Opinion ID: 72001
Heading Depth: 2
Heading Rank: 2

Heading: A.P. Id. at 798.

Text: Nouveau does not specifically urge that a comparable “federal interest” supersedes deference to state law conceptions of property under Butner, but instead argues generally that “[t]he Bankruptcy Code is a purely federal law creature” and that “discharge” is an issue of federal law. However, to the extent that Nouveau’s argument presents a superseding federal interest, we find the Ninth Circuit’s reasoning persuasive, and we decline to hold that the generic “federal interests” in bankruptcy or discharge preclude deference to state property law here. 13 No. 09-10622 Supreme Court has repeatedly held that “[p]roperty interests are created and defined by state law” in the absence of a controlling federal interest. Butner, 440 U.S. at 55. Drye is distinguishable here because its reasoning drew from the particularities and structure of the IRC. Further, like in Costas, Laughlin renounced his interest in his father’s estate pre-petition, which factually differentiates the post-tax-lien disclaimer in Drye.10 Accordingly, Simpson continues to be good law, post-Drye, and we must look to Louisiana law in order to determine whether Laughlin transferred “property” or an “interest in property” here. C. Renunciation of Inheritance Rights under Louisiana Law Under the Louisiana Civil Code, “[a] successor is not obligated to accept rights to succeed [inheritance rights]. He may accept some of those rights and renounce others.” LA. CIV. CODE ANN. art. 947 (West 2000). “To the extent that a successor renounces rights to succeed, he is considered never to have had them.” Id. art. 954 (emphasis added). “The rights of an intestate successor who renounces accrete to those persons who would have succeeded to them if the successor had predeceased the decedent.” Id. art. 964. These provisions in the Louisiana Civil Code are comparable to the Texas law at issue in Simpson and the Arizona law at issue in Costas because Louisiana law also treats a renouncing successor as never having had an interest in property. Cf. Simpson, 36 F.3d at 452 (“The effect of the relation back doctrine is that a beneficiary never gains possession of disclaimed property.”); Costas, 555 F.3d at 794 (“In short, Arizona’s relation-back rule says that a 10 It has been recognized by several courts and commentators that post-petition disclaimers of inheritance are not valid under 11 U.S.C. § 541(a)(5). See, e.g., Parker, supra note 7 at 38 (“[T]he language of [§ 541(a)(5)] evidences congressional intent to secure for the trustee the power to accept the devise on behalf of the creditors and to preclude the debtor from exercising the power to disclaim.” (collecting cases)). We do not confront this issue today given that Laughlin renounced his interest pre-petition. 14 No. 09-10622 disclaimant neither transfers nor possesses an interest in disclaimed property . . . .”). As such, Laughlin urges that, as in Simpson, we should hold that Laughlin’s pre-petition renunciation of his interest in his father’s estate was not a “transfer” of “property” or an “interest in property” under § 727(a)(2). Nouveau responds that the Louisiana law is different from the state laws at issue in Costas and Simpson and urges that its differences are sufficient to support the district court’s determination that Laughlin transferred property or an interest in property for the purposes of § 727(a)(2). Specifically, Nouveau argues that Louisiana law allows a creditor to reopen the succession to accept a debtor’s renounced interest, with the result that there is a creditor’s “interest in property” sufficient to support the denial of Laughlin’s discharge under § 727(a)(2). We disagree.11 Under Louisiana law: 11 Nouveau also argues that Louisiana Civil Code article 960 supports its argument that Laughlin transferred property under § 727(a)(2). Article 960 provides that: A renunciation shall be deemed to be an acceptance to the extent that it causes the renounced rights to devolve in a manner other than that provided by law or by the testament if the decedent died testate. LA. CIV. CODE ANN. art. 960. Commentators have interpreted article 960 as pertaining to situations where the successor, in the act of renunciation itself, tries to direct his interest in a manner other than that provided by law (i.e., “I renounce in favor of X.”). See KATHRYN VENTURATOS LORIO, 10 LA. CIV. L. TREATISE § 6:5 (discussing article 960 but recognizing that a renunciation in favor of all coheirs may be valid); Matthew D. Simone, Comment, Louisiana Post-Mortem Estate Planning—Alleviating the Burden of Double Taxation Imposed against a “Renunciation in Favor of,” 54 LOYOLA L. REV. 905 (2008) (same); see also Aurienne v. Mt. Olivet, Inc., 96 So. 29, 31 (La. 1922) (stating that a renunciation made in favor of only one coheir would typically be problematic). Where such a renunciation is made, article 960 deems that the successor has accepted and then donated his interest, rather than renouncing it. However, Nouveau does not argue that Laughlin, in his act of renunciation, directed his interest in his father’s estate in a manner other than provided by law. Indeed, Nouveau admits that Laughlin’s renunciation was formally valid, and argues instead that the scheme to transmit his inheritance interest to his mother should be deemed an “acceptance” of his renounced interest. We are not persuaded. Laughlin’s renunciation was formally valid and led to his interest passing to his daughter, by operation of law. Though we conclude that our inquiry ends there, we note that Nouveau has not alleged, much less shown evidence, that Laughlin’s daughter was somehow bound to transmit the renounced interest so as to make Laughlin’s renunciation a “renunciation in favor of” that triggers article 960. 