Court Opinion

ID: 625618
Source: CourtListenerOpinion
Date Created: 2012-03-19 18:09:02+00
Date Added: 2024-06-11T17:51:12.242605
License: Public Domain

Case: 11-40975     Document: 00511791947         Page: 1     Date Filed: 03/19/2012

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT   United States Court of Appeals
                                                     Fifth Circuit

                                                                               FILED
                                                                             March 19, 2012
                                     No. 11-40975
                                   Summary Calendar                          Lyle W. Cayce
                                                                                  Clerk

In the Matter of:
MARCO A. CANTU and ROXANNE CANTU,

                                       Debtors
________________________________________________________________________

MARCO A. CANTU and ROXANNE CANTU,

                                                  Appellants

v.

INTERNATIONAL BANK OF COMMERCE,

                                                  Appellee

                   Appeal from the United States District Court
                        for the Southern District of Texas
                               USDC No. 7:11-cv-28

Before HIGGINBOTHAM, DAVIS, and ELROD, Circuit Judges.
PER CURIAM:*
        Marco and Roxanne Cantu (“the Cantus”) originally filed a chapter 11
bankruptcy petition. The Cantus then initiated an adversary proceeding against

       *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
   Case: 11-40975    Document: 00511791947      Page: 2   Date Filed: 03/19/2012

                                  No. 11-40975

the International Bank of Commerce (“IBC”). Before they filed for bankruptcy,
the Cantus had been engaged in arbitration and state court litigation with IBC.
In the bankruptcy case, the Cantus and IBC entered into a settlement
agreement that resolved all controversies between them. The bankruptcy court
approved the parties’ settlement agreement and entered a written order
providing that IBC had an “Allowed Claim” in excess of $2.2 million, that IBC
continued to have a perfected first lien security interest in all accounts
receivable of Marco Cantu and his law firm, and that IBC was entitled to 75%
of Cantu’s future case revenues in satisfaction the Allowed Claim.
      Several months later, the Cantus’ bankruptcy case converted to chapter
7 and a trustee was appointed. It then emerged that Marco Cantu had an
interest in the settlement from a personal injury case filed by his law firm after
the conversion of the Cantus’ bankruptcy to chapter 7 and that Cantu had
actually received a portion of the settlement funds but had not disclosed those
funds. The Cantus filed a “Motion to Clarify” the bankruptcy court’s prior order,
seeking a declaration that the personal injury lawsuit proceeds were not subject
to IBC’s lien. The bankruptcy court denied that motion, holding that IBC had
a valid post-petition lien on the lawsuit proceeds and reaffirming that, under the
parties’ settlement agreement, IBC was entitled to 75% of future revenues
received by Cantu. The district court affirmed the bankruptcy court’s order.
      On appeal, the Cantus argue they are not bound by the settlement
agreement on three grounds: (1) the party bound by the settlement agreement
is the chapter 7 trustee, not the Cantus; (2) it would not be equitable to hold the
Cantus to the settlement agreement post-conversion; and (3) §§ 348 and 552 of
the Bankruptcy Code operate to relieve the Cantus’ post-conversion property
from IBC’s lien. The Cantus waived their first two arguments by failing to raise

                                        2
   Case: 11-40975         Document: 00511791947     Page: 3    Date Filed: 03/19/2012

                                     No. 11-40975

them in the district court, and they have not demonstrated extraordinary
circumstances justifying consideration of those arguments on appeal.1
       The Cantus’ non-waived third argument fails because, as the district court
correctly found, §§ 348 and 552 of the Bankruptcy Code do not exempt Marco
Cantu’s lawsuit proceeds from IBC’s post-petition lien.
      Section 348(d) states:
      A claim against the estate or the debtor that arises after the order
      for relief but before conversion in a case that is converted under
      section 1112, 1208, or 1307 of this title, other than a claim specified
      in section 503(b) of this title, shall be treated for all purposes as if
      such claim had arisen immediately before the date of the petition.2

      Section 552(a) states:
      Except as provided in subsection (b) of this section, property
      acquired by the estate or by the debtor after commencement of the
      case is not subject to any lien resulting from any security agreement
      entered into by the debtor before the commencement of the case.3

      The Cantus maintain that because IBC’s original lien arose prior to the
commencement of the bankruptcy case, the property they acquired post-petition
cannot be subject to the lien if the lien has not been revived. They admit that,
absent conversion, the settlement agreement approved by the bankruptcy court
would have revived the lien. However, because their case was converted to a
chapter 7 bankruptcy, they maintain that under § 348(b), the settlement
agreement must be treated as if the parties entered into it before the
commencement of the case and hence that, under § 552(a), Cantu’s post-petition
receivables are not subject to any lien resulting from the agreement.

      1
        See French v. Allstate Indem. Co., 637 F.3d 571, 582-83 (5th Cir. 2011) (citing AG
Acceptance Corp. v. Veigel, 564 F.3d 695, 700 (5th Cir. 2009)).
      2
          11 U.S.C. § 348(d).
      3
          Id. § 552(a).

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                                       No. 11-40975

       The Cantus’ argument is flawed in at least two ways.                       First, they
mistakenly assume that the parties’ settlement agreement constituted a “claim,”
and, second, they conflate the terms “claim” and “security agreement.” Under
the Bankruptcy Code, the term “claim” means:
       (A) right to payment, whether or not such right is reduced to
       judgment, liquidated, unliquidated, fixed, contingent, matured,
       unmatured, disputed, undisputed, legal, equitable, secured, or
       unsecured or

       (B) right to an equitable remedy for breach of performance if such
       breach gives rise to a right to payment, whether or not such right to
       any equitable remedy is reduced to judgment, fixed, contingent,
       matured, unmatured, disputed, undisputed, secured, or unsecured.4

As the district court explained, “[IBC’s] claim, i.e., right to payment, did not
‘arise’ at the time the claim was resolved through the parties’ agreement and
through subsequent court approval.”5 Thus, “IBC’s security interest in Cantu’s
post-petition receivables as created by the Settlement Agreement and Order
cannot be deemed under § 348(d) to have arisen pre-petition,” and “§ 348(d) does
not transform IBC’s lien into one resulting from a security agreement entered
into ‘before the commencement of the case’ so as to trigger application of
§ 552(a).”6
       We have considered the Cantus’ arguments to the contrary and find them
to be unpersuasive.
       AFFIRMED.

       4
           11 U.S.C. § 101(5).
       5
         Cantu v. Int’l Bank of Commerce (In re Cantu), No. 7:11-cv-28, slip op. at 7 (S.D. Tex.
Aug. 5, 2011), ECF No. 7.
       6
           Id.

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