United States Court of Appeals

Fifth Circuit

FILED

September 20, 2007

Charles R. Fulbruge III

Clerk

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 05-51626

In the matter of: GARY L BRADLEY 

Debtor 

------------------------- 

GARY L BRADLEY 

Appellee-Cross-Appellant 

v. 

RONALD E INGALLS, Trustee; 

Appellant-Cross-Appellee 

v. 

THOMAS THOMPSON, Trustee of and on Behalf of the Lazarus 

Exempt Trust 

Appellee-Cross-Appellant 

____________________________________________________________ 

Consolidated with 06-50808 

In The Matter Of: GARY L BRADLEY 

Debtor 
No. 05-51626

2

------------------------- 

RONALD INGALLS 

Appellant 

v. 

LAZARUS INVESTMENTS LP; CASTLE REALTY MANAGEMENT LLC;

THOMAS THOMPSON, in his capacity as Trustee of the Lazarus Exempt 

Trust 

Appellees 

Appeals from the United States District Court

for the Western District of Texas

Before SMITH, BENAVIDES, and DENNIS, Circuit Judges.

DENNIS, Circuit Judge:

Our main concern in this bankruptcy appeal is whether the burdens and

elements of proof were correctly applied in a bankruptcy trustee’s action to trace

and recover assets that a debtor “self-settled” into a spendthrift trust of which

he is the beneficiary. The bankruptcy and district courts held that, although the

debtor and his business associates used the trust in a scheme to defraud his

creditors, the trust could not be declared a sham because under Texas law the

doctrine of sham or illusory trust applies only in marital litigation. Instead,

those courts held that the bankruptcy trustee, in order to pursue the remedy of

tracing assets from the debtor into the hands ofthe spendthrifttrusttrustee and

recovering those assets for the bankruptcy estate, had the burden of proving that

those assets were identical with the debtor’s former property, that they were
No. 05-51626

3

products of such property, or that they had been commingled with other assets

of the spendthrift trust. Those courts further concluded that the bankruptcy

trustee carried his burden with respect to certain assets of the debtor but failed

with respect to others. Accordingly, they held that only the specific assets in the

hands of the spendthrift trust trustee that the bankruptcy trustee successfully

traced and proved to be identical with former property of the debtor would be

included in the bankruptcy estate. Finally, both courts agreed that Bradley

should not be granted a discharge from bankruptcy because of his concealment

of the self-settled assets. We affirm the judgments of the bankruptcy and

district courts for the reasons hereinafter assigned.

I. BACKGROUND

Gary L. Bradley was a major real estate developer in Austin, Texas who

maintained a business partnership with James Gressett for a number of years.

Bradley and Gressett had a private, unrecorded agreement with respect to assets

and legal entities they owned or controlled. Bradley’s share consisted of 80% of

the real estate holdings and 20% of the non-real estate investments; Gressett’s

share consisted of 20% of the real estate holdings and 80% of the non-real estate

investments. Bradley consistently avoided holding real estate and other assets

in his own name. As a result, his actual interests in various assets and entities

were ostensibly owned by Gressett and others.

In the mid-1980's, the FDIC obtained a judgment for over $50 million

against Bradley, Gressett, and their large real estate development company,

Circle C Development Corp. Gressett filed for Chapter 7 bankruptcy protection

in the early 1990's and received a discharge. In 1999, Bradley and Gressett

decided to separate their business interests by dividing, transforming, and

transferring assets representing Bradley’s share into a trustto be formed for the

purpose of protecting his assets from creditors. Bradley Beutel, Bradley’s cousin
No. 05-51626

4

and close business associate, was chosen to identify, reconfigure, and transfer

assets of values equivalent to Bradley’s share into the trust.

On May 2, 2000, Kaye Bradley Hulse, Bradley’s sister, created the Lazarus

Exempt Trust (the “Trust”), which the bankruptcy court described as a

discretionary Crummey trust, designating her brother, Bradley, as the primary

beneficiary. Hulse also designated Bradley’s son as the secondary beneficiary

and Beutel as the trustee. In creating the Trust, Hulse referred to herself as its

settlor and funded it with a $1,000 donation. She made no other donations to

the Trust, although she did loan substantial amounts of money to Bradley who

in turn loaned them to the Trust or to entities owned by the Trust. Prior to trial,

all claims against Hulse were dismissed.

