Thursday, November 05, 2015

Second Western District Judge Finds Proceeds From Post-Petition Sale Can't Be Clawed Back in Chapter 7

After sorting through conflicting precedents, Judge Craig Gargotta has ruled that a chapter 7 debtor who owned a homestead property on the date of bankruptcy and claimed the property as exempt did not lose the exemption when the property was sold and proceeds were not reinvested within six months.    Lowe v. DeBerry (In re Deberry), Adv. No. 15-5054 (Bankr. W.D. Tex. 10/28/15).

Friday, October 23, 2015

Fifth Circuit Report: August-September 2015

The summer months have been slow at the Fifth Circuit.   August and September's opinions include an update on a prior opinion about abstention related to a chapter 15, judicial estoppel, mootness of an appeal of a sale order, a motion to compromise, removal of a trustee, recognition of a foreign judgment and issues relating to a homestead.

Tuesday, September 15, 2015

After Woerner, Courts Look for "Good Gambles"

You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run
--Kenny Rogers, The Gambler

After the Fifth Circuit’s opinion in Barron & Newburger, P.C. v. Texas Skyline Ltd. (Matter of Woerner), 783 F.3d 286 (5th Cir. 2015), lawyers for bankruptcy estates breathed a sigh of relief, knowing that they could still be compensated for “good gambles” gone awry.   However, how would the courts measure a “good gamble” in the context of a case that didn’t quite work out?   Two decisions issued on the same day help answer that question.    In Case No. 13-33264, Digerati Technologies, Inc. (Bankr. S.D. Tex. 8/21/15), a highly contentious case resulted in a confirmed plan but only after an initial plan proposed by management was rejected.   In Case No. 10-11365, In re Woerner(Bankr. W.D. Tex. 8/21/15), the Bankruptcy Court that ruled in the case that was eventually reversed by the en banc Fifth Circuit reconsidered its ruling following remand.   In both cases, debtor’s counsel received some but not all of the fees requested.

Tuesday, September 08, 2015

Texas Judges Explore State Law on Liens and Homestead Exemptions

Much state law regarding liens and property rights emerges from the Bankruptcy Courts because they are frequently the first to confront novel issues.   Two recent opinions from the Western District of Texas bankruptcy judges confirm this trend.   In one case, Judge Tony Davis found that an option to acquire a leased homestead could be claimed as exempt, No. 14-11006, James Wayne See (Bankr. W.D. Tex. 7/14/15), while in the other, Chief Judge Ronald King rejected an attempt to void a judgment creditors' lien under the Texas Property Code, Studensky v. Buttery Company, LLP,  Adv. No. 15-6001 (Bankr. W.D. Tex. 7/2/15).

Saturday, July 18, 2015

Fifth Circuit Report: June 2015

This month's Fifth Circuit report doesn't have a lot of bankruptcy sizzle:  an interesting case on abstention and remand,  two unpublished cases about how not to reserve a claim under a plan and a case about suing a trustee.   However, there are some fascinating cases about lenders, liens, fraudulent transfers, the Texas Debt Collection Act and the Fair Debt Collection Practices Act.    The big news here is that the Fifth Circuit vacated its Golf Channel decision and instead certified the question to the Texas Supreme Court.   Here are June's decisions.   (Click on the style of the case to go to the actual opinions).

Wednesday, July 08, 2015

Supreme Court Says Lawyers Don't Get Paid for Defending Their Fees

A Texas law firm did a great job and beat back a punitive attack on their fees.   However, the Supreme Court has ruled that they may not receive compensation for defending their work.   Baker Botts, LLP v. ASARCO, LLC, No. 14-103 (6/15/15).


I have previously talked about the case here.   As a result, I will just give the Cliff's Notes version of the facts.  Baker Botts delivered remarkable results in their representation of ASARCO, LLC.   However, when the party they had sued gained control of the Debtor, they faced a withering attack on their fees.   In response to discovery requests, they produced 2,350 boxes of documents and 189 GB of electronic data.    The trial on their fees took six days.   All of this defense did not come cheap.   The firm spent $5 million of time litigating their fees.     

Tuesday, July 07, 2015

Sale Watch: Esco Marine, Inc.

Case No. 15-20107; Esco Marine, Inc.; Southern District of Texas, Corpus Christi Division

Bidding Procedures Order:   Dkt. #260; 6/26/15

Assets to be Sold:    Assets of Debtors other than Chapter 5 causes of action, claims against insiders, unscheduled or undisclosed assets, cash

Thursday, June 25, 2015

Sale Watch: WBH Energy, Ltd.

This is a new feature on A Texas Bankruptcy Lawyers Blog.   Whenever I hear about Section 363 sales in Texas, I will mention them here to try to get the word out.   Please feel free to send me any sales you are involved in or happen to hear about.

Case No. 15-10003; WBH Energy, Ltd.; Western District of Texas, Austin Division

Bidding Procedures Order:    Dkt. #361; 5/11/15

Assets to be Sold:   Oil and gas interests in the Barnett Combo Play of the Fort Worth Basin

Friday, June 05, 2015

Fifth Circuit Report: April-May 2015

At the same time that the Supreme Court was busy ruling upon its bankruptcy cases for the term, the Fifth Circuit was active as well.  There were so many cases in April, that it took me two months to summarize them.    Over the course of April and May, the Court decided no less than sixteen cases with bankruptcy implications.   These include cases relating to civil contempt, post-judgment remedies being granted pre-judgment, the conclusion of the BPRE case and important opinions on property of the estate, attorney’s fees, discharge and dischargeability.  There are also four cases involving disputes between homeowners and lenders, including two where the homeowner’s claim was revived on appeal.   There is enough substance here, including in the unpublished opinions, to keep a lot of lawyers and judges reading for a long time.

Tuesday, June 02, 2015

Supreme Court Extends Dewsnup But Suggests They Really Don't Care for the Decision

The Supreme Court extended the holding of Dewsnup v. Timm, 502 U.S. 410 (1992) to a fully unsecured junior lien in a chapter 7 case.    However, the Court suggested in a footnote that they are ready to reconsider the underlying precedent.    This suggests that the Petitioners may have lost because they were not bold enough in challenging Dewsnup.   Bank of America v. Caulkett, No. 13-1421 (6/1/15). 

