A bankruptcy trustee has sued McAllen lawyer David N. Calvillo and the Calvillo Law Firm in bankruptcy court, seeking disgorgement of about $3 million Calvillo allegedly paid to his firm and others out of a divorce-related receivership account.
In an original complaint filed in the McAllen Division of the U.S. Bankruptcy Court for the Southern District of Texas, bankruptcy trustee Michael B. Schmidt brings breach of fiduciary duty, negligence and fraudulent transfers causes of action against Calvillo and a breach of fiduciary duty cause of action against the Calvillo Law Firm.
Schmidt cites 11 U.S.C. §543(c) and asks Bankruptcy Judge Richard Schmidt to “surcharge” and order Calvillo and his firm to disgorge the approximately $3 million in “improper and excessive distributions.”
Michael Schmidt, of the Law Offices of Michael B. Schmidt in Corpus Christi, filed the adversary action in In Re Ocean Tower LP, Debtor on July 27. Schmidt did not return two telephone messages seeking comment.
In response to the allegations in the complaint, Calvillo says, “We intend to defend vigorously. There are apparently some miscommunications. . . . We are confident the court system will sort it out.”
Michael Schmidt alleges in the complaint that in 2008, Judge Noe Gonzalez of Hidalgo County’s 370th District Court appointed Calvillo as receiver for the marital estate of a couple who filed for divorce in 2006. The debtor in the bankruptcy, Ocean Tower, a limited partnership formed to build, market and develop a condominium project on South Padre Island, is one of numerous legal entities and/or trusts owned by the couple, Schmidt alleges in the complaint.
Schmidt alleges the condo tower “began to lean significantly and eventually had to be demolished” and Ocean Tower hired Houston’s Caddell & Chapman and solo practitioner John King of McAllen in 2008 to file “building defect” litigation. That litigation settled in 2009, and Ocean Tower netted $3,585,131 of a gross recovery of $7,242,396, Schmidt alleges in the complaint.
Schmidt alleges Calvillo deposited the $3.58 million from the settlement into a receivership account, and “exercising his sole discretion” paid fees and expenses from the money that were “not chargeable” to Ocean Tower and were to the detriment of Ocean Tower’s creditors. Those “improper and excessive” payments, Schmidt alleges in the complaint, include $1,259,903 to Calvillo’s firm for fees and expenses.
However, Schmidt alleges in the complaint, the “actual creditors of Ocean Tower” who paid deposits on condominiums, have not been paid. “In fact, Calvillo used his receivership position to the detriment of these Ocean Tower creditors . . . by refusing to honor and pay their legitimate claims for return of their condominium deposits, instead funneling Ocean Tower money for non-Ocean Tower fees and expenses,” Schmidt alleges.
Seeking reimbursement for their deposits, Schmidt alleges that a group of creditors filed the involuntary bankruptcy petition for Ocean Tower in 2011. According to records in the bankruptcy, Schmidt alleges, the total amount of claims in the bankruptcy is $8,203,786, and only $192,531 remains in the receivership account.
The trustee seeks to surcharge Calvillo and his firm for “all of the improper or excessive disbursements.” Schmidt also seeks to surcharge Calvillo and his firm for a 39 percent interest in Ocean Tower’s land on South Padre Island, with a market value of at least $663,000, that allegedly was assigned to an entity owned by the litigation attorneys, Caddell & Chapman and King, under their contract.
King says the settlement agreement, which was confidential, specifically gave the attorneys 39 percent of the value of the property. “That was part of the negotiated deal that was signed by all parties,” King says.
Michael Caddell, a partner in Caddell & Chapman, did not return a telephone call seeking comment.