                                                              United States Court of Appeals
                                                                       Fifth Circuit
                                                                    F I L E D
                IN THE UNITED STATES COURT OF APPEALS
                                                                    August 15, 2005
                          FOR THE FIFTH CIRCUIT
                                                                Charles R. Fulbruge III
                                                                        Clerk

                               No. 04-41038



     In the Matter of: AVANTE VILLA
     OF CORPUS CHRISTI, INC.,

                                               Debtor,
     ------------------


     D MICHAEL BOUDLOCHE, Trustee, for
     the Estate of Avante Villa of
     Corpus Christi, Inc.,

                                               Appellant,
           versus


     A G HOLDINGS INC., formerly known
     as Avante Group Inc.; GANOT CORP.;
     RON OSTROFF; HARVEY LICHTMAN;
     ALAN KRANZ,

                                               Appellees.




            Appeal from the United States District Court
                 for the Southern District of Texas



Before GARWOOD, GARZA and BENAVIDES, Circuit Judges.

PER CURIAM:*


     *
       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should not be published and is not precedent except under the limited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.
     Bankruptcy trustee D. Michael Boudloche (Trustee) appeals the

district court’s affirmance of the bankruptcy court’s decision not

to hold the directors of debtor corporation Avante Villa (Debtor)

personally liable under Texas law for transfers made to Debtor’s

parent company, Avante Group, Inc. (Avante Group).             We affirm.

                      Facts and Proceedings Below

     In January 1995 a $1.2 million default judgment in a wrongful

death suit was entered against Debtor, a nursing home in Corpus

Christi, Texas.1     A state district judge set aside the judgment in

February 1995, but a state court of appeals reinstated it in June

1996. In October 1997 the Texas Supreme Court denied Debtor’s writ

requesting review of the reinstatement of the judgment.

     Debtor was wholly owned by Avante Group, and two of Debtor’s

directors were officers of Avante Group (one of these two was also

a director of Avante Group).      Ever since a time well prior to 1995,

Avante Group and Debtor operated under a management agreement that

stipulated    that    Avante    Group       would   handle   Debtor’s   cash,

purchasing, personnel and policies in return for a management fee.

In keeping with this agreement, Avante Group and Debtor used a

“cash management system” in which all payments to Debtor (along

with those to Avante Group’s other subsidiaries) were deposited

into a central account controlled by Avante Group, with Avante



     1
       Debtor explained that the lawsuit was not responded to because Debtor’s
president left the company and Debtor’s founder died during the period of time
immediately after the suit was filed.

                                        2
Group keeping track of each subsidiary’s balance.     Avante Group

made necessary payments on behalf of Debtor from this account even

if Debtor did not have a positive balance, so that cash from

solvent subsidiaries was effectively loaned to subsidiaries that

were temporarily without liquid assets in order to keep all of the

subsidiaries operating.

     At the time the default judgment was reinstated in June 1996,

Debtor was insolvent and maintained its operations only by virtue

of these loans from Avante Group via the cash management system.

In June 1996, Debtor owed over $2 million to Avante Group.   Avante

Group had been looking since early 1996 for another company to

lease Debtor’s nursing home facility and take over its operation.

An agreement to terminate Debtor’s lease was executed in July 1996,

and Debtor’s operation of the nursing home ceased September 1,

1996.   Avante Group received approximately $1.6 million in income

attributable to Debtor after June 1996, some $950,000 of which was

payments to the cash management account from government and private

insurers and $450,000 of which was a lease termination payment sent

by the lessor directly to Avante Group.   Avante Group used about

$1.2 million of this income to pay debts to trade creditors of

Debtor.   Debtor filed for Chapter 7 bankruptcy in November 1997.

