IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

Transcription

1 Case Document 321 Filed in TXSB on 01/09/13 Page 1 of 12 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: TAXMASTERS, INC. CASE NO H2-7 TMIRS ENTERPRISES, LTD. CASE NO H2-7 (Jointly Administered Under Debtors ) PATRICK R. COX, Movant, VS. AMENDED MOTION FOR RELIEF FROM AUTOMATIC STAY TAXMASTERS, INC. TMIRS ENTERPRISES, LTD. Respondent. AMENDED MOTION OF PATRICK R. COX FOR RELIEF FROM AUTOMATIC STAY TO CONTINUE LIBERTY INSURANCE LITIGATION AND PURSUE DIRECTOR & OFICER INSURANCE POLICY PROCEEDS NOTICE PURSUANT TO LOCAL BANKRUPTCY RULE 4001 THIS IS A MOTION FOR RELIEF FROM THE AUTOMATIC STAY. IF IT IS GRANTED, THE MOVANT MAY ACT OUTSIDE OF THE BANKRUPTCY PROCESS. IF YOU DO NOT WANT THE STAY LIFTED, IMMEDIATELY CONTACT THE MOVING PARTY TO SETTLE. IF YOU CANNOT SETTLE, YOU MUST FILE A RESPONSE AND SEND A COPY TO THE MOVING PARTY AT LEAST 7 DAYS BEFORE THE HEARING. IF YOU CANNOT SETTLE, YOU MUST ATTEND THE HEARING. EVIDENCE MAY BE OFFERED AT THE HEARING AND THE COURT MAY RULE. REPRESENTED PARTIES SHOULD ACT THROUGH THEIR ATTORNEY. THERE WILL BE A HEARING ON THIS MATTER ON FEBRUARY 19, 2013, AT 10:00 A.M. IN COURTROOM 400, 515 RUSK STREET, HOUSTON, TEXAS TO THE HONORABLE DAVID R. JONES, U.S. BANKRUPTCY JUDGE:

2 Case Document 321 Filed in TXSB on 01/09/13 Page 2 of 12 COME NOW, PATRICK R. COX (hereinafter referred to as Cox and the Movant ), by and through his undersigned counsel, pursuant to U.S.C. 362(d)(1), Fed. R. Bank. P. 4001, and BLR and , and moves this Court for relief from the automatic stay imposed by Section 362 of the Bankruptcy Code and in support thereof would respectfully show as follows: I. Introduction 1. This Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and This matter constitutes a core proceeding under 28 U.S.C. 157(b)(2)(A)(G) and (O). Venue is proper under 28 U.S.C and TaxMasters, Inc. ( TaxMasters ) filed its Chapter 11 bankruptcy petition on March 18, On April 20, 2012, this Court signed an order appointing a Chapter 11 trustee. The Chapter 11 Trustee eventually sought conversion of the estate, and on May 9, 2012, this Court entered an order converting this case to a Chapter 7 case. W. Steve Smith was appointed Trustee of TaxMasters Chapter 7 case. 3. TMIRS Enterprises, Ltd. ( TMIRS ) filed its Chapter 7 bankruptcy petition on March 18, On April 27, 2012, the W. Steve Smith was appointed as the successor Trustee of TMIRS Chapter 7 case and continues to serve in such capacity. On July 12, 2012, this Court entered an Order for Joint Administration And/Or Transfer of Cases [Doc. No. 210 of the main case] whereby it ordered that the TaxMasters and TMIRS cases were to be jointly administered. 4. In conjunction with its operations, TaxMasters purchased a Directors & Officers insurance policy with Liberty Insurance Underwriters, Inc. ( Liberty ) with a $3,000, limit of liability which covered its directors and officers and its affiliates directors and officers, which included Cox, and had a separate coverage for insured organizations, which included TaxMasters and TMIRS. Both policies were obtained by an insurance agent named Houstoun, Woodard, Eason, Gentle, Tomforde And Anderson, Inc. d/b/a Insurance Alliance (the Tomforde 2

