     Case: 09-41199 Document: 00511390586 Page: 1 Date Filed: 02/23/2011




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                 Fifth Circuit

                                              FILED
                                                           February 23, 2011

                                No. 09-41199                 Lyle W. Cayce
                                                                  Clerk

In the Matter of: DONALD LEE YOUNG,

                                       Debtor
________________________________________________________________________

CHRIS DI FERRANTE,

                                         Appellant,
v.

DONALD LEE YOUNG; DORIS YOUNG,

                                         Appellees.

________________________________________________________________________

In the Matter of: DONALD LEE YOUNG; DORIS YOUNG,

                                       Debtors
________________________________________________________________________

CHRIS DI FERRANTE,

                                         Appellant,
v.

DONALD LEE YOUNG; DORIS YOUNG,

                                         Appellees.
     Case: 09-41199 Document: 00511390586 Page: 2 Date Filed: 02/23/2011



                                       No. 09-41199


                   Appeal from the United States District Court
                        for the Southern District of Texas
                              USDC No. 3:07-CV-542


Before KING, STEWART, and OWEN, Circuit Judges.
PER CURIAM:*
       Chris Di Ferrante appeals the district court’s order affirming various
decisions of the United States Bankruptcy Court for the Southern District of
Texas. For the reasons stated below, we vacate the district court’s order and
remand to the district court.
                                              I
       The facts and history of the bankruptcy cases and associated adversary
proceedings are extensive, and we recount only the facts and procedural
background pertinent to the issues presented in this appeal.
       Doris Ann Young and Donald Lee Young (together, the Youngs) are
married and have an adult daughter, Donna Holcomb. Di Ferrante is a Texas
lawyer; at one time, he was Mr. Young’s attorney. Di Ferrante alleged, first in
state court and then in an adversary proceeding in federal bankruptcy court,
that Mr. Young owed legal fees to Di Ferrante. Di Ferrante alleged that there
had been a fraudulent transfer of property located in Kemah, Texas, from the
Youngs to a company controlled by Holcomb and a fraudulent reconveyance of
that property back to the Youngs as part of a scheme to avoid payment of the
fees owed to Di Ferrante. In state court proceedings, a third party lender whose
debt was secured by a lien on the Kemah property assigned that debt and lien
to Di Ferrante. In the Youngs’ Chapter 7 bankruptcy proceedings, Di Ferrante


       *
         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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asserted not only that he was a lienholder on the Kemah property but that the
fraudulent reconveyance should be set aside and the Kemah property should be
restored to the assets of Holcomb’s company rather than treated as an asset of
the Youngs’ bankruptcy estates.
       The multiple state court and bankruptcy proceedings that were filed over
several years, according to the bankruptcy court, “devolved into a litigation
quagmire that [was] costing inordinate amounts of money, time and judicial
resources.”1 The bankruptcy court entered various orders and a judgment that
we will consider in more detail in connection with our resolution of the issues
that Di Ferrante presents in this appeal. Those issues are whether (1) Di
Ferrante was required to serve the trustee in the Youngs’ bankruptcy
proceedings with a summons in order to make him a party to an adversary
proceeding; (2) the bankruptcy court abused its discretion in dismissing Di
Ferrante’s adversary proceeding regarding the alleged fraudulent transfer of the
Kemah property; and (3) the bankruptcy court erred in awarding funds in the
registry of the court without determining whether those funds were an asset of
the bankruptcy estates of either of the Youngs.
                                             II
       We have jurisdiction over this appeal pursuant to 28 U.S.C. § 158(d). We
apply “‘the same standards of review to the bankruptcy court’s findings of fact
and conclusions of law as applied by the district court’” sitting as an appellate
court.2    We review the bankruptcy court’s conclusions of law de novo 3 and



       1
        Di Ferrante v. Young (In re Young), No. 07-80119, 2007 WL 2684063, at *1 (Bankr.
S.D. Tex. Sept. 7, 2007).
       2
       Jacobsen v. Moser (In re Jacobsen), 609 F.3d 647, 652 (5th Cir. 2010) (quoting Kennedy
v. MindPrint (In re ProEducation Int’l, Inc.), 587 F.3d 296, 299 (5th Cir. 2009)).
       3
        Id. (citing Szwak v. Earwood (In re Bodenheimer, Jones, Szwak & Winchell L.L.P.),
592 F.3d 664, 668 (5th Cir. 2009)).