Although the bankruptcy court did not find that Hulse created the Trust

for fraudulent purposes, it found that “Bradley and Gressett used the creation

of the Trust by her for their own purposes, i.e., as the timely and appropriate

vehicle to accomplish the final separation of their business affairs.” In fact, the

bankruptcy court stated:

For those of us looking in, this is an incredibly fraudulent scheme

engaged in primarily by Bradley, Gressett and, with the Trust’s

formation, Beutel as well,to hide the assets Bradley owned,to place

them into the Trust when formed, and to preserve them from the

clutches of Bradley’s creditors, the FDIC and the IRS.

Furthermore, the bankruptcy court found as a fact that “the Trust was

merely a sham and/or illusory and that all the Trust assets should be deemed

assets of Bradley’s Chapter 7 bankruptcy estate.” But the court refused to

declare the Trust a sham as a matter of law because “such cause of action [i.e.,

to legally declare a trust to be a sham or illusion,] only exists under Texas law

with regard to marital relationships.” Nevertheless, the bankruptcy court, for

purposes of appeal, in case the reviewing appellate court should determine such

a cause of action to exist, also found as additional supporting facts that: The
No. 05-51626

5

Trust was funded with only $1,000 and the settlor made no further donations to

the Trust. The great majority of the assets the Trust acquired in the first two

years -- over $40 million in value -- appeared either to have been owned by

Bradley or held for him by Gressett and others prior to the Trust’s creation.

Beutel, as trustee, never made formal distributions from the Trust, but Bradley

obtained cash from the Trust any time he needed it. Bradley was employed by

entities owned by the Trust and was paid a salary of about $15,000 per month.

Cash was shifted between the Trust and its various entities on an “as needed”

basis. Bradley was significantly involved in the management of the Trust’s

affairs on a daily basis. Gressett, Bradley, and Beutel conducted their business

ventures out ofthe same office, often using a common business name, employees

of the Trust-owned entities, and a centralized record-keeping system. The

Trust’s cash was disbursed to Bradley and others on an “as needed” basis

without respect to who produced it, which is precisely how the Bradley-Gressett

entities operated before they were placed in the Trust. Finally, there was

continual backdating of documents in an effort to breathe legitimacy into the

transactions amongst and between the Trust, Bradley, and his associates.

On July 19, 2002, Bradley filed for Chapter 7 bankruptcy. Ronald Ingalls

was appointed to serve as bankruptcy trustee. This appeal arises out of three

separate but related adversary proceedings, all of which were consolidated to

address the issue of whether Bradley self-settled some or all of the Trust assets

in an alleged effort to conceal those assets from the bankruptcy estate. A trial

was held on April 19 through April 29, 2004.

On October 28, 2004,the bankruptcy court concluded that(1) certain Trust

assets were self-settled and thus, are to be turned over to Ingalls as property of

the bankruptcy estate, (2) other Trust assets may have been self-settled but

Ingalls (a) did not carry his burden of tracing these transfers from Bradley to

assets in the Trust and (b) did not timely and diligently pursue his other
No. 05-51626

6

available remedies with respect to those assets; and (3) Bradley’s use of the

Trust to conceal the self-settled assets constituted a continuing concealment

warranting denial of his discharge from bankruptcy under 11 U.S.C. §

727(a)(2)(A). Ingalls, Bradley, and Beutel, as trustee of the Trust, each filed a

timely notice of appeal. 

On August 30, 2005, the district court affirmed. Ingalls, Bradley, and

Thomas Thompson, who replaced Beutel as trustee of the Trust, each filed a

timely notice of appeal.

II. STANDARD OF REVIEW

We review the bankruptcy court’s decision under the same standards used

by the district court: conclusions of law and mixed law and fact questions are

reviewed de novo, while findings of fact are reviewed for clear error. See Plunk

v. Yaquinto (In re Plunk), 481 F.3d 302, 305 (5th Cir. 2007); EOP-Colonnade of

Dallas Ltd. P’ship v. Faulkner (In re Stonebridge Techs., Inc.), 430 F.3d 260, 265

(5th Cir. 2005).

