99 F.4th 223
5th Cir.2024Background
- GFS Industries, a Texas LLC, entered a merchant cash advance agreement with Avion Funding in April 2022, obtaining $190,000 in exchange for $299,800 in future receivables.
- GFS represented it did not anticipate filing for bankruptcy but filed for Chapter 11 bankruptcy (electing Subchapter V) two weeks later.
- Avion initiated an adversary proceeding in bankruptcy court, alleging GFS misrepresented its bankruptcy intentions and seeking a declaration that the debt was nondischargeable under 11 U.S.C. § 523(a).
- The bankruptcy court ruled in favor of GFS, holding § 523(a) discharge exceptions in Subchapter V applied only to individual, not corporate, debtors, and dismissed Avion’s complaint.
- The case was certified for direct appeal to the Fifth Circuit due to a split between bankruptcy courts and the Fourth Circuit’s contrary ruling in Cleary Packaging.
Issues
| Issue | Plaintiff’s Argument | Defendant’s Argument | Held |
|---|---|---|---|
| Does § 523(a)’s nondischargeability apply to corporate debtors under Subchapter V? | Avion: § 1192(2) refers to kinds of debt, not kinds of debtor, so exceptions apply to both individual and corporate debtors. | GFS: § 523(a)’s language (“individual debtor”) limits exceptions to individuals only; corporate Subchapter V debtors are not affected. | Yes; both individual and corporate Subchapter V debtors are subject to § 523(a) exceptions. |
Key Cases Cited
- Cantwell-Cleary Co. v. Cleary Packaging, LLC, 36 F.4th 509 (4th Cir. 2022) (held that § 523(a) discharge exceptions apply to both individual and corporate Subchapter V debtors)
- Drive Fin. Servs., L.P. v. Jordan, 521 F.3d 343 (5th Cir. 2008) (standard for appellate review of bankruptcy decisions)
- Norsworthy v. Hous. Indep. Sch. Dist., 70 F.4th 332 (5th Cir. 2023) (de novo review for dismissals under Rule 12(b)(6))
- In re Lively, 717 F.3d 406 (5th Cir. 2013) (statutory construction in context of bankruptcy code)