785 F.3d 143 (5th Cir. 2015), 14-10563, In re American Housing Foundation
|Citation:||785 F.3d 143|
|Opinion Judge:||KING, Circuit Judge.|
|Party Name:||In the Matter of: AMERICAN HOUSING FOUNDATION, Debtor; ROBERT L. TEMPLETON, Appellant Cross-Appellee v. WALTER O'CHESKEY, Trustee, Appellee Cross-Appellant|
|Attorney:||For Robert L. Templeton, Appellant Cross-Appellee: Joe L. Lovell, Esq., Deborah Diane Reeves, Esq., Lovell, Lovell, Newsom & Isern, L.L.P., Amarillo, TX; Jeffery Dayne Carruth, Weycer, Kaplan, Pulaski & Zuber, P.C., Arlington, TX; Joseph David Martinec, Martinec, Winn, Vickers & McElroy, P.C., Au...|
|Judge Panel:||Before KING, DAVIS, and OWEN, Circuit Judges.|
|Case Date:||April 28, 2015|
|Court:||United States Courts of Appeals, Court of Appeals for the Fifth Circuit|
[Copyrighted Material Omitted]
Appeals from the United States District Court for the Northern District of Texas.
Appellant Robert Templeton invested in certain limited partnerships formed under the auspices of American Housing Foundation, the debtor, which was in the business of developing low-income housing projects. American Housing Foundation, which issued guaranties of Templeton's investments, ultimately filed for Chapter 11 bankruptcy. Templeton asserted claims against American Housing Foundation in bankruptcy based on the guaranties and based on various state law causes of action related to his investments. The bankruptcy court issued a judgment subordinating those claims " pursuant to the provisions of 11 U.S.C. § 510(b)." The court also voided, as preferential, transfers made to Templeton within 90 days of the bankruptcy filing. However, the bankruptcy court refused to void allegedly fraudulent transfers.
The parties cross-appealed to the district court, which affirmed the bankruptcy court's judgment in its entirety. The parties now cross-appeal to this court. For the following reasons, we AFFIRM in part and REVERSE in part the judgment below.
I. Factual and Procedural Background
A. Factual Background
Steve W. Sterquell, a certified public accountant, was the president and executive director of debtor American Housing Foundation (" AHF" ). Founded by Sterquell in 1989, AHF is a 501(c)(3) non-profit, tax-exempt entity which develops low-income housing projects. By 2009, AHF owned or managed approximately 14,000 housing units across nine states. Many of these properties were eligible for Low Income Housing Tax Credits (LIHTC) and other tax exemptions and financial aid.
AHF used these tax advantages in the financing of its developments. Among other arrangements, AHF created various single-purpose limited partnerships (" LPs" ) to fund these projects.1 Either AHF or one of its wholly-owned subsidiaries served as the general partner for these LPs. Private investors would buy into the LPs and serve as limited partners; AHF guaranteed repayment of those investments, often unconditionally, and sometimes with interest. AHF purportedly sought investments in these LPs to cover certain " soft" costs for its projects--e.g., attorney's fees, architect's fees, surveying fees, paint, as well as expenses related to the LIHTC application process.2 AHF represented that through the LIHTC program, investors could " make an equity contribution to the development of rental units for low-income households" and receive " a dollar-for-dollar reduction of their tax liability." 3 This general arrangement is not an uncommon method of funding low-income housing developments. See Eric Mittereder, Pushing the Limits: Nonprofit Guarantees in LIHTC Joint Ventures, 22 J. Affordable Hous. & Cmty. Dev. L. 79, 82-84 (2013); Roberta L. Rubin & Jonathan Klein, Nonprofit Guaranties in Tax Credit Transactions: A
New Era ?, 15 J. Affordable Hous. & Cmty. Dev. L. 314, 315-16 (2006); Jonathan Klein & Roberta Rubin, Nonprofit Guaranties in Tax Credit Transactions, 9 J. Affordable Hous. & Cmty. Dev. L. 302, 308-09 (2000) (" During the predevelopment stage of an affordable housing development, a stage that may take one year, two years, or even longer, seed money financing is essential. Virtually no predevelopment lender will provide unsecured funding to a single-purpose limited partnership for a project that does not have permits, approvals, complete financing, and sometimes even real estate without an unlimited guaranty of repayment." ).4
Appellant Robert Templeton is a trial attorney who has practiced law in Texas for over fifty years. Templeton became acquainted with Sterquell in the 1980s. Starting in the late 1990's, Templeton and his wife began investing in AHF and AHF-related entities through Sterquell--ultimately investing over $5 million. Most relevant here, from 2006 to 2008, Templeton invested in various LPs in the manner described above--i.e., either AHF or a wholly-owned AHF subsidiary served as the general partner (taking a 1% or less equity interest in the LP), while Templeton served as a limited partner (taking, along with other limited partners, most of the equity in the LP). Templeton's investments in five of these LPs--GOZ No. 1, Ltd. (" GOZ" ); LIHTC-M2M No. 2, LP (" M2M-2" ); LIHTC-M2M No. 3, LP (" M2M-3" ); LIHTC Walden II Development, Ltd. (" Walden II" ); and AHF Gray Ranch, Ltd. (" Gray Ranch" )--are at issue in the present appeal.5
