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In re Mack

United States District Court, E.D. Louisiana

March 29, 2018

IN THE MATTER OF THOMAS MACK AND MARY SUSAN MACK, DEBTORS

         SECTION "F"

          ORDER AND REASONS

          MARTIN L. C. FELDMAN UNITED STATES DISTRICT JUDGE

         Before the Court is an appeal from the United States Bankruptcy Court's order denying First Bank's motion to modify the automatic stay and to pursue a rule for judgment pro confesso and motion for accounting filed in state court. For the reasons that follow, the Court REMANDS the decision for reconsideration consistent with this Order and Reasons.

         Background

         When Thomas and Mary Mack filed for Chapter 11 bankruptcy in January 2017, an automatic stay prevented their mortgage holder, First Bank, from pursuing claims against an LLC in which Thomas Mack owned a majority interest. Despite First Bank's request, the Bankruptcy Court would not modify the stay. This appeal followed.

         Thomas and Mary Mack's home in Metairie, Louisiana was destroyed by flooding in 2015, prompting them to relocate to the Northshore. Shortly thereafter, the first mortgage holder foreclosed upon the Metairie home and successfully bid on the home at the sheriff sale. The second mortgage holder, First Bank, received no distribution on its second mortgage interest. Accordingly, First Bank sued the Macks to collect the mortgage deficiency. On September 20, 2012, the 24th Judicial District Court for the Parish of Jefferson entered a consent judgment requiring that Thomas Mack (among others) pay about $400, 000, plus reasonable future attorney fees and collection costs. In 2015, the Plaquemines Parish Sheriff seized and sold a vessel owned by the Macks pursuant to a writ of fieri facias, resulting in a judgment credit of $25, 000.

         Thomas Mack has a membership in two LLCs, Matrix Hospitality Group, L.L.C. and Matrix Hospitality Group - NOLA, LLC. Matrix Hospitality Group, [1] L.L.C., a hotel management company, is Mack's employer; Mack owns a 60% membership interest in it. Matrix's managing member is Ty Angeron. Mack is paid by Matrix in three ways: (1) a monthly salary as a 1099 employee; (2) a periodic disbursement of profits as a part-owner; and (3) a performance bonus paid in April by particular clients if Matrix is able to meet client-set goals.

         On September 2, 2016, a Louisiana state district court granted First Bank's motion for a charging order, and charged the membership interest of Thomas Mack in both LLCs with payment of the judgment, and named the LLCs as garnishees. Because the Sheriff was unable to locate the Matrix agent for service of process, it served Mack, on behalf of Matrix, on October 14, 2016. However, Matrix Hospitality Group, L.L.C. and Matrix Hospitality Group - NOLA, LLC failed to respond to the garnishment interrogatories, and failed to withhold any funds that would otherwise be due to Mack. Matrix Hospitality Group, L.L.C. paid Mack over $30, 000 after the garnishments and charging order were served. When the LLCs failed to provide their garnishment answers, First Bank filed a Rule for Judgment Pro Confesso against both garnishees, and filed a motion to compel them to account for all sums paid to Mack since service was effected on January 24, 2017. Three days later, Mack and his wife filed for Chapter 11 bankruptcy. By then, First Bank's judgment had increased to $789, 212.85.

         First Bank moved for relief from the automatic stay on January 31, 2017. Mack opposed the motion, and the Bankruptcy Court heard oral argument on the issue on April 6, 2017. Ruling from the bench, the bankruptcy judge denied First Bank's motion to modify the stay. First Bank appealed and filed its brief on June 19, 2017. Mack[2]filed his appellee brief on July 18, 2017. Matrix adopted all arguments made by Mack.

         I.

         A district court functions as an appellate court when reviewing a bankruptcy court's decision. In re Matter of Webb, 954 F.2d 1102 (5th Cir. 1992). The standard of review depends on whether a finding of fact or conclusion of law is being reviewed. When findings of fact are reviewed, the clearly erroneous standard applies. United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948). However, if the findings of fact are premised on an improper legal standard, then that standard is not protected by the clearly erroneous standard and it is reviewed de novo. Matter of Missionary Baptist Foundation of America, 818 F.2d 1135 (5th Cir. 1987). Jurisdiction is a legal determination that is reviewed de novo. See Matter of U.S. Brass Corp., 301 F.3d 296, 303 (5thCir. 2002).

         II.

         The issue on appeal is whether the Bankruptcy Court erred in denying First Bank's motion for relief from the automatic stay so it could proceed in its action against Matrix in state court. Ruling from the bench, the bankruptcy judge stated “I am going to deny the Motion to Modify the Automatic Stay. And my reasoning is that this is a relatively new Chapter 11. . . . The mover, First Bank and Trust, has the burden of proving its entitlement to a modification of the stay to allow it to go forward in state court. And I am not at all sure what the effect on the inchoate or budding Chapter 11 would be if ...


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