NCI Building Systems LP v. Harkness (In Re Harkness)

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
July 7, 2006
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
____________________ Clerk
No. 05-11497
Summary Calendar
____________________
In The Matter Of: CARROLL THOMAS HARKNESS
Debtor
_________________________________________________________________
NCI BUILDING SYSTEMS LP
Appellant
v.
CARROLL THOMAS HARKNESS
Appellee
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas, Fort Worth
No. 4:05-CV-402
_________________________________________________________________
Before KING, WIENER, and DEMOSS, Circuit Judges.
PER CURIAM:*
Appellant NCI Building Systems, L.P., appeals the order and
judgment of the district court that affirmed the bankruptcy
*
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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court’s order confirming the Chapter 13 plan of debtor-appellee
Carroll Thomas Harkness. More specifically, the district court
affirmed the bankruptcy court’s finding that NCI’s claims of
misappropriation of corporate opportunity were unliquidated and,
therefore, excluded from the eligibility analysis for Chapter 13
filings under 11 U.S.C. § 109(e). For the following reasons, we
AFFIRM the judgment of the district court.
I. FACTUAL AND PROCEDURAL BACKGROUND
Appellee Carroll Thomas Harkness (“Harkness”), a former vice
president for appellant NCI Buildings Systems, L.P. (“NCI”),
filed a Chapter 13 bankruptcy petition on January 6, 2004. Prior
to the bankruptcy filing, NCI had brought a state court lawsuit
against Harkness alleging breach of fiduciary duty, conversion,
constructive trust, embezzlement, and misappropriation of
corporate opportunity. Just days before his response to NCI’s
summary judgment motion in state court was due, Harkness filed
his bankruptcy petition, triggering the automatic stay of his
state court proceedings under 11 U.S.C. § 362(a).
On December 29, 2004, after two previous amendments, NCI
filed a proof of claim for $200,000.00 in unsecured debt and
$1,188,299.97 in secured debt. 2 R. at 238; see also id. at 243
(describing the underlying collateral subject to constructive
trust for the secured debt). The secured portion of its claim
was based, inter alia, upon several alleged instances of
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Harkness’s misappropriation of corporate opportunities that were
described in supporting documents attached to the proof of claim.
Id. at 239 (itemizing damages). Because the underlying state
court action had not yet issued a ruling on NCI’s motion for
summary judgment at the time of Harkness’s bankruptcy filing, it
is undisputed that no judgment has issued with respect to NCI’s
tort claims of misappropriation of corporate opportunity that are
the focus of this appeal.
Based on its proof of claim, NCI moved to dismiss Harkness’s
bankruptcy petition, arguing that Harkness was ineligible for
Chapter 13 relief under 11 U.S.C. § 109(e). Section 109(e)
provides, in relevant part:
Only an individual with regular income that owes, on
the date of the filing of the petition, noncontingent,
liquidated, unsecured debts of less than $307,675 and
noncontingent, liquidated, secured debts of less than
$922,975 . . . may be a debtor under chapter 13 of this
title.
11 U.S.C. § 109(e) (emphasis added). NCI contended that its
misappropriation claims were liquidated because the amount of the
claims was readily calculable, regardless of the fact that
Harkness disputed them. Harkness filed an objection to NCI’s
motion to dismiss and sought to have its Chapter 13 plan
confirmed by the bankruptcy court, arguing that the
misappropriation claims were contingent and unliquidated.
Following a hearing, the bankruptcy court found that NCI’s claims
were both unliquidated and contingent and, therefore, did not
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render Harkness ineligible for relief under Chapter 13 of the
Bankruptcy Code. In the same order, the bankruptcy court
confirmed Harkness’s Chapter 13 plan on March 21, 2005. Upon a
subsequent motion for reconsideration, the bankruptcy court again
denied NCI’s request for dismissal of the Chapter 13 petition on
April 21, 2005.1 The district court affirmed the bankruptcy
court’s ruling in a Memorandum Opinion and Order on August 18,
2005. On October 20, 2005, the district court denied NCI’s
motion for reconsideration for the same reasons announced in its
previously issued opinion. NCI timely filed its notice of appeal
on November 16, 2005.
II. DISCUSSION
This court has jurisdiction over the instant appeal under 28
U.S.C. § 158(d). We review the district court’s decisions under
the same standard of review that the district court applied to
the bankruptcy court’s decisions. See In re Amco Ins., 444 F.3d
690, 694 (5th Cir. 2006); In re Whitaker Constr. Co., 439 F.3d
212, 216 (5th Cir. 2006). Findings of fact are reviewed for
clear error, while conclusions of law are reviewed de novo. See
Amco Ins., 444 F.3d at 694; Whitaker Constr. Co., 439 F.3d at
216. “A finding is ‘clearly erroneous’ when although there is
1
As the district noted in its Memorandum Opinion and
Order, the parties did not include a transcript of the bankruptcy
court hearings for either the initial motion to dismiss or the
motion for reconsideration in the record on appeal. 1 R. at 90-
91.
