### I N THE UNI TED STATES COURT OF APPEALS FOR THE FI F TH CI RCUI T

No. 12-10677

In the Matter of: ROBERT DEAN SCHOOLER; TINA MARIE SCHOOLER,
Debtors

___________________________ LIBERTY MUTUAL INSURANCE COMPANY, Appellant
v. UNITED STATES OF AMERICA BY LAMESA NATIONAL BANK, Appellee

Appeal from the United States District Court f or the Northern District of Texas

Before KING, DAVIS, and ELROD, Circuit Judges. KING, Circuit Judge. In 2009, the United S tates by Lamesa N a tional Bank filed suit aga i nst Liberty Mutual Insurance Company, asserting that Liberty Mutual was liable under a federally-required surety bond for the alleged misconduct of its principal, a trustee in a Chap t e r 7 bankruptcy proceeding. After a trial on Lamesa’s claim, the bankruptcy court concluded that the trustee had committed gross negligence, causing damages to the b ank r u p t c y estate in the a mount of $112,247.66. The c ourt also h eld that, as the trustee’s sure t y , L ib erty Mutual U n i t e d S t a te s C o u rt o f A p p e al s

F i f t h C i rc u i t 

### F I L E D Aug ust 6, 2013 Ly l e W . Cay ce Clerk Case: 12-10677 Document: 00512333073 Page: 1 Date Filed: 08/06/2013No. 12-10677

was liable for those damages u nder the terms of the bond. The bankruptcy court therefore ordered Liberty Mutual to remit $ 112,247.66 to the b ankruptcy estate for distribution to the e state’s creditors. Liberty Mutual appealed the bankruptcy court’s judgment to t he district court, w hich a ffirmed. Liberty Mutual now appeals to this court. For the following reasons, we also AFFIRM.

I. FACTUAL AND PROCEDURAL BACKGROUND On August 21, 2 001, Robert and Tina S chooler filed for Chapter 7 bankruptcy in th e Northern District of Texas. Immediately thereafter, the bankruptcy court appointed Deborah Penner a Chapter 7 trustee (the “Trustee”) for the b ankruptcy estate. The Trustee is an attorney who, in addition to serving

a s a trustee in Chapter 7 b ankruptcy cases, has a law practice that i n c l u d e s collection and probate w ork. Like other trustees o p e r a t i n g in the Lubbock Division of the Northern District of Texas, the T r u stee was covered under a blanket surety bond issued by Liberty Mutual Insurance Company. As relevant, the bond provides that the Trustee, “as [p]rincipal, and Lib e r t y M utual Insurance Company, as s urety, are held a n d firmly bound unto the United States,” in accordance with 1 1 U.S.C. § 322(a), j ointl y a n d severally “for the faithful performance of [the principal’s] official duties a s Trustee of the estates of . . . debtors assigned to the [p]rincipal by the United States Trustee.” 1 After the S c hoolers filed for b ankruptcy, but within the 180-day s tatutory window for the i nclusion in the estate of inherited assets, Mrs. Schooler’s father, Hank Gremminger, Jr., died. 2 Mrs. Schooler w as named independent e xecutrix

1 As d is cus s ed i nf

ra , 11 U

. S. C. § 322( a) p rovid es t h a t a p e r s o n s elected to s erve as trus tee m us t “f

ile[] w ith the court a bond i n f a v o r o f the U nited States cond itioned on the f aithf ul perf orm ance of [his or her] of f icial d uties

. ”

2 Purs uant to 11 U

. S. C. § 541( a) ( 5) , a d ebtor’s es tate includ es prop erty he o r s he “becom es entitled to acquire, ” i nter a l i a , “by beques t, d evis e, or inheritance” occurring w ithin 180 d ays of the f

iling of a bank rup tcy p etition. 2 Case: 12-10677 Document: 00512333073 Page: 2 Date Filed: 08/06/2013No. 12-10677

of Gremminger’s will, and was left a one-half i nterest in his estate, which included real e state, cash, and other assets. Six days after G remminger’s death, Mrs. Schooler filed an application to probate her deceased father’s will. Lamesa National Bank is an unsecured creditor of the S choolers that has filed several proofs of claim in the Schoolers’ b a n kruptcy case, aggregating approximately $143,644.00. Upon learning o f M r s. Schooler’s appointment as

execu t r i x of the Gremminger estate, Lamesa’s counsel sent a l etter to the Trustee expressing c o ncern that M rs. Schooler might misappropriate the inherited a ssets belonging to the b ankruptcy estate. In that l e t t e r , Lamesa proposed that the Trustee assert entitlement to a ct as ex e c u t o r of the Gremminger e s tate a nd to conduct discovery i nto the nature of the assets involved, including an y t h a t might have passed to Mrs. Schooler as a result of non-testamentary transfers. Lamesa also s ent a letter to the attorney a ssisting Mrs. Schooler in probating Gremminger’s will, advising h im that Mrs. Schooler had not informed the T r u s tee of the i nheritance, and that the Trustee was entitled to take control of the probate estate. Lamesa sent a copy of this letter to the Trustee. In response, Mrs. Schooler i nitially t ook the position that s h e could disclaim the inheritance, thereby purportedly preventing it from passing to the bankruptcy estate. In correspondence to th e Schoolers’ bankruptcy counsel, the Trustee disputed t h i s claim and warned that the S choolers were required to amend their bankruptcy filings and list all property to which M rs. Schooler had become entitled as a result of h er father’s death. The Trustee c ontinued that she

w a s “ c o n c e rn[ed] that Mrs. Schooler may not be the [b]est person to serve as Independent Executrix of her father’s probate estate,” and that the matter

n e eded “to be discussed at length to d etermine whether the creditors’ interest [could] be adequately protected i f sh e s erve[d] in that capacity.” The Trustee

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sent a similar letter to the attorney assisting Mrs. Schooler with t he Gremminger probate matters. B o th att o r n e y s a s s i s ti n g th e S c h o olers responded quickly with r e p ly l e tt e r s to the Trustee. In essence, those l etters continued t o express the view that Mrs. Schooler had the righ t t o d i sclaim h er inheritance; that she was permitted to “retain personal property that may be claimed as exempt property”; and that she could use certain assets in the Gremminger probate e state “to p ay the bills.” The Schoolers’ bankruptcy counsel advised the Trustee to “let [him] know promptly” if she had any “disagreement with [his] presumption[s]” about t hese matters. This series of letters made apparent that the Schoolers were n ot conceding that the bankruptcy estate had any rights to the inherited assets. In subsequent letters sent to the Schoolers’ bankruptcy c ounsel, Lamesa continued to e xpress concern o v e r M rs. Schooler’s management of the Gremminger probate estate

. I n one letter, Lamesa’s c ounsel specifically addressed worry over “the fact that Mrs. Schooler is in p o ssession of o ver $ 50,000 [in] cash,” and he advised the Schoolers’ attorney that “[t]hi s m o n e y should certainly b e turned over to the Chapter 7 Trust e e, and I will be asking the Trustee to make a motion for such relief if Mrs. Sc h o o l e r w ill not do so voluntarily.” The Trustee received copies of each of these letters. In February 2002, th e Schoolers amended thei r b ankruptcy filings to reflect Mrs. Schooler’s undivided one - h a l f interest in the Gremminger estate. The filings listed various assets as exempt, however, and sta t ed that Mrs. Schooler’s sister, herself a b eneficiary under the Gremminger will, w a s claiming

an intere s t i n t h e estate’s real property that w ould have reduced significantly Mrs. Schooler’s i nterest therein. Later that m o n t h , Mrs. S chooler filed an

“ i n v e n t o ry, appraisment, and list of claims” i n the probate e state r eflecting a total p r operty inventory valued at $ 252,606.97—an amount later amended to $276,823.77.

