from the United States District Court and the United States
Bankruptcy Court for the Southern District of Texas
WIENER, CLEMENT, and HIGGINSON, Circuit Judges.
STEPHEN A. HIGGINSON, CIRCUIT JUDGE.
Cowin-the bankruptcy debtor-appeals from the findings and
conclusions of two bankruptcy court adversary proceedings. In
both proceedings the bankruptcy court found that Cowin was
involved in a scheme designed to deprive mortgage holders of
foreclosure sale proceeds. The bankruptcy courts determined
that the damages flowing from this scheme were
nondischargeable debts pursuant to 11 U.S.C. §§
523(a)(4) and 523(a)(6). Cowin appealed the rulings in both
proceedings, and we now affirm.
appeals center around a scheme designed to deprive mortgage
holders of excess foreclosure sale proceeds through the use
of tax-transfer liens authorized by the Texas Tax Code. The
basic structure of the scheme was as follows: A
purchaser/borrower bought a property subject to a first-lien
mortgage at a condominium association foreclosure sale.
Shortly after acquiring the property, the purchaser/borrower
entered into a tax-transfer loan agreement with one of two
Texas companies that Cowin controlled- Woodway Campton, Ltd.
("WCL") or Dampkring, LLC-for the purpose of paying
real property taxes assessed against the property. In
exchange for paying the taxes, the lender received a
tax-transfer lien against the property.
Texas law, after a foreclosure sale, tax-transfer liens take
priority, junior liens are extinguished, and any excess funds
are paid to the junior lienholders in seniority order.
See TEX. TAX. CODE § 32.06(b) & (j);
Saturn Capital Corp. v. City of Hous., 246 S.W.3d
242, 245 (Tex. App.-Hous. [14th Dist.] 2007, pet.
denied). The WCL and Dampkring deeds of trust, which Cowin
prepared, omitted language requiring the Trustee to
distribute "any amounts required by law to be paid
before payment to Grantor." By omitting this language,
the bankruptcy court found that Cowin intended to divert the
excess proceeds from the foreclosure sales away from the
preexisting mortgage holders and to entities controlled by a
after entering into the tax-transfer loan agreement, the
purchaser/borrower would default on the payment obligations
under the agreement, and Cowin would instruct the trustee of
the tax-transfer deed to foreclose on the property. From the
foreclosure sale proceeds, the trustee took a $1, 000 fee,
paid the private lenders' tax-transfer liens in full, and
delivered the excess proceeds to the purchaser/borrower.
issue in this appeal are four specific instances in which
this scheme was carried out. In the first instance, Cowin and
his co-conspirators deprived Countrywide Home Loans Inc. of
excess proceeds from the foreclosure sale of a property on
which Countrywide serviced a preexisting mortgage loan (the
"Countrywide Property"). The same scheme deprived
Bank of America, N.A. of excess proceeds from the foreclosure
sales of three properties on which Bank of America serviced
mortgages (the "BANA Properties").
America sued Cowin and the other scheme participants, seeking
to recover excess funds (and other damages) from the
foreclosure of the BANA Properties. On February 14, 2010,
while the Bank of America litigation was pending in the
Southern District of Texas, Cowin filed for Chapter 11
bankruptcy in that district's bankruptcy court. The
bankruptcy case was dismissed five weeks later.
filed a second bankruptcy case on May 19, 2010. Soon after,
on November 10, 2010, Countrywide, Deutsche Bank, and several
other banks (together, the "Countrywide
Plaintiffs") holding preexisting mortgages on properties
purchased by Cowin's co-conspirators brought adversary
proceedings, seeking a finding of nondischargeability. The
bankruptcy court consolidated the proceedings (the
"Countrywide Adversary Proceeding"). In January
2012, while the Countrywide Adversary Proceeding was pending,
the bankruptcy court dismissed Cowin's bankruptcy case
after finding that Cowin had "abused the [bankruptcy]
process by filing two Chapter 11 petitions within the last 2
years [without filing] a plan and disclosure statement."
At the parties' request, however, the bankruptcy court
retained the Countrywide Adversary Proceeding for final
Bank of America litigation was tried in January 2013. On the
fifth day of trial, the parties agreed to settle. Pursuant to
the Settlement Agreement, if Cowin paid Bank of America $500,
000 before September 1, 2013, the parties' agreed
judgment (the "BANA Agreed Judgment") would never
enter. If Cowin filed for bankruptcy before then, however,
Bank of America would "immediately be entitled to seek
relief from the automatic bankruptcy stay to enter the agreed
February 21, 2013, before the bankruptcy court issued
findings and conclusions in the Countrywide Adversary
Proceeding, Cowin filed for Chapter 7 bankruptcy. Cowin's
Chapter 7 case was assigned to the same bankruptcy judge
handling the Countrywide Adversary Proceeding. The bankruptcy
court lifted the automatic stay so the federal district court
could enter the BANA Agreed Judgment. The district court
entered the judgment on April 24, 2013.
April 25, 2013, the bankruptcy court issued a memorandum
opinion in the Countrywide Adversary Proceeding (the
"Countrywide Nondischargeability Opinion"),
concluding that Cowin was liable to the Countrywide
Plaintiffs for the aggregate amount of the excess proceeds,
and that his debts arising from the state-law violations were
nondischargeable. Before the bankruptcy court entered final
judgment, on May 16, 2013, Cowin filed a suggestion of
bankruptcy, formally notifying the court of his Chapter 7
filing. Days later, on May 29, 2013, the bankruptcy court
entered final judgment in the Countrywide Adversary
Proceeding (the "Countrywide Adversary Judgment"),
awarding $268, 477.78 in damages, attorneys' fees, costs,
and interest to Countrywide and Deutsche Bank. The bankruptcy
court emphasized ...