# McFarland & Tondre v. Texas General

> Court of Appeals for the Fifth Circuit · June 1, 1995 · 40 F.3d 763

URL: https://www.frixlaw.com/law-library/cases/7165

## Case

- **Court:** Court of Appeals for the Fifth Circuit
- **Decided:** June 1, 1995
- **Citations:** 40 F.3d 763
- **Precedential status:** Published
- **Opinion:** Opinion
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

United States Court of Appeals,
Fifth Circuit.

No. 93-2762.

In the Matter of TEXAS GENERAL PETROLEUM CORPORATION.

Van E. McFARLAND and McFarland & Tondre, Appellants,

v.

Steven A. LEYH, Trustee of the Liquidating Trust of Texas General
Petroleum Corporation, Appellee.

June 1, 1995.

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

Before POLITZ, Chief Judge, and DUHÉ, Circuit Judge.1

DUHÉ, Circuit Judge:

On our own motion we held the mandate in this matter. We

recall our prior opinion2 and substitute the following:

Appellants Van E. McFarland and McFarland & Tondre (McFarland)

appeal the district court's judgment in favor of Appellee Steven A.

Leyh, Trustee of the Liquidating Trust of Texas General Petroleum

Corp. (Liquidating Trustee). Debtor Texas General Petroleum Corp.

brought this fraudulent conveyance action against McFarland after

the bankruptcy court had confirmed Debtor's Chapter 11 plan of

reorganization. The Liquidating Trustee ultimately asserted the

action in place of Debtor. By stipulation, the only issue at trial

1
The late Judge Goldberg was the third member of the panel.
The decision of the remaining two members of the panel
constitutes a quorum. See 28 U.S.C. § 46(d) (1988).
2
In re Texas Gen. Petroleum Corp. (McFarland v. Leyh), 40
F.3d 763 (5th Cir.1994).

1
was whether the Liquidating Trustee had standing to assert the

fraudulent conveyance action. The bankruptcy court answered that

question in the affirmative, and the district court affirmed. We

affirm but for somewhat different reasons.

BACKGROUND

The bankruptcy court confirmed debtor's plan of reorganization

under Chapter 11 of the Bankruptcy Code in April 1985. In October

of that year, the Liquidating Trustee initiated this fraudulent

conveyance action against McFarland. The subject of the suit was

a $12,210.25 payment made by Debtor to McFarland for legal services

performed for a former officer of Debtor's parent company. The

parties stipulated that the only issue was the Liquidating

Trustee's standing to assert the action. The Plan gave the

Liquidating Trustee authority to assert a list of avoidance actions

on behalf of the unsecured creditors. The list, however, did not

include the fraudulent conveyance action against McFarland. The

bankruptcy court determined that the Plan was ambiguous. Using

parol evidence, the court concluded that the parties intended the

Liquidating Trustee to have the authority to assert on behalf of

the unsecured creditors any causes of action not specifically

addressed by the Plan.

The district court affirmed, concluding that the trial court's

interpretation of the ambiguous plan was not clearly erroneous. In

addition, the district court determined that the bankruptcy court

had jurisdiction to adjudicate the dispute, that McFarland was not

entitled to a jury trial, and that the bankruptcy court's award of

2
prejudgment interest was not error. During the litigation,

co-defendant Brice Tondre settled with the Liquidating Trustee for

$10,000. The district court credited only $500 of the settlement

payment to the judgment.

DISCUSSION

On appeal, McFarland claims that the Liquidating Trustee

lacks standing. In addition, McFarland asserts five other issues:

(1) the bankruptcy court lacked jurisdiction; (2) limitations

extinguished the avoidance action; (3) McFarland was entitled to

a jury trial; (4) the award of prejudgment interest was error;

and (5) McFarland should have received full credit for the

settlement of his co-defendant. We review findings of fact for

clear error and legal conclusions de novo. Young v. National Union

Fire Ins. Co., (In re Young), 995 F.2d 547, 548 (5th Cir.1993).

When the district court has affirmed the bankruptcy court's

findings of fact, our review for clear error is strict. Id.