3 Case Document 321 Filed in TXSB on 01/09/13 Page 3 of 12 Agency ) and James W. Tomforde ( Tomforde )( Tomforde Agency and Tomforde hereinafter collectively referred to as the Agents ). The policy is called the Executive Advantage Policy and bears policy number DOH (hereinafter referred to as the Policy ). The Policy had an inception date of December 21, 2009, and an expiration date of December 21, The Policy was renewed each year and is still in effect to this date. 5. During 2010, Cox, TaxMasters, TMIRS, and TM GP, (collectively referred to as the TM Group ) received a number of civil investigative demands from various state attorney generals offices and a number of lawsuits filed against them as a result of alleged deceptive trade practices. The TM Group submitted all of these claims to Liberty for coverage and defense. Liberty denied coverage and refused to pay the claims, or provide or pay for the defenses of the TM Group. 6. In October of 2010, the TM Group retained Wauson Probus as counsel to represent them in a suit against Liberty and the Agents and on November 23, 2010, the TM Group filed a lawsuit styled Patrick Cox, TaxMasters, Inc., TMIRS Enterprises, Ltd., and TM GP Services, LLC vs. Liberty Insurance Underwriters, Inc., Houstoun, Woodard, Eason, Gentle, Tomforde And Anderson, Inc. d/b/a Insurance Alliance And James W. Tomforde, Cause No , In the Harris County District Court, 165 th Judicial District (the Litigation ). 7. On March 18, 2012, TaxMasters and TMIRS filed their bankruptcy petitions. This Court entered an order jointly administering the cases of TaxMasters and TMIRS. On April 12, 2012, the TM Group filed in the state district court an unopposed motion to stay the Litigation. The state court entered an order staying the case. On April 17, 2010, TaxMasters filed an application to employ Wauson Probus as special counsel for the Litigation. On May 9, 2010, TaxMasters bankruptcy was converted to a case under Chapter 7. The Chapter 7 Trustee of the jointly administered debtors, W. Steve Smith, was working towards seeking this Court s approval of employment of Wauson Probus as special counsel, but recently decided that 3

4 Case Document 321 Filed in TXSB on 01/09/13 Page 4 of 12 potential conflicts of interest between Cox and the Chapter 7 Estates precluded him from engaging Wauson Probus. The Chapter 7 Trustee is currently discussing engagement with three different attorneys as special counsel and Wauson Probus is assisting the potential special counsel with information with its file in order to effect a smooth transition of counsel for the Estates in the Litigation. 8. At a hearing with respect to other litigation (Cox v. CNA Financial Corporation, et al, Cause No , in the Harris County District Court, 334 th Judicial District, on remand from Adv. Pro. No ) involving possible claims by the Estates with Cox against TaxMasters general liability insurance carrier, this Court raised the concern that moving forward with litigation involving the Debtors insurance policies and carriers could constitute a violation of the automatic stay. 1 Although Cox believes that his claims against Liberty do not constitute claims against property of the estate, out of an abundance of caution Cox seeks relief from the automatic stay so that he can proceed in the Litigation and pursue the Director & Officer insurance policy proceeds. II. Relief Requested 9. Cox requests that the Court lift the automatic stay under 11 U.S.C. 362(a) so that he can safely pursue his claims against Liberty and the Agents in the Litigation and pursue the policy proceeds. 1 Cox has filed a motion for relief from the automatic stay with respect to the litigation against CNA separately raising the arguments regarding that general liability policy, which are decidedly different from the arguments related to the D&O policy in the litigation against Liberty. 4

5 Case Document 321 Filed in TXSB on 01/09/13 Page 5 of 12 III. Reasons Why the Relief Should be Granted 10. The automatic stay under 11 U.S.C. 362(a) accompanies the filing of a petition in bankruptcy and operates to prevent any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate. 11 U.S.C. 362(a)(3). Cox s extra contractual claims against the insurer and all of his claims against the Agents are certainly not property of the estate and are not stayed. Nevertheless, Cox recognizes that the Estates may argue that continuing his contractual claims against the insurer and pursuing the policy proceeds is in violation of the automatic stay. The Trustee has already indicated that he will be pursuing the Estates claims against the insurer and the Agents, so there is no question that the case will be proceedings in state court. There will be no prejudice to the Estates to allow Cox to continue with this Litigation along with the Trustee. Thus, there is cause to lift the automatic stay, to the extent that it applies, for Cox to continue in the Litigation and pursue the policy proceeds. 11. With respect to the contractual insurance claims, Cox does not seek to obtain possession of property of the estate or to exercise control over property of the estate. His claims are for insurance coverage for his own insurable interest under the Policy that he has become obligated to pay individually. Those claims are separate and apart from the Estate s claims as an insured organization under the Policy to amounts that the Estate is obligated to reimburse to Cox under some indemnification agreement. Property of the estate, defined in 11 U.S.C. 541(a), includes all legal or equitable interests of the debtor in property as of the commencement of the case. Even though a debtor owns the policy, the inquiry as to whether the policy s proceeds constitute property of the estate does not end with ownership of the policy. The question is not who owns the policies, but who owns the liability proceeds. Houston v. Edgeworth, 993 F.2d 51, 55 (5th Cir. 1993). The Fifth Circuit has held that the proceeds of a directors and officers liability insurance policy are not part of a corporation s bankruptcy estate even where the corporation purchased and owned the 5

