Trinh v. Intertex Inc

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 99-20303
Summary Calendar
_____________________
IN THE MATTER OF: DZOANH NGUYEN TRINH,
Debtor.
DZOANH NGUYEN TRINH,
Appellant,
versus
INTERTEX, INC.; GLEN CREEK, Constable Precinct 5,
Appellees.
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
USDC No. H-97-CV-375
_________________________________________________________________
February 25, 2000
Before JOLLY, JONES, and BENAVIDES, Circuit Judges.
PER CURIAM:*
Dzoanh Nguyen Trinh appeals the district court’s denial of his
adversary proceeding under 11 U.S.C. § 544 and the award of
attorney’s fees to Intertex, Inc. For the reasons stated herein,
we affirm the district court.
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
I
In 1978, deed restrictions were recorded with respect to the
Mission Bend Subdivision in Houston, Texas, that provided for an
assessment lien on real property and for judicial foreclosure of
such a lien. In 1992, Trinh purchased property in the subdivision
subject to those restrictions. He later neglected to pay his
association fees, and by 1995, he owed over $1,200 to the Mission
Bend Civic Association. So the association took him to court.
In June of 1995, the state district court ruled in favor of
the association, and in September, the association recorded an
abstract of the judgment. On October 3, 1995, Intertex bought the
property for $26,536.20 at a constable’s sale. On October 11,
however, before the constable had signed or delivered the deed,
Trinh filed for Chapter 13 bankruptcy. Trinh then filed an adverse
proceeding under 11 U.S.C. § 544 to avoid the transfer of the
property to Intertex. Intertex filed a counterclaim under Texas’
Declaratory Judgment Act, asking the bankruptcy court to declare
the constable’s sale valid and to award Intertex attorney’s fees
from the proceeds of the foreclosure sale.
In March of 1996, the bankruptcy court dismissed Trinh’s
Chapter 13 proceeding. In May, the bankruptcy court heard the
adversary proceeding concerning the disposition of the property.
Trinh did not personally appear at the hearing, and his counsel did
not present any evidence. His counsel did, however, obtain a
stipulation from Intertex that the constable’s deed had not been
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recorded before Trinh’s bankruptcy filing. Intertex then presented
evidence establishing:
1. The 1978 restrictions on the property;
2. the record abstract of the judgment;
3. the recorded deed to Trinh;
4. the execution, order of sale, and final judgment from the
state district court; and
5. Intertex’s purchase of the property.
In its June 13 final judgment, the bankruptcy court ordered the
automatic stay on disposition of the property terminated under 11
U.S.C. § 362. The bankruptcy court also ordered that $8,684 in
Intertex’s attorney’s fees be paid from the proceeds of the
foreclosure sale, along with $3,000 if Trinh unsuccessfully
appealed in district court, and an additional $5,000 if he
unsuccessfully appealed in the Fifth Circuit.
Trinh did appeal to the district court unsuccessfully, which
affirmed the bankruptcy court in all respects. Specifically, the
district court held that Trinh could not avoid the property
transfer under § 544 of the bankruptcy code, and that even if he
could, the question was moot because of the bankruptcy court’s
dismissal of the bankruptcy proceeding. Moreover, the district
court concluded that the attorney’s fees award was within the
court’s discretion. Finally, the district court allowed payment of
the fees from proceeds of the foreclosure sale because Trinh had
failed to challenge that ruling before the bankruptcy court,
3
because Trinh did not have Chapter 13 protection, and because he
had failed to establish that the property was his homestead. Trinh
appealed.
II
We begin with an analysis of Trinh’s appeal of the denial of
relief under 11 U.S.C. § 544. That provision normally allows a
trustee in a bankruptcy proceeding to avoid the transfer of real
property that is not perfected and would not be enforceable against
a hypothetical bona fide purchaser at the time the bankruptcy
petition is filed. In re Elam, 194 B.R. 412, 416 (Bankr. E.D. Tex.
