In the Matter of Andrews

• Decision Date: 19 January 2001
• Docket Number: 99-40832,Nos. 99-40532,s. 99-40532
• Citation: 239 F.3d 708
• Parties: (5th Cir. 2001) In The Matter Of: JOE ALVIN ANDREWS, SR., Debtor. CADLEWAY PROPERTIES, INC., Appellant, v. JOE ALVIN ANDREWS, SR., Appellee. In The Matter Of: JOE ALVIN ANDREWS, SR., Debtor. CADLEWAY PROPERTIES, INC., Appellant, v. JOE ALVIN ANDREWS, SR.; WHATABURGER OF ALICE, INC.; M. LOUISE ANDREWS; JOE ALVIN ANDREWS, JR.; KATHY A. REESE; MICHAEL BOUDLOCHE, Trustee, Appellees. In The Matter Of: JOE ALVIN ANDREWS, Debtor. CADLEWAY PROPERTIES, INC., Appellant, v. JOE ALVIN ANDREWS; WHATABURGER OF ALICE, INC.; M. LOUISE ANDREWS; JOE ALVIN ANDREWS, JR.; KATHY A. REESE; MICHAEL BOUDLOCHE, Trustee, Appellees. , and 99-40837
• Court: U.S. Court of Appeals — Fifth Circuit

Page 708

239 F.3d 708 (5th Cir. 2001)

In The Matter Of: JOE ALVIN ANDREWS, SR., Debtor.

CADLEWAY PROPERTIES, INC., Appellant, v. JOE ALVIN ANDREWS, SR., Appellee.

In The Matter Of: JOE ALVIN ANDREWS, SR., Debtor.

CADLEWAY PROPERTIES, INC., Appellant, v. JOE ALVIN ANDREWS, SR.; WHATABURGER OF ALICE, INC.; M. LOUISE ANDREWS; JOE ALVIN ANDREWS, JR.; KATHY A. REESE; MICHAEL BOUDLOCHE, Trustee, Appellees.

In The Matter Of: JOE ALVIN ANDREWS, Debtor.

CADLEWAY PROPERTIES, INC., Appellant, v. JOE ALVIN ANDREWS; WHATABURGER OF ALICE, INC.; M. LOUISE ANDREWS; JOE ALVIN ANDREWS, JR.; KATHY A. REESE; MICHAEL BOUDLOCHE, Trustee, Appellees.

Nos. 99-40532, 99-40832, and 99-40837

IN THE UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT

January 19, 2001

Appeals from the United States District Court for the Southern District of Texas.

Before JOLLY, HIGGINBOTHAM, and EMILIO M. GARZA, Circuit Judges.

PER CURIAM:

This case presents the question of whether a judgment debtor, forced to turn over his pending bankruptcy court claims to a sheriff for execution, retains any right to payment from the bankruptcy debtor sufficient to grant him standing to appeal adverse rulings on those claims. We hold that he does.

I

Cadleway Properties, Inc. ("Cadle") won a judgment of approximately $1 million against the debtor Joe Alvin Andrews, Sr. When Andrews filed for bankruptcy, Cadle filed a claim in bankruptcy court based on its $1 million judgment against Andrews. It also filed a damages claim against the defendants (including Andrews and the bankruptcy trustee) for conspiring to take all of Andrews's non-exempt assets out of Andrews's name and render Andrews judgment proof with respect to the $1 million claim. Cadle objected to Andrews's discharge.

The bankruptcy court denied Cadle's objection to the discharge and ruled that the trustee and not Cadle was the owner of the separate damages claim. Then, on April 1, 1998, Andrews, the trustee, and the other defendants filed a joint motion to compromise all claims, including the damages claim Cadle had brought. Cadle objected to the compromise claiming that the trustee could not settle what he did not own.

Meanwhile, David Lobingier brought a turnover proceeding in a Texas state trial court against Cadle. Cadle had refused to pay Lobingier the outstanding balances on Lobingier's judgments against Cadle.¹ In the turnover proceeding, Lobingier sought title to Cadle's judgment against Andrews. On May 28, 1998, the state district court issued a turnover judgment after a trial at which Cadle participated. The judgment turned over Cadle's claims in the Andrews bankruptcy to the Tarrant County Sheriff for sale, the proceeds of which would go to Lobingier.² Cadle never appealed the turnover order.

In bankruptcy court, a hearing on the proposed compromise was held on August 17, 1998. On September 22, 1998, Bankruptcy Judge Leal entered an order approving the compromise, which would pay $425,000 to the bankruptcy estate. On November 12, 1998, he entered a take-nothing judgment as to the separate damages claim. Andrews received a discharge.

Cadle appealed three decisions to the district court: the denial of its objection to the discharge action, the order approving the compromise of the damage claim, and the take-nothing judgment. The defendants, including Andrews and the trustee, moved to dismiss the appeal for lack of standing, arguing that the May 1998 turnover order immediately divested Cadle of any ownership interest in its judgment against Andrews and any other related claims. The district court granted the motion to dismiss, and Cadle appealed.

