Marco Cantu v. Michael Schmidt
784 F.3d 253
| 5th Cir. | 2015Background
- Cantus filed a May 2008 Chapter 11 case that was later converted to Chapter 7; trustee intervened against Stone in a malpractice suit, seeking ownership of settlement proceeds; settlement funds were placed in court registry pending ownership determination.
- Preconversion misconduct by Stone allegedly depleted estate assets, impeded plan confirmation, and increased administration costs; the bankruptcy court approved Stone’s fees and expenses related to Chapter 11 work; the district court ruled the proceeds belonged to the estate.
- The central issue is whether the settlement proceeds should be treated as property of the estate or as Cantus personal assets, depending on when the underlying causes of action accrued.
- The Fifth Circuit adopts the accrual approach (Swift) to determine estate ownership, contrary to the prepetition relationship/middle-ground tests used in other contexts; accrual focuses on when a wrongful act causes a legal injury to the estate.
- Court finds Stone’s misconduct caused preconversion injuries to the estate, including depletion of assets, unnecessary fees, and other mismanagement, so the causes of action accrued before conversion and belong to the estate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether accrual governs estate ownership of preconversion claims | Cantus seeks estate ownership | Stone/estate contends different timing rules apply | Accrual governs; preconversion injuries belong to the estate |
| Whether Stone’s misconduct injured the estate before conversion | Estate suffered injuries preconversion | Stone's conduct caused later injuries | Yes, injuries occurred preconversion and fit accrual |
| Whether settlement proceeds are estate property given preconversion injury | Proceeds were estate property | Proceeds belong to Cantus personally | Proceeds belong to the estate |
Key Cases Cited
- In re Swift, 129 F.3d 792 (5th Cir. 1997) (accrual focus to determine estate property)
- Yaquinto v. Segerstrom (In re Segerstrom), 247 F.3d 218 (5th Cir. 2001) (defines estate property accrual principles)
- Torch Liquidating Trust v. Stockstill, 561 F.3d 377 (5th Cir. 2009) (discusses accrual and estate injury concepts)
- Wheeler v. Magdovitz (In re Wheeler), 137 F.3d 299 (5th Cir. 1998) (applies accrual timing in prepetition context)
- Lemelle v. Universal Mfg. Corp., 18 F.3d 1268 (5th Cir. 1994) (describes prepetition relationship approach historically)
- Placid Oil Co. v. Williams (In re Placid Oil Co.), 463 B.R. 803 (Bankr. N.D. Tex. 2012) (illustrates middle-ground reasoning in prepetition timing)
- In re M. Frenville Co., Inc., 744 F.2d 332 (3d Cir. 1984) (pre-petition accrual considerations in tort claims)
- Segerstrom, 247 F.3d 218 (5th Cir. 2001) (estate vs. debtor timing framework)