EDITH H. JONES, Circuit Judge.
Appellants Raul Galaz and Segundo Suenos, L.L.C.
Lisa filed an adversary proceeding in bankruptcy court against her ex-husband, Raul, for fraudulently transferring the assets of Artist Rights Foundation, LLC ("ARF") to a Texas limited liability company managed by Raul's father. Raul, a former California attorney,
On June 3, 2005, without obtaining prior consent from either Lisa or Julian, Raul assigned all of ARF's rights to the entity Segundo Suenos. At the time of the transfer, Segundo Suenos was not organized as a business entity under the laws of any state. Three months later, Raul assisted his father, Alfredo Galaz, in filing the necessary documents to establish Segundo
In 2007, Lisa filed for Chapter 13 bankruptcy. In April 2008 she brought an adversary proceeding against Raul, Alfredo, and Segundo Suenos ("Defendants"), asserting claims under 11 U.S.C. §§ 542, 544, 548 and the Texas Uniform Fraudulent Transfer Act ("TUFTA"), and asserted that Raul, as a managing member of ARF, breached his fiduciary duties to Lisa when he transferred ARF's assets to Segundo Suenos. Defendants filed a third-party complaint against Julian, who in turn asserted seven counterclaims against Defendants, including breach of fiduciary duty and fraudulent conversion.
When reviewing a district court's affirmance of a bankruptcy court's judgment, this court applies "the same standard of review to the bankruptcy court decision that the district court applied." In re Frazin, 732 F.3d 313, 317 (5th Cir. 2013) (quoting In re IFS Fin. Corp., 669 F.3d 255, 260 (5th Cir.2012) (internal quotation marks omitted)), cert. denied, ___ U.S. ___, 134 S.Ct. 1770, 188 L.Ed.2d 595 (2014). Thus, this court reviews factual findings for clear error and legal conclusions de novo. Id. See also In re OCA, Inc., 551 F.3d 359, 366 (5th Cir.2008).
The principal issues in this appeal concern the bankruptcy court's jurisdiction to
In Matter of Walker, this court explained the source of a bankruptcy court's jurisdiction:
51 F.3d 562, 568 (5th Cir.1995) (internal citations omitted). Relevant to the analysis here are those cases that are at least "related to" a bankruptcy case.
Id. at 569 (internal citations omitted) (emphasis in original).
As the district court found, a judgment against Appellants could, at least conceivably, increase the size of Lisa's bankruptcy estate. See In re BP RE, L.P., 735 F.3d 279, 282 (5th Cir.2013) (state law claims brought by debtor against third-party non-creditors were "related to" the bankruptcy case); Waldman v. Stone, 698 F.3d 910, 916 (6th Cir.2012), (bankruptcy court had subject matter jurisdiction over a debtor's state law claims in an adversary proceeding, in part because "a damages award on [the debtor's] affirmative claims would provide assets for his other creditors"). Lisa's TUFTA claim, it must be noted, is not the paradigmatic fraudulent conveyance claim in bankruptcy, which "asserts that property that should have been part of the bankruptcy estate and therefore available for distribution to creditors pursuant to Title "was improperly removed." Executive Benefits Ins. Agency v. Arkison, ___ U.S. ___, 134 S.Ct. 2165, 2174, 189 L.Ed.2d 83, 82 U.S.L.W. 4450 (2014). In typical bankruptcy fraudulent conveyance cases, it is the debtor who "removes" property from his estate to prevent its falling into the hands of creditors. Here, Lisa is a victim — in her status as an economic interest holder and therefore a creditor — of Raul's unauthorized transfer of ARF's assets. Her state law claim for damages and other relief is against parties who are otherwise uninvolved in the bankruptcy case and exists
Julian's counterclaims, in contrast, will not result in any recovery for Lisa, nor will they have any effect on her bankruptcy case. Even in light of the permissive standard for what constitutes matters "related to" bankruptcy, Julian's counterclaims as a third-party defendant fall short. See Matter of Walker, 51 F.3d at 569 ("As several courts have observed, `a vast majority of cases find that "related to" jurisdiction is lacking in connection with third-party complaints.'"). Because the bankruptcy court lacked subject matter jurisdiction over Julian's unrelated third-party counterclaims, we must vacate the judgments for Julian.
