Texas General Petroleum Corp., Matter of

Decision Date01 June 1995
Docket NumberNo. 93-2762,93-2762
Parties, 27 Bankr.Ct.Dec. 399, Bankr. L. Rep. P 76,512 In the Matter of TEXAS GENERAL PETROLEUM CORPORATION. Van E. McFARLAND and McFarland & Tondre, Appellants, v. Steven A. LEYH, Trustee of the Liquidating Trust of Texas General Petroleum Corporation, Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

Van E. McFarland, II, McFarland & Tondre, Houston, TX, pro se.

Leonard J. Meyer, Carmellia C. Boyer, Webb, Zimmerman, Beck, Flaum & Axelrad, P.C., Houston, TX, for appellee.

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

Before POLITZ, Chief Judge, and DUHE,

Circuit Judge. 1

DUHE, Circuit Judge:

On our own motion we held the mandate in this matter. We recall our prior opinion 2 and substitute the following:

Appellants Van E. McFarland and McFarland & Tondre (McFarland) appeal the district court's judgment in favor of Appellee Steven A. Leyh, Trustee of the Liquidating Trust of Texas General Petroleum Corp. (Liquidating Trustee). Debtor Texas General Petroleum Corp. brought this fraudulent conveyance action against McFarland after the bankruptcy court had confirmed Debtor's Chapter 11 plan of reorganization. The Liquidating Trustee ultimately asserted the action in place of Debtor. By stipulation, the only issue at trial was whether the Liquidating Trustee had standing to assert the fraudulent conveyance action. The bankruptcy court answered that question in the affirmative, and the district court affirmed. We affirm but for somewhat different reasons.

BACKGROUND

The bankruptcy court confirmed debtor's plan of reorganization under Chapter 11 of the Bankruptcy Code in April 1985. In October of that year, the Liquidating Trustee initiated this fraudulent conveyance action against McFarland. The subject of the suit was a $12,210.25 payment made by Debtor to McFarland for legal services performed for a former officer of Debtor's parent company. The parties stipulated that the only issue was the Liquidating Trustee's standing to assert the action. The Plan gave the Liquidating Trustee authority to assert a list of avoidance actions on behalf of the unsecured creditors. The list, however, did not include the fraudulent conveyance action against McFarland. The bankruptcy court determined that the Plan was ambiguous. Using parol evidence, the court concluded that the parties intended the Liquidating Trustee to have the authority to assert on behalf of the unsecured creditors any causes of action not specifically addressed by the Plan.

The district court affirmed, concluding that the trial court's interpretation of the ambiguous plan was not clearly erroneous. In addition, the district court determined that the bankruptcy court had jurisdiction to adjudicate the dispute, that McFarland was not entitled to a jury trial, and that the bankruptcy court's award of prejudgment interest was not error. During the litigation, co-defendant Brice Tondre settled with the Liquidating Trustee for $10,000. The district court credited only $500 of the settlement payment to the judgment.

DISCUSSION

On appeal, McFarland claims that the Liquidating Trustee lacks standing. In addition, McFarland asserts five other issues: (1) the bankruptcy court lacked jurisdiction; (2) limitations extinguished the avoidance action; (3) McFarland was entitled to a jury trial; (4) the award of prejudgment interest was error; and (5) McFarland should have received full credit for the settlement of his co-defendant. We review findings of fact for clear error and legal conclusions de novo. Young v. National Union Fire Ins. Co., (In re Young), 995 F.2d 547, 548 (5th Cir.1993). When the district court has affirmed the bankruptcy court's findings of fact, our review for clear error is strict. Id.

I. Standing

McFarland first contends that the Liquidating Trustee cannot exercise avoidance powers because it is neither the Debtor nor the Trustee. In this case, the Debtor acted as debtor-in-possession, and the bankruptcy court employed no Trustee. The Plan created the position of Liquidating Trustee.

McFarland's argument runs counter to Section 1123 of the Code, which allows a plan to provide for "the retention and enforcement by the debtor, by the trustee, or by a representative of the estate appointed Under Section 1123(b)(3)(B), a party other than the debtor or the trustee that seeks to enforce a claim must show (1) that it has been appointed, and (2) that it is a representative of the estate. Retail Marketing Co. v. King (In re Mako, Inc.), 985 F.2d 1052, 1054 (10th Cir.1993); In re Hunt, 136 B.R. 437, 444 (Bankr.N.D.Tex.1991). The bankruptcy court's approval of a plan that clearly appoints a stranger to the estate satisfies the first element. Mako, 985 F.2d at 1055; Sweetwater, 884 F.2d at 1326; Nordberg v. Sanchez (In re Chase & Sanborn Corp.), 813 F.2d 1177, 1180 n. 1 (11th Cir.1987). As for the second element, courts apply a case-by-case analysis to determine whether the appointed party's responsibilities qualify it as a representative of the estate. Sweetwater, 884 F.2d at 1326-27. "The primary concern is whether a successful recovery by the appointed representative would benefit the debtor's estate and particularly, the debtor's unsecured creditors." Id. at 1327. The reason for the emphasis on unsecured creditors is that the proceeds recovered in an avoidance action satisfy the claims of priority and general unsecured creditors before the debtor benefits. Id.

for such purpose, [of any claim or interest belonging to the debtor or to the estate]." 11 U.S.C. Sec. 1123(b)(3)(B) (1988). Section 1123(b)(3)(B) allows a plan to transfer avoidance powers to a party other than the debtor or the trustee. Briggs v. Kent (In re Professional Inv. Properties of America), 955 F.2d 623, 626 (9th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 63, 121 L.Ed.2d 31 (1992); Citicorp Acceptance Co. v. Robison (In re Sweetwater), 884 F.2d 1323, 1327 (10th Cir.1989). We agree with the Ninth and Tenth Circuits that a party other than the debtor or the trustee may be authorized by a plan of reorganization to exercise avoidance powers.