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                                         No. 09-41199

findings of fact for clear error.4 We will reverse a finding of fact “only when this
court is left with ‘the definite and firm conviction that a mistake has been
made.’”5 We review de novo mixed questions of law and fact, or application of
law to fact.6 We review a bankruptcy court’s decision to dismiss a case for abuse
of discretion.7 “A bankruptcy court abuses its discretion when it (1) applies an
improper legal standard or . . . (2) rests its decision on findings of fact that are
clearly erroneous.” 8
                                               III
       We consider the first two issues on appeal together since the pertinent
facts are intertwined to some degree. We begin with the relevant portions of an
order that the bankruptcy court issued on August 10, 2007, which granted a
partial summary judgment to Di Ferrante.
       Di Ferrante had filed a motion for summary judgment in adversary
proceeding No. 06-3195, to which the Youngs had not responded as to his claims
regarding the Kemah property. A hearing on that motion and other matters was
held on August 10, 2007. The record reflects that counsel for the trustee in the
Youngs’ chapter 7 proceedings appeared at the hearing in No. 06-3195. The



       4
           Id.
       5
         Chiasson v. J. Louis Matherne & Assocs. (In re Oxford Mgmt., Inc.), 4 F.3d 1329, 1333
(5th Cir. 1993) (quoting Young v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. (In re Young, 995
F.2d 547, 548 (5th Cir. 1993)).
       6
           Bass v. Denney (In re Bass), 171 F.3d 1016, 1021 (5th Cir. 1999).
       7
        See Peterson v. Atlas Supply Corp. (In re Atlas Supply Corp.), 857 F.2d 1061, 1063 (5th
Cir. 1988) (holding that the bankruptcy court did not abuse its discretion in denying the
petitioner’s motion to dismiss under 11 U.S.C. § 707(a)); see also Price v. U.S. Tr. (In re Price),
353 F.3d 1135, 1138 (9th Cir. 2004) (“We review a bankruptcy court’s decision to dismiss a case
for abuse of discretion.”).
       8
        Caplin & Drysdale Chartered v. Babcock & Wilcox Co. (In re Babcock & Wilcox Co.),
526 F.3d 824, 826 (5th Cir. 2008) (citing In re Cahill, 428 F.3d 536, 539 (5th Cir. 2005))
(internal quotation marks omitted).

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bankruptcy court issued a written order the same day. That order reflected that
because of various failures by the Youngs to comply with previous court orders,
the bankruptcy court deemed certain facts in Di Ferrante’s complaint in
adversary proceeding No. 06-3195 to be true. The bankruptcy court held that
the Kemah property was not the Youngs’ homestead and was therefore non-
exempt property. However, the bankruptcy court concluded that it could not
rule upon Di Ferrante’s contentions regarding the fraudulent transfer of the
Kemah property because the trustee in the Youngs’ Chapter 7 bankruptcy
proceedings was a necessary party to the adversary proceeding and had not been
joined. The bankruptcy court ordered that if the trustee was not joined within
30 days, Di Ferrante’s adversary proceeding would be dismissed.
      The same day that this order issued, August 10, 2007, counsel for the
trustee entered a written appearance in Donald Young’s bankruptcy proceeding
and adversary proceeding No. 06-3195, “demand[ing] that all notices given or
required to be given and all papers served in this case be delivered to and served
upon” the attorney for the trustee. The notice of appearance further provided
that this “demand include[d] not only the notices and papers referred to in the
above mentioned Bankruptcy Rules, but also include[d], without limitation, all
orders, applications, motions, petitions, pleadings, requests, complaints or
demands, whether formal or informal, written or oral, transmitted or conveyed
by mail delivery, telephone, facsimile or otherwise, in these cases.” The notice
provided, however, that it “simply constitute[d] a demand and request for service
and [did] not constitute a consent to the jurisdiction of the Bankruptcy Court.”
      After the August 10, 2007, order issued, Di Ferrante amended his
complaint in the adversary proceeding to name the trustee as a party; he
included a certificate of service with the amended complaint indicating that he
had served it on the debtors and on the trustee at the trustee’s attorney’s
address. Di Ferrante also requested that a summons be issued, and it was, but

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                                         No. 09-41199

