Candace LaForce v. Terrie S. Owens

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 20-12537
Non-Argument Calendar
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D.C. Docket No. 1:19-cv-01086-KD-MU
Bkcy No. 15-bk-01883-JCO
In re: RAYMOND & ASSOCIATES, LLC,
Debtor.
_______________________________________________________________
CANDACE LAFORCE,
Plaintiff-Appellant,
versus
TERRIE S. OWENS,
Defendant-Appellee.
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Appeal from the United States District Court
for the Southern District of Alabama
________________________
(December 29, 2020)
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Before JORDAN, GRANT, and LUCK, Circuit Judges.
PER CURIAM:
Candace LaForce appeals the district court’s decision affirming the
bankruptcy court’s order sustaining the objections of Raymond & Associates, LLC’s
trustee to, and disallowing, her claim to settlement money from the British
Petroleum-Deepwater Horizon oil spill litigation that was paid to the bankrupt
company. Like the district court, we also affirm.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
This appeal involves three related cases: (1) Candace and Raymond
LaForce’s Alabama state court divorce1; (2) Raymond’s individual bankruptcy in
the Southern District of Alabama bankruptcy court; and (3) Raymond &
Associates’s bankruptcy, also in the Southern District of Alabama bankruptcy court.
Here’s a brief description of each case.
The divorce
In September 2011, Candace and Raymond began their divorce proceedings
in Alabama state court. In January 2016, the state court entered a divorce decree
awarding Candace twenty-five percent “of the common stock” in Raymond &
Associates. Raymond & Associates was a member-managed, Alabama limited
1
Because Candace and Raymond share the same last name, to avoid confusion we will use
their first names in this opinion.
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liability company that manufactured boats for personal and commercial use.
Raymond was the sole member and manager of the company.
The state court also awarded Candace forty percent of the “net claim”
Raymond & Associates had pending against BP related to the Deepwater Horizon
oil spill. In April 2016, the state court, in an amended divorce decree, described
Candace’s “net claim” this way:
If [the BP] claim is a corporate asset, which has been listed in the
Bankruptcy proceeding, then the Court does note that the husband shall
be awarded 60% of the net BP claim, after bankruptcy claims have been
adjudicated by the Bankruptcy Court, which might have priority
towards these BP claims. The wife shall be awarded the remaining
40%.
If this is a personal individual asset which is subject to the husband’s
individual bankruptcy creditors, the husband shall be awarded 60% of
the net asset after superior bankruptcy creditors have been adjudicated
by the bankruptcy court. The wife shall be awarded the remaining 40%.
Raymond’s individual bankruptcy
Meanwhile, in September 2014, Raymond filed for chapter 11 bankruptcy.
To continue their divorce proceedings, Candace requested and received relief from
the automatic stay imposed by Raymond’s individual bankruptcy.
Because of the ongoing divorce proceedings, in September 2017, the
bankruptcy court found that Raymond’s individual bankruptcy estate did not include
Candace’s equitable interest in the marital property. In re LaForce, 577 B.R. 908,
916 (Bankr. S.D. Ala. 2016). The bankruptcy court found that:
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When [Raymond] filed for divorce, equity converted [Raymond] from
the holder of legal title to the marital assets into a trustee of the marital
assets until the divorce could be finally resolved. Accordingly, this
Court finds that the filing of the divorce proceeding created a
constructive trust in the marital estate in favor of [Candace].
Id. at 914. Candace, as the beneficiary of an equitable interest in the marital
property, the bankruptcy court concluded, was entitled to a priority claim ahead of
Raymond’s individual creditors. Id. at 916 n.3.
Raymond & Associates’s company bankruptcy
In June 2015, while the divorce proceedings and Raymond’s individual
bankruptcy were still ongoing, Raymond & Associates also filed for chapter 11
bankruptcy. The company eventually converted its bankruptcy to a chapter 7
proceeding, and a trustee was appointed. Candace did not seek and did not obtain
relief from the automatic stay in Raymond & Associates’s bankruptcy.
Four things happened in the company bankruptcy relevant to this appeal. In
2017, Candace filed a proof of claim related to the company’s pending BP litigation.
