In the Matter of: CURTIS HAROLD DEBERRY, Debtor, CHERI ANN WHITLOCK, Appellant, v. JOHN PATRICK LOWE, Appellee.
No. 18-50335
United States Court of Appeals, Fifth Circuit
December 23, 2019
No. 18-50335
In the Matter of: CURTIS HAROLD DEBERRY, Debtor,
CHERI ANN WHITLOCK, Appellant,
v.
JOHN PATRICK LOWE, Appellee.
Appeal from the United States District Court for the Western District of Texas
Before CLEMENT, DUNCAN, and OLDHAM, Circuit Judges.
ANDREW S. OLDHAM, Circuit Judge:
The Bankruptcy Code empowers a trustee to “avoid” certain pre-petition transactions and “recover” funds rightfully owed to the bankruptcy estate. The question presented is whether the trustee can double-recover funds that were already returned. The district and bankruptcy courts below said yes, disagreeing with every other court that has considered the question. We vacate and remand.
I.
Curtis DeBerry owned a produce-distribution business in San Antonio.
He filed a Chapter 7 bankruptcy petition in February 2014. He committed
A.
A few months before Mr. DeBerry filed for bankruptcy, his wife, Kathy DeBerry (née Whitlock), opened a joint bank account at Wells Fargo with her sister-in-law, Appellant Cheri Whitlock. Mrs. DeBerry allegedly wanted to use the account to transfer money to her children, who were away at school. It’s unclear why she needed a joint bank account with Ms. Whitlock to do that.
On August 26, 2013, Ms. Whitlock went with Mrs. DeBerry to open the account at a Wells Fargo branch. Mrs. DeBerry gave her a cashier’s check for $275,000 withdrawn from the DeBerrys’ joint account. Ms. Whitlock endorsed the check, and they deposited it in the new Wells Fargo account.
Three days later, Mrs. DeBerry removed herself from the Wells Fargo account, leaving it solely in Ms. Whitlock’s name. Ms. Whitlock signed the form that made her the sole accountholder, but she attested that Mrs. DeBerry showed her only the signature pages when asking her for a signature. She did not know Mrs. DeBerry was removing herself from the account, and she “would have never signed a document permitting that to happen.”
Ms. Whitlock explained that her sister-in-law was “always busy with work.” “I didn’t work at the time,” Ms. Whitlock testified, “[s]o, she would ask me can you go sign this paper [at the bank] and I’d say, yeah, I’ll pop in.” She “never questioned why Kathy wasn’t signing the[] documents” herself. “I was doing a favor for my sister-in-law and never asked,” Ms. Whitlock testified.
The money didn’t stay in the Wells Fargo account for long. Starting about
a month after the sisters-in-law opened the account, the $275,000 was
transferred out. On September 23, Ms. Whitlock wired $33,500 to The
On October 7, Ms. Whitlock signed the two wire transfers at the heart of this case. The first transferred $32,000 from the Wells Fargo account to Kathy DeBerry’s personal bank account, which was in her name only. The second transferred $200,000 to an account owned by Mr. DeBerry’s LLC, “MBC.”1 Ms. Whitlock testified that she signed the October 7 wire transfers, like the others, at Mrs. DeBerry’s request and that she neither filled out the forms nor asked about their destinations or purposes.
Ms. Whitlock testified: “It never occurred to me to review the transfer request or the reasons why the transfers were being made. . . . Because the monies belonged to Kathy [DeBerry], I did not question what she wanted to do with [them].”
B.
The Trustee filed an adversary proceeding against Ms. Whitlock (and
others) to avoid and recover the $275,000 as a fraudulent transfer. He settled
with Chantel DeBerry, so the $33,500 transferred on September 23 is no longer
at issue. That leaves $241,500. The Trustee argues Ms. Whitlock is liable for
all $241,500 under
1.