At that time, all of its trade creditors had been paid in full, the




                                 3
judgment creditor had been paid nothing, and Debtor’s debt to

Avante Group had increased to approximately $4.1 million.2

       Trustee initiated an adversary proceeding in bankruptcy court

against Avante Group, alleging that the transfers of Debtor’s

income       to    Avante     Group    after      June     1996     were   fraudulent,

preferential, and in violation of Texas Business Corporations Act

(TBCA) article 2.41.            Essentially, Trustee argued that Debtor’s

delay in filing bankruptcy until trade creditors had been fully

paid       and    Avante    Group’s    claim      had    further    increased   was   a

fraudulent         attempt     to    disadvantage        the   judgment     creditors.

Remedies requested included piercing of the corporate veil to make

Avante Group liable for the default judgment, subordination of

Avante Group’s         claim    to    that   of    the    judgment     creditors,   and

individual liability of the Debtor’s directors under TBCA article

2.41 for the $1.6 million in transfers after June 1996.

       The bankruptcy court held that Trustee had not proven that

Debtor, Avante Group, or their officers and directors had intent to

hinder, delay or defraud the judgment creditors through the cash

management system transfers.                 Without this actual intent, the

period of up to four years available for avoiding fraudulent

transfers under Texas law cannot be applied.                       See TEX. BUS. & COM.

       2
       The judgment creditors had not attempted to execute the judgment after its
reinstatement in June 1996. The creditors’ attorney testified that Debtor’s
attorney indicated that there was insurance and that there were sufficient assets
to pay the judgment if the appeal to the Texas Supreme Court failed. Debtor’s
attorney denied saying this, however. No findings were made in that respect by
the courts below.    Debtor’s insurance did not provide coverage for default
judgments.

                                             4
CODE §§ 24.005(a)(1), 24.010(a)(1).         The court also held that there

was not misconduct to merit equitable subordination of Avante

Group’s claim to that of the judgment creditors, and that Trustee

did not meet his burden of proof in showing that Debtor’s directors

should be personally liable for any transfers. The court did avoid

$723,796.27 of payments to Avante Group made during the year prior

to filing bankruptcy as preferential payments under 11 U.S.C. §

547.3

        Upon   appeal,    the   district    court    largely      affirmed    the

bankruptcy      court’s    judgment,     but    modified     it   by   awarding

$217,260.20 in “new value credit” to Avante Group for its payments

to Debtor’s creditors in that amount.4          Trustee moved for rehearing

on the single issue of whether Debtor’s directors should be held


      3
        11 U.S.C. § 547 provides in pertinent part:
   “. . . .
   (b) Except as provided in subsection (c) of this section, the trustee may
   avoid any transfer of an interest of the debtor in property–
          (1) to or for the benefit of a creditor;
          (2) for or on account of an antecedent debt owed by the debtor
   before such transfer was made;
          (3) made while the debtor was insolvent;
          (4) made–
                (A) on or within 90 days before the date of the filing of the
   petition; or
                (B) between ninety days and one year before the date of the
                filing of the petition, if such creditor at the time of such
                transfer was an insider; and
          (5) that enables such creditor to receive more than such creditor
   would receive if–
                (A) the case were a case under chapter 7 of this title;
                (B) the transfer had not been made; and
                (c) such creditor received payment of such debt to the extent
                provided by the provisions of this title.
   . . . .”
      4
        Trustee does not appeal this new value determination, and in fact conceded
the issue before the district court.

                                        5
personally liable for unlawful distributions to Avante Group under

TBCA article 241.            Upon the district court’s denial of the motion,

Trustee appeals that sole issue to this court.

                                       Discussion

I.      Standard of Review

        We review bankruptcy court rulings using the same standard of

review       applied    by    the    district   court   in   its   review   of   the

bankruptcy court: findings of fact are reviewed for clear error,

and issues of law reviewed de novo.                 In re CPDC, Inc., 337 F.3d

436, 440–41 (5th Cir. 2003).