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At Lamesa’s request, a Rule 2004 examination of M rs. Schooler, at which the Trustee was present, was conducted on March 15, 2 002. 3 Following that examination, which revealed variou s d etails about the Gremminger estate’s assets, Lamesa continued to write letters t o the Trustee expressing frustration

over Mrs. Schooler’s management of the Gremminger estate

. In particular, Lamesa’s attorney raised the concern that Mrs. Schooler intended to spend the cash in the probate estate. Lamesa therefore repeatedly urged the Trustee, in letters sent between 2002 and 2005, to take possession of the cash, real p roperty, and other assets in the Gremminger estate. Lamesa’ s p l e a s went unheeded. Prior to March 2005, the Trustee made

no formal demand that t h e S c h o olers turn over assets from the Gremminger estate to the bankruptcy estate. Similarly, the Trustee did n ot r e quest that the probate court a ppoint an alternate executor, nor did she pursue any action in the bankruptcy court to protect the bankruptcy estate’s i nterest i n the Gremminger estate. Not until March 7, 2005, did the Trustee demand by letter that the Schoolers turn over to the bankruptcy e state all assets to which M rs. Schooler became entitled as a result of her father’s death. U n f o r t u nately, the letter was too late. Although not discovered by the Trustee u ntil April 2009, the real property in the Gremminger estate had been sold i n September 2004, and cash from the probate estate had been disbursed to Mrs. Schooler between 2002 and 2004. By 2005, all of the Gremminger assets disbursed to Mrs. Schooler h ad been dissipated. T his notwithsta n d i n g , from 2003 to 2008, the T rustee filed annual reports i naccurately indicating that she

3 Rule 2004 allow s any p arty in interes t in a bank rup tcy p roceed ing to m ove f or a court ord er allow ing an exam ination of the d ebtor related “to the acts , cond uct, or p rop erty or to the liabilities and f

inancial cond ition of the d ebtor, or to any m atter w hich m ay a f f ect the ad m inis tration of the d ebtor’s es tate. ” Fed

. R. Bank r. P. 2004. 5 Case: 12-10677 Document: 00512333073 Page: 5 Date Filed: 08/06/2013No. 12-10677

had obtained either actual or c o n structive possession of assets from the Gremminger estate belonging to the bankruptcy estate. In February 2009, Lamesa filed a motion in the bankruptcy proceeding to compel the Trustee to perform her duties, or, alternatively, to remove h e r. Only after the bankruptcy court set a hearing for that motion did the Trustee file an adversary proceeding seeking f rom Mrs. Schooler the assets in the probate estate. The Trustee did not discover that Mrs. S chooler had dissipated those assets u ntil she later conducted a court-ordered Rule 2004 examination of Mrs. Schooler. 4 Lamesa subsequently filed against Liberty Mutual the adversary proceeding that is the subject of this appeal. In its amended complaint, Lamesa alleged that Liberty Mutual, as surety under the Trustee’s bond, was liable for the Trustee’s f

ailure t o “faithfully perform the duties of [a] Chapter 7 trustee.” Th e c o m p l ai nt f

u rther alleged that the Trustee’s conduct “breached the condition of [Liberty Mutual’s] blanket bond,” thereby obligating Liberty Mutual “to make [ L a m e sa] whole for the damages it

. . . suffered by reason of [the Tru s t e e ’ s ] breach of duty.” Following a t rial on L amesa’s claim, the bankruptcy court concluded that, contrary to Liberty Mutual’s argument, Lamesa’s suit was not t ime-barred. The court further held that the Trustee’s gross negligence caused d a m a ges to the bankruptcy estate in the a mount of $112,247.66, and that Liberty Mutual was liable f o r t hose damages as the Trustee’s surety. The court therefore ordered Liberty Mutual to remit that amount to the bankruptcy estate for distribution to t h e e s tate’s creditors. Liberty Mutual appealed the bankruptcy court’s judgment to the district court, which affirmed.

4 The Trus tee eventually e n t e r e d into a s ettlem ent agreem ent w ith Mrs

. Schooler
w hereby $12, 000 w as recovered f or the bank rup tcy es tate.

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Liberty Mutual once a gain appeals, raising four challenges. First, it contends that th e bankruptcy court erred in concluding that L a mesa’s c laim was not time-barred. Second, it asserts that the b ankrupt c y court erred in finding the Trustee grossly n egligent in her administration of the Schoolers’ bankruptcy estate. Third, it argues that the bankruptcy court e rred in finding the Trustee grossly n egligent without having heard expert testimony c oncerning the appropriate standard of care. Finally, it m aintains that the b ankrup t c y c ourt erred in calculating the damages resulting from the Trustee’s alleged gross negligence. 5 II. STANDARD OF REVIEW “We review a district court’s affirmance of a bankruptcy court decision by applying the same standard o f review to the bankruptcy court decision that the district court applied.” In re Martinez , 564 F.3d 719, 7 25–26 (5th C ir. 2009). “We thus generally review factual findings for clear error and conclusions of law de novo .” In re OCA, Inc. , 551 F.3d 359, 366 (5th Cir. 2008). “A finding of fact is clearly erroneous only if on the entire e v i d ence, the court is left with the definite and firm conviction that a mistake has been c ommitted.” In re Duncan , 562 F.3d 688, 694 (5th Cir. 2009) (per curiam) (internal quo t a t ion marks and citation o mitted). “We give deference to the b ankruptcy c ourt’s d eterminations of witness credibility.” Id. at 695. III. DISCUSSION A. Liberty Mutual’s Statute of Limitations Defense Liberty M utual first contends that the bankruptcy court erred in concluding that Lamesa’s claim against the b ond was not t ime-barred. Section

5 We note w ith ap p reciation that, at our reques t, the O f f ice of the General Couns el f or the Executive O ff

ice f or U nited States Trus tees f iled a s up plem ental letter brief in this cas e. W e a c k now led ge the help f ulnes s of that brief, though w e agree w ith Liberty M utual’s argum ent that the view s of the O ff ice f or U nited States Trus tees are not, as a matter of law , entitled to d ef

erence in this cas e. 7 Case: 12-10677 Document: 00512333073 Page: 7 Date Filed: 08/06/2013No. 12-10677

322(d) of the Bankruptcy Code provides that “[a] proceeding on a trustee’s bond
may not be c ommenced after two years after the date on w hich such trustee was discharged.” 11 U.S.C. § 322(d). Libert y M u t ual does not dispute that this limita t i o n s p e r iod is relevant, nor does it argue that Lamesa’s s uit was not brought within two years o f the Trustee’s discharge. 6 I nstead, it maintains that the bankruptcy court erred in failing to r ecognize that the limitations period for suits against a surety, as prescribed by 11 U.S.C. § 322(d), purportedly is distinct from the limitations p e r i o d applicable to a claim brought directly against a trustee. As it did in t h e lower courts, Liberty Mutual a rgues th at Lamesa’s suit implicates two different statutes of limitations. The first limitations period at issu e i s that contained in 11 U.S.C. § 322(d), w hich Liberty Mutual asserts merely sets a maximum expiration period for suit s a g a i nst a trustee’s bond. Additionally, because Liberty Mutual argues that federal l aw d oes n ot govern the “un d erlying obligation of a trustee,” it c ontends that a court also must consider the state-law limitations period associated w ith the underlyi n g t o rt claim against a trustee. In Liberty M utual’s view, the distinction between these two limitations periods i s important because a surety on a b ond may assert any defense that the bond’s principal would have to the claim , including the expiration of a s horter limitations period that would bar the claim were it brought directly against the principal. Stated differently, Liberty Mutual argues that Lamesa’s claim against the bond was derivative to a n underlying state-law negligence c laim against the Trustee directly. Liberty M utual thus maintains that the viability of Lamesa’s claim against the bond was dependent on the v i ability of a negligence claim against the T r u s t e e . In Liberty Mutual’s opinion, the two-year limitations

