Buescher v. First United Bank & Trust (In re Buescher)

• Decision Date: 13 April 2015
• Docket Number: No. 14–40361.,14–40361.
• Citation: 783 F.3d 302
• Parties: In the Matter of Dean E. BUESCHER; Sherry R. Buescher, Debtors Dean E. Buescher; Sherry R. Buescher, Appellants v. First United Bank and Trust, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

783 F.3d 302

In the Matter of Dean E. BUESCHER; Sherry R. Buescher, DebtorsDean E. Buescher; Sherry R. Buescher, Appellants

v.First United Bank and Trust, Appellee.

No. 14–40361.

United States Court of Appeals, Fifth Circuit.

April 13, 2015.

Larry A. Vick, Esq. (argued), George Frederick May (argued), Twomey May, P.L.L.C., Houston, TX, for Appellant.

Larry Ray Boyd, Esq. (argued), Abernathy, Roeder, Boyd & Joplin, P.C., McKinney, TX, for Appellee.

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

Before JOLLY, WIENER, and CLEMENT, Circuit Judges.

Opinion

EDITH BROWN CLEMENT, Circuit Judge:

The bankruptcy court declined to grant a discharge to defendant-appellant Dean E. Buescher (“Dean”) and defendant-appellant Sherry R. Buescher (“Sherry”) (collectively, “the Bueschers”). The district court affirmed the judgment of the bankruptcy court. For the reasons explained below, we AFFIRM the district court.

Facts and Proceedings

Dean operated a home-building business through Buescher Interests, L.P. (“BIL”). Sherry, who is Dean's spouse and a Texas-licensed attorney, often served as the closing officer for BIL's real estate transactions. Plaintiff-appellee First United Bank & Trust Co. (“First United”) loaned BIL approximately $19 million. Dean personally guaranteed the loans First United made to BIL.

The Bueschers filed a joint Chapter 7 bankruptcy petition. First United filed an adversary complaint arguing, inter alia, that the bankruptcy court should refuse to discharge both Dean and Sherry from the bankruptcy action under 11 U.S.C. § 727(a)(2)-(5). The Bueschers moved to dismiss First United's adversary complaint, alleging that First United failed to timely serve process. The bankruptcy court denied the Bueschers' motion and granted First United's request for additional time to effect service. First United then served the Bueschers.

First United moved for summary judgment against Dean and Sherry under § 727(a)(2)-(5). The bankruptcy court granted First United's motion as to Dean under § 727(a)(3)¹ and denied the motion as to Sherry. After a bench trial, the bankruptcy court denied Sherry a discharge under § 727(a)(2), (a)(3), and (a)(4)(a). See First United Bank & Trust Co. v. Buescher (In re Buescher), 491 B.R. 419 (Bankr.E.D.Tex.2013). The bankruptcy court then entered a final judgment denying a discharge to Dean and Sherry. The district court affirmed the judgment of the bankruptcy court. The Bueschers appeal the district court's order affirming the judgment of the bankruptcy court.

Standard of Review

The bankruptcy court disposed of Dean's request for discharge at the summary judgment stage, while it disposed of Sherry's request after a bench trial. Thus, when considering Dean's appeal, we review the bankruptcy court's decision de novo. See Deutsche Bank Nat'l Trust v. Oparaji (In re Oparaji), 698 F.3d 231, 235 (5th Cir.2012). When considering Sherry's appeal, we review the bankruptcy court's findings of fact for clear error, and its conclusions of law de novo. See Endeavor Energy Res., L.P. v. Heritage Consol., L.L.C. (In re Heritage Consol., L.L.C.), 765 F.3d 507, 510 (5th Cir.2014).

Discussion

I.

Sherry argues that First United did not have standing to object to her discharge, because it is not her creditor under 11 U.S.C. § 727(c)(1). Section 727(c)(1) provides that “[t]he trustee, a creditor, or the United States trustee may object to the granting of a discharge.” We hold that First United is Sherry's creditor under § 727(c)(1).

Sherry never personally guaranteed the loans First United made to BIL. Thus Sherry is not personally liable to First United. SeeTex. Fam.Code Ann. § 3.201(a) (providing that a party is personally liable for acts of spouse only in specified circumstances). But Texas is a community property state, and under Texas law, First United has an in rem claim against any community property that Dean jointly holds with Sherry. See Tex. Fam.Code Ann. § 3.202(c) (providing that “[t]he community property subject to a spouse's sole or joint management, control, and disposition is subject to the liabilities incurred by the spouse before or during marriage”); see also United States v. Loftis, 607 F.3d 173, 179 (5th Cir.2010) (explaining that “[§] 3.202(c) ... renders all jointly managed community property subject to the nontortious liabilities incurred by [the debtor spouse]”). Because Dean and Sherry have jointly-held community property, First United could seek repayment in Texas court through an in rem suit against Sherry. See, e.g., Carlton v. Estate of Estes, 664 S.W.2d 322, 322–23 (Tex.1983) (per curiam) (holding that predecessor statute to § 3.202(c) authorized husband's creditor to sue deceased wife's estate to satisfy judgment against husband).