II

The question in this appeal is thus whether Cadle has standing to appeal the decisions of the bankruptcy court that he attempts to challenge.³ Under the bankruptcy code, three types of entities have standing to challenge a debtor's discharge: trustees, creditors, and United States trustees.⁴ A "creditor" is defined as an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor."⁵ In turn, a "claim" is defined in relevant part as "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured."⁶ This "broadest possible definition" of the term "claim" captures "all legal obligations of the debtor, no matter how remote or contingent."⁷

Cadle thus has standing as a "creditor" if it has a "claim." In other words, Cadle has standing if it has a right to payment from the debtor Andrews. The $1 million judgment that Cadle won against Andrews is a enforceable right to payment: it is a legal claim that has been reduced to judgment. Cadle also made a damages claim that also was a right to payment, although unliquidated, contingent, and disputed. This case therefore boils down to whether Cadle retained a right to payment from Andrews, even if contingent or disputed, after the turnover order was issued; if so, Cadle had a claim against Andrews and has standing to appeal the bankruptcy court's extinguishment of that claim.

Answering this question requires to an interpretation of the turnover order.⁸ The turnover order states:

IT IS THEREFORE, ORDERED, ADJUDGED AND DECREED that by and

through this order all of [Cadle's] right, title and interest to the Andrews Claim are hereby turned over to the Tarrant County Sheriff.

The order defines the "Andrews Claim" to include, inter alia, "[a]ll rights, claims, and/or causes of action belonging to [Cadle] . . . arising in any manner or in any time in [the Andrews] bankruptcy proceeding." On its face, then, the order "turn[s] over" to the Sheriff the $1 million claim against the Andrews bankruptcy estate and Cadle's damages claim against Andrews, the trustee, and the other defendants.

Appellees argue that this should be the end of our inquiry. Since the claims are no longer Cadle's, they contend, Cadle has no standing to appeal the bankruptcy court's rulings. This argument ignores the fact that "turn over" has a precise definition, provided by Texas statute,⁹ that delimits what is transferred to the Sheriff by a turnover order. To rely solely on the language in the order that "all of [Cadle's] right, title and interest to the Andrews Claim [was] turned over" only begs the question of what it means to "turn over" one's right, title, and interest.

The turnover statute provides the court with three options once it determines a turnover order is appropriate:

(b) The court may:

(1) order the judgment debtor to turn over nonexempt property that is in the debtor's possession or is subject to the debtor's control, together with all documents or records related to the property, to a designated sheriff or constable for execution;

(2) otherwise apply the property to the satisfaction of the judgment; or

(3) appoint a receiver with the authority to take possession of the nonexempt property, sell it, and pay the proceeds to the judgment creditor to the extent required to satisfy the judgment.¹⁰

Part (b)(1) describes what the state court did in this case.¹¹ It allows turnover to the Sheriff "for execution."

"Execution," like "turn over," is a term defined by Texas law. Rules 621 through 656 of the Texas Rules of Civil Procedure define execution. Execution is a process for enforcing a judgment.¹² An execution for sale of personal property requires a sheriff or constable ("officer") to levy upon the property and must provide for public notice of the sale.¹³ If the property sold does not satisfy the execution, the officer may take further action to satisfy the deficiency.¹⁴ Excess proceeds from the sale presumably are returned to the judgment debtor.¹⁵ The judgment debtor may replevy the seized property by delivery to the officer of a bond for the value of the property,¹⁶ and after replevy may dispose of the property if he pays the officer the value of the property or forfeits the bond.¹⁷

Thus, the judgment debtor is legally compelled to provide the property to the sheriff for purposes of an execution sale.¹⁸ A turnover order does not transfer title; it places an obligation on the judgment debtor to deliver the property to the sheriff. It creates a burden of production, not a conveyance.¹⁹ Ownership is transferred when the property is sold.

All this establishes that even after turnover, the judgment debtor retains an ownership interest in the levied property until it is sold. Until the turned-over property is sold, Cadle has a right to collect the $1 million judgment from Andrews.²⁰ Cadle also has a right to payment for his damages claim, contingent upon the success of that claim.²¹ A claim for damages that has not been reduced to judgment is still a "claim" under the bankruptcy act.²² Although the extent of Cadle's right to payment is contingent on whether Cadle replevies the judgment,²³ whether the sheriff sells the judgment (if not replevied),²⁴ and how much the judgment sells for (if sold),²⁵ even contingent right to payment is a claim under the bankruptcy code.²⁶

Appellees argue that our reliance on the rules of execution must be wrong because the turnover statute was intended to provide a remedy to creditors in addition to execution.²⁷ They correctly quote Bear Stearns & Co., Inc. v. Amad²⁸ as saying that the turnover statute creates "an additional and cumulative method to aid in the collection of [ ] judgment."²⁹ But they overlook the court's explanation of how the statute does this. As noted above, the turnover statute "require[s] the burden of production of property which is subject to execution to be placed with the debtor."³⁰ This shifting of the burden of production is the additional remedy turnover provides. Also, the argument that our holding renders the turnover statute redundant also ignores parts (b)(2) and (b)(3) of the turnover statute, which allow for execution-like sales without requiring the use of a...