Law Office of Rogelio Solis v. Curtis ( 2023 )

Case: 23-40125 Document: 00516922797 Page: 1 Date Filed: 10/06/2023
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
____________ FILED
October 6, 2023
No. 23-40125 Lyle W. Cayce
____________ Clerk
Law Office of Rogelio Solis PLLC; Ana Gomez,
Appellants,
versus
Catherine Stone Curtis,
Appellee.
______________________________
Appeal from the United States District Court
for the Southern District of Texas
USDC Nos. 7:21-AP-7002, 7:22-CV-418
______________________________
Before Graves, Higginson, and Ho, Circuit Judges.
Stephen A. Higginson, Circuit Judge:
In this direct appeal from the bankruptcy court, we are tasked with
answering whether the pre-petition payment of insurance proceeds to a tort
claimant creditor of a debtor, made in accordance with state insurance law,
constitutes a “transfer of an interest of the debtor in property” under 11
U.S.C. § 547. The bankruptcy court found that, in the circumstances present
here, such payment could be a transfer of the debtor’s property. We
AFFIRM.
Case: 23-40125 Document: 00516922797 Page: 2 Date Filed: 10/06/2023
No. 23-40125
I.
This bankruptcy case arises out of a terrible tragedy. As alleged in the
complaint in the underlying adversary proceeding, on December 19, 2020, a
tractor-trailer owned by Josiah’s Trucking LLC (the “Debtor”) crashed into
a vehicle (the “Accident”) in which Carlos Tellez, Jr. and Anna Isabel Ortiz
were riding, ultimately resulting in their deaths. Ortiz was survived by her
mother, Ana Gomez, and father, Reyes Adrian Ortiz (collectively, the “Ortiz
Family”). Tellez was survived by Sonia Tellez, Carlos Tellez, Rose Mary
Rodriquez, and I. Tellez (collectively, the “Tellez Family”).
At the time of the Accident, the Debtor was insured by Brooklyn
Specialty Insurance Company RRG, Inc. (“Brooklyn Specialty”) for a policy
limit of $1,000,000. Soon after the Accident, both families engaged counsel
and began the insurance claims process. Gomez employed the Law Firm of
Rogelio Solis, PLLC (the “Solis Law Firm”), and the Tellez family engaged
Escobar & Cardenas, L.L.P. In the weeks following the Accident, the Tellez
Family engaged in discussions with Brooklyn Specialty and ultimately filed
suit against the Debtor, the Debtor’s owner, and the driver. In contrast,
Gomez, through the Solis Law Firm, made a Stowers demand on Brooklyn
Specialty for the limits of the policy.1
On January 12, 2021, Brooklyn Specialty transferred $1,000,000 (the
“Policy Proceeds”) to the Solis Law Firm’s Interest on Lawyers’ Trust
Account (“IOLTA”) in settlement of Gomez’s claims. That same day,
_____________________
1
Under G.A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex.
Comm’n. App. 1929, holding approved), Texas law imposes a “basic tort duty,” known as
the Stowers doctrine, under which insurers, “when faced with a settlement offer within
policy limits, must accept the offer . . . when an ordinarily prudent insurer would do so in
light of the reasonably apparent likelihood and degree of that insured's potential exposure
to a valid judgment in the suit in excess of policy limits.” Travelers Indem. Co. v. Citgo
Petroleum Corp., 166 F.3d 761, 764 (5th Cir. 1999) (citation omitted).
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Brooklyn Specialty informed the Tellez Family that the policy limit had been
exhausted. Then, on January 18, 2021, two checks were issued: one for
$680,000 to Gomez for settlement of her claims, and the other for $320,000
to the Solis Law Firm for attorneys’ fees.