III. DISCUSSION

Under 11 U.S.C. § 541 of the Bankruptcy Code, a bankruptcy estate is

created at the commencement of the bankruptcy case. The bankruptcy estate

includes, with some exceptions, “all legal or equitable interests of the debtor in

property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). One

exception is the “spendthrift trust” exception. “In general, a spendthrift trust is

one in which the right of the beneficiary to future payments of income or capital

cannot be voluntarily transferred by the beneficiary or reached by his or her

creditors.” In the Matter of Shearn Moody, Jr. (In re Moody), 837 F.2d 719, 723

(5th Cir. 1988). Pursuant to § 541(c)(2), the property of a spendthrift trust is

excluded from the bankruptcy estate if those assets are protected from the

beneficiary’s creditors under state law. Shurley v. Texas Commerce BankAustin, N.A. (In re Shurley), 115 F.3d 333, 336-37 (5th Cir. 1997). Under Texas
No. 05-51626

1 The district court did not reach the merits of this issue, instead ruling that the issue

had been waived. We disagree. Although the bankruptcy court dismissed the illusory trust

claim earlier in the litigation, it nonetheless ruled in the underlying opinion that Ingalls was

not entitled to any other remedy because an illusory trust claim “only exists under Texas law

with regard to marital relationships.” On appeal to the district court, Ingalls raised the

following issue: “The Bankruptcy Court, upon finding the Trust to be a ‘sham’ or ‘illusory,’

erred by not holding that the entire Trust corpus belongs to the Debtor’s bankruptcy estate.”

On appeal to this court, Ingalls again raises the same issue. Thus, we conclude that the issue

has been sufficiently preserved throughout this litigation and that the district court abused its

discretion in concluding otherwise. See Zer-Ilan v. Frankford (In re CPDC Inc.), 221 F.3d 693,

698 (5th Cir. 2000) (“We review actions taken by the district court in its appellate role for an

abuse of discretion.”).

7

law, which is applicable to this case, a spendthrift provision in a trust protects

trust property from the beneficiary’s creditors unless “the settlor is also a

beneficiary of the trust.” TEX. PROP. CODE § 112.035(d); see also Shurley, 115

F.3d at 337-38. This rule is known as the “self-settlor” rule.” As this court has

recognized,the rationale behind the rule is obvious: “a debtor should not be able

to escape claims of his creditors by himself setting up a spendthrift trust and

naming himself as beneficiary.” Shurley, 115 F.3d at 337.

A. Issues Raised and Argued by Ingalls

1. Illusory or Sham Trust

Ingalls argues that the bankruptcy and district courts erred because they

stopped short of declaring that the Trust is a sham or illusory trust and that the

Trust property is totally included in the bankruptcy estate. We disagree.1In

Westerfeld v. Huckaby, 462 S.W.2d 324, 326 (Tex. Civ. App. 1970), the court

stated that“[t]he doctrine of illusory trusts in its inception and in its application

applies only to marital property situations.” On appeal, the Texas Supreme

Court affirmed, holding that “the court of civil appeals correctly held that an

application of the illusory trust doctrine, as enunciated in Land v. Marshall, 426

S.W.2d 841 (Tex. 1968), is limited to instances in which a non-consenting

spouse’s property is used to fund a trust.” Westerfeld v. Huckaby, 474 S.W.2d

189, 192 (Tex. 1971). To date, the Texas courts have not expanded the doctrine
No. 05-51626

2

In Shurley, this court left as open the elements and the burden of proof issues with

respect to self-settled assets claims. 115 F.3d at 338 n.14. Specifically, this court stated:

We note that the Marfa ranch was still held by the trust when Shurley

commenced her bankruptcy case. If the ranch had been sold, prior to the

bankruptcy filing,this case would be more complicated. We would still hold that

some portion of Shurley’s interest in the trust was self-settled and therefore

property of the estate, but would have to engage in a further analysis of (1) how

to value the self-settled portion of the trust, through tracing of assets or some

other method of calculating Shurley’s proportionate contribution to the trust

relative to the other settlors’ contributions, and (2) who should have the burden

of proof on this issue.