6 Ind eed , as all p arties ack now led ge, the Trus tee had not even been d is charged w hen Lam es a s ued Liberty M utual. 8 Case: 12-10677 Document: 00512333073 Page: 8 Date Filed: 08/06/2013No. 12-10677

period set forth in 1 1 U.S.C. § 3 22(d) f or suits against the b ond merely

e s t a b l i shes a n outer limit f or such suits, which may be shortened by a stat e limitations p eriod associated wit h the underlying cause o f action. Thus, if the underlying claim a g ainst a trustee w ould be time-barred, the purported derivative liability of a surety would not attach, and the s urety could not be held liable under t h e b o n d even if the claim were not time-barred under 11 U.S.C. § 322(d). Liberty Mutual r elies on these arguments t o support its contention that Lamesa’s c laim was time-barred. In so d oing, it cites to section 16.003(a) of the Texas Civil Practice and Re m e d i e s Code, w hich provides that negligence suits must be brought w ithin two years of the accrual date of the cause of action. T ex. Civ. Prac. & Rem. Code § 16.003; see also Askanase v. Fatjo , 130 F.3d 657, 668 (5th Cir. 1997). 7 Because the instant adversary p r o c e eding commenced on November 2, 2009, Liberty Mutual asserts that section 1 6.003’s two-year limitations period bars any claims that a c c r u e d against the Trustee before November 2, 2 007. Here, Liberty Mutual suggests that any alleged misconduct by the Trustee occurred no later than 2005, meaning that section 16.003 would have barred Lamesa’s claim had it been brought against the Trustee directly. Given Liberty Mutual’s contention that a surety ma y assert any defense available to the principal, i t argues that Lamesa’s claim agains t i t , as the Trustee’s surety, likewise was time-barred.

7 As relevant, s ection 16. 003( a) of the Texas C ivil Practice and Rem ed ies Cod e p rovid es that “a p ers on m us t bring suit f or tres p as s f

or i njury to the es tate or to the p rop erty of another, convers ion of p ers onal p rop erty, tak ing or d etaining the pers onal p rop erty of another, p ers onal injury, f

orcible entry and d etaine r , a n d f orcible detainer not later than tw o years af ter the d ay the caus e of action accrues . ” As we exp lained in A ska na se , this s tatute p rovid es the lim itations p eriod f or negligence actions in Texas

. 130 F. 3d at 668.

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(1) The Opinions of the Lower Courts In analyzing Liberty Mutual’s arguments, the bankruptcy court accepted that section 1 6.003 of the Texas Civil Practice and Remedies Code “presumably applies in cases involving negligence or gross negligence” by a C hapter 7 trustee. It thus framed the question p resented as “whether section 322 of the Bankruptcy Code preempts state law limitations” like those c ontained in s ection 16.003. In resolving this issue, th e c o u r t s t a ted th at it w a s b ound by Oles Grain Co. v. Safeco Insurance Co. of America , 221 B.R. 371, 375 (N.D. Tex. 1998). There, in addressing arguments s imilar to those advanced by Liberty Mutual, the district court had concluded that, in enacting 11 U.S.C. § 322(d), “Congress intended to create a statute of limit a t i o n s for actions on a bankruptcy trustee’s b ond that

was to be the stat u t e o f limitations for s uch actions.” Oles Grain , 221 B.R. at 375. The Oles Grain court reached this conclusion after noting that there was “no indication that Congress intended t o set merely an outer limit, w ithin which states might give parties less time to bring actions on a trustee’s bond.” Id. Relying on th is l anguage, the bankruptcy court in the instant a ction found 11 U.S.C. § 322(d) c ontrolling

. I t f u r ther observed, however, that the court in Oles Grain also h a d “considered whether, under [Texas] law, a s urety was exonerated when the limitations period had run on a hypothetical action directly against the principal.” The bankruptcy court explained that, i n c o n s t ruing Texas law, the Oles Grain court had “concluded that the T exas Supreme Court would n ot a d opt a s trict rule that exonerated a surety if limitations h ad run against the principal.” Notwithstanding its repeated r eferences to Texas law, the bankruptcy court’s opinion included a l engthy footnote questioning the applicability of state law in cases c o n c e r n i n g a Chapter 7 trustee’s s urety bond. In particular, the court explained:

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This case concerns the liability of a b onding c o mpany under a bond issued pursuant to s ection 322 of the Bankruptcy C o de “in favor of the United S tates.” As a condition o f serving as a case trustee in a bankruptcy case, the appointed trustee is r e quired to obtain such a bond. The United States trustee s elects the trustee and determines the a mount and sufficiency of the bond.

. . . And, a s discussed above, the Code provides that a n action on the bond may not b e commenced after two years after the date o n which such trustee w as discharged. [11 U.S.C.] § 322(d). This is a decidedly federal case. The b ankruptcy c ourt further noted t h a t t h e Oles G rain court had expressed similar se n t i m e nts. There, the district c ourt had explained that, “[i]n one instance, the F i f

t h C i r c u i t found that where a bond is issued pursuant to a federal statute, federal law c ontrols the scope of liability on a bond.” Oles Grain , 221 B .R. at 376 n. 8 ( c i t i n g T ransamerica Ins. Co. v. Red Top M etal, I nc. , 384 F.2d 752, 754 (5th Cir. 1967), overruled on other grounds by F

. D

. R i ch Co. v. United States ex rel. I

n d u s . L u mber C

o. , 4 17 U.S. 116, 126–27 & n.12 (1974)). The Oles Grain court opined that, just as i n Transamerica , “ [p]erhaps federal law should also govern the extent to which a surety’ s l i a b i l i t y d epends [on a] trustee’s liability for bonds issued pursuant to 11 U.S.C. § 322.” I d. Regardless of this aside, the bankruptcy c o u r t rested its decision on the conclusion that Oles Grain dictated that 11 U.S.C. § 322(d) was the controlling statute of limitations in this case. The court therefore held that Lamesa’s action

was n ot time-barred. On a ppeal, the district court affirmed, concluding that the bankruptcy c ourt properly r elied on Oles Grain , and that “[t]he requirement of the bond is set by federal statute a nd that f ederal s tatute supplies the limitations period for claims made o n t hat bond.” It thus rejected Liberty Mutual’s argument that section 322(d) did not s upply the dispositive limitations period in this case. In this c ourt, Liberty Mutual continues t o argue that Lamesa’s claim was time-barred under section 16.003 of th e T exas Civil Practice and Remedies Code.

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Lamesa, on the other hand, maintains that 11 U

. S.C. § 322(d) is the only statute of limitations r elevant to this case. Despite the f orce with which Liberty Mutual continues to advance its argument, we reject it, for as we explain below, it is based upon a fun d a m ental misunderstanding of the nature of a C hapter 7 trustee’s surety bond. Under 11 U.S.C. § 322(d), a proceeding on a trustee’s bond must be commenced within two years of the trustee’s di scharge. This provision establishes the only limitations period applicable to Lamesa’s claim. Because it is undisputed that Lamesa commenced its action within the time prescribed by section 322(d), we agree with the bankruptcy and district courts that Lamesa’s claim w as not time-barred, though we resolve the question somewhat differently than did either of the lower courts. ( 2 ) T h e G e n e r a l S t atutory Framework Su r r o u n d i n g F e d e r a l B o n d s Although we ultimately conclude that the l imitations period i n 11 U.S.C. § 322(d) is controlling, o u r rationale for doing so depends upon our first placing the p r ovision i n i ts larger c ontext. Most broadly, f ederal l aw generally governs all federal bonds. See 31 U .S.C. §§ 9301–9309. O f p articular r elevance, 31 U.S.C. § 9304 provides that when a s urety bond is permitt e d or required by federal law, the bond must be issued by a surety that satisfies certain criteria, and it must “be approved by the official of the [g]overnment required to approve

or accept the bond.” 31 U.S.C. § 9304(a), (b). Pursuant to 3 1 U.S.C. § 9307(a)(1), “[a] surety corporation providing a surety b ond under s ection 9 3 0 4

