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`Signed February 28, 2019
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`______________________________
`United States Bankruptcy Judge
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`The following constitutes the ruling of the court and has the force and effect therein described.
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`IN THE UNITED STATES BANKRUPTCY COURT
`FOR THE NORTHERN DISTRICT OF TEXAS
`DALLAS DIVISION
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`CASE NO. 18-32770-BJH
`(Chapter 11)
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`Related to ECF Nos. 37 & 51
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`MEMORANDUM OPINION (I) GRANTING DEBTOR'S MOTION TO
`REJECT SETTLEMENT AGREEMENT, AND (II) DENYING CREDITOR'S
`MOTION TO LIFT THE AUTOMATIC STAY
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`Debtor TM Village, Ltd. brings another dispute from the mare's nest of problems
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`IN RE:
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`TM VILLAGE, LTD.,
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`Debtor.
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`surrounding its construction of a mixed-use real estate project in Carrolton, Texas. This time the
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`debtor has moved to reject a prepetition settlement agreement pursuant to 11 U.S.C. § 365 (the
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`"Motion to Reject").1 Richard Yao, as successor of interest to Yaling Pei, Di Zhang and Young
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`Chen ("Yao"), counterparties to the settlement, have sought relief from the automatic stay under
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`1 This opinion addresses issues raised in: (1) ECF Nos. 51 (Motion to Reject), 88 (Yao's objection), 117 (Yao's post-
`hearing brief), 122 (Debtor's post-hearing brief) and 126 (Yao's post-hearing reply brief), and (2) ECF Nos. 37 (Motion
`to Lift Stay), 46 (Debtor's objection), 53 (Affidavit in support), 54 (objection filed by prospective condominium
`owners) and 55 (Affidavit in opposition). Parties' filings relating to the automatic stay that raised issues relating to
`the Motion to Reject also were considered in connection with the ruling, and vice versa.
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`Case 18-32770-bjh11 Doc 138 Filed 02/28/19 Entered 02/28/19 10:41:14 Page 2 of 15
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`11 U.S.C. § 362(d) (the "Motion to Lift Stay") to pursue its enforcement. This Memorandum
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`Opinion comprises the court's findings of fact and conclusions of law pursuant to Fed. R. Bankr.
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`P. 7052, made applicable by Fed. R. Bankr. P. 9014(c).
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`I.
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`Jurisdiction and Venue
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`The court has jurisdiction over the motions under 28 U.S.C. § 1334(b); this is a core
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`proceeding under 28 U.S.C. § 157(b)(2)(A) and (G).
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`II.
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`Legal Analysis
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`The parties' prepetition Compromise and Settlement Agreement and Release (the
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`"Settlement Agreement")2 anticipated resolution of Yao's lawsuit against the Debtor and others
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`in the 298th Judicial District, Dallas County, Texas, Cause No. DC-16-16547 (the "State Court
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`Lawsuit").3
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`The issues for decision are: (1) whether the prepetition Settlement Agreement is an
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`executory contract and, if so, whether rejecting the Settlement Agreement is an appropriate
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`exercise of the debtor's business judgment, and (2) alternatively, should the court lift the automatic
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`stay to permit Yao to enforce the Settlement Agreement.
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`A. The Motion to Reject
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`Bankruptcy Code § 365(a) permits the Debtor, subject to court approval, to assume or reject
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`executory contracts or unexpired leases to which it is a party.4 Although the Bankruptcy Code
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`does not define executory, the courts have explained the term. The Fifth Circuit holds that a
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`contract is executory if "performance remains due to some extent on both sides" and if "at the time
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`2 Yao Ex. B.
`3 The parties consented to entry of an agreed interim order on the motion for relief from the automatic stay after a
`preliminary hearing, with the final hearing scheduled to coincide with the evidentiary hearing on the Motion to Reject.
`ECF No. 78. After additional briefing the court took the motions under advisement.
`4 11 U.S.C. § 365(a).
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`Memorandum Opinion
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`of the bankruptcy filing, the failure of either party to complete performance would constitute a
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`material breach of the contract, thereby excusing the performance of the other party."5 The Debtor
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`filed chapter 11 on August 22, 2018 (the "Petition Date"), so whether the Settlement Agreement
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`was executory depends on its status that day.