Id.

8

beyond the marital property context. Accordingly, the bankruptcy court did not

err in concluding that the illusory trust doctrine is so limited under Texas law

and therefore is not available in this non-marital case.

2. Elements and Burden of Proof in Tracing and

Recovering Self-Settled Property

Ingalls argues that the bankruptcy court erred in assigning him the

burden of following, tracing, and showing that property formerly owned by

Bradley was identical to property held in the Trust, rather than placing a

reverse burden on Bradley or Beutel, sub. nom. Thompson, to demonstrate that

the Trust property was not self-settled. Alternatively, he argues that he met his

burden of proving that substantially all of the Trust property was self-settled by

either having traced that property to identical property held in the Trust or by

having traced it to property with which it had become commingled or by some

other methodology.

Although the elements and burden of proof issues with respect to selfsettled property appear to be res nova in Texas,2

the parties suggest, and we

agree, that the situation here is analogous to that in which the beneficiary of a

trust is given the remedy of tracing and recovering trust assets that have been

wrongfully diverted or misappropriated by the trustee. 
No. 05-51626

3 See In re Lehigh & N. E. R. Co., 657 F.2d 570, 579 (3d Cir. 1981) (“where it is alleged

that [trust] property has been converted into other property in the hands of the bankrupt, the

claimant has the burden oftracing the trust property thereon.”); Sonnenschein v. Reliance Ins.

Co., 353 F.2d 935, 937 (2d Cir. 1965) (same); see also Haber Oil Co. v. Swinehart (In re Haber

Oil Co.), 12 F.3d 426, 436 (5th Cir. 1994) (the burden of identifying or tracing trust property

rests with the claimant).

9

In general, the initial burden of tracing and identifying property is upon

the claimant who seeks to follow it into the hands of another. Schuyler v.

Littlefield, 232 U.S. 707 (1914).3In the case of diversion or misappropriation by

a trustee,the beneficiary may follow and recover the trust corpus if any property

in the hands of the trustee can be traced and identified as the original property

of the beneficiary. Under Texas law:

Before a beneficiary can claim specific property in the enforcement

of a trust, however, he or she must show that it is identical with his

or her or the trust’s property, that it is the fruit or product of such

property, or that the property has been commingled with the fund

against which the beneficiary asserts the trust.

72 TEX. JUR.TRUSTS 3RD § 210 (2007) (footnotes omitted citing Continental Nat’l

Bank v. Weems, 6 S.W. 802, 806 (1888); Walter E. Heller & Co. v. Barnes, 412

S.W.2d 747, 759 (Tex. Civ. App. 1967); Brooks v. Cherry, 298 S.W. 170, 175 (Tex.

Civ. App. 1927); Blumenthal v. Nussbaum, 195 S.W. 275, 282 (Tex. Civ. App.

1917)).

Applying the foregoing principles by analogy, we conclude that the

bankruptcy court correctly used them in the present case and did not commit

clear error in its factual findings. After considering voluminous documentary

evidence and the testimony and depositions of Bradley, Gressett, Beutel, and

many other witnesses, the bankruptcy court found that Ingalls had traced and

proven that a number of assets had been transferred from Bradley to the

spendthrift Trust that were identical to assets still in the hands of the Trust

trustee. Although we will not attempt to completely itemize those assets, the
No. 05-51626

10

bankruptcy courtfound thatthey included the Phoenix Holdings, which included

the Spillar and Pfluger tracts or ranches, the Yates property, the Lazarus

Investments assets, and certain notes receivable. On the other hand, the

bankruptcy court found that, although Ingalls had traced other assets from

Bradley to the Trust, he had failed to show that those identical assets or

products of those assets were still in the Trust; or that they had become

commingled with Trust assets. Those assets included the Streetman stock

proceeds, the Webb/Troup acreage, the proceeds from the Thompson Medtech

transaction, and the funds received from the sale of the Rasaca Austin, L. P.,

partnership interest.

