IN RE: Hendrikus Edward Ton
Filing
12
ORDER AND REASONS re 5 Appellant's Brief: For the reasons stated herein, the bankruptcy court's judgment is AFFIRMED. Signed by Judge Jane Triche Milazzo on 05/23/2022.(am)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
CIVIL ACTION
IN RE: HENDRIKUS EDWARD TON
NO: 21-1029
SECTION: “H”(1)
ORDER AND REASONS
Before the Court is Appellant Lynda Ton’s Appeal from the bankruptcy
court’s final judgment partitioning community property (Doc. 5). For the
following reasons, the bankruptcy court’s judgment is AFFIRMED.
BACKGROUND
This matter comes before this Court as an appeal of the May 12, 2021
final judgment of the bankruptcy court partitioning the community property of
Hank and Lynda Ton. This is the third appeal arising out of this litigation
heard by this Court.1
Hank Ton and Appellant Lynda Ton were married in 1987, and Lynda
Ton filed for divorce on November 14, 2012 in Louisiana’s 25th Judicial District
Court. A judgment of divorce was later issued, terminating the community
See Case No. 21-514 (appealing the plan of reorganization); Case No. 19-13889
(appealing August 14, 2019 judgment of the bankruptcy court partitioning the former
community property of the parties).
1
1
property regime retroactive to the date of filing. During the marriage, the Tons
owned and operated several businesses, including Abe’s Boat Rentals Inc.
(“Abe’s”).
On October 5, 2012, Hank Ton pleaded guilty to conspiracy to defraud
the United States by failing to collect, account for, and pay over employment
taxes in violation of 18 U.S.C. § 371 and willful failure to collect, account for,
and pay over employment taxes in violation of 25 U.S.C. § 7202. In pleading
guilty, Hank Ton admitted that he had underreported withheld taxes for Abe’s
employees between the years 2006 and 2009 and agreed to repay the amount
of $3,582,451.00 in restitution to the IRS (the “Tax Liability”).
On May 29, 2013, Hank Ton refinanced an existing line of credit to
satisfy the Tax Liability. He personally guaranteed the $3,222,451.00 loan and
used the proceeds to pay the restitution owed to the IRS. Hank Ton also
liquidated a community life insurance policy and invested the proceeds into
Abe’s to cover its operating costs.
On April 27, 2018, Hank Ton filed a voluntary petition under Chapter 11
bankruptcy in the Eastern District of Louisiana. On October 8, 2018, Lynda
Ton removed the community property partition petition to this Court, and it
was referred to the bankruptcy court.
On August 14, 2019, the bankruptcy court entered an order partitioning
the Tons’ former community property (“the Original Partition Judgment”).2
The Tons each appealed that ruling, and on June 29, 2020, this Court vacated
and remanded the ruling, holding that the bankruptcy court had erred in
2
Adversary Proceeding No. 18-1129, Doc. 50.
2
several respects in its partition.3 Specifically, this Court vacated the
bankruptcy court’s decision that the Tax Liability was Hank Ton’s separate
obligation and held that the debt remained a community obligation even where
Hank Ton took out a loan after the termination of the community to satisfy the
debt.4 In addition, this Court vacated the bankruptcy court’s imposition of
damages because of the Tax Liability.5 Finally, the Court remanded for the
bankruptcy court to consider whether Hank Ton’s liquidation of the life
insurance policy and use of its proceeds for Abe’s operations were in keeping
with his duty under Louisiana Civil Code article 2369.3.6 On remand, the
bankruptcy court held that it was and that Lynda Ton therefore had no claim
to his use of those proceeds.7
On February 9, 2021, a confirmation hearing was held during which the
Debtor Hank Ton put on evidence that the proposed plan of reorganization
(“the Plan”) satisfied the requirements for a nonconsensual Chapter 11
“cramdown” under 11 U.S.C. § 1129. On February 25, 2021, the bankruptcy
court entered an order confirming the Plan (“the Confirmation Order”). 8
Appellant Lynda Ton appealed the Confirmation Order to this Court on March
12, 2021. Finding that her arguments lacked merit, this Court affirmed the
Confirmation Order.9
Thereafter, on May 12, 2021, the bankruptcy court entered a final
judgment
partitioning
the
Tons’
community
Case No. 19-13889, Doc. 20.