he never served the summons on the trustee. Di Ferrante’s subsequent filings
in the bankruptcy court indicate that there were further contacts with counsel
for the trustee regarding service that we will discuss below.
      On September 7, 2007, two days before the expiration of the 30-day
deadline for joining the trustee as a party in the adversary proceeding, the
bankruptcy court issued a memorandum opinion (September order) containing
various findings and a proposed final order to “resolve all outstanding disputes”
relating to the Youngs’ bankruptcies and associated adversary proceedings. The
bankruptcy court found that “no further evidence would assist [it] in arriving at
a just conclusion” in the litigation.9 The court stated that it was proceeding
under 11 U.S.C. § 105(a) to “issue any order, process, or judgment that is
necessary or appropriate to carry out the provisions of” Title 11, the Bankruptcy
Code.10 The court found that under that provision it could act “sua sponte in
‘taking any action or making any determination necessary or appropriate to
enforce or implement court orders or rules or to prevent an abuse of process.’” 11
Thus, the court concluded, it would issue an order to “prevent further abuses and
to assure that the parties receive a just result.”12          The bankruptcy court
concluded that the validity of the lien that Di Ferrante claimed on the Kemah
property was “no longer an issue” because the Kemah property was not
homestead, was non-exempt, and was therefore subject to execution to satisfy Di
Ferrante’s claim as a judgment creditor. Although this order recited that Di
Ferrante had claimed that the Kemah property had been fraudulently



      9
        Di Ferrante v. Young (In re Young), No. 07-80119, 2007 WL 2684063, at *1 (Bankr.
S.D. Tex. Sept. 7, 2007).
      10
           Id.
      11
           Id. (quoting 11 U.S.C. § 105(a)).
      12
           Id.

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                                 No. 09-41199

transferred to avoid his claims, the order did not dispose of the fraudulent
transfer claims expressly. The September order stated that although the court
had “never had an opportunity to address the disputes between the parties based
on the merits,” the court “[i]nstead . . . has granted substantial relief to Di
Ferrante based on the Young’s [sic] wholesale defiance of this court’s discovery
orders.” The parties filed various motions objecting to the proposed final order
and seeking clarification.
      We pause at this juncture to note that the September 7, 2007, opinion and
proposed order was issued before the 30-day deadline to join the trustee as a
party in adversary proceeding No. 06-3195 had expired.         The September
proposed order did not reflect that the basis for dismissing the adversary
proceeding was Di Ferrante’s failure to join the trustee or failure to serve the
trustee with a summons. Instead, the basis for the proposed ruling appears to
have been the bankruptcy judge’s conclusion that equity was being done by
recognizing the non-exempt status of the Kemah property. This disposition
meant, however, that Di Ferrante’s claim as a judgment creditor was
subordinate in the priority chain to the trustee’s claim for administrative
expenses. If the Kemah property were determined to have been fraudulently
transferred to the Youngs and deemed the property of their daughter’s company,
the Kemah property would not be subject to the trustee’s claims.
      On October 24, 2007, the bankruptcy court entered a final order (October
2007 order) that tracked the proposed ordering paragraphs of the September
2007 order. Among other things, the October 2007 order dismissed the Youngs’
bankruptcy proceedings with prejudice and dismissed Di Ferrante’s associated
adversary proceedings. The court found the Kemah property to be non-exempt,
and charged it with a lien held by Di Ferrante as a judgment creditor. The order
also released a bond the Youngs had deposited in the court’s registry as
protection against the deterioration of the value of the Kemah property. The

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                                 No. 09-41199

court made no findings as to the legal owner of the bond funds, but ordered that
they be released to “Paul Young [the Youngs’ son], Donald Lee Young and
Midtown Park Development Ltd. [Paul’s company].” The bankruptcy court’s
order made no mention of whether the trustee had been joined as a party to Di
Ferrante’s adversary proceeding regarding the Kemah property. Nor did the
October 2007 order discuss the fraudulent transfer claims that Di Ferrante had
asserted regarding this property.
      Di Ferrante filed objections to the October 2007 order and a request for
reconsideration. That filing did not raise any issues regarding Di Ferrante’s
fraudulent transfer claims or the release of funds. The bankruptcy court issued
an order on December 10, 2007, addressing Di Ferrante’s concerns and denying
his motion for reconsideration of the matters he had identified.
      In response to a request by the trustee in Doris Young’s chapter 7
bankruptcy proceeding, the bankruptcy court modified its October 2007 order in
an order dated December 19, 2007. This December 19, 2007, order reopened that
bankruptcy proceeding, ordered that it be noticed as an asset case, and directed
the trustee to administer the non-exempt Kemah property.
      It was in response to this modification that Di Ferrante filed, on December
30, 2007, a motion for reconsideration in which he discussed his fraudulent
conveyance claim at length and requested the bankruptcy court to reopen the
adversary proceeding and remove the Kemah property from the Youngs’ estates.
      The bankruptcy court then ordered Di Ferrante, on January 3, 2008, to
show whether a summons had been served on the trustee within 30 days after
the issuance of the August 10, 2007, order. Di Ferrante’s submission in reply
took the position that service of a summons was not necessary due to the notice
of appearance filed by the trustee’s attorney and the fact that a copy of the
amended complaint had been served on the trustee’s attorney and the trustee
through his attorney. Di Ferrante’s filing in response to the bankruptcy court’s

