Wyly v. Eichor
U.S. Court of Appeals for the Fifth Circuit
Wyly v. Eichor
Opinion
Case: 24-20238 Document: 105-1 Page: 1 Date Filed: 01/28/2025
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
____________ FILED
January 28, 2025
No. 24-20238
Lyle W. Cayce
____________
Clerk
In the Matter of Johnnie G. Eichor,
Debtor,
Benson Scott Wyly, doing business as SW Equipment
Company, Incorporated; Pam Dale Wyly,
Appellants,
versus
Johnnie G. Eichor,
Appellee.
______________________________
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:22-CV-3274
______________________________
Before Haynes, Duncan, and Wilson, Circuit Judges.
Per Curiam:*
Benson and Pam Wyly sued Johnnie Eichor in Texas state court for
breach of a series of “loan” contracts, and, shortly after, Eichor filed for
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*
This opinion is not designated for publication. See 5th Cir. R. 47.5.
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No. 24-20238
bankruptcy protection. Even after the bankruptcy court entered a discharge
order prohibiting Eichor’s creditors from attempting to collect discharged
debts, the Wylys continued to pursue their claims. Eichor filed an adversary
complaint against them, alleging that their state court action violated the
bankruptcy court’s discharge order. The bankruptcy court agreed, finding
that the Wylys willfully violated its discharge order. The court held them in
civil contempt and awarded damages and attorney’s fees to Eichor. The
district court affirmed the bankruptcy court. The Wylys then appealed to
this court, and we likewise affirm.
I.
Eichor and the Wylys have been friends for many years. Over that
time, the Wylys periodically advanced funds to Eichor, and they usually
memorialized these advances in written loan agreements. Three of these
agreements are relevant to this appeal.
The first was entered in June 2015. Prior to that, Eichor’s business
was struggling, and he discussed the possibility of borrowing money with
Benson Wyly. The Wylys agreed to loan Eichor $50,000, to be repaid in one
year with $10,000 interest. To secure the loan, Eichor pledged a boat and a
house that he had owned since 2000, and where he would continue to live
until at least 2019.1 The Wylys’ attorney drafted the loan agreement, and the
parties executed it in June 2015.
The contract was not a model of precision, to put it charitably.
Though ostensibly memorializing the above loan, it was titled “SALES
AGREEMENT,” and, after identifying the collateral property, provided that
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1
It is unclear what happened to the boat after this first agreement, nor do the
parties discuss it. Therefore, we focus only on the house from here.
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Sellers agree to sell and Buyer agree [sic] to purchase the above
property on July 1, 2016 for the sum total of $65,000.00
(TWENTY FIVE THOUSAND) [sic]. Buyers agree to
advance Seller the total sum of $40,000.00 for the exclusive
and sole right to purchase the property on July 1, 2016. On July
1, 2016, or shortly thereafter[,] Buyers may tender the sum
total of rest of the $25,000 to complete the sale . . . .
Sellers agree and Buyer’s [sic] agree that Sellers shall retain a
contractual right to terminate this sales contract for the sum
total of $60,000.00 (SIXTY THOUSAND) due and payable to
Benson Scott Wyly on July 1, 2016.
Though at variance with these written terms, the Wylys advanced Eichor
$45,000 upon execution of this agreement. The contract was recorded in the
real property records of Brazoria County, Texas.
Eichor soon needed more money. Prior to the maturity or satisfaction
of their June 2015 agreement, the parties entered a second agreement,
“SALES AGREEMENT TWO.” This agreement was nearly identical to
the first; in it, Eichor purported again to “sell” the same property to the
Wylys, even though he had not yet repaid the money advanced under the first
agreement:
[Eichor] agree[s] to sell and [the Wylys] agree to purchase the
[house] on July 1, 2016 for the sum total of $65,000.00
(TWENTY FIVE THOUSAND) [sic]. [The Wylys] agree to
advance [Eichor] the total sum of $50,000.00 for the exclusive
and sole right to purchase the property on September 1, 2016.
On September 1, 2016, or shortly thereafter[,] [the Wylys] may
tender the sum total of $15,000.00 to complete the sale . . . .
[Eichor] shall retain a contractual right to terminate this sales
contract for the sum total of $70,000.00 (SEVENTY
THOUSAND) due and payable to Benson Scott Wyly on
September 1, 2016.
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Unlike the first contract, this agreement was not recorded. After executing
the document, Benson Wyly provided Eichor with a $50,000 check, with the
notation that it was a “loan.”