Id.
5 Id.
6 Id.
7 Adversary Proceeding No. 18-1129, Doc. 93.
8 Bankruptcy No. 18-11101, Docs. 483, 484.
9 Case No. 21-514, Doc. 19.
3
3
4
property,
taking
into
consideration the bankruptcy court’s Original Partition Judgment, this Court’s
holdings on appeal, and the bankruptcy court’s holding on remand (“the
Partition Judgment”).10 Now before the Court is Lynda Ton’s appeal from the
Partition Judgment. Lynda Ton presents four issues on appeal: (1) the
bankruptcy court’s calculation of the former community assets and obligations;
(2) the bankruptcy court’s adoption of the Plan into the Partition Judgment;
(3) the bankruptcy court’s treatment of life insurance proceeds; and (4) the
bankruptcy court’s authorization of payment of Hank Ton’s professional fees
from community property.11 This Court will consider each argument in turn.
LEGAL STANDARD
Where a district court sits as an appellate court in a bankruptcy case,
“[t]he bankruptcy court’s findings of fact are reviewed under a clear error
standard, while conclusions of law are reviewed de novo.”12 “The burden of
establishing a clearly erroneous determination is a stringent one; to be
convinced, the court must be left with a definite and firm conviction that a
mistake has been committed.”13
LAW AND ANALYSIS
A. Community Assets and Obligations
Id. at Doc. 97.
Lynda Ton also adopts by reference the arguments made in her cross-appeal of the
August 14, 2019 Original Partition Judgment, which have already been addressed and
decided by this Court. See Case No. 19-13889, Doc. 20.
12 In re Amco Ins., 444 F.3d 690, 694 (5th Cir. 2006).
13
Prudential Credit Servs. v. Hill, 14 B.R. 249, 250 (S.D. Miss. 1981).
4
10
11
First, Appellant Lynda Ton argues that the bankruptcy court erred in
finding that the former community assets totaled $4,827,092.00 and the
obligations totaled $5,592,534.09. She contends that in reaching these
amounts the bankruptcy court erroneously omitted as an asset the property
located at 1079 Bullock Road, Parcel 900648-C, as well as other income and
assets not disclosed by Hank Ton. She also argues that the bankruptcy court
erroneously treated two promissory notes incurred by Hank Ton after
termination of the community regime as community obligations.
1. Parcel 900648-C
Curiously, the Original Partition Judgment clearly takes into
consideration the value of Parcel 900648-C when calculating community
assets.14 The parcel is valued at $320,000 pursuant to a stipulation between
the parties.15 Further, Appellant did not raise any arguments regarding this
parcel in her appeal of the Original Partition Judgment.
2. Other Assets
Next, Appellant complains that the Partition Judgment does not take
into consideration assets not disclosed by Hank Ton, such as two pickup trucks
and equity in other property and entities. Just as with Parcel 900648-C, many
of the assets that Lynda Ton alleges were not included are specifically listed in
the Original Partition Judgment at amounts stipulated to by the parties.16
Only a few assets—a 2009 Silverado pick-up truck, a 2014 Silverado pick-up
truck, equity in Magnolia Outdoors (MS), LLC, and equity in 33411 Hwy. 23,
Empire, Louisiana—are not listed in the Original Partition Judgment. In her
Adversary Proceeding No. 18-1129, Doc. 50 at 7.
Id.
16 Id.
5
14
15
briefing, however, she admits that Hank Ton acquired equity in Magnolia
Outdoors (MS), LLC in 2018—well after termination of the community
regime—and that the trucks were originally owned by Abe’s before being
transferred to Hank Ton after termination of the community. Accordingly,
these items are not community property. Appellant offers no argument as to
why equity in 33411 Hwy. 23, Empire, Louisiana, should have been included
as a community asset. Accordingly, she has not shown any error in the
bankruptcy court’s calculation of the community assets.