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inquiry also indicated, however, that because of extensive dealings with the
trustee, through counsel, Di Ferrante at one point thought that a proposed sale
would moot the issues regarding the Kemah property and that was why he had
not pursued service of the summons. Di Ferrante’s filing also indicated that he
had sent a waiver of service form to the attorney for the trustee, there had been
numerous discussions about how the trustee should be served in order to contain
costs, but that in the final analysis, no summons had been served on the trustee.
      The record accordingly reflects that the first indication from the
bankruptcy court that the failure to serve a summons on the trustee could serve
as a basis for the October 2007 judgment dismissing Di Ferrante’s adversary
proceeding came in January 2008, when the bankruptcy court directed Di
Ferrante to provide evidence that the summons had been served. In an order
issued January 30, 2008, the bankruptcy court concluded that the trustee had
been made a party “in name” to the adversary proceeding prior to its dismissal,
but that no summons had been served, the trustee had not filed an answer, and
no default judgment had been taken. The bankruptcy court reasoned, therefore,
that the October 24, 2007, judgment was not binding on the trustee.          The
bankruptcy court stated that Di Ferrante was free to litigate with the trustee
regarding the Kemah property in future proceedings.
      Di Ferrante filed another adversary proceeding on February 22, 2008,
naming the trustee and seeking to have the Kemah property removed from the
Youngs’ bankruptcy estates and restored to the company controlled by their
daughter.       In that proceeding, which this appeal does not include, the
bankruptcy court held that the fraudulent transfer claim was extinguished by
the operation of Texas law13 on November 23, 2007, which was the date four




      13
           See TEX . BUS . & COM M . CODE § 24.010(a)(2).

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                                      No. 09-41199

years after the transfer of the property. The bankruptcy court therefore held
that Di Ferrante’s claim against the trustee was time-barred.
       To recap, when Di Ferrante’s adversary proceeding No. 06-3195 was
dismissed on October 24, 2007, Di Ferrante’s claim against the trustee had not
yet been extinguished under Texas law. However, there was no indication from
the bankruptcy court at that point in time that Di Ferrante’s efforts to join the
trustee as a party in No. 06-3195 had been unsuccessful. It was only after the
claim was extinguished that the bankruptcy court expressly concluded that the
trustee had not been properly joined.
       However, because of our disposition of the propriety of the dismissal of Di
Ferrante’s adversary claim, we will assume, without deciding, that the dismissal
was not tantamount to a dismissal after limitations had run.14 We will further
assume, without deciding, that the trustee was never made a party to adversary
proceeding No. 06-3195, the bankruptcy court’s August 2007 order contemplated
that the trustee would be served with a summons within 30 days, and the
bankruptcy court’s dismissal of that adversary proceeding occurred due to Di
Ferrante’s failure to serve the trustee with a summons.
       The bankruptcy court cited 11 U.S.C. § 105 as its authority for the
dismissal. To the extent that the bankruptcy court based its dismissal of the
adversary proceeding on equitable principles, we recognize that Section 105(a)
of Title 11 permits the bankruptcy court to exercise broad authority.15 We also

       14
         See Millan v. USAA Gen. Indem. Co., 546 F.3d 321, 325-26 (5th Cir. 2008) (applying
a heightened standard of review to a district court’s dismissal of claims when the statute of
limitations barred future litigation).
       15
          See Marrama v. Citizens Bank of Mass., 549 U.S. 365, 374-75 (2007) (interpreting
§ 105(a) as adequate to authorize denial of a motion to convert, even though another section
of the Code seemed to expressly and automatically authorize such a conversion); Jacobsen v.
Moser (In re Jacobsen), 609 F.3d 647, 660-61 (5th Cir. 2010) (applying the reasoning of
Marrama in holding that § 105(a) gave a bankruptcy court the authority to deny a motion for
dismissal, when a different provision of the Code seemed to guarantee a debtor an absolute
right to dismissal).

