Besing, Matter of

• Decision Date: 04 February 1993
• Docket Number: No. 91-7393,91-7393
• Citation: 981 F.2d 1488
• Parties: , Bankr. L. Rep. P 75,156 In the Matter of Ray G. BESING and Ray G. Besing & Associates, P.C., Debtors. Ray G. BESING and Ray G. Besing & Associates, P.C., Appellants, v. Lyn Noble HAWTHORNE, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1488

981 F.2d 1488

23 Bankr.Ct.Dec. 1590, Bankr. L. Rep. P 75,156

In the Matter of Ray G. BESING and Ray G. Besing &

Associates, P.C., Debtors.

Ray G. BESING and Ray G. Besing & Associates, P.C., Appellants, v. Lyn Noble HAWTHORNE, Appellee.

No. 91-7393.

United States Court of Appeals, Fifth Circuit.

Feb. 4, 1993.

Jamie Wall, Dallas, TX, for appellants.

Christopher M. Weil, Anthony Alan Petrocchi, Weil & Petrocchi, Dallas, TX, for appellee.

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

Before VAN GRAAFEILAND, ^* KING, and EMILIO M. GARZA, Circuit Judges.

KING, Circuit Judge:

This appeal arises from a Chapter 11 bankruptcy proceeding. Ray G. Besing and his law firm, Ray G. Besing & Associates, (jointly "the Debtors"), appeal from a bankruptcy court order dismissing an action in which they sought to invoke 11 U.S.C. § 548 to avoid a state court judgment. Concluding that the judgment, which had dismissed with prejudice the Debtors' contract and tort claims against Lyn Noble Hawthorne ("Hawthorne"), did not constitute a "transfer" for purposes of § 548, the bankruptcy court dismissed the Debtors' action. The district court affirmed. We also affirm, although we do so on different grounds.

I.

The claims at issue here have their roots in a personal and business relationship that dates back to 1981--the year Besing began handling legal matters for Hawthorne (then Lyn Noble). In December 1982, Besing presented Hawthorne with a three-carat diamond ring, and the two became engaged to be married. During the year that followed, Besing and Hawthorne entered into several business ventures, including the purchase of two Arabian fillies and a tract of land located near Austin, Texas. As time passed, however, the couple's relationship deteriorated, and, in early 1984, Besing and Hawthorne called off their engagement.

In August 1984, the Debtors sued Hawthorne in Texas state court, seeking specific performance of an alleged settlement agreement or damages for breach thereof. ¹ In the alternative, they sought actual and exemplary damages for interference with and conversion of the ring, the horses, and the Austin property. Hawthorne filed a counterclaim seeking a declaratory judgment that she was the sole owner of the disputed property. She also sought recovery of damages on several business debts incurred by Besing and for fraud arising from the land transaction.

On March 2, 1987, as a result of discovery abuse, the state court entered a sanction order striking the Debtors' pleadings and dismissing with prejudice their claims for affirmative recovery. ² Shortly thereafter, the court entered a default judgment against Besing on Hawthorne's claims for affirmative recovery and granted Hawthorne's motion for summary judgment on the property ownership issues. The parties stipulated to the amount of damages, and the state court entered a final judgment in favor of Hawthorne on January 25, 1988. The Debtors appealed.

On March 25, 1988, while the state court appeal was still pending, the Debtors filed joint petitions for relief under Chapter 11 of the Bankruptcy Code. Seeking to enforce the state court judgment, Hawthorne submitted a proof of claim in the joint bankruptcy case and initiated an adversary proceeding to determine the dischargeability of the debt. ³ Besing objected to Hawthorne's claim, and the Debtors brought a counterclaim, asserting essentially the same claims as the state court had dismissed with prejudice.

Anticipating Hawthorne's res judicata defense, the Debtors argued that their claims were not barred by the adverse state court judgment because it had not become final prior to the commencement of the bankruptcy proceeding. ⁴ In the alternative, the Debtors asserted that the judgment constituted a transfer of their claims against Hawthorne for which they had received no value. Thus, the Debtors argued, the judgment was subject to avoidance pursuant to 11 U.S.C. § 548(a)(2)(A) and (B)(ii), ⁵ and they were free to relitigate their claims in the bankruptcy proceeding.

The Debtors' finality argument became moot when the Texas Court of Appeals upheld the state trial court judgment. ⁶ In light of this final determination, the bankruptcy court concluded that the only aspect of the Debtors' counterclaim that "remained" was the § 548 action--that is, unless the state court judgment could be avoided pursuant to § 548, it barred relitigation of the Debtors' contract and tort claims against Hawthorne. The Debtors apparently conceded this point before the bankruptcy court, and they do not raise the issue on appeal.

After a short bench trial, ⁷ the bankruptcy court concluded that the state court judgment did not constitute a transfer within the meaning of § 548. The court therefore dismissed the Debtors' counterclaim with prejudice. The court then overruled Besing's objection, allowed Hawthorne's claim against Besing's estate, and closed the adversary proceeding. ⁸ The Debtors appealed, and the district court affirmed. The Debtors now appeal from the decision of the district court.

II.

