Court Opinion

ID: 2802238
Source: CourtListenerOpinion
Date Created: 2015-05-20 18:00:59.720592+00
Date Added: 2024-06-11T11:34:03.410428
License: Public Domain

Case: 14-40762             Document: 00513049403   Page: 1   Date Filed: 05/20/2015

            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT

                                          No. 14-40762                   United States Court of Appeals
                                                                                  Fifth Circuit

                                                                                FILED
In the Matter of: MARCO A. CANTU; ROXANNE CANTU,                            May 20, 2015
                                                                           Lyle W. Cayce
                 Debtors                                                        Clerk

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

MARCO A. CANTU; ROXANNE CANTU,

                 Appellants

v.

GEORGE W. STONE,

                 Appellee

                      Appeal from the United States District Court
                           for the Southern District of Texas
                                 USDC No. 7:13-CV-292

Before BENAVIDES, SOUTHWICK, and COSTA, Circuit Judges.
PER CURIAM:*
        This is the companion case to Cantu v. Schmidt (In re Cantu), --- F.3d --
--, 2015 WL 1809013 (5th Cir. Apr. 16, 2015), which posed the question whether
the bankruptcy estate or the Cantus owned malpractice and fraud claims

        *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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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: 14-40762       Document: 00513049403         Page: 2    Date Filed: 05/20/2015

                                      No. 14-40762
asserted against Ellen Stone, the attorney who represented the Cantus during
their chapter 11 bankruptcy. We held that the claims belonged to the estate
because they accrued prior to the conversion of the chapter 11 reorganization
to a chapter 7 liquidation. Id. at *8. This case raises the same issue for the
accounting malpractice case that was filed against George Stone, an
accountant and the husband of Ellen Stone.
       Cantu v. Schmidt provides a detailed account of the bankruptcy
proceedings. In brief, Marco and Roxanne Cantu and their wholly owned
corporation, Mar-Rox, Inc. filed for chapter 11 bankruptcy in May 2008. A
month later, they hired George Stone to perform accounting services in
connection with the bankruptcy.              He provided those services until the
bankruptcy was converted to a chapter 7 liquidation in June 2009. During his
employment, George Stone charged $37,195.50 for accounting fees and
expenses that the bankruptcy court approved in September 2009. In re Cantu,
No. 08-70260 (Bankr. S.D. Tex.), Docket Entry No. 1275. 1 In February 2011,
the bankruptcy court denied the Cantus discharge, citing the “omissions,
misstatements, and controversies” that plagued the Cantu and Mar-Rox
bankruptcies. See Schmidt v. Cantu (In re Cantu), 2011 WL 672336, at *1
(Bankr. S.D. Tex. Feb. 17, 2011).
       The Cantus later filed a lawsuit in state court against George Stone for
misconduct that occurred during the pendency of the chapter 11 case. The
Cantus asserted the following causes of action: (1) accounting malpractice, in
part for failing to meet with the Cantus’ attorney to prepare documents
required to obtain permission to use cash collateral; (2) violations of the Texas
Deceptive Trade Practices Act; (3) gross negligence for agreeing to handle two

       1 Although the bankruptcy court approved the fees on September 4, 2009, most of the
fee had already been paid, and all of the fees and expenses were incurred prior to conversion
in June 2009. See id., Docket Entry No. 1121-1.
                                             2
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                                       No. 14-40762
complex bankruptcies despite a lack of expertise; and (4) fraudulent
misrepresentation and inducement based on statements George Stone made
regarding his experience and familiarity with chapter 11 bankruptcies. “Fee
forfeiture and reimbursement” was among the relief requested. George Stone
removed the case to federal court, where it survived a remand motion.
       The procedural history of this case thus departs from that of Cantu v.
Schmidt, which is so named because the bankruptcy trustee Schmidt was also
a party to the malpractice suit against Ellen Stone. In this case, the trustee
was not a plaintiff or intervenor. George Stone raised the issue whether the
claims belonged to the trustee or the Cantus by filing a motion for summary
judgment arguing that the Cantus lacked standing because the causes of action
belonged to the estate.         Relying on its ruling in the “similarly situated”
adversary proceeding brought by the Cantus and trustee Schmidt against
attorney Stone, the bankruptcy court found that the causes of action asserted
against accountant Stone were owned by the bankruptcy estate. It therefore
dismissed the Cantus’ suit. The Cantus sought review in the district court,
which affirmed. In the meantime, the trustee had entered into a $281,710.54
settlement with George Stone, which the bankruptcy court approved. 2
        In this appeal, the Cantus challenge the dismissal of the adversary
proceeding they brought against George Stone. 3                    Despite the different
procedural posture (in the case against their attorney, the Cantus were
appealing the ruling that the settlement funds belonged to the estate; here