Appellants also challenge the bankruptcy court's constitutional power to enter final judgment on Lisa's claims. A bankruptcy court may enter final judgment only if the court has both statutory and constitutional authority to do so. Stern v. Marshall, ___ U.S. ___, 131 S.Ct. 2594, 2608, 180 L.Ed.2d 475, 79 U.S.L.W. 4564 (2011). A bankruptcy court's statutory authority derives from 28 U.S.C. § 157(b)(1), which designates certain matters as "core proceedings" and authorizes a bankruptcy court to determine the matters and enter final judgments. See Executive Benefits, 134 S.Ct. at 2171. See also Waldman, 698 F.3d at 921-22 ("A core proceeding either invokes a substantive right created by federal bankruptcy law or one which could not exist outside of the bankruptcy." (quoting Lowenbraun v. Canary, 453 F.3d 314, 320 (6th Cir.2006))), cert denied, ___ U.S. ___, 133 S.Ct. 1604, 185 L.Ed.2d 581 (2013). As for "non-core" proceedings, 28 U.S.C. § 157(c) authorizes a bankruptcy court either to "submit proposed findings of fact and conclusions of law to the district court," which are reviewed de novo, or to enter final judgment with the parties' consent. Executive Benefits, 134 S.Ct. at 2172.
While Section 157 gives bankruptcy courts statutory authority to enter final judgment on specific bankruptcy-related claims, "Article III of the Constitution prohibits bankruptcy courts from finally adjudicating certain of those claims." Id. at 2168. "Congress may not bypass Article III simply because a proceeding may have some bearing on a bankruptcy case; the question is whether the action at issue stems from the bankruptcy itself or would necessarily be resolved in the claims allowance process." Stern, 131 S.Ct. at 2618. Thus, "when a debtor pleads an action arising only under state-law, ... or when the debtor pleads an action that would augment the bankrupt estate, but not `necessarily be resolved in the claims allowance process[,]' then the bankruptcy court is constitutionally prohibited from entering final judgment." Waldman, 698 F.3d at 919 (quoting Stern, 131 S.Ct. at 2618). Accord In re BP RE, 735 F.3d at 285.
The district court treated Lisa's TUFTA claim as being "related to" the bankruptcy rather than a core bankruptcy claim. We agree with this characterization. The court went on, however, to hold that the bankruptcy court had authority to enter a final judgment based on the Appellants' implied consent. 28 U.S.C. § 157(c)(2); Bankr.Rule 7012; Memo Op., Galaz v. Galaz, No. 11-00425 (W.D. Tex April 17, 2012). This court's later decisions in In re Frazin and In re BP RE are
The failure of the consent rationale does not vitiate the lower courts' work altogether, however. As the Supreme Court recently held, claims designated for final adjudication in the bankruptcy court as a statutory matter, but prohibited from proceeding in that way as a constitutional matter, may still "proceed as non-core within the meaning of § 157(c)." Executive Benefits, 134 S.Ct. at 2173. Because Lisa's claim is "related to a case under title 11," 28 U.S.C. § 157(c)(1), the bankruptcy court may still hear it and "submit proposed findings of fact and conclusions of law to the district court for de novo review and entry of judgment." Executive Benefits, 134 S.Ct. at 2173. Id. at 2174 (holding that the debtor's fraudulent conveyance claims "fit comfortably within the category of claims governed by § 157(c)(1)" and that the bankruptcy court would have been permitted to submit proposed findings of fact and conclusions of law on such claims). Accordingly, the district court's judgment on Lisa's TUFTA claim must be vacated and remanded for de novo review of the bankruptcy court's decision as recommended findings and conclusions.