Ingalls’ argument that he adequately traced all of the alleged self-settled

assets from Bradley to identical assets or products of those assets, or to

commingled assets, still in the Trust, is without merit. His arguments are not

supported by the record and, for the most part, are based on a misunderstanding

of the burden of proof he was required to satisfy. The burden of proving that

assets went into the Trust and remained there is upon the claimant seeking to

apply the remedy of tracing. See BOGERT’S TRUSTS AND TRUSTEES, § 923, at 449

n.1 (citing Schuyler, 232 U.S. at 707; Sims v. Favey, 234 S.W.2d 465, 470-71

(Tex. Civ. App. 1950); Andrews v. Estate of Andrews, 326 S.W.2d 203, 207 (Tex.

Civ. App. 1959)). The remedy of tracing is not available where the claimant

merely shows the receipt of trust property by the defendant and makes no case

as to its subsequent history or its existence among the present assets of the

defendant, nor when trust property has been disposed of in such a way as to

leave no product. See BOGERT’S TRUSTS AND TRUSTEES, § 921, 433-34, nn.13-14

(citing Adams v. Champion, 294 U.S. 231 (1935); In re United Cigar Stores of

America, 70 F.2d 313, 316 (2d Cir. 1934)). It is simply not enough that the

property claimed may have been the product of trust funds at one time. Id. at
No. 05-51626

4 Undisputedly, Ingalls had access to all Trust records generated since the inception

of the Trust. Thus, he has not established that there were any facts unavailable to him for

purposes of showing commingling. To the extent that any Trust assets were disposed of

pre-petition and incapable of being traced, Ingalls was not diligent in utilizing any of the

remedies available to him to retrieve those assets. Indeed, Ingalls could have easily sought

to avoid any pre-petition transfers that he believed were fraudulently conveyed and recover

the property or value thereof. See 11 U.S.C. §§ 548, 550; see also TEX. BUS. & COM. CODE §

24.001, et seq. He did not do so.

11

434 n.15 (citing Bettendorf Metal Wheel Co. V. P.P. Mast & Co., 187 F. 590, 591-

92 (6th Cir. 1911)).

Ingalls is correctthat in some instances the tracing burden shifts when the

trustee wrongfully commingles assets with his own. See, e.g., Eaton v. Husted,

172 S.W.2d 493, 497 (Tex. 1943); Logan v. Logan, 156 S.W.2d 507, 510 (Tex.

1941); Peirce v. Sheldon Petroleum Co., 589 S.W.2d 849, 853 (Tex. Civ. App.

1979); Gen. Ass’n of Davidian Seventh Day Adventists, Inc. v. Gen. Ass’n of

Davidian Seventh Day Adventists, 410 S.W.2d 256, 259 (Tex. Civ. App. 1966).

In general, when a trustee wrongfully mixes trust funds of an indeterminable

amount with his or her own private funds, the burden is on the trustee to

distinguish his or her funds and the amount thereof from those of the

beneficiary, and if the trustee cannot do so, the whole commingled fund or the

property purchased with that fund becomes subject to a trust in favor of the

beneficiary. Logan, 156 S.W.2d at 510-11; Peirce, 589 S.W.2d at 853. In the

present case, however, Ingalls has not demonstrated that any of Bradley’s assets

traceable to the Trust were mixed, interspersed, or integrated with the trustee’s

private assets or other assets still in the Trust. The mere fact that Ingalls traced

specific self-settled assets to the Trust is insufficient to show commingling so

long as the assets traced to the Trust retained their individual integrity.4 See

Wichita Royalty Co. v. City Nat. Bank of Wichita Falls, 89 S.W.2d 394, 401

(1935); Commercial State Bank v. Algeo, 331 S.W.2d 84, 86 (Tex. Civ. App. 1959);

Farrow v. Farrow, 238 S.W.2d 255, 256 (Tex. Civ. App. 1951).
No. 05-51626

5 Under the proportionate contribution standard, the self-settled portion of the Trust

is calculated relative to the non-settled portion. As the bankruptcy court explained in further

detail: 

The proportion method would require us to calculate the value ofthe self-settled

portion of the trust as of each “self-settlement” vis-a-vis the value of the total

Trust and make the appropriate adjustment at each self-settlement. Then

regardless of whether the trust rises or falls in value, the self-settled proportion

remains constant [until the next-successive self-settlement]. That value would

then represent the amount available to creditors as of the date of the

bankruptcy.