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evidence to support it, the reviewing court on the entire
evidence is left with the definite and firm conviction that a
mistake has been committed.” United States v. United States
Gypsum Co., 333 U.S. 364, 395 (1948).
NCI argues that its misappropriation claims were liquidated
because, although disputed by Harkness, the amounts were capable
of being precisely determined based on the proof of claim and
supporting documents. Citing In re Visser, 232 B.R. 362, 365
(Bankr. N.D. Tex. 1999), NCI maintains that the district court
erred by not presuming the factual predicate for NCI’s claims in
conducting its liquidity analysis. In addition to challenging
the factual bases of each alleged instance of misappropriation,
Harkness responds that the claims are not susceptible to precise
determination because there has been no formal evidentiary
hearing or judicial decree to fix the amount in any meaningful
way. Therefore, Harkness maintains that there was no legally
enforceable liquidated debt at the time of his filing that would
render him ineligible for Chapter 13 relief under 11 U.S.C.
§ 109(e).
As the district court correctly noted, courts generally
agree that a debt is liquidated if the amount of the claim is
readily ascertainable, whether it is contested or not.2 See In
2
NCI does not dispute the district court’s recitation of
this legal standard to determine whether the misappropriation
claims were liquidated. Rather, NCI argues that the district
court reached a result that conflicted with the applicable
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re Horne, 277 B.R. 320, 322 (Bankr. E.D. Tex. 2002) (“A debt is
liquidated if the amount due and the date on which it was due are
fixed or certain, or when they are ascertainable by reference to
(1) an agreement or (2) to a simple mathematical formula.”); see
also In re Pulliam, 90 B.R. 241, 246 (Bankr. N.D. Tex. 1988)
(“Because Congress did not insert the term disputed in § 109(e),
disputed debts must be counted in determining whether a
petitioner may be a debtor under Chapter 13.”). In affirming the
bankruptcy court’s ruling, however, the district court found that
NCI’s misappropriation claims were unliquidated because debts
based on tort are generally unliquidated unless and until
resolved by judicial decree or otherwise fixed in some meaningful
way. See Denham v. Shellman Grain Elevator, Inc., 444 F.2d 1376,
1380 (5th Cir. 1971) (describing tort and quantum meruit claims
as unliquidated because they “by their very nature are not fixed
unless and until juridical award to fix liability and amount”);
see also 2 COLLIER ON BANKRUPTCY ¶ 109.06[2][c] (15th ed. rev. 2005)
(“A debt is not liquidated if there is a substantial dispute
regarding liability or amount.”). Based on our review of the
record and the parties’ arguments, we conclude that the district
court did not clearly err in affirming the bankruptcy court’s
rulings that NCI’s misappropriation claims were unliquidated
standard based on the facts underlying its proof of claim.
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under § 109(e).3
We additionally note that NCI’s reliance on In re Visser for
the proposition that the district court must presume the factual
predicate for NCI’s claims is misplaced. Ordinarily, the
bankruptcy court will not look beyond the amounts asserted by the
debtor in the debtor’s schedules in conducting the § 109(e)
eligibility analysis, unless it finds that the schedules were not
filed in good faith. See 2 COLLIER ON BANKRUPTCY ¶ 109.06[3]
(citing In re Scovis, 249 F.3d 975, 982 (9th Cir. 2001)).
Moreover, in Visser, the debtor failed to object to the
creditor’s proof of claim and actually admitted to the
misappropriation of corporate funds underlying the creditor’s
claim. See Visser, 232 B.R. at 363. In dismissing the Chapter
13 petition, the court concluded that the claim was liquidated
for purposes of the eligibility determination under § 109(e)
because determining the amount due on the claim did not involve
the use of judgment or discretion, but rather “simple arithmetic”
to add up the amount of money from each instance of embezzlement
to determine the total amount of the claim. Id. at 365. In
contrast, Harkness both objected to the proof of claim and
3
We also conclude that NCI’s argument that the court’s
determination somehow created a per se rule that all tort claims
not reduced to an enforceable judgment are unliquidated is wholly
without merit. The district court narrowly concluded that NCI
had not sufficiently proven the factual predicate for its claim,
and we can locate no indication of any such broad legal
pronouncement in its opinion and order.
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contests each alleged instance of misappropriation of corporate
opportunity. As a result, absent any formal evidentiary
findings, the misappropriation claims were not susceptible to
precise determination with the use of simple arithmetic. See In
re Pearson, 773 F.2d 751, 756 (6th Cir. 1985) (holding that “the
fact that evidence must be taken to determine the amount of the
claim indicates that, until then, the claim was unliquidated” for
the purposes of the § 109(e) eligibility analysis). Therefore,
the district court did not err in stating that NCI had not
sufficiently met its burden to demonstrate that its
misappropriation claims were unliquidated.
III. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the
district court.
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