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                                         No. 09-41199

recognize the bankruptcy court’s general powers of equity.16 But the authority
granted under is not without limits: “the powers granted . . . must be exercised
in a manner that is consistent with the Bankruptcy Code.”17 “The ‘statute does
not authorize the bankruptcy courts to create substantive rights that are
otherwise unavailable under applicable law, or constitute a roving commission
to do equity.’” 18
       We have held that “a dismissal under [FRCP] 41(b)19 for failure to comply
with an order of the district court is appropriate only where there is a clear
record of delay or contumacious conduct and lesser sanctions would not serve the
best interests of justice.”20          The record reveals no evidence of delay or
contumacious conduct on Di Ferrante’s part in pursuing the adversary
proceeding. There is also no evidence that the bankruptcy court imposed lesser
sanctions on Di Ferrante before it dismissed his adversary proceeding.
       The bankruptcy court’s final order does not provide Di Ferrante with the
relief he might have received had he been permitted to prosecute the fraudulent
transfer claims against the trustee. The final order gives him judgment creditor
status, with a lien on the Kemah property. But his claim has a lower priority



       16
         See Chiasson v. J. Louis Matherne & Assocs. (In re Oxford Mgmt., Inc.), 4 F.3d 1329,
1333 (5th Cir. 1993).
       17
            Id. at 1334.
       18
            Id. (quoting United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir. 1986)).
       19
         See FED . R. BANKR . P. 7041 (applying FRCP 41, with a slight modification not
relevant here, to adversary proceedings).
       20
         Wrenn v. Am. Cast Iron Pipe Co., 575 F.2d 544, 546 (5th Cir. 1978) (comparing cases
in which dismissal was inappropriate with cases in which it was appropriate); see also Graham
v. Wood (In re Wood), 199 F. App’x 328, 329 (5th Cir. 2006) (unpublished) (concluding that the
bankruptcy court had abused its discretion in dismissing a complaint objecting to the
discharge of debt because there was no “clear record of delay or contumacious conduct” and
“the record [did] not show either that the court determined that lesser sanctions would not
prompt diligent prosecution or that it employed lesser sanctions which proved to be futile”).

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                                       No. 09-41199

than both the tax liens and the administrative expenses of the estate trustee.
The resolution of the fraudulent transfer claim in Di Ferrante’s favor, on the
other hand, would mean that the Kemah property was not part of the Youngs’
estate, and would therefore not be subject to either the tax liens or
administration expenses. The dismissal of the bankruptcy proceedings and, with
them, Di Ferrante’s adversary claim, did not take into account the parties’ best
interests.21
       The provisions of the October 2007 final order dismissing the bankruptcy
proceedings and the adversary proceeding in No. 06-3195 were therefore an
abuse of the bankruptcy court’s discretion.
                                              IV
       Di Ferrante also argues that the bankruptcy court exceeded its authority
in ordering the release of funds that the Youngs had deposited with the court to
protect against deterioration in the value of the Kemah property. The court
made no findings as to the owner of the funds, but ordered them released to
Donald Young and two non-debtors—his son and his son’s company. Di Ferrante
contends that the funds were presumptively estate assets and that they could
not be distributed to non-debtors without factual and legal analysis concerning
ownership.
       Before we reach the merits of this claim, we must consider whether Di
Ferrante has standing to assert it. Only a “person aggrieved” by the order of a
bankruptcy court may appeal it.22 In order to have standing to appeal, the
“appellant must show that he was directly and adversely affected pecuniarily by


       21
          See Schwartz v. Geltzer (In re Smith), 507 F.3d 64, 72 (2d Cir. 2007) (reasoning that,
in considering a debtor’s motion to dismiss, the court takes into account the best interests of
the parties, and “[w]ith regard to creditors, the issue is typically one of prejudice” (internal
citations omitted)).
       22
          Gibbs & Bruns LLP v. Coho Energy Inc. (In re Coho Energy Inc.), 395 F.3d 198, 202
(5th Cir. 2004).

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                                           No. 09-41199

the order of the bankruptcy court.”23               Di Ferrante meets the high bar for
standing to appeal the release of the funds. The funds were deposited as a
protection against the deterioration in value of the Kemah property, the transfer
of which Di Ferrante disputes; thus, Di Ferrante has standing to appeal the
bankruptcy court’s order to release the funds from the estate.
      We agree that the bankruptcy court abused its discretion in releasing the
funds without making findings concerning their ownership. The determination
of whether the funds are property of a bankruptcy estate is “a legal
determination which frequently entails complex analyses involving a number of
legal elements and a variety of facts.”24 Releasing these funds without such
findings is not in the best interest of either the Youngs or Di Ferrante, and is
therefore not consistent with the court’s authority under 11 U.S.C. § 105(a).25
                                       *        *         *
      For the reasons stated above, we VACATE the district court’s order
affirming the bankruptcy court’s final order and REMAND to the district court
with instructions to remand accordingly to the bankruptcy court for additional
proceedings in accordance with this decision.




      23
           Id. at 203 (quotation and citation omitted).
      24
           Brown v. Chestnut (In re Chestnut), 422 F.3d 298, 303 (5th Cir. 2005).
      25
          See Schwartz, 507 F.3d at 72 (determining whether dismissal was in the best
interests of all parties).

                                               13