II.         Liability of Directors Under TBCA Article 2.41

        Texas law holds a corporation’s directors who “vote for or

assent to a distribution by the corporation” personally liable to

the corporation for the amount of the distribution made if the

corporation        would      be    insolvent   after   giving     effect   to   the

distribution.5         TBCA arts. 2.38, 2.41.        The statute of limitations


        5
         TBCA art. 2.41 provides in pertinent part:
           “A.   In addition to any other liabilities imposed by law upon
     directors of a corporation:
           (1) Directors of a corporation who vote for or assent to a
     distribution by the corporation that is not permitted by Article 2.38 of
     this Act shall be jointly and severally liable to the corporation for the
     amount by which the distributed amount exceeds the amount permitted by
     Article 2.38 of this Act to be distributed; provided that a director shall
     have no liability for the excess amount, or any part of that excess, if on
     any date after the date of the vote or assent authorizing the
     distribution, a distribution of that excess or that part would have been
     permitted by Article 2.38.
     . . .
           (3) An action may not be brought against a director for liability
     imposed by this section after two years after the date on which the act
     alleged to give rise to the liability occurred.
           B. A director of a corporation who is present at a meeting of its
     board of directors at which action on any corporate matter is taken

                                            6
for article 2.41 actions is two years.             TBCA art. 2.41(A)(3).

Trustee argues that Debtor’s directors should be held personally

liable for transfers made to Avante Group after the state appeals

court reinstated the default judgment in June 1996.          The parties do

not dispute that Debtor was insolvent at that time.           Applicability

of article 2.41 therefore depends on whether the transfers from

Debtor to Avante Group were “distributions” within the meaning of


  shall be presumed to have assented to the action taken unless his
  dissent shall be entered in the minutes of the meeting or unless he
  shall file his written dissent to such action with the person acting as
  the secretary of the meeting before the adjournment thereof or shall
  forward such dissent by registered mail to the secretary of the
  corporation immediately after the adjournment of the meeting. Such
  right to dissent shall not apply to a director who voted in favor of
  such action.
  . . .
        E. A director against whom a claim shall be asserted under this
  Article for a distribution made by the corporation, and who shall be
  held liable thereon, shall be entitled to contribution from the
  shareholders who accepted or received such distribution knowing that
  such distribution was not permitted by Article 2.38, in proportion to
  the amounts received by them, respectively.
        F. A director found liable with respect to a claim shall be
  entitled to contribution as appropriate to achieve equity from each of
  the other directors who are liable with respect to that claim.
        G. The liability provided in Subsection (1) of Section A of this
  Article shall be the only liability of directors to a corporation or its
  creditors for authorizing a distribution by the corporation that is not
  permitted by Article 2.38 of this Act. The liability provided in
  Section E of this Article shall be the only liability of shareholders to
  a corporation or its creditors for accepting or receiving a distribution
  by the corporation that is not permitted by Article 2.38 of this Act;
  provided, however, that this Section does not limit any liability under
  the Uniform Fraudulent Transfer Act or the United States Bankruptcy
  Code.”

TBCA art. 2.38 provides in pertinent part:
   “. . .
         B. A distribution may not be made by a corporation if:
         (1) after giving effect to the distribution, the corporation would
   be insolvent; or
         (2) the distribution exceeds the surplus of the corporation.
   . . .
         D. Notwithstanding the limitations set forth in Section B of this
   Article, the corporation may make distributions in compliance with
   Article 6.04, 7.09, or 7.12 of this Act.”


                                      7
articles 2.41 and 2.38, and, if so, whether Debtor’s directors

“vote[d] for or assent[ed] to” these distributions as required by

article 2.41. The bankruptcy court did not address these questions

specifically, concluding simply that Trustee failed to sufficiently

prove his claim of director liability.           The district court held

that the transfers were distributions within the meaning of the

TBCA, but that Trustee did not prove that Debtor’s directors

assented to the transfers.