Bradley v. Ingalls (In re Bradley), No. 02-12741, slip. op. at 130 (Bankr. W.D. Tex. filed Sept.

28, 2004)

12

Ingalls further argues thatthe bankruptcy court erred in rejecting his use

of the proportionate contribution method for calculating the self-settled portion

of the Trust.5 We conclude, however, that Ingalls failed to prove the facts

necessary to show the value of the self-settled assets in comparison to the entire

Trust corpus at the time they first entered the Trust, rendering the

proportionate contribution method functionally impossible to calculate. As the

bankruptcy court correctly recognized, the complexity of the many transactions

in this case “make this an exercise impossible to conduct based on the record

established.” After thoroughly examining the record, we agree that the

bankruptcy court did not err by refusing to apply the proportionate contribution

method because the evidence prevented the accurate and effective valuation of

Trust assets under that method.

Accordingly, we agree with the bankruptcy court’s conclusion that Ingalls

carried his burden of tracing and identifying some but not all of the Trust assets

as having been self-settled by Bradley.

3. Constructive Trust

Finally, Ingalls argues thatthe bankruptcy court erred in failing to impose

a constructive trust on virtually all of the Trust assets as having been selfsettled as of the petition date. We affirm the judgment of the bankruptcy court
No. 05-51626

13

in rejecting this theory because the record is devoid of proper pleadings and

proof in support of Ingall’s claim for a constructive trust.

The imposition of a constructive trust is generally governed by state law.

Southmark Corp. v. Grosz (In re Southmark Corp.), 49 F.3d 1111, 1118 (5th Cir.

1995). Under Texas law, a constructive trust is an equitable remedy that the

courts may impose when “the person holding the title to property would profit

by a wrong or would be unjustly enriched if he were permitted to keep the

property.” Omohundro v. Matthews, 341 S.W.2d 401, 405 (Tex. 1960).

Imposition of a constructive trust is appropriate when the claimant establishes

that (1) the debtor has committed actual fraud or has committed constructive

fraud through the breach of a preexisting fiduciary or confidential relationship,

(2)the debtor would be unjustly enriched by retaining the proceeds ofthe wrong,

and (3) there is a traceable res upon which to impress the trust. See Haber Oil

Co. v. Swinehart (In re Haber Oil Co.), 12 F.3d 426, 437 (5th Cir. 1994) (applying

Texas law); see also Meadows v. Bierschwale, 516 S.W.2d 125, 128-29 (Tex.

1974); In re Monnig’s Dep’t Stores, Inc., 929 F.2d 197, 201 (5th Cir. 1991) (citing

Talley v. Howsley, 176 S.W.2d 158, 160 (Tex. 1943)).

Ingalls did not timely and properly plead or attempt to plead fraud, which

is an essential element of a claim for a constructive trust. On January 12 and

26, 2004, the bankruptcy court entered orders effectively defining the main core

issue for trial: whether and to what extent the Trust is self-settled or partially

self-settled by the beneficiary, Bradley. Ingalls did not seek to add a fraud-based

claim, along with other claims and parties, until March 3, 2004, approximately

six weeks before trial. The bankruptcy court denied the motion to amend

because adding these new causes of action at such a late date would have been

unduly burdensome to the defendants who had prepared for a year and a half to

try the matter only with respect to the issue of self-settlement. The court also

doubted that plaintiffs would be prepared to try this case under these new
No. 05-51626