. . . may be sued in a court o f the U nited S tates h aving jurisdiction of c ivil actions o n surety bonds.” Further, “[i]n a p roceeding aga i nst a surety corporation providing a surety bond under section 9304

. . . , the corporation may not deny its power to provide a surety bond or to assume liability.” Id. § 9307(b). (3) The Bond Required by 11 U.S.C. § 322 Within the specific context of bankruptcy law, since the enactment of the Bankruptcy Act of 1898, federal law has required b ankruptcy trustees to obtain

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surety bonds issued in the name of t h e U n i t ed States, securing the trustees’ “faithful performance” of their official duties. See Bankrupt c y Act of 1 898, ch. 541, § 50(b), 30 Sta t

. 5 4 4 , 5 5 8 (codified at 11 U.S.C. § 78) (repealed 1978); Bankruptcy Reform Act o f 1978, Pub. L

. No. 95-598, § 3 22(a) , 92 Stat. 2549 (codified as amended a t 11 U.S.C. § 322). As already noted, this r equirement currently is codified at 11 U.S.C. § 322(a), which p rovides that before a trustee may engage in any o fficial duties, he or she must “file[] with the court a bond in favor of the United States conditioned on the faithful performance of s uch official dutie s . ” As this statutory language e xpressly reflects, bonds such as the s e

— s o m etimes referred t o as “faithful performance bonds”—are “given by federal officers to ensure their faithful performance of their federal duties.” Int’l Ass’n of Machinists, AFL-CIO v. C ent. A irlines, Inc. , 372 U.S. 682, 693 n.17 (1963); see also Bedenbaugh v. Nat’l Surety C orp. , 227 F.2d 102, 1 03–04 (5th Cir. 1955). Subparts ( c ) and (d) o f section 322 concern liability under the bond for breach of those duties. First, 11 U.S.C. § 322(c) s t a tes that “[a] t rustee is not liable p e r sonally or on such trustee’s bond in favor of the United States for any penalty or forfeitu r e i n c u rred by the debtor.” T his provision thus implicitly recognizes two distinct f orms of Chapter 7 trustee liabil i t y : A t r ustee may be liable personally, or he or s he may be liable on the bond. Section 322(c) creates

a limited exception to both types of liability, however, by p r oviding that the trustee is not liable for any penalty o r forfeiture incurred by the debtor. 11 U.S.C. § 322(c). Moreover, as previously noted, section 322(d) e stablishes the limitations period for s uits against a trustee’s bond. In particular, the statute provides that “[a] proceeding on a trustee’s bond may not be commenced after two years after the date on w hich such trustee was discharged.” Id. § 3 22(d). According to the provision’s legislativ e history, section 322(d) “fixes a two year s tatute of

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limitations on any action on a trustee’s bond.” S. Rep. No. 95–989, at 37 (1978),

re p r i nted i n 1978 U.S.C.C.A.N. 5 787, 5823 (emphasis a dded). As other courts have observed, there is no indication in the language of section 322(d) that the statute merely s ets an outer limitations p eriod that might b e s hortened by state statutes of limitations. See Oles Grain 221 B.R. a t 375; In re Armstrong , 2 4 5 B.R. 123, 129 (Bankr. D. Neb. 1999) (rejecting the argument that a state statute of limitations controlled in an action against a s ection 322(a) bond, a fter holding that “[t]he claim asserted by the plaintiffs is inherently a federal claim arising under federal law and therefore is subject only to the applicable federal statute of limitations”). (4) Claims on a Trustee’s 11 U.S.C. § 322 Bond Of course, the terms of the bond itself also are integral to u nderstanding liability issues s u r r o u n d ing a trustee’s bond. In the bond currently at issue, Liberty Mutual and the Trustee bound themselves “ j ointly and severally” to the United States. Pursuant to 11 U.S.C. § 322(a), Liberty M u tual agreed t o pay on the bond if the Trustee failed in the “faithful performance of [her] official duties.” As previously noted, 31 U.S.C. § 9307 ( a)(1) generally authorizes c laims to be brought against a s u r e t y o f a federal bond such as this one. In addition, the Federal Rules of Bankruptcy Procedure p r o v i d e greater s pecificity f or parties like Lamesa that advance claims within a bankruptcy proceeding against a Chapter 7 trustee’s surety bond. Rule 2010 states that “ [t]he United States trustee may authorize a b lanket bond in favor of the United States conditioned

on the faithful performance of official duties by the trustee or trustees.” Fed. R. Bankr. P. 2 010(a). The rule further provides that “[a] proceeding on the trustee’s bond m ay be brought by any party in interest i n the name of the United States for the use of the entity injured by the breach of the condition.” Fed. R

. Bankr. P. 2010(b).

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(5) The Timeliness of Lamesa’s Claim With these background principles in mind, we have no difficulty affirming the bankruptcy court’s conclusion that Lamesa timely filed i ts claim, though we approach the question differently t han did the lower courts. A s the f oregoing d iscussion makes p lain, any reliance on Texas law by Liberty Mutual is unfounded. In this case, Libe r t y M u t u a l i s sued the Trustee’s surety bond pursuant to f

ederal law. See 11 U.S.C

. § 3 2 2 ; 31 U.S.C. §§ 9 301–9309. Similarly, it was federal law, not state law, that authorized suit on the bond. 31 U.S.C. § 9307(a)(1); Fed. R

. Bankr. P

. 2010(b). Lamesa’s amended c o mplaint expressly s tated that i ts adversary proceeding arose under 11 U.S.C. § 322(d) and Rule 2010(b) of th e Federal Rules of B ankruptcy Procedure. A s previously noted, the complaint also alleged that the Trustee “ did not faithfully perform [her] duties” and, consequently, that she “breached the condition of [Liberty Mutual’s] blanket bond.” Accordingly, the amen d e d complaint charged that Liberty M utual was obligated on the bond for th e d a m a g es caused by the Trustee’s breach. Thus, as the bankruptcy c o u r t s t a t ed, “[t]his is a decidedly federal case.” Indeed, given the robust statutory framework s urrounding federal bonds,

co u r ts have long r ecognized that, as a general m atter, federal law governs disputes concerning federal b o n d s . In Transamerica , for example, we considered whether a surety providing a bond under the Miller Act was liable for a ttorneys’ fees. 384 F.2d at 753. Because the Act was silent on the issue, the surety had

a rgued that state l aw controlled of its own force. I d. at 754. We rejected tha t argument, however, c oncluding that the question was controlled by federal law. Id. In reaching that conclusion, we e xplained that t he rights protected by the Miller Act bond did “not originate in the common law or i n Texas statutes.” I d. Instead, those rights derived “from a congressional statute provid i n g for a

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payment bond giving protection to all persons supplying labor and m aterials on

a government contract.” Id. (internal quotations marks o mitted). Like the claim at issue here, we explained that a M iller Act claim “is a federally c reated cause of a ction; it must be brought in the name of the United S tates; and Congress has vested federal courts w ith exclusive jurisdicti o n o v e r all suits to enforce the action.” Id. We thus held that we merely were tasked with “construing a federal statute and the bond issued in compliance with the statute.” Id. Admittedly, as Liberty Mutual argues, in Transamerica we ultimately did rely on state law to determine the surety’s liability for attorneys’ fees. Id. We did so, h owever, only after notin g t hat such action was necessary “to fill the hiatus in the statute.” Id. at 756. We fur t h e r e m phasized “that s tate law