I. Standing

McFarland first contends that the Liquidating Trustee cannot

exercise avoidance powers because it is neither the Debtor nor the

Trustee. In this case, the Debtor acted as debtor-in-possession,

and the bankruptcy court employed no Trustee. The Plan created the

position of Liquidating Trustee.

McFarland's argument runs counter to Section 1123 of the

Code, which allows a plan to provide for "the retention and

enforcement by the debtor, by the trustee, or by a representative

of the estate appointed for such purpose, [of any claim or interest

3
belonging to the debtor or to the estate]." 11 U.S.C. §

1123(b)(3)(B) (1988). Section 1123(b)(3)(B) allows a plan to

transfer avoidance powers to a party other than the debtor or the

trustee. Briggs v. Kent (In re Professional Inv. Properties of

America), 955 F.2d 623, 626 (9th Cir.), cert. denied, --- U.S. ----

, 113 S.Ct. 63, 121 L.Ed.2d 31 (1992); Citicorp Acceptance Co. v.

Robison (In re Sweetwater), 884 F.2d 1323, 1327 (10th Cir.1989).

We agree with the Ninth and Tenth Circuits that a party other than

the debtor or the trustee may be authorized by a plan of

reorganization to exercise avoidance powers.

Under Section 1123(b)(3)(B), a party other than the debtor or

the trustee that seeks to enforce a claim must show (1) that it has

been appointed, and (2) that it is a representative of the estate.

Retail Marketing Co. v. King (In re Mako, Inc.), 985 F.2d 1052,

1054 (10th Cir.1993); In re Hunt, 136 B.R. 437, 444

(Bankr.N.D.Tex.1991). The bankruptcy court's approval of a plan

that clearly appoints a stranger to the estate satisfies the first

element. Mako, 985 F.2d at 1055; Sweetwater, 884 F.2d at 1326;

Nordberg v. Sanchez (In re Chase & Sanborn Corp.), 813 F.2d 1177,

1180 n. 1 (11th Cir.1987). As for the second element, courts apply

a case-by-case analysis to determine whether the appointed party's

responsibilities qualify it as a representative of the estate.

Sweetwater, 884 F.2d at 1326-27. "The primary concern is whether

a successful recovery by the appointed representative would benefit

the debtor's estate and particularly, the debtor's unsecured

creditors." Id. at 1327. The reason for the emphasis on unsecured

4
creditors is that the proceeds recovered in an avoidance action

satisfy the claims of priority and general unsecured creditors

before the debtor benefits. Id.

Applying this test the Plan clearly appoints the Liquidating

Trustee as a representative of the estate to pursue avoidance

actions on behalf of unsecured creditors. Class 5 of the Plan

consists of unsecured claimants. The Liquidating Trust is provided

for the benefit of Class 5 creditors. Provision 5.5.3 of the Plan

establishes the assets of the Liquidating Trust as including

"bankruptcy-created or sanctioned causes of action of the

debtor-in-possession described or listed in Exhibit B." Exhibit B

lists specific avoidance actions. The approved Plan clearly gives

the Liquidating Trustee the power to assert avoidance actions.

Furthermore, the Liquidating Trustee qualifies as a representative

of the estate because the proceeds obtained from its actions

benefit the unsecured creditors. We conclude that the Plan gives

the Liquidating Trustee authority to enforce avoidance actions on

behalf of the estate.

The specific avoidance action that the Liquidating Trustee

asserts against McFarland, however, is not found in Exhibit B.

McFarland, citing § 1141(b), contends that, because the Plan

through Exhibit B does not specifically provide for the fraudulent

conveyance action, the ability to exercise that action vests in the

debtor.3 McFarland would apply § 1141(b) rather than use parol

3
Section 1141(b) provides: "Except as otherwise as provided
in the Plan or the order confirming the Plan, the confirmation of
a plan vests all of the property of the estate in the debtor."

5
evidence. The Plan, however, provides the Liquidating Trustee with

authority to enforce avoidance actions on behalf of the estate.