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`The Settlement Agreement imposes several material obligations:6
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`1. Settlement Amount/Agreed Judgment
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`The Parties agree that Defendants [including the Debtor] will pay to Plaintiffs the
`amount of $4,250,000.00 (the "Settlement Amount") on the following terms and
`conditions:
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`a) Defendants shall complete the construction of the condominium units located at
`TM Condo Office Park, Ltd. in a good and workman like manner on or before July
`31, 2017. Upon the completion of the condominium units, Defendants shall
`transfer, free and clear of all liens, the seven remaining unsold units to Plaintiffs
`[Yao], such unsold units designated as Units 2009, 2010, 2011, 2012, 3009, 3010
`and 3011 (the "Condominium Units"), see property descriptions as attached in
`Exhibit "A". The Condominium Units shall be appraised by a certified SRA or
`MAI appraiser, agreed upon by counsel for the parties, and the appraised value shall
`be credited in full against the Settlement Amount upon transfer of the
`Condominium Units to Plaintiffs or cash payment of such value by Defendants to
`Plaintiffs. Such transfer or payment shall occur within five days after the
`completion of the appraisal.
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`b) After crediting the appraised value of the Condominium Units against the
`Settlement Amount, the remaining balance shall be entered in an Agreed Judgment
`against all Defendants, jointly and severally, on a fraud claim (the "Agreed
`Judgment"). The Agreed Judgment will be held in trust by Plaintiffs' counsel and
`will not be submitted to the Court for signing and entry until July 1, 2018, provided
`the balance of the Settlement Amount has not been paid in full by June 30, 2018.
`In the event the full balance of the Settlement Amount has been paid in full by June
`30, 2018, the Lawsuit shall be dismissed with prejudice as to all claims and all
`parties.
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`5 RPD Holdings, L.L.C. v. Tech Pharmacy Serv. (In re Provider Meds, L.L.C.), 907 F.3d 845, 852 (5th Cir. 2018)
`(citing Phoenix Explor., Inc. v. Yaquinto (In re Murexco Petroleum, Inc.), 15 F.3d 60, 62 (5th Cir. 1994) (per curiam)).
`A contingent obligation of each of the parties, prior to the expiration of the contingency, can be sufficient to render a
`contract executory when a breach of the obligation would be material. In re Placid Oil Co., 72 B.R. 135, 138 (Bankr.
`N.D. Tex. 1987) (citing Lubrizol Enter., Inc. v. Richmond Metal Finishers, Inc. (In re Richard Mental Finishers, Inc.),
`756 F.2d 1043, 1046 (4th Cir. 1985)).
`6 Yao Ex. B (Settlement Agreement) ¶¶ 1-2, 12 (emphasis in original).
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`Memorandum Opinion
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`2. Lawsuit/Lis Pendens
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`a) The Parties shall cancel all hearings, depositions and depositions on written
`questions presently scheduled and pending in the Lawsuit, and all discovery
`deadlines currently imposed by the Texas rules of Civil Procedure or deadlines
`imposed by other Texas statutes shall be abated. The parties shall file an Agreed
`Motion for Continuance re-setting the trial in this matter to a date after September
`1, 2018.
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`b) Plaintiffs, by and through their counsel, shall execute a Release of Lis Pendens
`in the form attached hereto as Exhibit "B" fully and completely releasing the Notice
`of Lis Pendens filed by Plaintiffs in Dallas County, Texas regarding the Lawsuit,
`at the time this Agreement is executed. Defendants shall execute a Special
`Warranty Deed in the form attached hereto as Exhibit "C" at the time this
`Agreement is executed, to be held in trust by Plaintiff's counsel until the transfer of
`the Condominium Units or payment of cash as set forth herein above.
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`c) Defendants, by and through their counsel, shall execute the agreed judgment in
`the form attached hereto as Exhibit "D", regarding the Lawsuit, at the time this
`Agreement is executed.
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`12. Additional Documents or Actions
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`***
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`All parties agree to cooperate fully and to execute any and all supplementary or
`additional documents and to take any additional action which may be necessary to
`give full force and effect to the basic terms and conditions of this Agreement.