To unwind a fraudulent transfer, the trustee must first “avoid” it. See In re Picard, 917 F.3d 85, 97 (2d Cir. 2019). The bankruptcy court concluded the DeBerrys’ $275,000 transfer to Ms. Whitlock evidenced many of the “badges of fraud” that allow an inference of fraudulent intent by the transferor under both federal bankruptcy law and Texas law. See Soza v. Hill (In re Soza), 542 F.3d 1060, 1067 (5th Cir. 2008). For example, the transfer was not supported by any consideration from Ms. Whitlock, Ms. Whitlock is a family member of the debtor, Mr. DeBerry retained some practical control over the funds, and Mr. DeBerry was “under great financial stress” at the time of the transfer. Based on these findings, the bankruptcy court concluded the Trustee could avoid the transfer. Ms. Whitlock concedes that the transfer is avoidable.
2.
“In fraudulent transfer actions, there is a distinction between avoiding
the transaction and actually recovering the property or the value thereof.” IBT
Int’l, Inc. v. Northern (In re Int’l Admin. Servs., Inc.), 408 F.3d 689, 703 (11th
Cir. 2005); see also Picard, 917 F.3d at 97; Acequia, Inc. v. Clinton (In re
Acequia, Inc.), 34 F.3d 800, 809 (9th Cir. 1994). A bankruptcy trustee can
recover from certain transferees. See
The bankruptcy court held Ms. Whitlock had dominion and control over
the funds in the Wells Fargo account. The original $275,000 cashier’s check
3.
The final question before the bankruptcy court was whether recovery
from Ms. Whitlock would give the Trustee an impermissible double recovery in
violation of the “single-satisfaction rule.” According to the Bankruptcy Code,
“[t]he trustee is entitled to only a single satisfaction” for avoidable transactions
that are subject to recovery under
Ms. Whitlock appealed to this Court. We review the bankruptcy court’s conclusions of law de novo and its findings of fact for clear error. First Nat’l Bank v. Crescent Elec. Supply Co. (In re Renaissance Hosp. Grand Prairie Inc.), 713 F.3d 285, 294 (5th Cir. 2013).
II.
Ms. Whitlock raises two arguments on appeal. First, she says she is not
a “transferee” under
In matters of statutory interpretation, text is always the alpha. Here, it’s
also the omega.
B.
One way or another, every other court to consider the issue has agreed
with our reading of the plain text. Many courts get there by way of
Other courts get there by way of the bankruptcy court’s equitable powers. These include the Eleventh Circuit, which has concluded that bankruptcy courts have equitable discretion to adjust the trustee’s recovery to prevent a windfall. See Bakst v. Wetzel (In re Kingsley), 518 F.3d 874, 877–78 (11th Cir. 2008) (per curiam); see also Dobin v. Presidential Fin. Corp. of Del. Valley (In re Cybridge Corp.), 312 B.R. 262, 271 (D.N.J. 2004); Holber v. Nikparvar (In re Incare, LLC), No. 13-14926-ELF, Adv. P. No. 14-0248, 2018 WL 2121799, at *15–16 (Bankr. E.D. Pa. May 7, 2018); Bakst v. Clarkston (In re Clarkston), 387 B.R. 882, 891 (Bankr. S.D. Fla. 2008); Bakst v. Sawran (In re Sawran), 359 B.R. 348, 351–52 (Bankr. S.D. Fla. 2007).
Whichever route they’ve taken, these courts all ended up in the same place: The bankruptcy trustee cannot “recover” property that the transferee returned to the debtor before the bankruptcy filing. And we are particularly wary of disrupting such a consistent rule in bankruptcy law, where uniformity “is sufficiently important that our Constitution authorizes Congress to establish ‘uniform laws on the subject of bankruptcies throughout the United States.’” Ultra Petroleum Corp. v. Ad Hoc Comm. of Unsecured Creditors of Ultra Res., Inc. (In re Ultra Petroleum Corp.), 943 F.3d 758, 763–64 (5th Cir. 2019) (quoting U.S. CONST. art I, § 8, cl. 4).
The Trustee doesn’t point to a single decision that supports his reading
of
III.
The Trustee raises four arguments against the courts’ uniform
interpretation of
A.
