In re Marioneaux
| Decision Date | 24 January 2022 |
| Docket Number | 21-10421 |
| Parties | IN RE: Lucien Harry Marioneaux, Jr. Debtor |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Western District of Louisiana |
MEMORANDUM RULING
This case involves a lawyer who is in chapter 11 bankruptcy. The case arises out of litigation that has been ongoing for more than six years between Debtor and two judgment creditors. The judgment arose from Debtor's breaches of trust mismanagement of funds, failure to account and fraud. The judgment creditors hold claims exceeding $8 million.
Before the court is a motion filed by the judgment creditors that seeks the appointment of a trustee. They allege that Debtor should be removed as a debtor in possession because he committed fraud and failed to perform various essential duties of a debtor in possession. The court held a two-day evidentiary hearing on the motion.
For reasons that follow, the court finds that "cause" exists for the appointment of a trustee as contemplated under 11 U.S.C. § 1104(a)(1). The court also finds that the appointment is in the interests of creditors and other interests of the estate as contemplated under 11 U.S.C § 1104(a)(2). Accordingly, a trustee must be appointed.
The salient facts are summarized below:
1. On June 4, 2021, certain creditors commenced this proceeding against Lucien Harry Marioneaux, Jr. ("Debtor") by filing an involuntary petition in this court requesting relief under chapter 7 of the Bankruptcy Code. Debtor initially challenged the involuntary petition and the venue of this case. However, on August 31, 2021, an agreed order for relief was entered under chapter 7. Debtor then requested that his case be converted to one under chapter 11. The court converted the case on August 31, 2021.
2. Upon conversion, Debtor remained in possession of all property of the estate and was vested with the rights, powers, and duties of a "debtor in possession" as set forth in 11 U.S.C. § 1107. 3. Debtor is licensed to practice law in the State of Louisiana. He also holds an accounting degree.
4. Before the commencement of this case, Debtor was involved in two state court proceedings pending in Louisiana. Those actions are referred to herein as the "Trust Litigation" and the "Succession Proceeding," more particularly described as: Marioneaux vs. Marioneaux, Case No. 588, 685-A, First Judicial District Court, Caddo Parish, Louisiana and Succession of Lucien H. Marioneaux, Case No. 594, 235-B, First Judicial District Court, Caddo Parish, Louisiana.
5. The Trust Litigation was filed by Mary Sue Marioneaux and the Lela Mae Johnson Marioneaux Trust. They are also the petitioning creditors in this bankruptcy case. Among other things, the suit alleges that Debtor and his father committed breaches of trust and fraud. Soon after the Trust Litigation was commenced, Debtor's father died. His father's succession was substituted as a defendant. After a trial on the merits, the court entered a judgment (the "Trust Judgment") finding that Debtor and his father breached their fiduciary duties as trustees of various trusts and fraudulently deprived Mary Sue Marioneaux and her trust of valuable assets. The Trust Judgment stated that Debtor breached his fiduciary capacity as a trustee, "including the duty of loyalty, by engaging in intentional acts of willful fault, misconduct, gross negligence and fraud" in his administration of certain trusts at issue in that litigation. (Doc. 152-1). The trial court rendered judgment against Debtor, his father's succession, and the various companies to which they diverted the trust money and property. Among other things, the judgment awarded over $6 million in monetary damages plus judicial interest and over $1.5 million in attorney fees and other costs. The judgment also required Debtor to return property that had been improperly diverted from the trusts. The trial court permitted Debtor to file a "suspensive appeal" with respect to certain portions of the judgment and a "devolutive appeal" with respect to the remainder.[1] (Doc. 11-2, p. 5). The appeal is pending.
6. When Debtor's father passed away, the Succession Proceeding was commenced in the same court where the Trust Litigation is pending. There are different judges presiding over the Trust Litigation and the Succession Proceeding.
7. Debtor's father died without a will. Debtor is the only descendant and intestate heir of his father's estate. Subject to the appeal in the Trust Litigation, the judgment creditors have claims against Debtor's father's estate in the Succession Proceeding.
8. Debtor was the original independent administrator in the Succession Proceeding but, following entry of the Trust Judgment, he was removed as the administrator, in part for his failure to properly inventory and account for the assets of his father's succession. (Doc. 11-5). Thereafter, a successor administrator was appointed by the state court, but he later resigned. (Doc. 11-6). There is no current administrator in place in the Succession Proceeding.
9. This court entered an order modifying the automatic stay to: (a) allow the appeal of the Trust Judgment to proceed; and (b) allow the administration of the Succession Proceeding to proceed. However, no acts to collect, assess, enforce, or recover upon any order or judgment in the Trust Litigation and/or the Succession Proceeding against the Debtor or against any property of the bankruptcy estate are permitted absent further order of this court.
10. Debtor holds or controls interests in a complex web of various entities. Debtor asserts that he owns 100% of the membership interest in Pilotage Holdings, LLC, which in turn holds:
11. Debtor also asserts that he owns a 50% membership interest in Marioneaux & Williams, A Texas Professional Corporation, which owns a 100% interest in Marioneaux & Williams, LLC, a Louisiana limited liability company (the law firm through which Debtor practices law).
12. Debtor further asserts that he holds an indirect interest, through his father's succession, in the following entities (the "Succession Entities")[2]:
13. These entities own significant assets that have substantial value, including a jet, mineral interests, a condominium in New Orleans, Louisiana, a lake house in Mount Ida, Arkansas, various automobiles, money, and other property.
14. As a practical matter, Debtor controls all Succession Entities and their assets, subject to the limitations imposed on him by the state court presiding over 15. The judgment creditors own interests in various Succession Entities, including a 49.640861% limited partnership interest in Marioneaux Properties, L.P.
This court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and by virtue of the reference by the district court pursuant to 28 U.S.C. § 157(a) and LR 83.4.1. Venue is proper in this district. 28 U.S.C. §§ 1408 and 1409(a). This matter constitutes a "core" proceeding pursuant to 28 U.S.C. § 157(b)(2)(A).
By default, a chapter 11 debtor is a "debtor in possession," 11 U.S.C. § 1101(1), and has virtually all the rights, powers and duties of a trustee. 11 U.S.C. § 1107(a). If, however, the court finds that "cause" exists for the appointment of a trustee, or that such an appointment is in the interests of creditors and other interests of the estate, the court must order the appointment of a trustee. 11 U.S.C. § 1104(a)(1), (2). The provisions dealing with the appointment of trustees are not discretionary. If grounds exist for the appointment of a trustee, then a trustee must be appointed.
The Bankruptcy Code provides:
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