In May 2019, the bankruptcy court approved Raymond & Associates’s $4.6 million
settlement with BP. Then, in June 2019, Candace amended her proof of claim to
$1,417,360.60, which was forty percent of the settlement (after deducting the
professional fees incurred in settling the claim). And in August and September 2019,
the trustee and the company’s other creditors objected to Candace’s amended claim.
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The trustee contended that Raymond & Associates’s assets, including the BP
settlement, were insufficient to pay the company’s secured creditors, so there was
nothing left to distribute to the members of the limited liability company. Candace
responded that her share of the BP settlement was marital property that was held in
a constructive trust for her benefit as a result of the divorce decree. Thus, she said,
her share of the BP settlement was not part of Raymond & Associates’s bankruptcy
estate and the company’s secured creditors were not entitled to it.
The bankruptcy court sustained the trustee’s objections and disallowed
Candace’s amended proof of claim. The bankruptcy court concluded that the
divorce decree did not make the BP settlement marital property that gave Candace
priority over the company’s secured creditors.
The plain language and terminology used in the Divorce Decree
acknowledges the superiority of [Raymond & Associates]’s bankruptcy
creditors. Hence, this Court does not interpret the Divorce Decree to
carve out corporate assets for the benefit of [Candace] in contravention
of the orderly disposition of [Raymond & Associates]’s assets in
accordance with the Bankruptcy Code.
Under Alabama law, the bankruptcy court explained, Raymond & Associates, as a
limited liability company, was “a distinct entity, to be considered separate and apart
from the individuals who compose it and [was] not to be affected by the personal
rights and obligations and transactions of its [members].” Candace, the bankruptcy
court said, was Raymond’s creditor but not the company’s. As a creditor of a
member (Raymond) of a limited liability company, Candace only had “the right to
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pursue claims to distributions which the member would otherwise be entitled to
receive.” Candace did “not have a direct claim to the assets” of Raymond &
Associates. Because the money from the BP settlement was not enough to satisfy
all of the company’s creditors, there was nothing left to distribute to Raymond as a
member (which distribution would have flowed to Candace under the amended
divorce decree).
The district court affirmed.
STANDARD OF REVIEW
“Because the district court in reviewing the decision of a bankruptcy court
functions as an appellate court, we are the second appellate court to consider this
case.” In re Colortex Indus., Inc., 19 F.3d 1371, 1374 (11th Cir. 1994). And because
permitting or disallowing a proof of claim is a “core proceeding,” 28 U.S.C. §
157(b)(2)(B); Wortley v. Bakst, 833 F.3d 1313, 1319 (11th Cir. 2017), “we review
determinations of law made by either the district or bankruptcy court de novo, while
reviewing the bankruptcy court’s findings of fact for clear error.” Westgate
Vacation Villas, Ltd. v. Tabas, 443 F.3d 767, 770 (11th Cir. 2005).
DISCUSSION
Candace argues that the BP settlement was marital property, and therefore not
subject to Raymond & Associates’s other creditors, because (1) the state court had
the authority to, and did, award her forty percent of the settlement as part of the
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divorce, and (2) the bankruptcy court, in Raymond’s individual bankruptcy,
determined that the BP settlement was marital property excluded from Raymond &
Associates’s bankruptcy estate. We disagree.
First, the amended divorce decree did not order that the BP settlement was
marital property, and the decree did not give Candace priority over Raymond &
Associates’s creditors—it did the exact opposite. The amended divorce decree
granted Candace a forty percent interest in the “net BP claim” that would pay out
only “after bankruptcy claims have been adjudicated by the [b]ankruptcy [c]ourt,
which might have priority towards these BP claims.” “Net” means “[t]he final
amount remaining after all other amounts have been taken away.” Black’s Law
Dictionary 1250 (11th ed. 2019). By awarding Candace the “net” BP settlement,
after the bankruptcy claims had been adjudicated, the state court was giving her forty
percent of what was left of the BP settlement after other amounts had been taken
away by Raymond & Associates’s bankruptcy creditors. The amended divorce
decree put Candace in line after the company’s other bankruptcy claims were paid—
not in front. Because Raymond & Associates owed more to its creditors than the
total amount the company received as part of the BP settlement, there was nothing
left of the “net” after the claims had been adjudicated by the bankruptcy court.