‘ g overn[ed]’ only through incorporation into federal law, not through its o w n force.” I d. at 755. In any event, seven years later, the F.D. Rich Court rejected this aspect of our a pproach. 417 U.S. at 127. There, the S upreme C ourt noted that, similarly to our approach i n Transamerica , the Nin t h Circuit had “construed the [Miller] Act to require a n award of attorneys ’ f e e s where the ‘public policy’ of the State in which suit was brought allows for the award of fees in similar c ontexts.” I

d. at 126. The Supreme Court held this construction to be

erroneous. I

d. at 127. In so doing, the Court stated: T h e Miller Act provides a federal cause of action, and the s c o p e o f the remedy a s well as the substance of the rights created thereby is a matter of federal not state law. Neither respondent nor the court below of f ers any e vidence of congressional intent to i ncorporate state law to govern such an important element of Mi l l e r Act litigation as liability for attorneys’ fees. Id. Transamerica and F.D. Rich thus stand for the proposition that, at least

as to bonds issued pursuant t o the Miller Act, federal law d etermines the scope of liability on a federal bond. Other c ourts have e xtended this p rinciple to

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different federal bonds. I n International Association of M achinists , f

or instance, the Supreme Court, in discussing its earlier holding in American Surety Co. of New Y ork v. Schultz , 237 U .S. 159 (1915), explained that the A merican Surety Court had held that “the c onstruction of [a federal s upersedeas ] b o n d and the extent of the s urety company’s liability under it were said to b e federal questions.” 372 U. S

. a t 6 9 2

– 9 3 ; see also Bock v. P erkins , 1 39 U.S. 628, 630 (1891) (action a gainst federal marshal, who was req u i r e d by federal law to obtain a surety bond “for the faithful performance of the duties of h is office,” was

one “arising under the laws of t h e United States”); F eibelman v. Packard , 109 U.S. 421, 424 ( 1883) (suit against federa l m a r shal for alleged breach of a

c o n diti o n o f m arshal’s federally-mandated bond “was plainly u pon the b o n d it s e lf and therefore arose directly under the provisions of an act of congress”). To be sure, as Liberty Mutual points out, some of these cases have focused primarily on jurisdictional issues surrounding the questions that were presented. We underscore, however, that as with the bond required under the Miller Act, the rights and obligations associated with a C h a p t e r 7 trustee’s surety b ond do n ot originate in state statutes, but rather d erive from f ederal law and th e bond issued i n compliance therewith. See T r a n s america , 384 F.2d at 754; 11 U.S.C. § 322(a). As noted throughout this opinion, 1 1 U

. S.C. § 322(a) expressly states that the bond is “conditioned on the f aithful p erformance o f [a trustee’s] official duties.” Those duties—including, as is p articularly relevant here, the obligation to li q u i d a t e t he estate’s assets and e xpeditiously pay its creditors—are prescribed by federal law. Se e 1 1 U .S.C. § 704. Where these duties have not been codified, the Supreme Court has defined them, as well as the associated liability for breaches thereof, by resorting to federal common law rather than state law. See Mosser v. Darro w , 341 U .S. 267, 271–72 (1951) (applying federal common law to determine a trustee’s li ability for breach of duty of l o yalty); United States ex rel. Willoughby v. Howard , 302 U .S. 4 45, 450 (1938)

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(defining a bankruptcy trustee ’ s o f f i c i al duties a s the fiduciary of an estate by relying on federal common la w). We too have applied f ederal common law principles to define the scope of a bankruptcy trustee’s duties and liabilities. See In re Smyth , 207 F.3d 7 58, 761–62 (5th Cir. 2000) (examining federal common law to d etermine standard of care required of bankruptcy trustees); accord In re Mailman Steam Carpet Cleaning Corp. , 196 F.3d 1, 6–7 (1st Cir. 1999). Given thi s c o m prehensive federal scheme governing the surety bonds of bankruptcy trustees, we thus are of the view that our role is limited to construing federal law and the terms of the bond issued in c onnection therewith. H e r e , f ederal law makes plain the limitations period for c l aims against t h e bond. 8 See 11 U.S.C. § 322(d). There thus is no need t o rely on T e x a s l a w, as Liberty Mutual asks us to do. Indeed, were we to apply section 16.003 of t h e Texas Civil Practice and R emedies Code a s Liberty Mutua l urges, we would frustrate the purposes and objectives of Congress in enacting 11 U.S.C. § 322(d). For the same reasons, we reject Liberty Mutual’s reliance on general principles of surety la w , t h e a doption of which—at least a s framed by Liberty Mutual—would require us to ignore the e x i s t i ng framework surrounding the bonds of Chapter 7 trustees. 9

8 As our dis cus s ion m ak es clear, w e r eject Liberty M utual’s view that C ongres s has enacted only “lim ite d provis ions relating to bond s .” Moreover, as we have highlighted , Congres s ’s s tatutory s chem e has been am p li f ied by the pronouncem ents of f ed eral courts —m os t es p ecially, of cours e, the Sup rem e Court—that have inter p r e t e d thos e bond s . Thus , L iberty M utual’s reliance on O ’M el v eny & M

yers v . F

.D

. I. C

. , 512 U

. S. 79 ( 1994) is
u n a v ailing. There, “in a s uit by the Fed eral Dep os it Ins urance Corp oration as rece i v e r o f a f ed erally ins ured bank , ” the Sup rem e Court held that s tate law , rather than f e d e r a l l aw , p rovid ed the “rule of d ecis ion governing tort liability of attorneys w ho p rovid ed s ervices to the bank

. ” O ’M

el v eny & M

yers v. F. D. I. C. , 512 U

. S. at 80–81, 89. In relying on O ’M el v eny & M yers , how ever, Liberty M utual neglects th a t , i n c o ntras t to this cas e, the caus e of action there aros e und er s tate com m on law

— a f act the Court stres s ed as central to its hold ing. Id. at 83–84. The Court als o m ad e clear that if, as here, “an exp licit f ed eral s tatutory p rovis ion” exis ted , “w e of cours e w ould not contrad ict” it. I d. at 85.

9 In any event, although Liberty M utual rep eated ly s ugges ts that the surety may as s ert any d ef ens e that the p rincip al m ay have as s erted , w e note as a n a s i d e t h a t a lead ing 18 Case: 12-10677 Document: 00512333073 Page: 18 Date Filed: 08/06/2013No. 12-10677

Furthermore, the terms o f the b ond itself r ender unav a i l ing Liberty Mutual’s argument th at its liability under the bond depends on the viability of

a claim against the Trustee. Libe r t y M utual’s b ond makes it “jointly and severally” liable with the T rustee for h er failure to f aithfully p e rform her duties. This means that each party may be sued independently, or, in other words, that Liberty Mutual’s liability under the bond is direct ra t her than derivative. See Minor v. Mechanics’ Bank ofAlexandria , 26 U.S. 46, 73 (1828) (under a joint and several faithful performance bond, “the p laintiff might have comm e n [ c e d] suit against e ach of the obligors, severally, or a joint suit against them a ll”); Downer

v. U.S. Fid. & Guar. Co. of Md. , 46 F.2d 733, 734 (3d Cir. 1931) (holding that the

su r e t y o f a joint a nd several bond has direct liability and may be sued individually or collectively). Nothing in the bond conditions Lib e r t y Mutual’s liability u pon the viability of a claim a g ainst the Trustee. Accordingly, the bond i t s e l f permitted Lamesa to file claims directly against Liberty Mutual at any time within the period set forth in 11 U.S.C. § 322(d). Finally, even were this not so, Liberty Mutual’s argument that it merely

was derivatively l iable and, by extension, that the claim was t im e - b a r r e d , neglects that j ust as it was jointly and severally liable under the bond, so too was the Trustee. Thus, the Trustee could have been sued on th e bond for a breach of the b o n d ’s conditions at any time before the expiration of the limitations period p r escribed b y 1 1 U.S.C. § 322(d). I n other words, even assuming Liberty Mutual were subject to derivative liability only (which we have rejected), a suit directly against the Trustee on the bond would still have been viable under section 322(d) when Lamesa filed its claim against Liberty Mutual.

com m entator s ugges ts that “the w eight of authority m aintains that the s urety m ay not p lead th e r unning of the s tatute of lim itations agains t the p rincip al obligor. ” 23 Willis ton on Contracts § 61: 7 ( 4th ed

. 2013)

.

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This conclusion is supported first by section 3 22’s t ext. As we have noted, section 3 22(c) establishes that a trustee may be h eld “l iable personally o r on such trustee’s bond ,” though the statute exempts the trustee from liability “for any penalty o r f

o r feiture incurred by the debtor.” 11 U .S.C. § 322(c) (emphasis added). The construction of this statute makes plain that a trustee may be sued personally o r on the bond. Similarly, section 3 2 2 ( d), which p r escribes the limitations period for suits against the bond, refers to “[a] proceeding on a t r u s t e e ’ s bond.” Id. § 322(d). This provision therefore is n ot limited in i t s application o nly to proceedings against the surety, but r ather also contemplates suits on the b ond against the trustee. Id. ; s e e also Fed. R. Bankr. P. 2010(b) (“A proceeding on the t rustee’s bond may be brought by any party in interest in the

name of the U nited S t ates for the use of the entity injured by th e b reach of the condition.” (emphasis added)). Our conclusion that the Trustee c ould have been sued directly on the bond until e xpiration of the limitations period in section 322(d) also is consistent with Supreme Court precedent. In Willoughby , for example, the Court considered a claim brought a gainst a surety and a former bankruptcy t rustee. 302 U.S. at 446–48. As here, the c ase involved liability under a faithful performance bond, issued under the pr e d e cessor statute to section 322. Id. at 447. In discussing the f acts, the Court made clear that both the surety a nd the f ormer t rustee had been sued directly o n the bond. See id. at 447–48 (noting that three actions were brought “in the name of the United States against [the former trustee] and the casualty company”); id. at 448 (“[R]ecovery w a s s o u gh t on each b ond on the ground that its co n d i tion had been broken b y [the former trustee’s] failing to perform h is official duties as trustee or receiver.”); Br. of Pet’rs at 5, Willoughby , 1937 WL 4 0857 (No. 3 0) (expl a ining that suit was brought against the former trustee “upon his official bonds” and against the casualty c o m p a n y “as surety upon . . . sa i d o f

f i cial bonds”). After generally discussing a trustee’s duties, as

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well as the particular breach that had b een alleged, the Willoughby Court explained that i f the trustee, in fact, had failed in performing his official duties, both “he and his surety are liable on the bonds .” Id. a t 4 5 4 ( e mphasis added). Ultimately, the Court remanded the case for reconsideration i n light of its opinion. Id. ; see also United S tates ex rel. Wilhelm v. Chain , 300 U.S. 31, 32–33 (1937) (c o n c e r ni n g action “on the bond” against bank, which had been designated

as an a uthorized d e p o s i t o ry for funds of bankruptcy estates, and the bank’s sureties, all o f which were jointly a n d severally liable on the bank’s faithful performance bond). These c ases, a long with the text of section 322, make c lear that trustees may be held directly liable on the bond. The statute of limitations for s u ch suits is supplied by section 322(d). Thus, even were we to assume that Liberty Mutu a l ’ s liability merely w a s derivative to the Trustee’s liability, because Lamesa’s claim would have been timely filed against the Trustee, it likewise was timely filed against Liberty Mutual. In sum, we hold f

or these myriad reasons that the controlling limitations
pe r i o d in this case is provided by 11 U.S.C. § 322(d). Liberty Mutual does not contest that Lamesa’s claim was timely under that provision. Accordingly, we affirm the ba nkru p t cy c o u rt ’ s c o n c l u s ion that Lamesa’s suit was not time-barred. B. The Trustee’s Gross Negligence Turning to the merits, Liberty Mutual contends that the bankruptcy court clearly e rred i n concl u d i n g t hat the Trustee was grossly negligent. In effect, Liberty Mutual maintains that a trustee in circumstances similar to those faced by the Tru s t e e w o uld not have foreseen that Mrs. Schooler might misappropriate the a ssets of the p robate estate over w hich s h e s erved as executrix. It suggests that the Trustee s imply made “a j udgment call,” based on h er experience in similar matters, regarding administration of the Gremminger probate estate.

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Relatedly, Liberty Mutual argues that the b ankruptcy court erred in making a finding as to the Trustee’s gross negligence without first having heard

e xp e rt t e s timony r egarding w hether the Trustee’s conduct h ad deviated from th e standard of care. According to Liberty Mutual, expert testimony was required because the proper conduct o f a bankruptcy trust e e i n a given situation is a matter o f professional j udgment. W e address each of these contentions in turn. (1) The Standard of Care Required of Bankruptcy Trustees In our review of a bench trial, a lower “court’s rulings on n egligence, cause, and proximate c ause are findings of fact, while its determination of the existence of a legal duty is a question of law.” T heriot v. United States , 2 4 5 F .3d 388, 394–95 ( 5 t h C i r. 1 998) (per curiam) (internal quotation marks and citation omitted). As the bankruptcy c ourt explained, a bankruptcy trustee is obligated to “collect and reduce to money the property o f the e state for w hich such trustee
serves, and close such estate as expeditiously as i s compatible with the best interests of parties in interest.” 11 U.S.C. § 704(a)(1). Although the Bankruptcy C o d e is silent as to the standard of care to which trustees a re to b e he l d i n fulfilling thes e a n d similar duties, we previously have held that bankruptcy trustees are liable o nly f or gross negligence. S myth , 2 07 F

. 3 d a t 7 6 2. 1 0 Gross

1 0 I n Smyth , w e d is cus s ed the m oras s s urround ing the stand ard of care required of bank rup tcy trus tees

. 207 F. 3d at 761–62. In p articular, w e noted that although the Sup rem e Cour t h a d held in M osser that trus tees could be held p ers onally liable for “w illf ully and d eliberately” breaching their f id uciary d uties , the cas e “d id not ad d res s a trus tee’s p ers onal liability w ith regard to negligent actions

. ” I d. at 761 ( citing M

osser , 341 U

. S. at 272–73)

. We f urther exp lained that, follow ing M osser , a circuit sp lit had em erged w hereby s om e courts had conclud ed that a bank rup tcy trus tee could no t b e h e l d p ers onally liable unles s he acted
w illf ully and d eliberately, w hereas others had conclud ed that a trus tee could be held liable f or m ere negligence. Id. Af ter cons id ering this authority and related p olicy
cons id erations

—p articularly tha t “ too little p rotection m ight exp os e a trus tee to exces sive p ers onal liability and d is s uad e cap able p eop le from becom ing trus tees , while too m uch p rotection w ould jeop ard ize the goal of res p ons ible es tate m anagem ent”—w e d eterm ined that bank rup tcy trus tees s hould be held to a gros s negligence s tand ard

. Id. at 761–62. Relying on Smyth , both courts below analyzed the Trus tee’s cond uct agains t a g r os s negligence s tand ard , and neither party has challenged that ap p roach in this court. H ow ever, the O f f ice f or U nited States Trus tees ( “the governm ent”) tak es is s ue w ith our conclus ion in 22 Case: 12-10677 Document: 00512333073 Page: 22 Date Filed: 08/06/2013No. 12-10677

negligence “is an act or omiss ion respecting legal duty o f an aggravated character as distinguished from a mere failure to exerci s e ordinary care. It amounts to i ndifference t o present legal duty and to u t ter forgetfulness of legal obligations so f

ar as other persons m a y be a ffected.” Id. (internal quotation marks and citation omitted). (2) Evidence of the Trustee’s Gross Negligence As previously noted, Liberty Mutual a rgues that the Trustee was justified in relying on Mrs. S chooler voluntarily to turn over the assets from the Gremminger e state. It m aintains that, because it was not foreseeable to the Trustee that Mrs. Schooler w ould dissipate the i nherited a ssets, the T rustee’s conduct cannot be said to have been grossly negligent. It also suggests that, by the t i m e the T rustee reasonably should have been concerned about Mrs.

