Justia U.S. 5th Circuit Court of Appeals Opinion Summaries

Debtor filed for Chapter 7 bankruptcy protection, having never made any withdrawals from a trust with a spendthrift provision that was created by his grandmother. Appellee, debtor's bankruptcy trustee, sought to bring funds of the trust into the bankruptcy estate, free of trust. At issue was whether debtor was entitled to acquire any of the trust's assets by virtue of its withdrawal provision. The court held that debtor's grandmother was the sole settlor of the trust; that the grandmother was living on debtor's 30th birthday, so his withdrawal right "at age 30" never accrued; that the grandmother's death after debtor's 30 birthday, but before his 35th birthday, satisfied the condition precedent to the accrual of debtor's withdrawal right "at age 35"; even though debtor never exercised his age-35 withdrawal right before he filed for bankruptcy protection at age 37, he remained entitled to withdraw assets worth one-half of the value of all trust principal on hand, calculated as of his 35th birthday; and debtor's bankruptcy trustee was therefore entitled to withdraw the trust principal that remained in trust on trustor's 35th birthday. Therefore, the court affirmed the judgment of the district court to the extent it reversed the bankruptcy court and authorized appellee to exercise debtor's right to withdraw a portion of the trust's principal and remanded for further proceedings.

Appellant appealed the district court's affirmance of the bankruptcy court's decision that certain deeds appellant held were legal nullities. The panel certified a question to the Mississippi Supreme Court which stated: "When a minority member of a Mississippi limited liability company prepares and executes, on behalf of the LLC, a deed to substantially all of the LLC's real estate, in favor of another LLC of which the same individual is the sole owner, without authority to do so under the first LLC's operating agreement, is the transfer of real property pursuant to the deed: (i) voidable, such that it is subject to the intervening rights of a subsequent bonafide purchaser for value and without notice, or (ii) void ab initio, i.e., a legal nullity?" The Mississippi Supreme Court explained that the deed was neither voidable nor void ab initio, but "void and of no legal effect" because the minority member (" Michael Earwood"), as an agent of Kinwood Capital Group, L.L.C. ("Kinwood"), lacked actual or apparent authority to convey Kinwood's 520-acre tract of land and Kinwood never ratified the purported transfer.

Appellant, a Chapter 7 debtor, appealed the district court's order affirming the bankruptcy court's ruling that certain of his debts were nondischargeable under 11 U.S.C. 523(a)(4). At issue was whether loans obtained from a limited partnership that appellant managed in his capacity as officer and director of the partnership's corporate general partner were incurred through defalcation while acting as a fiduciary to the partnership. The court affirmed and held that even if the existence of the loans themselves were not a defalcation, the bankruptcy court did not err in further concluding that appellant recklessly breached his duty to the partnership by failing to protect against the increasing financial risk created by those loans by ensuring that the partnership perfected its liens on the pledged collateral, particularly when the failure accrued to his benefit.

Appellant, a chapter 7 debtor, appealed an order affirming the bankruptcy court's ruling that certain of his debts were nondischargeable under 11 U.S.C. 523(a)(4). At issue was whether appellant's debts, which were loans obtained from a partnership that he managed in his capacity as officer and director of the partnership's corporate general partner, were incurred through defalcation while he was acting as a fiduciary to the partnership. The court affirmed the order and held that appellant willfully neglected a duty owed to the partnership in connection with the loans where he acted in a fiduciary capacity to the partnership and where, even if the existence of the loans themselves were not a defalcation, the bankruptcy court did not err in concluding that appellant recklessly breached his duty to the partnership by failing to protect it against the increasing financial risks of those loans.