15 No. 09-10622 A creditor of a successor may, with judicial authorization, accept succession rights in the successor’s name if the successor has renounced them in whole or in part to the prejudice of his creditor’s rights. In such a case, the renunciation may be annulled in favor of the creditor to the extent of his claim against the successor, but it remains effective against the successor. LA. CIV. CODE ANN. art. 967. The Louisiana Supreme Court has interpreted this article as requiring “a creditor [to] prove that an heir renounced his inheritance fraudulently or with an intent to wrongfully deprive the creditor of his claim on the debtor’s property in order for the creditor to have a right to have the renunciation annulled and to accept the inheritance in the heir’s stead.” Succession of Neuhauser, 579 So. 2d 437, 441 (La. 1991).12 We determine that, for the purposes of our inquiry today, Louisiana law is indistinguishable from the Texas law at issue in Simpson, and we hold that, under Louisiana law, a valid pre-petition renunciation of an inheritance interest is not a transfer of the debtor’s property under § 727(a)(2). Section 727(a)(2) denies a discharge to a debtor who has “transferred . . . property of the debtor, within one year before the date of the filing of the petition,” 11 U.S.C. § 727(a)(2)(A) (emphasis added); Pratt, 411 F.3d at 565 (requiring that property of the debtor be transferred). The question then is whether article 967 recognizes or creates rights in the renounced inheritance that disturb the relation-back fiction. Absent such rights, the relation-back fiction controls and the renouncing debtor is deemed never to have had rights in the renounced inheritance. See LA. CIV. CODE ANN. art. 954. 12 Neuhauser dealt with differently numbered and worded civil code sections. In 2000, the relevant civil code provisions were “simplified”; but there is no suggestion—either by case law, commentators, or the parties here—that the “simplifications” abrogated Neuhauser’s holdings. See LA. CIV. CODE ANN. art. 967 revision comment (“This Article clarifies the prior rules and uses simpler terminology. As in prior law, judicial authorization for an acceptance by a creditor in the name of a successor is required, and that principle is set forth in the Article.”); LORIO, 10 LA. CIV. L. TREATISE § 6:8 (noting that nothing substantively changed with the revisions and renumbering of article 967). 16 No. 09-10622 To analyze this issue, we first look to the text of the Louisiana Civil Code. Article 967 states that, even when a renunciation is “annulled in favor of the creditor to the extent of his claim against the successor, [such a renunciation] remains effective against the successor.” LA. CIV. CODE ANN. art. 967 (emphasis added). As such, the article’s text suggests that an annulment action under article 967, though it concerns the actions and intent of the renouncing successor, resolves only the right to the renounced interest as between the renouncing successor’s creditors and the substituted successors. The text does not suggest that a renouncing successor gains an interest in the inheritance because, even if the annulment action is successful, article 967 specifies that the successor’s renunciation remains effective against him. Id. And though the “creditor . . . accept[s] succession rights in the successor’s name,” id., we do not think that this clause, read in context, suggests that it is the debtor’s rights that the annulling creditor accepts. Instead, we interpret that provision as specifying the prerequisite for the creditor bringing an action; the creditor must be a creditor of the renouncing successor. In sum, we read article 967 together with articles 954 and 947 to mean that a successful annulment of a renunciation does not disturb the fiction that the renouncing successor predeceased the decedent and thus never had rights in the inheritance interest. Thus, we do not think that the text of article 967 clearly recognizes or creates rights in the renouncing successor. Second, the manner in which Louisiana courts have characterized the renunciation annulment action does not disturb our interpretation of article 967. Specifically, Louisiana courts have stated that the rights under article 967 are creditor’s rights. See Aurienne, 96 So. at 30 (“Plaintiffs do not claim that they have the right, which is given by article [967] . . . to creditors of a person who has renounced an inheritance, to accept