyer said: “And when it’s all said and done at 422, to pay off the liens and all the expenses of the receivership, the funds are going to be $36,485 ... short.” Bowles introduced a balance sheet showing that $458,874.79 was needed to pay all debts, including $7,518 to Bowles for fees and $12,034.60 for his expenses, $7,226.24 to Bowles’s lawyer for fees, $313,645.38 to Chase, and $59,477.76 to Bank One. The fees and expenses to Bowles and his lawyer were only for them work in relation to the property, as all other assets of the receivership had been disposed of earlier. Bowles requested that the proceeds of the sale be distributed in accordance with the hierarchy in section 64.051 of the “Receivership” statutes.
Bank One’s lawyer said: “I came here for some finality to this .... I’m still a little sketchy on whether or not all of these fees and costs are directly related to this asset. It sounds to me like some of them may be related to the business that Mr. Berg had and some of these other as assets that the receiver was trying to get his arms around. That’s neither here nor there. I think we would be happy with something along these lines. If we’re $36,000 short, Bank One could take a hit for half of that and Chase could take a hit for other half.” Bowles lawyer said: “If that’s the way The Court wants to go that would be fine with us just to split the costs between the two lien holders. I’m just trying to get the thing resolved.”
Chase’s lawyer protested that (1) Bank One was the second lien holder, and might have to pay the entire $36,000 shortfall because Chase would be entitled to have its lien satisfied first, and (2) the court had no authority to release the banks’ liens.
The hearing ended with the court ordering the property sold, with the remainder after payment of fees, costs, and expenses to be deposited into the registry of the court if Chase and Bank One could not reach agreement on how much each would receive. Over Chase’s continued objection, the court also ordered the liens released upon sale of the property. The next day Chase and Bank One sent a
Subsequent Events
The sale did not go through because the buyer backed out. On January 18, 2001, Chase filed a Motion to Release Property from the Receivership’s Estate. A hearing was held on January 23, 2001, on Chase’s motion to terminate the injunction and motion to release the property from the receivership. Bowles alleged that Chase was attempting to avoid the receiver’s being paid $30,141.64 in outstanding fees and expenses (some of which were for his attorney’s fees). Bowles proposed that the receivership be dissolved so foreclosure could proceed, but that Chase be ordered to pay the $30,141.64, and also to pay the outstanding property taxes (about $28,000). Chase countered that under existing precedent, the receiver’s fees and expenses did not take priority over a first lienholder’s interests when the lienholder did not, as here, request the receivership. The court adjourned the hearing, instructing the parties to file briefs.
On January 30, 2001, Bowles filed a Motion to Enforce
A hearing on all pending motions of all parties was held on February 7, 2001, almost a year after the property was placed into the receivership. Documents were admitted itemizing Bowles’s costs, expenses, and fees and the fees of his lawyer. Bowles testified that Mr. Berg had a manufacturing business with inventory, but that he had not considered pursing payment of his receiver’s fees from Berg. He said there had been four potential sales of the property. The first, in late April or early May 2000, was a contract for sale for $419,000. The second, in December 2000, was a contract for sale for $423,000. The two most recent offers he had received were in a contract for sale for $250,000 and a verbal offer for $350,000. He said there were outstanding receiver’s costs, expenses of $19,800, receiver’s attorney’s fees of $9,300, and attorney’s fees for the
Q: What change in circumstance would you — would have to happen for you to recommend that the Court — that the property be taken out of the receivership?
A: If all the receiver expenses and costs were to be paid, then I would have no objection to the property being removed and all the attorney’s fees.
Q: Is that the only ground that you can -?
A: I think so, yes, ma’am.
The court issued two orders on February 16, 2001. The first order “granted” the Motion to Enforce
Both banks appeal from the order denying their motions and awarding receiver’s fees and expenses, and separately Bank One appeals from the
*878 JURISDICTION
Normally “[a]ppellate courts have jurisdiction to consider immediate appeals of interlocutory orders only if a statute explicitly provides appellate jurisdiction.”
Stary v. DeBord,
“A person may appeal from an interlocutory order of a district court ... that ... grants or overrules a motion to dissolve a temporary injunction as provided by Chapter 65_”
No statutes provide for an appeal from an order denying a motion to release property from a receivership or an order on a
We will follow the reasoning in these cases. The Order denying Chase’s motion to release the property resolves a discrete issue in the receivership,
ie.,
whether the property should be released from the receivership so the banks can foreclose. The only significant relief granted by the
THE ORDER DENYING THE BANKS’ MOTIONS
The Legal Standards
“[D]ecrees of injunction ... may be reviewed, opened, vacated or modified by the trial court upon a showing of changed circumstances.”