Also, as the bankruptcy court explained, the state court could not have made
Raymond & Associates’s BP settlement a part of Candace’s marital estate because
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the settlement was the property of the company—which was not a party to the
divorce—and not the property of her ex-husband. For Alabama limited liability
companies, “[t]he only interest of a member that is transferable is the member’s
transferable interest,” and a “transferable interest” is “a member’s right to receive
distributions from a limited liability company or a series thereof.” Whaley v.
Whaley, 261 So. 3d 386, 394 (Ala. Civ. App. 2017) (quoting Ala. Code §§ 10A-5A-
1.02(t), -5.01). Where a state “court’s judgment [goes] beyond awarding the wife
the husband’s ‘transferable interest,’ i.e., his right to receive distributions, . . . the
[state] court’s judgment on this point [is] in error.” Id. at 394–95; see also Hackney
v. Hackney, 794 So. 2d 1159, 1165 (Ala. Civ. App. 2002) (finding that the divorce
court could only assign the proceeds from a husband’s company “if the husband
collects them”).
The only interest that the state court could have granted Candace was
Raymond’s transferrable interest in the company—his right to receive
distributions—and only if Raymond actually received a distribution. See Hackney,
794 So. 2d at 1165. That is what the state court did in the amended divorce decree
by awarding Candace the “net BP claim . . . after bankruptcy claims [had] been
adjudicated.”
Candace argues that the state court could have awarded her more than
Raymond’s transferrable interest because Raymond & Associates was a closely held
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company that Raymond treated as his alter ego. Alabama, like other states, allows
a creditor to pierce the corporate veil—and get company property—if the debtor
treats his closely held company as his alter ego. See, e.g., Mosley v. Builders South,
Inc., 41 So. 3d 806, 812 (Ala. Civ. App. 2010) (recognizing an exception to the
general rule when “one or both spouses treat a closely held corporation as an alter
ego . . . so long as the principal of the corporation was properly before the court.”).
But neither the state court nor the bankruptcy court found that Raymond &
Associates was Raymond’s alter ego, and Candace hasn’t presented any evidence to
suggest that it was. Without a finding or evidence that the company was Raymond’s
alter ego, the general rule stands that one spouse cannot be awarded the property of
a non-party limited liability company in which the other spouse is a member.
Finally, Candace argues that the bankruptcy court, in Raymond’s individual
bankruptcy, found that the BP settlement was marital property, relying on this
language from the individual bankruptcy court’s order: “[Candace]’s equitable
interest in the marital estate property would not come into [Raymond]’s bankruptcy
estate.” In re LaForce, 577 B.R. at 916. But, as this language shows, the bankruptcy
court’s order said nothing about the BP settlement being part of the marital estate
and it didn’t even mention Raymond & Associates. See id. at 911–12, 916. All the
bankruptcy court said was that Candace’s equitable interest in the marital estate—
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whatever that may turn out to be—was not part of Raymond’s individual bankruptcy
estate. See id. at 916.
The same bankruptcy judge that presided over Raymond’s individual
bankruptcy also presided over Raymond & Associates’s company bankruptcy. If
anyone knew what the order meant, the judge who wrote it would, and, as he
explained: “This Court did not . . . make any determination as to the assets
comprising the marital estate; nor did it declare that the BP claim of the corporate
entity constituted marital property.” The order “entered in Raymond LaForce’s
[i]ndividual [c]ase has no applicability to the [c]orporate [c]ase. The parties and
issues are not the same and this Court did not intend its ruling to have any
applicability to the [c]orporate [c]ase.” The order “in the [i]ndividual [c]ase does
not provide a basis for Ms. LaForce’s claim in this corporate proceeding.” Like the
district court, we agree.
CONCLUSION
For these reasons, we, too, affirm the bankruptcy court’s order sustaining the
trustee’s objections and disallowing Candace’s proof of claim to Raymond &
Associates’s BP settlement.
AFFIRMED.
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