Burton Kahn v. Helvetia Asset Recovery, Inc. ( 2015 )

Fourth Court of Appeals
San Antonio, Texas
OPINION
No. 04-14-00569-CV
Burton KAHN,
Appellant
v.
HELVETIA ASSET RECOVERY, INC.,
Appellee
From the 37th Judicial District Court, Bexar County, Texas
Trial Court No. 2013-CI-18355
Honorable Michael E. Mery, Judge Presiding
Opinion by: Marialyn Barnard, Justice
Sitting: Marialyn Barnard, Justice
Patricia O. Alvarez, Justice
Jason Pulliam, Justice
Delivered and Filed: August 19, 2015
DISMISSED FOR WANT OF JURISDICTION
A jury found appellant Burton Kahn (“Kahn”) breached his fiduciary duty to appellee
Helvetia Asset Recovery, Inc. (“Helvetia”), used another company to perpetrate a fraud for his
benefit, retained money belonging to Helvetia, slandered Helvetia’s title to certain real property,
and filed fraudulent court records against real property owned by Helvetia. The jury awarded
sizeable actual damages as well as punitive damages and attorney’s fees. The trial court rendered
a judgment based on the jury’s verdict and granted Helvetia a permanent injunction to preclude
Kahn from interfering in Helvetia’s business. On appeal, Kahn raises numerous issues challenging
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the judgment. However, because Kahn lacks standing to prosecute this appeal, we have no
jurisdiction and dismiss the appeal.
BACKGROUND
Given our disposition of the appeal, a detailed rendition of the facts is unnecessary.
Accordingly, we provide only a brief factual and procedural statement for context.
Helvetia is a company that owns and sells real estate lots to builders in San Antonio. Kahn
was the president, secretary, and sole director of Helvetia from October 2009 until he was
terminated in August 2013. After he was terminated, Kahn began to take actions detrimental to
Helvetia, including transferring by deed numerous properties owned by Helvetia to a company
created by Kahn after his termination – Paradiv Corporation. Upon discovering what Kahn was
doing, Helvetia filed suit to set aside the deeds. The trial court ordered the deeds set aside and
thereafter, on November 4, 2013, Helvetia filed a suit against Kahn alleging numerous causes of
action based on Kahn’s activities after his termination. 1
1
The day after Helvetia filed suit, Kahn also filed suit, seeking to set aside several deeds from Helvetia to certain
buyers (“the Lien Case”). Kahn claimed the deeds from Helvetia to the buyers were fraudulent. Initially, the trial
court granted the relief sought by Kahn, rendering an ex parte temporary restraining order. Kahn filed that order in
the deed records, thereby clouding Helvetia’s title. The trial court granted the ex parte order based on documents filed
by Kahn, who claimed to be acting as president and authorized representative of Helvetia. Kahn failed to disclose,
however, that in the prior litigation filed by Helvetia in October 2013, another trial court had declared as fraudulent
the deeds Kahn transferred to Paradiv, determining Kahn had no authority to act on behalf of Helvetia. After Helvetia
discovered what Kahn had done, Helvetia filed a motion to set aside the trial court’s order, advising the trial court of
the prior ruling and seeking injunctive relief to preclude Kahn from interfering with Helvetia’s business or holding
himself out as an authorized representative. After an evidentiary hearing in December 2013, the trial court overturned
its prior order, finding Kahn made false claims in order to secure the prior order. The trial court enjoined Kahn from
acting on behalf of Helvetia in the future.
In addition to seeking to set aside the trial court’s order in the Lien Case, Helvetia sought sanctions against Kahn.