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`The Debtor argues that the Settlement Agreement is executory because both it and Yao had
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`material obligations that remained unperformed on the Petition Date. Those obligations included:
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`(1) an accurate appraisal of each Condominium Unit, (2) Yao's release of a lis pendens, (3) the
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`Debtor's conveyance of the Condominium Units to Yao free and clear and (4) the Debtor's payment
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`of the Settlement Amount.7
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`Yao disagrees that the Settlement Agreement was executory on the Petition Date. He
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`contends that the Condominium Units had been appraised, his counsel had released the lis pendens
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`and the Debtor had conveyed title to the Condominium Units, all before the Petition Date, leaving
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`7 Motion to Reject [ECF No. 51] § 8.
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`Memorandum Opinion
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`it without any unperformed material obligations. Yao claims that on the Petition Date only the
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`Debtor had an unperformed obligation – to pay Yao the Settlement Amount – which, standing
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`alone, did not render the contract executory.8
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`1. The Required Appraisals Were Completed Prepetition in June
`2017.
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`Though the Debtor claims that the units were not appraised prepetition as the agreement
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`required, the evidence in the record demonstrates otherwise.
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`The Settlement Agreement requires only appraisals performed "by a certified SRA or MAI
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`appraiser, agreed upon by counsel for the parties."9 By a November 27, 2017 email Debtor's
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`counsel accepted Yao's counsel's suggestion to use Corwin Haney of Dallas Realty Resources as
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`the appraiser.10 Mr. Haney completed his Appraisal of Real Property as of June 14, 2018.11 The
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`Debtor does not dispute that Mr. Haney appraised the Condominium Units; however, it alleges
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`that the appraisals were inaccurate, apparently arguing that they were not really appraisals at all.12
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`Texas law provides guidance to courts construing contracting parties' intent.13 As the
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`district court for the Northern District of Texas has explained,14
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`When construing a contract, a court's primary concern is to "ascertain the true
`intentions of the parties as expressed in the instrument." Valence Operating Co. v.
`Dorsett, 164 S.W.3d 656, 662 (Tex. 2005). Terms will be given their "plain,
`ordinary, and generally accepted meanings unless the contract itself shows them to
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`8 Yao's Post-Hearing Brief [ECF No. 117] ¶ 48 (citing cases).
`9 Yao Ex. B (Settlement Agreement) ¶ 2(a).
`10 Yao Ex. M (email chain) ("Our clients will agree to utilize Mr. Haney for the appraisals.").
`11 The record includes appraisals for Condominium Units 2009, 2010 and 3009-3011 only, and none for units 2011
`and 2012. Yao Ex. E (cover email and appraisals). The Debtor doesn't challenge the adequacy of the appraisals based
`on the lack of appraisals for units 2011 and 2012.
`12 Motion to Reject [ECF No. 51] at 3 ("an accurate appraisal of the completed Residential Condominiums has not
`been completed") and 4 ("a proper appraisal of the seven Residential Condominiums has not been completed");
`Debtor's Post-Hearing Brief [ECF 112] at 3 ("the appraisal of the units failed to include the utilities provided at the
`building and must be amended to provide the actual value of the units").
`13 Yao Ex. B (Settlement Agreement) § 11 ("This Agreement shall be construed and interpreted in accordance with
`the laws of the State of Texas.")
`14 Giant Eagle Inc. v. Excentus Corp., 2014 WL 12531173, at *4 (N.D. Tex. Aug. 2, 2014).
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`Memorandum Opinion
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`be used in a technical or different sense." Id. In order to ascertain the parties' true
`intentions, the court will consider the entire writing in order to give effect to all of
`its provisions so that none will be rendered meaningless. Id.; FPL Energy, LLC v.
`TXU Portfolio Mgmt. Co., L.P., 426 S.W.3d 59, 63 (Tex. 2014). "The parties' intent
`is governed by what they said in the [contract], not by what one side or the other
`alleges they intended to say but did not." Gilbert Texas Const., L.P. v. Underwriters
`at Lloyd's London, 327 S.W.3d 118, 127 (Tex. 2010) (citing Fiess v. State Farm
`Lloyds, 202 S.W.3d 744, 753 (Tex. 2006) ("[W]here the language is plain and
`unambiguous, courts must enforce the contract as made by the parties, and cannot
`make a new contract for them, nor change that which they have made under the
`guise of construction.")). The Court looks to the objective intent of the parties as it
`is expressed in the contract, and not the parties' "after-the-fact conduct." In re
`Dillard Dep't Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006). Courts will "construe
`contracts 'from a utilitarian standpoint bearing in mind the particular business
`activity sought to be served' and 'will avoid when possible and proper a construction
`which is unreasonable, inequitable, and oppressive.'" Frost Nat. Bank v. L & F
`Distributors, Ltd., 165 S.W.3d 310, 312 (Tex. 2005) (quoting Reilly v. Rangers
`Mgmt., Inc., 727 S.W.2d 527, 530 (Tex. 1987)). "If, after the pertinent rules of
`construction are applied, the contract can be given a definite or certain legal
`meaning, it is unambiguous and we construe it as a matter of law." Frost Nat. Bank,
`165 S.W.3d at 312. A contract is ambiguous, by contrast, "if it is susceptible to
`more than one reasonable interpretation." Id.
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`Construed in accord with these principles, the Settlement Agreement is unambiguous. The
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`Settlement Agreement gives both parties the unqualified right to have their counsel approve an
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`appraiser for the Condominium Units but lacks any provision allowing a party to challenge the
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`agreed-on appraiser's report or to demand a further appraisal if either party was dissatisfied with
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`the agreed appraiser's opinions. Nothing in the Settlement Agreement supports a finding or a
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`conclusion that the parties preserved an option to challenge their agreed appraiser's opinions. The
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`parties easily could have agreed on a method of dealing with dispute but elected not to do so. The
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`Debtor must live with its choice.
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`Mr. Haney performed the appraisals in June 2018 so this obligation was not outstanding
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`on the Petition Date.
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`Memorandum Opinion
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`2. Release of the Duplicate Lis Pendens was a Material Outstanding
`Obligation as of the Petition Date.
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`The Debtor also argues that Yao's failure to release a lis pendens is a material obligation
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`outstanding as of the Petition Date. He relies on a Settlement Agreement provision that:15
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`Plaintiffs, by and through their counsel, shall execute a Release of Lis Pendens in
`the form attached hereto as Exhibit "B", fully and completing releasing the Notice
`of Lis Pendens filed by Plaintiff in Dallas County, Texas regarding the Lawsuit[.]
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`The form Release of Lis Pendens attached as Exhibit B to the Settlement Agreement specifically
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`references the lis pendens "[f]iled on February 13, 2017, as Document ID 201700043496."16 Yao's
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`counsel executed the form of Release of Lis Pendens attached to the Settlement Agreement on
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`June 20, 2017, and filed it in the public record on June 21, 2017.17 Yao reasons that in doing so
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`he satisfied his contractual undertaking to the Debtor.
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`But two identical lis pendens related to the State Court Lawsuit were filed: one dated
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`January 5, 2017 and filed of record on February 13, 2017 at Document No. 20170004396 ("first
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`lis pendens"),18 which was subsequently released, and a second dated January 5, 2017 and filed
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`of record on February 15, 2017 at Document No. 201700045899 ("second lis pendens").19
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`Although both lis pendens were in the public record when the parties signed the Settlement
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`Agreement, the Debtor only learned of the second lis pendens a year later when it attempted to sell
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`other condominiums from the same development.
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`Debtor's counsel then contacted Yao's counsel to obtain the release of the second lis
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`pendens, even furnishing draft documents and other information:20
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`15 Yao Ex. B (Settlement Agreement) § 2(b).
`16 Id. at Ex. B p. 1.
`17 Debtor's Ex. 8 (Release of Lis Pendens).
`18 Debtor's Ex. 3.
`19 Debtor's Ex. 4.
`20 Debtor's Ex. 18 at 3 (June 13, 2018 at 9:00 a.m. email from Debtor's counsel to Yao's counsel).
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`Memorandum Opinion
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`I attached herewith a copy of a duplicate Notice of Lis Pendens filed on 2-15-17,
`an original Release of Lis Pendens for your signature, along with a fed ex [sic] label
`for delivery to Sendera Title Company, which is handling the closing of the sale of
`the sales of the condominium units. As you can see, it appears that Dallas County
`filed the Notice of Lis Pendens twice in February, once on 2-13-17 which you
`already released in June 2017, with the duplicate filing on 2-15-17, for which a
`release is now required before sales of the condominium units may be closed at the
`title company.
