Ron Sommers, as Chapter 7 Trustee for Alabama and Dunlavy, Ltd., Flat Stone II, Ltd., and Flat Stone, Ltd., and as Successor in Interest to Jay Cohen, Individually and as Trustee of the Jhc Trusts I and Ii v. Sandcastle Homes, Inc.

521 S.W.3d 749, 60 Tex. Sup. Ct. J. 1291, 2017 WL 2608353, 2017 Tex. LEXIS 554
Texas Supreme Court·Decided June 16, 2017·No. 15-0847, 15-0848·Published·Cited by 68 cases

Opinions

Justice Brown

delivered the opinion of the Court,

in which Justice Green, Justice Johnson, Justice Guzman, and Justice Boyd joined.

Black’s Law Dictionary tells us that to “expunge” is “[t]o remove from a recordt;] ... to erase or destroy.”1 Today we must decide just how much notice is “erased” or “destroyed” when a statute expunges a notice of pending litigation, or lis pendens. Sandcastle Homes, Inc., and NewB'iss Property, LP, each bought real property involved in a title dispute. The two companies prevailed at the summary-judgment stage, successfully arguing that Property Code section 12.0071—the lis pendens-ex-punction statute—eliminated any and all actual or constructive notice of the dispute.2 Sommers appealed, arguing that the statute does not eliminate the companies’ independent notice of the underlying property dispute.

In a split opinion, the court of appeals affirmed. But we hold today that the majority’s interpretation conflicts with the statute’s plain language. Accordingly, we reverse the court of appeals’ judgment and remand to the trial court for further proceedings consistent with this opinión.'

I

Jay Cohen was trustee of JHC Trusts I & II (the Cohen Trusts).3 In this capacity, he transferred several properties belonging to the trust into different partnerships. One instance involved “the West Newcastle property,” which Cohen transferred to Flat Stone II, Ltd., a limited partnership. In June 2006, Matthew Dilick, the controlling shareholder of Flat Stone II of Texas, Inc., Flat Stone II’s general partner, gave Regions Bank a first-lien deed of trust on the West Newcastle Property as collateral for a personal loan. Dilick defaulted and entered into a foreclosure-forbearance agreement with the bank in April 2009. Two weeks later, Dilick created a limited partnership called West Newcastle, Ltd. He then conveyed a tract from the West Newcastle property (Tract I) to this new limited partnership. Cohen sued, alleging Dilick fraudulently transferred the property and acted outside his authority in all the transfers and subsequent transactions. Cohen filed notices of lis pendens on the various pieces of property involved in the suit.'

[752]*752One of the notices of lis pendens dealt specifically with the West Newcastle property and stated that the purpose of the underlying suit was to invalidate the transfer of property to West Newcastle Ltd. and to set aside and cancel any liens Flat Stone II granted, through Dilick, to Regions Bank. The trial court granted the defendants’ emergency motions to expunge the notices of lis pendens. Cohen sought mandamus relief in the court of appeals and obtained a stay of the trial court’s expungement order. But while the matter was pending at the court of appeals, Dilick conveyed Tract I to Sandcastle for $750,000.

The court of appeals conditionally granted Cohen mandamus relief, holding the trial court erred when it found Cohen’s pleading did not articulate a real-property claim on its face.4 Back at the trial court, Cohen added Sandcastle as a defendant and sought to set aside its recent purchase of Tract I. After another hearing on the applications to expunge the lis pendens notice, the trial court again ordered the lis pendens expunged—finding that Cohen “failed to establish by a preponderance of the evidence the probable validity of a real property claim.”5 Meanwhile, between the hearing and the trial court’s entering of the expungement order, Dilick transferred the remainder of the West Newcastle property (Tract II) back to Flat Stone II. Cohen filed another mandamus petition and a motion to stay in the court of appeals, but the court denied his requests. Dilick subsequently sold Tract II to New-Biss for $1.8 million. Cohen added New-Biss as a defendant to the lawsuit, seeking to set aside this latest purchase.

Sandcastle and NewBiss claimed bona-fide-purchaser status, and each filed summary-judgment motions. Both claimed they lawfully relied on the trial court’s expungement order, which voided any notice derived from the lis pendens. The trial court granted both motions and rendered separate final judgments.

A divided court of appeals affirmed, holding that the expunction statute extinguishes actual and constructive notice of the underlying claims. 469 S.W.3d 173 (Tex. App.—Houston [1st Dist.] 2015). Two days before the court of appeals issued its opinion, the underlying lawsuit was removed to bankruptcy court, though the claims involving Sandcastle and NewBiss were severed and remained in the trial court. Several months later, the bankruptcy court entered a final declaratory judgment granting Sommers’s motion to realign claims. Sommers subsequently brought this appeal.

II

A

Sandcastle and NewBiss contend Sommers lacks standing to continue the appeal in this case because he was not a named party in the original action. Generally, only a named party to the suit may bring an appeal. City of San Benito v. Rio Grande Valley Gas Co., 109 S.W.3d 750, 754 (Tex. 2003). But here, the bankruptcy court issued a declaratory judgment that Sommers is the proper plaintiff since the claims against Sandcastle and NewBiss be[753]*753long to the bankruptcy estate.6 The judgment explicitly provides that the claims belong to Sommers as the bankruptcy trustee.7

We have held that once claims clearly belong to the bankruptcy estate, “then the trustee has exclusive standing to assert the claim[s].” Douglas v. Delp, 987 S.W.2d 879, 882 (Tex. 1999) (quoting Schertz-Cibolo-Universal City Indep. Sch. Dist. v. Wright (In re Educators Grp. Health Tr.), 25 F.3d 1281, 1284 (5th Cir. 1994)); see also 11 U.S.C. § 323(a) (stating that the bankruptcy trustee is the representative of the estate). The bankruptcy court recognizes Sommers’s authority to pursue claims against Sandcastle and NewBiss on behalf of the estate.8 So do we.

B

Pending the outcome of an action involving proper title to, establishing an interest in, or enforcing an encumbrance against real property, the party seeking relief may file a notice of lis pendens in the county’s real-property records. See Tex. Prop. Code § 12.007(a). A notice of lis pendens broadcasts “to the world” the existence of ongoing litigation regarding ownership of the property. Id. § 13.004(a). When the notice is properly filed, even a subsequent purchaser for value does not take the property free and clear. See id. § 13.004(b).

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Ron Sommers, as Chapter 7 Trustee for Alabama and Dunlavy, Ltd., Flat Stone II, Ltd., and Flat Stone, Ltd., and as Successor in Interest to Jay Cohen, Individually and as Trustee of the Jhc Trusts I and Ii v. Sandcastle Homes, Inc., 521 S.W.3d 749, 60 Tex. Sup. Ct. J. 1291, 2017 WL 2608353, 2017 Tex. LEXIS 554 (Tex. 2017).

521 S.W.3d 749 (Ron Sommers, as Chapter 7 Trustee for Alabama and Dunlavy, Ltd., Flat Stone II, Ltd., and Flat Stone, Ltd., and as Successor in Interest to Jay Cohen, Individually and as Trustee of the Jhc Trusts I and Ii v. Sandcastle Homes, Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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