Because the Plan otherwise provides, we need not consider the

application of § 1141(b).4

We apply the rules of contract interpretation to the

interpretation of a plan of reorganization. See Official Creditors

Comm. v. Stratford of Tex., Inc. (In re Stratford of Tex., Inc.),

635 F.2d 365, 368 (5th Cir.1981). The determination of whether a

contract is clear or ambiguous is a question of law. Id. If we

determine the contract to be ambiguous, the determination of the

parties' intent from parol evidence is a question of fact.5 Id.

Provision 7.1 of the Plan states: "The reorganized debtor

shall retain that property described on Exhibit "F". Among the

property of the estate hereby distributed to the trust are those

claims and causes of action listed or described on Exhibit "B"

11 U.S.C. § 1141(b) (1988).
4
For a debtor to assert an avoidance action
postconfirmation, the plan must give the debtor standing to
assert the action and the debtor must assert it for the benefit
of the estate. Harstad v. First Am. Bank, 39 F.3d 898, 902-03
(8th Cir.1994). Thus, a debtor cannot assert an avoidance action
postconfirmation if the plan does not provide him with the
requisite authority to do so.
5
We require a clear appointment of a stranger to represent
the estate in order to protect the unsecured creditors. Mako,
985 F.2d at 1056. Unsecured creditors want to know whether
postconfirmation avoidance actions will be initiated and by whom.
The clear appointment requirement satisfies their concerns.
Neither Mako nor the cases it cites, however, require clear
evidence of the particular action sought to be enforced.
Stratford supplies the additional analysis when, as in this case,
the appointment is clear but the Plan is unclear with regard to
the particular action sought to be enforced.

6
(including causes of action created or sanctioned by §§ 542-553)."

The parenthetical portion of the provision could describe those

avoidance actions listed in Exhibit B. Alternatively, the

parenthetical could describe the phrase "[a]mong the property of

the estate hereby distributed to the trust." Provision 5.5.3

suggests that Exhibit B contains a complete list of the trust's

assets. On the other hand, the use of the word "among" in

Provision 7.1 suggests that Exhibit B is not exclusive. We agree

with the bankruptcy and district courts that the Plan is ambiguous.

To resolve the ambiguity, the bankruptcy court employed parol

evidence to determine the intent of the parties. The court found

that those avoidance actions not specifically addressed by the Plan

belong to the Liquidating Trust. We see no clear error.

Furthermore, the result reached by the court comports with the

general policy behind the assertion of avoidance actions. The

proceeds recovered in avoidance actions should not benefit the

reorganized debtor; rather, the proceeds should benefit the

unsecured creditors. 5 Collier on Bankruptcy ¶ 1123.02, at 1123-23

(Lawrence P. King ed., 15th ed. 1994). The Liquidating Trust acts

on behalf of the Class 5 unsecured creditors. The proceeds from

this fraudulent conveyance action will benefit the Class 5

unsecured creditors. We conclude that the Liquidating Trustee has

standing to assert a fraudulent conveyance action against

McFarland.

II. Jurisdiction

McFarland contends that the bankruptcy court lacked subject

7
matter jurisdiction under Article III of the Constitution to

adjudicate this dispute. The district court glossed over this

argument by asserting that the bankruptcy court had jurisdiction by

virtue of the Plan and 28 U.S.C. § 157(b)(1).6 McFarland's

argument, however, is a constitutional one based on Article III.

We must undertake the constitutional analysis.

"[B]ankruptcy judges may exercise full judicial power over

only those controversies that implicate the peculiar rights and

powers of bankruptcy or, in Justice Brennan's words, controversies

"at the core of the federal bankruptcy power.' " In re Wood, 825

F.2d 90, 96 (5th Cir.1987) (quoting Northern Pipeline Constr. Co.

v. Marathon Pipe Line Co., 458 U.S. 50, 71, 102 S.Ct. 2858, 2871,

73 L.Ed.2d 598 (1982) (plurality opinion)). Congress has

designated fraudulent conveyance actions as core proceedings.

Thus, because bankruptcy courts have the power to adjudicate core

proceedings and because fraudulent conveyance actions are labeled

as such, a bankruptcy court might assume that it has plenary

authority to decide fraudulent conveyance actions. As it turns

out, that court would be mistaken.