Our jurisdiction to hear this appeal is conferred by 28 U.S.C. § 158(d). See In re Louisiana World Exposition, Inc., 832 F.2d 1391, 1398 (5th Cir.1987); see also In re Moody, 849 F.2d 902, 904 (5th Cir.), cert. denied, 488 U.S. 967, 109 S.Ct. 493, 102 L.Ed.2d 530 (1988); 28 U.S.C. § 157(b)(2) (core proceedings). We review the legal conclusions of the courts below, including their interpretations of the Bankruptcy Code, de novo. In re Bradley, 960 F.2d 502, 507 (5th Cir.1992); In re Fussell, 928 F.2d 712, 715 (5th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1203, 117 L.Ed.2d 443 (1992); see also In re Busenlehner, 918 F.2d 928, 930 (11th Cir.), cert. denied, --- U.S. ----, 111 S.Ct. 2251, 114 L.Ed.2d 492 (1991).

III.

Our task on appeal is to determine whether the Texas court's judgment constituted a transfer of the Debtors' claims which is subject to avoidance under § 548(a)(2)(A) and (B)(ii). ⁹ Relying exclusively on the Bankruptcy Code's expansive definition of "transfer," the Debtors argue that the judgment may be avoided because it "forced [them] to part with [their] claims" and "quite literally took [their] claims away ... and extinguished them without a trial." Thus, the Debtors contend, the bankruptcy court erred in dismissing their § 548 action and refusing to retry their contract and tort claims against Hawthorne. We disagree.

A.

What constitutes a transfer for purposes of § 548 is a question of federal bankruptcy law. Barnhill v. Johnson, --- U.S. ----, ----, 112 S.Ct. 1386, 1389, 118 L.Ed.2d 39 (1992) (citing McKenzie v. Irving Trust Co., 323 U.S. 365, 369-70, 65 S.Ct. 405, 407-08, 89 L.Ed. 305 (1945)). The Bankruptcy Code itself provides a definition:

"transfer" means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including the retention of title as a security interest and foreclosure of the debtor's equity of redemption.

11 U.S.C. 101(54). ¹⁰

As the Debtors correctly point out, Congress intended for the Code's definition of "transfer" to be as broad as possible. See S.REP. No. 95-989, 95th Cong.2d Sess. 27 (1978) ("A transfer is a disposition of an interest in property. The definition ... is as broad as possible."), reprinted in 1978 U.S.C.C.A.N. p. 5787, 5813; H.R.REP. No. 95-595, 95th Cong. 1st Sess. 314 (1977) (same language), reprinted in 1978 U.S.C.C.A.N. p. 5963, 6271. "The word is used in its most comprehensive sense, and is intended to include every means and manner by which property can pass from the ownership and possession of another...." Pirie v. Chicago Title & Trust Co., 182 U.S. 438, 444, 21 S.Ct. 906, 908, 45 L.Ed. 1171 (1901) (construing former section 1(30) of the Bankruptcy Act from which the current Code definition was derived). Indeed, the Code's expansive definition literally encompasses "every mode ... of ... parting with ... an interest in property." 11 U.S.C. § 101(54). ¹¹

Moreover, because the Code's definition of "transfer" expressly includes involuntary dispositions of property, dispositions of property which are brought about by state judicial proceedings clearly fall within its scope. See, e.g., In re BFP, 974 F.2d 1144 (9th Cir.1992) (judicial foreclosure); Butler v. Lomas & Nettleton Co., 862 F.2d 1015, 1019 (3rd Cir.1988) (judicial foreclosure); In re Hulm, 738 F.2d 323, 326 (8th Cir.) (judicial foreclosure), cert. denied, 469 U.S. 990, 105 S.Ct. 398, 83 L.Ed.2d 331 (1984); Britt v. Damson, 334 F.2d 896, 902 (9th Cir.1964) (divorce decree, applying former section 1(30) of the Bankruptcy Act), cert. denied, 379 U.S. 966, 85 S.Ct. 661, 13 L.Ed.2d 560 (1965); In re Thrifty Dutchman, Inc., 97 B.R. 101, 105-06 (Bankr.S.D.Fla.1988) (judgment requiring debtor to convey leasehold to holdover tenant); In re Wallace, 66 B.R. 834, 842-43 (Bankr.E.D.Mo.1986) (divorce decree); In re Clausen, 44 B.R. 41, 43-44 (Bankr.D.Minn.1984) (divorce decree); In re Perdido Bay Country Club Estates, Inc., 23 B.R. 36, 41 (Bankr.S.D.Fla.1982) (judicial foreclosure); see also In re Jones, 20 B.R. 988, 994 (Bankr.E.D.Pa.1982) (judicial foreclosure, expressly applying § 548 only). Thus, to the extent the judgment had the effect of causing the Debtors to part with an interest in property, we agree that it constituted a transfer within the meaning of § 548. See Britt, 334 F.2d at 902 ("[I]n deciding whether the occurrence in question was a 'transfer' we are not concerned with what label [state law] has placed upon occurrences of this kind. We do however, look to [state law] to determine what was actually done....").

B.

An interest in property, for purposes of § 548, includes any interest of the debtor that would have been preserved for the benefit of the bankruptcy estate but for the alleged transfer. See In re Stevens, 112 B.R. 175, 177 (Bankr.S.D.Tex.1989...