Court Opinion

ID: 9383142
Source: CourtListenerOpinion
Date Created: 2023-03-29 18:00:34.070018+00
Date Added: 2024-06-11T17:17:43.902312
License: Public Domain

Case: 22-30378        Document: 00516693321             Page: 1      Date Filed: 03/29/2023

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

                                                                                       FILED
                                                                                 March 29, 2023
                                       No. 22-30378
                                                                                     Lyle W. Cayce
                                                                                          Clerk

   In the Matter of Hendrikus Ton,

                                                                                     Debtor,

   Lynda Ronquillo Ton,

                                                                               Appellant,

                                            versus

   Hendrikus Ton,

                                                                                 Appellee.

                     Appeal from the United States District Court
                        for the Eastern District of Louisiana
                              USDC No. 2:21-CV-1029

   Before Wiener, Stewart, and Engelhardt, Circuit Judges.
   Per Curiam:*
         This appeal arises from Lynda Ton’s (“Lynda”) challenge to the
   district court’s order affirming the bankruptcy court’s partition judgment.

         *
             This opinion is not designated for publication. See 5th Cir. R. 47.5.
Case: 22-30378     Document: 00516693321           Page: 2   Date Filed: 03/29/2023

                                    No. 22-30378

   Because the district court properly determined that Lynda did not establish
   that the bankruptcy court erred in assessing administrative expenses against
   her portion of the former community property, we AFFIRM.
                             I.   BACKGROUND
          Hendrikus Ton (“Hank”) and Lynda were married in 1987. In re Ton,
   No. 21-514, 2022 WL 832572, at *1 (E.D. La. March 21, 2022). During the
   marriage, the Tons owned and operated several businesses, including Abe’s
   Boat Rentals Inc. (“Abe’s”). Id.
          On October 5, 2012, Hank pleaded guilty to conspiracy to defraud the
   United States by failing to file employment taxes in violation of 18
   U.S.C. § 371 and 25 U.S.C. § 7202. Id. at 2. Hank admitted that he
   underreported withheld taxes for Abe’s employees between the years 2006
   and 2009 and agreed to repay the amount of $3,582,451 in restitution to the
   IRS (the “tax liability” or “liability”). Id.
          Lynda then filed for divorce in Louisiana on November 14, 2012 and
   received a judgment which terminated the community property regime
   retroactive to the date of that filing. Id. On November 21, 2013, a year and a
   week later, Lynda filed a petition to partition community property in state
   court, but a trial was never held.
          On May 29, 2013, Hank refinanced an existing line of credit to satisfy
   the tax liability. Id. He personally guaranteed a $3,222,451 loan and used the
   proceeds to pay the restitution owed to the IRS. He also liquidated a
   community life insurance policy and invested the proceeds in Abe’s to cover
   its operating costs. He then refinanced his debt through a total of five loans
   to Abe’s from Whitney bank between August 2011 and January 2015. Id. at
   2–3.
          In 2018, Hank filed a voluntary bankruptcy petition under Chapter 11
   in the Eastern District of Louisiana. Id. at 2. The bankruptcy court ordered

                                         2
Case: 22-30378         Document: 00516693321               Page: 3      Date Filed: 03/29/2023

                                          No. 22-30378

   a reorganization plan which incorporated Hank’s personal assets and assets
   of the marriage’s community property to satisfy the debt, including the series
   of loans he took out in connection with his tax liability. Several months later,
   Lynda removed the community property partition petition to the bankruptcy
   court. Id.
           On August 14, 2019, the bankruptcy court entered an order
   partitioning the Tons’ former community property. Id. The Tons each
   appealed that ruling, and the district court for the Eastern District of
   Louisiana vacated and remanded, holding that the bankruptcy court had
   erred in several respects in its partition. Id. at 3.
           By early 2021, a confirmation hearing was held in the bankruptcy court
   during which Hank presented evidence that the proposed plan of
   reorganization (“the Plan”) satisfied the requirements for a nonconsensual
   Chapter 11 “cramdown” under 11 U.S.C. § 1129. 1 Id. On February 21, 2021,
   the bankruptcy court entered an order (the “Confirmation Order”)
   confirming the Plan. Id. Lynda appealed the Confirmation Order to the
   district court which determined that her arguments lacked merit and
   affirmed the Order. Id.
           On May 12, 2021, the bankruptcy court entered a final judgment
   partitioning the Tons’ community property, taking into consideration the
   bankruptcy court’s Original Partition Judgment, the district court’s holding
   on appeal, and the bankruptcy court’s holding on remand. Lynda then
   appealed the bankruptcy court’s judgment to the district court. The district