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`Yao's counsel later responded:21
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`This is to confirm releases will be executed to be held by the title company upon
`receipt of the closing statement, and filed upon recipient [sic] and distribution of
`the funds.
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`When the title company contacted Yao's counsel regarding the second release, he replied that Yao
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`would release the filing "AFTER we get the closing statements and not before."22 It is undisputed
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`that second lis pendens was never released.
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`Though the Settlement Agreement expressly references a release of only the first lis
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`pendens, it is appropriate to construe the parties' agreement to avoid an unreasonable, inequitable
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`and oppressive outcome.23 That supports a conclusion that Yao had an unqualified duty to release
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`the second lis pendens.
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`A prepetition email exchange among the parties' respective counsel clearly shows that
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`second lis pendens was a duplicate filing of the previously-released first lis pendens. Specifically,
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`Debtor's counsel's June 13, 2018 email to Yao's counsel describes the second lis pendens as a
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`"duplicate" of the first lis pendens, explaining that "it appears that Dallas County filed the Notice
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`of Lis Pendens twice."24 Yao's counsel did not respond to the email to challenge the
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`characterization of the second lis pendens as duplicate or the circumstances surrounding its filing.
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`21 Debtor's Ex. 19 at 3 (email from Yao's counsel to Debtor's counsel dated June 25, 2018 at 1:36 p.m.).
`22 Id. at 2 (email from Yao's counsel to Sendera Title dated June 25, 2018 at 2:00 p.m.) (emphasis in original).
`23 Frost Nat'l. Bank, 165 S.W.3d at 312; Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527, 530 (Tex. 1987).
`24 Debtor's Ex. 17 at 2-3 (email exchange dated June 13, 2018 at 9:00 a.m.).
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`Memorandum Opinion
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`In fact, Yao's bankruptcy counsel confirmed at the hearing that the two lis pendens were
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`unintentional duplicates.25
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`Section 12 of the Settlement Agreement, titled "Additional Documents or Actions," states
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`that:
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`All parties agree to cooperate fully and to execute any and all supplementary or
`additional documents and to take any additional action which may be necessary to
`give full force and effect to the basic terms and conditions of this Agreement.26
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`Based on this plain and unambiguous language of the Settlement Agreement, the release of the
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`first lis pendens was a condition of the Settlement Agreement. But § 12 also imposed on Yao an
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`obligation to release the second, unintentional duplicate lis pendens. Despite this, when the Debtor
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`asked Yao's counsel to release the second lis pendens to enable the Debtor to closed condominium
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`sales to third-parties, Yao's counsel refused and used the release as leverage.
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`Yao is too clever by half. He argues that interpreting the Settlement Agreement to require
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`a release of all lis pendens when it references only one lis pendens impermissibly rewrites the
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`parties' agreement. The evidence established that Yao's filing of a second lis pendens was an
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`unintentional duplicate not associated with a different, distinct obligation. The Settlement
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`Agreement's explicit obligation to release the original document applies equally to the unintended
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`duplicate. Yao's obligation to the Debtor to release the second lis pendens was material and
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`remained unperformed on the Petition Date.
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`25 "We believe, your honor, that it was an oversight by a paralegal in the office and I'm not sure that anybody knew
`about it and it certainly was not raised until the title company in mid-2018 sought to get that released." Hr'g Audio
`Tr. 11/28/19 at 4:31:48 – 4:32:11 (Brouner). This opinion at times cites to the audio recording of the hearing because
`no party requested a full transcript.
`26 Yao Ex. B (Settlement Agreement) § 12.
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`Memorandum Opinion
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`3. The Debtor Had Not Conveyed Title to the Condominium Units
`Prepetition Free and Clear of All Liens as the Settlement
`Agreement Required.
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`Finally, Yao argues that the Debtor is judicially estopped from contesting its conveyance
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`of title prepetition. Yao contends that the Debtor conveyed the Condominiums Units to him
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`prepetition through the June 19, 2017 Special Warranty Deed.27 According to Yao, the Debtor
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`admitted in pleadings it filed in the State Court Lawsuit that its delivery of the deed constituted
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`transfer of the properties as a matter of law and cannot now take a different position. Specifically,
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`Yao points to the Debtor's response to Yao's motion for summary judgment in the State Court
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`Lawsuit28:
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`As part of the Settlement Agreement, Plaintiffs requested, and Defendants agreed,
`to sign and deliver a Special Warranty Deed conveying the Condominium Units to
`the Plaintiffs. As a matter of law, the execution and delivery of a deed operates to
`convey and transfer the referenced property pursuant to the terms of the deed.
