Court Opinion

ID: 9887627
Source: CourtListenerOpinion
Date Created: 2023-10-06 18:00:38.617752+00
Date Added: 2024-06-11T10:12:43.244082
License: Public Domain

Case: 23-40125     Document: 00516922797       Page: 1    Date Filed: 10/06/2023

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

                               ____________                               FILED
                                                                    October 6, 2023
                                 No. 23-40125                        Lyle W. Cayce
                               ____________                               Clerk

   Law Office of Rogelio Solis PLLC; Ana Gomez,

                                                                   Appellants,

                                     versus

   Catherine Stone Curtis,

                                                                      Appellee.
                  ______________________________

                  Appeal from the United States District Court
                      for the Southern District of Texas
                    USDC Nos. 7:21-AP-7002, 7:22-CV-418
                  ______________________________

   Before Graves, Higginson, and Ho, Circuit Judges.
   Stephen A. Higginson, Circuit Judge:
         In this direct appeal from the bankruptcy court, we are tasked with
   answering whether the pre-petition payment of insurance proceeds to a tort
   claimant creditor of a debtor, made in accordance with state insurance law,
   constitutes a “transfer of an interest of the debtor in property” under 11
   U.S.C. § 547. The bankruptcy court found that, in the circumstances present
   here, such payment could be a transfer of the debtor’s property. We
   AFFIRM.
Case: 23-40125        Document: 00516922797              Page: 2       Date Filed: 10/06/2023

                                          No. 23-40125

                                               I.
           This bankruptcy case arises out of a terrible tragedy. As alleged in the
   complaint in the underlying adversary proceeding, on December 19, 2020, a
   tractor-trailer owned by Josiah’s Trucking LLC (the “Debtor”) crashed into
   a vehicle (the “Accident”) in which Carlos Tellez, Jr. and Anna Isabel Ortiz
   were riding, ultimately resulting in their deaths. Ortiz was survived by her
   mother, Ana Gomez, and father, Reyes Adrian Ortiz (collectively, the “Ortiz
   Family”). Tellez was survived by Sonia Tellez, Carlos Tellez, Rose Mary
   Rodriquez, and I. Tellez (collectively, the “Tellez Family”).
           At the time of the Accident, the Debtor was insured by Brooklyn
   Specialty Insurance Company RRG, Inc. (“Brooklyn Specialty”) for a policy
   limit of $1,000,000. Soon after the Accident, both families engaged counsel
   and began the insurance claims process. Gomez employed the Law Firm of
   Rogelio Solis, PLLC (the “Solis Law Firm”), and the Tellez family engaged
   Escobar & Cardenas, L.L.P. In the weeks following the Accident, the Tellez
   Family engaged in discussions with Brooklyn Specialty and ultimately filed
   suit against the Debtor, the Debtor’s owner, and the driver. In contrast,
   Gomez, through the Solis Law Firm, made a Stowers demand on Brooklyn
   Specialty for the limits of the policy.1
           On January 12, 2021, Brooklyn Specialty transferred $1,000,000 (the
   “Policy Proceeds”) to the Solis Law Firm’s Interest on Lawyers’ Trust
   Account (“IOLTA”) in settlement of Gomez’s claims. That same day,
           _____________________
           1
              Under G.A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex.
   Comm’n. App. 1929, holding approved), Texas law imposes a “basic tort duty,” known as
   the Stowers doctrine, under which insurers, “when faced with a settlement offer within
   policy limits, must accept the offer . . . when an ordinarily prudent insurer would do so in
   light of the reasonably apparent likelihood and degree of that insured's potential exposure
   to a valid judgment in the suit in excess of policy limits.” Travelers Indem. Co. v. Citgo
   Petroleum Corp., 166 F.3d 761, 764 (5th Cir. 1999) (citation omitted).