14

theories on a timely basis. In denying the motion, the bankruptcy court noted

that Ingalls had filed three previous amended complaints over the period of a

year without seeking to rely on a fraud-based constructive trust remedy. The

court further noted that while the IRS was a party to this action, it had pleaded

in its April, 2003 answer, alter-ego and fraudulent conveyance claims with

respectto certain assets acquired by theTrust. The court dismissed these claims

ruling that only the bankruptcy trustee had standing to pursue them on behalf

ofthe bankruptcy estate. Thus, the bankruptcy court suggested that Ingalls was

thereby given clear notice that he needed to amend his pleadings promptly if he

wished to assert fraud and constructive trust claims in addition to his selfsettlement claim. Consequently, until shortly before trial, Ingalls led the court

and the other parties to believe that he would rely only on the self-settlement

claim. Given these circumstances, we conclude that the bankruptcy court did

not abuse its discretion in denying Ingalls’ motion to add pleadings of fraudbased constructive trust claims. See Smith v. EMC Corp., 393 F.3d 590, 595 (5th

Cir. 2004) (motion for leave to amend reviewed for abuse of discretion).

Moreover, as we noted above in discussing the elements and burden of

proof of self-settlement claims, Ingalls did not satisfy his burden of tracing the

res of Bradley’s assets to property in the hands of the Trust trustee or in

showing that Bradley’s assets had been commingled with Trust property. As

these elements are essential to proof of entitlement to the constructive trust

remedy under Texas law, Ingalls’ argument is without merit for this reason as

well. 

C. Issues Raised and Argued by Thompson

1. Wavier

Thompson argues that the bankruptcy court erred in finding that Bradley

was a self-settlor under Texas law because Hulse created the Trust. However,

Thompson never raised this issue in the district court. Even if an issue is raised
No. 05-51626

15

and considered in the bankruptcy court, this court will deem the issue waived

if the party seeking review failed to raise it in the district court. See Rush Truck

Ctrs. of Tex. L.P. v. Bouchie (In re Bouchie), 324 F.3d 780, 782 n.6 (5th Cir.

2003); United States v. Olson, 4 F.3d 562, 567 (8th Cir. 1993). Only in

exceptional circumstances, when addressing an issue in the interest of justice,

will this court address an issue that has been waived. Kinash v. Callahan, 129

F.3d 736, 739 n.10 (5th Cir. 1997); see also Bayou Liberty Ass’n v. United States

Army Corps of Eng’rs, 217 F.3d 393, 398 (5th Cir. 2000) (“We do not consider

issues raised for the first time on appeal exceptin extraordinary instances when

such consideration is required to avoid a miscarriage of justice . . . .”). Because

this issue was clearly raised in the bankruptcy court, Thompson certainly had

ample opportunity to raise it in the district court for consideration. Because

Thompson failed to do so, and in the absence of any perceived miscarriage of

justice, we deem the issue waived. Id. (refusing to address issue when party had

ample opportunity to raise the issue in the district court). 

2. Alter Ego

Thompson next argues that the bankruptcy court erred in finding that

certain assets conveyed to Lazarus Investments, a partnership wholly owned by

the Trust, could not be considered self-settled because they were not conveyed

directly to the Trust itself. The previous courts rejected this argument as

“simply ridiculous.” Thompson contends that the argument is not ridiculous

because Ingalls failed to allege or prove an alter-ego claim, implying that the

Trust and Lazarus Investments are separate legal entities and that piercing of

the separate entity privilege is necessary to putthe conveyed assets in the hands

of the Trust’s trustee. We disagree. Logically and legally, the conveyed assets

are in the hands of the trustee just as much as any asset or entity to which he

holds legal title. Thompson has the plenary right as trustee to control and use
No. 05-51626

16

Lazarus Investments, as well as its assets, in the best interest of the Trust and

its corpus.

Moreover, under Texas law, a trust is not considered a legal entity in at

least two important respects. For purposes of attorney-client privilege or legal

capacity to be sued, “[t]he term ‘trust’ refers not to a separate legal entity but

rather to the fiduciary relationship governing the trustee with respect to the

trust property.” Ray Malooly Trust v. Juhl, 186 S.W.3d 568, 570 (Tex. 2006)

(citing Huie v. DeShazo, 922 S.W.2d 920, 926 (Tex. 1996)). Accordingly, in

Malooly, the Texas Supreme Court held that suits against a trust must be

brought against its legal representative, the trustee, and not against the trust

itself as a separate legal entity. 186 S.W.3d 569-71. In Huie,the Texas Supreme

Court held that the attorney-client privilege protects communications between

a trustee and his or her attorney relating to trust administration for the same

reason that a trust is not a separate legal entity; it is a fiduciary relationship.