     The TBCA defines “distribution” as a transfer of money or

other property by a corporation to its shareholders, where the

transfer can be in the form of a dividend, a share repurchase, or

“a payment by the corporation in liquidation of all or a portion of

its assets.”    TBCA art. 1.02(13).6      The bankruptcy court found that

Debtor’s payments to Avante Group between July 1996 and November

1997 were liquidation proceeds, and this finding is not clearly

erroneous.     Since Avante Group is Debtor’s sole shareholder, the

payments from Debtor to Avante Group arguably may qualify as

distributions under TBCA article 1.02(13)(c). It is not clear that

the payments to Avante Group are really payments to “shareholders”


     6
      TBCA art. 1.02(13) provides:
        “(13) ‘Distribution’ means a transfer of money or other property
  (except its own shares or rights to acquire its own shares), or issuance
  of indebtedness, by a corporation to its shareholders in the form of:
        (a) a dividend on any class or series of the corporation’s
  outstanding shares;
        (b) a purchase, redemption, or other acquisition by the corporation,
  directly or indirectly, of any of its own shares; or
        (c) a payment by the corporation in liquidation of all or a portion
  of its assets.”


                                      8
within the meaning of the TBCA “distribution” definition, however.

Previous application of article 2.41 has not involved payments that

reduce the indebtedness of the corporation, as here.7                  Director

liability under article 2.41 is liability to the corporation, and

because    all    payments    reduced       the   corporation’s     debt,    the

corporation does not appear to have been harmed.

      Even if the payments from Debtor to Avante Group are deemed to

be distributions, however, Trustee did not sufficiently prove that

Debtor’s directors assented to enough payments to justify the $1.6

million liability demanded.         In the case of one of the directors,

Alan Kranz, there was no specific evidence of assent presented.

With regard to the other directors, Harvey Lichtman (Lichtman) and

Ron Ostroff (Ostroff), there was evidence that Lichtman and Ostroff

had been involved in determining the amount of the $450,000 lease

termination payment that was sent to Avante Group in July 1997.

Lichtman further testified that the directors had met on multiple

occasions to discuss what generally to do with the assets of the

corporation, though he could not recall whether these meetings were




      7
       The only case cited by the parties involving article 2.41 is one in which
a corporation repurchased the shares of one of its directors when the corporation
had become insolvent. In re Gribbin Supply Co., Inc., 371 F. Supp. 664, 667–68
(N.D. Tex. 1974). This is consistent with interpretation of articles 2.41 and
2.38 as contemplating distributions to shareholders as shareholders, rather than
to a shareholder as a manager (in the case of the payments used to pay the trade
creditors) or as a creditor (in the case of the payments used to reduce Debtor’s
debt to Avante Group). Trustee does not appeal the district court’s affirmance
of the bankruptcy court’s ruling that Avante Group’s contributions to Debtor
created debt rather than equity.

                                        9
formal or informal.8         There is no evidence that any of these

discussions touched on the cash management system or payments to

Avante Group.

      Lichtman and Ostroff arguably may have assented to the payment

by the lessor of the lease termination fee to Avante Group rather

than to Debtor.       See In re Gribbin Supply Co., Inc., 371 F. Supp.

664, 667–68 (N.D. Tex. 1974).             This transfer totals less than

$500,000, however, and the bankruptcy court’s judgment as modified

by the district court requires Avante Group to return more than

this amount to Debtor as preferential payments.                   There is no

evidence that article 2.41 is intended to be a punitive provision;

rather, it is intended to return to the corporation funds that

directors     have     improperly      caused     to    be    distributed      to

shareholders.9       Because these funds have already been returned to

the corporation, there is no reason to hold the directors liable



      8
        The testimony does not specify whether Lichtman was referring to the board
of directors of Debtor or that of Avante Group (Lichtman was a director of both
corporations). The district court interpreted the testimony as referring to
Debtor’s board of directors.
      Trustee argues on appeal that further evidence of assent to transfers comes
from checks to Avante Group allegedly signed by Debtor’s directors. Although
copies of several checks transferring funds to Avante Group were admitted into
evidence during the bankruptcy court trial, they were apparently introduced for
the purpose of illustrating delays in making accounting entries and failures to
disclose transfers to Trustee, rather than to support allegations of assent to
transfers.     There is no testimony or argument before the bankruptcy court
regarding who signed any of the checks (many of the purported signatures on which
are virtually illegible) or what amount in transfers was allegedly assented to
by any of the directors in this manner. We conclude that this argument is not
sufficiently supported in the record.
      9
       The non-punitive nature of the director’s liability is illustrated by the
director’s right of contribution from any shareholders who received distributions
knowing that they were not permitted by TBCA article 2.38. TBCA art. 2.41E.