Thursday, May 28, 2015

Fifth Circuit Narrows Fraud Dischargeability Claims

Rejecting a Seventh Circuit precedent, the Fifth Circuit has ruled that a non-dischargeability claim under section 523(a)(2)(A) must be based upon a false representation.    While bad conduct that does not involve a misrepresentation may be actionable under other sections of the Code, it will not constitute actual fraud under Sec. 523(a)(2)(A).   Husky International Electronics, Incorporated v. Ritz (Matter of Ritz), No. 14-20526 (5th Cir. 5/22/15).  

Tuesday, May 26, 2015

Wellness Case Brings Healing for Bankruptcy Court Authority

Resolving an issue left open by two prior decisions, the Supreme Court ruled that the right to entry of a final judgment by an Article III court, like the right to trial by jury, is a personal right which can be waived or consented away (subject to supervision by an Article III Court).    The decision left Chief Justice Roberts, whose broad language in Stern v. Marshall spawned a plethora law review articles, in the minority, while Justice Sotomayor wrote for the six justices in the majority.   Wellness International Network, Ltd. v. Sharif, No. 13-935 (5/26/15).    

The Stern Problem

Article III of the Constitution states that the judicial power is vested in courts created under that Article, which is to say, judges appointed by the President, confirmed by the Senate and enjoying life tenure.    Over the years, Congress created many other judges, such as U.S. Magistrate Judges, Administrative Law Judges and Bankruptcy Judges, to help with the workload of the federal courts.   These judges were not appointed by the President or confirmed by the Senate and did not enjoy life tenure.    While they were under the supervision of Article III Judges, some of these legislatively created judges enjoyed great levels of independence.   

In Stern v. Marshall, 564 U.S. ___, 131 S.Ct. 2594 (2011), the Court said that Congress did not have unlimited power to create adjuncts to assist the Article III judges.   Specifically, the Court said that the Bankruptcy Court did not have the power to enter a final judgment on a state law counterclaim brought by a debtor against a creditor.    Judges, practitioners and academics alike wondered whether the system of independent Article I Bankruptcy Judges could survive this ruling.    This uncertainty was engendered by the narrow scope of the actual issue decided and the sweeping language used by Chief Justice Roberts to support it.   Taken to its fullest extent as suggested by the dissenting justices in that case, it could have meant that Bankruptcy Court's lacked the power to decide anything that could have been decided by courts of law in 1789 and parties lacked the authority to consent to a different result.   

 Life After Stern

The sky did not fall following Stern and the Bankruptcy Courts continued to operate.   However, there was a split of authority as to whether parties could consent to entry of a final judgment by a Bankruptcy Court in a Stern case.    Last year, in Executive Benefits Ins. Agency v. Arkison, 134 S.Ct. 2165 (2014), the Court ducked the consent issue.   Instead, it found that regardless of the Bankruptcy Court's authority to enter a final judgment, it could hear cases within its jurisdiction and submit a report and recommendation to the District Court which could review it on a de novo basis. This was important because the Bankruptcy Court decision was a summary judgment which the District Court was bound to review on a de novo basis in any event.   As a result, even if the Bankruptcy Court lacked authority to enter a final judgment, the District Court's ruling on appeal was the functional equivalent of entry of a final judgment by that court.  

This ruling preserved the ability of Bankruptcy Courts to hear disputes in the first instance.   However, it left open the question of whether Bankruptcy Courts could issue final orders in all matters with consent or by waiver.   The consent issue had enormous practical significance.    If parties could not give valid consent, they could have an advisory trial in the Bankruptcy Court and then request a do-over in the District Court if they didn't like the result.    There was also the possibility (although I am not aware of this actually happening) of a party agreeing to litigate in Bankruptcy Court and ignoring the result on the basis that it had never been approved by the District Court.    

The issue split the circuit courts.   The Fifth, Sixth and Seventh Circuits nixed consent while the Ninth Circuit permitted it.   Today's decision resolved that split and established that parties can consent to entry of a final judgment by a Bankruptcy Judge.   The decision also acknowledges the practical reality that without legislatively created courts, "the work of the federal court system would grind nearly to a halt."   Opinion, p. 2.   In a footnote, the Court noted that the 349 Bankruptcy Judges hear twice as many cases as all of the District and Circuit judges combined.    

What Happened

Sharif was a distributor for Wellness International Network, a manufacturer of health and nutrition products.    Sharif sued Wellness but wound up owing $650,000 in attorneys' fees after he failed to comply with discovery and other litigation obligations.    When Sharif filed bankruptcy, Wellness wanted to know about the $5 million in assets he had listed on a loan application in 2002.   Sharif glibly admitted that he had lied about owning the assets and said that they really belonged to a trust which he administered for his mother and sister.    

Wellness filed an adversary proceeding against Sharif seeking to deny his discharge and establish that the trust was an alter ego.   Sharif answered and conceded that these claims were core proceedings.   Once again, Sharif failed to provide responsive discovery answers.   As a result, the Bankruptcy Court entered default judgment against him and denied his discharge.   The Bankruptcy Court also found that the trust was his alter ego because the Debtor "treats [the Trust's] assets as his own property."    

Sharif appealed to the District Court.   While his case was pending, the Stern decision came out.   He asked to supplement his briefing to assert that the District Court should treat the Bankruptcy Court's ruling as a report and recommendation.   The District Court denied the request for additional briefing as untimely and affirmed the Bankruptcy Court.

The Seventh Circuit affirmed in part and reversed in part.  It upheld denial of the discharge as something that the Bankruptcy Court had the authority to grant.   However, it reversed the ruling on the alter ego claim.   It held that not only did the Bankruptcy Court lack authority to enter a final judgment, but that it might have lacked authority to even hear the case in the first place.   (The latter ruling was based on the fact that 28 U.S.C. Sec. 157 did not authorize Bankruptcy Courts to issue reports and recommendations in core proceedings.   In Executive Benefits, the Supreme Court clarified that Bankruptcy Courts could issue a report and recommendation in any case in which it could not issue a final judgment, thereby eliminating the so-called statutory gap).