922 S.W.2d at 925-26 (citing Tex. Prop. Code § 111.004). “[The attorney] thus

represented [the trustee] in his capacity as trustee, not the ‘trust’ as an entity.”

Id. We see no good reason to expect the Texas courts to deviate from these

decisions to hold that a trust is a separate legal entity for purposes of requiring

a bankruptcy trustee to plead and prove an alter-ego claim to reach self-settled

assets held by an entity wholly-owned by a spendthrift trust.

3. Self-Settled Assets; Factual Findings 

Finally, Thompson challenges the bankruptcy court’s findings of fact with

respect to whether Phoenix Holdings, Ltd., Phoenix Holdings GP, Inc., and two

pieces of real property known as Spillar/Pfluger and the Yates Property were
No. 05-51626

6 These issues were also raised and argued by Bradley.

7 Findings of fact in support of a discharge decision are reviewed for clear error while

the decision itself is reviewed de novo. U.S. Dep’t of Educ. v. Gerhardt (In re Gerhardt), 348

F.3d 89, 91 (5th Cir. 2003).

17

self-settled.6 However, his arguments simply boil down to questions of witness

credibility and the bankruptcy court’s weighing of the evidence. “We are

particularly mindful of the opportunity of the bankruptcy court to judge the

credibility of the witnesses.” Young v. Nat’l Union Fire Ins. Co. (In re Young),

995 F.2d 547, 548 (5th Cir. 1993) (internal quotations and citations omitted).

Moreover, when the bankruptcy court’s weighing of the evidence is plausible in

light of the record taken as a whole, a finding of clear error is precluded, even if

we would have weighed the evidence differently. As the Supreme Court stated,

“[w]here there are two permissible views of the evidence, the fact finder’s choice

between them cannot be clearly erroneous.” Anderson v. City of Bessemer City,

N.C., 470 U.S. 564, 574 (1985); Plunk, 481 F.3d at 305 (bankruptcy court’s

findings of fact reviewed for clear error). Having reviewed the record in its

entirety, we are unable to conclude that the bankruptcy court clearly erred in

finding that the aforementioned assets of the Trust were self-settled.

D. Issue Raised and Argued by Bradley

Bradley argues thatthe bankruptcy court erred in failing to discharge him

from bankruptcy.7 Under 11 U.S.C. § 727(a)(2)(A), the bankruptcy court can

deny discharge if “the debtor, with intent to hinder, delay, or defraud a creditor

. . . transferred, removed, destroyed, mutilated, or concealed . . . property of the

debtor, within one year before the date of the filing of the petition.” Thus, “[i]n

order to deny discharge, the statute requires that four elements be proven: (1)

a transfer [or concealment] of property; (2) belonging to the debtor; (3) within

one year of the filing of the petition; (4) with intent to hinder, delay, or defraud

a creditor or officer of the estate.” Pavy v. Chastant (In re Chastant), 873 F.2d
No. 05-51626

18

89, 90 (5th Cir. 1989). Concealment of property can be established by showing

“a transfer of title coupled with the retention of the benefits of ownership.”

Thibodeaux v. Olivier (In re Olivier), 819 F.2d 550, 553 (5th Cir. 1987). In

addition, this court has held that, under the continued concealment doctrine,

“the concealment of an interest in an asset that continues, with the requisite

intent, into the year before bankruptcy constitutes a form of concealment which

occurs within the year before bankruptcy.” Id. at 555. Having reviewed the

record, we agree that the bankruptcy court did not clearly err in finding that

Bradley transferred assets to the Trust within one year of the bankruptcy

petition and maintained and concealed his secret ownership interest in those

assets with the intent to defraud his creditors. Thus, we agree that the

bankruptcy court did not err in refusing to discharge Bradley from bankruptcy.

IV. CONCLUSION

For these reasons,the judgments ofthe bankruptcy and district courts are

affirmed.

AFFIRMED.