Whether an Article III court is necessary involves the same

inquiry as whether a litigant has a Seventh Amendment right to a

jury trial. In re Clay, 35 F.3d 190, 194 (5th Cir.1994) (citing

Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 53, 109 S.Ct. 2782,

2796, 106 L.Ed.2d 26 (1989)). In Granfinanceria, the Supreme Court

6
Section 157(b)(1) gives the bankruptcy courts jurisdiction
over core proceedings. A fraudulent conveyance action is an
example of a core proceeding. 28 U.S.C. § 157(b)(2)(H) (1988).

8
held that litigants in a fraudulent conveyance action have a

Seventh Amendment right to a jury trial. Id. at 64, 109 S.Ct. at

2802. Under Granfinanciera, therefore, McFarland has an Article

III right and a Seventh Amendment right to a trial by jury.7 The

existence of McFarland's Article III right, however, does not

require us to conclude that the bankruptcy court lacked

jurisdiction. Rather, the Article III right merely forecloses the

bankruptcy court's ability to exercise full judicial power.

A non-Article III court may act as a adjunct to an Article

III court. For example, a bankruptcy court acts as an adjunct to

the district court when the bankruptcy court exercises non-core

jurisdiction. See 28 U.S.C. § 157(c); cf. 28 U.S.C. § 636(b)

(1988) (giving magistrate judges authority to act as adjuncts of

the district court). The Article III court, however, must retain

the essential attributes of judicial power. Marathon, 458 U.S. at

77, 102 S.Ct. at 2874; Clay, 35 F.3d at 192. De novo review over

an adjunct's ruling is crucial to maintaining Article III control

over an adjunct. Clay, 35 F.3d at 193. In this case, the

bankruptcy court entered judgment in the fraudulent conveyance

action, and the district court affirmed utilizing clear error

review. Because the district court did not review the bankruptcy

court's judgment de novo, the Article III court did not retain the

essential attributes of judicial power.

Nevertheless, a party may waive its constitutional right to

7
For our discussion of McFarland's jury trial right, see
supra Part IV.

9
an Article III court. Commodity Futures Trading Commission v.

Schor, 478 U.S. 833, 848-50, 106 S.Ct. 3245, 3255-56, 92 L.Ed.2d

675 (1986); Pacemaker Diagnostic Clinic of Am. v. Instromedix,

Inc., 725 F.2d 537, 542-43 (9th Cir.) (en banc), cert. denied, 469

U.S. 824, 105 S.Ct. 100, 83 L.Ed.2d 45 (1984). We note that the

bankruptcy court has statutory authority to enter judgment in

non-core matters with the consent of the parties. 28 U.S.C. §

157(c)(2); cf. 28 U.S.C. § 636(c) (allowing magistrates to enter

judgment in bench or jury trials with the consent of the parties).

A party who fails to object to a bankruptcy court's

assumption of core jurisdiction consents to that court's entry of

final judgment. Abramowitz v. Palmer, 999 F.2d 1274, 1279-80 (8th

Cir.1993); In re G.S.F. Corp., 938 F.2d 1467, 1476-77 (1st

Cir.1991); In re Mann, 907 F.2d 923, 926 (9th Cir.1990); In re

Men's Sportswear, 834 F.2d 1134, 1137-38 (2d Cir.1987); DuVoisin

v. Foster (In re Southern Indus. Banking Corp.), 809 F.2d 329, 331

(6th Cir.1987). McFarland did not object to bankruptcy court

jurisdiction before or during the hearing on the standing issue.

By failing to object in the bankruptcy court, McFarland consented

impliedly to the court's assumption of core jurisdiction. His

objection to jurisdiction at this stage "more closely resembles an

afterthought than a bona fide objection." Men's Sportswear, 834

F.2d at 1138. We conclude that McFarland's failure to object to

bankruptcy court jurisdiction allowed the court to enter judgment

against him.

III. Statute of Limitations

10
McFarland contends that the Liquidating Trustee's fraudulent

conveyance action is barred by limitations. He points to § 546(a)

of the Code, which specifies the limitations period for avoidance

actions.8 McFarland did not raise this defense in either the

bankruptcy court or the district court. To circumvent the obstacle

of waiver,9 McFarland contends that § 546(a) is a non-waivable

jurisdictional provision. Because the issue of subject matter

jurisdiction may be raised at any time, we can reach the merits of

McFarland's limitations defense if we determine that § 546(a) is a

jurisdictional provision.