The parties executed a third contract, “SALES AGREEMENT
THREE,” in January 2017. This final agreement referenced the first two and
specifically acknowledged that the initial June 2015 loan had been fully repaid
and that the remaining balance on the second loan was $60,000. In
Agreement Three, the parties sought to “reform, modify and revise[] Sales
Agreement Two”:
[Eichor] agree[s] to sell and [the Wylys] agree to purchase the
[house] on April 20, 2017 for the sum of $126,000.00 (SIXTY-
FIVE THOUSAND) [sic]. [The Wylys] . . . advanced
[Eichor] the total of $126,000.00 for the exclusive and sole
right to purchase the property on April 20, 2017 . . . .
[Eichor] agrees and [the Wylys] agree that [Eichor] shall retain
a contractual right to terminate this sales contract for the sum
of $126,000.00 (ONE HUNDERED [sic] AND TWENTY
SIX THOUSAND) due and payable to Benson Scott Wyly on
April 20, 2017.
Upon execution of the agreement, Wyly provided Eichor a $35,000 check,
similarly notating that it was a loan. This agreement was also not recorded.
Meanwhile, Eichor failed to pay the ad valorem taxes due on the
property for 2017 and 2018, and the Pearland Independent School District
sued in Texas state court to recover taxes due in June 2019. In October 2020,
the Wylys filed a Petition in Intervention to Quiet Title (the Petition) in the
tax case, alleging that Eichor failed timely to exercise his right to terminate
Agreement Three and failed to execute documents necessary to complete the
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conveyance. Among other things, the Petition requested a declaratory
judgment that the Wylys rightfully owned the property.2
In November 2020, Eichor filed for Chapter 7 bankruptcy relief.
Eichor listed the property in his schedules as his exempted homestead under
Texas law. He listed Benson Wyly as an unsecured creditor. In February
2021, the bankruptcy court entered a discharge order under 11 U.S.C. § 727
in Eichor’s case. The discharge order was thereafter served on Wyly through
his attorney.
Despite having notice of Eichor’s bankruptcy discharge order, the
Wylys filed a motion for default judgment on their Petition in the state tax
case in June 2021. In response, Eichor notified the Wylys’ counsel that the
motion for default judgment violated the discharge order, that Eichor
intended to bring an adversary suit in bankruptcy court against them, and that
the state court default judgment could be void. The Wylys ignored the notice
and obtained a default judgment in the state action. The default judgment
stated that the Wylys had “acquired all right, title and interest on [the
property] as of April 20, 2017” and that Eichor had been “divested of all
right, title and interest in the property that same day.” Upon receiving the
default judgment, the Wylys changed the locks on the house and posted a
copy of the default judgment on the door.
Eichor followed through with an adversary proceeding in bankruptcy
court. In it, he alleged that the Wylys had violated the Chapter 7 discharge
order in his bankruptcy case by continuing to prosecute their state court
Petition after the Wylys received notice of the discharge order. The
bankruptcy court found that the three agreements were loans rather than
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2
The Wylys alleged claims against Eichor for breach of contract, declaratory
judgment, attorney’s fees and court costs, and pre- and post-judgment interest.
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bona fide asset purchases, and that even though they were intended to be
secured loans, they were not. The court further found that the Wylys had no
valid security interest in the property because there was no perfected lien,
such that the Wylys held only an unsecured claim. Based on those findings,
the bankruptcy court concluded that the Wylys’ willful prosecution of their
Petition violated the discharge injunction and held the Wylys in civil
contempt. The court awarded Eichor title to the property, as well as actual
damages and attorney’s fees. The Wylys appealed to the district court, which
affirmed the bankruptcy court. They now appeal the district court’s
decision.
II.
“We review the decision of the district court by applying the same
standard to the bankruptcy court’s findings of fact and conclusions of law as
the district court applied.” Nabors Offshore Corp. v. Whistler Energy II,
L.L.C. (Matter of Whistler Energy II, L.L.C.), 931 F.3d 432, 441(5th Cir. 2019) (quoting In re Jack/Wade Drilling, Inc.,258 F.3d 385, 387
(5th Cir. 2001)). “Acting as a ‘second review court,’ we review a bankruptcy court’s legal conclusions de novo and its findings of fact for clear error.” 21st Mortg. Corp. v. Glenn (Matter of Glenn),900 F.3d 187, 189
(5th Cir. 2018) (quoting Official Comm. of Unsecured Creditors v. Moeller (In re Age Ref., Inc.),801 F.3d 530, 538
(5th Cir. 2015)). Under clear-error review, “[w]e accept the bankruptcy court’s findings of fact . . . unless we are left with the ‘definite and firm conviction that a mistake has been committed.’” Saenz v. Gomez,899 F.3d 384, 391
(5th Cir. 2018) (quoting Inwood Labs., Inc. v. Ives Labs., Inc.,456 U.S. 844, 855
(1982)).
III.