                                       10
for them.    Cf. 20A, ROBERT W. HAMILTON         ET AL,   TEXAS PRACTICE SERIES, §

37.20 at 210-11 & n.8 (“Presumably, the common law [trust fund]

liability of directors is limited to amounts that are distributed

preferentially and not recoverable by the bankruptcy trustee”).

       With regard to the transfers by others to Avante Group through

the cash management system, Trustee did not present sufficient

evidence establishing that these were assented to by the directors.

Such evidence might have included some evidence of agreement by the

directors to continue use of the cash management system even after

Debtor was to cease doing business, for example.                 Although article

2.41 provides that a director present at a meeting where action is

taken is presumed to have assented to the action unless he files a

written dissent, the statute does not suggest that assent to

continuation of previously established practice is established

merely   from   later   inaction     with    knowledge       of   the   practice.

Therefore, even if meetings of the directors generally discussing

what to do with the corporation’s assets (without any evidence that

the cash mangement system was discussed) might suggest awareness

that   transfers    were   being   made     by    others     through     the   cash

management system properly established years previously, they do

not establish assent within the meaning of article 2.41.                 Since the

general rule is that directors of a corporation are not personally

liable for the corporation’s obligations, we do not believe that

“assent”    under   article   2.41    was    intended       to    be   interpreted



                                      11
expansively, particularly when the directors have achieved no

financial gain and fraud is not at issue.

      At oral argument, Trustee appeared to assert that Debtor was

barred     by   the    Texas    common    law    “trust     fund    doctrine”      from

preferring one creditor over another once a decision had been made

to liquidate the company. The trust fund doctrine does not support

recovery here, however.10          Even if the trust fund doctrine could be

applied here, the potential liability is presumed by commentators

to be limited to the amount that the creditor would have received

in an equitable distribution among all creditors.                       20A ROBERT W.

HAMILTON   ET AL.,   TEXAS PRACTICE SERIES § 37.20 at 210-22 & n.8 (2d ed.

2004).      In no event is a director liable under the trust fund

doctrine when the total of payments to all creditors exceeds the

amount of corporate assets received.               Id.; Halliday, 663 S.W.2d at

828; N. Am. Sav. Ass’n v. Metroplex Dev. P’ship, 931 F.2d 1073,

1079–80 (5th Cir. 1991).            All of the payments received by Avante

Group went to paying debts of creditors.                   There is therefore no



      10
       The trust fund doctrine was invoked by a creditor of a dissolved
corporation, not by the corporation itself.           Henry I. Seigel Co., Inc. v.
Halliday, 663 S.W.2d 824, 827 (Tex. 1984). Furthermore, the doctrine did not
generally provide for personal liability of the corporation’s directors. Rather,
it allowed the creditor to trace assets of the corporation and subject those
assets to its claim (unless the assets were in the hands of a bona fide
purchaser). A director was personally liable under the trust fund doctrine only
if he had caused assets to be untraceable or diminished their value.                  Id.
Finally, the trust fund doctrine is believed to have been superceded by the
provision of TBCA art. 2.41G, added in 1991, that liability under article 2.41
is the only liability of a director to the corporation or its creditors for an
improper distribution.     See Smith v. Chapman, 897 S.W.2d 399, 402 (Tex.
App.—Eastland 1995); 20A ROBERT W. HAMILTON, ET AL., TEXAS PRACTICE SERIES § 45.13 & n.16
(2d ed. 2004).

                                           12
basis under the trust fund doctrine for the $1.6 million judgment

against the directors demanded by Trustee.




                           Conclusion

     For the foregoing reasons, the judgment of the district court

is

                            AFFIRMED.




                               13