1996). It reads:
(a) The trustee shall have, as of the commencement of the
case, and without regard to any knowledge of the trustee
or of any creditor, the rights and powers of, or may
avoid any transfer of property of the debtor or any
obligation incurred by the debtor that is voidable by --
(3) a bona fide purchaser of real property, other than
fixtures, from the debtor, against whom applicable law
permits such transfer to be perfected, that obtains the
status of a bona fide purchaser and had perfected such
transfer at the time of the commencement of the case,
whether or not such a purchaser exists.
11 U.S.C. § 544 (emphasis added). This provision allows the
trustee to protect the potential assets of the bankrupt estate.
Zetta v. Babin, 103 F.3d 1195, 1200 (5th Cir. 1997). In some
limited situations, the debtor may stand in the shoes of an
inactive trustee to protect the estate. Trinh contends, and
Intertex apparently does not dispute, that he stands in the shoes
of the trustee pursuant to 11 U.S.C. § 522(h). That provision
allows the debtor to act as a trustee for purposes of § 544 in the
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following situation: when the property was his homestead; the
transfer was involuntary; and a Chapter 13 trustee did not attempt
to avoid the transfer. See Hamilton v. Realty Portfolio, Inc., 125
F.3d 292, 298 (5th Cir. 1997).
Assuming that Trinh may act as a trustee for purposes of
§ 544(a)(3), he may only avoid the transfer to Intertex if a
hypothetical purchaser could have obtained the status of a bona
fide purchaser by buying the property from Trinh at the time of the
bankruptcy filing. Texas state law would determine whether this
purchaser would be a bona fide purchaser. Hamilton v. Realty
Portfolio, Inc., 125 F.3d at 298. Under Texas law, a bona fide
purchaser is one who acquires apparent legal title to property in
good faith for valuable consideration without notice of an
infirmity in the title. Williams v. Jennings, 755 S.W.2d 874, 881
(Tex. App. -- Houston, 1988). The key question here is whether
there would have been notice of infirmity in the title, that is,
whether a hypothetical purchaser would have known that Intertex had
bought Trinh’s property.
As we explained in Hamilton, to determine what notice a bona
fide purchaser of the property would have, certain knowledge
concerning title to the property is attributed to the purchaser
under the twin doctrines of constructive notice and inquiry notice.
Hamilton, 125 F.3d at 299-300. First, under the doctrine of
constructive notice, the purchaser is assumed to have notice of any
properly recorded instrument--here, the lien of the Mission Bend
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homeowners’ association. Id. at 299. The doctrine of inquiry
notice, moreover, presumes that the purchaser also has notice of
facts that would be discovered by a reasonably prudent inquiry--
here, for example, whether a reasonably prudent inquiry would have
revealed that Intertex had purchased Trinh’s property. Id.
The facts in Hamilton are similar to those in the case before
us. A foreclosure sale was held for property that was subject to
a properly recorded lien.1 After the sale, but before the purchase
was recorded, the former owner filed for Chapter 13 bankruptcy and
tried to void the transfer under § 544.
Because the facts in that case are so similar, the Hamilton
panel’s legal analysis is instructive. In determining whether a
hypothetical purchaser would have qualified as a bona fide
purchaser under Texas law, the panel attributed knowledge of the
lien to the purchaser under the constructive notice doctrine. Id.
at 299. Once the hypothetical purchaser had notice of the lien,
the duty was triggered to conduct a reasonable inquiry into the
status of that lien under the doctrine of inquiry. Id. at 300.
But the Hamilton panel explained that what facts reasonably would
be gathered was a factual question. Id. at 301. So the panel
remanded for a determination of whether a reasonable inquiry into
1
In Hamilton, the lien in question was a “deed of trust.”
Generally, a “deed of trust” is a mortgage with a power to sell on
default. Successors to the Interest of Rea-Glass, Inc. v. Allied
Corp., 704 S.W.2d 387, 389 (Tex.App.--Houston 1985). That is very
much like the lien in question in the case before us.