Smith v. O’Neill,
This injunction was issued in June 2000. Chase’s motion to terminate it was filed five months later in November 2000. During this time, the property had diminished in value by about $80,000 ($500,000 to $420,000). The property had no equity because its market value was less than the debts to be applied against it at sale. A recent contract for sale set to close in December 2000 had fallen through. By the time of the hearing in February 2001, the property had diminished in value another $70,000 to $170,000 ($420,000 to $350,000-$250,000). These are changed conditions and are sufficient to require the trial court’s reconsideration of the injunction.
A trial court’s ruling on a motion to dissolve an injunction is reviewed for whether the court abused its discretion.
Henke,
Analysis
The only reason advanced by Bowles to keep the property in the receivership and to deny the banks their right of foreclosure was to attempt to recover his outstanding costs, expenses, and fees, including attorney’s fees. However, if Bowles’s costs, expenses, and fees cannot legally take precedence over the hens of the banks, there is no reasonable basis to refuse to release the property and allow the banks to foreclose. If there is no equity in the property, all proceeds from a sale would go to satisfy the banks’ hens. In that event, the trial court would have abused its discretion by denying the motions. The banks argue that if a henholder does not request or agree to the receivership, its hens are superior to the costs,expenses, and fees of the receiver. Therefore, the banks maintain that they are entitled to be paid first from the proceeds of any sale of the property.
*880
No one, even a lienholder with a deed of trust, can sell property held
in custodia legis
by a duly appointed receiver.
First S. Props., Inc. v. Vallone,
However, “a receivership destroys no prior vested right, nor does it determine any right as between the parties by reason of an existing contract.”
First S. Props.,
Because “a receivership is always subject to vested rights,” a lienholder’s interest in property held in a receivership “has priority over costs and expenses incurred in the administration and operation of the receivership.”
Tennant v. Dunn,
Because the banks’ liens take priority over Bowles’s costs, expenses, and fees, Bowles cannot be paid from the proceeds of the sale of the property until the banks’ liens are fully paid. Consequently, there being no equity in the property, no reason remained for the trial court to keep the property in the receivership or to enjoin the banks from foreclosing. Therefore, the trial court abused its discretion in *881 denying the banks’ motions to dissolve (terminate) the injunction and Chase’s motion to release the property from the receivership.
The banks’ issues about the Order denying their motions are sustained. Because the awards of receiver’s costs, expenses, and fees derive from Bowles being successful in having these motions denied, the banks’ issues about those awards are also sustained.
THE ORDER ON THE RULE 11 AGREEMENT
The
Bowles filed a one-page Motion to Enforce
A trial court’s ruling regarding a
We hold that the trial court abused its discretion in granting Bowles’s motion, because Bank One did not violate the agreement by merely filing its motion to terminate the injunction. We do not believe that filing the motion was an “action to foreclose on said property.” By Bowles’s overly broad interpretation, Bank One’s motion to terminate the injunction violated the
Bank One’s issues about the Order granting the
CONCLUSION
The Order of the trial court denying the banks’ motions to terminate the injunction and Chase’s motion to release the property from the receivership, and the Order granting the Motion to Enforce the
Notes
. The property consists of a 6,000 square feet house constructed in 1993 sitting on thirteen acres of land. There is an indoor pool and a 2,000 square feet, four-car garage. There is also a 3,600 square feet horse barn.
. The
. The Receiver caused an Abstract of Judgment for each order to be filed in Harris County.
.The former appeal is Cause No. 10-01-081-CV, and Bank One’s appeal is Cause No. 10-01-196-CV.
. This motion was filed after the hearing on January 23, 2001, during which the court heard arguments primarily about whether the receiver’s fees and expenses took priority over the banks’ interests, and at the conclusion of which the trial court asked for briefs. The motion was filed before the final hearing on all the motions on February 7, 2001.
. On February 1, 2001, Bowles’s lawyer also filed a 217-page response to the banks’ motions to terminate the injunction, and to Chase’s motion to release the property from the receivership. Exhibits and attachments comprised 206 of the 217 pages.
. Nothing herein prevents the Receiver from pursuing from other sources reimbursement for any costs, expenses, and fees incurred in the receivership.