United States District Court, W.D. Texas
C. Lamberth United States District Judge
case comes before the Court on appeal from the Bankruptcy
Court's October 13, 2015 grant of judgment in favor of
the trustee, and the Bankruptcy Court's subsequent
December 4, 2015 Order granting in part and denting in part
the trustee's motion for attorneys' fees. The debtor
in this case, Curtis DeBerry, who is not a party to this
appeal, filed a Chapter 7 bankruptcy petition on February 10,
2014. Prior to filing this petition, Mr. DeBerry fraudulently
transferred $275, 000 to his sister-in-law Cheri Ann
Whitlock, the appellant here, to be deposited in a joint bank
account held by Ms. Whitlock and Mr. DeBerry's wife,
Kathy DeBerry. At some point, Kathy DeBerry's name was
taken off the account and it remained solely in the name of
Ms. Whitlock. At the direction of the DeBerrys, and still
before Mr. DeBerry filed for bankruptcy, Ms. Whitlock made
several transfers of money out of that account. After Mr.
DeBerry disclosed the $275, 000 transfer in the course of his
bankruptcy case, the trustee, the appellee here, filed an
adversary proceeding seeking to avoid the fraudulent transfer
and recover the $275, 000 from Ms. Whitlock.
24, 2015, the Bankruptcy Court granted partial summary
judgment in favor of the trustee, finding that the $275, 000
transfer from Mr. DeBerry was fraudulent and avoidable, and
that Ms. Whitlock was an "initial transferee" from
whom the trustee could recover the funds. The Bankruptcy
Court found, however, that a material issue of fact existed
regarding whether the trustee was seeking double recovery of
some of the funds in violation of the "single
satisfaction" rule, specifically, the $32, 000
transferred to Kathy DeBerry and the $200, 000 transferred to
MBC. After briefing and the presentation of evidence, the
Bankruptcy Court concluded that allowing the trustee to
recover the $232, 000 from Ms. Whitlock did not violate the
single satisfaction rule. The Bankruptcy Court later ordered
Ms. Whitlock to pay the trustee's attorneys' fees and
costs in the amount of $80, 409.40.
Whitlock has appealed the final judgment and the order of
attorneys' fees, arguing that the Bankruptcy Court erred
in not applying the single satisfaction rule to the funds
transferred back to Mr. DeBerry prior to his bankruptcy
filing, that it erred in finding that Ms. Whitlock was an
initial transferee, that it should not have proceeded to
summary judgment or trial before Ms. Whitlock had the
opportunity to obtain Kathy DeBerry's testimony, and that
the award of attorneys' fees was therefore improper.
Court finds that the Bankruptcy Court did not err in finding
that Ms. Whitlock was an initial transferee, did not err in
not applying the single satisfaction rule to the funds
allegedly transferred back to Mr. DeBerry, did not err in
proceeding to summary judgment and trial before Ms. Whitlock
had an opportunity to depose Kathy DeBerry, and therefore did
not err in awarding attorneys' fees to the trustee. The
decision of the Bankruptcy Court will be affirmed.
debtor in this case, Curtis DeBerry, is the former owner of a
produce company in Texas. On February 10, 2014, Mr. DeBerry
filed a voluntary Chapter 7 bankruptcy
petition. Prior to the filing of this petition, on
August 26, 2013, Mr. DeBerry's wife, Kathy DeBerry, and
his sister-in law, Cheri Whitlock opened a joint account at
Wells Fargo Bank. That same day, Mr. and Mrs. DeBerry
withdrew $275, 000 from one of their bank accounts and
obtained a cashier's check in the same amount made
payable to Ms. Whitlock. Ms. Whitlock endorsed the check and
deposited it into the Wells Fargo account. On August 29,
2013, a Relationship Change Application was submitted to
Wells Fargo Bank whereby Kathy DeBerry relinquished her
ownership interest in the account, leaving the account only
in Ms. Whitlock's name.
Whitlock subsequently completed the following wire transfers
out of the Wells Fargo account: 1) $33, 500 to Chantel
DeBerry (Curtis and Kathy DeBerry's daughter); 2) $9, 200
to Maria Bainbridge; 3) $32, 000 to Kathy DeBerry; 4) $200,
000 to Masterbaiter Charters, LLC
("MBC"). MBC is a Texas limited liability company
owned by the debtor, Curtis DeBerry. The money transferred to
Kathy DeBerry and MBC was spent prior to the bankruptcy
filing. In response to a question regarding why the $200, 000
was returned to MBC when the funds had previously belonged to
the Mr. DeBerry, he responded "because I told her to . .
. because that's where I needed it."
