By: Donald L Swanson
What happens, after a bankruptcy sale of real estate, when the party in possession of that real estate . . . refuses to leave?
We now know.
The case is In re Galleria 2425 Owner, L.L.C., Case No. 23-34815 in Southern Texas Bankruptcy Court (decided December 6, 2024; Doc. 870 & 871):
- the In re Galleria ruling was appealed to the U.S. Fifth Circuit Court of Appeals (where the appeal was dismissed on January 31, 2025).
Background Chronology
December 5, 2023, Debtor files a voluntary Chapter 11, as a single asset real estate case.
January 31, 2024, a Chapter 11 Trustee is appointed.
July 8, 2024, an order is entered:
- approving a process for sale of Debtor’s real estate free and clear of all interests, including all liens, claims and encumbrances; and
- requiring all persons in possession of such real estate to surrender possession thereof to the buyer by the closing of the sale.
August 20, 2024, a bankruptcy sale of Debtor’s real estate for $27 million closes, but the Tenant in possession refuses to leave.
November 18, 2024, an emergency motion is filed with the Bankruptcy Court—but such motion is withdrawn so that eviction proceedings can move forward in a Justice of the Peace Court.
Eviction proceedings in the Justice of the Peace Court go nowhere—the eviction proceeding is dismissed.
So, the eviction matter comes back to the Bankruptcy Court on a renewed emergency motion.
Bankruptcy Court Ruling
The Bankruptcy Court rules against Tenant (Doc. 871):
- Tenant “has no right to occupy or right to possess any portion of the Property”;
- Tenant must “immediately vacate the Property and . . . remove its personal property therefrom forthwith”;
- if Tenant “shall not have vacated the Property within five (5) business days of the entry of this order, . . . the United States Marshal shall render such assistance, including the use of reasonable force, as may be necessary”; and
- the assistance of “the Harris County Sheriff’s Office” is “authorized and directed.”
Tenant’s Arguments Rejected and Bankruptcy Court’s Reasoning
The Bankruptcy Court’s Memorandum Opinion (Doc. 870) in support of its ruling identifies the following arguments by Tenant and the reasons for rejecting each argument.
–Jurisdiction
Tenant argues that the Bankruptcy Court lacks jurisdiction to grant the eviction relief requested.
This argument is without merit:
- Tenant filed three proofs of claims in Debtor’s bankruptcy case—so, Tenant “has subjected itself” to the jurisdiction of the Bankruptcy Court; and
- the Bankruptcy Court has nationwide jurisdiction to enforce the terms and provisions of its sale order against Tenant, who continues occupying the premises in question.
–Lower-Level State Court
Tenant argues that (i) Justice of the Peace courts have exclusive jurisdiction over eviction actions in Texas, and (ii) that exclusive jurisdiction leaves the Bankruptcy Court without authority to evict Tenant in this case.
This argument is without merit because any jurisdiction granted to a Justice of the Peace court for eviction proceedings in Texas does not impair the Bankruptcy Court’s authority to enforce its own sale orders;
- and evicting Tenant from the premises sold in bankruptcy is precisely that—an enforcement of the terms and provisions of the Bankruptcy Court’s sale order.
Moreover, it is neither necessary nor desirable, in a complicated bankruptcy case, for enforcement of a Bankruptcy Court order to be deferred to a lower-level state court. That’s especially true here because:
- such lower-level courts are often “unknowledgeable about the intricacies of bankruptcy law”; and
- the lower-level court here has already dismissed a forcible entry and detainer action against Tenant brought by the bankruptcy sale’s purchaser—”due to lack of jurisdiction.”
–Emergency
Tenant argues that the eviction matter before the Court is not an emergency, and that emergency relief is not required.
This argument is without merit because:
- the Bankruptcy Court’s docket for this case shows that delays in enforcing the terms and provisions of the sale order have been ongoing; and
- the Bankruptcy Court has the exclusive right to maintain its docket and to set emergency hearings.
–Tenant’s Involuntary Bankruptcy
An involuntary bankruptcy proceeding has been filed against Tenant.
Tenant argues that the automatic bankruptcy stay arising from that involuntary case limits the Bankruptcy Court’s ability in this case to grant the requested eviction relief.
This argument is without merit because:
- the Bankruptcy Judge in this case is the same person as the Bankruptcy Judge in Tenant’s involuntary case, and
- the Bankruptcy Judge for both cases “will retroactively lift the automatic stay for cause, as to this case, based on the findings in this order.”
Appeals
Tenant appeals to the U.S. District Court for the Southern District of Texas and requests a stay pending appeal. That request is denied. See Case No. 4:24-cv-4835.
So, Tenant appeals the District Court’s stay denial to the U.S. Court of Appeals for the Fifth Circuit. And the Fifth Circuit dismisses the appeal on January 31, 2025, “for want of prosecution” because Tenant “failed to timely file a transcript order form in our court.” See Case No. 24-20552.
Conclusion
The In re Galleria 2425 Owner, L.L.C., case provides an interesting and informative look into what can happen when a person in possession of real estate refuses to vacate after a bankruptcy sale of the premises.
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