                                                2
Case: 23-40125         Document: 00516922797            Page: 3     Date Filed: 10/06/2023

                                         No. 23-40125

   Brooklyn Specialty informed the Tellez Family that the policy limit had been
   exhausted. Then, on January 18, 2021, two checks were issued: one for
   $680,000 to Gomez for settlement of her claims, and the other for $320,000
   to the Solis Law Firm for attorneys’ fees.
          On January 24, the Tellez Family, who received nothing from the
   Policy Proceeds, commenced an involuntary bankruptcy proceeding against
   the Debtor. On February 9, Appellee Catherine S. Curtis, then the Interim
   Trustee (now, the “Trustee”), brought an adversary proceeding against
   Appellants Gomez and the Solis Law Firm seeking to avoid and recover the
   transfer of the Policy Proceeds pursuant to 11 U.S.C. §§ 547 and 550 of the
   Bankruptcy Code (the “Complaint”).2 Appellants moved to dismiss on the
   ground that the Trustee failed to allege a transfer of the Debtor’s property
   because the Debtor had neither legal title in nor a contractual right to receive
   the Policy Proceeds, and otherwise lacked control over their disbursement.3
          The bankruptcy court denied the motion. The bankruptcy court first
   found that the Complaint, which alleged over $8,000,000 in claims related
   to the Accident against the $1,000,000 policy limit, satisfied the “limited
   circumstances” set forth in Martinez v. OGA Charters, L.L.C. (In re OGA
   Charters), 901 F.3d 599 (5th Cir. 2018), in which a Debtor may have an
   equitable interest in the insurance proceeds such that they can be classified
   as property of the estate. Then, the bankruptcy court considered whether the
   pre-petition payment of the Policy Proceeds affected this equitable interest.
   Relying on Begier v. IRS, 496 U.S. 53 (1990), the bankruptcy court found that
   it did not.

          _____________________
          2
              The Trustee filed the operative amended complaint on March 26, 2021.
          3
             Although Appellants raised three main arguments for dismissal, only one is
   relevant as to this appeal.

                                               3
Case: 23-40125      Document: 00516922797           Page: 4    Date Filed: 10/06/2023

                                     No. 23-40125

          The district court subsequently certified the following question for
   direct appeal to this court pursuant to 28 U.S.C. § 158(d)(2):
          Whether the pre-petition payment of insurance proceeds to a tort
          claimant creditor of a debtor constitutes a “transfer of an interest of
          the debtor in property” under 11 U.S.C. § 547 when such payment is
          made by an insurer of the debtor pursuant to a valid Stowers settlement
          demand under Texas law.
                                          II.
          “When directly reviewing an order of the bankruptcy court, we apply
   the same standard of review that would have been used by the district court.”
   SeaQuest Diving, LP v. S&J Diving, Inc. (In re SeaQuest Diving, LP), 579 F.3d
   411, 417 (5th Cir. 2009). Thus, “[w]e review conclusions of law and mixed
   questions of law and fact de novo and review findings of fact for clear error.”
   Dean v. Seidel (In re Dean), 18 F.4th 842, 844 (5th Cir. 2021) (citation
   omitted).
          On appeal, Appellants contend that the district court erred in
   determining that the Debtor held an equitable property interest in the Policy
   Proceeds. This is because, Appellants argue, the Debtor has neither a legal
   nor equitable right to the proceeds under Texas law. But, critically,
   Appellants fail to contend with In re OGA Charters, in which we held that
   “[i]n the ‘limited circumstances,’ as here, where a siege of tort claimants
   threaten the debtor’s estate over and above the policy limits, we classify the
   proceeds as property of the estate.” 901 F.3d at 604. As we explained, “this
   interest does not bestow upon the debtor a right to pocket the proceeds,” but
   “[i]nstead . . . ‘serve[s] to reduce some claims and permit more extensive
   distribution of available assets in the liquidation of the estate.’” Id. (quoting
   Nat’l Union Fire Ins. Co. v. Titan Energy, Inc. (In re Titan Energy, Inc.), 837
   F.2d 325, 329 (8th Cir. 1988)).

                                          4
Case: 23-40125        Document: 00516922797              Page: 5      Date Filed: 10/06/2023

                                         No. 23-40125

             Appellants do not dispute the bankruptcy court’s finding that the
   factual allegations here fall under the “limited circumstances” addressed in
   In re OGA Charters. As the bankruptcy court noted, the Complaint alleges
   over $8,000,000 in claims against the Debtor’s estate arising from the
   Accident, far beyond the $1,000,000 policy limit. Although the facts in In re
   OGA Charters were more extreme, involving $400,000,000 in claims against
   a $5,000,000 policy and more claimants overall, id. at 602, the present case
   is still clearly one in which “the policy limit is insufficient to cover [the]
   multitude of tort claims” faced by the estate. Id. at 603-04. Thus, the
   bankruptcy court correctly concluded that, under binding precedent in In re
   OGA Charters, the Policy Proceeds would be considered property of the
   estate.
             Appellants do not distinguish In re OGA Charters or otherwise explain
   why it does not control this case. Instead, Appellants suggest that In re OGA
   Charters must have been incorrectly decided because insureds have “no
   right” to insurance proceeds under Texas law. “Under our well-recognized
   rule of orderliness, however, a panel of this court is bound by circuit
   precedent,” which clearly holds that insurance proceeds can, in the
   circumstances alleged here, be considered property of the estate.4 Hidalgo
   Cnty Emergency Serv. Found. v. Carranza (In re Hidalgo Cnty. Emergency Serv.
   Found.), 962 F.3d 838, 841 (5th Cir. 2020).