On January 24, the Tellez Family, who received nothing from the
Policy Proceeds, commenced an involuntary bankruptcy proceeding against
the Debtor. On February 9, Appellee Catherine S. Curtis, then the Interim
Trustee (now, the “Trustee”), brought an adversary proceeding against
Appellants Gomez and the Solis Law Firm seeking to avoid and recover the
transfer of the Policy Proceeds pursuant to 11 U.S.C. §§ 547 and 550 of the
Bankruptcy Code (the “Complaint”).2 Appellants moved to dismiss on the
ground that the Trustee failed to allege a transfer of the Debtor’s property
because the Debtor had neither legal title in nor a contractual right to receive
the Policy Proceeds, and otherwise lacked control over their disbursement.3
The bankruptcy court denied the motion. The bankruptcy court first
found that the Complaint, which alleged over $8,000,000 in claims related
to the Accident against the $1,000,000 policy limit, satisfied the “limited
circumstances” set forth in Martinez v. OGA Charters, L.L.C. (In re OGA
Charters), 901 F.3d 599 (5th Cir. 2018), in which a Debtor may have an
equitable interest in the insurance proceeds such that they can be classified
as property of the estate. Then, the bankruptcy court considered whether the
pre-petition payment of the Policy Proceeds affected this equitable interest.
Relying on Begier v. IRS, 496 U.S. 53 (1990), the bankruptcy court found that
it did not.
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2
The Trustee filed the operative amended complaint on March 26, 2021.
3
Although Appellants raised three main arguments for dismissal, only one is
relevant as to this appeal.
3
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The district court subsequently certified the following question for
direct appeal to this court pursuant to 28 U.S.C. § 158(d)(2):
Whether the pre-petition payment of insurance proceeds to a tort
claimant creditor of a debtor constitutes a “transfer of an interest of
the debtor in property” under 11 U.S.C. § 547 when such payment is
made by an insurer of the debtor pursuant to a valid Stowers settlement
demand under Texas law.
II.
“When directly reviewing an order of the bankruptcy court, we apply
the same standard of review that would have been used by the district court.”
SeaQuest Diving, LP v. S&J Diving, Inc. (In re SeaQuest Diving, LP), 579 F.3d
411, 417 (5th Cir. 2009). Thus, “[w]e review conclusions of law and mixed
questions of law and fact de novo and review findings of fact for clear error.”
Dean v. Seidel (In re Dean), 18 F.4th 842, 844 (5th Cir. 2021) (citation
omitted).
On appeal, Appellants contend that the district court erred in
determining that the Debtor held an equitable property interest in the Policy
Proceeds. This is because, Appellants argue, the Debtor has neither a legal
nor equitable right to the proceeds under Texas law. But, critically,
Appellants fail to contend with In re OGA Charters, in which we held that
“[i]n the ‘limited circumstances,’ as here, where a siege of tort claimants
threaten the debtor’s estate over and above the policy limits, we classify the
proceeds as property of the estate.” 901 F.3d at 604. As we explained, “this
interest does not bestow upon the debtor a right to pocket the proceeds,” but
“[i]nstead . . . ‘serve[s] to reduce some claims and permit more extensive
distribution of available assets in the liquidation of the estate.’” Id. (quoting
Nat’l Union Fire Ins. Co. v. Titan Energy, Inc. (In re Titan Energy, Inc.), 837
F.2d 325, 329 (8th Cir. 1988)).
4
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Appellants do not dispute the bankruptcy court’s finding that the
factual allegations here fall under the “limited circumstances” addressed in
In re OGA Charters. As the bankruptcy court noted, the Complaint alleges
over $8,000,000 in claims against the Debtor’s estate arising from the
Accident, far beyond the $1,000,000 policy limit. Although the facts in In re
OGA Charters were more extreme, involving $400,000,000 in claims against
a $5,000,000 policy and more claimants overall, id. at 602, the present case
is still clearly one in which “the policy limit is insufficient to cover [the]
multitude of tort claims” faced by the estate. Id. at 603-04. Thus, the
bankruptcy court correctly concluded that, under binding precedent in In re
OGA Charters, the Policy Proceeds would be considered property of the
estate.