Smyth , a s s e r ting that the op inion overlook ed contrary, bind ing authority, and that a “gros s negligence s tand ard is not eas ily reconciled w ith the Sup rem e Court de c i s i o n s hold ing that trus tees , generally, and bank rup tcy trus tees , s pecif ically, m ay be sued for sim p le negligence. ” In sup p ort of this s tatem ent, the governm ent p oints , i nter a li a , to Wi l loughby , w hich involved
a s uit agains t a bank rup tcy trus tee’s f aithf u l p e r f o rm ance bond and an allegation that the trus tee had be e n “ n e gligent in the p erf orm ance of his of

f icial d uties

. ” 302 U

. S. at 448. In analyzing the is sue, the Wi l loughby Court exp lained that “[ a] s the exercis e of or d i n a ry care in m ak ing and m aintaining d ep os its [ f or the es tate]

. . . w as p art of [ the trus tee’s ] d uties , he and his s urety are liable on the bond s if he f ailed in this res p ect. ” Id. at 454; see a lso i d. at 450 ( “By the com m on l a w , e v e r y trus tee or receiver of an es tate has the duty of exercis ing
reas onable care in the cus tod y of the f id uciary es tate

. . . . ” (f ootnote om itted )) ; H

ow a rd v . U ni ted Sta tes e x r el

. Stew a rt , 184 U

. S. 676, 693 ( 1902) ( s uit m ay be brought on a f aithf ul p erf or m a n c e b ond for the “negligence and m alcond uct” of the covered of f icers (internal quotations m ark s and citation om itted ) ) ; U ni ted S t a tes v . Thom a s , 82 U

. S. 337, 342–43 ( 1872) ( exp laining, in cas e involving an of f icial bond , that trus tees are “bound to exercis e the s am e care and s olicitud e with regard to the trus t p rop erty which they w ould exercis e w ith regard to their ow n”)

. Accord ing to the governm ent, thes e cas es s up p ort t h e p r o p o s i tion that a bank rup tcy trus tee m ay be s ued f or m ere negligence. As w e d id in Smyth , w e again ack now led ge the tens ion in this area of the law , and w e note that t h e g o v e rnm ent has advanced a p ers uas ive argum ent challenging our hold ing in Smyth

. N evertheles s , becaus e it is w ell- s ettled that abs ent an intervening change in the law , one p anel of this court m ay not unilaterally overrule or d is regard another p anel’s d ecis ion, w e recognize that w e are bound by S myth

. See In re Pi l gri m’s Pri de C

orp . , 690 F. 3d 650, 663 ( 5th Cir. 2012)

. This p res ents no d if f iculty here, how ever, s ince w e agree w ith the bank rup tcy and d is tr i c t courts that the evid ence s atis f ies even the gros s negligence s tand ard ad op ted in Smyth

. 23 Case: 12-10677 Document: 00512333073 Page: 23 Date Filed: 08/06/2013No. 12-10677

Schooler’s conduct, the assets alr e a d y were gone, meaning that the T rustee’s inaction was not the cause of the bankruptcy estate’s harm. As th e bankruptcy court concluded, however, these c ontentions of Liberty Mutual a re belied by the record. Contrary t o Liberty Mutual’s arguments, and as the bankrupt c y c o u r t found, the Trustee had ample evidence indicating that it w as necessary for her to more aggr e s sively s e e k c ontrol over the assets in the G remminger estate. First, th e Schoolers’ bankruptcy proceeding initially began as a no-asset case, so Gremminger’s death signa l e d t he possibility of an u nanticipated significant increase in the funds c reditors potentially could recover from t h e Schoolers. Second, the Trustee received numerous letters from Lamesa’s counsel in which Lamesa expressed g e nuin e a n d j ustified concern that the Schoolers did not intend voluntarily to turn o ver M rs. Schooler’s inherited as s e t s , and in which Lamesa urged the T rustee to i ntervene in the Gremminger probate proc e eding. 1 1 Third, despite the Schoolers’ intransigence in providing to the Trustee and the bankruptcy estate an accounting of assets Mrs. Schooler r eceived fr o m t h e Gremminger e state, M rs. School e r moved almost i m mediately t o probate her deceased father’s will. Fourth, after this was discovered and inquired into, the Schoolers refused to acknowledge an obligation to turn over asse t s t o t he bankruptcy estate, and instead advanced v arious novel legal theories to justify t h e i r failure to do so. Finally, as early as December 2001, the Trustee her s e l f expressed in letters t o the Schoolers’ attorneys that she w as concerned that Mrs. Schooler w as not the best person to administer the Gremminger e s tate,

1 1 Liberty M utual sugges ts that the d es ires of a cred itor d o not neces s arily ref lect the p rop er cours e of action a trus tee s hould purs ue. Although true, L am es a’s rep eated inquiries and exp res s ions of concern und erm ine Libert y M u t u al’s contention that M rs . Schooler’s d is s ip ation of

the G rem m inger as s ets w as unf ores eeable to the Trus tee. 24 Case: 12-10677 Document: 00512333073 Page: 24 Date Filed: 08/06/2013No. 12-10677

presumably owing to the ease with which Mrs. S chooler could access the estate’s assets. Notwithstanding these many warning signs, the T rustee took no action in the probate proceeding t o h ave an alternate executor appointed, and she i nordinately delayed pursuing any action in the bankruptcy court to recover assets from the Gremminger estate to which the bankruptcy estate legally was entitled. Moreover, the T rustee neglected to provide a written response to any of Lamesa’s inquiries, and she made no formal d emand, prior to 2005, that the Schoolers turn over the a s s e ts they received from the Gremminger estate. All the while, the Trustee f ile d i n the Schoolers’ bankruptcy proceeding reports inaccurately reflecting that she had assumed a t l east constructive possession of assets from the Gremminger estate. Although Liberty M utual asserts that it w a s reasonable in these circumstances for the Trustee to rely on the Schoolers voluntarily to turn over the inherited assets, “it should come a s no surprise to an experie n c e d b a nkruptcy trustee[] t h a t s ome debtors are undependable or dishonest or both.” In re Rollins , 1 75 B.R. 6 9, 74 (Bankr. E. D

. C a l

. 1 994). When the Schoolers did not promptly acknowledge and fulfill their obligation to turn over the assets to the bankruptcy e s t ate, the Trustee should have pursued other options for seizing the inheritance. See id. U nder the circumstances presented here, the T r ustee’s failure to do so demonstrated an indifference o n her part to fulfilling her duties to “collect and reduce to money the property o f the estate for w hi c h [ s he] serve[d], and close such estate as expeditiously as [was] c o mpatible w ith the best interests of parties in interest.” 11 U.S.C. § 704(a)(1). Furthermore, the consequences of th e Tru s t ee’s f ailure to recover the assets from the Gremminger estate were clear: The inherited assets easily were liquidated, as evidenced by Mrs. Schooler ’ s e v entual dissipation o f the related f u n d s. As a result of the Trustee’s failure to act in th e f ace o f this ris k , t h e

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bankruptcy estate lost a substantial portion o f i t s a ssets. T h us, the T rustee’s conduct a mounts to aggravated neglect of her legal duties and obligations, and indifference to the effect of h er actions on the estate’s c r editors. See Smyth , 207 F.3d a t 762. Accordingly, we conclude that the bankruptcy court’s finding that the Trustee w as grossly n e gli g e n t i n p erforming her duties was not clearly

erroneous. (3) Expert Testimony On a related point, Liberty Mutual submits th at the absence of a ny expert testimony as to the standard of care and, by extension, the pro p r i e t y of the Trustee’s decision not to act in connection with Mrs. Schooler’s a dministration of the Gremminger estate p recluded entry of judgment against it a s th e T rustee’s surety