The Wylys contend that the bankruptcy court erred in its ruling
against them because Eichor’s discharge order did not contain clear and
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specific language prohibiting the Wylys from seeking a declaratory judgment
in the state tax case that they had title to the property in question. And
because they did not receive clear notice that litigating their Petition violated
the discharge order, there was insufficient evidence to sustain a holding of
civil contempt. They also assert that they had an objectively reasonable basis
for believing they owned the property, such that their conduct did not
support a contempt holding.3 We disagree on both points.
To hold a party in contempt for violating a bankruptcy discharge
order, “there must be no objectively reasonable basis for concluding that the
creditor’s conduct might be lawful under the discharge order.” Taggart v.
Lorenzen, 587 U.S. 554, 560(2019). In other words, there must not be any “‘fair ground of doubt’ as to whether the creditor’s conduct might be lawful under the discharge order.”Id. at 565
. Eichor’s discharge order, expressly based on the governing statute, “discharge[d] the debtor from all debts that arose before the date of the order for relief under this chapter.”11 U.S.C. § 727
(b). Eichor’s creditors were thereafter prohibited from “commenc[ing]
or continu[ing]” any action “to collect, recover or offset any such debt as a
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3
The Wylys also contend that the Rooker-Feldman Doctrine barred the bankruptcy
court from modifying the state court judgment, and that the First Amendment prohibits
discharge orders from curtailing access to state courts. However, they did not raise their
Rooker-Feldman argument in the district court. See Def. Distributed v. Grewal, 971 F.3d 485, 496 (5th Cir. 2020) (quoting Celanese Corp. v. Martin K. Eby Const. Co.,620 F.3d 529, 531
(5th Cir. 2010). And they only raised the First Amendment argument in their post-trial memorandum in the bankruptcy court and their motion for reconsideration in the district court. See Digital Drilling Data Sys., L.L.C. v. Petrolink Servs., Inc.,965 F.3d 365, 374
(5th Cir. 2020) (quoting Davidson v. Fairchild Controls Corp.,882 F.3d 180, 185
(5th Cir. 2018).
Accordingly, the Wylys did not properly preserve these arguments, and we will not
consider them further.
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personal liability of the debtor.” 11 U.S.C. § 524(a) (expressly applying to
“any debt discharged under § 727”).4
By its terms, the discharge order prohibits creditors from attempting
“to collect from [Eichor] personally on discharged debts.” Under the
heading “Creditors Cannot Collect Discharged Debts,” the order explains:
“[N]o one may make any attempt to collect a discharged debt from the
debtor[] personally. For example, creditors cannot sue, garnish wages, assert
a deficiency, or otherwise try to collect from the debtor[] personally on
discharged debts.” And it continues: “Most debts are covered by the
discharge, but not all.[5] Generally, a discharge removes the debtor[’s]
personal liability for debts owed before the debtor[’s] bankruptcy case was
filed.” The order carves out a potentially relevant exception, that “a creditor
with a lien may enforce a claim against the debtors’ property subject to that
lien unless the lien was avoided or eliminated. For example, a creditor may
have the right to foreclose a home mortgage.” Otherwise, the discharge
order is clear that Eichor’s personal debts acquired before he filed bankruptcy
were discharged, and creditors cannot attempt to collect them post-
discharge.
To the extent that the Wylys’ Petition in the state tax case sought to
collect a personal loan balance from Eichor, the discharge order plainly
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4
The Wylys posit that because Eichor’s discharge was ordered under § 727,
without mention of § 524, then § 524 does not apply. They reason that § 727 does not
contain injunctive language or prohibit suits to recover discharged debts, so it was not clear
that they could not pursue a default judgment in the state tax case. But § 524 explicitly
applies to discharges under § 727. Just as clearly, Eichor’s discharge order itself states that
“creditors cannot sue . . . or otherwise try to collect from [Eichor] personally on discharged
debts.”
5
The discharge order lists several categories of non-discharged debts, but only one,
discussed infra, is pertinent to the Wylys’ position on appeal.
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prohibited that. On the other hand, if the Wylys were pursuing a claim
against the debtor’s property, i.e., if they had a lien against the property that
was not avoided or eliminated, or had truly purchased the property via the
agreements, then they “may have [had] the right to foreclose” on that
interest. The bankruptcy court found that the parties intended these loans to
be personal debts, the loans were not properly secured, and the Wylys were
barred from seeking to collect the debts via their state court Petition. We
discern no clear error in those findings.
The question turns on whether the Wylys had an objectively
reasonable basis to believe that the discharge order did not bar their conduct.
They contend that it was reasonable to believe that they could pursue a
declaratory judgment that they had title to the property at issue because,
under their agreements with Eichor, they did not just loan him money but
actually bought the pledged property. The Wylys point out that all three
contracts are titled “sales agreements” and contain purchase/sale language.
