Ward v. Cross Keys Bank (In re Karcredit, LLC)
| Decision Date | 07 September 2022 |
| Docket Number | 21-30649 |
| Parties | In the Matter of: Karcredit, LLC, Debtor, v. Cross Keys Bank; Caldwell Bank; Trust Company, Appellees. Ronnie D. Ward; Sharon Denise Albritton Ward, Appellants, |
| Court | U.S. Court of Appeals — Fifth Circuit |
Appeal from the United States District Court for the Western District of Louisiana USDC No. 3:21-cv-1629
Before SMITH, DUNCAN, and OLDHAM, Circuit Judges.
Cross Keys Bank loaned Karcredit money. Karcredit defaulted. A bankruptcy court issued a final judgment against Karcredit and its guarantors on a state-law adversary proceeding, and the district court affirmed. Two of the guarantors, Ronnie and Sharon Ward appeal that affirmance. We reject their arguments and affirm.
Ronnie Ward sold used cars. One of his companies was Karcredit, LLC ("Karcredit"). Karcredit borrowed about $3.5 million from Cross Keys Bank ("Cross Keys") in 2012. When it did so, it gave Cross Keys a security interest in most of its assets. Ronnie Ward and his wife Sharon Ward (collectively, the "Wards") signed on as guarantors of that loan.
Karcredit defaulted in 2019, with over $3 million still outstanding. Cross Keys then called the loans and sued Karcredit and its guarantors in Louisiana state court. We refer to that litigation as the "adversary proceeding." In essence, the adversary proceeding had two aims: first, to hold Karcredit and Karcredit's guarantors liable for Cross Keys' loan to Karcredit; second, to secure a declaratory judgment regarding Cross Keys' security interests in various property. In July of 2020, pursuant to a separate state-court action, Cross Keys forced a sheriff's sale of most of Karcredit's assets. Cross Keys then bought those assets for $700.
Two days after the sheriff's sale, Cross Keys filed an involuntary bankruptcy petition, thereby forcing Karcredit into bankruptcy. We refer to that as the "main proceeding" or the "bankruptcy proceeding." As a part of that proceeding, Cross Keys filed schedules listing Karcredit's assets. Despite the sheriff's sale, those schedules included some assets, one of which was a fraudulent-conveyance claim the estate had against Ronnie Ward.
Cross Keys then removed the existing adversary proceeding from state court to federal court. See 28 U.S.C. § 1452 (); 28 U.S.C. § 1334 (the relevant jurisdictional provision). From that point on the bankruptcy court administered the two proceedings in parallel.
Cross Keys moved for summary judgment on its adversary-proceeding claims. The Wards opposed that motion. The bankruptcy court granted partial summary judgment in Cross Keys' favor. This final judgment was a nearly complete victory for Cross Keys: The judgment held Karcredit and its guarantors (including the Wards) liable for over $3 million (plus interest), and it recognized Cross Keys' security interests in various assets.
The bankruptcy court then had second thoughts about its power to enter a final judgment-as opposed to merely submitting recommended findings of fact and conclusions of law to the district court. See 28 U.S.C. § 157(c)(1). So on its own motion, it set a hearing to consider the issue. The next day, the court issued a memorandum opinion holding that it did indeed have power to enter a final judgment in the adversary proceeding. It entered that judgment accordingly.
The Wards appealed that judgment to the district court. They raised the same three arguments they raise in this court, which we describe below. The district court reviewed the bankruptcy court's judgment as a court of appeal and rejected each of those arguments. See 28 U.S.C. § 158(a); AT&T Univ. Car Servs. v. Mercer (In re Mercer), 246 F.3d 391, 402 (5th Cir. 2001). The district court then affirmed the bankruptcy court's judgment. The Wards timely appealed that affirmance to this court. We have jurisdiction to review the district court's final order under 28 U.S.C. § 158(d).
We (A) hold the bankruptcy court had jurisdiction to decide Cross Keys' adversary claims. Then we (B) hold the Wards consented to the bankruptcy court's issuance of a final judgment. And finally, we (C) hold that because the district court didn't abuse its discretion by holding the Wards' bad-faith-filing argument forfeited, that argument remains forfeited on appeal.