`Watson v. Tipton, 274 S.W.3d 791, 799 (Tex. App.—Fort Worth 2008, pet. denied)
`("When a grantor transfers property, title to the property vets in the grantee upon
`execution and delivery of the deed conveying the property.").
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`The Debtor counters that it made its state court arguments in the alternative; that no
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`evidence supports a finding that the state court relied on its allegations; and that in any event, that
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`Yao agreed to hold the Special Warranty Deed in trust and not release or file it.
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`The Fifth Circuit has explained judicial estoppel:29
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`The doctrine of judicial estoppel is equitable in nature and can be invoked by a
`court to prevent a party from asserting a position in a legal proceeding that is
`inconsistent with a position taken in a previous proceeding. The aim of the doctrine
`is to protect the integrity of the judicial process.… In determining whether to apply
`judicial estoppel, we primarily look for the presence of the following criteria: (1)
`the party against whom judicial estoppel is sought has asserted a legal position
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`27 Debtor's Ex. 9 (Special Warranty Deed).
`28 Yao Ex. H (Defendants' Response to Plaintiffs' Traditional Motion for Summary Judgment filed November 22,
`2017) ¶ 11; see also Yao Ex. I (Defendants' Response to Plaintiffs' Motion for Enforcement of Settlement Agreement
`filed October 18, 2017) ¶ 17 (same).
`29 Love v. Tyson Foods, Inc., 677 F.3d 258, 261-62 (5th Cir. 2012) (internal citations omitted) (internal quotations
`omitted).
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`Memorandum Opinion
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`which is plainly inconsistent with a prior position; (2) a court accepted the prior
`position; and (3) the party did not act inadvertently. However, judicial estoppel is
`not governed by inflexible prerequisites or an exhaustive formula for determining
`its applicability, and numerous considerations may inform the doctrine's application
`in specific factual contexts.
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`Nothing in the evidentiary record supports a finding that the state court relied on the Debtor's
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`arguments for any purpose. Although orders denying both motions in the State Court Lawsuit are
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`in the record, neither includes the court's analysis.30 The evidence does not support a conclusion
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`that the Debtor is judicially estopped from arguing that it did not transfer the Condominium Units
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`to Yao prepetition.
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`Turning to the effect of the Special Warranty Deed, the Settlement Agreement states that:31
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`Defendants shall execute a Special Warranty Deed in the form attached hereto as
`Exhibit "C" at the time this Agreement is executed, to be held in trust by Plaintiff's
`[sic] counsel until the transfer of the Condominium Units or payment of cash as set
`forth above.
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`It also recites that:32
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`Upon completion of the condominium units, Defendants shall transfer, free and
`clear of all liens, the seven remaining unsold units to Plaintiffs, such unsold units
`designated as Units 209, 2010, 2011, 2012, 3009, 3010, and 3011[.]
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`This straightforward language required Yao's counsel to release the Special Warranty Deed
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`from trust when construction of the Condominium Units was complete. The evidence in the record
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`does not pinpoint the date construction ended and conflicts in some respects. For example, the
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`Special Warranty Deed was filed in the public record on September 14, 2017,33 though an email
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`among the parties' counsel states that "[t]he units are nearing completion" on November 13, 2017.34
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`30 Yao Exs. K (Order denying Plaintiffs' Motion to Enforce Settlement Agreement) and L (Order Denying Plaintiffs'
`Motion for Summary Judgment).
`31 Yao Ex. B (Settlement Agreement) § 2(b).
`32 Id. § 2(a).
`33 Yao Ex. D (Special Warranty Deed, Doc. No. 20170260204 filed September 14, 2017 at 12:13:07 p.m.).
`34 Yao Ex. M at 2 (email from Debtor's counsel to Yao's counsel dated November 13, 2017 at 1:09 p.m.).
