# United States Court of Appeals **for the Fifth Circuit**

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No. 23-10698

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In the Matter of Darren Scott Matloff

Debtor , Triumphant Gold Limited,
Appellant ,

versus
Darren Scott Matloff,
Appellee

.

______________________________ Appeal from the United States District Court for the Northern District of Texas USDC No. 4:22-CV-274

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Before Stewart, Clement, and Ho, Circuit Judges

. Per Curiam: * Triumphant Gold Limited (TGL), a creditor, opposed the discharge of certain debts before a U.S. bankr uptcy court. The bankruptcy court nonetheless granted discharge, and TG L appealed—first to the district

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* This opinion is not designated for publication. See 5th Cir. R. 47.5. United States Court of Appeals Fifth Circuit 

### FILED March 20, 2024 Lyle W. Cayce Clerk Case: 23-10698 Document: 57-1 Page: 1 Date Filed: 03/20/2024No. 23-10698

2 court, which affirmed, and then to us. Because the district court applied the wrong standard of review, we VACATE and REMAND

. Darren Matloff is the founder and sol e owner of Rooftop, a family of companies that manufactured and distri buted leisure-use drones. To finance its projects, Rooftop, through Matloff, sought financing from TGL. Rooftop and TGL executed two core loan agr eements—one in 2016 and one in 2017. Relevant here is the 2017 agreement, which the part ies revised and extended via numerous side letters. Through the agreement and its side letters, and in exchange for an extension of credit, Matl off agreed, in relevant part, (1) to reclassify as a loan from TGL a “CEO Bonus” from 2016, and (2) to collect purchase-order proceeds or accounts receivable and deposit those funds into bank accounts pledged as collateral to TGL. In February 2018, Rooftop defaulte d on its debt, and in 2019, both Matloff and Rooftop declared bankrupt cy. Matloff never repaid the supposed bonus from 2016, however, and ceas ed depositing fu nds into the TGLpledged accounts. Matloff and Rooftop sought discharge in U.S. bankruptcy court. TGL opposed discharge, invoki ng Sections 523 and 727 of the U.S. Bankruptcy Code, which govern “exceptions to discharge” and “discharge,” respectively. 11 U.S.C. §§ 523, 727. TGL asserted both liquidated claims and unliquidated claims against Matloff and Rooftop. 1 After holding a trial, the bankruptcy court issued a 139-page opinion rejecting TGL’s objections to discharge. TGL appealed to the U.S. District Court for the Northern District of Texas, ce rtifying four issues for review:

1. Whether the Bankruptcy Court erred in determining that [Matloff]’s debt was disc hargeable under 11 U.S.C. § 523(a)(6) because the amounts due did not arise from a

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1 A liquidated claim in bankruptcy refers to a claim the amount of which is known, whereas an unliquidated claim refers to a sum that is not yet estimated. Case: 23-10698 Document: 57-1 Page: 2 Date Filed: 03/20/2024No. 23-10698

3 willful and malicious injury inflicted through [Matloff]’s breach of contract;

2. Whether the Bankruptcy Court erred in determining that [Matloff]’s debt owed through his personal guarantee of a loan made by [TGL] was dischargeable under 11 U.S.C. § 523(a)(2)(A) because th e guaranty was based on [Matloff]’s alleged false repres entation of his intent to repay;
3. Whether the Bankruptcy Court erred in determining that [Matloff] should not be deni ed discharge under 11 U.S.C. §§ 727(a)(3) & 727(a)(7) becaus e of his alleged failure to properly preserve fina ncial records; and

4. Whether the Bankruptcy Court erred in determining that [Matloff] should not be deni ed discharge under 11 U.S.C. §§ 727(a)(2)(A) & (a)(7) when he allegedly transferred or permitted his companies to transfer property with the intent to hinder, delay, or defraud [TGL]. In a two-paragraph discussion section spanning less than a single page, the district court affirmed the bankrupt cy court’s opinion, citing only the high level of deference owed to bankru ptcy courts’ factual determinations. In particular, the district court held that “[ a]ll four issues certified for review by the District Court are factual inquiries. ” It explained that “[TGL] makes no contention that [Matloff] was improp erly awarded discharge because of a misrepresentation of the law, but only because the court applied the law to improperly drawn factual conclusions.” By congressional design, federal distri ct courts serve as the first level of appellate review in the U.S. bankruptcy system. See generally 28 U.S.C. § 158; see also River Prod. Co. v. Webb (In re Topco, Inc.) , 894 F.2d 727, 734 (5th Cir. 1990) (“Section 158(c) creates an appellate structure for appeals from bankruptcy courts to district cour ts that parallels the appellate structure for appeals from district courts to cour ts of appeals.”). Where a district court Case: 23-10698 Document: 57-1 Page: 3 Date Filed: 03/20/2024No. 23-10698

4 affirms a bankruptcy court’s decision , we “review [the] district court’s affirmance . . . by applying the same st andard of review to the bankruptcy court decision that the district court applied.” Barner v. Saxon Mortg. Servs., Inc. (In re Barner) , 597 F.3d 651, 653 (5th Cir. 2010). Whereas a bankruptcy court’s findings of fact are reviewed for clear error, its conclusions of law and mixed questions of law and fact are both reviewed de novo

. Tummel & Caroll v. Quinlivan (In re Quinlivan) , 434 F.3d 314, 318 (5th Cir. 2005). Because the questions that TGL cert ified for appellate review contain issues of law as well as issues of fact, the district court erred in applying a blanket clear-error standard. Specifica lly, all four questions certified for appellate review ask whether discha rge of Matloff’s debt was proper— whether under Section 523 or Section 72 7 of the U.S. Bankruptcy Code. We have previously held that “the decision to discharge . . . debts represents a conclusion regarding the legal effect of the bankruptcy court’s factual findings as to [the de btor’s] circumstances.” U.S. Dep’t of Educ. v. Gerhardt (In re Gerhardt) , 348 F.3d 89, 91 (5th Cir. 2003). Thus, discharge decisions— whether the case turns on Section 52 3 or 727—are legal determinations subject to de novo review on appeal. Id. ; see also Thomas v. Dep’t of Educ. (In re Thomas) , 931 F.3d 449, 451–52 (5th Cir. 2019) (entitlement to discharge that turns on Section 523 is a question of law subject to de novo review); Williams v. Int’l Bhd. of Elec. Workers Loc. 520 (In re Williams) , 337 F.3d 504, 508 (5th Cir. 2003) (same); Buescher v. First Unit ed Bank & Tr. (In re Buescher) , 783 F.3d 302, 308 (5th Cir. 2015 ) (entitlement to discharge that turns on Section 727 is a question of law subject to de novo review); Educ. Credit Mgmt. Corp. v. Young , 376 B.R. 795, 799 ( E.D. Tex. 2007) (same).

Because the district court erroneou sly applied a clea r-error standard to the entire case on appeal, we VACATE and REMAND for the district court to resolve the above-certified qu estions under the applicable standard of review. Case: 23-10698 Document: 57-1 Page: 4 Date Filed: 03/20/2024