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the status of the lien would have led to knowledge of the
foreclosure sale. Id. at 302.
Using this same analytical framework as used by the Hamilton
panel would seem to suggest that a remand for the same type of
factual findings would be appropriate to determine whether
reasonable inquiry here would have led to knowledge that Intertex
had purchased the property.
But we need not prolong this case in this manner because the
issue is moot. Under 11 U.S.C. § 349(b), “a dismissal of a
[bankruptcy] case. . . . reinstates . . . any transfer avoided
under section . . . 544.” Because the underlying Chapter 13
proceeding was dismissed and Trinh has not appealed that dismissal
in this court, the transfer of the property to Intertex is
unavoidable. Even if, at one time, Trinh could have avoided the
transfer, the transfer would necessarily have been reinstated when
the court dismissed his Bankruptcy case. We therefore affirm the
denial of § 544 avoidance.
III
A
We turn now to the attorney’s fees the bankruptcy court
required Trinh to pay under § 37.009 of the Texas Civil Practice
and Remedies Code. Trinh argues that fees may only be awarded in
bankruptcy proceedings pursuant to 11 U.S.C. § 506, and cites three
cases in support: United States v. Ron Pair Enterprises, Inc., 489
U.S. 235, 109 S. Ct. 1026, 103 L. Ed. 2d 290 (1989); In re Gledhill,
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164 F.3d 1338 (10th Cir. 1999); and Brentwood Outpatient, Ltd. v.
Bondholder Committee, 43 F.3d 256 (6th Cir. 1994). He then
explains why fees are not available under § 506(b). But these
authorities do not limit availability of attorney’s fees to § 506;
that is, Trinh cites no authority for his proposition that
attorney’s fees may only be awarded under § 506.2 Thus, Trinh’s
discussion of § 506 is irrelevant to the attorney’s fee question
before us because it is not the provision Intertex relied on in
seeking those fees. He seeks fees under § 37.009.
Trinh may have waived his best argument for denying attorney’s
fees by failing to raise it. We have previously held that § 37.009
is a procedural rule rather than a substantive one, so that
provision is not available in federal court. See Utica Lloyd’s of
Texas v. Mitchell, 138 F.3d 208, 210 (5th Cir. 1998)(§ 37.009 not
available in case in federal court under diversity jurisdiction).
But, as just mentioned, Trinh failed to suggest this argument in
his appeal to the district court or in his brief to this court.
We do not hold, therefore, that fees under § 37.009 are
available in federal bankruptcy proceedings, only that Trinh has
2
It may be that Trinh’s contention is correct with respect to
provisions of the Bankruptcy Code, but we are reluctant to adopt
that position without supporting legal authority. In addition, the
situation is complicated by the fact that Intertex sought
attorney’s fees as part of its declaratory judgment claim based on
state law, not as part of the Bankruptcy Code. Thus, adopting
Trinh’s conclusion would also require us to rule on the
availability of fees when a state statutory provision separate from
the Code is asserted during bankruptcy proceedings. Trinh does not
even mention this complex issue.
8
failed to raise the unavailability of such fees in bankruptcy
proceedings. The order that Trinh pay Intertex’s attorney’s fees
is therefore affirmed.
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B
The final question before us is whether the bankruptcy court
had the authority to order payment of attorney’s fees from proceeds
of the foreclosure sale. It is well established, however, that we
do not consider arguments not presented to the bankruptcy court.
Gilchrist v. Wescott, 891 F.2d 559, 561 (5th Cir. 1990). That is
the case here. Trinh failed to challenge the bankruptcy court’s
decision to order payment of the attorney’s fees from the
foreclosure proceeds in bankruptcy court. For that reason, we will
not consider this issue on appeal.
IV
For these reasons, the district court decision is
A F F I R M E D.
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