Ton v. Ton ( 2023 )

Case: 22-30378 Document: 00516693321 Page: 1 Date Filed: 03/29/2023
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
March 29, 2023
No. 22-30378
Lyle W. Cayce
Clerk
In the Matter of Hendrikus Ton,
Debtor,
Lynda Ronquillo Ton,
Appellant,
versus
Hendrikus Ton,
Appellee.
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:21-CV-1029
Before Wiener, Stewart, and Engelhardt, Circuit Judges.
Per Curiam:*
This appeal arises from Lynda Ton’s (“Lynda”) challenge to the
district court’s order affirming the bankruptcy court’s partition judgment.
*
This opinion is not designated for publication. See 5th Cir. R. 47.5.
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No. 22-30378
Because the district court properly determined that Lynda did not establish
that the bankruptcy court erred in assessing administrative expenses against
her portion of the former community property, we AFFIRM.
I. BACKGROUND
Hendrikus Ton (“Hank”) and Lynda were married in 1987. In re Ton,
No. 21-514, 2022 WL 832572, at *1 (E.D. La. March 21, 2022). During the
marriage, the Tons owned and operated several businesses, including Abe’s
Boat Rentals Inc. (“Abe’s”). Id.On October 5, 2012, Hank pleaded guilty to conspiracy to defraud the
United States by failing to file employment taxes in violation of 18
U.S.C. § 371 and 25 U.S.C. § 7202. Id. at 2. Hank admitted that he
underreported withheld taxes for Abe’s employees between the years 2006
and 2009 and agreed to repay the amount of $3,582,451 in restitution to the
IRS (the “tax liability” or “liability”). Id.
Lynda then filed for divorce in Louisiana on November 14, 2012 and
received a judgment which terminated the community property regime
retroactive to the date of that filing. Id. On November 21, 2013, a year and a
week later, Lynda filed a petition to partition community property in state
court, but a trial was never held.
On May 29, 2013, Hank refinanced an existing line of credit to satisfy
the tax liability. Id. He personally guaranteed a $3,222,451 loan and used the
proceeds to pay the restitution owed to the IRS. He also liquidated a
community life insurance policy and invested the proceeds in Abe’s to cover
its operating costs. He then refinanced his debt through a total of five loans
to Abe’s from Whitney bank between August 2011 and January 2015. Id. at
2–3.
In 2018, Hank filed a voluntary bankruptcy petition under Chapter 11
in the Eastern District of Louisiana. Id. at 2. The bankruptcy court ordered
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a reorganization plan which incorporated Hank’s personal assets and assets
of the marriage’s community property to satisfy the debt, including the series
of loans he took out in connection with his tax liability. Several months later,
Lynda removed the community property partition petition to the bankruptcy
court. Id.
On August 14, 2019, the bankruptcy court entered an order
partitioning the Tons’ former community property. Id. The Tons each
appealed that ruling, and the district court for the Eastern District of
Louisiana vacated and remanded, holding that the bankruptcy court had
erred in several respects in its partition. Id. at 3.
By early 2021, a confirmation hearing was held in the bankruptcy court
during which Hank presented evidence that the proposed plan of
reorganization (“the Plan”) satisfied the requirements for a nonconsensual
Chapter 11 “cramdown” under 11 U.S.C. § 1129. 1 Id. On February 21, 2021,
the bankruptcy court entered an order (the “Confirmation Order”)
confirming the Plan. Id. Lynda appealed the Confirmation Order to the
district court which determined that her arguments lacked merit and
affirmed the Order. Id.On May 12, 2021, the bankruptcy court entered a final judgment
partitioning the Tons’ community property, taking into consideration the
bankruptcy court’s Original Partition Judgment, the district court’s holding
on appeal, and the bankruptcy court’s holding on remand. Lynda then
appealed the bankruptcy court’s judgment to the district court. The district
1
The “cramdown” provision in 11 U.S.C. § 1129(b) requires valuation of collateral
in the context of plan confirmation when the debtor retains possession of the collateral.
“Under th[e] [cramdown] provision, a bankruptcy court may confirm a plan over a
creditor’s objection subject to certain conditions, so long as the plan ‘does not discriminate
unfairly, and is fair and equitable, with respect to each class of claims or interests that is
impaired under, and has not accepted, the plan.’” Matter of Hous. Reg. Sports Net., L.P.,
886 F.3d 523, 528 (5th Cir. 2018) (quoting 11 U.S.C. § 1129(b)).
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court determined that Lynda did not meet her burden to establish that the
bankruptcy court erred. This appeal followed.
II. STANDARD OF REVIEW
“We review the decision of a district court, sitting as an appellate
court, by applying the same standards of review to the bankruptcy court’s
findings of fact and conclusions of law as applied by the district court.” In re
Goodrich Petroleum Corp., 894 F.3d 192, 196 (5th Cir. 2018), as revised (June
29, 2018) (quoting In re Entringer Bakeries, Inc., 548 F.3d 344, 348 (5th Cir.
2008) (internal quotation marks omitted)). “Thus, we review the bankruptcy
court’s findings of fact for clear error and its legal conclusions de novo.” Id.(citing In re Gerhardt, 348 F.3d 89, 91 (5th Cir. 2003)).
III. DISCUSSION
On appeal, Lynda makes the following three arguments: 1. the
bankruptcy and district courts erred in holding that creditor claim No. 8 was
based on loans that were not a community obligation at the time they were
incurred; 2. the bankruptcy and district courts erred in holding that she lost
her vested economic interest in certain property deemed part of the
bankruptcy estate; and 3. the bankruptcy and district courts erred in not
treating Parcel No. 900648-C as community property. We address each
argument in turn.