6 Case Document 321 Filed in TXSB on 01/09/13 Page 6 of 12 policy. In re Louisiana World Exposition, Inc., 832 F.2d 1391, 1399 (5th Cir. 1987). The insurance policy at issue in the Litigation is precisely the type of policy that was at issue before the Fifth Circuit in World Exposition. 12. Because Cox is not seeking to take any action against property of the estate, and because the Trustee will be pursuing his claim alongside Cox in the Litigation, there is no prejudice or cost to the Estates of allowing Cox to pursue his claims. To the extent that the Trustee believes that some portion of the policy proceeds that Cox is seeking or obtains an award for in the future are actually property of the estate, the Trustee can bring an adversary proceeding at any time to have the proceeds determined. There is cause to lift the automatic stay to allow Cox to proceed. 13. Movants counsel has conferred with counsel for the Chapter 7 Trustee. The Chapter 7 Trustee responded that he opposes any determination of property of the estate. WHEREFORE, PREMISES CONSIDERED, Movant, PATRICK R. COX, moves the Court to lift the automatic stay under section 362(a) so that he may continue to pursue and enforce any and all of his claims in the Litigation and pursue policy proceeds. Respectfully submitted, WAUSON PROBUS By: /s/ Matthew B. Probus Matthew B. Probus TBA# One Sugar Creek Center Blvd. Suite 880 Sugar Land, Texas (281) (281) (Facsimile) ATTORNEYS FOR MOVANT, PATRICK R. COX 6

7 Case Document 321 Filed in TXSB on 01/09/13 Page 7 of 12 CERTIFICATE OF CONFERENCE The undersigned hereby certifies that he has conferred with Heather Potts, counsel for the Chapter 7 Trustee, and she opposes the relief requested in the motion. /s/ Matthew B. Probus Matthew B. Probus CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing has been forwarded to the following parties ECF/PACER system and United States first class regular mail, postage prepaid (and/or via electronic mail to all those entities on the attached Service List with an address) on this the 9th day of January 2013: Debtor: TaxMasters, Inc. 900 Town & Country Lane, Suite 400 Houston, TX Chapter 7 Trustee: W. Steve Smith McFall, Breitbeil & Smith, P.C Lamar Street, Suite 1250 Houston, Texas Chapter 7 Trustee s Counsel: Heather Potts McFall, Breitbeil & Smith, P.C Lamar Street, Suite 1250 Houston, Texas United States Trustee: United States Trustee Attn: Ellen Hickman 515 Rusk, Suite 3516 Houston, TX Securities & Exchange Commission 100 F St., NE Washington, DC Securities & Exchange Commission 801 Cherry St., Unit 18, Suite 1900 Fort Worth, TX

8 Case Document 321 Filed in TXSB on 01/09/13 Page 8 of 12 Parties with Interest in Property (Counsel for State Court Defendants): Byron C. Keeling Ruth B. Downes Keeling & Downes, P.C McGowen, Suite 220 Houston, Texas Rick Lee Oldenettel Jefferson Read Oldenettel & McCabe 510 Bering Drive, Suite 675 Houston, Texas Twenty Largest Unsecured Creditors: Turner/CNN Attn: Louise Sams One CNN Center Atlanta, GA Blank Rome One Logan Square 130 N. 18th St. Philadelphia, PA Maxximedia 202 Travis Houston, TX Fox News Channel Media Sales 1211 Ave. Of The Americas, 22nd Floor New York, NY AMEX P. O. Box El Paso, TX Westwood One Attn: Hiram Lazar San Vincente Blvd., Suite 350 Los Angeles, CA History Channel Attn: Ms. Nancy Alpert 235 East 45th St. New York, NY

