Court Opinion

ID: 43717
Source: CourtListenerOpinion
Date Created: 2010-04-25 21:59:44+00
Date Added: 2024-06-11T17:17:04.213313
License: Public Domain

United States Court of Appeals
                                                                Fifth Circuit
                                                             F I L E D
               IN THE UNITED STATES COURT OF APPEALS
                                                               July 7, 2006
                         FOR THE FIFTH CIRCUIT
                                                         Charles R. Fulbruge III
                         ____________________                    Clerk

                             No. 05-11497

                           Summary Calendar
                         ____________________

     In The Matter Of: CARROLL THOMAS HARKNESS

                Debtor

_________________________________________________________________

     NCI BUILDING SYSTEMS LP

                Appellant

          v.

     CARROLL THOMAS HARKNESS

                Appellee

_________________________________________________________________

           Appeal from the United States District Court
          for the Northern District of Texas, Fort Worth
                          No. 4:05-CV-402
_________________________________________________________________

Before KING, WIENER, and DEMOSS, Circuit Judges.

PER CURIAM:*

     Appellant NCI Building Systems, L.P., appeals the order and

judgment of the district court that affirmed the bankruptcy

     *
        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that this opinion should not be published and is not precedent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.

                                  -1-
court’s order confirming the Chapter 13 plan of debtor-appellee

Carroll Thomas Harkness.    More specifically, the district court

affirmed the bankruptcy court’s finding that NCI’s claims of

misappropriation of corporate opportunity were unliquidated and,

therefore, excluded from the eligibility analysis for Chapter 13

filings under 11 U.S.C. § 109(e).       For the following reasons, we

AFFIRM the judgment of the district court.

              I.   FACTUAL AND PROCEDURAL BACKGROUND

     Appellee Carroll Thomas Harkness (“Harkness”), a former vice

president for appellant NCI Buildings Systems, L.P. (“NCI”),

filed a Chapter 13 bankruptcy petition on January 6, 2004.       Prior

to the bankruptcy filing, NCI had brought a state court lawsuit

against Harkness alleging breach of fiduciary duty, conversion,

constructive trust, embezzlement, and misappropriation of

corporate opportunity.     Just days before his response to NCI’s

summary judgment motion in state court was due, Harkness filed

his bankruptcy petition, triggering the automatic stay of his

state court proceedings under 11 U.S.C. § 362(a).

     On December 29, 2004, after two previous amendments, NCI

filed a proof of claim for $200,000.00 in unsecured debt and

$1,188,299.97 in secured debt.    2 R. at 238; see also id. at 243

(describing the underlying collateral subject to constructive

trust for the secured debt).    The secured portion of its claim

was based, inter alia, upon several alleged instances of

                                  -2-
Harkness’s misappropriation of corporate opportunities that were

described in supporting documents attached to the proof of claim.

Id. at 239 (itemizing damages).    Because the underlying state

court action had not yet issued a ruling on NCI’s motion for

summary judgment at the time of Harkness’s bankruptcy filing, it

is undisputed that no judgment has issued with respect to NCI’s

tort claims of misappropriation of corporate opportunity that are

the focus of this appeal.

     Based on its proof of claim, NCI moved to dismiss Harkness’s

bankruptcy petition, arguing that Harkness was ineligible for

Chapter 13 relief under 11 U.S.C. § 109(e).    Section 109(e)

provides, in relevant part:

     Only an individual with regular income that owes, on
     the date of the filing of the petition, noncontingent,
     liquidated, unsecured debts of less than $307,675 and
     noncontingent, liquidated, secured debts of less than
     $922,975 . . . may be a debtor under chapter 13 of this
     title.

11 U.S.C. § 109(e) (emphasis added).    NCI contended that its

misappropriation claims were liquidated because the amount of the

claims was readily calculable, regardless of the fact that

Harkness disputed them.   Harkness filed an objection to NCI’s

motion to dismiss and sought to have its Chapter 13 plan

confirmed by the bankruptcy court, arguing that the

misappropriation claims were contingent and unliquidated.

Following a hearing, the bankruptcy court found that NCI’s claims

were both unliquidated and contingent and, therefore, did not

                                  -3-
render Harkness ineligible for relief under Chapter 13 of the

Bankruptcy Code.       In the same order, the bankruptcy court

confirmed Harkness’s Chapter 13 plan on March 21, 2005.         Upon a

subsequent motion for reconsideration, the bankruptcy court again

denied NCI’s request for dismissal of the Chapter 13 petition on

April 21, 2005.1      The district court affirmed the bankruptcy

court’s ruling in a Memorandum Opinion and Order on August 18,

2005.       On October 20, 2005, the district court denied NCI’s

motion for reconsideration for the same reasons announced in its

previously issued opinion.       NCI timely filed its notice of appeal

on November 16, 2005.

                              II.   DISCUSSION

       This court has jurisdiction over the instant appeal under 28

U.S.C. § 158(d).       We review the district court’s decisions under

the same standard of review that the district court applied to

the bankruptcy court’s decisions.          See In re Amco Ins., 444 F.3d

690, 694 (5th Cir. 2006); In re Whitaker Constr. Co., 439 F.3d

212, 216 (5th Cir. 2006).       Findings of fact are reviewed for

clear error, while conclusions of law are reviewed de novo.         See

Amco Ins., 444 F.3d at 694; Whitaker Constr. Co., 439 F.3d at

216.       “A finding is ‘clearly erroneous’ when although there is

       1
        As the district noted in its Memorandum Opinion and
Order, the parties did not include a transcript of the bankruptcy
court hearings for either the initial motion to dismiss or the
motion for reconsideration in the record on appeal. 1 R. at 90-
91.