True enough, but as excerpted above, the contracts also contain incomplete
and inconsistent terms, and only the first agreement—which was fully
satisfied before Eichor’s bankruptcy—was recorded in the Brazoria County
land records. And the conduct of the parties militates against any reasonable
belief that the Wylys bought the property or even intended to do so: Eichor
continued to reside there and listed the residence as his homestead, the
Wylys never took possession of the property, and the Wylys had a history of
making personal loans to Eichor, well before these three agreements. At least
two checks that Benson Wyly gave to Eichor pursuant to Agreement Two
and Agreement Three were notated as “loans.” More fundamentally, it also
makes little sense for the parties to have “sold” and “bought” the same
property three times, in fairly quick succession, for an ever-evolving price.
The bankruptcy court considered all this evidence, as augmented by
the parties’ testimony, and found these contracts embodied personal loans
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rather than sales agreements. And “[w]hen there is a fact finding that the
parties intended the transaction to be a loan, and that finding is supported by
probative evidence, the law will impute the existence of a debt.” Johnson v.
Cherry, 726 S.W.2d 4, 6(Tex. 1987) (citing Wells v. Hilburn,98 S.W.2d 177, 180
(Comm’n App. 1936)). The bankruptcy court’s factual conclusions that these transactions were loans, were intended by the parties to be loans, and therefore were covered by Eichor’s discharge order are “supported by probative evidence.”Id.
The court’s conclusion that the Wylys willfully
pursued collection of a discharged debt readily follows these findings. The
Wylys thus had no objectively reasonable basis to believe their conduct was
lawful under the discharge order, and the bankruptcy court was within its
bounds to hold them in contempt and order the relief it did.
Even if the agreements were construed as purchase/sale contracts,
they would be void under Texas law. The Texas Constitution states that
“[a]ll pretended sales of the homestead involving any condition of defeasance
shall be void.” Tex. Const. art. XVI, § 50(c). “A condition of defeasance
permits the seller to reclaim the title to the property conveyed after the loan
is repaid.” In re Perry, 345 F.3d 303, 313(5th Cir. 2003). The bankruptcy court determined that the property was Eichor’s homestead, and there was ample support for this finding, as Eichor continued to live in the house and pay (or at least remain liable for) property taxes. Seeid. at 310
(“Under Texas’s generous homestead law, homestead rights may be lost only through death, abandonment or alienation.”). So the contracts’ terms allowing Eichor to “terminate” the conveyance of his pledged property by repaying his loan balance violated the Texas Constitution, rendering any purchase/sale agreement void ab initio. Beyond that problem, the contracts were not properly recorded, and thus they effected no genuine transfer of property, or secured interest, for that reason as well. SeeTex. Prop. Code Ann. § 11.001
(a) (“To be effectively recorded, an instrument
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relating to real property must be eligible for recording and must be recorded
in the county in which a part of the property is located.”).
Thus, charitably crediting the Wylys’ assertion that they believed they
were buying Eichor’s property and discounting the bankruptcy court’s
contrary fact findings, the Wylys’ belief was not objectively reasonable
because the agreements manifestly did not comply with either the Texas
Constitution or Texas property law. See Jerman v. Carlisle, McNellie, Rini,
Kramer & Ulrich LPA, 559 U.S. 573, 574(2010) (quoting Barlow v. United States,32 U.S. 404, 411
(1833)) (“It is a common maxim that ‘ignorance of the law will not excuse any person, either civilly or criminally.’”); Hunt v. Rhodes,26 U.S. 1, 8
(1828) (“It is a principle of jurisprudence, that every one
in his acts and contracts is presumed to be conversant with the law; or, if
ignorant, that he is to be made to abide the consequences.”). As the
bankruptcy court concluded, the Wylys had no secured interest in the
property and no perfected lien, such that any attempt to take title to the
property distilled to an attempt to collect an unsecured, and discharged, debt.
At base, the Wylys persisted in litigating their Petition in state court
to a default judgment against Eichor in the face of actual notice of Eichor’s
discharge order, notice from him that they were violating the bankruptcy
court’s injunction, and at least imputed knowledge that under Texas law any
judgment they obtained would be void. They point to nothing, nor do we
perceive anything, that would indicate clear error in the bankruptcy court’s
factual determination that the Wylys were attempting to collect a personal
debt, willfully subverting the discharge order in the process. To the contrary,
the grounds for that court’s rulings are well supported by the record.
IV.
Eichor’s discharge order barred attempts by creditors to recover his
discharged personal liabilities. The bankruptcy court found, based on
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evidence sufficient to hurdle our clear-error standard of review, that the
Wylys made personal loans to Eichor, and thereafter willfully violated the
discharge order in attempting to collect that debt without a reasonable basis
to believe they could properly do so. Thus, the bankruptcy court acted within
its bounds to hold the Wylys in contempt and award Eichor damages and
attorney’s fees.
AFFIRMED.
12
Reference
- Status
- Unpublished