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`Memorandum Opinion
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`Case 18-32770-bjh11 Doc 138 Filed 02/28/19 Entered 02/28/19 10:41:14 Page 12 of 15
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`Moreover, the City of Garland did not issue a certificate of occupancy until March 1, 2018.35
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`Regardless of the actual date, it is undisputed that construction was completed before the Debtor
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`filed chapter 11.
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`Title to real property vests in a grantee upon execution and delivery of the deed conveying
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`the property.36 Whether the grantor intended to deliver the deed and convey the property in
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`accordance with the deed is "determined by examining all the facts and circumstances preceding,
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`attending, and following the execution of the instrument."37 But proof that the deed was recorded
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`creates a presumption, and establishes a prima facie case, of delivery and intent by the grantor to
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`convey the land.38 A party may rebut the presumption by showing "(1) that the deed was delivered
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`or recorded for a different purpose, (2) that fraud, accident or mistake accompanied the delivery
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`or recording, or (3) that the grantor had no intention of divesting himself of title."39
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`The plain language of the Settlement Agreement shows that the Debtor executed and
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`intended to deliver the Special Warranty Deed to Yao, to be held in trust until construction of the
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`Condominium Units was complete. Although the deed may have been released and filed
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`prematurely, no party disputes that construction was complete before the Petition Date, which
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`would trigger Yao's duty to release and file the Special Warranty Deed prepetition. Further, the
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`Special Warranty Deed was recorded September 14, 2017, establishing a prima facie case of
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`delivery and intent by the Debtor to convey the Condominium Units—a presumption that no
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`evidence in the record rebuts.
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`35 Hr'g Tr. 11/26/18 [ECF No. 98] at 29:7-39:20, 82:25-83:7 (Benham); see also Memorandum Opinion [ECF No.
`135] at 15 (finding that the City of Garland issued a Certificate of Occupancy on March 1, 2018).
`36 Watson v. Tipton, 274 S.W.3d 791, 799 (Tex. App.—Fort Worth 2008, pet. denied) (citing Stephens County
`Museum, Inc. v. Swenson, 517 S.W.2d 257, 261–62 (Tex. 1974)).
`37 Id. (citing Troxel v. Bishop, 201 S.W.3d 290, 297 (Tex. App.—Dallas 2006, no pet.)).
`38 Id. (citing Swenson, 517 S.W.2d at 261–62; Troxel, 201 S.W.3d at 297).
`39 Id. (citing Swenson, 517 S.W.2d at 262).
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`Memorandum Opinion
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`Accordingly, the evidence supports a finding that the Debtor conveyed title to the
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`Condominium Units to Yao before the Petition Date. But that does not conclude matters because
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`nothing in the record establishes that the Debtor met the second requirement of transfer: that the
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`title be free and clear of all liens. In fact, the official claims register in the case includes numerous
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`substantial claims secured by interests in the real property.40 Thus, although Yao received title to
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`the Condominium Units prepetition, he did not receive it free and clear of liens. Accordingly, the
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`Debtor's obligation to clear all liens from title remained a material obligation outstanding as of the
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`Petition Date.
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`4. The Debtor Has Not Yet Paid the Settlement Amount.
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`Finally, it is undisputed that the Debtor has not paid the Settlement Amount.
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`In summary, the evidence established that the Settlement Agreement remained executory
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`as of the Petition Date due to both sides' material, outstanding obligations.
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`B. Rejection of the Settlement Agreement is an Appropriate Exercise of the
`Debtor's Business Judgment.
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`The remaining issue is whether the Debtor's proposed rejection of the Settlement
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`Agreement is an exercise of business judgment.
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`According to the Debtor:41
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`Rather than transferring the seven (7) [Condominiums Units] to the Plaintiffs
`pursuant to the Settlement Agreement, the Debtor can sell each of them on the open
`market and generate in excess of $1.5 Million to share with all of the creditors of
`the estate. … [A]t best, the Plaintiffs are unsecured creditors of the Debtor and
`should not benefit above and beyond the other unsecured creditors of the estate.
`Therefore, the Debtor believes that based on its well-reasoned business judgment,
`the Court should authorize the Debtor to reject the Settlement Agreement and allow
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`40 See also Memorandum Opinion [ECF No. 136] at 10-12 (finding that several parties hold alleged liens against the
`Condominium Units, including senior lienholders Tamamoi, LLC and FDRE, Inc., second lienholder SKR Partners