Appellants contend alternatively that the bankruptcy court should have referred Lisa's claims to arbitration pursuant to an arbitration provision in the ARF Operating Agreement. "[O]nly parties to an arbitration agreement are generally bound by it," In re Huffman, 486 B.R. 343, 354 (Bankr.S.D.Miss.2013). As the bankruptcy court found, Lisa was not a party to the Operating Agreement. The Operating Agreement's opening paragraph refers to "parties" as the LLC's "Members." Lisa held an only economic interest. While this circuit has recognized a limited set of circumstances in which a nonsignatory may be bound to an arbitration agreement,
Appellants challenge the district court's affirmance of the bankruptcy court's judgment finding liability on Lisa's TUFTA claim. See Bankr.Ct. Op., In re Lisa Ann Galaz, No. 08-05043, 2012 WL 6212694 (Bankr.W.D.Tex. Nov. 12, 2010). Although the district court will ultimately
TUFTA "aims to prevent debtors from fraudulently placing assets beyond the reach of creditors." GE Capital Commercial Inc. v. Worthington Nat'l Bank, 754 F.3d 297, 302 (5th Cir.2014). In order to prevail on a TUFTA claim, a plaintiff must prove that (1) she is a "creditor" with a claim against a "debtor"; (2) the debtor transferred assets after, or a short time before, the plaintiff's claim arose; and (3) the debtor made the transfer with the intent to hinder, delay, or defraud the plaintiff. Nwokedi v. Unlimited Restoration Specialists, Inc., 428 S.W.3d 191, 204-05 (Tex.App.-Houston [1st Dist.] 2014, pet. denied) (citing Tex. Bus. & Com.Code § 24.005(a)(1)). One issue raised here is whether Lisa qualifies as a "creditor" within the meaning of TUFTA. TUFTA defines a creditor as someone who has a "claim"-that is, a "right to payment or property, whether or not the right is reduced to judgment, liquidated, ... fixed, contingent, matured ... disputed, undisputed, legal, equitable, [or] secured," Tex. Bus. & Com.Code §§ 24.002(3), (4) — and defines "debtor" as "a person who is liable on a claim," id. at § 4.002(6).
The bankruptcy court assumed Lisa qualified as a "creditor" under TUFTA, but the district court held that Lisa had standing to assert a TUFTA claim as a creditor because she brought her claim in conjunction with other unliquidated, disputed tort claims that arose at the time ARF's assets were transferred. While we agree that Lisa qualifies as a creditor, it is more precise to say her status as a creditor turns on whether "she had a right to payment or property that existed at the time of the fraudulent transfer[ ] or that arose within a reasonable time afterwards." Williams v. Performance Diesel, Inc., No. 14-00-00063-CV, 2002 WL 596414 at *2 (Tex.App.-Houston [14th Dist.] Apr. 18, 2002, no pet.) (citing Tex. Bus. & Com.Code §§ 24.005(a), 24.006). Because she was an economic interest holder of ARF, which was a creature of California corporate law, she had a right to payment and was entitled to distributions from ARF before it was "dissolved" in December 2006 and Raul transferred the royalty rights. See Cal. Corp.Code § 17001(n) ("`Economic interest' means a person's right to share in the income, gains, losses, deductions, credit, or similar items of, and to receive distributions from, the limited liability company[.]"); id. at § 17300 ("[A]n economic interest in a limited liability company constitute[s] personal property of the ... assignee.").
Appellants raise additional arguments challenging the bankruptcy court's findings on liability, actual damages and punitive damages, but review of these factual issues is not properly before us.
Based on the current state of bankruptcy court jurisdiction, as interpreted by the Supreme Court and this court, we must VACATE and REMAND with instructions to DISMISS the judgment in favor of Julian Jackson, which the bankruptcy court adjudicated without jurisdiction. The bankruptcy court's judgment for Lisa Galaz must also be VACATED and REMANDED to the district court for further proceedings. In re BP Re, 735 F.3d at 281. The district court, in turn, may refer the case to the bankruptcy court, which may recast its judgment as proposed findings and conclusions, or may otherwise dispose of the case consistent with this opinion.
Judgment VACATED and REMANDED with instructions to DISMISS IN PART; VACATED and REMANDED for further proceedings IN PART.