The Majority Ruling

Justice Sotomayor began her discussion of consent by stating, "(a)djudication by consent is nothing new."    Opinion, p. 8.    After discussing cases, the Court held that the right to an Article III tribunal is both a personal one which may be waived and a structural one that must be respected.  Justice Sotomayor wrote:
The entitlement to an Article III adjudicator is “a personal right” and thus ordinarily “subject to waiver,” (citation omitted). Article III also serves a structural purpose, “barring congressional attempts ‘to transfer jurisdiction [to non-Article III tribunals] for the purpose of emasculating’ constitutional courts and thereby prevent[ing] ‘the encroachment or aggrandizement of one branch at the expense of the other.’” Id., at 850 (citations omitted). But allowing Article I adjudicators to decide claims submitted to them by consent does not offend the separation of powers so long as Article III courts retain supervisory authority over the process.
Opinion, pp. 11-12.    In reaching this formulation, Justice Sotomayor resolved a question which had been dividing commentators for years:   was the right to an Article III Court personal and thus waivable or was it structural and therefore immutable?   Although the Court answered "both," it did so in a way that set a low bar for satisfying the structural concerns of the Constitution.   So long as the Article III judiciary retained "supervisory authority" over the legislatively created courts, separation of powers was not violated.    Stated another way, Congress can create judicial helpers for the Article III Courts but cannot create an entire independent system out of whole cloth.

Under this standard, it is clear that Bankruptcy Courts are under the supervisory authority of the Article III Courts.   Bankruptcy Judges are appointed by Article III judges and may be removed by them.   They are a unit of the District Court and enjoy their authority by virtue of an order of reference from the District Courts.   The District Courts also have the power to withdraw that reference.   Indeed, if a District Court wished to do so, it could revoke the order of reference completely and decide all bankruptcy matters.    Decisions of Bankruptcy Courts are reviewed by either the District Courts or by Bankruptcy Appellate Panels (with consent).   However, Bankruptcy Appellate Panels only exist if created by the Court of Appeals.   

The Court further noted that the Bankruptcy Courts do not possess "free-floating authority to decide claims traditionally heard by the Article III Courts" but instead may hear "a narrow class of common law claims" which are incidental to their primary bankruptcy powers.   Finally, the Court noted that Bankruptcy Courts were not created by Congress "to aggrandize itself or humble the Judiciary."   Instead, the Court noted the practical benefit to the Article III Judiciary from having Bankruptcy Courts:
Congress could choose to rest the full share of the Judiciary’s labor on the shoulders of Article III judges. But doing so would require a substantial increase in the number of district judgeships. Instead, Congress has supplemented the capacity of district courts through the able  assistance of bankruptcy judges. So long as those judges are subject to control by the Article III courts, their work poses no threat to the separation of powers.
Opinion, pp. 14-15.    

Having ruled that consent was possible, the Court ruled that it need not be express. 
Nothing in the Constitution requires that consent to adjudication by a bankruptcy court be express. Nor does the relevant statute . . . mandate express consent; it states only that a bankruptcy court must obtain“the consent”—consent simpliciter—“of all parties to the proceeding” before hearing and determining a non-core claim.
Opinion, p. 18.    

Thus, the Court remanded the case to the Seventh Circuit to decide the question of whether consent had indeed been given.    

The majority opinion was joined in by Justices Kennedy, Ginsberg, Breyer and Kagan. Justice Alito concurred in the judgment with the demurrer that he would not have reached the issue of whether consent could be implied.   

The Chief Justice and Justices Scalia and Thomas dissented.

The Dissents

At thirty-nine pages, the dissents are nearly twice as long as the majority opinion.    The dissenting justices (each of whom was in the majority in Stern) did not agree that supervisory authority satisfied separation of powers.   The Chief Justice expressed his preference that the Court would have once more avoided deciding the consent issue.   He warned that by deciding the larger issue, the Court was descending a slippery slope.
By reserving the judicial power to judges with life tenure and salary protection, Article III constitutes “an inseparable element of the constitutional system of checks and balances”—a structural safeguard that must “be jealously guarded.”(citation omitted).

Today the Court lets down its guard. Despite our precedent directing that “parties cannot by consent cure” an Article III violation implicating the structural separation of powers, (citation omitted), the majority authorizes litigants to do just that. The Court justifies its decision largely on pragmatic grounds. I would not yield so fully to functionalism. The Framers adopted the formal protections of Article III for good reasons, and “the fact that a given law or procedure is efficient, convenient, and useful in facilitating functions of government, standing alone,will not save it if it is contrary to the Constitution.” (citation omitted).

The impact of today’s decision may seem limited, but the Court’s acceptance of an Article III violation is not likely to go unnoticed. The next time Congress takes judicial power from Article III courts, the encroachment may not be so modest—and we will no longer hold the high ground of principle. The majority’s acquiescence in the erosion of our constitutional power sets a precedent that I fear we will regret. I respectfully dissent.
Roberts, C.J., Dissenting, pp. 1-2.    The Chief went on to quote significant amounts of his opinion from Stern.  He effectively established that despite his protestations to the contrary, he never intended for Stern to be a narrow ruling.   Instead, he sought to interpose the Article III Judiciary as a bulwark against Congressional interference in the bankruptcy arena no matter how difficult or impractical this might be.   His dire sermon concluded with an allusion to the Bible.
Ultimately, however, the structural protections of Article III are only as strong as this Court’s will to enforce them. In Madison’s words, the “great security against a gradual concentration of the several powers in the same department consists in giving to those who administer each department the necessary constitutional means and personal motives to resist encroachments of the others.”The Federalist No. 51, at 321–322 (J. Madison). The Court today declines to resist encroachment by the Legislature.  Instead it holds that a single federal judge, for reasons adequate to him, may assign away our hard-won constitutional birthright so long as two private parties agree. I hope I will be wrong about the consequences of this decision for the independence of the Judicial Branch. But for now, another literary passage comes to mind: It profits the Court nothing to give its soul for the whole world . . . but to avoid Stern claims?
 Roberts, C.J., Dissenting, p. 20.    

Justice Thomas complained that both the majority and the Chief Justice had failed to answer the question of "whether a violation of the Constitution has actually occurred."    Justice Thomas does not appear to answer this question either.   Instead, he appears to conclude that the parties did not brief the proper issues and that those issues "merit closer attention by this Court."   As a result, Justice Thomas would have decided the case on the narrow ground of whether an alter ego claim is in fact a Stern claim.  

What It Means

This case has two main impacts:  the practical and the political.    

On a practical level, Wellness has brought healing to the uncertainty wreaked by Stern.   We now have a pretty solid flow chart for knowing what Bankruptcy Courts should do with matters brought before them.
  1. Is there jurisdiction under 28 U.S.C. Sec. 1334?   If yes, proceed to #2.   If no, stop.
  2. Has the District Court withdrawn the reference?  If yes, stop.  If no, proceed to #3.
  3. Must or should the Court abstain?  If yes, stop.   If no, proceed to hear the matter.
  4.  Is the claim one which could have been heard by the courts of law in England in 1789?  If no, proceed to enter a final judgment.  If yes, proceed to #5.
  5. Have the parties consented to entry of a final judgment, either expressly or implicitly?  If yes, proceed to enter a final judgment.   If no, enter a report and recommendation
While I may be oversimplifying this, I think it captures the general idea of where we are today.

On a political level, Justices Breyer, Ginsberg, Sotomayor and Kagan have made the journey from  the dissent in Stern to the majority in Wellness.   They were able to make this transition because Justices Alito and Kennedy changed positions.  While this is rank speculation, it is entirely possible that Justices Alito and Kennedy could see the harm in giving the Bankruptcy Courts unlimited power to rule on state law counterclaims and therefore joined the majority in Stern, but did not want to jeopardize the authority of U.S. Magistrates or other consent-based mechanisms.   If the Chief  had gotten his way, the magistrate system, which operates on referral and consent, could well have fallen.

An older definition of conservative is to conserve, to observe respect for existing institutions.    In his desire to assert the dignity of the Article III Judiciary, the Chief Justice could have torn down decades of smoothly functioning institutions, jeopardizing not only Bankruptcy Judges but Magistrate Judges and possibly arbitrators as well.    Thus, Justices Alito and Kennedy could have joined both majorities out of a sense of conservatism.     

Tuesday, May 19, 2015

Supreme Court Rules Debtor Entitled to Funds Remaining Upon Conversion of Chapter 13 Case

Acknowledging that the statutory language "does not say expressly" what should happen, the Supreme Court nevertheless ruled that undistributed funds held by the Chapter 13 trustee should be returned to the debtor following a conversion.   The Court described its result as "the most sensible reading of what Congress did provide."   Justice Ginsberg wrote the opinion for an unanimous Court.   Harris v. Viegelahn, No. 14-400 (5/18/15).

What Happened

Charles Harris, III began his trip to the Supreme Court when he filed a chapter 13 petition in San Antonio, Texas in February 2010.   He was trying to save his home after defaulting upon his mortgage.    However, by November 2010, the Court had lifted the stay to allow the lender to foreclose.   A year later, he converted his case to chapter 7.   At that time, the Chapter 13 Trustee had over $5,500 on hand.  Rather than returning these funds to the debtor or paying them to the Chapter 7 trustee, she paid them to debtor's counsel and the unsecured creditors.   The Debtor filed a motion for return of the funds.   The Bankruptcy Court granted this motion and the trustee appealed.   The Fifth Circuit reversed, finding that the Bankruptcy Court's order would allow the Debtor to receive a "windfall."    In re Harris, 757 F.3d 468 (5th Cir. 2014).   The Supreme Court granted cert to reconcile a conflict with the Third Circuit.

The Ruling

The Court noted that prior to 1994, there was a split of authority over whether the debtor's post-petition earnings vested in the chapter 7 estate upon conversion.    This problem was solved when section 348(f) was added to the Code.   It provides that absent bad faith, property of the chapter 7 estate following conversion from chapter 13 consists of property which was originally part of the chapter 13 estate which remained "in the possession . . . or control" of the debtor on the date of conversion.  Thus, the funds held by the chapter 13 trustee would not become property of the chapter 7 estate.   

However, this did not answer the question of what the chapter 13 trustee could do with the funds upon conversion.   The court noted that under section 348(e), the chapter 13 trustee's "services" are terminated upon conversion.   The Court concluded that paying money to creditors was one of the "services" provided by the trustee and therefore something that could not be done after conversion.   The Court also concluded that paying money to creditors was not part of the trustee's duty to "wind up" the chapter 13 estate and that a chapter 13 plan did not vest funds in creditors until they were paid out.

The Court rejected the policy arguments that were relied upon by the Fifth Circuit.  It was not a "windfall" for the debtor to receive the undistributed funds for the reason that those funds would have belonged to the debtor if he had initially filed under chapter 7.    The Supreme Court agreed that it was a fortuity that some trustees had lots of money on hand when a case converted and others didn't.   However, the Court suggested that creditors "seek() to include in a Chapter 13 plan a schedule for regular disbursement of funds the trustee collects."   Opinion, p. 11.  The fact that creditors could protect themselves showed that the Court did not need to bend the statute to arrive at a reasonable result.

What Does It Mean?

In this case, the Supreme Court followed the text and structure of the statute rather than relying on easily manipulated policy arguments like the Fifth Circuit did.    The Supreme Court showed that it was willing to look at how the Bankruptcy Code functions to resolve a question that was not completely obvious.   While no statute expressly said that the debtor gets to keep funds in the hands of the chapter 13 trustee, the Court noted that other provisions, such as those revesting post-petition property in the debtor and terminating the services of the trustee, pointed to the correct answer.   This is a functional, pragmatic approach toward interpreting the law and will be useful to practicing lawyers.

The case will likely also encourage Chapter 13 trustees to seek authority to make interim distributions.   The ruling only applies to funds held by the Chapter 13 trustee on the date of conversion.   Had the Trustee received permission for interim distributions, there would have been a much smaller amount on hand and the Trustee would have received commissions on the funds which were distributed.   As the Court pointed out, there is nothing wrong with encouraging Trustees to make distributions early and often.    

Because Trustees will likely modify their procedures to address the ruling, the practical effect of the opinion will likely be minimal.   However, any time that the Supreme Court interprets the Bankruptcy Code, it provides valuable guidance as to how they might rule in other cases.    That will be the lasting impact of this case beyond the relatively small sum that Trustee Viegelahn will be required to pay.

Note:  The Bankruptcy Court order was entered by then-Bankruptcy Judge Leif M. Clark.   Over the years, Judge Clark has been a fertile source of material for this blog.   Congratulations to Judge Clark on being affirmed by the Supreme Court.    Congratulations also to local attorney Steven Cenammo who filed the motion which set this in motion.  

Thursday, May 07, 2015

Supreme Court Says Denial of Confirmation Not Automatically Appealable

In a surprisingly casual opinion, the Supreme Court, led by Chief Justice Roberts, has ruled that denial of confirmation of a chapter 13 plan does not give rise to a final order which can be appealed as a matter of right.    Bullard v. Blue Hills Bank, No. 14-116 (5/4/15).     The opinion can be found here.    The Chief's opinion compares the appellate process to the children's game of chutes and ladders, refers to insignificant matters as "small beer issues" and even includes a sentence fragment.   Notwithstanding the relaxed approach to writing, the Court offers clear guidance.   When the court denies a plan with leave to appeal, the debtor may refuse to amend and appeal the ultimate dismissal or may seek to follow the interlocutory appeal route, a process which must be renewed at each stage of the appeal.    However, the debtor may not appeal the denial as a matter of right.   

What Happened

Bullard owned a multifamily property which was worth much less than was owed upon it.   Because the property was apparently not the debtor's residence (or perhaps only part of the property constituted the debtor's residence), the debtor was able to propose a plan which modified the debt.   Chapter 13 allows a debtor to cure and maintain payments on a long term debt or to pay a secured debt over the life of the plan.   Bullard creatively sought to continue making the regular monthly payments on the secured portion of the debt, while paying disposable income with regard to the unsecured portion.    This would give Bullard the ability to complete payments on the secured debt many years after the plan was completed while paying only 5% on unsecured claims.    According to the Chief Justice, it was "no surprise" that the bank objected.   The Bankruptcy Court sustained the objection even though there was contrary authority within the circuit.

 The debtor appealed to the Bankruptcy Appellate Panel which granted leave for an interlocutory appeal.    The BAP agreed with the Bankruptcy Court and affirmed denial of the plan.   The debtor then appealed to the First Circuit which did not permit an interlocutory appeal and dismissed the appeal.    Both the debtor and the bank agreed that the Supreme Court should grant cert to determine whether denial of a plan constituted a final order appealable as a matter of right.   The Solicitor General sided with the debtor and argued that denial of a plan should be appealable as a matter of right.   In an opinion both forceful and whimsical by turns, the Court rejected the arguments of the debtor and the Solicitor General.

The Court's Ruling

The Supreme Court ruled just thirty-three days after oral argument.    The Court noted that determining finality for purposes of appeal was "different in bankruptcy" than from a typical civil case.    
A bankruptcy case involves “an aggregation of individual controversies,” many of which would exist as stand-alone lawsuits but for the bankrupt status of the debtor. (citation omitted). Accordingly, “Congress has long provided that orders in bankruptcy cases may be immediately appealed if they finally dispose of discrete disputes within the larger case.”
 Slip Opinion, p. 4.   So when does a ruling finally dispose of a discrete dispute within the larger case?    The Court agreed with the Bank that confirming a plan would meet this standard but denying confirmation would not.
The relevant proceeding is the process of attempting to arrive at an approved plan that would allow the bankruptcy to move forward. This is so, first and foremost, because only plan confirmation—or case dismissal—alters the status quo and fixes the rights and obligations of the parties. When the bankruptcy court confirms a plan, its terms become binding on debtor and creditor alike. (citation omitted). Confirmation has preclusive effect, foreclosing relitigation of “any issue actually litigated by the parties and any issue necessarily determined by the confirmation order.” (citations omitted). . . .
When confirmation is denied and the case is dismissed as a result, the consequences are similarly significant.Dismissal of course dooms the possibility of a discharge and the other benefits available to a debtor under Chapter 13. Dismissal lifts the automatic stay entered at the start of bankruptcy, exposing the debtor to creditors’ legal actions and collection efforts. §362(c)(2). And it can limit the availability of an automatic stay in a subsequent bankruptcy case. §362(c)(3).

Denial of confirmation with leave to amend, by contrast,changes little. The automatic stay persists. The parties’ rights and obligations remain unsettled. The trustee continues to collect funds from the debtor in anticipation of a different plan’s eventual confirmation. The possibility of discharge lives on. “Final” does not describe this state of affairs. An order denying confirmation does rule out the specific arrangement of relief embodied in a particular plan. But that alone does not make the denial final any more than, say, a car buyer’s declining to pay the sticker price is viewed as a “final” purchasing decision by either the buyer or seller. “It ain’t over till it’s over.”
 Slip Op., pp. 5-6.  

 The language quoted above captures the essence of the opinion.   However, the Court went on to offer several practical reasons for its ruling.
  • Appeals take a long time.   "As Bullard's case shows, each climb up the appellate ladder and slide down the chute can take a year."    A more narrow construction on finality avoid delays and inefficiencies.
  • While debtors probably would not appeal over "small beer issues," the prospect of an appeal could be used for tactical reasons in negotiating with creditors.   Besides Chapter 11 lawyers might have the money to spend on appealing insignificant issues.
  • The Court also stated that lack of a guaranteed appeal would "encourage the debtor to work with creditors and the trustee to develop a confirmable plan as promptly as possible.
 The Court took the time to reject several arguments from the debtor and the Solicitor General.   The SG argued that any order which resolved a contested matter should be considered final for purposes of appeal.    In a firm putdown, the Court stated:
That version of the argument has the virtue of resting on a general principle—but the vice of being implausible. As a leading treatise notes, the list of contested matters is “endless” and covers all sorts of minor disagreements. (citation omitted). The concept of finality cannot stretch to cover, for example, an order resolving a disputed request for an extension of time.
 Slip Op., pp. 8-9.     The Court also suggested that arguing that all orders resolving contested matters should be appealable begged the question.
At other points, the Solicitor General appears to argue that because one possible resolution of this particular contested matter (confirmation) is final, the other (denial) must be as well. But this argument begs the question. It simply assumes that confirmation is appealable because it resolves a contested matter, and that therefore anything else that resolves the contested matter must also be appealable.  But one can just as easily contend that confirmation is appealable because it resolves the entire plan consideration process, and that therefore the entire process is the “proceeding.” A decision that does not resolve the entire plan consideration process—denial—is therefore not appealable.
Slip Op., p. 9.  

The Court was more sympathetic to the debtor's argument that denying the right to appeal would leave the debtor with no effective means of obtaining appellate review. The debtor would be given the Hobson's Choice to either refuse to amend and appeal the dismissal order, which would result in loss of the automatic stay and probably the debtor's property, or to move forward with a plan the debtor did not want.    In a terse statement, the Chief commented "All good points" before noting that:
our litigation system has long accepted that certain burdensome rulings will be “only  imperfectly reparable” by the appellate process. (citation omitted). This prospect is made tolerable in part by our confidence that bankruptcy courts, like trial courts in ordinary litigation, rule correctly most of the time. And even when they slip, many of their errors—wrongly concluding, say, that a debtor should pay unsecured creditors $400 a month rather than $300—will not be of a sort that justifies the costs entailed by a system of universal immediate
 Slip Op., pp. 10-11.   Perhaps acknowledging that "life is unfair" was a less than satisfactory answer, the Court went on to note that important issues could be appealed through the interlocutory appeal process.   Indeed, in this case, the BAP allowed an interlocutory appeal although the Court of Appeals did not.  
While discretionary review mechanisms such as these “do not provide relief in every case, they serve as useful safety valves for promptly correcting serious errors” and addressing important legal questions.
 Slip Op., pp. 11-12.
What Does It Mean?

This short opinion contains several layers of meaning.    The most basic lesson is that orders denying relief which do not change the status quo cannot be appealed as a matter of right.   It does not matter whether it is an order denying confirmation of a plan, an order refusing to lift the automatic stay or an order declining to dismiss a case.    Any order which leaves the parties free to return to the field of battle another day is not subject to an automatic appeal.   In most cases, the only option will be to request an interlocutory appeal, a process which requires the aggrieved party to be persuasive on the front end of the appeal process.   The option of refusing to propose another plan and allowing the case to be dismissed probably will only apply in the plan confirmation process.   For example, if the court refuses to lift the automatic stay, the creditor cannot create a final order through inaction.  Instead, the debtor or trustee will be allowed to retain the property until some future action changes the status quo.

On a more philosophical note, the opinion shows that the Supreme Court trusts Bankruptcy Judges to make good decisions and does not want the higher courts to be troubled with appeals of many minor matters.    This vote of confidence could bode well for Bankruptcy Courts in the continuing tension between the boundaries of Article I and Article III authority.

There are also two points applicable to appellate argument to be noted here.   When in doubt, cite Collier on Bankruptcy.   This opinion relied on the Collier treatise three different times in a twelve page opinion.   This could lead to a surge in bankruptcy lawyers adding Collier's to their legal research plans.    Finally, just because the Chief Justice used a sentence fragment (which would have meant an automatic F in my high school English class) and used such mixed metaphors as chutes and ladders and small beer, does not mean that practitioners should.   While a well-chosen metaphor or an intentional grammatical error could add force to a brief, a poorly chosen one or too many discordant examples could prejudice the court.   The Chief Justice has life tenure and no one above him reviewing his decisions.   He can engage in written flights of fancy such as those observed here without any negative consequences.   Practitioners cannot.  

Tuesday, April 14, 2015

Fifth Circuit Report: March 2015

The big decision out of the Fifth Circuit this month was a Ponzi scheme case against The Golf Channel.    Honorable mentions included the follow up appeal in the Frazin case which first addressed consent in Stern cases and several cases involving mortgages.  Because there have been slim pickings among bankruptcy cases per se,  I have included several non-bankruptcy cases which generally involve debtor-creditor relations.
Torres v. Krueger, No. 13-11165 (5th Cir. 3/3/15)(unpublished)

This case involved a dispute between two parties with regard to Cru Energy, Inc., a renewable energy company, which they founded.     Krueger sued Torres for breach of fiduciary duty, fraud, conversion and the like.   Torres counterclaimed and obtained a temporary injunction against Krueger.   Krueger allegedly violated the injunction by transferring funds from Cru Energy.   Krueger filed chapter 7 bankruptcy prior to any contempt proceedings.   Cru obtained relief from the stay and Krueger was held in contempt.   The contempt order was reversed on application for habeas corpus because the injunction was not sufficiently specific.  

Cru also filed an objection to Krueger's discharge.   Krueger convened a shareholder meeting of Cru and voted to oust Torres and fire the attorneys who were pursuing the litigation against him.    The District Court gave notice that it intended to dismiss Cru's claims on the basis that it was a corporation that was not represented by counsel.   Torres sought to intervene in the 727 action and also sought authority to represent Cru on a derivative basis.     The District Court dismissed Cru's claims and denied Torres's motions.    Subsequently, the Trustee sold Krueger's shares in Cru and Krueger's bankruptcy case was dismissed.     

The Court found that it was not an abuse of discretion to deny intervention or leave to pursue claims derivatively.   Also, the Court found that when Krueger's bankruptcy was dismissed, it had the practical effect of keeping him from receiving a discharge.   It shows that a party should realize when to declare victory and not keep appealing.

Wheeler v. Collier (In re Wheeler), No. 14-30961 (5th Cir. 3/4/15)(unpublished).  

This case stands for the proposition that a court cannot sua sponte impose relief against a party without prior notice.  It also shows how difficult life can be when you get on the wrong side of a federal judge.   Collier was a Louisiana bankruptcy lawyer who advertised "No money down" chapter 7 bankruptcies. Wheeler, one of his clients, sued him for violation of the automatic stay after he debited her account post-petition.    The case proceeded in U.S. District Court after Collier requested a jury trial.   Following a status conference, the Court set a hearing to determine whether the defendants had violation 11 U.S.C. Sec. 528 (one of the Debt Relief Agency provisions) and whether they should be held in contempt for violating the discharge injunction.    The Court found that the defendants had violated both sections 526 and 528 and that they had violated the discharge injunction.   The Court awarded disgorgement of $1,300, $10,000 in actual damages, $30,000 in punitive damages and attorneys' fees.   It also assessed contempt sanctions of $10,000 payable to the Clerk of the Court and ordered the lawyers to cease and desist from "all Chapter 7 consumer 'No Money Down' bankruptcies" and to cancel all "No Money Down" advertisements.    

The attorneys appealed the $10,000 sanction and the injunction.    The Fifth Circuit reversed.   The docket notation with regard to contempt under section 105 for violation of the discharge injunction did not provide notice that the court would consider criminal contempt sanctions.   Civil contempt under section 105 is intended to compensate, while criminal contempt is intended to punish.   Ordering the attorneys to pay sanctions to the Clerk of the Court constituted criminal contempt.   Because the Court did not provide advance notice that it intended to consider this sanction, it lacked authority.   The same result applied to the injunctive relief.      

This is the second time that a proceeding related to this matter has reached the Fifth Circuit.   Previously, the Fifth Circuit had granted a writ of mandamus when the District Court ordered Mr. Collier imprisoned for 48 hours for criminal contempt.    You can read about the prior opinion here.

While the lawyer succeeded in reversing both sanctions, he can hardly be said to have gotten off scot-free.    It is both difficult and expensive to take a case up to the Fifth Circuit.

Janvey v. The Golf Channel, Incorporated, No. 13-11305 (5th Cir. 3/11/15)

This was the big case out of the Fifth Circuit this month.   In order to generate awareness for its brand (which consisted of running a Ponzi scheme), Stanford International Bank advertised on the Golf Channel.   It paid at least $5.9 million for this advertising.   Ralph Janvey, the receiver for Stanford, sued to recover the funds as a fraudulent transfer.   The District Court found that the Golf Channel had a complete defense because it had received the funds in good faith and had provided reasonably equivalent value.    

The Fifth Circuit reversed.   It looked at whether the property or service exchanged had any value as a matter of law and then at whether that value was reasonably equivalent.    The Fifth Circuit noted that Texas courts had not ruled on whether payments made in furtherance of a Ponzi scheme constituted value.     The Court held that the relevant question was not whether the payments would provide value to an ordinary business but rather, whether they provided value to the creditors in the actual case.   The Court wrote:
Golf Channel’s services did not, as a matter of law, provide any value to Stanford’s creditors. Just like the broker’s (unknowing) efforts to extend the Ponzi scheme in Warfield, Golf Channel’s (unknowing) efforts to extend Stanford’s scheme had no value to the creditors. While Golf Channel’s services may have been quite valuable to the creditors of a legitimate business, they have no value to the creditors of a Ponzi scheme.  Ponzi schemes by definition create greater liabilities than assets with each subsequent transaction. Each new investment in the Stanford Ponzi scheme decreased the value of the estate by creating a new liability that the insolvent business could never legitimately repay.  (citation omitted). Services rendered to encourage investment in such a scheme do not provide value to the creditors.
Opinion, pp. 8-9.    The Court concluded that the relevant test was whether the creditor provided a benefit to the creditors of the Ponzi scheme, not whether the services themselves were valuable.   Thus, an insurance premium paid to insure the fine art bought with the proceeds of the Ponzi scheme would conceivably provide value to creditors, while the wages paid to the receptionist who answered the phone might not.    This is a harsh result for the creditor who unknowingly propped up an illegitimate scheme.    While the creditor could sue the promoter of the Ponzi scheme for fraud in not disclosing the scheme's existence, the promoter is likely to be sent to jail and have his assets seized.   

This is a problem which deserves a legislative solution.   

Dawson v. Bank of America, No. 14-20560 (5th Cir. 3/13/15)(unpublished). 

Debtor defaulted on debt but negotiated a modification agreement.   Debtor then sued bank for failure to record the modification agreement and report her payment history to the credit bureaus.   The Fifth Circuit affirmed dismissal for failure to state a claim.   There is no cause of action against a credit provider for failure to report positive information under FCRA.

Hawkins v. JP Morgan  Chase Bank, No. 13-50086 (5th Cir. 3/16/15)(unpublished)

Debtor sought to bring a class action alleging that Texas home equity loan restructurings which capitalized past-due interest, fees, taxes and escrow into the principal constituted extensions of credit which would need to follow the requirements for an original home equity loan.    Relying on a recent Texas Supreme Court case, Sims v. Carrington Mortg. Servs., L.L.C., 440 S.W.3d 10, 17 (Tex. 2014), the Court affirmed dismissal of the claims.    This is a good result for borrowers because it removes an impediment to loan restructurings which could allow the borrower to keep the property.

Frazin v. Haynes & Boone, LLP (In re Frazin), No. 14-10547 (5th Cir. 3/30/15)(unpublished)

Frazin hired two law firms to bring claims on his behalf in his chapter 13 bankruptcy.   After they only recovered $3.2 million, he brought claims for malpractice, breach of fiduciary duty and DTPA as counterclaims to their fee applications.    The Bankruptcy Court denied all relief.    In the first appeal,  the Fifth Circuit found that the malpractice and breach of fiduciary duty claims could be decided by the Bankruptcy Court because they were necessarily decided in ruling upon the fee application.    The Fifth Circuit remanded for reconsideration of the DTPA claims by the District Court.    I previously wrote about the case here.

On remand, the District Court dismissed the DTPA claims.    The Court found that the DTPA claim "is merely a restated negligence claim."    It additionally found that claims for rendering professional services are exempt under the DTPA.    The District Court's order can be found here.   The Fifth Circuit affirmed for the reasons stated by the District Court.

Thus, the odyssey of Mr. Frazin and his attempt to sue his lawyers has come to an end.

Monday, April 13, 2015


By Guest Blogger Michael V. Baumer

On June 12, 2014, the U.S Supreme Court issued an opinion in Clark v. Rameker, 134 S.Ct. 2242 (2014) in which the court, in a 9-0 decision, affirmed a decision by the 7th Circuit holding that an IRA inherited by a daughter from her mother is not exempt under 522(b)(3)(C).

It is important to note that although Clark determined whether inherited IRAs are exempt under 522(b)(3), the decision should also apply to whether inherited IRAs are exempt under 522(b)(2) and (d)(12). Both statutes exempt “Retirement funds to the extent that those funds are in a fund or account that is  exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.” The Clark court concluded that funds in an inherited IRA are not “retirement funds,” although “retirement funds” is not defined in either the Bankruptcy Code or the Internal Revenue Code.

522(b)(1) says that a debtor can claim exemptions under 522(b)(2) which we commonly refer to as “federal exemptions,” or 522(b)(3)  which we commonly refer to as “state exemptions.” [522(b)(2) includes the “opt out” provision which allows the individual states to deny the federal exemptions to their residents.] It is not really that simple. The federal exemptions under 522(b)(2) are limited to the exemptions listed in 522(d). There is abundant case law that says that other federal exemptions not contained in 522(d) are not allowed in a bankruptcy case. And 522(b)(3) is not limited to exemptions allowable under state law. 522(b)(3)(A) specifically allows a debtor to exempt “any property that is exempt under federal law” [except 522(d)] as well as “State or local law.” 

In the first paragraph of its opinion, the Clark court stated “The question presented is whether funds contained in an inherited individual retirement account (IRA) qualify as ‘retirement funds’ within the meaning of this [522(b)(3)(C)] bankruptcy exemption. We hold that they do not.” Clark, at 2244.

The court almost casually notes “If the heir is the owner’s spouse, as is often the case, the spouse has a choice: He or she may ‘roll over’ the IRA funds into his or her own IRA, or he or she may keep the IRA as an inherited IRA (subject to the rules discussed below).” Clark, at 2245, (citing IRC Publication 590).