Martin v. First Nat'l Bank (In re Butcher), 829 F.2d 596, 600

(6th Cir.1987), cert. denied, 484 U.S. 1078, 108 S.Ct. 1058, 98

L.Ed.2d 1020 (1988), states that § 546(a) is a jurisdictional

provision. If an avoidance action is not brought in accordance

with § 546(a), the bankruptcy court has no jurisdiction to hear the

action. Id. A few other courts recognize this view. In re

Railway Reorganization Estate, Inc., 133 B.R. 578, 581

(Bankr.D.Del.1991); In re Frascatore, 98 B.R. 710, 719

(Bankr.E.D.Pa.1989) (dictum); In re Oro Import Co., 52 B.R. 357,

359 (Bankr.S.D.Fla.1985), rev'd on other grounds, 69 B.R. 6

(S.D.Fla.1986).

8
Section 546(a) reads: "An action ... may not be commenced
after the earlier of—(1) two years after the appointment of a
trustee ... or (2) the time the case is closed or dismissed." 11
U.S.C. § 546(a) (1988).
9
The parties stipulated before trial that standing was the
only issue before the bankruptcy court. A stipulation of issues
at trial binds the parties on appeal. Wilson v. Bailey, 934 F.2d
301, 305 (11th Cir.1991).

11
Several recent decisions disagree with Butcher and treat §

546(a) as a true statute of limitations. Amazing Enters. v. Jobin

(In re M & L Business Machs.), 153 B.R. 308, 311 (D.Colo.1993);

Brandt v. Gelardi (In re Shape, Inc.), 138 B.R. 334, 337

(Bankr.D.Me.1992); see also In re Day, 82 B.R. 365, 366

(Bankr.E.D.Pa.1988) (considering Butcher 's view of § 546(a) as a

jurisdictional provision to be gratuitous). These courts note that

the legislative history of § 546(a) refers to the statute as a

statute of limitations, but makes no reference to it as a

jurisdictional provision.

Other cases add support to this latter view. In Smith v. Mark

Twain Nat'l Bank, 805 F.2d 278 (8th Cir.1986), the Eighth Circuit

construed § 549(d) of the Code, which is almost identical to §

546(a).10 The Eighth Circuit determined that § 549(d) "has nothing

to do with the jurisdiction of the United States federal courts."

Id. at 294. Similarly, in Emmons v. Southern Pac. Transp. Co., 701

F.2d 1112 (5th Cir.1983), we construed 45 U.S.C. § 56, the

limitations provision of the Federal Employees Liability Act

(FELA). The wording of that statute closely resembles § 546(a).11

10
Section 549(d) applies to post-petition transactions. It
requires: "An action or proceeding under this section may not be
commenced after the earlier of—(1) two years after the date of
transfer sought to be avoided; or (2) the time the case is
closed or dismissed." 11 U.S.C. § 549(d) (1988). The only
difference between the two statutes is the point at which the two
years begins to run.
11
The first paragraph of the FELA provision states: "No
action shall be maintained under this chapter unless commenced
within three years from the day the cause of action accrued." 45
U.S.C. § 56 (1988).

12
We interpreted the FELA provision to be a substantive statute of

limitations. Id. at 1117-18.

We respectfully disagree with the Sixth Circuit and conclude

that McFarland waived his limitations defense by not raising it in

the trial court. As stated supra Part II, the jurisdictional

provision of the bankruptcy courts is found at 28 U.S.C. § 157.

Nothing in the Code or the legislative history suggests otherwise.

IV. Jury Trial

McFarland contends that the bankruptcy court improperly

denied him his Seventh Amendment right to a jury trial. As we have

already noted, Granfinanciera states that a litigant in a

fraudulent conveyance action asserted under § 548 has a Seventh

Amendment right to a jury trial. See supra text accompanying note

7. The bankruptcy court distinguished Granfinanciera on the basis

that the only issue before the court was standing and declined to

apply Granfinanciera because that decision was published after the

bankruptcy court had announced its findings of fact and conclusions

of law.