                                     -4-
evidence to support it, the reviewing court on the entire

evidence is left with the definite and firm conviction that a

mistake has been committed.”       United States v. United States

Gypsum Co., 333 U.S. 364, 395 (1948).

       NCI argues that its misappropriation claims were liquidated

because, although disputed by Harkness, the amounts were capable

of being precisely determined based on the proof of claim and

supporting documents.       Citing In re Visser, 232 B.R. 362, 365

(Bankr. N.D. Tex. 1999), NCI maintains that the district court

erred by not presuming the factual predicate for NCI’s claims in

conducting its liquidity analysis.        In addition to challenging

the factual bases of each alleged instance of misappropriation,

Harkness responds that the claims are not susceptible to precise

determination because there has been no formal evidentiary

hearing or judicial decree to fix the amount in any meaningful

way.       Therefore, Harkness maintains that there was no legally

enforceable liquidated debt at the time of his filing that would

render him ineligible for Chapter 13 relief under 11 U.S.C.

§ 109(e).

       As the district court correctly noted, courts generally

agree that a debt is liquidated if the amount of the claim is

readily ascertainable, whether it is contested or not.2       See In

       2
        NCI does not dispute the district court’s recitation of
this legal standard to determine whether the misappropriation
claims were liquidated. Rather, NCI argues that the district
court reached a result that conflicted with the applicable

                                    -5-
re Horne, 277 B.R. 320, 322 (Bankr. E.D. Tex. 2002) (“A debt is

liquidated if the amount due and the date on which it was due are

fixed or certain, or when they are ascertainable by reference to

(1) an agreement or (2) to a simple mathematical formula.”); see

also In re Pulliam, 90 B.R. 241, 246 (Bankr. N.D. Tex. 1988)

(“Because Congress did not insert the term disputed in § 109(e),

disputed debts must be counted in determining whether a

petitioner may be a debtor under Chapter 13.”).          In affirming the

bankruptcy court’s ruling, however, the district court found that

NCI’s misappropriation claims were unliquidated because debts

based on tort are generally unliquidated unless and until

resolved by judicial decree or otherwise fixed in some meaningful

way.   See Denham v. Shellman Grain Elevator, Inc., 444 F.2d 1376,

1380 (5th Cir. 1971) (describing tort and quantum meruit claims

as unliquidated because they “by their very nature are not fixed

unless and until juridical award to fix liability and amount”);

see also 2 COLLIER   ON   BANKRUPTCY ¶ 109.06[2][c] (15th ed. rev. 2005)

(“A debt is not liquidated if there is a substantial dispute

regarding liability or amount.”).          Based on our review of the

record and the parties’ arguments, we conclude that the district

court did not clearly err in affirming the bankruptcy court’s

rulings that NCI’s misappropriation claims were unliquidated

standard based on the facts underlying its proof of claim.

                                     -6-
under § 109(e).3

     We additionally note that NCI’s reliance on In re Visser for

the proposition that the district court must presume the factual

predicate for NCI’s claims is misplaced.         Ordinarily, the

bankruptcy court will not look beyond the amounts asserted by the

debtor in the debtor’s schedules in conducting the § 109(e)

eligibility analysis, unless it finds that the schedules were not

filed in good faith.   See 2 COLLIER   ON   BANKRUPTCY ¶ 109.06[3]

(citing In re Scovis, 249 F.3d 975, 982 (9th Cir. 2001)).

Moreover, in Visser, the debtor failed to object to the

creditor’s proof of claim and actually admitted to the

misappropriation of corporate funds underlying the creditor’s

claim.   See Visser, 232 B.R. at 363.        In dismissing the Chapter

13 petition, the court concluded that the claim was liquidated

for purposes of the eligibility determination under § 109(e)

because determining the amount due on the claim did not involve

the use of judgment or discretion, but rather “simple arithmetic”

to add up the amount of money from each instance of embezzlement

to determine the total amount of the claim.         Id. at 365.      In

contrast, Harkness both objected to the proof of claim and

     3
        We also conclude that NCI’s argument that the court’s
determination somehow created a per se rule that all tort claims
not reduced to an enforceable judgment are unliquidated is wholly
without merit. The district court narrowly concluded that NCI
had not sufficiently proven the factual predicate for its claim,
and we can locate no indication of any such broad legal
pronouncement in its opinion and order.

                                -7-
contests each alleged instance of misappropriation of corporate

opportunity.   As a result, absent any formal evidentiary

findings, the misappropriation claims were not susceptible to

precise determination with the use of simple arithmetic.     See In

re Pearson, 773 F.2d 751, 756 (6th Cir. 1985) (holding that “the

fact that evidence must be taken to determine the amount of the

claim indicates that, until then, the claim was unliquidated” for

the purposes of the § 109(e) eligibility analysis).   Therefore,

the district court did not err in stating that NCI had not

sufficiently met its burden to demonstrate that its

misappropriation claims were unliquidated.

                         III.   CONCLUSION

     For the foregoing reasons, we AFFIRM the judgment of the

district court.

                                -8-