I think that this seemingly innocuous statement may actually give significant guidance to what the court might do in the case of an IRA inherited by a spouse. The court does acknowledge that a spouse may roll over the inherited IRA into his/her own IRA [in which case, it would qualify as a rollover IRA under 522(b)(4)(C)] or treat it as an inherited IRA. If the spouse elects to treat the IRA as an inherited IRA under the Internal Revenue Code, it seems only reasonable that it would/should also be treated as an inherited IRA under the Bankruptcy Code and would be subject to the court’s interpretation that funds in an inherited IRA are not retirement funds. If the spouse elects to roll over the IRA, it would no longer be an “inherited” IRA, but the spouse’s “own” IRA.

In Clark, the IRA was inherited by a daughter from her mother. This is very significant because the IRC provides substantially different treatment for inherited IRAs if the beneficiary is the spouse of the decedent or if the beneficiary is someone other than a spouse. The actual holding in Clark is that funds inherited by a child (someone other than a spouse) are not retirement funds and are not exempt under 522 (b)(3)(C).

To the extent that the court’s holding extends to spouses, it is dicta, not holding. In interpreting the phrase “retirement funds,” the court concluded that “retirement funds” are only retirement funds for the person who sets them aside for their own retirement. It would seem that this is typically not the case with married couples - they are saving for their joint retirement (singular), not their individual retirements (plural).

I would also note that the court engages in at least a little bit of public policy argument, in addition to judicial interpretation The court states that the purposes of bankruptcy exemptions are to “protect the debtor’s essential needs,” “to provide a debtor with the basic necessities of life so that she will not be left destitute and a public charge,” and “to ensure that debtors will be able to meet their basic needs.” Clark, at 2247. The court might want to consider 522(n) which allows a debtor to exempt an IRA with a value up to $1,245,475. In a joint case, that amount is doubled for a total of $2,490,950. And that does not include amounts in any other retirement plans. (Apparently, my notion of what is “basics” and “necessities” could be more expansive.)

Texas Property Code Sec. 42.0021(a) specifically provides that inherited IRAs are exempt to the same extent as they would be in the hands of the original owner of the IRA. Several commentators have expressed the opinion that inherited IRAs are exempt in a bankruptcy case using Texas exemptions, notwithstanding Clark. Many of those commentators note that the bankruptcy court opinion in Clark held that inherited IRAs are not exempt under the Wisconsin exemption statute. They distinguish this from the Texas exemptions which specifically provide that inherited IRAs are exempt. I think this interpretation is erroneous. The Supreme Court opinion in Clark never mentions whether inherited IRAs are exempt under Wisconsin law. The court held that inherited IRAs are not “retirement funds” as a matter of federal law under 522(b)(3)(C), so it never reached the issue of whether they can be exempt under applicable state law.

I am not sure how to reconcile this with 522(b)(3)(A) which permits a debtor to exempt “any property that is exempt under … State or local law.” The subsections of 522(b)(3) are stated in the conjunctive, not the disjunctive – debtors get to claim the exemptions in subsections (A), (B), and (C), so it would seem that even if a debtor is not entitled to exempt retirement accounts under 522(b)(3)(C), they should still be able to exempt them under 522(b)(3)(A) to the extent it is applicable. If Congress had intended that 522(b)(3)(C) would preempt 522(b)(3)(A), they coulda/shoulda/woulda done so explicitly. [They did, in fact, do this with the homestead caps under 522(o) and (p), which are expressly referenced in 522(b)(3)(A).]

My interpretation of the current status of the law based on what I understand Clark’s actually holding to be:

1.                  IRAs inherited from anyone other than a spouse are not exempt under 522(b)(3)(C). [Or 522(d)(12) – this is not part of the actual holding, but the statutory language is identical.]

2.                  IRAs inherited from a spouse which are not rolled over into the debtor’s own IRA should not be exempt under 522(b)(3)(C) or 522(d)(12), but should be treated as inherited IRAs.

3.                  IRAs inherited from a spouse which are rolled over into the debtor’s own IRA should be exempt under 522(b)(3)(C) or 522(d)(12).  Clark does not say that, but to the extent the statement in the opinion that inherited IRAs are not exempt is applied to a spouse is dicta, and the factual and legal basis for the opinion does not apply to spouses who elect to rollover an IRA inherited from a spouse. (Because they are treated differently under the IRC, they should also be treated differently under the Bankruptcy Code.)

4.                  Claiming an inherited IRA as exempt under Texas law is more problematic, at least as far as trying to read the judicial tea leaves.

a.                   Texas Property Code §42.0021(a) provides, in part:

"For purposes of this subsection, the interest of a person in a plan, annuity, account or contract acquired by reason of the death of another person, whether as an owner, participant, beneficiary, survivor, coannuitant, heir or legatee, is exempt to the same extent that the interest of the person from whom the plan, annuity, account or contract was exempt on the date of the person’s death."

It seems clear from the breadth of the language that the intent of the Texas legislature was to protect inherited retirement interests to the greatest extent possible. But how does Texas Property Code interact with the Bankruptcy Code in this context?

b.            In Clark the Bankruptcy Court held, in part, that the inherited IRA was not exempt because the Wisconsin exemption statute did not provide an exemption for inherited IRAs. The Supreme Court, however, never mentions whether the account was exempt under state law, but held that funds in an inherited IRA are not “retirement funds” under 522(b)(3)(C).

c.                Clark, however, never mentions 522(b)(3)(A) which allows a debtor to exempt “any property that is exempt under Federal Law, other than subsection (d) of this section or State or local law that is applicable on the date of filing of the petition.…” 522(b)(3)(A) does not contain the “retirement funds” language found in 522(b)(3)(C) or 522(d)(12).

d.             522(b)(3)(A), (B) and (C) are stated in the conjunctive – the debtor gets to claim (A), (B), and (C), so even if an inherited IRA is not exempt under 522(b)(3)(C), the debtor should still be able to exempt it under 522(b)(3)(A). Assuming that the state exemption statute allows a debtor to exempt an inherited IRA (as does the Texas Property Code), it should be allowed under this subsection.

With all that said, until we get further clarification, I would suggest that it is very risky to claim an IRA inherited from a spouse as exempt under federal exemptions, or to claim an IRA inherited from anyone under the Texas Property Code.

Any volunteers?