it to the extent of their claims.” (emphasis added)); Succession of Andrews, 604 So. 2d 194, 198 n.2 (La. Ct. App. 1992) (“In 17 No. 09-10622 the oblique action, the creditor exercises a right belonging to the debtor in the debtor’s name. In the revocatory action, the creditor acts in his own name to enforce his own rights. . . . We construe the [renunciation annulment action to be] a revocatory action.”) (citations omitted; emphasis added).13 These statements reinforce the notion that article 967 does not recognize or create rights in the renouncing successor. Third, the procedure of the article 967 action does not disturb our interpretation of article 967. Louisiana courts require that the creditor who seeks an annulment petition the court to reopen the succession. See Neuhauser, 579 So. 2d at 439 (“[The creditor] petitioned the court to reopen the succession of the [decedent] alleging that the creditor was a judgment creditor of the [renouncing successor].”); id. at 442 (“‘When the creditors wish to be authorized to accept a succession, which their debtor . . . has renounced to their prejudice, they must present a petition to the judge of the place where the succession is opened . . . .’” (quoting former article 1071)); Succession of Wagner, 746 So. 2d 696, 697 (La. Ct. App. 1999) (creditor “filed petitions to annul [successor’s] renunciation” in trial court and the trial court annulled the renunciation, allowing creditor to accept the inheritance). The court overseeing the succession 13 The Louisiana Supreme Court has also analogized the renunciation annulment action to a “revocatory action” under article 2036 of the Louisiana Civil Code. See Neuhauser, 579 So. 2d at 440; D.A. Pearce–Reggio, Note, Succession of Neuhauser: Death of a Creditor’s Claim, 66 TUL. L. REV. 1101, 1109 (1992) (“[T]he [Louisiana Supreme C]ourt adhered to the prevailing view that an action to annul a debtor’s renunciation falls within the ambit of the revocatory action.”); see also LA. CIV. CODE ANN. art. 2036 (“An obligee has a right to annul an act of the obligor, or the result of a failure to act of the obligor, made or effected after the right of the obligee arose, that causes or increases the obligor’s insolvency.”). And we have noted that “under Louisiana and federal bankruptcy law, the trustee may avoid [a debtor]’s transfers . . . by stepping into the shoes of a[ ] . . . creditor who could have avoided those transfers by means of a revocatory action.” Traina v. Whitney Nat’l Bank, 109 F.3d 244, 246 (5th Cir. 1997) (emphasis added). We derived this authority from § 544(b) of the bankruptcy code which states that a “trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim.” 11 U.S.C. § 544(b)(1). Given the posture of the present case, however, we need not consider whether the trustee has the power under § 544(b)(1) to bring an article 967 action. 18 No. 09-10622 then determines whether the annulling creditor may accept the renounced interest, in the debtor’s name. See Neuhauser, 579 So. 2d at 440 (“‘The creditors of the heir who . . . renounces an inheritance . . . can be authorized by the judge to accept it, in the name of the debtor and in his stead.’” (quoting predecessor to article 967)); id. at 442 (“‘If . . . it is proved to the judge that the debtor . . . has renounced [the succession] to the prejudice of his creditors, [the judge] is bound to authorize the creditors to accept it in his stead.’” (quoting predecessor to article 967)). To effect the acceptance, “the judge has the duty ‘to cause immediately to be made an inventory of the effects of the succession, to appoint an administrator to manage them, sell them, and pay the creditors.’” Id. (quoting predecessor to article 967). Satisfaction of the creditors thus comes from the succession estate, by petitioning the court, not the renouncing debtor, for relief. This procedural form is consistent with the interpretation that the renouncing successor does not have rights in the succession post-renunciation; the renouncing successor has, by definition, renounced his interest and that interest has “accrete[d] to those persons who would have succeeded to them if the successor had predeceased the defendant.” LA. CIV. CODE ANN. art. 964. The procedure of the article 967 action does not clearly suggest that the article recognizes or creates rights for the renouncing successor in the renounced inheritance interest. Article 967 does not clearly recognize or create rights in the renouncing successor. Thus, we cannot say that the relation back fiction is disturbed by that article. Accordingly, we are not persuaded that the Louisiana law is distinguishable from the Texas law at issue in Simpson, with respect to our present inquiry. Given such ambiguity and the fact that we must construe the § 727(a)(2) exceptions to discharge strictly against the creditor and liberally in favor of the debtor, we follow Simpson and hold that Laughlin did not transfer property for the purposes of § 727(a)(2) by executing a pre-petition renunciation 19 No. 09-10622 of his interest in his father’s estate. Accordingly, discharge was improperly denied under that subsection.