9 Case Document 321 Filed in TXSB on 01/09/13 Page 9 of 12 DAP c/o Briarhollow Realty Group 2000 S. Dairy Ashford, Ste. 140 Houston, TX Locke Lord Bissell & Liddell 600 Travis, Suite 2800 Houston, TX MSNBC Attn: Sharon Otterman 30 Rockefeller Plaza New York, NY Dell c/o DFS Customer Care Dept. P.O. Box Austin, TX Caufield & James 2851 Camino Del Rio South, Suite 410 San Diego, CA Malone & Bailey Richmond Ave., Suite 800 Houston, TX Yahoo 3333 West Empire Ave. Burbank, CA The Weather Channel 300 Interstate North Parkway Atlanta, GA Rottaris, John 465 Main St., Suite 600 Buffalo, NY Discovery Channel Attn: Bruce Campbell 1 Discovery Place Silver Spring, MD RRBB 265 Davidson Ave, Suite 210 Somerset, NJ

10 Case Document 321 Filed in TXSB on 01/09/13 Page 10 of 12 ESPN Advertising/Communications 77 W. 66th St. New York, NY Office of The Attorney General P.O. Box Austin, TX Office of MN Attorney General 1400 Bremer Tower 445 Minnesota St. St. Paul, MN Parties Requesting Notice: Robert J. Rosenberg 53rd at Third 885 Third Avenue New York, NY David Augustus 4635 SW Freeway, Suite 900 Houston, TX Merchant Services, Inc., d/b/a EVO c/o Erin Jones Mark Siurek The State Bank Of Texas c/o William A. (Trey) Wood III c/o Jason G. Cohen Ms. Deena Wissore P.O. Box 2151 Running Springs, CA Securities & Exchange Commission c/o Jolene M. Wise Patrick R. Cox c/o John Wesley Wauson 10

11 Case Document 321 Filed in TXSB on 01/09/13 Page 11 of 12 Harris County c/o John Dillman Jeffrey A. Marks Vorys, Sater, Seymour & Pease 302 E. Fourth St., Suite 3500 Cincinnati, OH Merchant Services, Inc. c/o Timothy Norton 53 Exchange St. P.O. Box 597 Portland, Maine Terry L. Abram c/o Howard B. Cohen 465 Main St., Suite 600 Buffalo, NY Sharon E. Marshall 5837 Martel Ave. Dallas, TX Otis Lee Harris, Sr. c/o Rhett Buck 3730 Kirby Dr., Suite 1200 Houston, TX Jim R. Smith Interests c/o Karen Murray 1400 Post Oak Blvd., Suite 640 Houston, TX Alan M. Serna c/o Sidney J. Diamond 3800 N. Mesa, Suite B-3 El Paso, TX Patrick Cox 247 Hedwig Rd. Houston, TX Texas Comptroller c/o Jason Starks, Asst. AG Bankruptcy & Collections P.O. Box Austin, TX

12 Case Document 321 Filed in TXSB on 01/09/13 Page 12 of 12 Leonard Simon W. Kyle Vaughn 2777 Allen Parkway, Suite 800 Houston, TX Western Equipment Finance, Inc. c/o Jon R. Brakke 218 NP Avenue P.O. Box 1389 Fargo, ND /s/ Matthew B. Probus Matthew B. Probus 12

13 Case Document Filed in TXSB on 01/09/13 Page 1 of 2 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: TAXMASTERS, INC. CASE NO H2-7 TMIRS ENTERPRISES, LTD. CASE NO H2-7 (Jointly Administered Under Debtors ) PATRICK R. COX, Movant, VS. TAXMASTERS, INC. TMIRS ENTERPRISES, LTD. Respondent. ORDER [Ref. Docket No. ] CAME ON THIS DAY, the Amended Motion of Patrick R. Cox for Relief from Automatic Stay to Continue Liberty Insurance Litigation and Pursue Director & Officer Policy Proceeds. The Court finds that proper notice was given under Fed. R. Bank. P and BLR and After presentation of evidence and argument, the Court finds that there is cause to lift the automatic stay and it is therefore: ORDERED, that the automatic stay imposed by 11 U.S.C. 362(a) is lifted to allow Patrick R. Cox to proceed with his claims in the lawsuit styled Patrick Cox, TaxMasters, Inc., TMIRS Enterprises, Ltd., and TM GP Services, LLC vs. Liberty Insurance Underwriters, Inc., Houstoun, Woodard, Eason, Gentle, Tomforde And Anderson, Inc. d/b/a Insurance Alliance And James W. Tomforde, Cause No , in the Harris County District Court, 165 th Judicial District and to pursue insurance policy proceeds under the director & officer policy issued by Liberty

14 Case Document Filed in TXSB on 01/09/13 Page 2 of 2 Insurance Underwriters, Inc. SIGNED, this day of, JUDGE DAVID R. JONES U.S. BANKRUPTCY JUDGE 2