3. Obligations
Lynda Ton next argues that the court erred in treating as a community
obligation the claim of OCM ENGY Holdings, LLC, which encompasses two
promissory notes that were executed after the community property regime
terminated. The record makes clear, however, that those notes merely
refinanced community obligations, such as the Tax Liability discussed on
appeal of the Original Partition Judgment. As this Court has previously held,
Louisiana law is clear that obligations are classified at the time that they are
incurred.17 The fact that a loan was later secured to satisfy the obligation is of
no consequence.18 Accordingly, Lynda Ton has not shown that the bankruptcy
court erred in calculating the community obligations.
B. The Reorganization Plan
Next, Appellant alleges that the bankruptcy court failed to actually
partition the former community property in the Partition Judgment, instead
adopting by reference the Plan approved in the Confirmation Order. Aside from
17
18
LA. CIV. CODE art. 2361.
See Case No. 19-13889, Doc. 20.
6
this conclusory statement, Lynda Ton fails to provide any argument on this
point. Accordingly, she has not shown how the bankruptcy court erred by
incorporating the Plan into the Partition Judgment.
C. Life Insurance Proceeds
Here, Lynda Ton seeks to rehash arguments regarding Hank Ton’s
liquidation of a community life insurance policy to fund Abe’s operations. This
Court addressed these arguments in Lynda Ton’s prior appeal of the Original
Partition Judgment, and those holdings remain unchanged. Further, Lynda
Ton has not presented any evidence that the bankruptcy court erred in holding
that Hank Ton’s liquidation of the life insurance policy and use of those
proceeds to fund Abe’s was consistent with his statutory duty to preserve
former community property under his control pursuant to Louisiana Civil Code
article 2369.3. Accordingly, this argument too fails.
D. Professional Fees
Finally, Appellant complains that the bankruptcy court erred in
authorizing the payment of Hank Ton’s professional fees of the bankruptcy
estate from the funds and property comprising her undivided interest in the
former community property. She contends that under Louisiana law, former
spouses become co-owners of community property after termination of the
community property regime and that the co-owned former community property
can only be assessed for expenses or claims that arose prior to that termination.
She argues that the administrative expense at issue here arose during Hank
Ton’s bankruptcy filed after termination of the community and therefore
should not have been assessed against her portion of the former community
property.
7
Even assuming her argument is correct, the bankruptcy code preempts
state law where the two conflict.19 “Through the operation of [11 U.S.C. §]
541(a), a bankruptcy estate acquires both spouses’ interests in the community
property and is therefore the sole owner (even where one spouse does not file
bankruptcy).”20 Pursuant to 11 U.S.C. § 726(c)(1), administrative expenses are
paid first from community property “or from other property of the estate, as
the interest of justice requires.” Accordingly, the Bankruptcy Code
contemplates the payment of administrative expenses from former community
property that has become part of the bankruptcy estate. Lynda Ton has not
shown how the interest of justice requires a different result here. Her
arguments that the assessment of administrative fees against her portion of
community property amounts to a “gratuitous confiscation” are not compelling
where the cases to which she cites address the non-debtor’s entitlement to
payment from the sale of property, not the payment of administrative fees from
the former community property.21 Accordingly, Appellant has not shown that
the bankruptcy court erred in assessing administrative expenses against her
portion of the former community property.
CONCLUSION
For the foregoing reasons, the bankruptcy court’s decision is
AFFIRMED.
In re Perry, 425 B.R. 323, 397 (Bankr. S.D. Tex. 2010) (citing Fla. Lime & Avocado
Growers, Inc. v. Paul, 373 U.S. 132, 142–43 (1963)).
20 In re Wiggains, 535 B.R. 700, 719–20 (Bankr. N.D. Tex. 2015), aff’d sub nom. Matter
of Wiggains, 848 F.3d 655 (5th Cir. 2017).
21 See, e.g., id.
8
19
New Orleans, Louisiana this 23rd day of May, 2022.
____________________________________
JANE TRICHE MILAZZO
UNITED STATES DISTRICT JUDGE
9
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?