Joe A. Paramore v. First National Bank of Bastrop & Cecil B. Long

IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS, AT AUSTIN NO. 3-91-020-CV JOE A. PARAMORE, APPELLANT vs. FIRST NATIONAL BANK OF BASTROP AND CECIL B. LONG, APPELLEES FROM THE DISTRICT COURT OF BASTROP COUNTY, 21ST JUDICIAL DISTRICT NO. 19,808, HONORABLE HAROLD R. TOWSLEE, JUDGE PRESIDING The trial court rendered judgment that Joe A. Paramore "take nothing" by his suit against the First National Bank of Bastrop for declaratory relief under the Uniform Declaratory Judgments Act, Tex. Civ. Prac. & Rem. Code Ann. §§ 37.001-.011 (1986 & Supp. 1991). Paramore appeals. We will affirm the judgment. THE CONTROVERSY The bank holds and owns Paramore's promissory note, the debt being secured by the lien of his deed of trust describing certain land in Bastrop County. After executing the note and deed of trust, Paramore initiated a voluntary bankruptcy proceeding under Chapter 11, 11 U.S.C.A. §§ 1101-1174 (West 1979). The bankruptcy court rendered an order on January 31, 1989, confirming Paramore's plan of reorganization after hearing and notice. See id. § 1128. The order has not been amended or set aside. The confirmed plan expressly authorized the bank to accelerate Paramore's installment debt if he failed to make the requisite payments. He failed to make the payments. The bank notified Paramore that it accelerated the indebtedness and intended to have the property sold by the trustee under the deed of trust if Paramore did not pay the debt. Paramore filed the present cause in state district court seeking a declaratory judgment that the lien of the deed of trust was "null and void" because the property was his homestead, even though he had designated it in the bankruptcy proceeding as property not exempt from forced sale, a designation carried forward in the bankruptcy court's order confirming Paramore's reorganization plan. After trial without a jury, the court below rendered final judgment that Paramore "take nothing in this cause." Paramore appeals on a single point of error that the trial court erred because Paramore had established, as a matter of law, that the property was his homestead to which a lien could not attach except in circumstances not present here. Tex. Const. art. XVI, § 50; Tex. Prop. Code Ann. §§ 41.001, 41.002 (Supp. 1991). DISCUSSION AND HOLDING We entertained some doubt about the jurisdiction of the district court over the subject matter, given that the bankruptcy proceeding is still pending; and by extension, that doubt extended to our own exercise of jurisdiction. It appears in the present circumstances, however, that state courts are not without jurisdiction to adjudicate a claim such as Paramore's suit for declaratory relief. See Fitch v. Jones, 441 S.W.2d 187, 188 (Tex. 1969) ("The mere pendency of a bankruptcy proceeding does not divest the state court of jurisdiction."); Valley Int'l Properties v. Los Campeones, Inc., 568 S.W.2d 680, 685-86 (Tex. Civ. App. 1978, writ ref'd n.r.e.) (pendency of Chapter 11 proceeding does not divest a state court of jurisdiction absent any actual interference with the jurisdiction of the bankruptcy court), appeal dism'd, 440 U.S. 902 (1979); see also In re Ernst and R.C.E. Corp., 45 B.R. 700, 702 (Bankr. D. Minn. 1985) ("[W]here a default exists in payments to a secured creditor pursuant to a confirmed plan, the affected creditor is not prevented from seeking foreclosure of the security in a state court based on the default just because the plan reserves jurisdiction in the bankruptcy court regarding the plan and its administration."); In re Paradise Valley Country Club, 31 B.R. 613, 615 (D. Colo. 1983) ("The retained jurisdiction of this court to aid in the completion of the plan is not exclusive of the state court's jurisdiction to remedy violation of contracts entered into by the reorganized debtor."). We hold accordingly. Paramore obtained confirmation of his prepared reorganization plan partly because the property in question was not exempt from forced sale. An element of the confirmed plan is that the bank might foreclose on its deed of trust in circumstances that have in fact occurred according to the stipulation of the parties. The bankruptcy court was the first court to have jurisdiction to determine the status of the property, which it did in its confirmation of Paramore's reorganization plan. No appeal was taken from the order confirming the plan. The order is entitled to res judicata effect; neither the district court nor this Court may reexamine the status of the property. Stoll v. Gottlieb, 305 U.S. 165, 172-73 (1938) (order of bankruptcy court approving reorganization plan entitled to res judicata effect in latter action challenging court's jurisdiction, the bankruptcy court being the first court called upon to determine its jurisdiction); see Miller v. Meinhard-Commercial Corp., 462 F.2d 358, 360 (5th Cir. 1972) ("An arrangement confirmed by a bankruptcy court has the effect of a judgment rendered by a district court . . . and any attempt by the parties or those in privity with them to re-litigate any of the matters that were raised therein or could have been raised therein is barred under the doctrine of res judicata."). We overrule Paramore's point of error. We hold accordingly and affirm the trial-court judgment. John Powers, Justice [Before Justices Powers, Jones and B. A. Smith; Justice B. A. Smith not participating] Affirmed Filed: December 11, 1991 [Do Not Publish]