The Bankruptcy Code defines “creditor” to include an “entity that has a community claim.” 11 U.S.C. § 101(10)(C). It defines “community claim” as a claim “for which property of the kind specified in section 541(a)(2) of this title is liable.” Id. § 101(7). Section 541(a)(2) provides that a bankruptcy estate includes “[a]ll interests of the debtor and the debtor's spouse in community property” that is either “(A) under the sole, equal, or joint management and control of the debtor;” or “(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor's spouse, to the extent that such interest is so liable.” Id. § 541(a)(2)(A)-(B). Read together, these provisions show that “[a]n entity that holds a claim against the nondebtor spouse under state law but does not hold a claim against the debtor, may nonetheless be considered a ‘creditor’ of the debtor under section 101(10), so long as that claimant could, under state law, satisfy the claim from community property of the type which would have passed to the estate.” Collier on Bankruptcy ¶ 101.10 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.2014). Because First United could satisfy its claim against Dean through an in rem suit against Sherry, First United is Sherry's creditor under § 727(c)(1).

Sherry cites an opinion from another circuit's bankruptcy appellate panel that reached a contrary result. See Warchol v. Barry (In re Barry), 451 B.R. 654 (B.A.P. 1st Cir.2011). But that case was based on Massachusetts law, which is not a community property state. Sherry also contends that the bankruptcy court erred by assuming that Texas law creates a community debt for which the community property is liable. But we find nothing in the bankruptcy court's opinion that suggests such an error. The bankruptcy court simply interpreted Tex. Fam.Code Ann. § 3.202(c), which makes all jointly-held community property liable for the debts of either spouse.

We hold that First United is Sherry's creditor under 11 U.S.C. § 702(c)(1). Accordingly, the bankruptcy court did not err by holding that First United had standing to object to Sherry's discharge.

II.

Dean and Sherry contend that the bankruptcy court erred by granting First United's request for additional time to serve them, and by denying their motion to dismiss. We disagree.

Federal Rule of Civil Procedure 4 governs service of process in adversary proceedings in bankruptcy. SeeFed. R. Bankr.P. 7004(a)(1). Under Rule 4(m), a plaintiff must serve the defendant within 120 days after the complaint is filed. “But if the plaintiff shows good cause for [a] failure” to timely serve the defendant, “the court must extend the time for service for an appropriate period.” Fed.R.Civ.P. 4(m). “The [bankruptcy] court's finding of good cause is reviewed under an abuse of discretion standard.” Resolution Trust Corp. v. Starkey, 41 F.3d 1018, 1022 (5th Cir.1995).

The Bueschers filed a motion to dismiss First United's complaint under Rule 4(m) and Bankruptcy Rule 7004.² In its response, First United argued that the Bueschers had intentionally avoided service, and asked for more time to perfect service. The bankruptcy court held a hearing to consider the Bueschers' motion and First United's request for more time. The bankruptcy court found that First United had made repeated attempts to serve the Bueschers, and “that the Bueschers either failed to update their address as required by the bankruptcy rules or purposefully avoided service.”³ These findings were sufficient to support the bankruptcy court's finding of good cause to extend the time for First United to perfect service.

The Bueschers argue that the bankruptcy court should have required a written motion from First United addressing the “excusable neglect” factors discussed in Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). They cite no caselaw holding that Rule 4(m) requires a written motion. Moreover, Pioneer interprets Bankruptcy Rule 9006(b), see Pioneer, 507 U.S. at 382, 113 S.Ct. 1489, not Bankruptcy Rule 7004(a)(1), which controls the time limit for service. Pioneer did not alter the “good cause” test that applies under Rule 4(m). See McGinnis v. Shalala, 2 F.3d 548, 550 n. 1 (5th Cir.1993) (per curiam).⁴

Accordingly, we hold that the bankruptcy court did not abuse its discretion when it granted First United's request for additional time to serve the Bueschers and denied the Bueschers' motion to dismiss.

III.

Dean and Sherry further contend that First United failed to carry its burden to show that they did not keep adequate financial records, or to show that the financial records that exist are insufficient for First United to evaluate their financial condition. We hold that First United carried its burden as to both Dean and Sherry.

Section 727(a)(3) provides that the bankruptcy court may refuse a discharge if (1) the debtor fails to keep or preserve financial records, and (2) the failure makes it impossible for the creditor to discern the debtor's financial condition. See 11 U.S.C. § 727(a)(3). The creditor has the initial burden to prove both (1) and (2)....