The district court affirmed but for different reasons. The

district court concluded that McFarland had waived his right to

jury trial. The court applied Bankruptcy Rule 9015, which deems a

party's right to jury trial waived if the party does not make a

demand within ten days after service of the last pleading directed

to such issue.12 Former Bankruptcy Rule 9015 was adapted from

12
Bankruptcy Rule 9015 was abrogated in 1987. Before 1987,
the Rule provided:

13
Federal Rule of Civil Procedure 38. The district court applied our

Rule 38 cases and determined that McFarland had waived his right to

jury trial.13

The district court applied our decision in Guajardo v.

Estelle, 580 F.2d 748, 753 (5th Cir.1978), to find waiver. In

(b)(1) Time; Form. Any party may demand a trial by
jury of any issue triable by a jury by serving on the
other parties a demand therefore in writing not later
than ten (10) days after service of the last pleading
directed to such issue. The demand may be endorsed on
a pleading of the party. When a jury trial is
demanded, it shall be designated by the Clerk in the
docket as a jury matter.

....

(c) Waiver. The failure of a party to serve a demand
as required by this rule and to file as required by
Rule 5005 constitutes a waiver of a trial by jury.

Bankr.R. 9015 (abrogated 1987).
13
A history of the pleadings and relevant motions is helpful
at this point:

—Oct. 15, 1985: Debtor files complaint against
McFarland

—Dec. 19, 1985: McFarland files Rule 12 motion to
dismiss

—Jan. 22, 1986: McFarland responds to Debtor's request
for production

—Apr. 25, 1986: McFarland files counterclaim and
third-party claim

—May 2, 1986: Debtor amends complaint

—May 8, 1986: McFarland answers and demands jury trial

As an aside, debtor brought the complaint and its first
amended complaint by and through the Liquidating Trustee.
The second amended complaint, filed on December 20, 1988,
substituted the Liquidating Trustee for the debtor as the
party asserting the action.

14
Guajardo, we held that amended pleadings that do not introduce new

issues of fact do not renew a right to jury trial that has been

waived. Id. In this case, however, McFarland never waived his

right to jury trial. The last pleading in Rule 38 usually means an

answer or a reply to a counterclaim. McCarthy v. Bronson, 906 F.2d

835, 840 (2d Cir.1990), aff'd, 500 U.S. 136, 111 S.Ct. 1737, 114

L.Ed.2d 194 (1991). McFarland did not file an answer to the

original complaint, but rather filed his answer after the Debtor

filed its first amended complaint. Because McFarland filed his

jury demand with his original answer, he did not waive his right to

jury trial, even though he filed his answer almost seven months

after being served with the original complaint.

Nevertheless, McFarland has no right to jury trial in this

case because Granfinanciera is inapplicable. The question before

the bankruptcy court was solely whether the Liquidating Trustee had

standing to assert the fraudulent conveyance action. No right to

a jury trial arises if no jury issue is presented to the court.

See Brook Mays Music Co. v. National Cash Register Co., 838 F.2d

1396, 1399 (5th Cir.1988); see also Pardini v. Southern Nev.

Culinary and Bartenders Pension Plan and Trust, 733 F.Supp. 1402,

1405 (D.Nev.1990) (noting that when a particular inquiry usually

does not require the resolution of factual issues, no right to a

jury trial arises). Whether a Plan clearly appoints a stranger as

a representative of the estate under § 1123(b)(3)(B) to enforce

avoidance actions is generally a question of law. See Mako, 985

F.2d at 1054 (listing two-part test); supra note 5. Furthermore,

15
both parties in their briefs contend that the Plan is unambiguous.

The existence of a factual issue is not readily apparent. We

conclude that McFarland had no right to a jury trial over the

standing issue presented to the bankruptcy court in the

stipulation.

