United States District Court, E.D. Louisiana
IN THE MATTER OF THOMAS MACK AND MARY SUSAN MACK, DEBTORS
ORDER AND REASONS
L. C. FELDMAN UNITED STATES DISTRICT JUDGE
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.
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.
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.
Mack has a membership in two LLCs, Matrix Hospitality Group,
L.L.C. and Matrix Hospitality Group - NOLA, LLC. Matrix
Hospitality Group,  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
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.
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. Mackfiled his appellee brief on July 18,
2017. Matrix adopted all arguments made by Mack.
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
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 ...