Appellants do not distinguish In re OGA Charters or otherwise explain
why it does not control this case. Instead, Appellants suggest that In re OGA
Charters must have been incorrectly decided because insureds have “no
right” to insurance proceeds under Texas law. “Under our well-recognized
rule of orderliness, however, a panel of this court is bound by circuit
precedent,” which clearly holds that insurance proceeds can, in the
circumstances alleged here, be considered property of the estate.4 Hidalgo
Cnty Emergency Serv. Found. v. Carranza (In re Hidalgo Cnty. Emergency Serv.
Found.), 962 F.3d 838, 841 (5th Cir. 2020).
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4
To this end, Appellants’ arguments that Texas law, not federal bankruptcy law,
controls are incorrect. In re OGA Charters similarly dealt with insurance proceeds governed
by Texas law and explicitly rejected Appellants’ argument that the Texas Supreme Court’s
decision in Texas Farmers Insurance Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994) dictates the
outcome of the case. See In re OGA Charters, 901 F.3d at 605 (explaining that, because
“categorizing the [insurance] proceeds as property of the estate does not involve any sort
of determination regarding the negligent-settlement liability of an insurer or the lack
thereof,” its holding was not “a ‘collateral attack’ on state law,” including Soriano).
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Granted, as the bankruptcy court recognized, In re OGA Charters
addressed the question of whether insurance proceeds were property of the
estate pursuant to § 541 of the Bankruptcy Code, not whether a transfer of
those proceeds could be avoided pursuant to § 547. That is because, in In re
OGA Charters, although the insurer had entered into settlements with some
of the claimants, the insurance proceeds had yet to be disbursed. 901 F.3d at
601. In contrast, here Brooklyn Specialty transferred the Policy Proceeds
fourteen days before the involuntary bankruptcy petition was filed, and two
checks totaling the Policy Proceeds were made out to Appellants eight days
before the involuntary petition was filed.
We find that this pre-petition payment of the Policy Proceeds does not
affect the Debtor’s equitable interest in them at the time the petition was
filed. Section 541 of the Bankruptcy code, which governs the creation of an
estate in bankruptcy and is at issue in In re OGA Charters, states that “such
estate is comprised of all . . . legal or equitable interests of the debtor in property
as of the commencement of the case.” § 541(a)(1) (emphasis added).
Relatedly, § 547 provides the means by which a trustee “may . . . avoid any
transfer of an interest of the debtor in property,” including those “made on or
within 90 days before the date of the filing of the petition,” if this transfer
meets certain statutory conditions.5 § 547(b) (emphasis added). Relevant
here, courts understand “an interest of the debtor in property” as used in
§ 547(b) to be coextensive with “interests of the debtor in property” as used
in § 541(a)(1). Begier, 496 U.S. at 59 n.3; see also Cullen Ctr. Bank & Trust v.
Hensley (In re Criswell), 102 F.3d 1411, 1416 (5th Cir. 1997).
As the Supreme Court explained in Begier, “[b]ecause the purpose of
the avoidance provision is to the preserve the property includable within the
_____________________
5
Appellants do not argue that these statutory conditions are not satisfactorily pled.
6
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bankruptcy estate . . . ‘property of the debtor’ subject to the preferential
transfer provision is best understood as that property that would have been
part of the estate had it not been transferred before the commencement of
bankruptcy proceedings.” 496 U.S. at 58. The Policy Proceeds would have
been property of the estate at the time the petition was filed if they had not
been transferred. Thus, for the purposes of the avoidance provision as stated
in Begier, the Policy Proceeds are the property of the estate. For the reasons
discussed above, the Complaint alleges facts falling under the “limited
circumstances” in which In re Charters, L.L.C states that insurance proceeds
are considered property of the estate.
Thus, we find that the bankruptcy court correctly found that the
trustee had properly alleged a transfer of the Debtor’s property as required
by § 547. We therefore AFFIRM.
7