V. Prejudgment Interest

McFarland next contends that the bankruptcy court's award of

prejudgment interest was error because it was not contemplated by

the stipulation. The district court disagreed with McFarland

because prejudgment interest is a question of law over which a

stipulation is not binding. The district court, however, applied

Texas law in its determination. Federal law governs the allowance

of prejudgment interest when a cause of action arises from a

federal statute. Carpenters Dist. Council v. Dillard Dep't Stores,

Inc., 15 F.3d 1275, 1288 (5th Cir.1994). The standard of review

for a trial court's award of prejudgment interest is abuse of

discretion. Id.

Federal courts apply a two-step analysis to determine whether

an award of prejudgment interest is within a court's discretion:

(1) whether the federal act that creates the cause of action

precludes such an award; and (2) whether such an award furthers

the congressional policies of the federal act. Id. The Bankruptcy

Code and particularly § 548 are silent with regard to prejudgment

interest. The stipulation also is silent with regard to interest.

Furthermore, an award of prejudgment interest furthers the

congressional policies of the Bankruptcy Code. Section 548 allows

16
the estate to recover fraudulent transfers made within a year

before the filing of the bankruptcy petition. The purpose of the

Section is to make the estate whole. Prejudgment interest

compensates the estate for the time it was without use of the

transferred funds. We determine that the bankruptcy court did not

abuse its discretion by awarding prejudgment interest.

VI. Credit for Settling Co-defendant

Lastly, McFarland contends that the settlement of

co-defendant Tondre with the Liquidating Trustee for $10,000 should

have been applied against the outstanding judgment under principles

of joint and several liability. The district court credited only

$500 to the judgment because the Liquidating Trustee offered a copy

of the release he executed in support of his response to

McFarland's motion. The release states that $500 would be applied

to the outstanding judgment and that $9500 serves as a release for

possible sanctions from this court for an unauthorized appeal.

The burden of proof is on the party claiming the credit "to

show that the damages assessed against it have "in fact and in

actuality' been previously covered." Wood v. Diamond M Drilling

Co., 691 F.2d 1165, 1171 (5th Cir.1982), cert. denied, 460 U.S.

1069, 103 S.Ct. 1523, 75 L.Ed.2d 947 (1983); see also Cates v.

United States, 451 F.2d 411, 417-18 n. 20 (5th Cir.1971). If the

nonsettling defendant is not a party to the settlement

negotiations, however, he need only show that the plaintiff settled

with another party the claim on which the nonsettling defendant is

liable. U.S. Indus. v. Touche Ross & Co., 854 F.2d 1223, 1262

17
(10th Cir.1988). The burden then shifts to the plaintiff to offer

proof that the settlement does not provide him with a double

recovery. McDermott, Inc. v. Clyde Iron, 979 F.2d 1068, 1080 (5th

Cir.1992), rev'd in part on other grounds sub nom. McDermott, Inc.

v. AmClyde, --- U.S. ----, 114 S.Ct. 1461, 128 L.Ed.2d 148 (1994);

U.S. Indus., 854 F.2d at 1262-63. The best way for a plaintiff to

satisfy his burden is to offer as proof the written settlement,

which should specifically stipulate the allocation of damages to

each cause of action. Hess Oil V.I. Corp. v. UOP, Inc., 861 F.2d

1197, 1209 (10th Cir.1988). Should the plaintiff satisfy his

burden, the ultimate burden of proof belongs to the nonsettling

defendant. See Wood, 691 F.2d at 1171; Cates, 451 F.2d at 417-18

n. 20.

In this case, McFarland was not a party to the settlement

negotiations that resulted in a settlement between the Liquidating

Trustee and Tondre. The Liquidating Trustee then offered as proof

the settlement, which stipulated the allocation of damages. The

burden returns to McFarland. He responds by noting that the Fifth

Circuit denied the Liquidating Trustee's June 4, 1992 Motion for

Sanctions on June 26, 1992. Furthermore, the Liquidating Trustee

executed the release on November 16, 1992, almost five months after

we denied the motion for sanctions. What McFarland suggests is

that the release's consideration of the motion for sanctions

amounts to fraud. We refuse to reach such a conclusion absent

additional evidence.

CONCLUSION

18
For the foregoing reasons, the district court's judgment is

AFFIRMED.

19

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/7165. Public record. Not legal advice.