After another evidentiary hearing, the trial court imposed sanctions against Kahn. The trial court found, among other
things, that Kahn did not own Helvetia or its stock. Rather, the trial court determined the sole owner of Helvetia is
Puerto Verde, Ltd. (“Puerto Verde”), which is owned by Robert Ripley. Kahn appealed the sanctions order to this
court. On July 22, 2015, this court dismissed Kahn’s appeal for want of prosecution. See In Re A Purported Lien or
Claim Against Helvetia Asset Recovery, Inc., No. 04-14-00357-CV, 2015 WL 4479600, at *1–*2 (Tex. App.—San
Antonio July 22, 2015, no pet. h.) (mem. op.).
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On April 4, 2014, while Helvetia’s suit was pending, but prior to trial, Kahn filed a
voluntary petition for bankruptcy, which immediately stayed the trial court proceedings. However,
the bankruptcy stay was lifted by order of the bankruptcy court on April 28, 2014. Thereafter, the
case proceeded to trial.
Ultimately, the jury found Kahn breached his fiduciary duty to Helvetia, misappropriated
funds from Helvetia, used Paradiv to perpetrate a fraud for his benefit, held money belonging to
Helvetia, slandered Helvetia’s title to certain real property, and filed a fraudulent court record or
document against real property owned by Helvetia. The jury awarded damages for each claim.
The jury also determined Kahn’s breach of fiduciary duty and perpetration of fraud was committed
“either maliciously, fraudulently, or through gross neglect,” resulting in an award of punitive
damages in favor of Helvetia in the amount of $900,000.00. Finally, the jury awarded trial and
appellate attorney’s fees. The trial court rendered judgment based on the jury’s verdict and
rendered a permanent injunction, precluding Kahn from interfering in Helvetia’s business. Kahn
perfected an appeal from the judgment.
ANALYSIS
Kahn raises numerous issues challenging the trial court’s judgment. In response, Helvetia
contends, among other things, that this court must dismiss Kahn’s appeal because we lack
jurisdiction. More specifically, Helvetia contends that as a result of his decision to file a voluntary
bankruptcy petition, Kahn has no standing to pursue this appeal because his appellate rights in this
appeal vested with the bankruptcy trustee, who sold those rights to Helvetia in a sale approved by
the bankruptcy court. Thus, before we can review any issues raised by Kahn, we must first
determine whether he has standing to pursue this appeal.
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Standard of Review & Relevant Law — Standing
Standing is a component of subject matter jurisdiction that we review de novo. Sneed v.
Webre, No. 12-0045, 2015 WL 3451653, at *7 (Tex. May 29, 2015) (citing Tex. Dep’t of Transp.
v. City of Sunset Valley, 146 S.W.3d 637, 646 (Tex. 2004); Tex. Ass’n of Bus. v. Tex. Air Control
Bd., 852 S.W.2d 440, 444–45 (Tex. 1993)). Standing is a constitutional prerequisite to maintaining
suit. Sneed, 2015 WL 3451653, at *7 (quoting Williams v. Lara, 52 S.W.3d 171, 178 (Tex. 2001)).
In the absence of standing, a court lacks subject matter jurisdiction to hear the case. Austin Nursing
Ctr, Inc. v. Lovato, 171 S.W.3d 845, 849 (Tex. 2005); Wolff v. Deputy Constables Ass’n, 441
S.W.3d 362, 365 (Tex. App.—San Antonio 2013, no pet.).
As recently reiterated by the supreme court in Sneed, “[t]he issue of standing focuses on
whether a party has a sufficient relationship with the lawsuit so as to have a ‘justiciable interest’
in its outcome.” 2015 WL 3451653, at *7 (quoting Lovato, 171 S.W.3d at 848). In Texas, standing
does not exists unless (a) there is a real controversy between the parties, which (b) will be actually
determined by the judicial declaration sought. Id. (quoting Tex. Ass’n of Bus., 852 S.W.2d at 446)
(quoting Bd. of Water Eng’rs v. City of San Antonio, 155 Tex. 111, 283 S.W.2d 722, 724 (Tex.