These LPs, in which Templeton invested over $2 million,6 were formed for the purposes of developing various residential properties. Because these investments do not appear to have been well-documented, the details surrounding the investments are less than clear. For instance, according to Templeton, some of his later investments consisted of the " rolled over" value of his earlier investments. In any event, concurrent with each investment, AHF purported to guaranty repayment of the investment--sometimes with interest. The guaranty documents, however, are in key respects flawed. For example, some of the documents state that AHF " agree[d] to pay, when due or declared due as provided in the Loan Documents, the Guaranteed Investment to [Templeton]" --even though there do not appear to be any associated " Loan Documents." With respect to another LP, AHF guaranteed the return of Templeton's " Initial Capital Contribution" --defined as the amount of cash Templeton invested " prior to the Effective Date" --even though Templeton made all of his investments after that Effective Date.7
Templeton testified that he invested in the LPs to make money, not to gain tax benefits: " The reason I got into [these investments] is this simple. This was the safest kind of investment that I had seen
with those guarantees, with the financial condition of this company and the history that I had, and the return." However, the record is clear that Templeton sought significant tax benefits as a result of most of his investments. In addition, Templeton received quarterly interest payments in relation to his investments in Walden II.
It is undisputed that many of the funds Templeton and others invested in the LPs were not put to their intended purposes. Rather, Sterquell used his LIHTC investment arrangements to obtain funds and fraudulently divert them from the LPs, using the funds to benefit himself, AHF, and other associated entities for purposes other than the purported aims of the LPs. In particular, the bankruptcy court found that AHF and Sterquell used AHF Development, Ltd. (" AHFD" )--an LP for which AHF served as general partner--as a conduit bank account for these activities. The Trustee's First Amended Disclosure Statement (" Disclosure Statement" ) describes the events leading to AHF's bankruptcy:
Prior to the [bankruptcy], [AHF] pursued an aggressive strategy of heavily leveraged acquisitions of properties across the nation. As many as 200 satellite entities were created to facilitate multiple investments in low-income housing tax-credit properties. During this time, [AHF] was focused almost exclusively on deals. There was no focus on managing the properties acquired. Over the course of time, because of tightening financial markets and the inability to obtain tax credit allocations, it became more and more difficult for [AHF] to obtain sufficient cash from lenders or investors to fund all of the various obligations of [AHF]. As a result, [AHF] took cash from properties and used that cash to pay obligations of [AHF] and its related entities. This cash drain from the properties resulted in a deterioration in the condition of the properties because no funds were then available for basic upkeep.
Sterquell committed suicide on April 1, 2009, prompting investigation into his activities and, ultimately, AHF's bankruptcy. Initially, Templeton led a group of creditors and investors that attempted to obtain information regarding the activities of Sterquell and AHF prior to his death. According to the Disclosure Statement, the creditors and investors concluded that " Sterquell had worked with a complex web of interrelated entities that apparently received funds from [AHF] and investors" and " funds invested were not always put in the accounts of the entities in which the funds were invested." The group also discovered that just prior to his death, Sterquell had transferred approximately $24 million in life insurance funds from AHF to trusts controlled by or for the benefit of the Sterquell family.8
B. Procedural Background
On April 21, 2009, creditors of AHF filed an involuntary petition against it pursuant to Chapter 11 of the Bankruptcy Code. On June 11, 2009, AHF filed a voluntary petition pursuant to Chapter 11. The bankruptcy court consolidated the two cases and appointed Walter O'Cheskey as the Chapter 11 Trustee. On December...
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