Bankruptcy Court Decision
Mr. DeBerry filed his bankruptcy petition, and after he
(belatedly) disclosed the existence of the $275, 000
transfer, the bankruptcy trustee initiated an adversary
proceeding against Ms. Whitlock to avoid the transfer and
recover the funds, and later moved for summary judgment. The
Bankruptcy Court first found that the $275, 000 transfer to
Ms. Whitlock was made with the actual intent to hinder, delay
or defraud creditors under 11 U.S.C. § 544 and §
548(A)(1)(A), and Texas Business and Commercial Code §
24.005(A)(1) as evidenced by the following badges of fraud:
1) Ms. Whitlock did not provide any consideration for the
funds; 2) Ms. Whitlock is a family member of Mr.
DeBerry's; 3) Mr. DeBerry instructed Ms. Whitlock to
transfer $200, 000 to MBC; 4) Mr. DeBerry transferred the
funds while under great financial stress; 5) the transfer was
concealed by Mr. DeBerry; and 6) Mr. DeBerry had been sued
prior to the transfer (by Eclipse Berry Farms for fraud in
connection with an agreement to obtain strawberries). The
Bankruptcy Court also found that the $275, 000 transfer was
constructively fraudulent and avoidable under 11 U.S.C.
§ 548(a)(1)(B) because Mr. DeBerry, the debtor, received
less than a reasonably equivalent value in exchange for the
transfer and was insolvent at the time. It also found that
the transfer was avoidable under 11 U.S.C. § 544 and
Texas Business & Commercial Code § 24.006(A).
the Bankruptcy Court held that Ms. Whitlock was an
"initial transferee" from whom the trustee could
recover the funds. Section 550 provides "to the extent
that a transfer is avoided... the trustee may recover, for
the benefit of the estate, the property transferred, or, if
the court so orders, the value of such property, from (1) the
initial transferee of such transfer ... or (2) any immediate
or mediate transferee of such initial transferee." 11
U.S.C. § 550(a). Relying on the Fifth Circuit's
"dominion or control" test to determine whether a
party is an initial transferee, the Bankruptcy Court found
that, regardless of whether Ms. Whitlock knew that Ms.
DeBerry had removed her name from the account and whether she
was simply being directed by the DeBerrys to make transfers
out of the account, she had sufficient dominion and control.
The $275, 000 check was made out solely to Ms. Whitlock and
she endorsed it. She was, in fact, the sole owner of the
Wells Fargo account, each of the transfers made from the
account were executed by Ms. Whitlock. In sum, Ms. Whitlock
had legal title to the funds and no legal obligation to
follow the DeBerry's instructions on where to distribute
the funds. Therefore, the trustee could recover the funds
from Ms. Whitlock as an initial transferee.
Bankruptcy Court then received additional briefing and
evidence regarding whether the trustee was seeking double
recovery in violation of the single satisfaction rule of
Section 550, which states that "[t]he trustee is
entitled to only a single satisfaction under subsection (a)
of this section." 11 U.S.C. § 550(d). On September
28, 2015, the Bankruptcy Court read onto the record its
finding that the trustee did not violate the single
satisfaction rule. The court first found that the single
satisfaction rule does not apply to pre-petition transfers.
Acknowledging that there is little caselaw on point and that
no case specifically says when the transfer should be
examined in this context, the court agreed with the trustee
that the issue was one of statutory interpretation. It
concluded that Section 550(a) discusses evaluating fraudulent
transfers as they affect the bankruptcy estate and does not
relate to the pre-petition relationship between the parties.
Noting that a court may not use its equitable powers to
circumvent a clear statute, the court found that the statute
was clear and that it had to examine the transfers at the
time the petition was filed. Furthermore, the court noted
that initial transferees are strictly liable for any
fraudulent transfers they receive. Thus, it found "that
the application of the statute requires the court to look at
the transfers that benefited the estate. Here, there is no
showing that that occurred. The [d]efendant is strictly
liable for the transfers." Transcript Regarding Hearing
Held 9/28/2015 at 10:5-9, No. 14-ap-5044 (Bankr.W.D.Tex.
Sept. 28, 2015). The Bankruptcy Court later ordered Ms.
Whitlock to pay the trustee's attorneys' fees and
costs in the amount of $80, 409.40.
JURISDICTION AND STANDARD OF REVIEW
Court has jurisdiction to hear this appeal pursuant to 28
U.S.C. § 158(a) which provides that district courts have
jurisdiction to hear appeals from final judgments and orders
of bankruptcy judges.
district court reviews the decision of a bankruptcy court, it
"functions as an appellate court, applying the standards
of review generally applied in federal appeals courts."
Harvey Gulflnt'l Marine, Inc. v. Bennu Oil & Gas,
LLC,559 B.R. 152, 154 (S.D. Tex. 2016). District courts
"review orders granting summary judgment de novo,
guided by the ...