Johnine Doutt said she had never been involved in a court case, so she wasn’t exactly sure what to do. She received two notices inviting her to file a claim against the Garden Oaks Maintenance Organization (GOMO), which has been in bankruptcy for more than two years, and both times she responded by filling out the provided form and submitting it to the court along with documentation about what she had paid to the embattled homeowners association.
Then, in June, the elderly Garden Oaks resident received a letter saying there was an objection to her claim and hundreds of others. Doutt also read about a related court hearing in The Leader, which she contacted on the morning of July 29 to get details on how to participate in the proceeding later that day.
Doutt wasn’t able to listen in to the telephonic hearing and, nearly one week later, was informed by a reporter that her claim had been dropped by the court. The letter she received in June told her she had a 21-day window to file a response to the objection, but she didn’t realize it at the time and didn’t act.
“I just didn’t pay attention,” Doutt said. “I guess I should read all the small print.”
Doutt was not alone in failing to file a response to her challenged claim against GOMO, nor was she the only Garden Oaks homeowner whose claim was disallowed as a result. The omnibus objection filed by Chapter 7 trustee Randy Williams included most of the near-450 claims that had been filed, and only about 35 of those claimants challenged the objection by filing timely responses to the court.
“So over 400 claims amounting to (more than) a million dollars went poof in the first five minutes of that hearing,” said Garden Oaks homeowner Pam Parks, the former office manager for GOMO. “That’s more motion than we’ve seen in the last (two) years.”
The fate of those 35 or so claims will be decided at a continued hearing scheduled for 2:30 p.m. Thursday, Aug. 13, when federal bankruptcy Judge David Jones will hear arguments about their validity. Williams and his special counsel, Johnie Patterson, who represented GOMO before the case was converted from Chapter 11 to Chapter 7 a little more than a year ago, contend the claims are either baseless or time barred under the law.
Patterson said during the July 29 hearing that many of the challenged claims were filed without a legal explanation for why they should be granted, or they were based on a 2016 state district court ruling in favor of Garden Oaks homeowner Peter Chang, whose counsel successfully argued that GOMO formed improperly in 2002 and therefore had no standing to enforce deed restrictions in the neighborhood or collect .75-percent transfer fees as outlined in the deed restrictions.
But Williams has argued the result of Chang’s case against GOMO applies only to him and not to other homeowners who were not part of that litigation. Williams also contends there is a 180-day statute of limitations tied to the Texas Property Code violation in 2002, which he said GOMO’s legal counsel should have used as a defense in the case against Chang.
Representing many of the remaining claimants is Houston attorney Casey Lambright, who plans to challenge the legal stance taken by Patterson and Williams. So does Garden Oaks homeowner Stewart Hoffer, an attorney who is representing himself.
Jones said during the July 29 hearing that the bankruptcy code requires him to treat each claim individually, so he could rule differently on different claims and said he is open to factual arguments as well as legal ones. Regarding the transfer fees – GOMO’s primary revenue source and in many cases the amount of money tied to the claims – Jones said the dates they were paid “may be determinant.”
“I would hate to see somebody lose a valid claim because they got lumped into a single legal argument,” Jones said.
Williams said the way Jones rules figures to have significant ramifications on not only the outcome of the bankruptcy case but also the fate of the homeowners association. If the judge sides with the trustee, disallows most of the claims and rules the statute of limitations applies to GOMO’s 2002 violation of the Texas Property Code, then the HOA could keep a large chunk of its assets and be immune to future legal challenges about its improper formation.
Williams said he has not objected to “a few” of the claims against GOMO, including the one filed by Peter and Katherine Chang. But he said it’s “possible” he could object to more claims at some point.
“There’s the possibility that (GOMO) may consider going to the court and asking it to reconsider putting it back into Chapter 11, so it can reorganize,” Williams said. “I still have about $582,000 and change in the bank. If all these claims objections are sustained, then I don’t think the remaining claims exceed the cash that’s on hand. And I think there is still an interest on the part of the (GOMO) board and I think there’s interest on the part of some people in the community that there be an HOA that’s functioning.”
On the other hand, if Jones rules that the Changs’ 2016 case applies to other homeowners and that GOMO formed improperly and cannot collect transfer fees, Williams said the organization would be “back to ground zero” and the neighborhood might consider forming a new HOA.
“If he rules that GOMO can’t collect any transfer fees, then it’s real hard for GOMO to function,” said Al Thomas, who served as GOMO vice president before Jones converted the case to Chapter 7.
If Jones sides with the statute of limitations argument and disallows claims because of that, Peter Chang said the bankruptcy case should not continue. He also questioned GOMO’s motives for filing for bankruptcy in the first place, since doing so invited all the claims against it.
Parks said she filed a claim not because she wanted to recoup the transfer fee she paid – “I’ve already eaten my hamburger,” she said – but because it would give her more of a say in a Chapter 11 restructuring plan. She said she also is among a group of Garden Oaks property owners who pledged to give whatever they might receive in the bankruptcy case to the Garden Oaks Civic Club.
So when Parks’ claim was included in the omnibus objection, she chose not to respond.
Doutt, even though she wanted to recoup the money she paid to GOMO, said she suspected from the beginning that her claim would not to amount to much because of the number of other claims and the higher dollar amounts associated with some of them. Still, her experience has soured her on the HOA, which she said Garden Oaks does not need.
“It’s not as if you’re in a condo or something and you need somebody to keep the owners in line,” Doutt said. “It’s not like that at all. It’s a lovely neighborhood.”