           1
             The “cramdown” provision in 11 U.S.C. § 1129(b) requires valuation of collateral
   in the context of plan confirmation when the debtor retains possession of the collateral.
   “Under th[e] [cramdown] provision, a bankruptcy court may confirm a plan over a
   creditor’s objection subject to certain conditions, so long as the plan ‘does not discriminate
   unfairly, and is fair and equitable, with respect to each class of claims or interests that is
   impaired under, and has not accepted, the plan.’” Matter of Hous. Reg. Sports Net., L.P.,
   886 F.3d 523, 528 (5th Cir. 2018) (quoting 11 U.S.C. § 1129(b)).

                                                 3
Case: 22-30378      Document: 00516693321          Page: 4     Date Filed: 03/29/2023

                                    No. 22-30378

   court determined that Lynda did not meet her burden to establish that the
   bankruptcy court erred. This appeal followed.
                       II.   STANDARD OF REVIEW
          “We review the decision of a district court, sitting as an appellate
   court, by applying the same standards of review to the bankruptcy court’s
   findings of fact and conclusions of law as applied by the district court.” In re
   Goodrich Petroleum Corp., 894 F.3d 192, 196 (5th Cir. 2018), as revised (June
   29, 2018) (quoting In re Entringer Bakeries, Inc., 548 F.3d 344, 348 (5th Cir.
   2008) (internal quotation marks omitted)). “Thus, we review the bankruptcy
   court’s findings of fact for clear error and its legal conclusions de novo.” Id.
   (citing In re Gerhardt, 348 F.3d 89, 91 (5th Cir. 2003)).
                             III.    DISCUSSION
          On appeal, Lynda makes the following three arguments: 1. the
   bankruptcy and district courts erred in holding that creditor claim No. 8 was
   based on loans that were not a community obligation at the time they were
   incurred; 2. the bankruptcy and district courts erred in holding that she lost
   her vested economic interest in certain property deemed part of the
   bankruptcy estate; and 3. the bankruptcy and district courts erred in not
   treating Parcel No. 900648-C as community property. We address each
   argument in turn.
             A. Community Obligation
          Lynda argues that she should not be forced to forfeit her undivided
   one-half of the former community to satisfy Whitney Bank’s creditor claim—
   which consisted of assets valued at $7,692,303 at the time of the
   community’s termination—because the valuation was based on 2014 and
   2015 loans made to Abe’s after the community had terminated on the Tons’
   divorce in 2012. She avers that she did not file for bankruptcy, that she was

                                          4
Case: 22-30378      Document: 00516693321          Page: 5    Date Filed: 03/29/2023

                                    No. 22-30378

   not responsible for the debt, and that the debt was incurred by her ex-husband
   six years after the divorce in 2012. She asserts that she did not guarantee
   Abe’s debts and had opposed the loans being made. She provides an analysis
   on each of the five loans dating back to the first, which was originally
   guaranteed by Hank on August 16, 2011. She further asserts that each
   subsequent loan paid off the former loan in full until the January 5, 2015 loan
   (the “January loan”). $412,072.77 of the January loan was used to pay off
   the remaining balance of Loan 4. $2,010,082.17 of the January loan was used
   to pay off the remaining balance of Loan 1. And $3,682,855.85 of the January
   loan was used to purchase a vessel for Abe’s operations.
          Before considering her arguments, we must first determine what is
   community property in this case. Community property is any property
   acquired during the existence of the legal regime, i.e., the marriage, through
   the effort, skill, or industry of either spouse. La. Civ. Code Ann. art.
   2338 (2023). We have explained that “community property,” as used to
   define property of the bankruptcy estate in § 541(a)(2), includes community
   property and former community property that has not been partitioned as of
   the petition date. See In re Robertson, 203 F.3d 855, 861 (5th Cir. 2000).
   Community property does not include former community property which
   has been divided and reclassified as separate property by state law before the
   petition date.   Id. at 861. The legal regime of community property is
   terminated by a judgment of divorce. art. 2356 (2023). After the termination
   of the community property, La. Civ. Code. Ann. arts. 2369.2–2369.8 (2023)
   apply until a partition of the former community property is finalized.
          In Robertson, we explained that “[a]n obligation incurred by a spouse
   before or during the community property regime may be satisfied after
   termination of the regime from the property of the former community and
   from the separate property of the spouse who incurred the obligation.” 203
   F.3d at 861. This means that a creditor’s claim under state law is not affected