Applying this test the Plan clearly appoints the Liquidating Trustee as a representative of the estate to pursue avoidance actions on behalf of unsecured creditors. Class 5 of the Plan consists of unsecured claimants. The Liquidating Trust is provided for the benefit of Class 5 creditors. Provision 5.5.3 of the Plan establishes the assets of the Liquidating Trust as including "bankruptcy-created or sanctioned causes of action of the debtor-in-possession described or listed in Exhibit B." Exhibit B lists specific avoidance actions. The approved Plan clearly gives the Liquidating Trustee the power to assert avoidance actions. Furthermore, the Liquidating Trustee qualifies as a representative of the estate because the proceeds obtained from its actions benefit the unsecured creditors. We conclude that the Plan gives the Liquidating Trustee authority to enforce avoidance actions on behalf of the estate.

The specific avoidance action that the Liquidating Trustee asserts against McFarland, however, is not found in Exhibit B. McFarland, citing Sec. 1141(b), contends that, because the Plan through Exhibit B does not specifically provide for the fraudulent conveyance action, the ability to exercise that action vests in the debtor. 3 McFarland would apply Sec. 1141(b) rather than use parol evidence. The Plan, however, provides the Liquidating Trustee with authority to enforce avoidance actions on behalf of the estate. Because the Plan otherwise provides, we need not consider the application of Sec. 1141(b). 4

We apply the rules of contract interpretation to the interpretation of a plan of reorganization. See In re Stratford of Tex., Inc., 635 F.2d 365, 368 (5th Cir.1981). The determination of whether a contract is clear or ambiguous is a question of law. Id. If we determine the contract to be ambiguous, the determination of the parties' intent Provision 7.1 of the Plan states: "The reorganized debtor shall retain that property described on Exhibit F. Among the property of the estate hereby distributed to the trust are those claims and causes of action listed or described on Exhibit B (including causes of action created or sanctioned by Secs. 542-553)." The parenthetical portion of the provision could describe those avoidance actions listed in Exhibit B. Alternatively, the parenthetical could describe the phrase "[a]mong the property of the estate hereby distributed to the trust." Provision 5.5.3 suggests that Exhibit B contains a complete list of the trust's assets. On the other hand, the use of the word "among" in Provision 7.1 suggests that Exhibit B is not exclusive. We agree with the bankruptcy and district courts that the Plan is ambiguous.

                from parol evidence is a question of fact. 5  Id
                

To resolve the ambiguity, the bankruptcy court employed parol evidence to determine the intent of the parties. The court found that those avoidance actions not specifically addressed by the Plan belong to the Liquidating Trust. We see no clear error. Furthermore, the result reached by the court comports with the general policy behind the assertion of avoidance actions. The proceeds recovered in avoidance actions should not benefit the reorganized debtor; rather, the proceeds should benefit the unsecured creditors. 5 Collier on Bankruptcy p 1123.02, at 1123-23 (Lawrence P. King ed., 15th ed. 1994). The Liquidating Trust acts on behalf of the Class 5 unsecured creditors. The proceeds from this fraudulent conveyance action will benefit the Class 5 unsecured creditors. We conclude that the Liquidating Trustee has standing to assert a fraudulent conveyance action against McFarland.

II. Jurisdiction

McFarland contends that the bankruptcy court lacked subject matter jurisdiction under Article III of the Constitution to adjudicate this dispute. The district...

To continue reading

Request your trial
228 cases
  • Burns v. Dennis (In re Southeastern Materials, Inc.)
    • United States
    • United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Middle District of North Carolina
    • March 27, 2012
    ...in fraudulent conveyance actions, at least where the defendant has not filed a proof of claim. McFarland v. Leyh (In re Tex. Gen. Petrol. Corp.), 52 F.3d 1330, 1336–37 (5th Cir.1995) (“Congress has designated fraudulent conveyance actions as core proceedings. Thus, because bankruptcy courts......
  • Burns v. Dennis (In re Southeastern Materials, Inc.), Case No. B-09-52606 C-7W
    • United States
    • United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Middle District of North Carolina
    • March 27, 2012
    ...in fraudulent conveyance actions, at least where the defendant has not filed a proof of claim. McFarland v. Leyh (In re Tex. Gen. Petrol. Corp.), 52 F.3d 1330, 1336-37 (5th Cir. 1995) ("Congress has designated fraudulent conveyance actions as core proceedings. Thus, because bankruptcy court......
  • Morton v. Kievit ( In re Vallecito Gas, LLC), CASE NO. 07-35674-BJH-11
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas
    • July 19, 2011
    ...bar, it has, along with several other circuits, concluded that § 546(a) is a statute of limitations. In re Tex. Gen. Petroleum Corp., 52 F.3d 1330, 1337 (5th Cir. 1995); see, e.g. In re Raynor, 617 F.3d 1065 (8th Cir. 2010); In re Pugh, 158 F.3d 530 (11th Cir. 1998); In re M&L Business Mach......
  • Meadowbriar Home for Children, Inc. v. Gunn
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • April 11, 1996
    ...Because subject matter jurisdiction can be raised at any time, we must address this issue. See In Matter of Texas General Petroleum Corp. v. Leyh, 52 F.3d 1330 (5th Cir.1995).4 Federal Rule of Civil Procedure 79(a) requires the clerk of the court to keep a "civil docket" book.5 To avoid con......
  • Request a trial to view additional results
1 books & journal articles

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT