Liberty Mutual Insurance Co. v. USA by Lamesa Nati ( 2013 )

REVISED AUGUST 20, 2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 6, 2013
No. 12-10677
Lyle W. Cayce
Clerk
In the Matter of: ROBERT DEAN SCHOOLER; TINA MARIE SCHOOLER,
Debtors
___________________________
LIBERTY MUTUAL INSURANCE COMPANY,
Appellant
v.
UNITED STATES OF AMERICA BY LAMESA NATIONAL BANK,
Appellee
Appeal from the United States District Court
for the Northern District of Texas
Before KING, DAVIS, and ELROD, Circuit Judges.
KING, Circuit Judge.
In 2009, the United States by Lamesa National Bank filed suit against
Liberty Mutual Insurance Company, asserting that Liberty Mutual was liable
under a federally-required surety bond for the alleged misconduct of its
principal, a trustee in a Chapter 7 bankruptcy proceeding. After a trial on
Lamesa’s claim, the bankruptcy court concluded that the trustee had committed
No. 12-10677
gross negligence, causing damages to the bankruptcy estate in the amount of
$112,247.66. The court also held that, as the trustee’s surety, Liberty Mutual
was liable for those damages under the terms of the bond. The bankruptcy court
therefore ordered Liberty Mutual to remit $112,247.66 to the bankruptcy estate
for distribution to the estate’s creditors. Liberty Mutual appealed the
bankruptcy court’s judgment to the district court, which affirmed. Liberty
Mutual now appeals to this court. For the following reasons, we also AFFIRM.
I. FACTUAL AND PROCEDURAL BACKGROUND
On August 21, 2001, Robert and Tina Schooler filed for Chapter 7
bankruptcy in the Northern District of Texas. Immediately thereafter, the
bankruptcy court appointed Deborah Penner a Chapter 7 trustee (the “Trustee”)
for the bankruptcy estate. The Trustee is an attorney who, in addition to serving
as a trustee in Chapter 7 bankruptcy cases, has a law practice that includes
collection and probate work. Like other trustees operating in the Lubbock
Division of the Northern District of Texas, the Trustee was covered under a
blanket surety bond issued by Liberty Mutual Insurance Company. As relevant,
the bond provides that the Trustee, “as [p]rincipal, and Liberty Mutual
Insurance Company, as surety, are held and firmly bound unto the United
States,” in accordance with 11 U.S.C. § 322(a), jointly and severally “for the
faithful performance of [the principal’s] official duties as Trustee of the estates
of . . . debtors assigned to the [p]rincipal by the United States Trustee.”1
After the Schoolers filed for bankruptcy, but within the 180-day statutory
window for the inclusion in the estate of inherited assets, Mrs. Schooler’s father,
1
As discussed infra, 11 U.S.C. § 322(a) provides that a person selected to serve as
trustee must “file[] with the court a bond in favor of the United States conditioned on the
faithful performance of [his or her] official duties.”
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No. 12-10677
Hank Gremminger, Jr., died.2 Mrs. Schooler was named independent executrix
of Gremminger’s will, and was left a one-half interest in his estate, which
included real estate, cash, and other assets. Six days after Gremminger’s death,
Mrs. Schooler filed an application to probate her deceased father’s will.
Lamesa National Bank is an unsecured creditor of the Schoolers that has
filed several proofs of claim in the Schoolers’ bankruptcy case, aggregating
approximately $143,644.00. Upon learning of Mrs. Schooler’s appointment as
executrix of the Gremminger estate, Lamesa’s counsel sent a letter to the
Trustee expressing concern that Mrs. Schooler might misappropriate the
inherited assets belonging to the bankruptcy estate. In that letter, Lamesa
proposed that the Trustee assert entitlement to act as executor of the
Gremminger estate and to conduct discovery into the nature of the assets
involved, including any that might have passed to Mrs. Schooler as a result of
non-testamentary transfers. Lamesa also sent a letter to the attorney assisting
Mrs. Schooler in probating Gremminger’s will, advising him that Mrs. Schooler
had not informed the Trustee of the inheritance, and that the Trustee was
entitled to take control of the probate estate. Lamesa sent a copy of this letter
to the Trustee.
In response, Mrs. Schooler initially took the position that she could
disclaim the inheritance, thereby purportedly preventing it from passing to the
bankruptcy estate. In correspondence to the Schoolers’ bankruptcy counsel, the
Trustee disputed this claim and warned that the Schoolers were required to
amend their bankruptcy filings and list all property to which Mrs. Schooler had
become entitled as a result of her father’s death. The Trustee continued that she
was “concern[ed] that Mrs. Schooler may not be the [b]est person to serve as
2
Pursuant to 11 U.S.C. § 541(a)(5), a debtor’s estate includes property he or she
“becomes entitled to acquire,” inter alia, “by bequest, devise, or inheritance” occurring within
180 days of the filing of a bankruptcy petition.
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No. 12-10677
Independent Executrix of her father’s probate estate,” and that the matter
needed “to be discussed at length to determine whether the creditors’ interest
[could] be adequately protected if she serve[d] in that capacity.” The Trustee
sent a similar letter to the attorney assisting Mrs. Schooler with the
Gremminger probate matters.
Both attorneys assisting the Schoolers responded quickly with reply letters
to the Trustee. In essence, those letters continued to express the view that Mrs.
Schooler had the right to disclaim her inheritance; that she was permitted to
“retain personal property that may be claimed as exempt property”; and that she
could use certain assets in the Gremminger probate estate “to pay the bills.” The
Schoolers’ bankruptcy counsel advised the Trustee to “let [him] know promptly”
if she had any “disagreement with [his] presumption[s]” about these matters.
This series of letters made apparent that the Schoolers were not conceding that
the bankruptcy estate had any rights to the inherited assets.
In subsequent letters sent to the Schoolers’ bankruptcy counsel, Lamesa
continued to express concern over Mrs. Schooler’s management of the
Gremminger probate estate. In one letter, Lamesa’s counsel specifically
addressed worry over “the fact that Mrs. Schooler is in possession of over
$50,000 [in] cash,” and he advised the Schoolers’ attorney that “[t]his money
should certainly be turned over to the Chapter 7 Trustee, and I will be asking
the Trustee to make a motion for such relief if Mrs. Schooler will not do so
voluntarily.” The Trustee received copies of each of these letters.
In February 2002, the Schoolers amended their bankruptcy filings to
reflect Mrs. Schooler’s undivided one-half interest in the Gremminger estate.
The filings listed various assets as exempt, however, and stated that Mrs.
Schooler’s sister, herself a beneficiary under the Gremminger will, was claiming
an interest in the estate’s real property that would have reduced significantly
Mrs. Schooler’s interest therein. Later that month, Mrs. Schooler filed an
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No. 12-10677
“inventory, appraisment, and list of claims” in the probate estate reflecting a
total property inventory valued at $252,606.97—an amount later amended to
$276,823.77.
At Lamesa’s request, a Rule 2004 examination of Mrs. Schooler, at which
the Trustee was present, was conducted on March 15, 2002.3 Following that
examination, which revealed various details about the Gremminger estate’s
assets, Lamesa continued to write letters to the Trustee expressing frustration
over Mrs. Schooler’s management of the Gremminger estate. In particular,
Lamesa’s attorney raised the concern that Mrs. Schooler intended to spend the
cash in the probate estate. Lamesa therefore repeatedly urged the Trustee, in
letters sent between 2002 and 2005, to take possession of the cash, real property,
and other assets in the Gremminger estate.
Lamesa’s pleas went unheeded. Prior to March 2005, the Trustee made
no formal demand that the Schoolers turn over assets from the Gremminger
estate to the bankruptcy estate. Similarly, the Trustee did not request that the
probate court appoint an alternate executor, nor did she pursue any action in the
bankruptcy court to protect the bankruptcy estate’s interest in the Gremminger
estate. Not until March 7, 2005, did the Trustee demand by letter that the
Schoolers turn over to the bankruptcy estate all assets to which Mrs. Schooler
became entitled as a result of her father’s death.
Unfortunately, the letter was too late. Although not discovered by the
Trustee until April 2009, the real property in the Gremminger estate had been
sold in September 2004, and cash from the probate estate had been disbursed to
Mrs. Schooler between 2002 and 2004. By 2005, all of the Gremminger assets
disbursed to Mrs. Schooler had been dissipated. This notwithstanding, from
3
Rule 2004 allows any party in interest in a bankruptcy proceeding to move for a court
order allowing an examination of the debtor related “to the acts, conduct, or property or to the
liabilities and financial condition of the debtor, or to any matter which may affect the
administration of the debtor’s estate.” Fed. R. Bankr. P. 2004.
5
No. 12-10677
2003 to 2008, the Trustee filed annual reports inaccurately indicating that she
had obtained either actual or constructive possession of assets from the
Gremminger estate belonging to the bankruptcy estate.
In February 2009, Lamesa filed a motion in the bankruptcy proceeding to
compel the Trustee to perform her duties, or, alternatively, to remove her. Only
after the bankruptcy court set a hearing for that motion did the Trustee file an
adversary proceeding seeking from Mrs. Schooler the assets in the probate
estate. The Trustee did not discover that Mrs. Schooler had dissipated those
assets until she later conducted a court-ordered Rule 2004 examination of Mrs.
Schooler.4
Lamesa subsequently filed against Liberty Mutual the adversary
proceeding that is the subject of this appeal. In its amended complaint, Lamesa
alleged that Liberty Mutual, as surety under the Trustee’s bond, was liable for
the Trustee’s failure to “faithfully perform the duties of [a] Chapter 7 trustee.”
The complaint further alleged that the Trustee’s conduct “breached the condition
of [Liberty Mutual’s] blanket bond,” thereby obligating Liberty Mutual “to make
[Lamesa] whole for the damages it . . . suffered by reason of [the Trustee’s]
breach of duty.”
Following a trial on Lamesa’s claim, the bankruptcy court concluded that,
contrary to Liberty Mutual’s argument, Lamesa’s suit was not time-barred. The
court further held that the Trustee’s gross negligence caused damages to the
bankruptcy estate in the amount of $112,247.66, and that Liberty Mutual was
liable for those damages as the Trustee’s surety. The court therefore ordered
Liberty Mutual to remit that amount to the bankruptcy estate for distribution
to the estate’s creditors. Liberty Mutual appealed the bankruptcy court’s
judgment to the district court, which affirmed.
4
The Trustee eventually entered into a settlement agreement with Mrs. Schooler
whereby $12,000 was recovered for the bankruptcy estate.
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No. 12-10677
Liberty Mutual once again appeals, raising four challenges. First, it
contends that the bankruptcy court erred in concluding that Lamesa’s claim was
not time-barred. Second, it asserts that the bankruptcy court erred in finding
the Trustee grossly negligent in her administration of the Schoolers’ bankruptcy
estate. Third, it argues that the bankruptcy court erred in finding the Trustee
grossly negligent without having heard expert testimony concerning the
appropriate standard of care. Finally, it maintains that the bankruptcy court
erred in calculating the damages resulting from the Trustee’s alleged gross
negligence.5
II. STANDARD OF REVIEW
“We review a district court’s affirmance of a bankruptcy court decision by
applying the same standard of review to the bankruptcy court decision that the
district court applied.” In re Martinez, 564 F.3d 719, 725–26 (5th Cir. 2009).
“We thus generally review factual findings for clear error and conclusions of law
de novo.” In re OCA, Inc., 551 F.3d 359, 366 (5th Cir. 2008). “A finding of fact
is clearly erroneous only if on the entire evidence, the court is left with the
definite and firm conviction that a mistake has been committed.” In re Duncan,
562 F.3d 688, 694 (5th Cir. 2009) (per curiam) (internal quotation marks and
citation omitted). “We give deference to the bankruptcy court’s determinations
of witness credibility.” Id. at 695.
III. DISCUSSION
A. Liberty Mutual’s Statute of Limitations Defense
Liberty Mutual first contends that the bankruptcy court erred in
concluding that Lamesa’s claim against the bond was not time-barred. Section
5
We note with appreciation that, at our request, the Office of the General Counsel for
the Executive Office for United States Trustees filed a supplemental letter brief in this case.
We acknowledge the helpfulness of that brief, though we agree with Liberty Mutual’s
argument that the views of the Office for United States Trustees are not, as a matter of law,
entitled to deference in this case.
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No. 12-10677
322(d) of the Bankruptcy Code provides that “[a] proceeding on a trustee’s bond
may not be commenced after two years after the date on which such trustee was
discharged.” 11 U.S.C. § 322(d). Liberty Mutual does not dispute that this
limitations period is relevant, nor does it argue that Lamesa’s suit was not
brought within two years of the Trustee’s discharge.6 Instead, it maintains that
the bankruptcy court erred in failing to recognize that the limitations period for
suits against a surety, as prescribed by 11 U.S.C. § 322(d), purportedly is distinct
from the limitations period applicable to a claim brought directly against a
trustee.
As it did in the lower courts, Liberty Mutual argues that Lamesa’s suit
implicates two different statutes of limitations. The first limitations period at
issue is that contained in 11 U.S.C. § 322(d), which Liberty Mutual asserts
merely sets a maximum expiration period for suits against a trustee’s bond.
Additionally, because Liberty Mutual argues that federal law does not govern
the “underlying obligation of a trustee,” it contends that a court also must
consider the state-law limitations period associated with the underlying tort
claim against a trustee. In Liberty Mutual’s view, the distinction between these
two limitations periods is important because a surety on a bond may assert any
defense that the bond’s principal would have to the claim, including the
expiration of a shorter limitations period that would bar the claim were it
brought directly against the principal.
Stated differently, Liberty Mutual argues that Lamesa’s claim against the
bond was derivative to an underlying state-law negligence claim against the
Trustee directly. Liberty Mutual thus maintains that the viability of Lamesa’s
claim against the bond was dependent on the viability of a negligence claim
against the Trustee. In Liberty Mutual’s opinion, the two-year limitations
6
Indeed, as all parties acknowledge, the Trustee had not even been discharged when
Lamesa sued Liberty Mutual.
8
No. 12-10677
period set forth in 11 U.S.C. § 322(d) for suits against the bond merely
establishes an outer limit for such suits, which may be shortened by a state
limitations period associated with the underlying cause of action. Thus, if the
underlying claim against a trustee would be time-barred, the purported
derivative liability of a surety would not attach, and the surety could not be held
liable under the bond even if the claim were not time-barred under 11 U.S.C.
§ 322(d).
Liberty Mutual relies on these arguments to support its contention that
Lamesa’s claim was time-barred. In so doing, it cites to section 16.003(a) of the
Texas Civil Practice and Remedies Code, which provides that negligence suits
must be brought within two years of the accrual date of the cause of action. Tex.
Civ. Prac. & Rem. Code § 16.003; see also Askanase v. Fatjo, 130 F.3d 657, 668
(5th Cir. 1997).7 Because the instant adversary proceeding commenced on
November 2, 2009, Liberty Mutual asserts that section 16.003’s two-year
limitations period bars any claims that accrued against the Trustee before
November 2, 2007. Here, Liberty Mutual suggests that any alleged misconduct
by the Trustee occurred no later than 2005, meaning that section 16.003 would
have barred Lamesa’s claim had it been brought against the Trustee directly.
Given Liberty Mutual’s contention that a surety may assert any defense
available to the principal, it argues that Lamesa’s claim against it, as the
Trustee’s surety, likewise was time-barred.
7
As relevant, section 16.003(a) of the Texas Civil Practice and Remedies Code provides
that “a person must bring suit for trespass for injury to the estate or to the property of another,
conversion of personal property, taking or detaining the personal property of another, personal
injury, forcible entry and detainer, and forcible detainer not later than two years after the day
the cause of action accrues.” As we explained in Askanase, this statute provides the limitations
period for negligence actions in Texas. 130 F.3d at 668.
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No. 12-10677
(1) The Opinions of the Lower Courts
In analyzing Liberty Mutual’s arguments, the bankruptcy court accepted
that section 16.003 of the Texas Civil Practice and Remedies Code “presumably
applies in cases involving negligence or gross negligence” by a Chapter 7 trustee.
It thus framed the question presented as “whether section 322 of the Bankruptcy
Code preempts state law limitations” like those contained in section 16.003. In
resolving this issue, the court stated that it was bound by Oles Grain Co. v.
Safeco Insurance Co. of America, 221 B.R. 371, 375 (N.D. Tex. 1998). There, in
addressing arguments similar to those advanced by Liberty Mutual, the district
court had concluded that, in enacting 11 U.S.C. § 322(d), “Congress intended to
create a statute of limitations for actions on a bankruptcy trustee’s bond that
was to be the statute of limitations for such actions.” Oles Grain, 221 B.R. at
375. The Oles Grain court reached this conclusion after noting that there was
“no indication that Congress intended to set merely an outer limit, within which
states might give parties less time to bring actions on a trustee’s bond.” Id.Relying on this language, the bankruptcy court in the instant action found
11 U.S.C. § 322(d) controlling. It further observed, however, that the court in
Oles Grain also had “considered whether, under [Texas] law, a surety was
exonerated when the limitations period had run on a hypothetical action directly
against the principal.” The bankruptcy court explained that, in construing
Texas law, the Oles Grain court had “concluded that the Texas Supreme Court
would not adopt a strict rule that exonerated a surety if limitations had run
against the principal.”
Notwithstanding its repeated references to Texas law, the bankruptcy
court’s opinion included a lengthy footnote questioning the applicability of state
law in cases concerning a Chapter 7 trustee’s surety bond. In particular, the
court explained:
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No. 12-10677
This case concerns the liability of a bonding company under a bond
issued pursuant to section 322 of the Bankruptcy Code “in favor of
the United States.” As a condition of serving as a case trustee in a
bankruptcy case, the appointed trustee is required to obtain such a
bond. The United States trustee selects the trustee and determines
the amount and sufficiency of the bond. . . . And, as discussed above,
the Code provides that an action on the bond may not be commenced
after two years after the date on which such trustee was discharged.
[11 U.S.C.] § 322(d). This is a decidedly federal case.
The bankruptcy court further noted that the Oles Grain court had expressed
similar sentiments. There, the district court had explained that, “[i]n one
instance, the Fifth Circuit found that where a bond is issued pursuant to a
federal statute, federal law controls the scope of liability on a bond.” Oles Grain,
221 B.R. at 376 n.8 (citing Transamerica Ins. Co. v. Red Top Metal, Inc., 384
F.2d 752, 754 (5th Cir. 1967), overruled on other grounds by F.D. Rich Co. v.
United States ex rel. Indus. Lumber Co., 417 U.S. 116, 126–27 & n.12 (1974)).
The Oles Grain court opined that, just as in Transamerica, “[p]erhaps federal
law should also govern the extent to which a surety’s liability depends [on a]
trustee’s liability for bonds issued pursuant to 11 U.S.C. § 322.” Id.Regardless of this aside, the bankruptcy court rested its decision on the
conclusion that Oles Grain dictated that 11 U.S.C. § 322(d) was the controlling
statute of limitations in this case. The court therefore held that Lamesa’s action
was not time-barred. On appeal, the district court affirmed, concluding that the
bankruptcy court properly relied on Oles Grain, and that “[t]he requirement of
the bond is set by federal statute and that federal statute supplies the
limitations period for claims made on that bond.” It thus rejected Liberty
Mutual’s argument that section 322(d) did not supply the dispositive limitations
period in this case.
In this court, Liberty Mutual continues to argue that Lamesa’s claim was
time-barred under section 16.003 of the Texas Civil Practice and Remedies Code.
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No. 12-10677
Lamesa, on the other hand, maintains that 11 U.S.C. § 322(d) is the only statute
of limitations relevant to this case. Despite the force with which Liberty Mutual
continues to advance its argument, we reject it, for as we explain below, it is
based upon a fundamental misunderstanding of the nature of a Chapter 7
trustee’s surety bond. Under 11 U.S.C. § 322(d), a proceeding on a trustee’s bond
must be commenced within two years of the trustee’s discharge. This provision
establishes the only limitations period applicable to Lamesa’s claim. Because it
is undisputed that Lamesa commenced its action within the time prescribed by
section 322(d), we agree with the bankruptcy and district courts that Lamesa’s
claim was not time-barred, though we resolve the question somewhat differently
than did either of the lower courts.
(2) The General Statutory Framework Surrounding Federal Bonds
Although we ultimately conclude that the limitations period in 11 U.S.C.
§ 322(d) is controlling, our rationale for doing so depends upon our first placing
the provision in its larger context. Most broadly, federal law generally governs
all federal bonds. See 31 U.S.C. §§ 9301–9309. Of particular relevance, 31
U.S.C. § 9304 provides that when a surety bond is permitted or required by
federal law, the bond must be issued by a surety that satisfies certain criteria,
and it must “be approved by the official of the [g]overnment required to approve
or accept the bond.” 31 U.S.C. § 9304(a), (b). Pursuant to 31 U.S.C. § 9307(a)(1),
“[a] surety corporation providing a surety bond under section 9304 . . . may be
sued in a court of the United States having jurisdiction of civil actions on surety
bonds.” Further, “[i]n a proceeding against a surety corporation providing a
surety bond under section 9304 . . . , the corporation may not deny its power to
provide a surety bond or to assume liability.” Id. § 9307(b).
(3) The Bond Required by 11 U.S.C. § 322Within the specific context of bankruptcy law, since the enactment of the
Bankruptcy Act of 1898, federal law has required bankruptcy trustees to obtain
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No. 12-10677
surety bonds issued in the name of the United States, securing the trustees’
“faithful performance” of their official duties. See Bankruptcy Act of 1898, ch.
541, § 50(b), 30 Stat. 544, 558 (codified at 11 U.S.C. § 78) (repealed 1978);
Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, § 322(a), 92 Stat. 2549(codified as amended at 11 U.S.C. § 322). As already noted, this requirement
currently is codified at 11 U.S.C. § 322(a), which provides that before a trustee
may engage in any official duties, he or she must “file[] with the court a bond in
favor of the United States conditioned on the faithful performance of such official
duties.” As this statutory language expressly reflects, bonds such as
these—sometimes referred to as “faithful performance bonds”—are “given by
federal officers to ensure their faithful performance of their federal duties.” Int’l
Ass’n of Machinists, AFL-CIO v. Cent. Airlines, Inc., 372 U.S. 682, 693 n.17
(1963); see also Bedenbaugh v. Nat’l Surety Corp., 227 F.2d 102, 103–04 (5th Cir.
1955).
Subparts (c) and (d) of section 322 concern liability under the bond for
breach of those duties. First, 11 U.S.C. § 322(c) states that “[a] trustee is not
liable personally or on such trustee’s bond in favor of the United States for any
penalty or forfeiture incurred by the debtor.” This provision thus implicitly
recognizes two distinct forms of Chapter 7 trustee liability: A trustee may be
liable personally, or he or she may be liable on the bond. Section 322(c) creates
a limited exception to both types of liability, however, by providing that the
trustee is not liable for any penalty or forfeiture incurred by the debtor. 11
U.S.C. § 322(c).
Moreover, as previously noted, section 322(d) establishes the limitations
period for suits against a trustee’s bond. In particular, the statute provides that
“[a] proceeding on a trustee’s bond may not be commenced after two years after
the date on which such trustee was discharged.” Id. § 322(d). According to the
provision’s legislative history, section 322(d) “fixes a two year statute of
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limitations on any action on a trustee’s bond.” S. Rep. No. 95-989, at 37 (1978),
reprinted in 1978 U.S.C.C.A.N. 5787, 5823 (emphasis added). As other courts
have observed, there is no indication in the language of section 322(d) that the
statute merely sets an outer limitations period that might be shortened by state
statutes of limitations. See Oles Grain 221 B.R. at 375; In re Armstrong, 245
B.R. 123, 129 (Bankr. D. Neb. 1999) (rejecting the argument that a state statute
of limitations controlled in an action against a section 322(a) bond, after holding
that “[t]he claim asserted by the plaintiffs is inherently a federal claim arising
under federal law and therefore is subject only to the applicable federal statute
of limitations”).
(4) Claims on a Trustee’s 11 U.S.C. § 322 Bond
Of course, the terms of the bond itself also are integral to understanding
liability issues surrounding a trustee’s bond. In the bond currently at issue,
Liberty Mutual and the Trustee bound themselves “ jointly and severally” to the
United States. Pursuant to 11 U.S.C. § 322(a), Liberty Mutual agreed to pay on
the bond if the Trustee failed in the “faithful performance of [her] official duties.”
As previously noted, 31 U.S.C. § 9307(a)(1) generally authorizes claims to be
brought against a surety of a federal bond such as this one. In addition, the
Federal Rules of Bankruptcy Procedure provide greater specificity for parties
like Lamesa that advance claims within a bankruptcy proceeding against a
Chapter 7 trustee’s surety bond. Rule 2010 states that “[t]he United States
trustee may authorize a blanket bond in favor of the United States conditioned
on the faithful performance of official duties by the trustee or trustees.” Fed. R.
Bankr. P. 2010(a). The rule further provides that “[a] proceeding on the trustee’s
bond may be brought by any party in interest in the name of the United States
for the use of the entity injured by the breach of the condition.” Fed. R. Bankr.
P. 2010(b).
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No. 12-10677
(5) The Timeliness of Lamesa’s Claim
With these background principles in mind, we have no difficulty affirming
the bankruptcy court’s conclusion that Lamesa timely filed its claim, though we
approach the question differently than did the lower courts. As the foregoing
discussion makes plain, any reliance on Texas law by Liberty Mutual is
unfounded. In this case, Liberty Mutual issued the Trustee’s surety bond
pursuant to federal law. See 11 U.S.C. § 322; 31 U.S.C. §§ 9301–9309.
Similarly, it was federal law, not state law, that authorized suit on the bond. 31
U.S.C. § 9307(a)(1); Fed. R. Bankr. P. 2010(b). Lamesa’s amended complaint
expressly stated that its adversary proceeding arose under 11 U.S.C. § 322(d)
and Rule 2010(b) of the Federal Rules of Bankruptcy Procedure. As previously
noted, the complaint also alleged that the Trustee “did not faithfully perform
[her] duties” and, consequently, that she “breached the condition of [Liberty
Mutual’s] blanket bond.” Accordingly, the amended complaint charged that
Liberty Mutual was obligated on the bond for the damages caused by the
Trustee’s breach. Thus, as the bankruptcy court stated, “[t]his is a decidedly
federal case.”
Indeed, given the robust statutory framework surrounding federal bonds,
courts have long recognized that, as a general matter, federal law governs
disputes concerning federal bonds. In Transamerica, for example, we considered
whether a surety providing a bond under the Miller Act was liable for attorneys’
fees. 384 F.2d at 753. Because the Act was silent on the issue, the surety had
argued that state law controlled of its own force. Id. at 754. We rejected that
argument, however, concluding that the question was controlled by federal law.
Id. In reaching that conclusion, we explained that the rights protected by the
Miller Act bond did “not originate in the common law or in Texas statutes.” Id.Instead, those rights derived “from a congressional statute providing for a
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No. 12-10677
payment bond giving protection to all persons supplying labor and materials on
a government contract.” Id. (internal quotations marks omitted). Like the claim
at issue here, we explained that a Miller Act claim “is a federally created cause
of action; it must be brought in the name of the United States; and Congress has
vested federal courts with exclusive jurisdiction over all suits to enforce the
action.” Id. We thus held that we merely were tasked with “construing a federal
statute and the bond issued in compliance with the statute.” Id.Admittedly, as Liberty Mutual argues, in Transamerica we ultimately did
rely on state law to determine the surety’s liability for attorneys’ fees. Id. We
did so, however, only after noting that such action was necessary “to fill the
hiatus in the statute.” Id. at 756. We further emphasized “that state law
‘govern[ed]’ only through incorporation into federal law, not through its own
force.” Id. at 755. In any event, seven years later, the F.D. Rich Court rejected
this aspect of our approach. 417 U.S. at 127. There, the Supreme Court noted
that, similarly to our approach in Transamerica, the Ninth Circuit had
“construed the [Miller] Act to require an award of attorneys’ fees where the
‘public policy’ of the State in which suit was brought allows for the award of fees
in similar contexts.” Id. at 126. The Supreme Court held this construction to be
erroneous. Id. at 127. In so doing, the Court stated:
The Miller Act provides a federal cause of action, and the scope of
the remedy as well as the substance of the rights created thereby is
a matter of federal not state law. Neither respondent nor the court
below offers any evidence of congressional intent to incorporate
state law to govern such an important element of Miller Act
litigation as liability for attorneys’ fees.
Id.Transamerica and F.D. Rich thus stand for the proposition that, at least
as to bonds issued pursuant to the Miller Act, federal law determines the scope
of liability on a federal bond. Other courts have extended this principle to
16
No. 12-10677
different federal bonds. In International Association of Machinists, for instance,
the Supreme Court, in discussing its earlier holding in American Surety Co. of
New York v. Schultz, 237 U.S. 159 (1915), explained that the American Surety
Court had held that “the construction of [a federal supersedeas] bond and the
extent of the surety company’s liability under it were said to be federal
questions.” 372 U.S. at 692–93; see also Bock v. Perkins, 139 U.S. 628, 630
(1891) (action against federal marshal, who was required by federal law to
obtain a surety bond “for the faithful performance of the duties of his office,” was
one “arising under the laws of the United States”); Feibelman v. Packard, 109
U.S. 421, 424 (1883) (suit against federal marshal for alleged breach of a
condition of marshal’s federally-mandated bond “was plainly upon the bond itself
and therefore arose directly under the provisions of an act of congress”).
To be sure, as Liberty Mutual points out, some of these cases have focused
primarily on jurisdictional issues surrounding the questions that were
presented. We underscore, however, that as with the bond required under the
Miller Act, the rights and obligations associated with a Chapter 7 trustee’s
surety bond do not originate in state statutes, but rather derive from federal law
and the bond issued in compliance therewith. See 11 U.S.C. § 322(a);
Transamerica, 384 F.2d at 754. As noted throughout this opinion, 11 U.S.C. §
322(a) expressly states that the bond is “conditioned on the faithful performance
of [a trustee’s] official duties.” Those duties—including, as is particularly
relevant here, the obligation to liquidate the estate’s assets and expeditiously
pay its creditors—are prescribed by federal law. See 11 U.S.C. § 704. Where
these duties have not been codified, the Supreme Court has defined them, as
well as the associated liability for breaches thereof, by resorting to federal
common law rather than state law. See Mosser v. Darrow, 341 U.S. 267, 271–72
(1951) (applying federal common law to determine a trustee’s liability for breach
of duty of loyalty); United States ex rel. Willoughby v. Howard, 302 U.S. 445, 450
17
No. 12-10677
(1938) (defining a bankruptcy trustee’s official duties as the fiduciary of an
estate by relying on federal common law). We too have applied federal common
law principles to define the scope of a bankruptcy trustee’s duties and liabilities.
See In re Smyth, 207 F.3d 758, 761–62 (5th Cir. 2000) (examining federal
common law to determine standard of care required of bankruptcy trustees);
accord In re Mailman Steam Carpet Cleaning Corp., 196 F.3d 1, 6–7 (1st Cir.
1999).
Given this comprehensive federal scheme governing the surety bonds of
bankruptcy trustees, we thus are of the view that our role is limited to
construing federal law and the terms of the bond issued in connection therewith.
Here, federal law makes plain the limitations period for claims against the
bond.8 See 11 U.S.C. § 322(d). There thus is no need to rely on Texas law, as
Liberty Mutual asks us to do. Indeed, were we to apply section 16.003 of the
Texas Civil Practice and Remedies Code as Liberty Mutual urges, we would
frustrate the purposes and objectives of Congress in enacting 11 U.S.C. § 322(d).
For the same reasons, we reject Liberty Mutual’s reliance on general principles
of surety law, the adoption of which—at least as framed by Liberty
8
As our discussion makes clear, we reject Liberty Mutual’s view that Congress has
enacted only “limited provisions relating to bonds.” Moreover, as we have highlighted,
Congress’s statutory scheme has been amplified by the pronouncements of federal
courts—most especially, of course, the Supreme Court—that have interpreted those bonds.
Thus, Liberty Mutual’s reliance on O’Melveny & Myers v. F.D.I.C., 512 U.S. 79 (1994) is
unavailing. There, “in a suit by the Federal Deposit Insurance Corporation as receiver of a
federally insured bank,” the Supreme Court held that state law, rather than federal law,
provided the “rule of decision governing tort liability of attorneys who provided services to the
bank.” O’Melveny & Myers v. F.D.I.C., 512 U.S. at 80–81, 89. In relying on O’Melveny &
Myers, however, Liberty Mutual neglects that, in contrast to this case, the cause of action there
arose under state common law—a fact the Court stressed as central to its holding. Id. at
83–84. The Court also made clear that if, as here, “an explicit federal statutory provision”
existed, “we of course would not contradict” it. Id. at 85.
18
No. 12-10677
Mutual—would require us to ignore the existing framework surrounding the
bonds of Chapter 7 trustees.9
Furthermore, the terms of the bond itself render unavailing Liberty
Mutual’s argument that its liability under the bond depends on the viability of
a claim against the Trustee. Liberty Mutual’s bond makes it “jointly and
severally” liable with the Trustee for her failure to faithfully perform her duties.
This means that each party may be sued independently, or, in other words, that
Liberty Mutual’s liability under the bond is direct rather than derivative. See
Minor v. Mechanics’ Bank of Alexandria, 26 U.S. 46, 73 (1828) (under a joint and
several faithful performance bond, “the plaintiff might have commen[ced] suit
against each of the obligors, severally, or a joint suit against them all”); Downer
v. U.S. Fid. & Guar. Co. of Md., 46 F.2d 733, 734 (3d Cir. 1931) (holding that the
surety of a joint and several bond has direct liability and may be sued
individually or collectively). Nothing in the bond conditions Liberty Mutual’s
liability upon the viability of a claim against the Trustee. Accordingly, the bond
itself permitted Lamesa to file claims directly against Liberty Mutual at any
time within the period set forth in 11 U.S.C. § 322(d).
Finally, even were this not so, Liberty Mutual’s argument that it merely
was derivatively liable and, by extension, that the claim was time-barred,
neglects that just as it was jointly and severally liable under the bond, so too was
the Trustee. Thus, the Trustee could have been sued on the bond for a breach
of the bond’s conditions at any time before the expiration of the limitations
period prescribed by 11 U.S.C. § 322(d). In other words, even assuming Liberty
9
In any event, although Liberty Mutual repeatedly suggests that the surety may assert
any defense that the principal may have asserted, we note as an aside that a leading
commentator suggests that “the weight of authority maintains that the surety may not plead
the running of the statute of limitations against the principal obligor.” 23 Williston on
Contracts § 61:7 (4th ed. 2013).
19
No. 12-10677
Mutual were subject to derivative liability only (which we have rejected), a suit
directly against the Trustee on the bond would still have been viable under
section 322(d) when Lamesa filed its claim against Liberty Mutual.
This conclusion is supported first by section 322’s text. As we have noted,
section 322(c) establishes that a trustee may be held “liable personally or on such
trustee’s bond,” though the statute exempts the trustee from liability “for any
penalty or forfeiture incurred by the debtor.” 11 U.S.C. § 322(c) (emphasis
added). The construction of this statute makes plain that a trustee may be sued
personally or on the bond. Similarly, section 322(d), which prescribes the
limitations period for suits against the bond, refers to “[a] proceeding on a
trustee’s bond.” Id. § 322(d). This provision therefore is not limited in its
application only to proceedings against the surety, but rather also contemplates
suits on the bond against the trustee. Id.; see also Fed. R. Bankr. P. 2010(b) (“A
proceeding on the trustee’s bond may be brought by any party in interest in the
name of the United States for the use of the entity injured by the breach of the
condition.” (emphasis added)).
Our conclusion that the Trustee could have been sued directly on the bond
until expiration of the limitations period in section 322(d) also is consistent with
Supreme Court precedent. In Willoughby, for example, the Court considered a
claim brought against a surety and a former bankruptcy trustee. 302 U.S. at446–48. As here, the case involved liability under a faithful performance bond,
issued under the predecessor statute to section 322. Id. at 447. In discussing
the facts, the Court made clear that both the surety and the former trustee had
been sued directly on the bond. See id. at 447–48 (noting that three actions were
brought “in the name of the United States against [the former trustee] and the
casualty company”); id. at 448 (“[R]ecovery was sought on each bond on the
ground that its condition had been broken by [the former trustee’s] failing to
perform his official duties as trustee or receiver.”); Br. of Pet’rs at 5, Willoughby,
20
No. 12-10677
1937 WL 40857 (No. 30) (explaining that suit was brought against the former
trustee “upon his official bonds” and against the casualty company “as surety
upon . . . said official bonds”). After generally discussing a trustee’s duties, as
well as the particular breach that had been alleged, the Willoughby Court
explained that if the trustee, in fact, had failed in performing his official duties,
both “he and his surety are liable on the bonds.” Id. at 454 (emphasis added).
Ultimately, the Court remanded the case for reconsideration in light of its
opinion. Id.; see also United States ex rel. Wilhelm v. Chain, 300 U.S. 31, 32–33
(1937) (concerning action “on the bond” against bank, which had been designated
as an authorized depository for funds of bankruptcy estates, and the bank’s
sureties, all of which were jointly and severally liable on the bank’s faithful
performance bond).
These cases, along with the text of section 322, make clear that trustees
may be held directly liable on the bond. The statute of limitations for such suits
is supplied by section 322(d). Thus, even were we to assume that Liberty
Mutual’s liability merely was derivative to the Trustee’s liability, because
Lamesa’s claim would have been timely filed against the Trustee, it likewise was
timely filed against Liberty Mutual.
In sum, we hold for these myriad reasons that the controlling limitations
period in this case is provided by 11 U.S.C. § 322(d). Liberty Mutual does not
contest that Lamesa’s claim was timely under that provision. Accordingly, we
affirm the bankruptcy court’s conclusion that Lamesa’s suit was not time-barred.
B. The Trustee’s Gross Negligence
Turning to the merits, Liberty Mutual contends that the bankruptcy court
clearly erred in concluding that the Trustee was grossly negligent. In effect,
Liberty Mutual maintains that a trustee in circumstances similar to those faced
by the Trustee would not have foreseen that Mrs. Schooler might misappropriate
the assets of the probate estate over which she served as executrix. It suggests
21
No. 12-10677
that the Trustee simply made “a judgment call,” based on her experience in
similar matters, regarding administration of the Gremminger probate estate.
Relatedly, Liberty Mutual argues that the bankruptcy court erred in
making a finding as to the Trustee’s gross negligence without first having heard
expert testimony regarding whether the Trustee’s conduct had deviated from the
standard of care. According to Liberty Mutual, expert testimony was required
because the proper conduct of a bankruptcy trustee in a given situation is a
matter of professional judgment. We address each of these contentions in turn.
(1) The Standard of Care Required of Bankruptcy Trustees
In our review of a bench trial, a lower “court’s rulings on negligence, cause,
and proximate cause are findings of fact, while its determination of the existence
of a legal duty is a question of law.” Theriot v. United States, 245 F.3d 388,
394–95 (5th Cir. 1998) (per curiam) (internal quotation marks and citation
omitted). As the bankruptcy court explained, a bankruptcy trustee is obligated
to “collect and reduce to money the property of the estate for which such trustee
serves, and close such estate as expeditiously as is compatible with the best
interests of parties in interest.” 11 U.S.C. § 704(a)(1). Although the Bankruptcy
Code is silent as to the standard of care to which trustees are to be held in
fulfilling these and similar duties, we previously have held that bankruptcy
trustees are liable only for gross negligence. Smyth, 207 F.3d at 762.10 Gross
10
In Smyth, we discussed the morass surrounding the standard of care required of
bankruptcy trustees. 207 F.3d at 761–62. In particular, we noted that although the Supreme
Court had held in Mosser that trustees could be held personally liable for “willfully and
deliberately” breaching their fiduciary duties, the case “did not address a trustee’s personal
liability with regard to negligent actions.” Id. at 761 (citing Mosser, 341 U.S. at 272–73). We
further explained that, following Mosser, a circuit split had emerged whereby some courts had
concluded that a bankruptcy trustee could not be held personally liable unless he acted
willfully and deliberately, whereas others had concluded that a trustee could be held liable for
mere negligence. Id. After considering this authority and related policy
considerations—particularly that “too little protection might expose a trustee to excessive
personal liability and dissuade capable people from becoming trustees, while too much
protection would jeopardize the goal of responsible estate management”—we determined that
22
No. 12-10677
negligence “is an act or omission respecting legal duty of an aggravated
character as distinguished from a mere failure to exercise ordinary care. It
amounts to indifference to present legal duty and to utter forgetfulness of legal
obligations so far as other persons may be affected.” Id. (internal quotation
marks and citation omitted).
(2) Evidence of the Trustee’s Gross Negligence
As previously noted, Liberty Mutual argues that the Trustee was justified
in relying on Mrs. Schooler voluntarily to turn over the assets from the
Gremminger estate. It maintains that, because it was not foreseeable to the
Trustee that Mrs. Schooler would dissipate the inherited assets, the Trustee’s
bankruptcy trustees should be held to a gross negligence standard. Id. at 761–62.
Relying on Smyth, both courts below analyzed the Trustee’s conduct against a gross
negligence standard, and neither party has challenged that approach in this court. However,
the Office for United States Trustees (“the government”) takes issue with our conclusion in
Smyth, asserting that the opinion overlooked contrary, binding authority, and that a “gross
negligence standard is not easily reconciled with the Supreme Court decisions holding that
trustees, generally, and bankruptcy trustees, specifically, may be sued for simple negligence.”
In support of this statement, the government points, inter alia, to Willoughby, which involved
a suit against a bankruptcy trustee’s faithful performance bond and an allegation that the
trustee had been “negligent in the performance of his official duties.” 302 U.S. at 448. In
analyzing the issue, the Willoughby Court explained that “[a]s the exercise of ordinary care in
making and maintaining deposits [for the estate] . . . was part of [the trustee’s] duties, he and
his surety are liable on the bonds if he failed in this respect.” Id. at 454; see also id. at 450 (“By
the common law, every trustee or receiver of an estate has the duty of exercising reasonable
care in the custody of the fiduciary estate . . . .” (footnote omitted)); Howard v. United States
ex rel. Stewart, 184 U.S. 676, 693 (1902) (suit may be brought on a faithful performance bond
for the “negligence and malconduct” of the covered officers (internal quotations marks and
citation omitted)); United States v. Thomas, 82 U.S. 337, 342–43 (1872) (explaining, in case
involving an official bond, that trustees are “bound to exercise the same care and solicitude
with regard to the trust property which they would exercise with regard to their own”).
According to the government, these cases support the proposition that a bankruptcy trustee
may be sued for mere negligence.
As we did in Smyth, we again acknowledge the tension in this area of the law, and we
note that the government has advanced a persuasive argument challenging our holding in
Smyth. Nevertheless, because it is well-settled that absent an intervening change in the law,
one panel of this court may not unilaterally overrule or disregard another panel’s decision, we
recognize that we are bound by Smyth. See In re Pilgrim’s Pride Corp., 690 F.3d 650, 663 (5th
Cir. 2012). This presents no difficulty here, however, since we agree with the bankruptcy and
district courts that the evidence satisfies even the gross negligence standard adopted in Smyth.
23
No. 12-10677
conduct cannot be said to have been grossly negligent. It also suggests that, by
the time the Trustee reasonably should have been concerned about Mrs.
Schooler’s conduct, the assets already were gone, meaning that the Trustee’s
inaction was not the cause of the bankruptcy estate’s harm. As the bankruptcy
court concluded, however, these contentions of Liberty Mutual are belied by the
record.
Contrary to Liberty Mutual’s arguments, and as the bankruptcy court
found, the Trustee had ample evidence indicating that it was necessary for her
to more aggressively seek control over the assets in the Gremminger estate.
First, the Schoolers’ bankruptcy proceeding initially began as a no-asset case, so
Gremminger’s death signaled the possibility of an unanticipated significant
increase in the funds creditors potentially could recover from the Schoolers.
Second, the Trustee received numerous letters from Lamesa’s counsel in which
Lamesa expressed genuine and justified concern that the Schoolers did not
intend voluntarily to turn over Mrs. Schooler’s inherited assets, and in which
Lamesa urged the Trustee to intervene in the Gremminger probate proceeding.11
Third, despite the Schoolers’ intransigence in providing to the Trustee and the
bankruptcy estate an accounting of assets Mrs. Schooler received from the
Gremminger estate, Mrs. Schooler moved almost immediately to probate her
deceased father’s will. Fourth, after this was discovered and inquired into, the
Schoolers refused to acknowledge an obligation to turn over assets to the
bankruptcy estate, and instead advanced various novel legal theories to justify
their failure to do so. Finally, as early as December 2001, the Trustee herself
expressed in letters to the Schoolers’ attorneys that she was concerned that Mrs.
Schooler was not the best person to administer the Gremminger estate,
11
Liberty Mutual suggests that the desires of a creditor do not necessarily reflect the
proper course of action a trustee should pursue. Although true, Lamesa’s repeated inquiries
and expressions of concern undermine Liberty Mutual’s contention that Mrs. Schooler’s
dissipation of the Gremminger assets was unforeseeable to the Trustee.
24
No. 12-10677
presumably owing to the ease with which Mrs. Schooler could access the estate’s
assets.
Notwithstanding these many warning signs, the Trustee took no action in
the probate proceeding to have an alternate executor appointed, and she
inordinately delayed pursuing any action in the bankruptcy court to recover
assets from the Gremminger estate to which the bankruptcy estate legally was
entitled. Moreover, the Trustee neglected to provide a written response to any
of Lamesa’s inquiries, and she made no formal demand, prior to 2005, that the
Schoolers turn over the assets they received from the Gremminger estate. All
the while, the Trustee filed in the Schoolers’ bankruptcy proceeding reports
inaccurately reflecting that she had assumed at least constructive possession of
assets from the Gremminger estate.
Although Liberty Mutual asserts that it was reasonable in these
circumstances for the Trustee to rely on the Schoolers voluntarily to turn over
the inherited assets, “it should come as no surprise to an experienced bankruptcy
trustee[] that some debtors are undependable or dishonest or both.” In re
Rollins, 175 B.R. 69, 74 (Bankr. E.D. Cal. 1994). When the Schoolers did not
promptly acknowledge and fulfill their obligation to turn over the assets to the
bankruptcy estate, the Trustee should have pursued other options for seizing the
inheritance. See id. Under the circumstances presented here, the Trustee’s
failure to do so demonstrated an indifference on her part to fulfilling her duties
to “collect and reduce to money the property of the estate for which [she]
serve[d], and close such estate as expeditiously as [was] compatible with the best
interests of parties in interest.” 11 U.S.C. § 704(a)(1).
Furthermore, the consequences of the Trustee’s failure to recover the
assets from the Gremminger estate were clear: The inherited assets easily were
liquidated, as evidenced by Mrs. Schooler’s eventual dissipation of the related
funds. As a result of the Trustee’s failure to act in the face of this risk, the
25
No. 12-10677
bankruptcy estate lost a substantial portion of its assets. Thus, the Trustee’s
conduct amounts to aggravated neglect of her legal duties and obligations, and
indifference to the effect of her actions on the estate’s creditors. See Smyth, 207
F.3d at 762. Accordingly, we conclude that the bankruptcy court’s finding that
the Trustee was grossly negligent in performing her duties was not clearly
erroneous.
(3) Expert Testimony
On a related point, Liberty Mutual submits that the absence of any expert
testimony as to the standard of care and, by extension, the propriety of the
Trustee’s decision not to act in connection with Mrs. Schooler’s administration
of the Gremminger estate precluded entry of judgment against it as the Trustee’s
surety. Pursuant to Federal Rule of Bankruptcy Procedure 9017, the Federal
Rules of Evidence apply to cases brought under the Bankruptcy Code. The
Federal Rules of Evidence do not explicitly provide a standard for determining
when expert testimony is required to establish whether a trustee’s conduct
deviated from the standard of care. However, under Federal Rule of Evidence
702, expert testimony may be introduced only when it “will help the trier of fact
to understand the evidence or to determine a fact in issue.” Fed. R. Evid. 702(a).
“Whether the situation is a proper one for the use of expert testimony is to be
determined on the basis of assisting the trier.” Fed. R. Evid. 702 advisory
committee’s note. “There is no more certain test for determining when experts
may be used than the common sense inquiry whether the untrained layman
would be qualified to determine intelligently and to the best possible degree the
particular issue without enlightenment from those having a specialized
understanding of the subject involved in the dispute.” Id. (internal quotation
marks and citation omitted).
Finders of fact “are supposed to reach their conclusions on the basis of
common sense, common understanding and fair beliefs, grounded on evidence
26
No. 12-10677
consisting of direct statements by witnesses or proof of circumstances from
which inferences can fairly be drawn.” Huffman v. Union Pac. R.R., 675 F.3d
412, 419 (5th Cir. 2012) (internal quotation marks and citation omitted).
Accordingly, we have explained that, as a general rule, “[e]xpert testimony is not
needed in many if not most cases.” Id. Moreover, although expert testimony
may be “necessary in a professional negligence case to establish the standard of
care for the industry,” an exception applies in “instances of negligence that are
a matter of common knowledge comprehensible to laymen.” In re Fabbro, 411
B.R. 407, 425 n.54 (Bankr. D. Utah 2009); see also Salem v. U.S. Lines Co., 370
U.S. 31, 35 (1962) (expert testimony unnecessary where trier of fact is “as
capable of comprehending the primary facts and of drawing correct conclusions
from them as are witnesses possessed of special or peculiar training, experience,
or observation in respect of the subject under investigation” (internal quotation
marks and citation omitted)); Huffman, 675 F.3d at 419 (expert testimony only
required “when conclusions as to the evidence cannot be reached based on the
everyday experiences” of the fact finder).
Although Liberty Mutual contends that expert testimony was required in
this case, Lamesa suggests that inasmuch as the Trustee failed to act in the face
of obvious danger posed by Mrs. Schooler’s ready access to the bankruptcy
estate’s assets, and in the face of repeated warnings and inquiries by a concerned
creditor, a layperson could discern that the standard of care was not met in this
case.
We agree with Lamesa that, under the facts of this case, expert testimony
was not required to establish that the Trustee breached her duties. While the
precise course of action the Trustee should have taken may be subject to
reasonable debate, it requires no technical or expert knowledge to recognize that
she affirmatively should have undertaken some form of action to acquire for the
bankruptcy estate the assets to which it was entitled. As the bankruptcy court
27
No. 12-10677
explained, by doing nothing, the Trustee ignored basic human nature: Common
knowledge would suggest that the Schoolers, having filed for bankruptcy because
of financial difficulties, would be tempted to dissipate the assets Mrs. Schooler
inherited from the Gremminger estate, especially when no demand was made of
them by the Trustee to turn over the assets. The obviousness of the Trustee’s
gross neglect in this case is underscored by Lamesa’s repeated and urgent
requests that the Trustee act; the Schoolers’ indications that they intended to
use assets from the Gremminger estate, and possibly intended to disclaim the
inheritance; the Trustee’s own admission that she was concerned about Mrs.
Schooler serving as executrix; and the Trustee’s inaccurate reporting that she
already had obtained possession of the assets from the Gremminger estate. In
the face of this and other related evidence, expert testimony was not necessary
to establish that the Trustee failed to meet her standard of care.12
C. Damages
Lastly, Liberty Mutual argues that the bankruptcy court clearly erred in
awarding damages of $112,247.66 to the bankruptcy estate. It contends that the
Trustee’s testimony established that, even absent the Schoolers’
misappropriation of the inherited assets, only a net of approximately $85,000
could have been recovered by the bankruptcy estate. Given the Trustee’s
testimony that the legal costs of obtaining those funds from the Schoolers would
have totaled between $20,000 and $25,000, Liberty Mutual suggests that the
court’s judgment should be reduced to $60,000, or remanded.
12
Liberty Mutual also briefly suggests that expert testimony was needed to establish
that the Trustee’s conduct caused the alleged damages. For the same reasons that expert
testimony was not needed in this case to establish whether the Trustee’s conduct deviated from
the standard of care, such testimony was not required to establish that the Trustee’s
misconduct caused the bankruptcy estate’s damages. See Salem, 370 U.S. at 35.
28
No. 12-10677
In advancing this argument, Liberty Mutual overlooks that the
bankruptcy court simply rejected the Trustee’s estimation of the amount that
could have been recovered from the Gremminger estate absent her gross
negligence. As the Federal Rules of Bankruptcy Procedure counsel, we afford
great deference to the bankruptcy court’s assessments of witness credibility.
Fed. R. Bankr. P. 8013; see also Matter of Webb, 954 F.2d 1102, 1106 (5th Cir.
1992). Additionally, we note that the record supports the bankruptcy court’s
conclusion that damages to the estate totaled at least $112,247.66. In particular,
the Trustee’s own reports filed in the Schoolers’ bankruptcy proceeding indicate
that Mrs. Schooler received $45,288.21 from the sale of her deceased father’s
house and $67,959.45 in cash and other assets, for a total of $113,247.66.
Because the Trustee’s gross negligence caused damages of at least $112,247.66,
Liberty Mutual has not demonstrated that the court’s damage award was clearly
erroneous.13
IV. CONCLUSION
For the foregoing reasons, the judgment of the district court, affirming the
bankruptcy court, is AFFIRMED.
13
Liberty Mutual also argues that the bankruptcy court’s damages calculation was
clearly erroneous inasmuch as it failed to credit Liberty Mutual for $12,000 recovered by the
bankruptcy estate under the settlement agreement eventually reached with Mrs. Schooler.
We reject this argument because Liberty Mutual’s motion for credit against the judgment was
abated by the bankruptcy court and, as of the time of this appeal, still awaits resolution.
Accordingly, the issue is not properly before us.
29