                                          5
Case: 22-30378      Document: 00516693321           Page: 6    Date Filed: 03/29/2023

                                     No. 22-30378

   by the partition. Id. Further, the Bankruptcy Code article that controls
   community property, 11 U.S.C. § 541(a)(2), states that “[a]ll interests of the
   debtor and the debtor’s spouse in community property” become part of the
   bankruptcy estate, including property that is under “equal, or joint
   management and control of the debtor.”
          Lynda filed for divorce in November 2012, roughly a month after Hank
   pleaded guilty to tax fraud and agreed to repay the tax liability in the amount
   of $3,582,451. Thus, at the time the tax liability was imposed, the Tons were
   still married, so the tax liability became a liability of the community. Further,
   the tax fraud was connected to Abe’s, a business jointly owned and operated
   by the Tons during their marriage. When Abe’s filed for Chapter 11
   bankruptcy relief in 2018, that case was converted to Chapter 7. With the
   conversion of its bankruptcy case, Abe’s ceased operations and was
   liquidated by a bankruptcy Trustee. The Trustee sold Abe’s assets, but the
   bankruptcy court determined that the obligation was not satisfied and
   resorted to a reorganization plan to satisfy Hank’s debt, which included
   Lynda’s assets and vested economic interests.
          In Robertson, we explained that obligations incurred by the spouses
   during the marriage are community obligations unless and until the
   challenging party demonstrates either that such an obligation was not
   incurred for the common interest of the spouses or that the interest of one
   spouse did not benefit the other spouse. In re Robertson, 203 F.3d at 861.
   Because Lynda did not rebut this presumption or show that the bankruptcy
   court otherwise erred in calculating the community obligations, the district
   court correctly held that the additional loans taken out after the divorce—
   pertinent here, the 2013 and 2015 loans—were “merely refinanced
   community obligations, such as the [t]ax [l]iability[.]” In re Ton, No. 21-
   1029, 2022 WL 1642042, at *3 (E.D. La. May 24, 2022). We hold that the
   district court properly affirmed the bankruptcy court’s determination.

                                          6
Case: 22-30378      Document: 00516693321          Page: 7   Date Filed: 03/29/2023

                                    No. 22-30378

             B. Economic Interest in Co-owned Former Community Property
          Lynda also argues that the bankruptcy and district courts erred in
   holding that she, as the non-filing spouse, lost her vested economic interest
   in the co-owned former community property as a result of Hank’s filing for
   bankruptcy in 2018. She contends that, under Louisiana law, former spouses
   become co-owners of the former community property and that her portion of
   the co-owned former community may only be assessed for liability that
   incurred prior to its termination. The district court reasoned that the
   bankruptcy code preempts state law when the two conflict. Consequently,
   “a bankruptcy estate acquires both spouses’ interests in the community
   property and is therefore the sole owner (even where one spouse does not file
   bankruptcy).” In re Ton, No. 21-1029, 2022 WL 1642042, at *3 (E.D. La.
   May 24, 2022) (quoting In re Wiggains, 535 B.R. 700, 719–20 (Bankr. N.D.
   Tex. 2015), aff'd sub nom. Matter of Wiggains, 848 F.3d 655 (5th Cir. 2017)).
   We agree, and—since we have already determined that Lynda’s property
   interest was properly incorporated into the bankruptcy estate because the
   liability was incurred not only before the partitioning of the former community
   property, but also before she filed for divorce—it is unnecessary to further
   examine the bankruptcy court’s economic–interest calculations. For these
   reasons, we hold that the district court did not err when it affirmed the
   bankruptcy court’s order. See Goodrich Petroleum Corp., 894 F.3d at 196.
             C. Parcel No. 900648-C
          Lastly, Lynda contends that the plan did not treat Parcel No. 900648-
   C as community property for the purposes of satisfying the liability.
   However, the district court determined that the record established that the
   partition judgment incorporated the $320,000 value of Parcel No. 900648-
   C. Lynda never challenged the bankruptcy court’s valuations during her

                                         7
Case: 22-30378      Document: 00516693321            Page: 8    Date Filed: 03/29/2023

                                      No. 22-30378

   appeal of the original partition, so she has failed to establish clear error in the
   bankruptcy court’s calculations. See Gerhardt, 348 F.3d at 91.
                             IV.     CONCLUSION
          For the foregoing reasons, we AFFIRM.

                                           8