Because Cross Keys removed this adversary proceeding from state to federal court, 28 U.S.C. § 1452 governs jurisdiction. With exceptions not relevant here, that provision allows removal of "any claim or cause of action" from state court to federal district court-provided that the district court has jurisdiction under 28 U.S.C. § 1334. Section 1334, in turn, gives district courts "original and exclusive jurisdiction of all cases under title 11"-that is, bankruptcy proceedings themselves. It also gives district courts "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." Id. § 1334(b) (emphasis added). As usual, we assess jurisdiction based on the facts as they stood at the time of removal. See, e.g., Louisiana v. Am. Nat'l Prop. &Cas. Co., 746 F.3d 633, 639 (5th Cir. 2014) (calling this rule "well[-]entrenched").
For 28 U.S.C. § 1334 purposes, a "proceeding is 'related to' a bankruptcy if the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Bass v. Denney (In re Bass), 171 F.3d 1016, 1022 (5th Cir. 1999) (quotation omitted). More specifically: "For jurisdiction to attach, the anticipated outcome of the action must both (1) alter the rights, obligations, and choices of action of the debtor, and (2) have an effect on the administration of the estate." Id. "A conceivable effect in this context is any that could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate." Fire Eagle LLC v. Bischoff (In re Spillman Dev. Grp.), 710 F.3d 299, 304 (5th Cir. 2013) (quotation omitted); see also Arnold v. Garlock, Inc., 278 F.3d 426, 434 (5th Cir. 2001) ("Certainty, or even likelihood[,] of such an effect is not a requirement.").
It is undisputed that the adversary proceeding before us-in contradistinction to the main bankruptcy proceeding itself-is not a within the meaning of 28 U.S.C. § 1334(a). Thus, the parties correctly agree that the only path to jurisdiction is 28 U.S.C. § 1334(b)'s "related to" jurisdiction.
The adversary proceeding is Cross Keys' attempt to enforce its state-law rights. When Cross Keys filed this proceeding in state court, it sought a judgment of over $3 million against both Karcredit and Karcredit's guarantors.
Our analysis is controlled by Fire Eagle LLC v. Bischoff (In re Spillman Dev. Grp.), 710 F.3d 299 (5th Cir. 2013). There, after a voluntary bankruptcy petition, some of the debtor's guarantors filed an adversary action in bankruptcy court. They sought "a declaratory judgment that . . . the [g]uarantors should be released from their obligations under the guaranty agreements," among other things. Id. at 303. The relevant creditor argued that the bankruptcy court lacked 28 U.S.C. § 1334 "related to" jurisdiction over that claim. Id. at 304. This court disagreed: "If [the creditor] were to succeed on the merits of this suit and proceed to recover against the guarantees . . . such a recovery would presumably diminish [the creditor's] deficiency claim against the bankruptcy estate, conceivably allowing a greater recovery for other unsecured creditors against the estate...." Id. at 305 (emphasis added). Accordingly, it held "that the bankruptcy court's jurisdiction extended to these matters." Ibid.
So too here. In Spillman, the adversary proceeding was the guarantors' attempt to avoid their guaranty obligations. Id. at 303. This case is the mirror image: The adversary proceeding is the creditor's attempt to enforce the guarantors' obligations. But the stakes are exactly the same. The adversary proceeding is therefore "related to" the main bankruptcy case. See id. at 305; Bass, 171 F.3d at 1022.
The Wards have two objections. First, they argue that the estate really has no assets at all. Pointing out that Cross Keys acquired almost all of Karcredit's property in a sheriff's sale just before it forced Karcredit into bankruptcy, the Wards argue that there is simply nothing left. And, it is impossible for the adversary proceeding to have any effect on the administration of an empty estate. See ibid.
But the estate is not empty. At the very least, the bankruptcy schedules confirm that the Karcredit estate contained a fraudulent-conveyance claim against Ronnie Ward at the time of removal. See In re Positive Health Mgm't, 769 F.3d 899, 903 (5th Cir. 2014) (). And "[i]t is well established that a claim for fraudulent conveyance is included within estate property." Cadle Co. v. Mims (In re Moore), 608 F.3d 253, 261 (5th Cir. 2010) (quotation omitted). The Wards insist that, if this claim were really worth anything, Cross Keys would have pursued it by now in state court. But again, the relevant facts for jurisdictional purposes are the facts as of the moment of removal. See Am. Nat'l Prop. &Cas. Co., 746 F.3d at 639. What Cross Keys does or does not do afterward is irrelevant.
Second the Wards try to differentiate this case from Spillman by suggesting Cross Keys was the only creditor at the time of filing. See 710 F.3d at 305 ( the adversary...
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