. Pursuant to Federal Rule of Bankruptcy Procedure 9017, the Federal Rules of Evidence apply to cases b rought under th e B a n k r u ptcy C ode. The Federal R ules of Evidence d o not explicitly provide a standard for determining when expert testimony is required t o est a b lish whether a t r ustee’s conduct deviated from the s tandard of care. However, under Federal Rule of Evidence 702, expert testimony may be introduced only when it “will help the trier of fact to understand the evidence or to d etermine a fact in issue.” Fed. R. Evid. 702(a). “Whether the situation is a proper one for the u se of expert testimony i s to be determined on the basis of a ssisting the trier.” Fed. R

. Evid. 7 0 2 a d v isory committee’s note. “There is no more certain test for determining when experts

m a y be used than the common sense inquiry whether the u ntrained layman would be qualified to d etermine i ntelligently a nd to the best possible degree the particular issue without enlightenment from those having a specialized understanding of the subject involved i n the di s p u t e .” Id. (internal quotation marks and citation omitted). Finders of fact “are sup p o s e d to r each their c onclusions on the basis of

common sense, common understanding and f air beliefs, gro u n d e d o n evidence

26 Case: 12-10677 Document: 00512333073 Page: 26 Date Filed: 08/06/2013No. 12-10677

consisting of direct statements by witnesses or pro o f of circumstances from

w h i c h i n f

e r ences can fairly be drawn.” H uffman v . Union Pac. R.R. , 675 F.3d 412, 419 (5th Cir. 2012) (internal q u o t a tion marks and citation omitted). Accordingly, we have e xplained that, as a general rule, “[e]xpert testimony is not needed in many if not most cases.” Id. Moreover, although expert t estimony
may be “necessary in a professional negligence c ase to establish the standard of

care for the industry,” a n e xception applies in “instances o f negligence that are

a matter of common k n owledge comprehensible to laymen.” In re Fabbro , 411 B.R. 407, 425 n.54 (Bankr. D. Utah 2009); see also Salem v . U.S. Lines Co. , 370 U.S. 31, 35 (1962) (expert testimony u nnecessary where trier o f f act is “as capable of comprehending the primary facts and of drawing correct c onclusions from them as are witnesses p ossessed of special o r p eculiar t raining, experience,

or observation i n respect of the subject under i nvestigation” (internal quotation marks a nd citation omitted)); Huffman , 6 75 F.3d at 419 (expert testimony only required “when c onclusions as to the evidence c a nnot be reached b ased on the everyday experiences” of the fact finder). Although Liberty Mutual contends that expert testimony was required in this case, Lamesa suggests that inasmuch as the Trustee f ailed to act in the face

o f o bvious danger posed by Mrs. Schooler’s ready access to th e bankrupt c y estate’s assets, and in the face of repeated warnings and inquiries by a concerned creditor, a layperson could discern that the s tandard of care was n ot met in this

case. We agree with Lamesa that, under the facts of this case, e xpert t estimony

was not required to establish that the Trustee breached her duties. While the
p r e c i s e course of action the Trustee should h ave taken may b e subject to reasonable d ebate, i t requires no technical o r expert knowledge to r ecognize that she affirmatively should have undertaken s ome form of action to acquire for the bankruptcy e state the a ssets to which it was entitled. As the bankruptcy court

27 Case: 12-10677 Document: 00512333073 Page: 27 Date Filed: 08/06/2013No. 12-10677

explained, by doing n o thing, the T rustee i gnored basic h uman nature: C ommon knowledge would su g g e s t th at th e S c h o o l e r s , h avi n g f il ed for bankruptcy because of financial difficulties, would be tempted t o dissipate the a ssets Mrs. Schooler inherited from the Gremminger e state, especially when no demand was made of them by the Trustee to turn over the assets. The obviousness of the T rustee’s gross neglect in this case i s u n d e rscored by L amesa’s repeated a nd urgent requests that the Trustee act; the Sch o o l e r s ’ i ndications th at they intended to

use assets from the Gremminger estate, and possibly i ntended to disclaim the inheritance; the T rustee’s own admission that she was concerne d about Mrs. Schooler serving as execu t r i x; and the T rustee’s inaccurate reporting that she already had obtained possession of the assets from the Gremminger estate. In the face of this and other related evidence, expert testimony was not necessary to establish that the Trustee failed to meet her standard of care. 1 2 C. Damages Lastly, Liberty Mutual argues that the bankruptcy court clearly erred in awarding damages o f $112,247.66 t o the bankruptcy estate. It contends that the T r u s t e e ’ s t e s t i m o n y e s t a b l i s h e d t h a t , e v e n a b s e n t t h e S c h o o l e r s ’ misappropriation o f the inherited a ssets, only a net of a pproximately $85,000 could have been recovered by the bankruptcy estate. Give n t h e T r u stee’s testimony that the legal c osts of obtaining those funds from the Schoolers would have totaled bet w e e n $20,000 and $25,000, Liberty Mutual suggests that the court’s judgment should be reduced to $60,000, or remanded.

1 2 Liberty M utual als o brief ly s ugges ts that exp ert tes tim ony w as need ed to es tablis h that the Trus tee’s cond uct ca use d the alleged d am ages
. For the s am e reas ons that exp ert tes tim ony w as not need ed in this cas e to es tablis h w hether the Trus tee’s cond uct d eviated f rom the s tand ard of c a re, s uch tes tim ony w as not required to es tablis h that the Trus tee’s
m is cond uct caus ed the bank rup tcy es tate’s d am ages
. See Sa lem , 370 U

. S. at 35. 28 Case: 12-10677 Document: 00512333073 Page: 28 Date Filed: 08/06/2013No. 12-10677

In advancing this argument, Liberty Mutual ov e r l o o ks that the b ankruptcy court s imply r ejected the Trustee’s estimation of the amount tha t could have been recovered from the Gremminger estate abse n t h e r gross neglig ence. As the Federal Rules of Bankruptcy Procedure counsel, we afford great deference to th e bankruptcy court’s assessments of w itness credibility. Fed. R. Bankr. P. 8013; see also Matter of W ebb , 954 F.2d 1102, 1106 (5th Cir. 1992). Additionally, we n o t e t h a t the r ecord supports the bankruptcy court’s conclusion that damages to th e e s t ate t otaled at least $112,247.66. In particular, the Trustee’s own reports filed in the Schoolers’ bankruptcy proceeding indicate that Mrs. Schooler received $ 45,288.21 f rom the sale of her deceas ed father’s house a n d $ 6 7 ,959.45 in cash and other assets, for a total of $113,247.66. Because the Trustee’s gross negligence c aused damages of a t l east $112,247.66, Liberty Mutual has not demonstrated that the court’s damage award was clearly

erroneous. 1 3 IV. CONCLUSION For the f oregoing reasons, the judgment of the district court, affirming the bankruptcy court, is AFFIRMED.

1 3 Liberty Mutual als o argues that the bank rup tcy court’s d am ages c a l c u l a tion w as clearly erroneous inas m uch as it f ailed to cred it Liberty M utual f or $12, 000 recovered by the bank rup tcy es tate u n d er the settlem ent agreem ent eventually reached with M rs . Schooler. We reject this argum ent becaus e Liberty M utual’s m otion f or cred it agains t the jud gm ent w as abated by the bank rup tcy court and , as of the tim e of this ap peal, s till aw aits res olution. Accord ingly, the is s ue is not p rop erly bef ore us . 29 Case: 12-10677 Document: 00512333073 Page: 29 Date Filed: 08/06/2013