Bertha Bloch v. Ben Floyd ( 2010 )

  •   Case: 09-20299   Document: 00511061954    Page: 1   Date Filed: 03/25/2010
                      FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                      Fifth Circuit
                                                                   March 25, 2010
                                  No. 09-20299
                                Summary Calendar              Charles R. Fulbruge III
    In the Matter of LEONARDO REZNICK,
                    Appeal from the United States District Court
                         for the Southern District of Texas
                                  No. 4:08-CV-2494
       Case: 09-20299       Document: 00511061954          Page: 2    Date Filed: 03/25/2010
                                           No. 09-20299
    Before DAVIS, SMITH, and DENNIS, Circuit Judges.
    JERRY E. SMITH, Circuit Judge:*
           Bertha Bloch appeals the rejection of a proof of claim filed in her son’s in-
    voluntary bankruptcy case. Because she has failed to establish a legally enforce-
    able obligation by the debtor, we affirm.
           On February 9, 2004, creditors placed Leonardo Reznick into involuntary
    chapter 7 bankruptcy. On August 20, 2004, the trustee, Ben Floyd, filed an ad-
    versary proceeding against Paul Ponte, one of Reznick’s former business part-
    ners, alleging he owed Reznick $1,000,000 under a 1989 promissory note. The
    reference was withdrawn to the district court. Because the note was executed
    in Mexico, that court applied the applicable Mexican statute of limitations,
    which provides a ten-year period that is tolled and reset each time the debtor ac-
    knowledges the obligation. Under that provision, Ponte’s obligation was still en-
    forceable, because he had acknowledged the debt three times during the ten-year
    period. Ponte settled the claim for $400,000, providing the estate’s only asset.
           Bloch is Reznick’s mother. In light of the recovery from Ponte, Bloch on
    April 10, 2007, filed a proof of claim against Reznick for $770,000, plus interest,
    on alleged loans dating back to 1990. Bloch attached a one-page affidavit from
    Reznick in support of the claim. The trustee objected to the claim and testified
    at an evidentiary hearing before the bankruptcy court that Bloch had not put
    forth any evidence of a legally enforceable debt. According to the trustee, the
    documents Bloch supplied in response to its production request were mainly
             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.
       Case: 09-20299    Document: 00511061954       Page: 3    Date Filed: 03/25/2010
                                       No. 09-20299
    handwritten notes in Spanish, none of which supported her claim. The bank-
    ruptcy court agreed and disallowed Bloch’s claim. The district court affirmed,
    finding “no evidence of a legally enforceable debt.”
          We review the district court’s findings of fact for clear error and its legal
    conclusions de novo. McGee v. O’Conner (In re O’Conner), 
    153 F.3d 258
    , 260 (5th
    Cir. 1998). Bloch has not provided evidence that the alleged loans occurred in
    Mexico. She has also failed to establish any enforceable obligation on Reznick’s
    part or even evidence of the transfer of more than $700,000 to her son. As Rez-
    nick’s mother, Bloch is an insider within the meaning of 11 U.S.C. § 101(31)-
    (A)(i). We subject such claims to strict scrutiny. Pepper v. Litton, 
    308 U.S. 295
    306-07 (1939). Under such circumstances, Reznick’s affidavit, standing alone,
    cannot create a pre-existing obligation.
          Bloch argues that the district court acted inconsistently by applying Mexi-
    can law in the Ponte proceeding but Texas law as to her claim. This is unlike
    the situation in the Ponte dispute, in which the written promissory note, on its
    face, was executed in Mexico City. Bloch has put forth no evidence warranting
    the application of Mexican law to her claim. Even Reznick’s affidavit failed to
    state where he incurred the alleged debt.
          The “basic rule in bankruptcy is that state law governs the substance of
    claims. . . .” Raleigh v. Ill. Dep’t of Revenue, 
    530 U.S. 15
    , 19 (1979) (internal quo-
    tations omitted). “When the parties have failed to conclusively establish foreign
    law, a court is entitled to look to its own forum’s law in order to fill any gaps.”
    Banco de Credito Indus., S.A. v. Tesoreria Gen., 
    990 F.2d 827
    , 836 (5th Cir.
    1993). Because Bloch failed to establish that Mexican law controlled, the district
    court properly applied Texas law. Absent a written, signed copy of the alleged
    agreement dating back to 1990, Bloch’s claim is barred by the Texas Statute of
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    Frauds. T EX. B US. & C OM. C ODE § 26.01. Bloch did not put forth evidence of a
    legally enforceable debt, so her claim was properly disallowed.