A. Community Obligation
Lynda argues that she should not be forced to forfeit her undivided
one-half of the former community to satisfy Whitney Bank’s creditor claim—
which consisted of assets valued at $7,692,303 at the time of the
community’s termination—because the valuation was based on 2014 and
2015 loans made to Abe’s after the community had terminated on the Tons’
divorce in 2012. She avers that she did not file for bankruptcy, that she was
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not responsible for the debt, and that the debt was incurred by her ex-husband
six years after the divorce in 2012. She asserts that she did not guarantee
Abe’s debts and had opposed the loans being made. She provides an analysis
on each of the five loans dating back to the first, which was originally
guaranteed by Hank on August 16, 2011. She further asserts that each
subsequent loan paid off the former loan in full until the January 5, 2015 loan
(the “January loan”). $412,072.77 of the January loan was used to pay off
the remaining balance of Loan 4. $2,010,082.17 of the January loan was used
to pay off the remaining balance of Loan 1. And $3,682,855.85 of the January
loan was used to purchase a vessel for Abe’s operations.
Before considering her arguments, we must first determine what is
community property in this case. Community property is any property
acquired during the existence of the legal regime, i.e., the marriage, through
the effort, skill, or industry of either spouse. La. Civ. Code Ann. art.
2338 (2023). We have explained that “community property,” as used to
define property of the bankruptcy estate in § 541(a)(2), includes community
property and former community property that has not been partitioned as of
the petition date. See In re Robertson, 203 F.3d 855, 861 (5th Cir. 2000).
Community property does not include former community property which
has been divided and reclassified as separate property by state law before the
petition date. Id. at 861. The legal regime of community property is
terminated by a judgment of divorce. art. 2356 (2023). After the termination
of the community property, La. Civ. Code. Ann. arts. 2369.2–2369.8 (2023)
apply until a partition of the former community property is finalized.
In Robertson, we explained that “[a]n obligation incurred by a spouse
before or during the community property regime may be satisfied after
termination of the regime from the property of the former community and
from the separate property of the spouse who incurred the obligation.” 203
F.3d at 861. This means that a creditor’s claim under state law is not affected
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by the partition. Id. Further, the Bankruptcy Code article that controls
community property, 11 U.S.C. § 541(a)(2), states that “[a]ll interests of the
debtor and the debtor’s spouse in community property” become part of the
bankruptcy estate, including property that is under “equal, or joint
management and control of the debtor.”
Lynda filed for divorce in November 2012, roughly a month after Hank
pleaded guilty to tax fraud and agreed to repay the tax liability in the amount
of $3,582,451. Thus, at the time the tax liability was imposed, the Tons were
still married, so the tax liability became a liability of the community. Further,
the tax fraud was connected to Abe’s, a business jointly owned and operated
by the Tons during their marriage. When Abe’s filed for Chapter 11
bankruptcy relief in 2018, that case was converted to Chapter 7. With the
conversion of its bankruptcy case, Abe’s ceased operations and was
liquidated by a bankruptcy Trustee. The Trustee sold Abe’s assets, but the
bankruptcy court determined that the obligation was not satisfied and
resorted to a reorganization plan to satisfy Hank’s debt, which included
Lynda’s assets and vested economic interests.
In Robertson, we explained that obligations incurred by the spouses
during the marriage are community obligations unless and until the
challenging party demonstrates either that such an obligation was not
incurred for the common interest of the spouses or that the interest of one
spouse did not benefit the other spouse. In re Robertson, 203 F.3d at 861.
Because Lynda did not rebut this presumption or show that the bankruptcy
court otherwise erred in calculating the community obligations, the district
court correctly held that the additional loans taken out after the divorce—
pertinent here, the 2013 and 2015 loans—were “merely refinanced
community obligations, such as the [t]ax [l]iability[.]” In re Ton, No. 21-
1029, 2022 WL 1642042, at *3 (E.D. La. May 24, 2022). We hold that the
district court properly affirmed the bankruptcy court’s determination.
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B. Economic Interest in Co-owned Former Community Property
Lynda also argues that the bankruptcy and district courts erred in
holding that she, as the non-filing spouse, lost her vested economic interest
in the co-owned former community property as a result of Hank’s filing for
bankruptcy in 2018. She contends that, under Louisiana law, former spouses
become co-owners of the former community property and that her portion of
the co-owned former community may only be assessed for liability that
incurred prior to its termination. The district court reasoned that the
bankruptcy code preempts state law when the two conflict. Consequently,
“a bankruptcy estate acquires both spouses’ interests in the community
property and is therefore the sole owner (even where one spouse does not file
bankruptcy).” In re Ton, No. 21-1029, 2022 WL 1642042, at *3 (E.D. La.
May 24, 2022) (quoting In re Wiggains, 535 B.R. 700, 719–20 (Bankr. N.D.
Tex. 2015), aff'd sub nom. Matter of Wiggains, 848 F.3d 655 (5th Cir. 2017)).
We agree, and—since we have already determined that Lynda’s property
interest was properly incorporated into the bankruptcy estate because the
liability was incurred not only before the partitioning of the former community
property, but also before she filed for divorce—it is unnecessary to further
examine the bankruptcy court’s economic–interest calculations. For these
reasons, we hold that the district court did not err when it affirmed the
bankruptcy court’s order. See Goodrich Petroleum Corp., 894 F.3d at 196.
C. Parcel No. 900648-C
Lastly, Lynda contends that the plan did not treat Parcel No. 900648-
C as community property for the purposes of satisfying the liability.
However, the district court determined that the record established that the
partition judgment incorporated the $320,000 value of Parcel No. 900648-
C. Lynda never challenged the bankruptcy court’s valuations during her
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appeal of the original partition, so she has failed to establish clear error in the
bankruptcy court’s calculations. See Gerhardt, 348 F.3d at 91.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM.
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