The Trustee’s primary argument is that a “plain reading” of
The text of
And “satisfaction under subsection (a)” is a limit on how subsection (a)
can be used—to provide only a single satisfaction—not a positive grant of
recovery power or entitlement to subsection (a) recoveries. Accord Segner v.
Ruthven Oil & Gas, LLC (In re Provident Royalties, LLC), 581 B.R. 185, 195
(Bankr. N.D. Tex. 2017) (“[T]he specific purpose of
B.
The Trustee’s second argument is likewise unavailing. He argues that
“nothing in the legislative history suggests that the Congress intended
We are reluctant to rely on legislative history for the simple reason that
it’s not law. See Lawson v. FMR LLC, 571 U.S. 429, 459–60 (2014) (Scalia, J.,
concurring in part and concurring in the judgment) (“[W]e are a government of
laws, not of men, and are governed by what Congress enacted rather than by
what it intended . . . .”); Hoyt v. Lane Constr. Corp., 927 F.3d 287, 294 (5th Cir.
2019) (describing reliance on legislative history as akin to “looking over a crowd
and picking out your friends” (quoting Patricia M. Wald, Some Observations
on the Use of Legislative History in the 1981 Supreme Court Term, 68 IOWA L.
REV. 195, 214 (1983))). But even assuming legislative history is relevant in
general, we find this particular history irrelevant. No one disputes the
proposition recognized in the report: The single-satisfaction rule allows the
trustee to recover only once, even if multiple transferees could be liable. See,
e.g., Cybridge, 312 B.R. at 268. That’s why everyone agrees Ms. Whitlock is not
liable for the $33,500 the Trustee recovered from Chantel DeBerry. The House
Report says nothing about whether or how
C.
Third, the Trustee argues that because the bankruptcy estate does not
exist until the petition is filed, a pre-petition satisfaction does not count as
recovery “for the benefit of the estate.”
But we do not hold the return of the property constitutes a recovery “for
the benefit of the estate” under
Finally, the Trustee argues the myriad bankruptcy court cases rejecting his reading “are all distinguishable because,” in those cases, “the recovery sought actually would constitute a windfall to the bankruptcy estate.” He says recovery from Ms. Whitlock would not provide a windfall to Mr. DeBerry’s estate because the $232,000 did not “remain in Curtis’s estate at the time of the petition.” And the district court agreed, concluding that “[t]hings might have been different had Mr. DeBerry not spent all the money before declaring bankruptcy, or had the money been spent on tangible goods that later became part of the bankruptcy estate under the trustee’s control.”
The Code does not give the Trustee power “to review the reasonableness of a debtor’s pre-petition expenditures.” Geltzer v. Xaverian High Sch. (In re Akanmu), 502 B.R. 124, 134 (Bankr. E.D.N.Y. 2013). And we see no basis in the Bankruptcy Code for distinguishing between purchasing “tangible goods” and other uses for cash. Intangible interests are just as much part of the bankruptcy estate as are tangible assets. See Unsecured Creditors Disbursement Comm. v. Antill Pipeline Constr. Co. (In re Equinox Oil Co.), 300 F.3d 614, 618 (5th Cir. 2002).
If the DeBerrys frittered the money away—and perhaps they did—it has nothing to do with the fraudulent transfer or Ms. Whitlock. See Pearlman, 515 B.R. at 899; cf. Cybridge, 312 B.R. at 272 (rejecting trustee’s argument that allowing an “equitable credit” for returned funds would diminish the bankruptcy estate because “every penny [the transferee] took out [of the estate] has also been put back in”). Indeed, even the district court observed that if the Wells Fargo account had never been opened, “Mr. DeBerry could still have spent the $232,000.”
Ms. Whitlock received fraudulently transferred funds. She had an obligation to return the transferred funds to Mr. DeBerry, the transferor, for the benefit of his creditors. She could satisfy that obligation by transferring the funds back to him prior to his bankruptcy filing. Nothing required her to hold onto the funds until after he filed for bankruptcy. And if she has satisfied her obligation, there is nothing left for the Trustee to recover.3
The judgment of the district court is VACATED and REMANDED for further proceedings consistent with this opinion.