             _____________________
             4
             To this end, Appellants’ arguments that Texas law, not federal bankruptcy law,
   controls are incorrect. In re OGA Charters similarly dealt with insurance proceeds governed
   by Texas law and explicitly rejected Appellants’ argument that the Texas Supreme Court’s
   decision in Texas Farmers Insurance Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994) dictates the
   outcome of the case. See In re OGA Charters, 901 F.3d at 605 (explaining that, because
   “categorizing the [insurance] proceeds as property of the estate does not involve any sort
   of determination regarding the negligent-settlement liability of an insurer or the lack
   thereof,” its holding was not “a ‘collateral attack’ on state law,” including Soriano).

                                               5
Case: 23-40125          Document: 00516922797               Page: 6       Date Filed: 10/06/2023

                                            No. 23-40125

          Granted, as the bankruptcy court recognized, In re OGA Charters
   addressed the question of whether insurance proceeds were property of the
   estate pursuant to § 541 of the Bankruptcy Code, not whether a transfer of
   those proceeds could be avoided pursuant to § 547. That is because, in In re
   OGA Charters, although the insurer had entered into settlements with some
   of the claimants, the insurance proceeds had yet to be disbursed. 901 F.3d at
   601. In contrast, here Brooklyn Specialty transferred the Policy Proceeds
   fourteen days before the involuntary bankruptcy petition was filed, and two
   checks totaling the Policy Proceeds were made out to Appellants eight days
   before the involuntary petition was filed.
          We find that this pre-petition payment of the Policy Proceeds does not
   affect the Debtor’s equitable interest in them at the time the petition was
   filed. Section 541 of the Bankruptcy code, which governs the creation of an
   estate in bankruptcy and is at issue in In re OGA Charters, states that “such
   estate is comprised of all . . . legal or equitable interests of the debtor in property
   as of the commencement of the case.” § 541(a)(1) (emphasis added).
   Relatedly, § 547 provides the means by which a trustee “may . . . avoid any
   transfer of an interest of the debtor in property,” including those “made on or
   within 90 days before the date of the filing of the petition,” if this transfer
   meets certain statutory conditions.5 § 547(b) (emphasis added). Relevant
   here, courts understand “an interest of the debtor in property” as used in
   § 547(b) to be coextensive with “interests of the debtor in property” as used
   in § 541(a)(1). Begier, 496 U.S. at 59 n.3; see also Cullen Ctr. Bank & Trust v.
   Hensley (In re Criswell), 102 F.3d 1411, 1416 (5th Cir. 1997).
          As the Supreme Court explained in Begier, “[b]ecause the purpose of
   the avoidance provision is to the preserve the property includable within the

          _____________________
          5
              Appellants do not argue that these statutory conditions are not satisfactorily pled.

                                                  6
Case: 23-40125     Document: 00516922797           Page: 7   Date Filed: 10/06/2023

                                    No. 23-40125

   bankruptcy estate . . . ‘property of the debtor’ subject to the preferential
   transfer provision is best understood as that property that would have been
   part of the estate had it not been transferred before the commencement of
   bankruptcy proceedings.” 496 U.S. at 58. The Policy Proceeds would have
   been property of the estate at the time the petition was filed if they had not
   been transferred. Thus, for the purposes of the avoidance provision as stated
   in Begier, the Policy Proceeds are the property of the estate. For the reasons
   discussed above, the Complaint alleges facts falling under the “limited
   circumstances” in which In re Charters, L.L.C states that insurance proceeds
   are considered property of the estate.
          Thus, we find that the bankruptcy court correctly found that the
   trustee had properly alleged a transfer of the Debtor’s property as required
   by § 547. We therefore AFFIRM.

                                            7