960 F.2d 1277 (5th Cir. 1992), 91-1069, Luce, Matter of

Docket Nº:91-1069.
Citation:960 F.2d 1277
Party Name:In the Matter of: Billye M. LUCE, d/b/a L & L International, L & L Leasing, and L & L International Enterprises, Debtor. Billye M. LUCE, d/b/a L & L International, L & L Leasing and L & L International Enterprises, Appellant-Cross-Appellee, v. FIRST EQUIPMENT LEASING CORPORATION, Appellee-Cross-Appellant. In the Matter of: Jack M. LUCE and Billye M
Case Date:April 30, 1992
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 1277

960 F.2d 1277 (5th Cir. 1992)

In the Matter of: Billye M. LUCE, d/b/a L & L

International, L & L Leasing, and L & L International Enterprises, Debtor.

Billye M. LUCE, d/b/a L & L International, L & L Leasing and L & L International Enterprises, Appellant-Cross-Appellee,



In the Matter of: Jack M. LUCE and Billye M. Luce, d/b/a L & L International and L & L Leasing, Debtors.

Billye M. LUCE, d/b/a L & L International and L & L Leasing, Appellant-Cross-Appellee,



No. 91-1069.

United States Court of Appeals, Fifth Circuit

April 30, 1992

Page 1278

L. Vance Stanton, Dallas, Tex., for debtors and appellant-cross-appellee.

Thomas R. Trompeter, Payne & Vendig, Dallas, Tex., for appellee-cross-appellant Westinghouse Credit Corp.

Hance W. Burrow, III, Goins, Underkofler, Crawford & Langdon, Dallas, Tex., for appellee-cross-appellant First Equipment Leasing Corp.

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

Page 1279


(Opinion March 9, 1992, 5th Cir.1992, 1992 WL 42352)

Before GOLDBERG, SMITH, and DUHE, Circuit Judges.


Westinghouse Credit Corporation requested rehearing by the panel to clarify the scope of the remand to the bankruptcy court articulated in the panel opinion reported at slip op. 3422 1992 WL 42352 (5th Cir. Mar. 9, 1992). After careful consideration, we voted to GRANT the petition for panel rehearing. In connection therewith, we withdraw our earlier opinion in this appeal in its entirety and substitute the following:

In this bankruptcy case, we examine several issues concerning a debtor's exemption from discharge. First, must this Court retroactively apply the preponderance of evidence standard of proof for dischargeability exceptions as articulated by the Supreme Court after the bankruptcy court entered judgment?; second, did the bankruptcy court clearly err in exempting the debt under three First Equipment Leasing Corporation leases and one Westinghouse Credit Corporation lease from discharge?; third, did the bankruptcy court clearly err in finding the debt from another Westinghouse lease dischargeable?; and, fourth, did the district court err in refusing to award the prevailing creditors either pre- or post-petition attorney's fees?


    Billye and Jack Luce ("the Luces") were partners in several partnerships in the 1980's: L & L Leasing ("LLL"), L & L International ("LLI"), and L & L International Enterprises ("LLE") (collectively, the "Luce Partnerships"). The Luces not only operated a successful Amway distribution business, but also purchased computer components for the purpose of combining them into computer systems. First Equipment Leasing Corporation ("FELC") and Westinghouse Credit Corporation ("WCC") engaged in the equipment leasing business. This case is about the unfortunate liaison between the Luces and the equipment lessors. 1

    The general scheme involved procurement of commercial financing from various finance companies. The companies leased parts for various multi-user computer systems to the Luces and the Luce Partnerships. The finance companies, after Jack Luce signed an acknowledgement that the particular equipment had been received in good order, and, in some cases, after Billye Luce had personally guaranteed the lease payments, advanced the cost of the equipment leased from them by the Luces and the Luce Partnerships to a computer supplier. The computer supplier, however, was in cahoots with Jack Luce. Instead of sending the leased equipment to the Luce Partnerships, the equipment supplier secretly kicked back the money it received from the finance companies to Jack Luce or the Luce Partnerships. Out of fifteen funded leases, only two computer systems were actually delivered. The two systems served as collateral for at least fourteen financing transactions. In total, Jack and Billye Luce employed over $500,000 of the diverted funds for personal use. The dispute we consider today concerns five transactions with two different finance companies.