1955)). A determination of standing focuses on whether a party has a “justiciable interest” in the
outcome of the lawsuit, such as when it is personally aggrieved or has an enforceable right or
interest. Lovato, 171 S.W.3d at 849 (citing Nootsie, Ltd. v. Williamson Cnty. Appraisal Dist., 925
S.W.2d 659, 661 (Tex. 1996)); Wolff, 441 S.W.3d at 365.
Application — Standing
In this case, Helvetia contends Kahn lacks standing to prosecute this appeal as a result of
his voluntary bankruptcy filing. According to Helvetia, Kahn’s right to pursue this appeal vested
in the bankruptcy trustee, who sold those rights to Helvetia — an action approved by the
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bankruptcy court. Accordingly, Helvetia contends Kahn no longer has any right or interest in this
appeal, and therefore, no standing to pursue it.
Filing a voluntary petition for bankruptcy creates a bankruptcy estate, which is comprised
of “all legal or equitable interests of the debtor in property as of the commencement of the case.”
11 U.S.C. § 541(a); see Douglas v. Delp, 987 S.W.2d 879, 882 (Tex. 1999); Rodriguez v. City of
San Antonio, 113 S.W.3d 378, 380 (Tex. App.—San Antonio 2003, pet. denied). This includes
causes of action or legal claims that belonged to the debtor before the bankruptcy petition was
filed. Douglas, 987 S.W.2d at 882. The bankruptcy trustee, as the representative of the bankruptcy
estate, has exclusive standing to assert legal claims that become part of the estate. Douglas, 987
S.W.2d at 882; Rodriguez, 113 S.W.3d at 381. In other words, by voluntarily filing a bankruptcy
petition, the bankruptcy debtor relinquishes to the trustee any standing to prosecute or dispose of
the claims included in the estate. Douglas, 987 S.W.2d at 882; Rodriguez, 113 S.W.3d at 381.
It is not simply causes of action or claims that become part of the bankruptcy estate. The
Fifth Circuit, applying Texas law, has specifically held that defensive appellate rights are property
under Texas law and become part of the bankruptcy estate. In re Croft, 737 F.3d 372, 376–77 (5th
Cir. 2013) (per curiam). As the court explained, “[w]hile it is true that a judgment against the
debtor is an obligation and has no value to the estate—and would therefore not be included in a
list of property—the right to appeal that judgment certainly has a quantifiable value to the debtor,
and therefore constitutes property under Texas law.” Id. (emphasis in original). Thus, property
rights in a legal cause of action include not only the cause of action itself, but any appellate rights
related thereto. Id. at 375.
We find the Fifth Circuit’s decision in Croft instructive. In Croft, Bradley Croft was
involved in two lawsuits that ultimately resulted in sanctions against him and an award of
attorney’s fees in favor of his opponent. Id. at 374. Croft appealed those decisions to this court.
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Id. Thereafter, Croft filed a voluntary bankruptcy petition. Id. As required, we abated Croft’s
appeals because of the automatic bankruptcy stay. Id.; see TEX. R. APP. P. 8.2 (stating bankruptcy
suspends appeal). In response, Croft filed a motion in the bankruptcy court seeking to lift the
automatic stay and allow the appeals to continue. Id. Croft’s motion was opposed under the theory
that Croft’s right to appeal was part of the bankruptcy estate and only the trustee could prosecute
the appeals. Id.
The Fifth Circuit, applying Texas property law, held Croft’s defensive appellate rights,
allowing him to appeal the sanctions order and award of attorney’s fees, became part of the
bankruptcy estate when he filed the voluntary bankruptcy petition. Id. at 378. Accordingly, Croft
no longer had standing to pursue the appeals because his defensive rights in the appeals were
property of the bankruptcy estate and thus, the bankruptcy trustee had the right to sell the appellate
rights pursuant to a bankruptcy court order of sale. Id.