       2 Unlike in the case against their attorney, in which both the Cantus and the trustee
were part of the settlement agreement, the Cantus did not take part in the settlement with
the accountant. See In re Cantu, No. 12-07023 (Bankr. S.D. Tex.), Docket Entry No. 53.
       3 The Cantus also argue that the bankruptcy court lacked jurisdiction. This issue also

turns on who owns the claims asserted against George Stone because federal jurisdiction
undoubtedly exists if the claims belong to the estate. See 28 U.S.C. § 1334 (district courts
have jurisdiction of “all civil proceedings arising under title 11, or arising in or related to
cases under title 11”).
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                                       No. 14-40762
they are appealing the bankruptcy court’s dismissal of their claims for lack of
standing), the issue in this appeal is the same as the one we resolved in Cantu
v. Schmidt: whether the causes of action belong to the estate or to the Cantus
individually. 4 For the reasons stated in that earlier opinion, 2015 WL 1809013,
at *5–8, we find that the misconduct alleged against accountant Stone—which
echoes that alleged against attorney Stone—resulted in injuries to the estate
during the pendency of the chapter 11 bankruptcy. For example, the Cantus
alleged that although George Stone knew he was required to prepare
documents related to the Cantus’ motion for use of cash collateral, he failed to
meet with the Cantus’ attorney to provide those documents. As discussed at
length in Cantu v. Schmidt, the Cantus’ improper use of cash collateral
depleted the estate’s assets, which could have been used to pay creditors. See
id. at *6. Additionally, George Stone allegedly failed to include a projected
disposable income 5 in the Cantus’ plan of reorganization, which the
bankruptcy court eventually denied, in part because the Cantus could not show
that it met the absolute priority rule. See id. at *1 & n.2, *7 (explaining how
filing a nonconfirmable plan of reorganization that violated the absolute
priority rule harmed the estate and its creditors). Finally, the bankruptcy
court approved $37,195.50 in accounting fees and expenses for the year George

       4 The different procedural posture would present one wrinkle if we were to rule in
favor of the Cantus. Because they did not appeal the bankruptcy court’s approval of the
settlement between George Stone and the trustee, it is not clear that a reversal in this appeal
could undo that settlement. If would, however, allow the Cantus to pursue their suit against
George Stone, who in that event would perhaps be facing the possibility of being liable to the
Cantus after settling with the trustee. As mentioned supra note 2, the settlement did not
include the Cantus, so it did not release any claims they might have. Because we affirm the
bankruptcy court’s dismissal of the Cantus’ claims, we need not decide what the effect of
reversal would be on the trustee’s settlement.
       5 The Cantus alleged that Mr. Cantu had a multimillion dollar law practice before

bankruptcy and that by including a projected disposable income of more than a million dollars
a year—which they argued was the likely income from Mr. Cantu’s continued “fender bender
practice”—the Cantus could have shown that they could feasibly pay off their unsecured
creditors with future income.
                                              4
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                                No. 14-40762
Stone worked for the Cantus during the chapter 11 bankruptcy. Assuming he
misrepresented his expertise to obtain the Cantus’ business, the estate was
injured the moment it disbursed any fees and expenses to him. See id. at *7
(“The fraudulent inducement claim alleging that Stone misrepresented [his]
qualifications thus resulted in injury to the estate through the payment of
these fees, and the estate could have asserted a preconversion claim seeking to
recover them.”).
      Because the misconduct alleged against George Stone that gave rise to
the settlement depleted the estate’s assets, delayed the bankruptcy, and
injured the creditor body by preventing confirmation of a reorganization plan
that could have resulted in a larger recovery for the creditors, the causes of
action against him accrued prior to conversion and therefore belong to the
estate rather than the Cantus. The district court is AFFIRMED.

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