    Jack, doing business as LLE, signed three equipment leases with FELC. Billye personally guaranteed each of the leases. Jack acknowledged that the computer system listed in each of the leases had been delivered in good working order. In reasonable reliance on the leases, guarantees, and acknowledgements, FELC paid a computer system supplier ("Equipment Supplier") for the equipment. But the Equipment Supplier never delivered the computer systems to the Luces. Instead, the Equipment Supplier passed on approximately

    Page 1280

    seventy percent of the funds it received from FELC--$115,500 for each of the three systems--to the Luce Partnerships. Jack and Billye owe FELC almost five hundred thousand dollars under the three equipment leases.

    Both Billye and Jack Luce, doing business as LLI, signed two other equipment leases, which the lessor later assigned to WCC. The finance company paid the Equipment Supplier for the equipment, then leased the equipment to the Luces. The Luces defaulted on both leases, leaving Billye and Jack indebted to WCC for over two hundred thousand dollars. WCC sued in state district court to recover the unpaid balance under the two equipment leases and sought sequestration of the collateral for the leases. Proceeds from the sale of certain collateral sequestered and sold remains with the Clerk of the District Court of Dallas County.

    In late 1986, the Luces filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. This filing resulted in the abatement of the state court litigation before the court made a final determination on the merits. FELC and WCC initiated adversary proceedings to determine the dischargeability of the Luces' debt under the leases and guarantees. The bankruptcy court entered an agreed judgment and order of nondischargeability against Jack Luce in the adversary proceeding filed by FELC and in companion adversary proceedings brought by other finance companies, but not in the adversary proceeding filed by WCC. FELC attempted to persuade the bankruptcy court to exempt Billye Luce's debt under the guarantees from dischargeability under 11 U.S.C. § 523(a). 2 WCC argued that neither Jack nor Billye should be discharged from debt under the two WCC leases under 11 U.S.C. § 523(a).

    After a consolidated bench trial in the adversary proceedings, the bankruptcy court entered its findings of fact and conclusions of law. In separate judgments, the court denied the dischargeability of Billye Luce's entire debt to FELC and denied the dischargeability of Billye and Jack Luce's debt on the second WCC lease. The court awarded both creditors pre- and post-judgment interest and costs. The district court affirmed the judgments of the bankruptcy court.

    In this Court, Billye Luce appeals the non-dischargeability of her debt to FELC and WCC. WCC appeals the dischargeability of Billye and Jack Luce's debt on its first lease. FELC appeals the denial of pre- and post-petition attorney's fees only as to Billye, but WCC appeals the denial of attorney's fees as to both Billye and Jack. 3 We affirm in part, vacate in part, and remand for further proceedings consistent with this opinion.


    We set aside findings of fact by a bankruptcy court only when they are clearly erroneous. Jordan v. Southeast Nat'l Bank (In re Jordan), 927 F.2d 221, 223-24 (5th Cir.1991) (citing Bankr.Rule 8013). We engage in a de novo review of the bankruptcy court's conclusions of law. Id. at 224 (citing Bankr.Rule 8013). Since "[d]eterminations as to the dischargeability of debts under section 523 are reviewed under the clearly erroneous standard," we subject only the bankruptcy court's conclusions as to attorney's fees to de novo review. See Cheripka v. Republic Ins. Co. (In re Cheripka), No. 91-3249, 1991 WL

    Page 1281

    276289, at *10 (3rd Cir. Dec. 31, 1991) (citations omitted).

    1. Retroactive Application of Grogan

      In Grogan v. Garner the Supreme Court announced a new rule: The "standard of proof for the dischargeability exceptions in 11 U.S.C. § 523(a) is the ordinary preponderance-of-the-evidence standard." Grogan v. Garner, --- U.S. ----, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991). The rule that a creditor must establish the nondischargeability of its claim by a preponderance of the evidence displaced the clear and convincing evidence rule utilized by the Court of Appeals for the Eighth Circuit in reversing the Grogan district and bankruptcy courts. Id. 111 S.Ct. at 656-57; see id. at 657 & n. 7 (noting that "most other Circuits" required proof by clear and convincing evidence to avoid dischargeability under § 523).

      The Court decided Grogan, however, after the bankruptcy court and district court entered judgments in this proceeding. Since the bankruptcy court and the district court apparently required both FELC and WCC to prove the nondischargeability of their claims by clear and...

To continue reading