Here, as described above, Kahn was involved in a lawsuit that ultimately resulted in the
award of monetary damages against him, including punitive damages and attorney’s fees. Kahn
voluntarily filed a petition for bankruptcy, creating a bankruptcy estate. Thus, Kahn’s legal claims,
as well as his defensive appellate rights in this appeal, i.e., his right to appeal the judgment in this
case, was a valuable property right that became part of the bankruptcy estate. See id. The
bankruptcy court recognized that this appeal was part of the bankruptcy estate as demonstrated in
its order entitled “Order Authorizing Sale of All Non-Exempt Assets, Claims and Causes of
Actions.” In that order, the bankruptcy court specifically listed this appeal — or the rights to
pursue it — among the assets the trustee was authorized to sell. The relevant portion of the order
states:
ORDERED that movant, Johnny W. Thomas, Trustee, be and is hereby authorized
and directed to sell all property owned or claimed to be owned by the Debtor to
include all the Debtor’s non-exempt assets, claims and causes of action now
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existing or hereafter arising, all rights, titles and interests in any business or
business enterprise that currently exist or has ever existed to Helvetia Asset
Recovery, Inc. or its assigns, for $10,000.00. This property includes, but is not
limited to, the following:
* * *
All claims or causes of action held by or for the debtor, including but not limited to
the following:
* * *
Burton Kahn v. Helvetia Asset Recovery, Inc., No. 04-14-00569-CV, Fourth Court
of Appeals, San Antonio, Texas.
The trustee, in order to maximize the estate’s value, sold the defensive appellate rights to
Helvetia, a sale that was approved by the bankruptcy court. Accordingly, we hold Kahn has no
“justiciable interest” in this appeal as he has no enforceable rights therein. See Sneed, 2015 WL
3451653, at *7; Lovato, 171 S.W.3d at 849; Wolff, 441 S.W.3d at 365. It therefore follows, and
we hold, Kahn has no standing to pursue this appeal as that right has been sold as part of the estate
by the trustee, who had exclusive standing to prosecute or dispose of the property of the bankruptcy
estate. See Croft, 737 F.3d at 376–77; Douglas, 987 S.W.2d at 882; Rodriguez, 113 S.W.3d at
381.
In his reply brief, Kahn argues his defensive appellate rights in this appeal are not part of
the bankruptcy estate because the trial court’s judgment was rendered after the commencement of
the bankruptcy proceeding. Thus, according to Kahn, the defensive appellate rights created by the
judgment were not part of the bankruptcy estate. We disagree. Although this case is
distinguishable from Croft because in Croft, the defensive appellate rights were created prior to
the filing of bankruptcy, the bankruptcy code specifically states that any interest in property that
the estate acquired after commencement of the case becomes property of the bankruptcy estate.
11 U.S.C. § 541(a)(7) (2015); see In re C-Power Prods., Inc., 230 B.R. 800, 803 (Bankr. N.D.
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Tex. 1998) (holding that not only pre-bankruptcy petition malpractice claim became property of
bankruptcy estate, but post-bankruptcy petition malpractice claim likewise became property of
bankruptcy estate.). Accordingly, we hold the fact that the trial court’s judgment was not rendered
until after the bankruptcy petition was filed is irrelevant. Kahn’s defensive appellate rights in the
appeal became a part of the bankruptcy estate whether they existed before or after the bankruptcy
petition was filed by Kahn. See 11 U.S.C. § 541(a)(7); C-Power Prods., 230 B.R. at 803.
CONCLUSION
Based on the foregoing, we hold Kahn had no justiciable interest in the right to pursue this
appeal. The defensive rights to this appeal became part of Kahn’s bankruptcy estate, and the
trustee was authorized to sell the rights pursuant to the bankruptcy court’s order. Accordingly, we
hold Kahn has no standing. Given Kahn’s lack of standing, a component of subject matter
jurisdiction, we hold we have no jurisdiction over this appeal. Accordingly, we dismiss the appeal
for want of jurisdiction.
Marialyn Barnard, Justice
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